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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 20-8969
NOVAMETRIX MEDICAL SYSTEMS INC.
(Name of small business issuer in its charter)
Delaware 06-0977422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Barnes Industrial Park Road
Wallingford, Connecticut 06492
(Address of principal executive offices) (Zip Code)
203-265-7701
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
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Name of each exchange
Title of each class on which registered
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None None
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Securities registered under Section 12(g) of the Exchange Act:
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Common Stock,
$.01 par value Class A Warrants Class B Warrants
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(Title of class) (Title of class) (Title of class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Page 1 of pages
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Exhibit Index at page .
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State issuer's revenues for its most recent fiscal year.
$24,043,404
State the aggregate market value of the voting stock held by
non-affiliates, computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of filing.
Aggregate market value
as of June 30, 1995 ..............$34,670,668
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value,
as of June 30, 1995 ................5,873,547 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein, and the Part of the Form 10-KSB into which the
document is incorporated:
Proxy Statement to be filed with respect to the Annual Meeting
of Stockholders to be held on Monday, September 11, 1995 -- Part III.
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ITEM 1. BUSINESS.
GENERAL
Organized in 1978, the Company is engaged in the business of designing,
developing, manufacturing and marketing monitors and sensors which provide
continuous and non-invasive measurements of a patient's blood gas levels (oxygen
and carbon dioxide) and respiratory mechanics (lung pressure, flow and volume).
The Company's current product line consists of the following:
- Capnographs -- monitors which measure the level of
exhaled carbon dioxide.
- Pulse Oximeters -- monitors which measure arterial blood
oxygen saturation levels and pulse rates.
- Transcutaneous Blood Gas Monitors -- monitors which measure
oxygen and carbon dioxide levels through the skin.
- Respiratory Mechanics Monitors -- monitors which
measure pressure, flow and volume in a patient's
airway and lungs.
- Reusable and disposable sensors and adapters,
related accessories and replacement parts.
BLOOD GAS MONITORS
Levels of oxygen and carbon dioxide in the blood are important
indicators of the condition of critically ill or injured patients. These levels
are particularly important to doctors, nurses, therapists and other clinicians
during anesthesia in the operating room, the assessment of a patient in the
emergency room, the monitoring of a patient in the intensive care unit and
recovery room and throughout respiratory therapy applications. Healthy people
have a normal range of oxygen and carbon dioxide levels in their blood, lungs
and other tissue. Also, depending on a person's size and age, there is a range
of normal airway and lung pressure, flow and volume levels. By continuously
monitoring these ranges, a change in a patient's status can be detected at an
early stage and modified before serious deterioration in a patient's condition
occurs. In addition, if a patient's blood gas levels or respiratory mechanics
are outside their normal ranges, continuous monitoring provides healthcare
professionals with important information concerning the progress of the medical
treatment undertaken to bring them back within normal ranges.
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Until recent years, the only methods of determining the body's oxygen
and carbon dioxide levels involved invasive techniques of withdrawing blood
samples from a patient's artery and waiting for laboratory analysis of the
samples. The Company's products offer healthcare providers the alternative of
non-invasive, continuous and immediate measurement of oxygen and carbon dioxide.
The Company's blood gas monitoring products utilize three different
technologies, each of which is suitable for different applications.
CAPNOGRAPH MONITORS. The Company's capnographs (or end-tidal carbon
dioxide monitors) provide a continuous, non-invasive measurement and display of
the amount of carbon dioxide in each breath exhaled by the patient. Clinically,
end-tidal carbon dioxide levels have been correlated to a patient's arterial
blood carbon dioxide levels. Measurement of these levels provides a simple,
non-invasive method of estimating the carbon dioxide levels of the patient.
Applications for capnographs include (i) intubation verification, the
verification of the introduction of an airway tube into the trachea (air tube)
rather than the esophagus (food tube) and the verification of an open and
unobstructed airway; (ii) extubation detection, the disclosure of the accidental
dislodging from the trachea of an airway tube; (iii) ventilation management
through the disclosure of ventilator malfunctions and the proper adjustment of
mechanical ventilation to match a patient's condition and needs; and (iv)
verification of the effectiveness of cardio-pulmonary resuscitation (CPR).
The Company's capnographs utilize a form of infrared spectrometry (a
method of analyzing gas content by measuring the amount of infrared energy
absorbed) developed by the Company to measure levels of expired carbon dioxide
throughout the patient's respiratory cycle. These monitors provide both a
graphical and digital display of carbon dioxide levels and respiratory rate. The
reliability and accuracy of capnography have made its use a rapid indicator of
proper and continuous intubation, obstructions in the airway and pulmonary
efficiency in eliminating carbon dioxide. In addition, end-tidal carbon dioxide
and respiratory rate measurements facilitate proper and cost efficient
ventilator use. In recognition of its accurate measurement of clinically
significant facts, as well as the added degree of safety that it affords
patients, capnography has been recommended for use in the operating room by the
American Society of Anesthesiologists and in the intensive care unit by the
Society of Critical Care Medicine.
The Company has two bedside capnographs which are portable devices: the
CAPNOGARD(TM), a lightweight, smaller
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capnograph (measuring approximately 3" high, 9" wide and 8" deep, and weighing 8
pounds), and the CO(2)SMO(TM), a combined capnograph and pulse oximeter which is
the same size as the CAPNOGARD(TM). These "mainstream" capnographs are designed
to take measurements at the patient's airway through infrared measurement as
compared to "sidestream" measurements of exhaled breath which involves the
drawing of samples through tubes connected to bedside monitors and are
susceptible to moisture and other secretion contaminants. Both models utilize a
new generation, durable and solid-state sensor developed by the Company. These
monitors also permit sampling on non-intubated patients. The CAPNOGARD(TM) has a
list sales price of approximately $7,500 and the CO(2)SMO(TM) has a list sales
price of approximately $9,500.
The Company has two larger mainstream capnographs, the Model 1260 and
the Model 7000A. The Model 1260 measures both end-tidal carbon dioxide levels
and a patient's respiratory rate. The Model 7000A combines these parameters with
arterial oxygen saturation and pulse rate measurements. Both models utilize the
Company's mainstream infrared spectrometry solid-state sensor and incorporate
training/diagnostic software packages in an easy to use, menu-driven system. The
Model 1260 has a list sales price of approximately $4,500 and the Model 7000A
has a list sales price of approximately $6,000.
PULSE OXIMETERS. The Company's pulse oximeters provide a continuous and
non-invasive measurement and display of pulse rate and arterial blood oxygen
saturation through the detection and measurement of infrared light absorbed by
hemoglobin in the blood. Reusable finger and multi-position sensors
(Y-Sensor(TM)) are available for adult, pediatric and neonatal applications and
eliminate the use of costly disposable sensors. Pulse oximeters have been
clinically demonstrated as safe, accurate and cost-effective for the
determination and trending of levels of blood oxygen saturation and pulse rates.
Applications for these monitors are widespread since the level of oxygen in a
patient's blood can be as important a vital sign of a patient's condition as the
patient's temperature, blood pressure, respiratory rate and electrocardiogram.
Pulse oximetry is used in many departments of the hospital, including the
operating room by anesthesiologists, emergency rooms and intensive care units by
nurses and respiratory therapists and neonatal intensive care units by
neonatologists. Additional applications include inter- and intra-hospital
transport situations and clinical applications in surgical centers, doctors'
offices and clinics during out-patient procedures.
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The Company has a family of pulse oximeters designed to meet the
individual needs of clinicians in a variety of settings. Each oximeter utilizes
the Company's reusable Superbright(tm) sensors, which provide safe and accurate
results on all types of patients, including neonates (an infant less than 28
days old) and poorly perfused patients (patients with insufficient blood flow).
Our full-featured oximeter, the OXYPLETH(tm) provides high visibility for the
plethysmographic waveform (a graphic display of arterial pulse, also known as a
plethysmogram) through the use of digital technology combined with advanced
software developed by the Company. The Model 515A pulse oximeter provides many
of the advanced features of the OXYPLETH with trending capability for up to 24
hours, but excludes the plethysmogram. The Model 515B (and Model 515C with
plethysmogram) pulse oximeters, introduced by the Company in 1995, utilize the
same basic technology and software as our more expensive models to provide the
same oxygen saturation and pulse rate information but with fewer available added
features.
This family of products also includes a battery operated handheld pulse
oximeter, the SPO(2)Tx/(TM). Measuring approximately 6" high, 4" wide and 1 1/2"
deep and weighing less than 1 pound, this monitor's light-weight design and
portability permits wide applications such as use in emergency transport
situations, doctors' offices, clinics during outpatient procedures and
performance of spot checks on patients in all areas of the hospital.
The Oxypleth has a list sales price of approximately $3,000 and the
Model 515A has a list price of approximately $2,500. The Model 515B, Model 515C
and SPO(2)Tx/(TM) have list sales prices of approximately $2,000, $2,200 and
$1,000, respectively.
TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous
(through the skin) blood gas monitors provide continuous and non-invasive
measurements of oxygen and carbon dioxide levels in the skin tissue of patients.
These monitors utilize dual parameter sensors attached to the patient's skin
surface to measure the amount of oxygen and carbon dioxide diffusing through the
skin. Based upon the magnitude of the diffusion of the blood gas molecules, the
monitor converts the sensor readings into a value corresponding to the oxygen or
carbon dioxide at the patient's skin surface and displays the information on the
monitor. Premature and other critically ill newborn infants are the primary
patients who benefit from the use of transcutaneous monitoring. In view of their
limited blood supply, frequent invasive blood sampling has been recognized as
traumatic and unsatisfactory for these patients. The
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Company intends to continue to develop and enhance its transcutaneous blood gas
monitors for neonatal and adult use in intensive care and vascular medicine
applications.
The Company's Model 840 transcutaneous monitor utilizes a simple
menu-driven system which takes the user through automatic calibration
procedures, histogram (graphical representation of data collected over time) and
printout options. This monitor, which features a bright, vacuum fluorescent
digital display has a list sales price of approximately $6,500.
RESPIRATORY MECHANICS MONITORS
The Company's respiratory mechanics monitors provide a continuous and
non-invasive measurement of the pressure, flow and volume in a patient's airway,
as well as measurements of other pulmonary mechanics parameters. Optimal carbon
dioxide elimination and arterial oxygenation during mechanical ventilation
require the clinical management of the pressure, flow and volume of airway gases
being administered. The Company's respiratory monitors provide important data
which allows therapists to properly and efficiently administer ventilation
therapy. Applications for these monitors include the clinical management of the
proper pressure and flow of airway gases being delivered to a ventilated
patient's lungs and the measurement of the efficiency of the lungs, allowing
therapists to wean a patient from expensive mechanical ventilation to
spontaneous breathing at the clinically appropriate and most cost-effective
time. Respiratory therapy and critical care departments with patients requiring
mechanical ventilation currently represent the primary users of the Company's
respiratory mechanics monitors.
The Company's VenTrak(TM) monitor provides graphical monitoring of
airway flow, airway pressure and lung volume. It also has an ability to perform
waveform (graphical) analysis and to calculate a variety of physiologic
parameters relating to lung function which the Company believes were not
previously available on a continuous, non-invasive basis in the clinical
setting. This information provides a higher degree of safety during mechanical
ventilation and allows therapists to adjust ventilation to match a patient's
condition and to remove patients from ventilation at the clinically appropriate
and most cost-effective time. The VenTrak(TM) monitor has a list sales price of
approximately $9,400 to $13,000 depending on its configuration. The Company also
manufactures a respiratory monitor for mechanical ventilators under the name
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PNEUMOGARD(R) Model 1200. The PNEUMOGARD(R) Model 1200 has a list sales price of
approximately $2,900.
The Company also maintains the exclusive rights for the commercial
manufacture and marketing of a disposable airway flow sensor which the Company
anticipates will replace those presently used in its respiratory mechanics
monitors upon completion of its development in fiscal 1996. The Company expects
that this technology will lower its manufacturing costs for these types of flow
sensors and will improve the accuracy of information currently obtainable from
these monitors.
The Company's capnography and respiratory mechanics technologies permit
the Company to provide both continuous and non-invasive blood gas monitoring and
respiratory mechanics monitoring for patients on mechanical ventilators.
SALES, MARKETING AND CUSTOMERS
The Company markets its products domestically and internationally
directly through salespersons and outside distributors to its customers, most of
which are hospitals, on a retail, purchase order basis. All of the Company's
blood gas and respiratory mechanics products are marketed primarily to hospitals
for use in operating rooms, emergency rooms, intensive care units, respiratory
therapy departments, transport situations and in other departments where
critically ill or injured patients require monitoring. The Company also expects
to further increase its marketing efforts to physician groups and other
healthcare facilities such as nursing homes, surgical centers and outpatient
clinics.
The Company also markets its products directly to original equipment
manufacturers (OEM's) which incorporate certain of the Company's products and
technologies in the manufacture of their own multi-parameter systems,
ventilators and other non-competing products. Generally, the Company sells its
products to OEM customers pursuant to long-term contracts which, in certain
cases, provide for the purchase of minimum quantities of products at specified
prices. The Company assembles the products to be sold to OEM customers and,
generally, also agrees to provide maintenance and replacement parts. Currently,
the Company has eight long-term agreements with OEM customers, and continues to
seek additional agreements with other OEM customers. There can be no assurance
that the Company will be successful in obtaining other long-term OEM contracts.
The Company employs a 19-person direct United States sales force and
also utilizes ten outside distributors in
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the United States to sell its products. Typically, these distributors sell other
medical instruments and products, but do not sell products which compete
directly with those offered by the Company.
Internationally, the Company currently employs six sales and marketing
managers and has approximately 50 outside international distributors. The
Company markets its products in over 50 countries worldwide. The Company's
international net sales of products and services constituted 39%, 35% and 30% of
the Company's total net sales during Fiscal 1995, Fiscal 1994 and Fiscal 1993,
respectively. The Company is engaged in continuing efforts to improve and expand
the international distribution of its products and expects international sales
to continue to constitute a significant portion of the Company's total net
sales.
Many of the countries into which the Company sells its products require
governmental approval for the sale of the Company's medical instruments. In most
countries which require approval, the approval process is shorter than that in
the United States and, generally, the Company shares the costs associated with
the approval process with its international distributors. The Company believes
it has all necessary approvals to sell the products which it distributes
internationally.
All of the Company's international sales are denominated in United
States dollars. However, the volume of export sales of the Company's products
may be affected by fluctuations in the rate of exchange of the United States
dollar for the currency of the country in which sales are made. The Company
believes that prior fluctuations in the strength of the United States dollar
have had a minimal impact on international sales of its products.
No customer accounted for more than 10% of the Company's net sales in
Fiscal 1995, Fiscal 1994 or Fiscal 1993.
Advertising of the Company's products consists primarily of displays at
medical meetings and trade shows. The Company also advertises in trade journals
and periodicals and cooperates in the publication of technical papers written by
medical authorities in areas relating to the Company's products.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are devoted to the
design and development of new monitor and sensor technology and to the
development and enhancement of
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its existing products. The Company anticipates offering new products in the
future; however, there can be no assurance that the Company will introduce new
products in successive fiscal years. With the advent of managed care and
continuing healthcare cost containment efforts, these research and development
activities are focused on providing technology and related products which
measure and record medically necessary information in a safe and cost-effective
manner.
The Company's research and development activities presently are, and
during the foreseeable future are expected to be, devoted primarily to the
development and enhancement of the Company's existing products and technologies
and to the design and development of new products. For Fiscal 1995, Fiscal 1994
and Fiscal 1993, the Company incurred aggregate expenses of approximately
$6,055,000 for these activities. Approximately $2,419,000 was attributable to
Fiscal 1995, approximately $1,954,000 to Fiscal 1994 and approximately
$1,682,000 to Fiscal 1993. All of the Company's research and development
activities are sponsored by the Company.
The Company's Cascadia Technology Division, located in Redmond,
Washington, is engaged principally in research and development. The research and
development portion of expenses related to this division are included in the
amounts stated in the preceding paragraph.
PRODUCTION AND SERVICE
Substantially all of the components in the Company's products are
manufactured by others and then assembled by the Company. The Company's assembly
operations require a variety of electronic and mechanical components and
supplies, as well as specialized equipment which the Company owns or leases.
The Company does not have any long-term contracts with any of its
suppliers and believes that the needed components and supplies are available
from alternate sources. The Company has not experienced any interruption of
production or deliveries of components, supplies or equipment. However, there
can be no assurance that the Company will continue to receive timely service or
that the Company would be able to find readily a substitute manufacturer if one
were needed on short notice. Interruption of the Company's sources of supply or
quality problems with the supplied components could have a material adverse
effect on the Company's business and financial position.
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The Company provides maintenance service for its products through
service technicians who are employees of the Company and through independent
service representatives. The Company's products utilize modular components which
have been designed for maximum maintenance accessibility and ease of removal for
repair or replacement. The Company warrants its products against defects in
material and workmanship, including parts and labor, for one year or more,
except for certain non-capital items which the Company warrants for shorter
periods. The Company also offers extended warranty programs that may be
purchased by its customers. Historically, the Company's annual warranty expenses
have been immaterial.
BACKLOG
Except for orders pursuant to long-term OEM agreements, the Company
ships its products on a current basis and substantially all of the product
backlog at April 30, 1995 is expected to be shipped within its normal operating
cycle. As such, the Company does not consider its backlog to be a meaningful
indicator of future sales.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company holds 21 U.S. patents and has pending applications for two
additional U.S. patents. The Company's patents primarily cover its capnography
technology which the Company believes provide it with a competitive advantage in
the marketplace. Although the Company holds patents and has patents pending
related to certain of the Company's products, the Company does not believe that
its business as a whole is or will be materially dependent upon patent
protection of these products. However, the Company will continue to seek patents
as it deems advisable to protect its research and development and the market for
its products.
Due to extensive patent coverage in the medical electronics instruments
industry and the rapid rate of issuance of new patents, certain components of
the Company's products may involve infringement of existing patents. The Company
believes that any risks presently being assumed with respect to any possible
patent infringement are reasonable business risks similar to those being assumed
by other companies in the industry.
The Company is the owner of approximately 25 trademarks in the United
States including, Novametrix(R), CAPNOGARD(TM), CO(2)SMO(TM), Y-Sensor(TM),
SPO(2)Tx/(TM), OXYPLETH(TM), SuperBright(TM), VenTrak(TM) and PNEUMOGARD(R).
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The Company relies on trade secrets and proprietary know-how, which it
will seek to protect, in part, by confidentiality agreements with certain of its
employees, suppliers and customers. However, there can be no assurance that the
Company's confidentiality agreements, when in place, will not be breached or
that the Company would have adequate remedies for any breach. There can be no
assurance that the Company's trade secrets or proprietary know-how will not
otherwise become known or be independently discovered by competitors.
As part of the Company's loan agreements with First Fidelity Bank
("First Fidelity"), formerly Union Trust Company, the Company granted a security
interest to First Fidelity in substantially all of its assets and entered into
certain security arrangements with First Fidelity, including the assignment of
all of the Company's right, title and interest in its patents and patent
applications to First Fidelity to secure all of its obligations owing First
Fidelity. In July 1995, in conjunction with an amendment to its revolving credit
loan agreement, First Fidelity released all of the Company's patents, patent
applications and trademarks as collateral and agreed to reconvey to the Company
title to the patents, patent applications and trademarks.
COMPETITION
The electronic medical instrumentation industry is extremely
competitive. The Company considers the most significant competitive factors in
its industry to be product capability and performance (including reliability and
ease of use), price and terms of purchase, availability of prompt and effective
maintenance, and an ability to introduce new and improved products with
regularity. The Company believes that it competes effectively in each of these
areas.
While continuous, non-invasive blood gas monitors are presently
available from several of the Company's competitors, the Company believes that
its continuous, non-invasive blood gas monitors provide advantages over
currently available competing products in terms of accuracy, reliability and
versatility. The Company believes its respiratory mechanics monitors also
compare favorably with competitive models in terms of accuracy of measurement
and reliability of service. Additionally, the Company feels that what it
believes to be the technological superiority in size, performance, reliability
and durability of its new products provides it with a competitive advantage.
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The electronic medical instrumentation industry is characterized by
rapid technological changes and advances. Although the Company believes that its
products are technologically current, the development of new technologies or
refinements of existing ones could at any time make the Company's existing
products technologically or economically obsolete. Although the Company is not
aware of any pending technological developments that would be likely to
materially and adversely affect its business or financial position, there can be
no assurance that such developments will not occur at any time.
Although all of the Company's competitors do not market all of the
products which the Company markets, the Company estimates that it competes with
at least eight competitors. Such competitors vary in size from those which are
smaller than the Company to divisions or subsidiaries of multinational
corporations. There can be no assurance that the Company will be able to compete
successfully with its competitors, some of which also have extensive production
facilities, well-established marketing and service organizations and recognized
reputations in the electronic medical instrumentation industry and also have far
greater financial resources than the Company has or will have in the foreseeable
future.
PRODUCT LIABILITY AND INSURANCE COVERAGE
From time to time, the Company is subject to product liability claims,
suits and complaints incidental to its business. These claims, suits and
complaints are covered by insurance policies maintained by the Company, subject
to certain policy limits. In addition, certain of the Company's OEM agreements
require the Company to maintain certain levels of product liability insurance.
The Company currently maintains product liability insurance in the amount of
$5,000,000 with a $50,000 per occurrence deductible up to an aggregate annual
deductible of $250,000. The Company is not aware of any pending claims, suits or
complaints, the disposition of which, in the opinion of management, would have a
material adverse effect upon the Company's financial position, results of
operations or liquidity. The Company, however, could be materially adversely
affected by successful product liability claims, and there can be no assurance
that the Company will have sufficient resources to satisfy any liability
resulting from claims not covered by existing insurance policies.
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REGULATION
The Company's products are subject to regulation in the United States
and in many of the foreign countries where the Company markets or seeks to
market its products.
Certain of the Company's products are "devices" within the meaning of a
1976 amendment to the Federal Food, Drug and Cosmetics Act. Under the amendment,
a manufacturer must obtain approval by the United States Food and Drug
Administration ("FDA") of certain new devices before they can be marketed in the
United States. The approval process requires that the safety and efficacy of
such devices be demonstrated by the manufacturer to the FDA. Under certain
circumstances, the cost of obtaining such pre-marketing approval may be high and
the process lengthy, and no assurance can be given that approval will be
obtained. All of the products currently marketed domestically by the Company
requiring pre-marketing approval from the FDA have been so approved.
In the future, certain other classes of medical devices will be
required to comply with industry-wide performance standards with respect to
safety and efficacy when these standards are promulgated by the FDA. The FDA has
not yet developed industry-wide performance standards with respect to the safety
and effectiveness of those products manufactured by the Company which would be
subject to such standards. When and if these standards are adopted, the Company
will be required to submit data demonstrating compliance with the standards
(during which period the Company may be permitted to continue to market products
which have previously been approved by the FDA).
There can be no assurance that the Company's products will comply with
the applicable industry-wide performance standards when and if adopted or that
the Company will receive the requisite approval to market any of its future
products. Any failure to receive approvals or non-compliance with performance
standards would have a material adverse effect on the Company's business and
financial position.
Underwriters' Laboratories, Inc. ("UL") has established safety
standards for patient-connective electrical apparatus. These standards, or their
equivalent, have been adopted as purchase specifications by many hospitals. The
Company has obtained UL or equivalent approval with respect to certain of its
products and has applied or intends to apply for approval with respect to all
its other products to which these standards apply. In addition, state and
municipal testing agencies have imposed similar standards
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with which the Company's products sold in particular areas may be required to
comply. The Company does not believe that compliance with these state and
municipal standards will involve significant expense.
Various countries in which the Company markets its products have
regulatory agencies which perform functions comparable to those of the FDA. To
date, foreign regulations have not adversely affected the Company's business;
however, there can be no assurance that any such regulations will not have a
material adverse effect on the Company's business and financial condition in the
future.
While President Clinton and Congress have both proposed cost cutting
adjustments to the federal budget aiming in part at this country's current
healthcare delivery system, and in particular, Medicaid and Medicare reforms,
the immediate threat to healthcare from government appears to have passed. The
move toward managed care has already had a major impact on the healthcare
industry in the United States by accelerating the trend toward shorter hospital
stays and the use of outpatient facilities rather than hospitalization and
lowering annual cost increases for healthcare spending. Additional cost saving
changes could further impact hospitals, clinics and other healthcare providers,
which form the Company's customer base. These possible changes could potentially
reduce or further delay capital expenditures by these providers, and could
change the users and markets for the Company's products. However, the acute care
portion of a hospital (including the operating room and intensive care unit)
which is a significant market for the Company's products should not be greatly
affected by the trend toward the use of outpatient facilities as such outpatient
facilities generally care for patients who are not critically ill. In addition,
the trend toward managed competition may improve sales of certain of the
Company's non-disposable products which provide substantial cost savings
compared to similar disposable products sold by its competitors, and may also
improve sales of other Company products that improve patient throughput and
thereby result in shorter hospital stays.
The uncertainty associated with the ultimate direction of changes
within the healthcare system, if any, has caused some hospitals and other
healthcare providers to defer capital and other expenditures pending
clarification of the future direction of the healthcare industry. Although the
trend toward managed competition could have a positive impact on the Company's
business by providing increased coverage for medical procedures utilizing the
Company's products, thereby increasing demand for the Company's
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products, it is not possible at this time to predict what, if any, further
changes in healthcare will occur.
EMPLOYEES
As of April 30, 1995, the Company had a total of 173 full-time
employees, consisting of 68 production personnel, 33 research and development
personnel, 58 sales, marketing and service personnel and 14 administrative,
managerial and financial personnel. None of the Company's employees is covered
by a collective bargaining agreement. The Company considers its relationship
with its employees to be satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to the executive officers of the
Registrant is set forth below:
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Positions
Name with the Company Age
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William J. Lacourciere Chairman of the Board, 55
President, Chief
Executive Officer and
Director
Joseph A. Vincent Vice President 43
Finance, Chief
Financial Officer,
Treasurer, Secretary
and Director
Leslie E. Mace Vice President 49
Engineering
</TABLE>
William J. Lacourciere has been Chairman of the Board of the Company
since September 1991, Chief Executive Officer since February 1991, President
since August 1986 and a director since October 1982. He served as Chief
Operating Officer from March 1983 to February 1991. Mr. Lacourciere served as
Executive Vice President from March 1983 to August 1986. From October 1982 to
March 1983, he served as Executive Vice President Marketing. From April 1980 to
October 1982, Mr. Lacourciere served as Vice President Domestic Sales.
Joseph A. Vincent has been Vice President Finance of the Company since
August 1991, Treasurer since February 1991 and Chief Financial Officer and
Secretary since April 1990. He served as Controller from September 1984 to April
1990. Mr. Vincent held various positions with Picker International, Inc. (a
manufacturer of medical diagnostic
<PAGE> 17
17
instruments and supplies) from August 1974 until he joined the Company in August
1983. Mr. Vincent has been a director of the Company since February 1994.
Leslie E. Mace has been Vice President Engineering of the Company and
General Manager of the Company's Cascadia Division in Redmond, Washington since
March 1991. He served as Vice President of the Company's Cascadia Division from
May 1989 to March 1991. Mr. Mace served as Vice President, Chief Operating
Officer and Engineering Manager of Cascadia Technology Corporation, a Washington
corporation (research and development company), from prior to 1988 to April
1989.
ITEM 2. PROPERTIES.
The Company's main plant and executive offices are located at One
Barnes Industrial Park Road, Wallingford, Connecticut, where the Company leases
30,000 square feet of office and production space under a five-year lease
expiring in September 1995. The lease provides for minimum annual rental
payments of $150,000. In addition, the Company is also required to pay for
repairs, property taxes and insurance relating to this facility. The Company
also leases approximately 6,000 square feet of warehouse space at an adjacent
site in Wallingford, Connecticut. The lease for such space expired on October
31, 1992; however, the Company has continued to occupy the space on a
month-to-month basis for monthly rental payments of $2,000. The Company is
actively reviewing various space alternatives, including an extension of its
current lease at $6.00 per square foot and believes that it can renew either of
these leases or enter into new leases for adjacent, equivalent space on
commercially reasonable terms.
In addition, the Company leases a building in Redmond, Washington
containing approximately 7,000 square feet of floor space under a three-year
lease expiring in March 1997. This building is used primarily for research and
development with some manufacturing support. The lease provides for rental
payments of approximately $53,000 per year, plus taxes, insurance and other
expenses.
The Company believes that its facilities are well maintained, in good
operating condition and are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a
<PAGE> 18
18
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
See also "Patents, Trademarks and Proprietary Rights" and "Products
Liability and Insurance Coverage" under "Item 1. Business."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of Fiscal 1995.
<PAGE> 19
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Common Stock trades on the Nasdaq Stock Market under the
symbol "NMTX". The following table sets forth the range of high and low sales
prices per share for the Common Stock for Fiscal 1994 and Fiscal 1995.
<TABLE>
<CAPTION>
HIGH SALE LOW SALE
--------- --------
<S> <C> <C>
FISCAL 1994
First Quarter...................................................................... $4 1/2 $2 3/4
Second Quarter..................................................................... 4 1/4 3 1/4
Third Quarter...................................................................... 5 7/8 3 3/4
Fourth Quarter..................................................................... 5 3/4 4 1/4
FISCAL 1995
First Quarter...................................................................... $5 5/8 $4
Second Quarter..................................................................... 7 3/8 5 1/8
Third Quarter...................................................................... 5 5/8 3 7/8
Fourth Quarter..................................................................... 5 3/8 4
</TABLE>
On July 21, 1995, the last sale price of the Common Stock as reported
on the Nasdaq Stock Market was $5 3/8.
As of July 21, 1995, there were approximately 992 record holders of the
Common Stock. No dividends have been declared on the Common Stock since the
Company was organized. In addition, a loan agreement and a securities purchase
agreement to which the Company is a party and the Company's Certificate of
Designation of Series B Preferred Stock contain, among other provisions, various
covenants restricting the Company's ability to pay cash dividends to holders of
the Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED MAY 1, 1994
Net sales increased by 16% to approximately $24.0 million in Fiscal
1995 compared to net sales of approximately $20.8 million in the prior fiscal
year. International revenue growth of 28% was the largest single contributing
factor. Sales of sensors and electronics to Original Equipment Manufacturers
("OEM") who utilize our technology in their systems, were responsible for
<PAGE> 20
20
approximately $1.4 million of the growth in overall sales revenues. Sales to our
domestic markets were 2 percent lower than sales to these markets recorded in
the prior fiscal year. The Company expects continued improvement in
international and OEM sales levels in the next fiscal year, and domestic sales
are also expected to strengthen as the result of strategic changes implemented
in the domestic sales effort.
Cost of sales as a percentage of net sales increased from 43% to 44%
when comparing the current fiscal year to Fiscal 1994, primarily due to the
higher international content of net sales reported. On-going quality and cost
reduction efforts, with significant contributions from both the manufacturing
and new product development areas, are expected to minimize any potential impact
on margins due to the continued growth of international sales as a percentage of
our overall revenues.
Research and Product Development ("R&D") expenses increased by 24%, to
approximately $2,419,000 compared to $1,954,000 reported in the prior fiscal
year. This increase of almost $465,000 resulted primarily from higher levels of
salaries and related fringe benefit costs, supplies, and outside services
associated with increased product development efforts. Costs associated with
providing new OEM customers with technical development assistance, and increased
depreciation expense associated with higher levels of assets, also contributed
to the year-to-year increase.
Selling, General and Administrative ("S,G&A") expenses increased by 5%
when comparing Fiscal 1995 expenses to Fiscal 1994 expenses. Selling, marketing
and service related administrative costs accounted for 3% of the overall S,G&A
increase as the result of increased international selling expenses associated
with the higher levels of sales activities abroad, partially offset by a
reduction in domestic selling and marketing expenses. General and Administrative
expenses accounted for the remaining 2% due to increased accounting and
reporting fees, and higher insurance costs. The Company expects to commit
additional resources toward enhancing domestic hospital and non-hospital
revenues in Fiscal 1996, as well as supporting the increases in international
sales activities.
Interest expense in Fiscal 1995 decreased by 46% compared to the prior
fiscal year due to the significantly lower debt levels as the result of the
public offering consummated in June 1994. Scheduled principal payments during
Fiscal 1995 also contributed to the lower debt levels, and should continue to
have a positive impact on interest expenses in Fiscal 1996.
<PAGE> 21
21
Other expense (income), net, exclusive of the favorable $140,000
settlement of a contractual dispute in the prior fiscal year, increased by
approximately $9,000 compared to the prior fiscal year.
Income tax expense of $40,000 for Fiscal 1995 resulted from higher
taxable income levels compared to the prior year and was calculated on an
alternative minimum tax method after the utilization of a portion of the
Company's net operating loss carryforwards. As of April 30, 1995, approximately
$6,700,000 of net deferred tax assets have been recorded due to temporary timing
differences, business tax credits, and net operating loss carry forwards. The
realization of such deferred tax assets is dependent on the Company's ability to
generate sufficient future taxable income. As a result of the cumulative loss
position of the Company, there is insufficient positive evidence to indicate
that the deferred tax assets will be realized and therefore a valuation
allowance has been recorded as required.
YEAR ENDED MAY 1, 1994 COMPARED TO YEAR ENDED MAY 2, 1993
Results for Fiscal 1994 reflected the continued improvement in the
Company's operating results and compared favorably to Fiscal 1993. The Company
recorded net income for Fiscal 1994 of approximately $755,000 or $0.11 per share
compared to approximately $265,000 or $0.04 per share for the prior fiscal year.
Net sales increased by approximately $900,000 or 5% for Fiscal 1994
compared to the prior year. A significant increase in international product
sales and improved domestic product sales were partially offset by a reduction
in OEM sales as compared to the prior fiscal year. The Company expected initial
shipments to additional OEM customers during Fiscal 1995 to further enhance
revenue growth.
Cost of products sold as a percentage of net sales improved to 43% for
Fiscal 1994 compared to 46% for the prior fiscal year which reflected continuing
improvements in the quality and cost basis of the Company's products. The
Company expected its on-going cost control and design improvement efforts to
have a favorable impact on future profitability.
R&D expenses increased by 16% for Fiscal 1994 compared to the prior
fiscal year primarily due to increased salaries and related fringe benefits and
higher levels of expenditures for development materials. The Company anticipated
further increases in spending levels for R&D
<PAGE> 22
22
during Fiscal 1995 to approximately 10% of revenue in conjunction with its
business plans.
S,G&A expenses increased by 8% during Fiscal 1994 compared to the prior
fiscal year. Sales and marketing related expenses increased by 15% for Fiscal
1994 as compared to the prior fiscal year primarily due to increased salaries
and related fringe benefits, travel expenses, commissions on the higher sales
volume, and marketing development costs. These sales and marketing increases
were partially offset by decreased service and general and administrative
("G&A") expenses of 2% and 9%, respectively. The reductions in service and G&A
expenses resulted primarily from cost control improvements and decreased outside
legal and financial costs.
Interest expense decreased by 16% for Fiscal 1994 compared to the prior
fiscal year. Reduced bank debt levels of approximately $1,400,000 resulting from
scheduled principal payments were responsible for the improvement.
Other expense (income), net, reflected other income of approximately
($75,000) for Fiscal 1994 compared to other expense of approximately $75,000 for
the prior fiscal year. This decrease in net expenses of approximately $150,000
compared to the prior year resulted from the reversal during the second quarter
of Fiscal 1994 of approximately $140,000 of expenses previously recorded, due to
the favorable settlement of a contractual dispute.
LIQUIDITY AND SOURCES OF CAPITAL
The Company requires sufficient liquidity for funding the Company's
working capital needs, primarily inventory, accounts receivable and debt
service. The Company's primary source of working capital is cash flow from
operations. The Company also has available borrowing under its revolving credit
facility to cover timing fluctuations in its working capital demands.
At April 30, 1995 the Company had working capital of approximately
$6,400,000 and a current ratio of 2.5 to 1, compared to approximately $2,100,000
and 1.3 to 1, respectively, at May 1, 1994. These improvements resulted from the
debt restructuring completed in conjunction with the public offering consummated
in June 1994, and from the reclassification of a portion of the revolving credit
facility from current to long-term as the result of an amended two-year
agreement and the Company's expected utilization of this credit facility through
April 28, 1996.
<PAGE> 23
23
The Company's operating activities provided net cash of approximately
$1,900,000 in Fiscal 1995 compared to approximately $1,600,000 in Fiscal 1994.
The Company significantly reduced its debt service requirements as the result of
the June 1994 bank agreement, allowing the Company to utilize operating funds
for working capital requirements, investments in fixed assets and technology,
and for reducing the balance of the revolving credit facility.
Fiscal 1996 is expected to continue to reflect improvements in both
revenues and earnings which should positively impact cash provided from
operations. The Company also has additional availability against the revolving
credit agreement of $1,425,000 at April 30, 1995 and outstanding warrants which
could potentially provide additional operating funds, if exercised. The warrants
associated with the June 1994 public offering, are also callable by the Company,
fifty percent after December 8, 1995 and fifty percent after December 8, 1996,
in each case if the common stock price of the Company exceeds specified levels.
The Company believes that cash from operations will be sufficient to fund cash
requirements for the next year.
IMPACT OF INFLATION
The rate of inflation continues to have little, if any, impact on the
results of the Company. While management considers the possible effects of
inflation with respect to the future business plans of the Company, the rate of
inflation is not expected to have a material impact upon the growth of the
Company during Fiscal 1996.
<PAGE> 24
24
ITEM 7. FINANCIAL STATEMENTS.
For information concerning this Item, see "Item
13. Exhibits and Reports on Form 8-K."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE> 25
25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
Information with respect to the Company's executive officers
is contained in part in Part I under "Item 1. Business - Executive Officers of
the Registrant" and will be contained in part in the Company's definitive Proxy
Statement (the "Proxy Statement") for its 1995 Annual Meeting of Stockholders,
and is incorporated herein by reference. The information required by this Item
with respect to directors will be contained in the Proxy Statement and is
incorporated herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days subsequent to April
30, 1995.
ITEM 10. EXECUTIVE COMPENSATION.
The information required with respect to this Item will be
contained in the Proxy Statement, and such information is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required with respect to this Item will be
contained in the Proxy Statement, and such information is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required with respect to this Item will be
contained in the Proxy Statement, and such information is incorporated herein by
reference.
<PAGE> 26
26
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Information with respect to this Item regarding
financial statements is contained on pages F-2 to F-17 of this Annual Report on
Form 10-KSB.
Information with respect to this Item regarding
Exhibits required to be filed pursuant to Item 601 of Regulation SB is contained
in the attached Index to Exhibits, which Exhibits are incorporated herein by
reference. Exhibits 10(a), 10(b), 10(w), 10(x), 10(y) and 10(cc) are the
management contracts and compensatory plans or arrangements required to be filed
as part of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K:
None.
<PAGE> 27
27
POWER OF ATTORNEY
The registrant and each person whose signature appears below
hereby appoint William J. Lacourciere and Joseph A. Vincent as attorneys-in-fact
with full power of substitution, severally, to execute in the name and on behalf
of the registrant and each such person, individually and in each capacity stated
below, one or more amendments to the annual report which amendments may make
such changes in the report as the attorney-in-fact acting deems appropriate and
to file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: July 28, 1995
NOVAMETRIX MEDICAL SYSTEMS INC.
By/s/William J. Lacourciere
------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Dated: July 28, 1995
By/s/William J. Lacourciere
------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
<PAGE> 28
28
Dated: July 28, 1995
By/s/Joseph A. Vincent
-------------------------------
Joseph A. Vincent
Vice President Finance,
Principal Financial and
Accounting Officer and
Director
Dated: July 28, 1995
By/s/Thomas M. Haythe
-------------------------------
Thomas M. Haythe
Director
Dated: July 28, 1995
By/s/Michael J. Needham
-------------------------------
Michael J. Needham
Director
Dated: July 28, 1995
By/s/Photios T. Paulson
-------------------------------
Photios T. Paulson
Director
Dated: July 28, 1995
By/s/Steven J. Shulman
-------------------------------
Steven J. Shulman
Director
<PAGE> 29
Annual Report on Form 10-KSB
Item 7--Financial Statements
List of Financial Statements
Year ended April 30, 1995
Novametrix Medical Systems Inc. and Subsidiaries
Wallingford, Connecticut
<PAGE> 30
Form 10-KSB--Item 7
Novametrix Medical Systems Inc. and Subsidiaries
Index to Financial Statements
The report of Ernst & Young LLP, independent auditors, dated July 26, 1995, and
the following consolidated financial statements of Novametrix Medical Systems
Inc. and subsidiaries are included in Item 7:
Consolidated Balance Sheets--April 30, 1995 and May 1, 1994
Consolidated Statements of Income--Years ended April 30, 1995, May 1, 1994
and May 2, 1993
Consolidated Statements of Shareholders' Equity--Years ended April 30, 1995,
May 1, 1994 and May 2, 1993
Consolidated Statements of Cash Flows--Years ended April 30, 1995, May 1,
1994 and May 2, 1993
Notes to Consolidated Financial Statements--April 30, 1995
F-1
<PAGE> 31
Report of Independent Auditors
Board of Directors
Novametrix Medical Systems Inc.
We have audited the accompanying consolidated balance sheets of Novametrix
Medical Systems Inc. as of April 30, 1995 and May 1, 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended April 30, 1995, May 1, 1994 and May 2, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Novametrix
Medical Systems Inc. at April 30, 1995 and May 1, 1994, and the consolidated
results of its operations and its cash flows for the years ended April 30,
1995, May 1, 1994 and May 2, 1993, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Hartford, Connecticut
July 26, 1995
F-2
<PAGE> 32
Novametrix Medical Systems Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 272,033 $ 267,882
Accounts receivable, less allowance for losses of
$250,000 5,247,171 4,335,834
Inventories:
Finished products 1,247,541 1,433,821
Work in process 1,088,864 795,384
Materials 2,595,455 2,349,804
----------- -----------
4,931,860 4,579,009
Prepaid expenses and other current assets 106,440 387,483
----------- -----------
Total current assets 10,557,504 9,570,208
Equipment, less accumulated depreciation of $4,603,479
in 1995 and $6,504,159 in 1994 1,133,413 1,014,999
License, technology, patent and other costs, less
accumulated amortization of $2,691,005 in 1995 and
$2,236,250 in 1994 4,915,064 4,685,475
----------- -----------
$16,605,981 $15,270,682
=========== ===========
</TABLE>
F-3
<PAGE> 33
<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994
-------------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 925,000 $ 733,333
Note payable to bank under line of credit 3,000,000
Accounts payable 1,662,950 1,245,259
Accrued expenses 1,557,798 1,794,407
Customer advances 654,400
----------- -----------
Total current liabilities 4,145,748 7,427,399
Long-term debt, less current portion 2,308,333 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: issued and outstanding - 100,000 shares
(less 40,000 shares redeemable), at liquidation
value 1,500,000 1,500,000
Common Stock, $.01 par value, authorized 20,000,000
shares 61,365 48,827
Additional paid-in capital 26,239,685 22,012,966
Retained-earnings deficit (16,162,112) (17,691,479)
Deferred ESOP contributions (100,000)
Treasury stock (2,487,038) (2,487,038)
----------- -----------
9,151,900 3,283,276
----------- -----------
$16,605,981 $15,270,682
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 34
Novametrix Medical Systems Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
--------------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Net sales $24,032,101 $ 20,788,496 $19,888,304
Interest 11,303 7,904
----------- ------------- -----------
24,043,404 20,788,496 19,896,208
Costs and expenses:
Cost of products sold 10,555,530 8,943,945 9,135,024
Research and product development 2,418,652 1,954,308 1,681,634
Selling, general and administrative 8,978,052 8,514,359 7,907,861
Interest 372,867 696,396 831,992
Other expense (income), net 73,936 (75,232) 74,780
----------- ------------- -----------
22,399,037 20,033,776 19,631,291
----------- ------------- -----------
Income before income taxes 1,644,367 754,720 264,917
Income taxes - current 40,000
----------- ------------- -----------
Net income $ 1,604,367 $ 754,720 $ 264,917
=========== ============= ===========
Earnings per common share (primary and fully
diluted) $ .21 $ .11 $ .04
===== ===== =====
</TABLE>
See accompanying notes.
F-5
<PAGE> 35
Novametrix Medical Systems Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
----------------------------------------------------
SHARES MOUNT SHARES AMOUNT
--------- --------- ------- -----------
<S> <C> <C> <C> <C>
Year ended May 2, 1993:
Balance at May 3, 1992 4,466,824 $ 44,668 80,000 $ 2,000,000
Conversion of Preferred Stock 222,222 2,222 (20,000) (500,000)
Issuance of stock 84,263 843
Preferred Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
--------- --------- ------- -----------
Balance at May 2, 1993 4,773,309 47,733 60,000 1,500,000
Year ended May 1, 1994:
Issuance of stock 109,397 1,094
Preferred Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
--------- --------- ------- -----------
Balance at May 1, 1994 4,882,706 48,827 60,000 1,500,000
Year ended April 30, 1995:
Issuance of stock 1,253,827 12,538
Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
--------- --------- ------- -----------
Balance at April 30, 1995 6,136,533 $ 61,365 60,000 $ 1,500,000
========= ========= ======= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 36
<TABLE>
<CAPTION>
ADDITIONAL RETAINED- TREASURY STOCK
PAID-IN EARNINGS DEFERRED ESOP -------------------------
CAPITAL DEFICIT CONTRIBUTIONS SHARES AMOUNT TOTAL
- ------------ ------------ --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 21,330,886 $(18,546,116) $(300,000) (338,452) (2,487,038) $2,042,400
497,778
105,240 106,083
(38,600) (38,600)
(90,000) (90,000)
100,000 100,000
264,917 264,917
- ------------ ------------ --------- -------- ----------- ----------
21,895,304 (18,371,199) (200,000) (338,452) (2,487,038) 2,384,800
156,001 157,095
(38,339) (38,339)
(75,000) (75,000)
100,000 100,000
754,720 754,720
- ------------ ------------ --------- -------- ----------- ----------
22,012,966 (17,691,479) (100,000) (338,452) (2,487,038) 3,283,276
5,291,754 5,304,292
(1,065,035) (1,065,035)
(75,000) (75,000)
100,000 100,000
1,604,367 1,604,367
- ------------ ------------ --------- -------- ----------- ----------
$ 26,239,685 $(16,162,112) $ -- (338,452) $(2,487,038) $9,151,900
============ ============ ========= ======== =========== ==========
</TABLE>
F-7
<PAGE> 37
Novametrix Medical Systems Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
-------------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,604,367 $ 754,720 $ 264,917
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 495,389 554,625 709,950
Amortization 481,237 444,750 383,295
Changes in operating assets and liabilities:
Increase in accounts receivable (911,337) (72,919) (580,035)
(Increase) decrease in inventories (352,851) (47,466) 309,612
Decrease (increase) in prepaid expenses
and other current assets 281,043 (282,525) 13,489
Increase in accounts payable 417,691 234,204 47,962
(Decrease) increase in accrued expenses (92,446) 7,414 390,681
Decrease in customer advances (297,600)
----------- ----------- -----------
Net cash provided by operating activities 1,923,093 1,592,803 1,242,271
INVESTING ACTIVITIES
Purchases of equipment (613,803) (431,572) (211,511)
Purchases of licenses, technology, patents
and other (710,826) (117,428) (358,466)
----------- ----------- -----------
Net cash used by investing activities (1,324,629) (549,000) (569,977)
FINANCING ACTIVITIES
Proceeds from borrowings 2,500,000 3,400,000
Principal payments on borrowings (6,460,007) (1,299,996) (4,778,395)
Principal payment on customer advance (654,400)
Proceeds from sales of Common Stock, less
issuance costs 4,095,094 118,756 67,483
Dividends on Preferred Stock (75,000) (75,000) (90,000)
----------- ----------- -----------
Net cash used by financing activities (594,313) (1,256,240) (1,400,912)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 4,151 (212,437) (728,618)
Cash and cash equivalents at beginning of year 267,882 480,319 1,208,937
----------- ----------- -----------
Cash and cash equivalents at end of year $ 272,033 $ 267,882 $ 480,319
=========== =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 38
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements
April 30, 1995
1. ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Novametrix
Medical Systems Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany accounts and transactions are
eliminated in consolidation.
REVENUE RECOGNITION AND PRODUCT WARRANTY COSTS
Revenues from sales are recognized when products are shipped. The Company
generally warrants its products against defects for up to one year; costs
related thereto are recognized as incurred and are not material to the
Company's financial statements.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
EQUIPMENT
Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed over the estimated useful lives of the assets using the straight-line
method.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents.
LICENSE, TECHNOLOGY, PATENT AND OTHER COSTS
License, technology, patent and other costs are stated at cost, less
accumulated amortization. Amortization is computed by the straight-line method
over periods ranging from 3 to 17 years. The Company reviews license,
technology, patent and other costs for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. If such impairment indicators are present, the Company recognizes
a loss on the basis of whether these amounts are fully recoverable from
projected discounted cash flows of the related product.
F-9
<PAGE> 39
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are provided for temporary differences between the tax
and financial reporting bases of the Company's assets and liabilities based on
enacted tax rates applicable to the periods in which the differences are
expected to reverse.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
The Company has a noncontributory ESOP which covers substantially all
employees. The Company is required to contribute sufficient cash to the ESOP
trust for it to repay the ESOP note payable (the "ESOP guarantee") plus
interest thereon and specified expenses. Expense attributable to the ESOP is
recognized based on the required contributions and amounted to $122,018 in
1995, $121,536 in 1994 and $146,554 in 1993. Actual interest incurred on ESOP
debt was $8,733 in 1995, $12,932 in 1994 and $21,824 in 1993.
ESOP shares are allocated annually to eligible employees based on compensation.
At April 30, 1995, 131,144 shares held by the ESOP were allocated to eligible
employees. ESOP shares not yet allocated to participants are treated as
outstanding for the purpose of computing earnings per share.
PER SHARE AMOUNTS
Earnings per common share amounts were computed by dividing net income by the
weighted-average number of shares of Common Stock and dilutive common stock
equivalents outstanding during the year. 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 computations of dilutive
common stock equivalents are 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 year-end market price for the fully diluted
earnings per share computations. The weighted-average number of common shares
and equivalents for the primary and fully diluted earnings per share
computations are 7,649,946 and 7,768,843, respectively, for 1995, 6,596,111 and
6,629,430, respectively, for 1994 and 6,240,024 and 6,248,864, respectively,
for 1993.
RECLASSIFICATION
Certain amounts in the 1994 balance sheet have been reclassified to conform
with the 1995 presentation.
F-10
<PAGE> 40
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
2. DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994
-------------- -----------
<S> <C> <C>
Notes payable restructured June 16, 1994 $ 4,118,340
Term loan to bank $ 2,083,333
Note payable to bank under revolving credit agreement 1,075,000
ESOP guarantee 75,000 175,000
------------ ------------
3,233,333 4,293,340
Less current portion 925,000 733,333
------------ ------------
$ 2,308,333 $ 3,560,007
============ ============
</TABLE>
On June 16, 1994 the Company amended and restructured its notes payable to bank
(see Note 3). The Company's aggregate notes payable of $4,118,340 at May 1,
1994 were paid from the proceeds of a public offering and the issuance of a
$2,500,000 term loan to bank. The term loan is payable in monthly installments
of $41,667, plus interest at the bank's base rate plus 1/2% (9.5% at April 30,
1995) through June 1, 1999.
The Company's revolving credit agreement limits borrowing to a maximum of
$2,500,000 or 75% of the Company's eligible accounts receivable, as defined,
and bears interest at the bank's base rate plus 1/4% (9.25% at April 30, 1995).
In July 1995 the agreement was amended, extending the expiration date to August
31, 1997 and changing the interest rate to the London Interbank Offering Rate
("LIBOR") plus 2.5% (8.56% at April 30, 1995). Furthermore, the bank has
released the Company's patents and trademarks previously held as collateral
against the Company's debt obligations.
The Company's ESOP guarantee is payable in quarterly installments of $25,000
plus interest at 83% of the bank's lending rate, as defined, through January
1996.
Under the terms of the revolving credit agreement, term loan and ESOP
guarantee, the Company is required to maintain certain financial ratios and
minimum levels of working capital and net worth, and is restricted, among other
things, from the payment of dividends on Common Stock, new borrowing, capital
expenditures and mergers.
F-11
<PAGE> 41
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
2. DEBT (CONTINUED)
Aggregate annual maturities of long-term debt at April 30, 1995 are as follows:
1996--$925,000; 1997--$500,000; 1998--$1,225,000; 1999--$500,000 and
2000--$83,333.
Substantially all tangible assets are pledged as collateral for the notes
payable to bank and ESOP guarantee; substantially all cash and cash equivalents
are on deposit with the bank.
The Company paid interest of $374,971 in 1995, $659,794 in 1994 and $787,351 in
1993.
3. CAPITAL STOCK
The Preferred Stock is issuable in one or more series. The Board of Directors
of the Company is authorized to establish, among other things, the rate of
dividends payable, redemption rights and voting rights prior to issuance.
The Company has authorized 1,000,000 shares of $1.00 par value Preferred Stock
of which 50,000 shares are designated as Series A (none issued) and 120,000
shares are designated as Series B. The Preferred Stock, Series B carries a
liquidation preference of $25.00 per share (together with all accrued but
unpaid dividends) and an annual cumulative dividend of $.75 a share payable
quarterly in arrears. (The dividend is increased to $2.25 if certain covenants
are not met.) The recordholders of Preferred Stock, Series B are entitled to
elect by majority vote one member of the Board of Directors.
Of the 100,000 shares of Preferred Stock, Series B outstanding at April 30,
1995, 40,000 of such shares are held by the Company's primary lender,
redeemable by the Company under certain circumstances, convertible into 444,444
shares of the Company's Common Stock and stated at their redemption and
liquidation value as "Redeemable Preferred Stock." The remaining 60,000 shares
of Preferred Stock, Series B outstanding at April 30, 1995 are convertible into
666,666 shares of the Company's Common Stock and are stated at their
liquidation value.
At April 30, 1995 there are 3,767,603 preferred share purchase rights
outstanding. Each right entitles the registered holder to purchase one
one-hundredth of a share of Preferred Stock, Series A, for $25.00 upon the
occurrence of certain specified "takeover" events. The rights are redeemable
and exchangeable only in certain specified circumstances. As of April 30, 1995,
no takeover events had occurred and no rights were exercisable.
F-12
<PAGE> 42
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
3. CAPITAL STOCK (CONTINUED)
On June 16, 1994, the Company completed a public offering for 550,000 "units"
with each unit consisting of two shares of Common Stock, and one redeemable
Class A Warrant and one redeemable Class B Warrant. The units were subsequently
split into their component parts on December 8, 1994. Each Class A Warrant is
exercisable into one share of Common Stock at an exercise price of $4.95. Each
Class B Warrant is exercisable into one share of Common Stock at an exercise
price of $5.85. Net proceeds of approximately $3,893,000 were used to reduce
the Company's indebtedness (see Note 2) and for financing working capital
needs. If the offering and resulting net reduction in the Company's
indebtedness had occurred at the beginning of fiscal year 1995, net income
would have increased by approximately $39,000 and earnings per share would have
been unchanged at $.21.
During fiscal 1995, 26,821 shares of common stock were issued in settlement of
$144,163 of technology purchase costs previously accrued.
4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS
Activity relating to the Company's stock option plans follows:
<TABLE>
<CAPTION>
1979 PLAN 1990 PLAN 1994 PLAN TOTAL
--------- --------- --------- ------
<S> <C> <C> <C> <C>
Year ended May 2, 1993:
Outstanding options at May 3, 1992 285,618 48,000 333,618
Granted 50,000 50,000
Exercised ($1.00 to $2.00 per share) (20,932) (1,667) (22,599)
Cancelled (19,100) (1,333) (20,433)
-------- ------- -------
Total shares under option at May 2, 1993 245,586 95,000 340,586
Year ended May 1, 1994:
Exercised ($1.00 to $2.00 per share) (40,101) (6,600) (46,701)
Cancelled (11,000) (11,000)
-------- ------- -------
Total shares under option at May 1, 1994 194,485 88,400 282,885
Year ended April 30, 1995:
Granted 103,000 122,000 225,000
Exercised ($1.00 to $2.00 per share) (64,018) (10,000) (74,018)
Cancelled (20,500) (20,500)
-------- ------- ------- -------
Total shares under option at April 30, 1995 109,967 181,400 122,000 413,367
======== ======= ======= =======
</TABLE>
F-13
<PAGE> 43
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
Additional data relating to the stock option plans at year-end follows:
<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
-------------- ----------- -----------
<S> <C> <C> <C>
Range of option prices $1.00 TO $4.375 $1.00 to $8.00 $1.00 to $8.00
Number of shares as to which options
were exercisable 171,700 228,552 203,486
</TABLE>
At April 30, 1995, options for 178,333 shares have been authorized but not yet
granted under the 1990 and 1994 stock option plans. In addition, an
outstanding stock option for 5,000 shares granted to an outside consultant is
exercisable at $5.75 per share and expires on April 8, 1996.
The Company has an employee stock purchase plan expiring on December 31, 2002
for which 150,000 shares of Common Stock have been reserved. As of April 30,
1995, 31,492 shares of Common Stock had been issued under this plan.
The Company has redeemable Class A and Class B Warrants outstanding covering an
aggregate of 1,100,000 shares from the public offering completed on June 16,
1994 (see Note 3) and warrants for 55,000 units issued to the principal
underwriter (with each unit consisting of two shares of Common Stock, one Class
A Warrant and one Class B Warrant). The Company has also granted warrants to a
group of officers and directors, its general counsel, principal lender, key
employees and an investment firm to purchase shares of the Company's Common
Stock. Data relating to warrants outstanding at April 30, 1995 follows:
<TABLE>
<CAPTION>
YEAR RANGE OF NUMBER OF SHARES COVERED BY
WARRANTS GRANTED EXERCISE PRICES OUTSTANDING WARRANTS
---------------- --------------- ---------------------------
<S> <C> <C>
1988 $2.625 to $5.58 78,763
1989 $2.625 to $3.49 42,976
1990 .89 to $1.81 666,953
1991 $1.84 163,043
1992 $.93 to $2.25 267,073
1993 $2.625 10,000
1995 $4.125 to $5.85 1,393,179
---------
2,621,987
=========
</TABLE>
F-14
<PAGE> 44
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
The warrants were granted at prices which equaled or exceeded the market price
of the Company's Common Stock at the date of grant. The warrants expire at
various dates from September 30, 1995 through June 20, 2004, and all but
220,000 shares are currently exercisable. During 1995, an aggregate of 37,128
shares were exercised at prices ranging from $.89 to $1.81 per share.
At April 30, 1995, there were 4,448,305 shares of Common Stock reserved for
issuance for: 1) the exercise of options and warrants; 2) purchases through the
Company's employee stock purchase plan; and 3) the conversion of Preferred
Stock.
5. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
Management believes that none of these legal proceedings will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
During 1994, the Company reached a favorable settlement of an outstanding
contractual dispute, which resulted in the reversal of approximately $140,000
($.02 per share) of expenses previously accrued. Such amount is included in
other expense (income), net.
6. BUSINESS AND SIGNIFICANT CUSTOMERS
The Company considers that its products comprise a single business segment
within the medical instruments industry. The Company had export sales as
follows:
<TABLE>
<CAPTION>
WESTERN HEMISPHERE
EUROPE (OTHER THAN THE U.S.) ASIA OTHER TOTAL
-------------- --------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1995 $ 4,183,032 $ 2,083,169 $ 2,428,293 $ 593,821 $ 9,288,315
1994 3,321,319 1,720,458 1,689,934 498,608 7,230,319
1993 2,220,376 1,704,046 1,450,102 501,469 5,875,993
</TABLE>
No one customer accounted for more than 10% of net sales in 1995, 1994 or 1993.
F-15
<PAGE> 45
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
7. LEASES
The Company leases its plant and office facilities and certain equipment under
noncancellable operating leases. Future minimum lease payments under these
leases as of April 30, 1995 to their expiration follow:
<TABLE>
<S> <C>
1996 $ 239,368
1997 113,648
1998 3,975
------------
$ 356,991
============
</TABLE>
Total rental expense under operating leases was $376,059 in 1995, $425,825 in
1994 and $473,335 in 1993.
8. INCOME TAXES
The components of the Company's deferred income tax accounts follow:
<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994 MAY 3, 1993
-------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Tax credits $ 526,671 $ 522,685 $ 544,128
Net operating loss carryforwards 5,255,267 6,480,015 6,478,897
Inventories - valuation allowance
and other 665,629 567,691 780,805
Other 227,051 172,036 146,509
----------- ----------- -----------
Total deferred tax assets 6,674,618 7,742,427 7,950,339
Valuation allowance for deferred
tax assets 6,652,586 7,732,477 7,926,524
----------- ----------- -----------
22,032 9,950 23,815
Deferred tax liabilities 22,032 9,950 23,815
----------- ----------- -----------
Net deferred tax $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-16
<PAGE> 46
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
A reconciliation between the Company's effective tax rate and the U.S. federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Computed tax expense at the expected statutory
rate $ 559,000 $ 256,000 $ 90,000
State taxes, net of federal effect 2,000 2,000 1,000
Alternative minimum tax 40,000
Permanent items--net effect 3,000 13,000 15,000
Utilization of net operating loss carryforwards (564,000) (271,000) (106,000)
--------- --------- --------
$ 40,000 $ -- $ --
========= ========= =========
</TABLE>
At April 30, 1995 the Company had net operating loss carryovers for federal
income tax reporting purposes of approximately $14,825,000, of which
$10,250,000 expires in 2005, $4,200,000 expires in 2006 and $375,000 expires in
2007. The Company has unused research and other tax credits of approximately
$527,000 at April 30, 1995 which expire in varying amounts between 1996 and
2009. Such credits will be reflected in operations when realized. The Company
also has approximately $1,904,000 in state net operating loss carryforwards of
which $1,550,000 expires in 1996, $284,000 expires in 1997, and $70,000 expires
in 1999.
The realization of deferred tax assets is dependent on the Company's ability to
generate sufficient future taxable income. Because of the cumulative loss
position of the Company, there is insufficient positive evidence to indicate
that deferred tax assets will be realized. Therefore, a valuation allowance has
been recorded.
The amount of the net operating loss carryovers and credits for federal income
tax purposes which may be used in any future year may be limited under the
provisions of the Tax Reform Act of 1986. Also, a portion of the net operating
loss carryforward for federal income tax reporting purposes is attributable to
stock options, the tax benefit of which will be reflected as an adjustment to
additional paid-in capital when realized.
Income taxes paid in 1995, 1994 and 1993 were not significant.
F-17
<PAGE> 47
Index to Exhibits*
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) and 3(e) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994). --
3(b) Certificate of Designation of Series A Preferred Stock of the
Company filed with the Secretary of State of the State of Delaware
on March 17, 1989 (incorporated by reference to Exhibit 3(b) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994). --
3(c) Certificate of Designation of Series B Preferred Stock of the
Company filed with the Secretary of State of the State of Delaware
on August 29, 1991 (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated August 29, 1992). --
3(d) By-Laws of the Company, as amended to date (incorporated by
reference to Exhibit 3(d) to the Company's Registration Statement on
Form SB-2 dated June 8, 1994). --
10(a) Employment Agreement dated as of June 1, 1988 between the Company
and William J. Lacourciere, as amended (incorporated by reference to
Exhibit 10(a) to the Company's Registration Statement on Form SB-2
dated June 8, 1994). --
</TABLE>
____________________
* Copies of exhibits filed with this Annual Report on Form
10-KSB or incorporated by reference herein do not accompany copies hereof for
distribution to stockholders of the Company. The Company will furnish a copy of
any of such exhibits to any stockholder requesting the same for a nominal charge
to cover duplicating costs.
E-1
<PAGE> 48
Index to Exhibits
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(b) Amendment dated as of August 1, 1988 to the Employment Agreement
between the Company and William J. Lacourciere (incorporated by
reference to Exhibit 10(b) to the Company's Registration Statement
on Form SB-2 dated June 8, 1994). --
10(c) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on December 29, 1989, together with Schedule
of substantially identical warrants (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
year ended April 29, 1990). --
10(d) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on May 23, 1990 (incorporated by reference to
Exhibit 10(k) to the Company's Annual Report on Form 10-K for the
year ended April 29, 1990). --
10(e) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on September 15, 1988, together with Schedule
of substantially identical warrants (incorporated by reference to
Exhibit 10(e) to the Company's Registration Statement on Form SB-2
dated June 8, 1994). --
10(f) First Amendment to Warrant Certificate of the Company dated as of
September 19, 1989, together with Schedule of substantially
identical amendments (incorporated by reference to Exhibit 10(m) to
the Company's Annual Report on Form 10-K for the year ended April
29, 1990). --
10(g) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on May 1, 1989, together with Schedule of
substantially identical warrants (incorporated by reference to
Exhibit 10(g) to the Company's Registration Statement on Form SB-2
dated June 8, 1994). --
</TABLE>
E-2
<PAGE> 49
Index to Exhibits
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(h) First Amendment to Warrant Certificate of the Company dated as of
September 19, 1989, together with Schedule of substantially
identical amendments (incorporated by reference to Exhibit 10(o) to
the Company's Annual Report on Form 10-K for the year ended April
29, 1990). --
10(i) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on April 12, 1990 (incorporated by reference
to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the
year ended April 29, 1990). --
10(j) Warrant Certificate of the Company, the warrants evidenced thereby
exercisable commencing on January 2, 1991 (incorporated by reference
to Exhibit 10(dd) to the Company's Registration Statement on Form
S-1 dated December 30, 1991). --
10(k) Form of Warrant Certificate of the Company, the warrants evidenced
thereby exercisable commencing on December 2, 1991 (incorporated by
reference to Exhibit 10(ee) to the Company's Registration Statement
on Form S-1 dated December 30, 1991). --
10(l) Rights Agreement dated as of March 14, 1989 between the Company and
The Connecticut Bank and Trust Company, N.A., as Rights Agent
("CBT"), which includes the form of Certificate of Designation
setting forth the terms of the Series A Preferred Stock, $1.00 par
value, as Exhibit A, the form of Right Certificate as Exhibit B and
the Summary of Rights to Purchase Preferred Shares as Exhibit C
(incorporated by reference to Exhibit 10(l) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994). --
</TABLE>
E-3
<PAGE> 50
Index to Exhibits
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(m) Amendment to Rights Agreement dated as of October 30, 1990 among the
Company, CBT and Mellon Bank, N.A. (incorporated by reference to
Exhibit 10(o) to the Company's Annual Report on Form 10-K for the
year ended April 28, 1991). --
10(n) Amendment to Rights Agreement dated as of August 29, 1991 between
the Company and Mellon Bank, N.A. (incorporated by reference to
Exhibit 10(p) to the Company's Registration Statement on Form S-1
dated December 30, 1991). --
10(o) Asset Purchase Agreement dated as of April 30, 1989 among Cascadia
Technology Corporation, a Washington corporation ("Cascadia"),
Daniel W. Knodle, Leslie E. Mace, Lawrence L. Labuda, William G.
McCoy, NTC and the Company (incorporated by reference to Exhibit
10(o) to the Company's Registration Statement on Form SB-2 dated
June 8, 1994). --
10(p) Modification Agreement dated as of March 22, 1990 among Cascadia,
Daniel W. Knodle, Leslie E. Mace, Lawrence L. Labuda, William G.
McCoy, NTC and the Company (incorporated by reference to Exhibit
10(s) to the Company's Annual Report on Form 10-K for the year ended
April 29, 1990). --
10(q) Assets Purchase Agreement dated January 18, 1990 among the Company,
Novametrix Medical Systems Limited and Physiological Instrumentation
Limited (incorporated by reference to Exhibit 10(u) to the Company's
Annual Report on Form 10-K for the year ended April 29, 1990). --
10(r) Option Agreement effective March 16, 1990 between the Company and
Siemens Medical Electronics, Inc. (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K dated March
23, 1990). --
</TABLE>
E-4
<PAGE> 51
Index to Exhibits
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(s) Lease dated August 1990 between CPM Associates and Novametrix Realty
Corp. (incorporated by reference to Exhibit 10(w) to the Company's
Annual Report on Form 10-K for the year ended April 28, 1991). --
10(t) Securities Purchase Agreement dated as of August 29, 1991 among the
Company, William W. Nicholson, Auric Partners Limited, a Michigan
limited partnership, and Union Trust Company (incorporated by
reference to Exhibit 2 to the Company's Current Report on Form 8-K
dated August 29, 1991). --
10(u) Third Amended and Restated Loan and Security Agreement dated as of
August 29, 1991 among the Company, NTC Technology Inc., a Delaware
corporation ("NTC"), and Union Trust Company (incorporated by
reference to Exhibit 3 to the Company's Current Report on Form 8-K
dated August 29, 1991). --
10(v) First Amendment to Third Amended and Restated Loan and Security
Agreement dated as of April 29, 1993 among the Company, NTC and
Union Trust Company (incorporated by reference to Exhibit 5(a) to
the Company's Current Report on Form 8-K dated April 28, 1993). --
10(w) 1979 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the
year ended May 2, 1993). --
10(x) 1990 Stock Option Plan (incorporated by reference to Exhibit 10(ff)
to the Company's Annual Report on Form 10-K for the year ended May
2, 1993). --
</TABLE>
E-5
<PAGE> 52
Index to Exhibits
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(y) 1992 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the
year ended May 2, 1993) (incorporated by reference to Exhibit 10(y)
to the Company's Registration Statement on Form SB-2 dated June 8,
1994). --
10(z) Form of Letter Agreement between the Company and Keane Securities
Co., Inc. ("Keane") pursuant to which Keane will act as finder for
the Company (incorporated by reference to Exhibit 10(z) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994).
--
10(aa) Fourth Amended and Restated Loan and Security Agreement dated as of
June 16, 1994 among the Company, NTC and Union Trust Company
(incorporated by reference to Exhibit 10A to the Company's Quarterly
Report on Form 10-QSB for the three month period ended July 31,
1994). --
10(bb) Amendment to Securities Purchase Agreement dated as of June 16, 1994
among the Company, William W. Nicholson, Auric Partners Limited and
Union Trust Company (incorporated by reference to Exhibit 10B to the
Company's Quarterly Report on Form 10-QSB for the three month period
ended July 31, 1994). --
10(cc) 1994 Stock Option Plan (incorporated by reference to Exhibit 4(i) to
the Company's Registration Statement on Form S-8, dated August 3,
1994). --
10(dd) Form of Representative Warrant Agreement, certificate included
(incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994). --
10(ee) Form of Warrant Agreement, certificate included (incorporated by
reference to Exhibit 4(b) to the Company's Registration Statement on
Form SB-2 dated June 8, 1994). --
</TABLE>
E-6
<PAGE> 53
Index to Exhibits
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(ff) Amendment No. 1 to Fourth Amended and Restated Loan and Security
Agreement dated as of July 26, 1995 among the Company, NTC and First
Fidelity Bank, formerly Union Trust Company.
11 Statement Re Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Power of Attorney (See "Power of Attorney" in Form 10-KSB). --
27 Financial Data Schedule.
</TABLE>
E-7
<PAGE> 1
AMENDMENT NO. 1 TO FOURTH
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT is made and entered into as of this 26th day of July,
1995 among NOVAMETRIX MEDICAL SYSTEMS INC., a Delaware corporation having its
principal office at One Barnes Industrial Park Road, Wallingford, Connecticut
06492 ("Novametrix"); NTC TECHNOLOGY, INC., a Delaware corporation having its
principal office in Wilmington, Delaware with a mailing address in care of One
Barnes Industrial Park Road, Wallingford, Connecticut 06492 ("NTC"), and FIRST
FIDELITY BANK, a Connecticut banking corporation having an office at 205 Church
Street, New Haven, Connecticut 06510 (the "Lender"), as AMENDMENT NO. 1 TO THE
FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of June 16,
1994 by and among Novametrix, NTC and Union Trust Company (the "Fourth Loan
Agreement").
WITNESSETH:
WHEREAS, Novametrix, NTC and Union Trust Company executed the Fourth
Loan Agreement on June 16, 1994; and
WHEREAS, subsequent thereto, Union Trust Company changed its
name to First Fidelity Bank; and
WHEREAS, the parties now wish to amend and modify the Fourth Loan
Agreement and the Substituted Revolving Note (as defined therein) issued
thereunder to, inter alia, (i) extend the Revolving Credit Termination Date (as
defined in the Fourth Loan Agreement) to August 31, 1997; (ii) change the
interest rate payable on the
<PAGE> 2
Substituted Revolving Note, (iii) substitute the 1995 Substituted Revolving Note
(as defined in Section 1 below) for the existing Substituted Revolving Note;
(iv) amend and restate certain financial covenants and add certain additional
covenants; (v) amend the definitions of certain terms; and (vi) provide for the
release of certain collateral;
NOW, THEREFORE, the parties agree as follows:
1. AMENDMENTS TO THE DEFINITIONS OF CERTAIN TERMS: (i) The definitions
of each of the following terms, as set forth in the Fourth Loan Agreement, are
hereby amended and restated to read as follows:
1.25 "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean at the time of any
determination thereof all Accounts Receivable which are deemed by Lender, from
time to time, in its sole discretion, to be eligible in computing the Borrowing
Base hereunder. Without limiting the foregoing, in determining whether Accounts
Receivable shall be deemed to be Eligible Accounts Receivable, Lender may
consider whether the Accounts Receivable met the following specifications at the
time of creation and continue to meet such specifications at the time of such
determination; provided that such specifications for eligibility may be fixed,
revised and supplemented from time to time by Lender in Lender's sole
discretion:
(a) if the Account Debtor is situated within the United States,
all payments on such Account Receivable, by the terms of such
Account Receivable, are due not later than ninety (90) days
after the earlier of the date of (i) the related invoice, and
(ii) delivery of the goods or performance of the services by
the Borrower or NTC;
(b) if the Account Debtor is situated outside the United States
all payments on such Account Receivable, by the terms of such
Account Receivable, are due not later than one hundred twenty
(120) days after the earlier of the date of (i) the related
invoice, and (ii) delivery of the goods or performance of the
services by the Borrower or NTC;
(c) such Account Receivable is not owing from an Account
Debtor or an Affiliate of an Account Debtor from whom 20%
2.
<PAGE> 3
or more of the aggregate Accounts Receivable owing to Borrower
or NTC have remained unpaid for (a) more than 90 days in the
case of an Account Debtor or Affiliate located within the
United States, and (b) more than 120 days in the case of an
Account Debtor or Affiliate located outside the United States;
(d) such Account Receivable arose from a completed, outright
and lawful sale of goods or from the completed
performance of services by the Borrower or NTC;
(e) such Account Receivable did not arise (i) with respect to
goods which have been placed on consignment, guaranteed sale,
sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the Account Debtor may
be conditional, or (ii) from the leasing of goods;
(f) with respect to such Account Receivable, if the Account
Debtor's total obligations to the Borrower and NTC, on an
aggregated basis, exceed fifteen percent (15%) of all Eligible
Accounts Receivable, then only to the extent of the
obligations of such Account Debtor which are not in excess of
such percentage;
(g) collection of such Account Receivable is not believed by
the Lender to be doubtful by reason of the Account
Debtor's financial condition or credit history;
(h) such Account Receivable does not result from the
application of a finance charge or other similar fee
imposed as a result of delayed payment;
(i) such Account Receivable is owned solely by the Borrower or
NTC, is subject to a first priority security interest in favor
of Lender pursuant hereto and is not subject to any other
Lien;
(j) such Account Receivable arose in the ordinary course of
business of the Borrower or NTC and, to the best knowledge of
the Borrower and NTC, no event of death, bankruptcy,
insolvency or inability to pay creditors generally of the
Account Debtor thereunder has occurred, and no notice thereof
has been received;
(k) with respect to such Account Receivable, the Account Debtor is
not the United States government or the government of any
state or other political subdivision or any Governmental
Authority unless Borrower or NTC, as the case may be, has
complied, to the satisfaction of Lender, with all requirements
necessary under the Federal Assignment of Claims Act of 1940,
as it may be amended
3.
<PAGE> 4
from time to time, or with such similar Law as may be
applicable to such Account Receivable; is not an officer,
employee, agent or Affiliate of the Borrower or NTC; and is
not located in the State of New Jersey, unless the Borrower or
NTC (as the case may be) is registered or qualified to do
business in New Jersey or has filed a Notice of Business
Activities Report with the New Jersey Division of Taxation for
the then-current year;
(l) such Account Receivable is in full force and effect and
constitutes the legal, valid and binding obligation of the
Account Debtor enforceable against the Account Debtor in
accordance with its terms; and
(m) the Account Debtor with respect to such Account Receivable has
not asserted that such Account Receivable is, and neither the
Borrower nor NTC is aware of any basis upon which such Account
Receivable could be, subject to any defense, offset,
deduction, credit, allowance or dispute.
1.51 "MAXIMUM PRINCIPAL AMOUNT" means TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($2,500,000) or such lesser amount in increments of $100,000 as
the Borrower and NTC may irrevocably designate from time to time, in
writing, to the Lender (but in no event shall the Maximum Principal
Amount be less than the actual outstanding principal balance of the
1995 Substituted Revolving Note at the time of such designation).
1.71 "PATENTS" means patents, patent applications and patentable
inventions owned by or with respect to which either Borrower or NTC has
any interest in, including, without limitation, any patents, patent
applications or patentable inventions in which Borrower may in the
future obtain any interest, and (a) reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (b) all
income, royalties, damages and payment now and hereafter due and/or
payable with respect thereto, including, without limitation, damages
and payments for past and future infringements thereof and (c) all
rights corresponding thereto throughout the world.
1.78 "RELATED DOCUMENTS" means the 1995 Substituted Revolving Note and
the Substituted Term Note, and each and every other document executed
by Borrower or NTC in connection with the Loans or otherwise in
connection with the Fourth Loan Agreement as amended by Amendment
No. 1.
4.
<PAGE> 5
1.82 "REVOLVING CREDIT INTEREST RATE" has the meaning set
forth in Section 3.7 of the Fourth Loan Agreement, as amended
by Amendment No. 1.
1.83 "REVOLVING CREDIT TERMINATION DATE" has the meaning set
forth in Section 3.13 of the Fourth Loan Agreement, as
amended by Amendment No. 1.
1.93 "SUBSTITUTED REVOLVING NOTE" shall, unless the context
otherwise requires, mean and refer to the 1995 Substituted
Revolving Note.
1.101 "TRADEMARKS" means trademarks, trademark registrations,
trade names, trade name registrations, and trademark or trade
name applications owned by or with respect to which either
Borrower or NTC has any interest in, including, without
limitation, any trademarks, trademark registrations, trade
names, trade name registrations and trademark or trade name
applications in which Borrower or NTC may in the future
obtain any interest, and 9a) renewals thereof, (b) all
income, royalties, damages and payments now and hereafter due
and/or payable with respect thereto, including, without
limitation, damages and payments for past or future
infringements thereof and (c) all rights corresponding
thereto throughout the world.
(ii) The term "AGREEMENT", as used in the Fourth Loan
Agreement shall, unless the context otherwise requires to the contrary,
mean the Fourth Loan Agreement as amended by Amendment No. 1.
(iii) The term "1995 SUBSTITUTED REVOLVING NOTE" shall have
the meaning accorded to it in Section 3.6 of the Fourth Loan Agreement
as amended by Amendment No. 1.
(iv) All other capitalized terms used herein which are not
defined herein shall have the meaning accorded to them in the Fourth
Loan Agreement.
2. AMENDED TERMS PERTAINING TO REVOLVING CREDIT: The following
subsections of Section 3 of the Fourth Loan Agreement entitled
"Revolving Credit" are hereby amended and restated to read
5.
<PAGE> 6
as follows:
3.6 REVOLVING CREDIT NOTE. The obligation of Borrower and NTC to
repay the Revolving Credit and all Advances thereunder shall be
evidenced by an amended and restated promissory note (the "1995
Substituted Revolving Note") substantially in the form of Exhibit
3.6 (1995) attached to Amendment No. 1 and executed by the
Borrower and NTC concurrently with Amendment No. 1.
The 1995 Substituted Revolving Note shall for all purposes be
treated as having been issued in substitution for, and not in
repayment or as a refunding of, the Substituted Revolving Note
executed by the Borrower and NTC in favor of the Lender in the
face principal amount of $2,500,000 dated June 16, 1994.
3.7 INTEREST RATE. Interest shall accrue on the aggregate
principal amount of all Advances outstanding under the Revolving
Credit from time to time at the rate set forth in the 1995
Substituted Revolving Note (the "Revolving Credit Interest
Rate"); provided that following an Event of Default the
applicable interest rate shall be the Default Interest Rate.
Interest shall be calculated on the basis of a 360 day year for
the actual number of days elapsed. Each adjustment to the
Revolving Credit Interest Rate shall result immediately, without
notice or demand of any kind, in a new rate of interest effective
with respect to the interest period on and after the date of such
adjustment.
3.8 PAYMENT OF PRINCIPAL AND INTEREST. Interest shall be due and
payable monthly, in arrears, on the first day of each month,
commencing on August 1, 1995 and continuing thereafter on the
first day of each succeeding month on the outstanding principal
balance of the 1995 Substituted Revolving Note. The aggregate
unpaid principal amount of all Advances, together with accrued
and unpaid interest thereon, shall be repaid by the Borrower and
NTC on the Revolving Credit Termination Date.
3.13 TERMINATION. The Revolving Credit and the Lender's
Obligation to lend thereunder shall terminate on August 31, 1997
(the "Revolving Credit Termination Date"), at which time all of
the sums due and owing under the 1995 Substituted Revolving Note
shall be due and payable in full. No such expiration or
termination of the Revolving Credit shall (i) adversely affect or
impair in any manner whatsoever any right of Lender under this
Agreement or any of the Related Documents arising prior to such
expiration or termination or by reason thereof, (ii) relieve the
Borrower or NTC of any liabilities or
6.
<PAGE> 7
obligations to Lender under this Agreement or any Related
Document, or otherwise, until all of the Obligations are
fully paid and performed, or (iii) affect any other right or
remedy of the Lender under this Agreement or any Related
Document.
4. AMENDMENT TO CERTAIN REPORTING REQUIREMENTS: Section
9.1(d) of the Fourth Loan Agreement is hereby amended and restated to
read, in full, as follows:
(d) SECURITIES REPORTS. Promptly upon becoming
available, but in no event no more than forty-five
(45) days after the close of each Fiscal Year
quarter with respect to Form 10-Q reports, and one
hundred twenty (120) days after the end of each
Fiscal Year with respect to Form 10-K, one copy of
each financial statement, report, notice of meeting
and proxy statement, Form 8-K, 10-K, and 10-Q or
other information or documentation sent by the
Borrower to stockholders generally (including any
proxy statements) or to the SEC or to any other
Governmental Authority relating to securities
matters, and any other statements made generally
available by Borrower or its Subsidiaries to the
public concerning developments in the business of
Borrower and its Subsidiaries;
5. FINANCIAL COVENANTS: Section 10.17 of the Fourth Loan
Agreement is hereby amended and restated to read, in full, as follows:
10.17 "FINANCIAL COVENANTS".
(a) NET WORKING CAPITAL: The Net Working
Capital of the Borrower, on a
consolidated basis, shall not, as of the
last day of any Fiscal Year quarter, be
less than $5 million.
(b) CURRENT RATIO: The ratio of Current
Assets to its Current Liabilities of the
Borrower, on a consolidated basis, shall
not, as of the last day of any Fiscal
Year quarter be less than 1.75 to 1.0.
(c) TANGIBLE NET WORTH: The Tangible Net
Worth of the Borrower, on a consolidated
basis, shall not, as of the last day of
7.
<PAGE> 8
any Fiscal Year quarter, be less than $4,500,000.
(d) DEBT SERVICE COVERAGE RATIO: As of the last day of
each Fiscal Year quarter, the Debt Service Coverage
Ratio of the Borrower, on a consolidated basis,
shall not be less than 2.0 to 1.0.
Compliance with this covenant shall be tested
simultaneously with the delivery of Borrower's
consolidated Financial Statements and information
required by Section 9.1 of the Fourth Loan Agreement,
commencing July 31, 1995, on a rolling twelve (12)
month basis.
(e) TOTAL LIABILITIES TO TOTAL TANGIBLE NET WORTH
RATIO: As of the last day of each Fiscal Year
quarter, the ratio of the Total Liabilities of the
Borrower to the Tangible Net Worth of the Borrower
(in each case calculated on a consolidated basis)
shall not be greater than 1.5 to 1.0.
6. EXPENDITURES FOR CAPITAL ASSETS AND INTANGIBLES:
Section 10.4 of the Fourth Loan Agreement is hereby amended and
restated to read in full as follows:
10.4 CAPITAL EXPENDITURES; EXPENDITURES FOR INTANGIBLE
ASSETS: Neither Borrower nor NTC will, during any Fiscal
Year, make or become liable for any single Capital
Expenditure in excess of $100,000 or for any Capital
Expenditures in excess of $1,000,000 in the aggregate.
All Capital Expenditures not prohibited hereunder shall be
"Permitted Capital Expenditures".
Neither Borrower nor NTC will, during any Fiscal Year,
make or become liable for any expenditure for assets which
would be treated as intangible assets under GAAP in an
amount in excess of $250,000 in the aggregate; provided,
however, that expenditures for intangible assets shall not
be counted against the limitation on Capital Expenditures
set forth above.
8.
<PAGE> 9
7. ACCOUNTS RECEIVABLE AGING REPORTS: Within fifteen
(15) days after the end of each month, Novametrix shall
deliver to the Lender a true, correct and complete aging of
all Accounts Receivable of Novametrix as of the end of such
month, in such form and detail as the Lender may, from time to
time, request.
8. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES:
Novametrix and NTC hereby restate and reaffirm, as of the date
hereof, the representations and warranties set forth in
Section 7 of the Fourth Loan Agreement, except that the
representations and warranties set forth in Section 7.9 shall
be deemed to apply to the most current set of financial
information provided to the Lender, and except as otherwise
set forth on Schedule I hereto.
Novametrix and NTC each hereby represent and warrant
to the Lender that there exists no Event of Default or
Incipient Default as of the date hereof.
9. RELEASE OF CERTAIN COLLATERAL: Simultaneously
with the execution and delivery by Novametrix and NTC of this
Amendment No. 1 and of the 1995 Substituted Revolving Note
to be executed in connection herewith, the Lender shall
execute and deliver to Novametrix and NTC, releases of its
interest in and lien on the Patents and the Trademarks and
shall execute all such other documents and take all such
further actions as may be reasonably requested by Novametrix
or NTC to effectuate the release of such interest. Upon
execution of such releases, the Collateral Assignment of
Trademarks and Licenses and Security Agreement dated
June 16, 1994, executed by each of NTC and Novametrix,
9.
<PAGE> 10
respectively, in favor of the Lender, and each of the Patent
Collateral Assignments dated May 26, 1989, as amended by the
Amendments to Patent Collateral Assignment dated March 15,
1990 and the Amendments of Patent Collateral Assignment dated
June 16, 1994, in each case executed by each of NTC and
Novametrix, respectively, in favor of the Lender, shall
automatically terminate and be of no further force and effect.
10. NEGATIVE PLEDGE:
(i) Novametrix and NTC hereby expressly acknowledge
and reaffirm Section 10.2 ("Limitation on Liens") and Section
10.6 ("Sale of Assets") of the Fourth Loan Agreement.
(ii) Novametrix and NTC each hereby agree that, in
addition to the restrictions imposed on each such party by
Section 10.2 and Section 10.6 of the Fourth Loan Agreement,
neither Novametrix nor NTC shall enter into, assume, or
otherwise allow or suffer to exist, any negative pledge or
similar covenant or agreement in favor of any other Person
with respect to any Patents or Trademarks now owned or
hereafter acquired by Novametrix or NTC.
11. WAIVER OF CLAIMS, DEFENSES, ETC.: As of the date
hereof, Novametrix and NTC represent that there exist no
defenses, offsets, counterclaims, reductions, set-offs or
diminutions of any kind or nature whatsoever of or to any of
the obligations of the Borrower or NTC under the Fourth Loan
Agreement or any of the Related Documents, or otherwise, or
to any of the rights of Lender in and to any such
obligations, or to, under or by reason of the Fourth Loan
Agreement, this Amendment No. 1, or any other Related
10.
<PAGE> 11
Document, or otherwise, and there exists no claims, rights,
or other assertions of liability against Lender or any
Affiliate, Subsidiary, officer, director, employee, agent or
attorney of Lender on account of any of the actions taken by
Lender or any such Person to date under or in connection with
the Fourth Loan Agreement, the Notes, the Related Documents,
or in connection with the transactions contemplated by the
Fourth Loan Agreement, the Notes, the Related Documents or
otherwise.
By execution of this Amendment No. 1, each of
Novametrix and NTC hereby waives all claims, actions and
causes of action which have arisen or may arise against Lender
or any of its Affiliates, Subsidiaries, successors or assigns,
under or in connection with any of the transactions
contemplated by the Fourth Loan Agreement or the Related
Documents or any other loan document or agreement between the
Lender and Novametrix and/or NTC, or otherwise, in respect of
any matter, cause or thing arising or occurring prior to the
date hereof.
12. REAFFIRMATION OF EXISTING AGREEMENTS: The Fourth
Loan Agreement and the Related Documents, except to the extent
expressly herein modified, are hereby ratified and affirmed
and shall be and remain in full force and effect.
13. COUNTERPARTS: This Amendment No. 1 to the Fourth
Loan Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
11.
<PAGE> 12
Dated as of the date and year first above written.
Signed, sealed and delivered in the presence of:
Kristel Parlotle NOVAMETRIX MEDICAL SYSTEMS INC.
- -------------------------
Joseph A. Vincent By William J. Lacourciere
- ------------------------- ---------------------------
William J. Lacourciere
Its President
Kate Warner NTC TECHNOLOGY, INC.
- -------------------------
Tim Nank By Thomas M. Haythe
- ------------------------- ---------------------------
Thomas M. Haythe
Its President
Danielle O. Yates FIRST FIDELITY BANK
- -------------------------
Jerry P. Reece By John H. Frost
- ------------------------- ---------------------------
John H. Frost
Its Vice President
STATE OF CONNECTICUT)
) ss.: New Haven; July 26, 1995
COUNTY OF NEW HAVEN )
Personally appeared, John H. Frost, Vice President of
First Fidelity Bank, signer and sealer of the foregoing
instrument who, being duly authorized so to do executed said
instrument in the name of and on behalf of First Fidelity Bank
by signing his own name as Vice President.
Jerry P. Reece
-----------------------------------
Commissioner of the Superior Court
12.
<PAGE> 13
STATE OF CONNECTICUT)
) ss.: New Haven; July 26, 1995
COUNTY OF NEW HAVEN )
Personally appeared, William J. Lacourciere, President of Novametrix
Medical Systems Inc., signer and sealer of the foregoing instrument who, being
duly authorized so to do executed said instrument in the name of and on behalf
of Novametrix Medical Systems Inc. by signing his own name as President.
Lorraine M. Tagliatela
-----------------------------------
Commissioner of the Superior Court
LORRAINE M. TAGLIATELA
NOTARY PUBLIC
MY COMMISSION EXPIRES JAN. 31, 2000
STATE OF NEW YORK )
) ss.: NEW YORK; July 26, 1995
COUNTY OF NEW YORK )
Personally appeared, Thomas M. Haythe, President of
NTC Technology, Inc., signer and sealer of the foregoing
instrument who, being duly authorized so to do executed said
instrument in the name of and on behalf of NTC Technology,
Inc. by signing his own name as President.
Michael P. McMahon
-----------------------------------
MICHAEL P. McMAHON
NOTARY PUBLIC, State of New York
No. 0111C0042446
Certified in New York County
Commission Expires April 24, 1997
13.
<PAGE> 1
EXHIBIT 11
NOVAMETRIX MEDICAL SYSTEMS INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
April 30, May 1, May 2, 1993
1995 1994
---------------------------------------
<S> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of shares
of Common stock outstanding 5,591,536 4,504,865 4,184,671
Net effect of dilutive common
stock equivalents (1):
Preferred Stock 1,111,110 1,111,110 1,330,280
All other 947,300 980,136 725,073
---------- ---------- ----------
2,058,410 2,091,246 2,055,353
Total weighted average number of
shares of Common Stock and
dilutive common stock
equivalents outstanding
---------- ---------- ----------
7,649,946 6,596,111 6,240,024
========== ========== ==========
Fully Diluted Earnings Per Share:
Weighted average number of shares
of Common stock outstanding 5,591,536 4,504,865 4,184,671
Net effect of dilutive common
stock equivalents (1):
Preferred Stock 1,111,110 1,111,110 1,330,280
All other 1,066,197 1,013,455 733,913
---------- ---------- ----------
2,177,307 2,124,565 2,064,193
Total weighted average number of
shares of Common Stock and
dilutive common stock
equivalents outstanding
---------- ---------- ----------
7,768,843 6,629,430 6,248,864
========== ========== ==========
NET INCOME $1,604,367 $ 754,720 $ 264,917
Per common share amounts:
Primary $ .21 $ .11 $ .04
========== ========== ==========
Fully Diluted $ .21 $ .11 $ .04
========== ========== ==========
</TABLE>
(1) Earnings per common share amounts were computed by dividing net income by
the weighted average number of shares of Common Stock and dilutive common stock
equivalents outstanding during the year. 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 computations of dilutive common
stock equivalents are 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 year-end market price for the fully diluted earnings per
share computations.
E-8
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF NOVAMETRIX MEDICAL SYSTEMS INC.
1. NTC Technology Inc.
2. NTC Management Inc.
3. Emertech, Sarl.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
Number 33-58769 on Form S-3 dated April 25, 1995, Registration Statement Number
33-82336 on Form S-8 dated August 3, 1994, Post Effective Amendment No. 1 on
Form S-3 dated August 12, 1994 to Registration Statement Number 33-67478 on
Form S-1 dated August 17, 1993, and Registration Statement Number 33-44786 on
Form S-8 dated December 30, 1991 pertaining to Novametrix Medical Systems Inc.
1990 Stock Option Plan of our report dated July 26, 1995, with respect to the
consolidated financial statements of Novametrix Medical Systems Inc. included
in this Annual Report (Form 10-KSB) for the year ended April 30, 1995.
ERNST & YOUNG LLP
Hartford, Connecticut
July 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
Novametrix Medical Systems Inc. Consolidated Statement of Operations for the
year ended April 30, 1995 and the Consolidated Balance Sheet as of April 30,
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-02-1994
<PERIOD-END> APR-30-1995
<CASH> $272,033
<SECURITIES> 0
<RECEIVABLES> 5,497,171
<ALLOWANCES> (250,000)
<INVENTORY> 4,931,860
<CURRENT-ASSETS> 10,557,504
<PP&E> 5,736,892
<DEPRECIATION> (4,603,479)
<TOTAL-ASSETS> 16,605,981
<CURRENT-LIABILITIES> 4,145,748
<BONDS> 2,308,333
<COMMON> 61,365
0
2,500,000
<OTHER-SE> 7,590,535
<TOTAL-LIABILITY-AND-EQUITY> 16,605,981
<SALES> 24,032,101
<TOTAL-REVENUES> 24,043,404
<CGS> 10,555,530
<TOTAL-COSTS> 21,952,234
<OTHER-EXPENSES> 73,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372,867
<INCOME-PRETAX> 1,644,367
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 1,604,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,604,367
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
