<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 October 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
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NOVAMETRIX MEDICAL SYSTEMS INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-0977422
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
</TABLE>
1 Barnes Industrial Park Road, Wallingford, CT 06492
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(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: 6,560,367 shares issued and outstanding as of
December 8, 1995.
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
Page 1 of 15
Index to Exhibits at Page 13
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
- ------------------------------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income (Unaudited) -
Quarters ended October 29, 1995 and October 30, 1994 3
Six months ended October 29, 1995 and October 30, 1994 4
Condensed Consolidated Balance Sheets (Unaudited) -
October 29, 1995 and April 30, 1995 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six months ended October 29, 1995 and October 30, 1994 7
Notes to Condensed Consolidated Financial Statements
(Unaudited) - October 29, 1995 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 9
PART II. OTHER INFORMATION
- --------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
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</TABLE>
Page 2 of 15
<PAGE> 3
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
OCTOBER 29, 1995 OCTOBER 30, 1994
---------------- ----------------
<S> <C> <C>
Net sales $ 6,148,356 $ 6,023,844
Costs and expenses:
Cost of products sold 2,667,922 2,641,121
Research and product development 658,521 596,264
Selling, general and administrative 2,264,167 2,284,387
Interest 74,710 81,578
Other expense 18,072 26,330
---------- ----------
5,683,392 5,629,680
---------- ----------
INCOME BEFORE INCOME TAXES 464,964 394,164
Income taxes - current 8,000 8,000
---------- ----------
NET INCOME $ 456,964 $ 386,164
========== ==========
Per common share amounts:
Primary $ .06 $ .05
========== ==========
Fully diluted $ .06 $ .05
========== ==========
Average common shares outstanding:
Primary 7,926,223 8,149,543
Fully diluted 7,926,223 8,149,543
</TABLE>
See accompanying notes.
Page 3 of 15
<PAGE> 4
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
OCTOBER 29, 1995 OCTOBER 30, 1994
---------------- ----------------
<S> <C> <C>
Net sales $ 12,228,865 $ 11,518,907
Costs and expenses:
Cost of products sold 5,258,190 5,033,263
Research and product development 1,343,774 1,130,685
Selling, general and administrative 4,576,499 4,504,513
Interest 149,532 205,805
Other expense 39,739 46,303
---------- ----------
11,367,734 10,920,569
---------- ----------
INCOME BEFORE INCOME TAXES 861,131 598,338
Income taxes - current 16,000 8,000
---------- ----------
NET INCOME $ 845,131 $ 590,338
========== ==========
Per common share amounts:
Primary $ .11 $ .08
========== ==========
Fully diluted $ .11 $ .08
========== ==========
Average common shares outstanding:
Primary 8,004,736 7,749,484
Fully diluted 8,004,736 7,759,128
</TABLE>
See accompanying notes.
Page 4 of 15
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS OCTOBER 29, 1995 APRIL 30, 1995
------ ---------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 275,723 $ 272,033
Accounts receivable, less
allowance for losses of $250,000 5,250,019 5,247,171
Inventories:
Finished products 1,347,873 1,247,541
Work in process 1,360,878 1,088,864
Materials 2,591,835 2,595,455
---------- ----------
5,300,586 4,931,860
Prepaid expenses 122,144 106,440
---------- ----------
TOTAL CURRENT ASSETS 10,948,472 10,557,504
EQUIPMENT 5,950,134 5,736,892
Accumulated depreciation (deduction) (4,801,224) (4,603,479)
---------- ----------
1,148,910 1,133,413
LICENSE, TECHNOLOGY, PATENTS AND OTHER 7,707,076 7,606,069
Accumulated amortization (deduction) (2,928,131) (2,691,005)
---------- ----------
4,778,945 4,915,064
---------- ----------
$16,876,327 $16,605,981
========== ==========
</TABLE>
See accompanying notes.
Page 5 of 15
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY OCTOBER 29, 1995 APRIL 30, 1995
- ------------------------------------ ---------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion long-term debt $ 1,100,000 $ 925,000
Accounts payable 1,572,719 1,662,950
Accrued expenses 1,219,947 1,557,798
--------- ---------
TOTAL CURRENT LIABILITIES 3,892,666 4,145,748
LONG-TERM DEBT, less current portion 1,833,333 2,308,333
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 6,230,399 at October 29, 1995
and 6,136,533 at April 30, 1995,
including 338,452 Treasury shares 62,304 61,365
Additional paid-in capital 26,429,543 26,239,685
Retained-earnings deficit (15,354,481) (16,162,112)
Treasury stock (2,487,038) (2,487,038)
---------- ----------
10,150,328 9,151,900
---------- ----------
$16,876,327 $16,605,981
========== ==========
</TABLE>
See accompanying notes.
Page 6 of 15
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
OCTOBER 29, 1995 OCTOBER 30, 1994
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 845,131 $ 590,338
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 200,291 223,028
Amortization 242,997 244,824
Changes in operating assets and liabilities
Increase in accounts receivable (2,848) (389,484)
Increase in inventories (368,726) (198,684)
(Increase) decrease in prepaid expenses (15,704) 242,648
(Decrease) increase in accounts payable (90,231) 162,937
(Decrease) increase in accrued expenses (387,851) 209,392
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 423,059 1,084,999
INVESTING ACTIVITIES
Purchases of equipment (215,788) (331,486)
Purchases of license, technology, patents and other (106,878) (708,089)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (322,666) (1,039,575)
FINANCING ACTIVITIES
Proceeds from borrowings 2,500,000
Principal payments on borrowings (250,000) (5,910,007)
Principal payment on customer advance (654,400)
Dividends on Preferred Stock (37,500) (37,500)
Net proceeds from sales of Common Stock 190,797 4,057,906
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (96,703) (44,001)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 3,690 1,423
Cash and cash equivalents at beginning of period 272,033 267,882
--------- ---------
Cash and cash equivalents at end of period $ 275,723 $ 269,305
========= =========
</TABLE>
See accompanying notes.
Page 7 of 15
<PAGE> 8
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 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 quarter and six months ended October 29, 1995 are not
necessarily indicative of the results that may be expected for the year ending
April 28, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-KSB for the year ended April 30, 1995.
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 15
<PAGE> 9
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Operating results for the quarter and six months ended October 29, 1995
compared to the quarter and six months ended October 30, 1994 reflect the
Company's continued improvement in performance over the last several years.
For the quarter ended October 29, 1995, the Company recorded net income of
approximately $457,000 or $.06 per share on net sales of approximately
$6,148,000 compared to net income of approximately $386,000 or $.05 per share
on net sales of approximately $6,024,000 for the second quarter of the prior
fiscal year. For the six-month period ended October 29, 1995, the Company
recorded net income of approximately $845,000 or $.11 per share on net sales of
approximately $12,229,000 compared to net income of approximately $590,000 or
$.08 per share on net sales of approximately $11,519,000 for the first six
months of the prior fiscal year.
Net sales increased by approximately $124,000 or 2% when comparing the
quarter ended October 29, 1995 to the quarter ended October 30, 1994, and
increased by approximately $710,000 or 6% when comparing the six-month period
ended October 29, 1995 to the corresponding period of the prior fiscal year.
The increase for both periods was primarily attributable to the continued
growth of product sales, particularly international, and to higher sales levels
to OEM customers who utilize the Company's technology in their own monitoring
systems. A reduction in non-hospital product sales compared to the unusually
high levels of the prior year, partially offset these increases.
Cost of products sold as a percentage of net sales of 43.4% and 43.0%,
respectively, for the quarter and six months ended October 29, 1995 reflected a
modest improvement compared to the 43.9% and 43.7% , respectively, reported for
the quarter and six months ended October 30, 1994. The improvement in cost of
products sold as a percentage of net sales resulted primarily from favorable
product mix compared to the corresponding periods of the prior fiscal year. The
Company's continued attention to quality and cost also contributed to the
sustained improvement.
Research and product development ("R & D") expenses increased by
approximately $62,000 or 10% for the quarter ended October 29, 1995 compared
to the corresponding period of the prior fiscal year, and increased by
approximately $213,000 or 19% when comparing the six months ended October 29,
1995 to the six months ended October 30, 1994. For both the three month and six
month comparisons, the increase was primarily due to higher levels of salaries
and related fringe benefits and increased outside professional services,
partially offset by reduced spending for R & D materials compared to the prior
year. A portion of the six month increase included expenses which are not
expected to continue, and R & D spending is expected to approximate 10% of net
sales for the balance of Fiscal 1996.
Selling, general and administrative ("S,G&A") expenses decreased by
approximately $20,000 or 1% for the quarter ended October 29, 1995 compared to
the quarter ended October 30, 1994. S,G&A expenses increased by approximately
$72,000 or nearly 2% when comparing the six months ended October 29, 1995 to
the six months ended October 30, 1994 due to increased administrative costs.
International selling expenses, which increased as a result of costs associated
with additional sales
Page 9 of 15
<PAGE> 10
personnel and higher sales levels, were effectively offset by lower domestic
selling expenses for both the quarterly and six month comparisons.
Administrative recruitment fees and general insurance expenses accounted for
all of the S,G&A expense increase when comparing the six months ended October
29, 1995 to the first six months of the prior fiscal year.
Interest expense decreased by approximately $7,000 or 9% for the quarter
ended October 29, 1995 and decreased by approximately $56,000 or 27% for the
six months ended October 29, 1995 compared to the corresponding periods of the
prior fiscal year. The improvement for the quarterly comparison resulted from
reduced bank debt levels primarily as a result of scheduled principal payments.
The improvement shown in the six month comparisons also reflects the favorable
impact of the Company's public offering consummated in June 1994, the proceeds
of which were used to reduce bank debt.
The Company's backlog of firm orders aggregated approximately $3,070,000
as of October 29, 1995 compared to approximately $3,994,000 as of April 30,
1995. Approximately $609,000 of the decrease was related to long-term OEM
agreements. Except for orders pursuant to such long-term OEM agreements, the
Company traditionally 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 October 29, 1995, the Company's working capital approximated
$7,056,000 representing an increase of approximately $644,000 over the April
30, 1995 level of $6,412,000. The Company's current ratio improved to 2.8 to 1
at October 29, 1995 from 2.5 to 1 at April 30, 1995, primarily as a result of
the Company's continued improvement in operating results. In addition, the
Company had $1,425,000 available for borrowing under its revolving credit
facility at both October 29, 1995 and April 30, 1995.
Approximately $423,000 of cash was provided by operations for the six
months ended October 29, 1995. Income of approximately $1,288,000 before
non-cash deductions for depreciation and amortization was partially offset by
the net impact of increases in inventory and reductions in accounts payable and
accrued expenses.
Cash flow from operations is expected to exceed scheduled debt service
requirements and planned investing activities for the balance of Fiscal 1996.
Further, management believes that the cash provided by operations combined with
the availability of funds under the revolving credit agreement will support its
planned rate of growth, and that additional funds, if required, will be
available 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 10 of 15
<PAGE> 11
PART II- OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders (the "Meeting") of the Company was
held on September 11, 1995 in Wallingford, Connecticut.
(b) Not applicable because:
(i) Proxies for the Meeting were solicited pursuant to Regulation
14A under the Securities Exchange Act of 1934,
(ii) There was no solicitation in opposition to management's
nominees as listed in the Company's Proxy Statement dated
August 15, 1995, and
(iii) Such nominees were elected.
(c) Matters voted upon at the Meeting included the following:
<TABLE>
<CAPTION>
Votes Votes Withheld/
For Against Abstain
------------ ----------- -----------
<S> <C> <C> <C> <C>
(i) Election of Thomas M. Haythe 5,288,917 276,665
and William J. Lacourciere to
serve as Class C directors for
the next three years.
(ii) Ratification of the selection of 5,401,117 121,335 43,130
Ernst & Young LLP to serve as
the Company's independent
auditors for fiscal year 1996.
</TABLE>
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 October 29, 1995.
Page 11 of 15
<PAGE> 12
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: December 11, 1995 s/WILLIAM J. LACOURCIERE
----------------- ------------------------
William J. Lacourciere
Chairman of the Board,
President and
Chief Executive Officer
Dated: December 11, 1995 s/JOSEPH A. VINCENT
----------------- -------------------
Joseph A. Vincent
Vice President Finance,
Chief Financial Officer and
Principal Accounting Officer
Page 12 of 15
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
11 Statement Re: Computation of Per Share Earnings 14
27 Financial Data Schedule 15
</TABLE>
Page 13 of 15
<PAGE> 1
EXHIBIT 11
NOVAMETRIX MEDICAL SYSTEMS INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
10-29-95 10-30-94 10-29-95 10-30-94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares of
Common Stock outstanding 5,877,547 5,692,177 5,864,584 5,398,250
Net effect of dilutive common stock
equivalents (1) 2,048,676 2,457,366 2,140,152 2,351,234
Total weighted average number of shares
of Common Stock and dilutive common ---------- ---------- ---------- ----------
stock equivalents outstanding 7,926,223 8,149,543 8,004,736 7,749,484
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares of
Common Stock outstanding 5,877,547 5,692,177 5,864,584 5,398,250
Net effect of dilutive common stock
equivalents (1) 2,048,676 2,457,366 2,140,152 2,360,878
Total weighted average number of shares
of Common Stock and dilutive common ---------- ---------- ---------- ----------
stock equivalents outstanding 7,926,223 8,149,543 8,004,736 7,759,128
========== ========== ========== ==========
Net income $ 456,964 $ 386,164 $ 845,131 $ 590,338
PER COMMON SHARE AMOUNTS:
Primary $ .06 $ .05 $ .11 $ .08
Fully Diluted $ .06 $ .05 $ .11 $ .08
</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 14 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Novametrix Medical Systems Inc. Condensed Consolidation Statement of
Income for the six months ended October 29, 1995 and the Condensed Consolidated
Balance Sheets at October 29, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-28-1996
<PERIOD-END> OCT-29-1995
<CASH> 275,723
<SECURITIES> 0
<RECEIVABLES> 5,500,019
<ALLOWANCES> (250,000)
<INVENTORY> 5,300,586
<CURRENT-ASSETS> 10,948,472
<PP&E> 5,950,134
<DEPRECIATION> (4,801,224)
<TOTAL-ASSETS> 16,876,327
<CURRENT-LIABILITIES> 3,982,666
<BONDS> 1,833,333
<COMMON> 62,304
0
2,500,00
<OTHER-SE> 8,588,024
<TOTAL-LIABILITY-AND-EQUITY> 16,876,327
<SALES> 12,228,865
<TOTAL-REVENUES> 12,228,865
<CGS> 5,258,190
<TOTAL-COSTS> 11,178,463
<OTHER-EXPENSES> 39,739
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,532
<INCOME-PRETAX> 861,131
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 845,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 845,131
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
