<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/ X / Quarterly Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarterly period ended April 30, 1996.
or
/ / Transition Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number: 0-6132
CANTEL INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-1760285
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 BROAD STREET, CLIFTON, NEW JERSEY 07013
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
(201) 470-8700
---------------
Indicate by check mark whether 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 the filing
requirements for the past 90 days. Yes X No _____
-----
Number of shares of Common Stock outstanding as of June 6, 1996: 3,822,062
<PAGE>
PART I - FINANCIAL INFORMATION
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (NOTE 1)
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
April 30, July 31,
1996 1995
----------- ----------
ASSETS
Current assets:
Cash $ 573 $ 799
Accounts receivable, net 4,886 8,371
Inventories 7,935 8,506
Prepaid expenses and other current assets 343 365
------- -------
Total current assets 13,737 18,041
Property and equipment, at cost:
Furniture and equipment 1,817 2,091
Leasehold improvements 702 839
------- -------
2,519 2,930
Less accumulated depreciation and amortization 1,827 2,052
------- -------
692 878
Other assets 1,002 951
------- -------
$15,431 $19,870
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,307 $ 3,426
Compensation payable 759 941
Other accrued expenses 633 540
Income taxes payable - 364
------- -------
Total current liabilities 2,699 5,271
Long-term debt 4,025 6,087
Deferred income taxes 104 91
Stockholders' equity:
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 shares; none issued - -
Common Stock, $.10 par value; authorized 7,500,000
shares; issued and outstanding April 30 -
3,819,352 shares; July 31 - 3,765,352 shares 382 377
Additional capital 16,588 16,435
Accumulated deficit (7,113) (7,123)
Deferred compensation - (7)
Cumulative foreign currency translation adjustment (1,254) (1,261)
------- -------
Total stockholders' equity 8,603 8,421
------- -------
$15,431 $19,870
------- -------
------- -------
See accompanying notes.
1
<PAGE>
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
------- ------- ------- -------
Revenues:
Product sales $ 6,569 $ 6,082 $18,632 $20,462
Product service 917 954 2,807 2,936
------- ------- ------- -------
Total net revenues 7,486 7,036 21,439 23,398
------- ------- ------- -------
Cost of sales:
Product sales 4,218 3,957 12,306 13,788
Product service 567 630 1,805 1,900
------- ------- ------- -------
Total cost of sales 4,785 4,587 14,111 15,688
------- ------- ------- -------
Gross profit 2,701 2,449 7,328 7,710
Expenses:
Shipping and warehouse 153 201 532 591
Selling 1,054 1,087 3,285 3,481
General and administrative 810 782 2,357 2,463
Research and development 89 82 290 235
Costs associated with the Merger 382 - 450 -
------- ------- ------- -------
Total operating expenses 2,488 2,152 6,914 6,770
------- ------- ------- -------
Income from operations before
interest expense and income
taxes 213 297 414 940
Interest expense 84 127 203 335
------- ------- ------- -------
Income before income taxes 129 170 211 605
Income taxes 200 97 201 514
------- ------- ------- -------
Net income (loss) $ (71) $ 73 $ 10 $ 91
------- ------- ------- -------
------- ------- ------- -------
Earnings (loss) per common share (Note 2):
Primary $(0.02) $ 0.02 $ - $ 0.02
------- ------- ------- -------
------- ------- ------- -------
Fully diluted $(0.02) $ 0.02 $ - $ 0.02
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes.
2
<PAGE>
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
(Dollar Amounts in Thousands)
(Unaudited)
Nine Months Ended
April 30,
1996 1995
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10 $ 91
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 275 314
Imputed interest 5 17
Deferred income taxes 13 -
Changes in assets and liabilities:
Accounts receivable 3,485 341
Inventories 571 (1,350)
Prepaid expenses and other current assets 22 183
Accounts payable and accrued expenses (2,052) 13
Income taxes payable (364) (824)
------- -------
Net cash provided by (used in) operating activities 1,965 (1,215)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property and equipment (48) (202)
Other, net (78) 94
------- -------
Net cash used in investing activities (126) (108)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 13,030 10,758
Repayment of long-term debt (15,152) (10,292)
Repayment of note payable - (240)
Proceeds from exercise of stock options 158 42
Deferred compensation payments (101) (92)
------- -------
Net cash (used in) provided by financing activities (2,065) 176
------- -------
Decrease in cash (226) (1,147)
Cash at beginning of period 799 1,497
------- -------
Cash at end of period $ 573 $ 350
------- -------
------- -------
See accompanying notes.
3
<PAGE>
CANTEL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and the requirements of Form 10-Q and Rule 10.01 of
Regulation S-X. Accordingly, they do not include certain information and note
disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report of Cantel
Industries, Inc. (the "Company") on Form 10-K for the fiscal year ended July 31,
1995, the financial statements and notes thereto of the Company's newly acquired
subsidiary, MediVators, Inc. ("MediVators"), included in the Company's Current
Report on Form 8-K, as amended by Form 8-K/A, dated March 15, 1996, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
The merger of MediVators described in Note 3 (the "Merger") has been
accounted for as a pooling of interests in accordance with generally accepted
accounting principles. Under this accounting treatment, the assets, liabilities
and stockholders' equity of MediVators have been consolidated at their
historical amounts. Operating results of MediVators have been consolidated for
all periods presented, and previously issued financial statements for the
Company are restated as though MediVators had always been consolidated as a
wholly-owned subsidiary of the Company.
The unaudited interim financial statements reflect all adjustments which
management considers necessary for a fair presentation of the results of
operations for these periods. The results of operations for the interim periods
are not necessarily indicative of the results for the full year.
The condensed consolidated balance sheet at July 31, 1995 was derived from
the audited consolidated balance sheets of the Company and MediVators at that
date.
Note 2. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based upon the weighted
average number of common shares outstanding during the period plus common stock
equivalents where dilutive.
Fully diluted earnings per common share are computed on the assumption that
the weighted average number of common shares
4
<PAGE>
outstanding during the period was further increased by the exercise of those
stock options and warrants for which the period-end market price of the Common
Stock exceeded the average market price.
The following average shares were used for the computation of primary and
fully diluted earnings per share (see Exhibit 11 for computation of earnings per
share):
For the For the
three months ended nine months ended
April 30, April 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Primary 3,770,541 4,129,689 4,271,030 4,110,464
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted 3,770,541 4,166,000 4,278,376 4,152,997
--------- --------- --------- ---------
--------- --------- --------- ---------
During the three months and nine months ended April 30, 1996, the Company
incurred $382,000 and $450,000, respectively, in one-time costs associated with
the Merger. Without the effect of these merger costs, earnings per share would
have been as follows:
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Primary $ 0.07 $ 0.02 $ 0.11 $ 0.02
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted $ 0.07 $ 0.02 $ 0.11 $ 0.02
--------- --------- --------- ---------
--------- --------- --------- ---------
Note 3. ACQUISITION OF MEDIVATORS, INC.
On March 15, 1996, the Company consummated a merger transaction pursuant to
an Agreement and Plan of Merger under which MediVators became a wholly-owned
subsidiary of the Company and the stockholders of MediVators received
approximately a 26.5% equity interest in Cantel (without giving effect to
outstanding options and warrants to acquire stock of Cantel or MediVators). The
transaction has been treated as a pooling of interests for accounting purposes.
In connection with the Merger, the Company filed a Registration Statement
on Form S-4 with the Securities and Exchange Commission, declared effective on
February 8, 1996, which covered the issuance of the Company's common shares to
the stockholders of MediVators in exchange for shares of MediVators common
stock.
MediVators, a public company prior to the Merger, designs,
5
<PAGE>
manufactures and markets infection control equipment and supplies used for
disinfecting flexible endoscopes and medical waste disposal equipment.
MediVators is currently a supplier of endoscope disinfection equipment to the
Company and recently entered into an exclusive distribution agreement with
Olympus America Inc. (see Note 4).
Historical audited financial information for MediVators is as follows:
Fiscal Year Ended July 31,
--------------------------------
1995 1994
---- ----
Total assets $ 2,508,000 $ 4,307,000
Total stockholders' equity $ 2,033,000 $ 3,698,000
Net sales $ 3,473,000 $ 2,950,000
Net loss $(1,768,000) $(1,307,000)
Note 4. DISTRIBUTION AGREEMENT WITH OLYMPUS AMERICA INC. -
ENDOSCOPE DIVISION
On March 12, 1996, MediVators entered into a distribution agreement with
Olympus America Inc. - Endoscope Division ("Olympus"), a United States affiliate
of Olympus Optical Co. Ltd., a Japanese corporation ("Olympus Optical"), under
which MediVators has granted to Olympus exclusive distribution rights to a line
of automatic endoscope disinfectors and other related products in the United
States, Central and South America, the Caribbean and the West Indies (excluding
Bermuda). All products sold by Olympus pursuant to the agreement bear both the
Olympus and MediVators trademarks. The Olympus agreement expires on May 1,
1999, and imposes minimum purchase obligations on Olympus.
Note 5. FINANCING ARRANGEMENTS
The revolving credit facility entered into during fiscal 1994, as amended,
is comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum borrowing availability under this facility decreases to
$6,500,000 on January 1, 1998 and must be paid in full no later than December
31, 1998. Pursuant to the terms of the facility, the maximum borrowing
availability may be decreased at the Company's option, upon 30 days notice. The
Company is permitted to borrow an amount up to (i) 75%-85% of certain eligible
accounts receivable, depending on the customer, and (ii) 50% of qualifying
inventory, depending on the type of goods in inventory; however, any trade
letters of credit issued under this facility will reduce the maximum available
borrowings by 50% of the amount of such trade letters of credit, while any
standby letters of credit, including the $500,000 letter
6
<PAGE>
of credit issued to Olympus America Inc. during November 1993 in connection with
the Canadian subsidiary's distribution agreement with Olympus America Inc.,
reduces the maximum available borrowings by the full amount of such standby
letters of credit. The Company has the right to borrow funds under this
facility in either United States dollars or Canadian dollars, a portion of which
may be in the form of bankers acceptances. The borrowings outstanding at April
30, 1996 and July 31, 1995 are in Canadian dollars. United States dollar
borrowings bear interest at .5% above the lender's United States base rate, and
Canadian dollar borrowings bear interest at .75% above the lender's Canadian
prime rate. A commitment fee on the unused portion of this facility is payable
in arrears at a rate of .25% per annum, with interest on borrowings payable
monthly. Borrowings under this facility are guaranteed by Cantel and secured by
substantially all assets of the Company's Canadian subsidiary and require the
subsidiary to meet certain financial covenants, including a minimum working
capital ratio, a minimum interest coverage ratio and a maximum debt to tangible
net worth ratio.
A revolving credit facility was entered into by MediVators on June 3, 1996
which provides a $2,000,000 revolving credit facility (see Notes 3 and 7).
Note 6. INCOME TAXES
Income taxes primarily consist of foreign income taxes provided on the
Company's Canadian operations. For the nine months ended April 30, 1996, income
taxes include taxes on income at an effective rate of 43.9%, offset by a
recovery of prior years' federal and provincial income taxes and withholding
taxes. The effective tax rate on Canadian operations was 41.4% for the nine
months ended April 30, 1995.
The recovery of prior years' federal and provincial income taxes and
withholding taxes related to a notice of reassessment received by the Company's
Canadian subsidiary during fiscal 1994, which notice was based upon the
disallowance as a deduction for income tax purposes and treatment as a taxable
dividend, of all of the payments made to Cantel by the Canadian subsidiary
during the taxable years 1990 to 1992 with respect to a purchasing fee charged
by Cantel for negotiating certain distribution agreements on behalf of the
Canadian subsidiary. In prior years, the Company recorded the full amount of
the reassessment, which aggregated approximately $413,000, in its provision for
income taxes, and the related interest, of approximately $154,000, as interest
expense. During the three months ended October 31, 1994, the full amount of the
reassessment, including interest, was paid under protest. During the three
months ended October 31, 1995, the Company negotiated a settlement with Revenue
Canada which resulted in the recovery of federal and provincial income taxes and
withholding taxes of
7
<PAGE>
approximately $182,000 and interest of approximately $103,000. Of these
amounts, approximately $218,000 has been received to date.
Note 7. SUBSEQUENT EVENTS
(1) FINANCING ARRANGEMENTS
On June 3, 1996, MediVators entered into a loan and security agreement
with a bank, which provides MediVators with a $2,000,000 revolving credit
facility. Borrowings under this facility must be paid in full no later than
December 3, 1998. MediVators is permitted to borrow an amount up to the
aggregate of (i) 80% of certain eligible accounts receivable, and (ii) 50% of
qualifying inventory. Borrowings bear interest at 1.5% above the lender's U.S.
prime rate. A commitment fee on the unused portion of this facility is payable
in arrears at a rate of .5% per annum, with interest on borrowings payable
monthly. Borrowings under this facility are guaranteed by Cantel and secured by
substantially all assets of MediVators and require MediVators to meet certain
financial covenants, including a minimum net worth, a minimum net income, a
maximum debt to tangible net worth ratio, and an annual limitation on capital
expenditures.
(2) PROPOSED ACQUISITION OF SURGICOT, INC.
On May 3, 1996, the Company signed a Letter of Intent to acquire
Surgicot, Inc. ("Surgicot"), a private company based in Research Triangle Park,
North Carolina. The Letter of Intent provides for the Company's acquisition of
Surgicot for 600,000 shares of the Company's stock and cash of $4.5 million,
subject to certain adjustments.
The proposed acquisition is subject to, among other conditions, the
Company entering into a definitive merger agreement with Surgicot, due
diligence, and the approval of the Boards of Directors and stockholders of the
Company and Surgicot. No assurance can be given that such conditions will be
satisfied or that the merger will be consummated.
Surgicot, founded in 1992, provides healthcare institutions with cost
effective products to monitor and assure the delivery of sterile products for
patient and healthcare provider safety. Surgicot's product line is made up of
sterility assurance and sterile specialty products used by Central Service,
Operating Rooms, Infection Control and related areas in healthcare facilities.
The products are available through a national distributor network in North
America and in many international markets.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The results of operations described hereafter reflect, for the most part,
those results of the Company's wholly-owned Canadian subsidiary, Carsen Group
Inc. and those of its newly acquired U.S. subsidiary, MediVators, Inc.
("MediVators"). There was no significant impact upon the Company's results of
operations for the nine months ended April 30, 1996, as compared to the nine
months ended April 30, 1995, as a result of translating Canadian dollars into
United States dollars. The ensuing discussion should also be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1995, and the Current Report on Form 8-K filed on March 15, 1996,
as amended by Forms 8-K/A, related to the acquisition of MediVators.
The following table gives information as to the net sales from operations
and the percentage to the total net sales accounted for by each operating
segment of the Company.
Three Months Ended Nine Months Ended
April 30, April 30,
--------------------------- ------------------------------
1996 1995 1996 1995
--------------------------- ------------------------------
$ % $ % $ % $ %
------ ---- ------ ---- ------- ----- ------- -----
Medical, Infection
Control and Scientific
Products:
Medical and
Infection Control
Products $4,097 54.7 $3,555 50.5 $11,050 51.5 $11,904 50.9
Scientific
Products 1,746 23.3 1,597 22.7 4,663 21.8 3,978 17.0
Product Service 917 12.3 954 13.6 2,807 13.1 2,936 12.5
Consumer Products 726 9.7 930 13.2 2,919 13.6 4,580 19.6
------ ----- ------ ----- ------- ----- ------- -----
$7,486 100.0 $7,036 100.0 $21,439 100.0 $23,398 100.0
------ ----- ------ ----- ------- ----- ------- -----
------ ----- ------ ----- ------- ----- ------- -----
Net revenues increased by $450,000, or 6.4%, to $7,486,000 for the three
months ended April 30, 1996, from $7,036,000 for the three months ended April
30, 1995. Net revenues decreased by $1,959,000, or 8.4%, to $21,439,000 for the
nine months ended April 30, 1996 from $23,398,000 for the nine months ended
April 30, 1995. The decrease for the nine months ended April 30, 1996 was
principally attributable to the decreased sales of the Medical and Infection
Control Products and Consumer Products segments offset in part by increased
sales of the Scientific Products segment. The increase for the three months
ended April 30, 1996 was principally attributable to the increased sales of the
Medical and Infection Control segment, offset in part by the decreased sales of
the Consumer Products segment.
9
<PAGE>
The decreased sales of the Medical and Infection Control Products segment
for the nine months ended April 30, 1996 was primarily attributable to a
decrease in demand for medical products, offset in part by an increase in demand
for infection control products. The increased sales for the three months ended
April 30, 1996 were attributable to an increase in demand for infection control
products. The sale of medical equipment has been adversely impacted in Canada
by certain cost control measures implemented by various provincial governments
which has decreased or delayed funding to hospitals, thereby reducing hospital
spending for capital equipment.
The increased sales of the Scientific Products segment for the nine months
ended April 30, 1996, resulted from increased demand for new products, such as
the Olympus B-Max microscope, the restructuring of the sales functions and the
implementation of new marketing strategies, as well as increases in selling
prices of certain products.
The decreased sales of the Consumer Products segment resulted from lower
demand for product, primarily attributable to the loss of national account
business. The Company is restructuring the sales functions and marketing
strategies in order to address current market conditions.
Gross profit increased by $252,000, or 10.3%, to $2,701,000 for the three
months ended April 30, 1996, from $2,449,000 for the three months ended April
30, 1995. Gross profit decreased by $382,000, or 5.0%, to $7,328,000 for the
nine months ended April 30, 1996, from $7,710,000 for the nine months ended
April 30, 1995. The gross profit margins for the three and nine month periods
ended April 30, 1996 were 36.1% and 34.2%, respectively, as compared with 34.8%
and 33.0% for the three and nine month periods ended April 30, 1995. The higher
gross profit margins are principally attributable to sales mix in all divisions,
the decreased sales of the Consumer Products Division which generally have lower
profit margins, and a more efficient method of repairing endoscopes, offset by
price increases received from a major supplier which could not be entirely
passed on through higher selling prices.
Shipping and warehouse expenses as a percentage of net revenues were 2.0%
and 2.5% for the three and nine months ended April 30, 1996, as compared with
2.9% and 2.5% for the three and nine months ended April 30, 1995, respectively.
The percentage decrease for the three month period was attributable to the
increase in revenues, since most of the expenses in this category are of a fixed
nature, as well as a planned reduction in certain costs. For the nine month
period, the impact of reduced revenues against the fixed portion of selling
expenses was offset by a reduction in certain costs.
10
<PAGE>
Selling expenses as a percentage of net revenues were 14.1% and 15.3% for
the three and nine months ended April 30, 1996, as compared with 15.4% and 14.9%
for the three and nine months ended April 30, 1995. The percentage increase for
the nine month period was principally attributable to the decrease in revenues,
offset in part by a reduction in the fixed portion of selling expenses. The
percentage decrease for the three months was principally attributable to the
increase in revenues.
General and administrative expenses increased by $28,000 to $810,000 for
the three months ended April 30, 1996 from $782,000 for the three months ended
April 30, 1995. For the nine months ended April 30, 1996, general and
administrative expenses decreased by $106,000 to $2,357,000 from $2,463,000 for
the nine months ended April 30, 1995, primarily attributable to a cost reduction
program implemented in Canada.
One-time costs associated with the Merger of $382,000 and $450,000 in the
three and nine month periods ended April 30, 1996, were attributable to merger
related expenses incurred in connection with the MediVators acquisition, which
was accounted for as a pooling of interests.
Interest expense decreased to $203,000 for the nine months ended April 30,
1996, as compared with $335,000 for the nine months ended April 30, 1995. This
decrease is due to a recovery of interest of approximately $103,000 related to
the tax reassessments described in Note 6 to the Condensed Consolidated
Financial Statements and a decrease in interest expense attributable to a
decrease in average borrowings under the Canadian revolver.
Income before income taxes decreased by $394,000 to $211,000 for the nine
months ended April 30, 1996 from $605,000 for the nine months ended April 30,
1995.
Income taxes represent taxes imposed on the Company's Canadian operations,
and for the nine months ended April 30, 1996, are net of a recovery of taxes
related to the tax reassessment described in Note 6 to the Condensed
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996, the Company's working capital was $11,038,000, as
compared with $12,770,000 at July 31, 1995. This decrease primarily reflects
decreases in accounts receivable, inventories and current liabilities. Long-
term debt decreased from $6,087,000 at July 31, 1995 to $4,025,000 at April 30,
1996.
Net cash provided by operating activities was $1,965,000 for the nine
months ended April 30, 1996, as compared with net cash used in operating
activities of $1,308,000 for the nine months ended April 30, 1995. This change
was primarily due to a decrease
11
<PAGE>
in accounts receivable and inventories, partially offset by a decrease in
current liabilities. Net cash used in investing activities was $126,000 for the
nine months ended April 30, 1996 and $15,000 for the nine months ended April 30,
1995. Net cash used in financing activities was $2,065,000 for the nine months
ended April 30, 1996, as compared with net cash provided by financing activities
of $176,000 for the nine months ended April 30, 1995. This change principally
reflects borrowings and repayments under the revolving credit facility.
The revolving credit facility entered into during fiscal 1994, as amended,
is comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum borrowing availability under this facility decreases to
$6,500,000 on January 1, 1998 and must be paid in full no later than December
31, 1998. Pursuant to the terms of the facility, the maximum borrowing
availability may be decreased at the Company's option, upon 30 days' notice.
The Company is permitted to borrow an amount up to (i) 75%-85% of certain
eligible accounts receivable, depending on the customer, and (ii) 50% of
qualifying inventory, depending on the type of goods in inventory; however, any
trade letters of credit issued under this facility will reduce the maximum
available borrowings by 50% of the amount of such trade letters of credit, while
any standby letters of credit, including the $500,000 letter of credit issued to
Olympus America Inc. during November 1993 in connection with the Canadian
subsidiary's distribution agreement with Olympus America Inc., reduces the
maximum available borrowings by the full amount of such standby letters of
credit. The Company has the right to borrow funds under this facility in either
United States dollars or Canadian dollars, a portion of which may be in the form
of bankers acceptances. The borrowings outstanding at April 30, 1996 and July
31, 1995 are in Canadian dollars. United States dollar borrowings bear interest
at .5% above the lender's United States base rate, and Canadian dollar
borrowings bear interest at .75% above the lender's Canadian prime rate. A
commitment fee on the unused portion of this facility is payable in arrears at a
rate of .25% per annum, with interest on borrowings payable monthly. Borrowings
under this facility are guaranteed by Cantel and secured by substantially all
assets of the Company's Canadian subsidiary and require the subsidiary to meet
certain financial covenants, including a minimum working capital ratio, a
minimum interest coverage ratio and a maximum debt to tangible net worth ratio.
On June 3, 1996, MediVators entered into a loan and security agreement with
a bank, which provides MediVators with a $2,000,000 revolving credit facility.
Borrowings under this facility must be paid in full no later than December 3,
1998. MediVators is permitted to borrow an amount up to the aggregate of (i)
80% of certain eligible accounts receivable, and (ii) 50% of qualifying
inventory. Borrowings bear interest at 1.5% above the lender's U.S. prime rate.
A commitment fee on the unused portion of this
12
<PAGE>
facility is payable in arrears at a rate of .5% per annum, with interest on
borrowings payable monthly. Borrowings under this facility are guaranteed by
Cantel and secured by substantially all assets of MediVators and require
MediVators to meet certain financial covenants, including a minimum net worth, a
minimum net income, a maximum debt to tangible net worth ratio, and an annual
limitation on capital expenditures.
A decrease in the value of the Canadian dollar against the United States
dollar could adversely affect the Company because the Company's Canadian
subsidiary purchases substantially all of its products in United States dollars
and sells its products in Canadian dollars. Such adverse currency fluctuations
could also result in a corresponding adverse change in the United States dollar
value of the Company's assets that are denominated in Canadian dollars. Under
the credit facility, as amended, the Company's Canadian subsidiary has a foreign
exchange hedging arrangement of up to $15,000,000 (U.S. dollars) which could be
used to minimize future adverse currency fluctuations as they relate to
purchases of inventories.
The Company's Canadian subsidiary has forward exchange contracts at April
30, 1996 aggregating $6,000,000 (United States dollars) to hedge against
possible declines in the value of the Canadian dollar which would otherwise
result in higher inventory costs. Such contracts represented the Canadian
subsidiary's projected purchases of inventories through July 31, 1996.
The average exchange rate of the contracts open at April 30, 1996 was
$1.3627 Canadian dollar per United States dollar, or $.7338 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
June 6, 1996, was $1.3656 Canadian dollar per United States dollar, or $.7323
United States dollar per Canadian dollar.
The Company believes that its anticipated cash flow from operations and the
funds available under the credit facilities will be sufficient to satisfy the
Company's cash operating requirements for its existing operations for the
foreseeable future. At June 6, 1996, $4,027,000 was available under the
credit facilities.
Inflation has not significantly impacted the Company's operations.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 12, 1996, the Company held an Annual Meeting of Shareholders. At
the meeting, Charles M. Diker, Alan J. Hirschfield and Bruce Slovin were re-
elected directors of the Company, to hold office until the Annual Meeting of
Shareholders to be held after the fiscal year ending July 31, 1998. 2,428,825
votes were cast for, 1,300 votes were withheld, and 0 votes abstained in the
election of each of these directors.
In addition, the shareholders approved the appointment of the firm of Ernst
& Young LLP to audit the financial statements of the Company for the fiscal year
ending July 31, 1996. 2,422,395 votes were cast for, 3,369 votes were against,
and 4,361 votes abstained in the appointment of Ernst & Young LLP.
Shareholders also approved the merger with MediVators. In connection with
the merger, the Company had filed a Registration Statement on Form S-4, declared
effective by the Securities and Exchange Commission on February 8, 1996, which
covered the issuance of the Company's common shares to the stockholders of
MediVators in exchange for shares of MediVators Common Stock. 1,898,518 votes
were cast for, 1,220 votes were against, and 3,435 votes abstained in the
approval of the merger.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11, Computation of Earnings Per Share
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K (dated March 15, 1996)
A Current Report on Form 8-K, as amended by two reports on Form
8-K/A, was filed during the three months ended April 30, 1996,
related to the Company's acquisition of MediVators.
14
<PAGE>
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.
CANTEL INDUSTRIES, INC.
Date: June 12, 1996 By: /s/ James P. Reilly
----------------------------
James P. Reilly, President
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial Officer)
By: /s/ Craig A. Sheldon
----------------------------
Craig A. Sheldon, Vice
President and Controller
(Chief Accounting Officer)
15
<PAGE>
EXHIBIT 11
CANTEL INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
--------- --------- --------- ---------
PRIMARY
Weighted average number of
shares outstanding 3,770,541 3,743,710 3,767,262 3,728,502
Dilutive effect of options and
warrants using the treasury
stock method and average
market price for the period - 385,979 503,768 381,962
--------- --------- --------- ---------
Weighted average number of
shares and common stock
equivalents 3,770,541 4,129,689 4,271,030 4,110,464
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) $ (71,000) $ 73,000 $ 10,000 $ 91,000
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per common share $(0.02) $0.02 $ - $0.02
------ ------ ----- -----
------ ------ ----- -----
16
<PAGE>
EXHIBIT 11
CANTEL INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
--------- --------- --------- ---------
FULLY DILUTED
Weighted average number of
shares outstanding 3,770,541 3,743,710 3,767,262 3,728,502
Dilutive effect of options and
warrants using the treasury
stock method and the higher
of the period and or average
market price for the period - 422,290 511,114 424,495
--------- --------- --------- ---------
Weighted average number of
shares and common stock
equivalents 3,770,541 4,166,000 4,278,376 4,152,997
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) $ (71,000) $ 73,000 $ 10,000 $ 91,000
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per common share $(0.02) $0.02 $ - $0.02
------ ------ ----- -----
------ ------ ----- -----
17
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 30, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> APR-30-1996
<CASH> 573000
<SECURITIES> 0
<RECEIVABLES> 4886000
<ALLOWANCES> 0
<INVENTORY> 7935000
<CURRENT-ASSETS> 13737000
<PP&E> 2519000
<DEPRECIATION> 1827000
<TOTAL-ASSETS> 15431000
<CURRENT-LIABILITIES> 2699000
<BONDS> 4025000
0
0
<COMMON> 382000
<OTHER-SE> 8221000
<TOTAL-LIABILITY-AND-EQUITY> 15431000
<SALES> 21439000
<TOTAL-REVENUES> 21439000
<CGS> 14111000
<TOTAL-COSTS> 14111000
<OTHER-EXPENSES> 6914000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203000
<INCOME-PRETAX> 211000
<INCOME-TAX> 201000
<INCOME-CONTINUING> 10000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
