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 SEPTEMBER 30, 1996.
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
November 13, 1996.
Transitional Small Business Disclosure Format (check one) :
Yes ___ No __X__
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<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Statement of Operations
(Thousands, except per share data)
<CAPTION>
<S> <C> <C>
For the Three Months
Ended September 30,
1996 1995
(Unaudited) (Unaudited)
NET SALES $3,925 $3,476
COST OF GOODS SOLD 2,766 2,470
______ ______
GROSS PROFIT 1,159 1,006
OPERATING EXPENSES
Administrative 409 351
Selling 370 407
Research and Development 98 89
______ ______
Total Operating Expenses 877 847
______ ______
OPERATING INCOME 282 159
OTHER INCOME (EXPENSE)
Net Interest Income (Expense) 19 11
Net Other Income (Expense) (3) (3)
______ ______
INCOME BEFORE INCOME TAX 298 167
INCOME TAX PROVISION 120 63
______ _______
NET INCOME 178 104
EARNINGS PER
COMMON SHARE $0.12 $0.07
Weighted Average Number of 1,462,271 1,462,271
Shares Outstanding
<FN>
<F1>
See Note to Financial Statements
</FN>
</TABLE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Balance Sheet
(Thousands)
<CAPTION>
<S> <C> <C>
For the Three Months
September 30, 1996 June 30, 1996
(Unaudited) (Unaudited)
Current Assets
Cash & Cash Equivalents $1,695 $964
Net Trade Receivables 1,672 2,153
Note Receivable 188 188
Inventories 1,749 2,033
Prepaid Expenses 88 33
Deferred Income Taxes 280 280
______ ______
Total Current Assets 5,672 5,651
________ ______
Fixed Assets
Property, Plant & Equipment 4,329 4,218
Less Accumulated Depreciation (2,957) (2,876)
Net Fixed Assets 1,372 1,342
Other Assets 3 3
Goodwill 93 98
______ ______
TOTAL ASSETS $7,140 $7,094
Current Liabilities
Current Maturities of
Long-term Debt $ 9 $ 11
Accounts Payable 673 903
Accrued Salaries,
Wages and Other
Compensation 515 505
Product Warranties 305 305
Accrued Other Expenses 295 204
Total Current Liabilities 1,797 1,928
Long-term Debt,
Less Current Maturities 5 5
Deferred Income Taxes 5 5
_______ ________
TOTAL LIABILITIES 1,807 1,938
Stockholders' Equity
Common Stock 146 146
Additional Paid-in Capital 1,246 1,246
Retained Earnings 3,941 3,764
_______ ______
TOTAL STOCKHOLDERS' EQUITY 5,333 5,156
_______ ______
TOTAL LIABILITIES & EQUITY $7,140 $7,094
<FN>
<F2>
See Note to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Statement of Cash Flows (Thousands)
<CAPTION>
For the Three Months
Ended September 30,
<S> <C> <C>
1996 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATIONS
Cash received from customers $4,101 $3,996
Interest received 16 14
______ ______
Cash provided from operations 4,117 4,010
Cash paid to suppliers and employees 3,242 4,009
Taxes paid 30 69
Interest paid 1 3
______ _______
Cash disbursed from operations 3,273 4,081
______ ______
Net cash provided (used) for
operations 844 (71)
CASH FLOWS FROM INVESTING
Net acquisition of fixed assets (111) (111)
______ ______
Net cash used for investing (111) (111)
CASH FLOWS FROM FINANCING
Reduction of Long-Term Debt (2) (22)
______ ______
Net cash used for financing (2) (22)
______ ______
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS 731 (204)
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 964 1,241
______ ______
CASH AND CASH EQUIVALENTS
- END OF PERIOD $1,695 $1,037
RECONCILIATION OF NET INCOME
TO NET CASH FROM (USED FOR)
OPERATIONS:
Net Income $178 $104
Depreciation and Amortization 86 75
Provisions For Losses On Accounts
Receivable 3 3
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable 478 520
Inventories 284 (438)
Prepaid Expenses (55) (10)
Accounts Payable and Accrued Expenses (130) (325)
________ ______
NET CASH FROM (USED FOR) OPERATIONS $844 (71)
<FN>
<F1>
See Note to Financial Statements
</FN>
</TABLE>
<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
Note to Financial Statements
September 30, 1996
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.
<TABLE>
<CAPTION>
Inventories consisted of the following:
<S> <C> <C>
September 30, 1996 June 30, 1996
Raw Materials $1,237,000 $1,518,000
Work-In-Process 270,000 253,000
Finished Goods 242,000 262,000
__________ __________
Total Inventories $1,749,000 $2,033,000
</TABLE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Requirements
The Company's working capital position at September 30, 1996 was $3,875,000, a
4% increase from the $3,723,000 amount at June 30, 1996. The cash balance
for the Company was $1,695,000 at September 30, 1996 compared to the cash
balance of $964,000 at June 30, 1996.
PART I
FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
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. The prime rate was 8.25%
at September 30, 1996. The Company had not borrowed against the line of
credit during Fiscal Year 1997 and 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 the Company's foreseeable operating
activities and outlays for capital expenditures.
Capital expenditures were $111,000 for the quarter ended September 30, 1996.
The Company estimates that capital expenditures for the remaining three
quarters of the current Fiscal Year will approach $400,000 in total. The
Company anticipates continued improvements in its manufacturing processes
as result of these capital expenditures.
On October 17, 1996, 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 will be paid
on or about December 13, 1996 to shareholders of record on November 29,
1996, which will result in an aggregate cash payment of approximately
$58,490.84.
Results of Operations
Net sales for the quarter ended September 30, 1996 were $3,925,000.
This represents an increase of 13% when comparing to the comparable
quarter of the prior year.
Waters Medical Systems had net sales of $414,000 for the quarter ended
September 30, 1996, a decrease of 28% when comparing to the comparable
quarter of the prior year.
Net sales for American FarmWorks for the quarter ended September 30, 1996
were $2,611,000. This represents a 7% increase when comparing to the
comparable quarter of the prior year.
Waters Technical Systems/Waters Network Systems (WTS/WNS) had net sales of
$900,000 for the quarter ended September 30, 1996, an increase of 95%
when comparing to the comparable quarter of the prior year. This is a
result of the Company continuing to invest in sales and marketing to
provide long-term sales growth in this business unit. Increases in
administrative expense are due primarily to the Company's long-term
marketing commitment to position the WTS/WNS business units.
Net income for the quarter ended September 30, 1996 was a profit of $178,000.
This represents an increase of 71% for the quarter ended September 30, 1996
when comparing to the comparable period of the prior year.
PART-II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule (submitted only in electronic format).
(B) No report on Form 8-K has been filed during 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.
By: /S/ Jerry W. Grabowski
Jerry W. Grabowski
President, CEO
November 13, 1996
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Sep-30-1996
<CASH> 1695
<SECURITIES> 0
<RECEIVABLES> 1903
<ALLOWANCES> 43
<INVENTORY> 1749
<CURRENT-ASSETS> 5672
<PP&E> 4329
<DEPRECIATION> 2957
<TOTAL-ASSETS> 7140
<CURRENT-LIABILITIES> 1797
<BONDS> 5
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0
0
<OTHER-SE> 5187
<TOTAL-LIABILITY-AND-EQUITY> 7140
<SALES> 3925
<TOTAL-REVENUES> 3925
<CGS> 2766
<TOTAL-COSTS> 2766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
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<INCOME-PRETAX> 298
<INCOME-TAX> 120
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<CHANGES> 0
<NET-INCOME> 178
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
