<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 29, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from_________________to__________________
Commission file number 20-8969
NOVAMETRIX MEDICAL SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-0977422
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1 Barnes Industrial Park Road, Wallingford, CT 06492
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code (203)265-7701
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.01 par value: 5,797,081 shares issued and outstanding as of
February 28, 1995.
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
Page 1 of 16
Index to Exhibits at Page 14
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations (Unaudited) -
Quarters ended January 29, 1995 and January 30, 1994 3
Nine months ended January 29, 1995 and January 30, 1994 4
Condensed Consolidated Balance Sheets (Unaudited) -
January 29, 1995 and May 1, 1994. 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine months ended January 29, 1995 and January 30, 1994 7
Notes to Condensed Consolidated Financial Statements
(Unaudited) - January 29, 1995 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
</TABLE>
Page 2 of 16
<PAGE> 3
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JANUARY 29, 1995 JANUARY 30, 1994
---------------- ----------------
<S> <C> <C>
Net sales $ 5,919,279 $ 5,216,828
Costs and expenses:
Cost of products sold 2,655,720 2,305,564
Research and product development 609,812 493,508
Selling, general and administrative 2,193,105 2,107,777
Interest 85,480 168,807
Other expense 19,062 16,264
----------- -----------
5,563,179 5,091,920
----------- -----------
INCOME BEFORE INCOME TAXES 356,100 124,908
Income taxes 7,000
----------- -----------
NET INCOME $ 349,100 $ 124,908
=========== ===========
Per common share amounts:
Primary $ .05 $ .02
=========== ===========
Fully diluted $ .05 $ .02
=========== ===========
Average common shares outstanding:
Primary 7,635,693 6,674,357
Fully diluted 7,635,693 6,776,523
</TABLE>
See accompanying notes.
Page 3 of 16
<PAGE> 4
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 29, 1995 JANUARY 30, 1994
----------------- -----------------
<S> <C> <C>
Net sales $17,438,186 $15,264,355
Costs and expenses:
Cost of products sold 7,688,983 6,715,383
Research and product development 1,740,497 1,427,273
Selling, general and administrative 6,697,618 6,176,305
Interest 291,285 532,581
Other expense (income), net 65,365 (81,732)
---------- -----------
16,483,748 14,769,810
---------- -----------
INCOME BEFORE INCOME TAXES 954,438 494,545
Income taxes 15,000
---------- -----------
NET INCOME $ 939,438 $ 494,545
=========== ===========
Per common share amounts:
Primary $ .12 $ .07
=========== ===========
Fully diluted $ .12 $ .07
=========== ===========
Average common shares outstanding:
Primary 7,616,797 6,598,928
Fully diluted 7,616,797 6,768,488
</TABLE>
See accompanying notes.
Page 4 of 16
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JANUARY 29, 1995 MAY 1, 1994
------ ---------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 236,494 $ 267,882
Accounts receivable, less
allowance for losses of $250,000 4,954,727 4,335,834
Inventories:
Finished products 1,318,355 1,312,464
Work in process 812,865 795,384
Materials 2,592,498 2,349,804
----------- -----------
4,723,718 4,457,652
Prepaid expenses 152,060 387,483
----------- -----------
TOTAL CURRENT ASSETS 10,066,999 9,448,851
EQUIPMENT 8,414,552 8,048,757
Accumulated depreciation (deduction) (7,201,692) (6,912,401)
----------- -----------
1,212,860 1,136,356
LICENSE, TECHNOLOGY, PATENTS AND OTHER 7,652,050 6,921,725
Accumulated amortization (deduction) (2,591,132) (2,236,250)
----------- -----------
5,060,918 4,685,475
----------- -----------
$16,340,777 $15,270,682
=========== ===========
</TABLE>
See accompanying notes.
Page 5 of 16
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES_AND_SHAREHOLDERS'_EQUITY JANUARY 29, 1995 MAY 1, 1994
- ------------------------------------ ---------------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion long-term debt $ 600,000 $ 733,333
Demand note payable to bank 1,375,000 3,000,000
Accounts payable 1,519,451 1,245,259
Accrued expenses 1,665,238 1,794,407
Customer advances 654,400
------------ ------------
TOTAL CURRENT LIABILITIES 5,159,689 7,427,399
LONG-TERM DEBT, less current portion 1,708,333 3,560,007
REDEEMABLE PREFERRED STOCK, at
redemption and liquidation value 1,000,000 1,000,000
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
authorized 1,000,000 shares, 100,000
issued and outstanding (less 40,000
shares redeemable), at liquidation
value 1,500,000 1,500,000
Common Stock, $.01 par value,
authorized 20,000,000 shares,
issued 6,130,433 at January 29, 1995,
and 4,882,706 at May 1, 1994,
including 338,452 Treasury shares 61,304 48,827
Additional paid-in capital 26,231,782 22,012,966
Retained-earnings deficit (16,808,293) (17,691,479)
Deferred ESOP contributions (25,000) (100,000)
Treasury stock (2,487,038) (2,487,038)
8,472,755 3,283,276
------------ ------------
$ 16,340,777 $ 15,270,682
============ ============
</TABLE>
See accompanying notes.
Page 6 of 16
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
JANUARY 29, 1995 JANUARY 30, 1994
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 939,438 $ 494,545
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 357,858 397,965
Amortization 368,405 324,269
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (618,893) 48,554
Increase in inventories (266,066) (26,859)
Decrease (increase) in prepaid expenses 235,423 (3,623)
Increase in accounts payable 274,192 137,155
Increase (decrease) in accrued expenses 14,994 (423,393)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,305,351 948,613
INVESTING ACTIVITIES
Purchases of equipment (461,370) (275,510)
Proceeds from sales of equipment 27,008 9,142
Purchases of license, technology, patents and other (743,848) (63,277)
----------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,178,210) (329,645)
FINANCING ACTIVITIES
Proceeds from borrowings 2,500,000
Principal payments on borrowings (6,035,007) (974,997)
Principal payment on customer advance (654,400)
Dividends on Preferred Stock (56,250) (56,250)
Net proceeds from sales of Common Stock 4,087,128 136,594
----------- ---------
NET CASH USED BY FINANCING ACTIVITIES (158,529) (894,653)
----------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (31,388) (275,685)
Cash and cash equivalents at beginning of period 267,882 480,319
----------- ---------
Cash and cash equivalents at end of period $ 236,494 $ 204,634
=========== =========
</TABLE>
See accompanying notes.
Page 7 of 16
<PAGE> 8
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 29, 1995
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements of Novametrix Medical Systems
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended January 29, 1995 are not
necessarily indicative of the results that may be expected for the year ending
April 30, 1995. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended May 1, 1994.
NOTE 2 -- PER SHARE AMOUNTS
Common stock equivalents consist of the Company's Preferred Stock, stock
options, warrants and shares subscribed under the Company's Employee Stock
Purchase Plan. The computation of dilutive common stock equivalents is based on
the if-converted method for the Preferred Stock and on the treasury stock method
for the other common stock equivalents using the average market price for the
primary earnings per share computations and the higher of average or period-end
market price for the fully diluted earnings per share computations.
NOTE 3 -- CONTINGENCIES
The Company is a party to various legal proceedings generally incidental to
its business. Management believes that none of such legal proceedings will have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
Page 8 of 16
<PAGE> 9
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS_OF_OPERATIONS
Operating results for the three-month and nine-month periods ended January 29,
1995 reflect continued improvement compared to the corresponding periods ended
January 30, 1994. The Company recorded net income of approximately $349,000 or
$.05 per share on net sales of approximately $5,919,000 for the three months
ended January 29, 1995 compared to $125,000 or $.02 per share on net sales of
approximately $5,217,000 for the three months ended January 30, 1994. For the
nine months ended January 29, 1995, the Company recorded net income of
approximately $939,000 or $.12 per share, on net sales of approximately
$17,438,000 compared to net income of approximately $495,000 or $.07 per share,
on net sales of approximately $15,264,000 for the nine months ended January 30,
1994.
Net sales increased by approximately 13%, or $702,000, for the quarter ended
January 29, 1995 compared to the quarter ended January 30, 1994 and 14%, or
$2,174,000, for the nine months ended January 29, 1995 compared to the
corresponding period of the prior fiscal year. The increases for both the
three-month and nine-month comparisons resulted from strong product sales in the
international and OEM markets, with slightly improved sales in the domestic
market. Improved domestic non-hospital sales for both the three-month and
nine-month comparisons, more than offset a soft domestic hospital marketplace
believed to result from uncertainties surrounding the move toward managed care.
Cost of products sold as a percentage of net sales for the quarter ended
January 29, 1995 was 44.9% compared to 44.2% for the quarter ended January 30,
1994 primarily as a result of product mix. For the nine months ended January 29,
1995, cost of products sold as a percentage of net sales of 44.1% was
effectively unchanged compared to 44.0% for the nine months ended January 30,
1994. The Company continues to emphasize product quality and product cost
reductions to enhance its position in a competitive marketplace.
Research and product development ("R & D") expenses increased by approximately
24% and 22%, respectively, for the three months and nine months ended January
29, 1995 compared to the corresponding periods of the prior fiscal year. The
increases were due primarily to higher levels of salaries and related fringe
benefits, development materials and outside professional services. The increase
in R & D spending to approximately ten percent of year-to-date sales is
consistent with the Company's targeted spending levels required to meet its
R & D objectives.
Selling, general and administrative ("S,G&A") expenses increased by 4% and 8%,
respectively, for the three months and nine months ended January 29, 1995
compared to the corresponding periods of the prior fiscal year. Higher
administrative costs, primarily related to financial reporting and outside
services, accounted for the increase when comparing the three month periods,
with international selling expense increases offsetting domestic spending
reductions. The Company's expanded sales, marketing and service efforts,
including advertising, promotional materials and higher international selling
expenses as a result of increased sales activities, were primarily responsible
for the growth in year-to-date S,G&A spending compared to the prior year.
Page 9 of 16
<PAGE> 10
Interest expense decreased by approximately 49% and 45%, respectively, for the
three months and nine months ended January 29, 1995 compared to the three months
and nine months ended January 30, 1994. The decrease resulted from the reduction
of the Company's debt levels, in conjunction with a public offering of the
Company's equity securities completed during June 1994. As a result, interest
expense for the three-month and nine-month periods ended January 29, 1995 have
been reduced to approximately 1.4% of revenue and 1.7% of revenue, respectively.
Recent market increases in interest rates partially offset the positive impact
of the debt reduction on the Company's borrowing costs.
The Company's backlog of firm orders aggregated approximately $4,902,000 as of
January 29, 1995 compared to approximately $4,785,000 as of January 30, 1994.
The increase in backlog was primarily related to increased OEM orders. Except
for orders pursuant to long-term OEM agreements, the Company ships its products
on a current basis. As such, the Company does not consider its backlog at any
time to be a meaningful indicator of future sales.
LIQUIDITY_AND_SOURCES_OF_CAPITAL
As of January 29, 1995, the Company increased its working capital to
$4,907,000 from $2,021,000 at May 1, 1994. The Company's current ratio improved
to 2.0 to 1 at January 29, 1995 from 1.3 to 1 at May 1, 1994. The improvement in
the Company's working capital of approximately $2,886,000 resulted from the
combined effects of the public offering and the bank debt restructuring
consummated in June 1994 and from the overall improvement in operating results
for the nine months ended January 29, 1995. In addition, the Company had over
$1,000,000 available for borrowing under its revolving credit facility at both
January 29, 1995 and May 1, 1994.
The Company's operating activities provided approximately $1,305,000 of cash
during the nine months ended January 29, 1995 compared to approximately $949,000
for the nine months ended January 30, 1994. Increases in net income were
primarily responsible for the increase in net cash provided by operating
activities. Changes in operating assets and liabilities represented less than a
$100,000 increase in the use of cash compared to the prior year as increases in
accounts receivable and inventory levels associated with higher sales were
partially offset by higher accounts payables and a decrease in prepaid expenses.
Investing activities were substantially higher than the first nine months of the
previous year. Capital equipment purchases of approximately $461,000, consisting
primarily of manufacturing tooling and equipment utilized for research and
development, combined with higher levels of patent and technology related costs
and increases in other assets accounted for the increase in investing
activities. Costs associated with patents and technology consisted primarily of
approximately $295,000 related to an accrued contractual obligation for the
exclusive manufacturing and marketing rights to airway flow and pressure
sensors, and to expenditures of approximately $229,000 covering costs related to
the Company's current and future patents.
Page 10 of 16
<PAGE> 11
The Company anticipates continued improvement in its financial results for the
balance of fiscal 1995 and for the fiscal year ending April 28, 1996. Positive
cash flow from operations is expected to exceed scheduled debt service
requirements and planned investments in equipment and technology, with the
surplus being used to reduce the outstanding indebtedness on the revolving
credit facility. Management believes that its cash provided by operations will
support its planned rate of growth and that additional funds, if required, will
be available from the Company's revolving credit facility or from other sources
on commercially reasonable terms. In addition, the Company has approximately
$5,600,000 of additional net proceeds that it could potentially realize upon
exercise of the Class A and Class B Warrants issued in June 1994, which are
redeemable by the Company under specified conditions.
Page 11 of 16
<PAGE> 12
PART II - OTHER INFORMATION
---------------------------
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits required to be filed as part of the
Quarterly Report on Form 10-QSB are listed in the attached Index
to Exhibits.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed
during the quarter ended January 29, 1995.
Page 12 of 16
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NOVAMETRIX MEDICAL SYSTEMS INC.
Dated: March 13, 1995 /s/WILLIAM J. LACOURCIERE
-------------- -------------------------
William J. Lacourciere
Chairman of the Board,
President and
Chief Executive Officer
Dated: March 13, 1995 /s/JOSEPH A. VINCENT
-------------- --------------------
Joseph A. Vincent
Vice President Finance,
Chief Financial Officer and
Principal Accounting Officer
Page 13 of 16
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
11 Statement Re: Computation of Per Share Earnings 15
27 Financial Data Schedule 16
</TABLE>
Page 14 of 16
<PAGE> 1
EXHIBIT 11
NOVAMETRIX MEDICAL SYSTEMS INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED ENDED
01-29-95 01-30-94 01-29-95 01-30-94
----------------------- -----------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares of
Common Stock outstanding 5,773,467 4,513,950 5,523,322 4,492,011
Net effect of dilutive common stock
equivalents (1) 1,962,226 2,160,407 2,093,475 2,106,917
Total weighted average number of shares
of Common Stock and dilutive common ---------- ---------- ---------- ----------
stock equivalents outstanding 7,635,693 6,674,357 7,616,797 6,598,928
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares of
Common Stock outstanding 5,773,467 4,513,950 5,523,322 4,492,011
Net effect of dilutive common stock
equivalents (1) 1,962,226 2,262,573 2,093,475 2,276,477
Total weighted average number of shares
of Common Stock and dilutive common ---------- ---------- ---------- ----------
stock equivalents outstanding 7,635,693 6,776,523 7,616,797 6,768,488
========== ========== ========== ==========
Net income $ 349,100 $ 124,908 $ 939,438 $ 494,545
Per common share amounts:
Primary $ .05 $ .02 $ .12 $ .07
Fully Diluted $ .05 $ .02 $ .12 $ .07
</TABLE>
(1) Common stock equivalents consist of the Company's Preferred Stock, stock
options, warrants and shares subscribed under the Company's Employee Stock
Purchase Plan. The computation of dilutive common stock equivalents is based on
the if-converted method for the Preferred Stock and on the treasury stock method
for the other common stock equivalents using the average market price for the
primary earnings per share computations and the higher of average or period-end
market price for the fully diluted earnings per share computations.
Page 15 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Novametrix Medical Systems Inc. Condensed Consolidated Statement of
Operations for the nine months ended January 29, 1995 and the Condensed
Consolidated Balance Sheet for the period ending January 29, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> JAN-29-1995
<CASH> 236,494
<SECURITIES> 0
<RECEIVABLES> 5,204,727
<ALLOWANCES> (250,000)
<INVENTORY> 4,723,718
<CURRENT-ASSETS> 10,066,999
<PP&E> 8,414,552
<DEPRECIATION> (7,201,692)
<TOTAL-ASSETS> 16,340,777
<CURRENT-LIABILITIES> 5,159,689
<BONDS> 1,708,333
<COMMON> 61,304
0
2,500,000
<OTHER-SE> 6,911,451
<TOTAL-LIABILITY-AND-EQUITY> 16,340,777
<SALES> 17,438,186
<TOTAL-REVENUES> 17,438,186
<CGS> 7,688,983
<TOTAL-COSTS> 16,127,098
<OTHER-EXPENSES> 65,365
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291,285
<INCOME-PRETAX> 954,438
<INCOME-TAX> 15,000
<INCOME-CONTINUING> 939,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 939,438
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
