UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTER ENDED
DECEMBER 31, 1995. Commission file number 0-1388:
WATERS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter.)
Minnesota 41-0832194
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2411 Seventh Street NW
Rochester, Minnesota 55901
(Address of principal executive offices)
(507) 288-7777
(Registrant's telephone number, including area code)
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practical date:
Common Stock, $.10 Par Value - 1,462,271 shares
outstanding as of February 14, 1996.
Transitional Small Business Disclosure Format (check
one) :
Yes [ ]No [X]
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Balance Sheet
(Thousands)
December 31, June 30,
1995 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 911 $1,241
Net Trade Receivables 1,175 2,150
Inventories 2,146 1,741
Prepaid Exp. & Deferred Items 331 317
Total Current Assets 4,563 5,449
Fixed Assets
Property, Plant & Equipment 4,217 4,065
Less Accumulated Depreciation (2,746) (2,605)
Net Fixed Assets 1,471 1,460
Other Assets 3 4
Goodwill 106 115
TOTAL ASSETS $ 6,143 $7,028
Current Liabilities
Current Maturities of Long-term
Debt $ 61 $ 101
Accounts Payable 440 1,166
Accrued Salaries, Wages and
Other Compensation 421 464
Product Warranties 305 305
Accrued Other Expenses 163 279
Total Current Liabilities 1,390 2,315
Long-term Debt, Less Current
Maturities 11 17
Deferred Income Taxes 30 30
TOTAL LIABILITIES 1,431 2,362
Stockholders' Equity
Common Stock 146 146
Additional Paid-in Capital 1,246 1,246
Retained Earnings 3,320 3,274
TOTAL STOCKHOLDERS' EQUITY 4,712 4,666
TOTAL LIABILITIES & EQUITY $ 6,143 $ 7,028
<FN>
Notes to Financial Statements Are An Integral Part Of This
Statement
</FN>
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Statement of Operations
(Thousands, except per share data)
<CAPTION>
For The Three Months For The Six Months
Ended December 31, Ended December 31,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
NET SALES 2,693 $2,520 $6,169 $5,874
COST OF GOODS SOLD 1,888 1,788 4,358 4,196
GROSS PROFIT 805 732 1,811 1,678
OPERATING EXPENSES
Administrative 385 341 735 694
Selling 380 365 787 765
Research and Development 92 82 182 158
Total Operating Expenses 857 788 1,704 1,617
OPERATING INCOME (52) (56) 107 61
OTHER INCOME (EXPENSE)
Net Interest Income
(Expense) 12 7 22 11
Net Other Income (Expense) (3) 39 (6) 39
INCOME BEFORE INCOME TAX (43) (10) 123 111
INCOME TAX PROVISION (44) (4) 18 41
NET INCOME 1 (6) 105 70
EARNINGS PER
COMMON SHARE $ 0.00 $ 0.00 $ 0.07 $ 0.05
Weighted Average
Number of Shares
Outstanding 1,462,271 1,462,271 1,462,271 1,462,271
<FN>
See Note to Financial Statements
</FN>
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Statement of Cash Flows
(Thousands)
For the Six Months Ended
December 31,
1995 1994
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATIONS
Cash received from customers $7,138 $6,442
Interest received 29 21
Cash provided from operations 7,167 6,463
Cash paid to suppliers and employees 7,072 5,885
Taxes paid 163 176
Interest paid 6 10
Cash disbursed from operations 7,241 6,071
Net cash provided (used) for
operations (74) 392
CASH FLOWS FROM INVESTING
Net acquisition of fixed assets (152) (96)
Net cash used for investing (152) (96)
CASH FLOWS FROM FINANCING
Reduction of Long-Term Debt (46) (45)
Cash Dividend Payment (58) (58)
Net cash used for financing (104) (103)
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (330) 193
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 1,241 965
CASH AND CASH EQUIVALENTS - END OF
PERIOD $ 911 $ 1,158
RECONCILIATION OF NET INCOME TO
NET CASH FROM (USED FOR) OPERATIONS:
Net Income $ 105 70
Depreciation and Amortization 151 135
Provisions For Losses On Accounts
Receivable 6 6
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable 968 565
Inventories (405) 223
Prepaid Expenses and Deferred
Income Taxes (14) (11)
Accounts Payable and Accrued
Expenses (885) (596)
NET CASH FROM (USED FOR) OPERATIONS $ (74) 392
<FN>
See Note to Financial Statements
</FN>
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
Notes to Financial Statements
December 31, 1995
The financial statements have been prepared by Waters Instruments, Inc.,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in the financial
statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. 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 rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the accompanying notes included in the Company's
latest Annual Report. The marketable securities included as cash equivalents
on the balance sheet and cash flow statements meet the definition of cash
equivalents set forth in paragraph 8 and 9 of SFAS95.
Inventories consisted of the following:
December 31, 1995 June 30, 1995
Raw Materials $1,635,000 $1,261,000
Work-In-Process 254,000 267,000
Finished Goods 257,000 213,000
Total Inventories $2,146,000 $1,741,000
Item 2. Management's Discussion and Analysis or Plan
of Operation Liquidity and Capital Requirements
The Company's working capital position at December 31,
1995 was $3,173,000, a 1% increase from the $3,134,000
amount at June 30, 1995. The cash balance for the
Company was $911,000 at December 31, 1995 compared to
the cash balance of $1,241,000 at June 30, 1995.
In January 1996, the Company accepted the bank's
$1,000,000 line of credit commitment and extended it to
November 30, 1996. The bank's line of credit charges
interest at the bank's base (prime) rate. There has
been no borrowing against the line of credit. The prime
rate was 8.50% at December 31, 1995.
The Company believes that its existing funds, cash
generated from operations and short-term borrowing
under the Company's line of credit will be adequate to
meet Fiscal Year 1996 operating activities and outlays
for capital expenditures.
Capital expenditures of $41,000 and $152,000 for the quarter
and six-month period ended December 31, 1995, respectively,
were used to purchase manufacturing equipment. The Company
anticipates continued improvements in its manufacturing
processes, lower unit costs, and improved gross margins as a
result of these capital expenditures.
On October 19, 1995, at a regularly scheduled meeting
of the Company's Board of Directors, the Board voted to
make a cash dividend payment. A dividend of $.04 per
share of the Company's common stock was paid December
12, 1995 to shareholders of record on November 15,
1995.
Results of Operations
Net sales for the quarter and six-month period ended
December 31, 1995 were $2,693,000 and $6,169,000
respectively. This represents an increase of 6.9% for
the quarter and 5.0% for the six months ended December
31, 1995 when comparing to the comparable periods of
the prior year.
Waters Medical Systems net sales for the quarter and six-month period
ended December 31, 1995 were $513,000 and $1,087,000 respectively. This
represents a decrease of 16.6% for the quarter and 16.8% for the six
months ended December 31, 1995 when comparing to the comparable period of the
prior year. The decrease in net sales is principally
due to the one time sale of Thermal Dilution
Cardiac Output Computers to Argon Medical which
represented $127,000 for the quarter ended December 31,
1994 and $254,000 for the six months ending December
31, 1994. The subject of a news release made by the
Company on August 1, 1994.
Net sales for American FarmWorks for the quarter and six-month period
ended December 31, 1995 were $1,474,000 and $3,916,000 respectively. This
represents a 10.3% decrease for the quarter and 2.1% decrease for the six
months ended December 31, 1995 when comparing to the comparable periods of
the prior year. Historically, American FarmWorks has announced
price increases during the second quarter of
its fiscal year motivating customers to book and take
delivery of orders in advance. The Company did not raise prices
during the end of the second quarter, thus reducing the incentive
for early customer orders when compared to the second quarter
of the prior year.
Waters Technical Systems had net sales of $682,000 for
the quarter and $1,100,000 for the six months ended
December 31, 1995. This represents an increase of
161.3% for the quarter and 94.7% for the six months
ended December 31, 1995. The Company continues to
invest to provide long-term sales growth in this
business unit.
During Fiscal Year 1995, Waters Network Systems began
manufacturing and marketing a wide range of
connectivity products for Token-Ring and Ethernet LANs,
designed specifically for school systems. The products
offer the ability to network computers throughout
school systems.
Net income for the Company for the quarter ended
December 31, 1995 was a profit of $1,000 or $.00 per
share on revenues of $2,693,000. For the comparable
quarter of the prior year, the Company had a loss of
($6,000) or $.00 per share on revenues of $2,520,000.
Net income for the six-month period ended December 31, 1995 was a profit
of $105,000 or $.07 per share on revenues of $6,169,000. For the
comparable six-month period of the prior year, the Company had a net
income of $70,000 or $.05 per share on revenues of $5,874,000. The six-
month net income results represent an increase of 50% from the comparable
period of the prior year.
The income tax provision for the quarter ended December 31, 1995 is lower
than expected as a result of recognition of deferred tax assets.
<PAGE>
PART-II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On October 19, 1995 the Company held its Annual Meeting of
Shareholders. Proxies received and counted before the meeting for
representation at the meeting were 1,267,039 or 86.6% of the
issued and outstanding shares (1,462,271). For matters brought
to vote before the Shareholders, our bylaws require the
affirmative vote of the greater of (1) a majority of the voting
power of the shares represented in person or by proxy at the
Annual Meeting with authority to vote on such matter
(50.01%); or (2) a majority of the voting power of the
minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting
(33-1/3/%).
The following people were elected to serve as directors
of the Company for the ensuing
year:
Year in Which
Position with the Company First Became
Name and Principal Occupation a Director
Jerry W. Grabowski President, Chief Executive Officer, 1993
Chief Financial Officer and Director
of the Company
Charles G.
Schiefelbein Director: Chairman of the Board of 1986
Computer Petroleum Corporation,
St. Paul, Minnesota
Stewart D. Siebens Chairman of the Board of the 1986
Company, Private Investor,
Irving, Texas
PART-II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders (continued)
Submitted for vote at the meeting were the following three
proposals:
1) To establish the number of Directors at three.
Proxies voted for the resolution totaled 1,260,147 shares or
99.46% of the 1,267,039 shares represented in person or by proxy
at the Annual Meeting. Proxies voting against proposal
No. 1. were 3,122 shares or .25%; and shares abstaining were
3,770 or .30% of the 1,267,039 shares represented in person or by proxy
at the Annual Meeting.
2) Slate of Directors
Proxies voted for the slate of Directors were 1,267,039
shares or 99.74% of the 1,267,039 shares represented in
person or by proxy at the Annual Meeting. Proxies
withholding authority were 3,275 shares or .26%
of the 1,267,039 shares represented in person or by proxy at the
Annual Meeting.
Proxies withholding authority for individual Directors
were:
Jerry W. Grabowski 235 Shares
Charles G. Schiefelbein 0 Shares
Stewart D. Siebens 85 Shares
3) Approval of the Company's 1995 Stock Option Plan.
Proxies voting for this proposal totaled
644,715 shares or 50.88% of the 1,267,039 shares represented in
person or by proxy at the Annual Meeting.
Shares voting against proposal No. 3 were 28,468
or 2.17%; and shares abstaining were 11,789 or .93% of the
1,267,039 shares represented in person or by proxy at the Annual
Meeting.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Financial Data Schedule (submitted only in electronic
format).
(B) No report on Form 8-K has been filed during the
last quarter of the period covered by this report.
In accordance with the requirements of the Exchange
Act, the Company caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WATERS INSTRUMENTS, INC. Company
Jerry W. Grabowski
Jerry W. Grabowski
President, Chief Executive Officer,
Chief Financial Officer
Date
February 14, 1996
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