<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to .
----------------------- ------------------------
Commission file number 20-8969
NOVAMETRIX MEDICAL SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-0977422
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1 Barnes Industrial Park Road, Wallingford, CT 06492
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (203) 265-7701
---------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.01 par value: 6,620,854 shares issued and outstanding as of
March 1, 1996.
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
Page 1 of 15
Index to Exhibits at Page 13
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income (Unaudited) -
Quarters ended January 28, 1996 and January 29, 1995 3
Nine months ended January 28, 1996 and January 29, 1995 4
Condensed Consolidated Balance Sheets (Unaudited) -
January 28, 1996 and April 30, 1995 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine months ended January 28, 1996 and January 29, 1995 7
Notes to Condensed Consolidated Financial Statements
(Unaudited) - January 28, 1996 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
</TABLE>
Page 2 of 15
<PAGE> 3
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JANUARY 28, 1996 JANUARY 29, 1995
---------------- ----------------
<S> <C> <C>
Net sales $6,245,318 $5,919,279
Costs and expenses:
Cost of products sold 2,774,054 2,655,720
Research and product development 654,316 609,812
Selling, general and administrative 2,223,644 2,193,105
Interest 70,039 85,480
Other expense 18,098 19,062
---------- ----------
5,740,151 5,563,179
---------- ----------
INCOME BEFORE INCOME TAXES 505,167 356,100
Income taxes - current 8,000 7,000
---------- ----------
NET INCOME $ 497,167 $ 349,100
========== ==========
Per common share amounts:
Primary $ .06 $ .05
========== ==========
Fully diluted $ .06 $ .05
========== ==========
Average common shares outstanding:
Primary 8,074,887 7,635,693
Fully diluted 8,391,233 7,635,693
</TABLE>
See accompanying notes.
Page 3 of 15
<PAGE> 4
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 28, 1996 JANUARY 29, 1995
----------------- -----------------
<S> <C> <C>
Net sales $18,474,183 $17,438,186
Costs and expenses:
Cost of products sold 8,032,244 7,688,983
Research and product development 1,998,090 1,740,497
Selling, general and administrative 6,800,143 6,697,618
Interest 219,571 291,285
Other expense 57,837 65,365
----------- -----------
17,107,885 16,483,748
----------- -----------
INCOME BEFORE INCOME TAXES 1,366,298 954,438
Income taxes - current 24,000 15,000
----------- -----------
NET INCOME $ 1,342,298 $ 939,438
=========== ===========
Per common share amounts:
Primary $ .17 $ .12
=========== ===========
Fully diluted $ .16 $ .12
=========== ===========
Average common shares outstanding:
Primary 8,020,296 7,616,797
Fully diluted 8,369,020 7,616,797
</TABLE>
See accompanying notes.
Page 4 of 15
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JANUARY 28, 1996 APRIL 30, 1995
------ ---------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 276,951 $ 272,033
Accounts receivable, less
allowance for losses of $250,000 5,897,369 5,247,171
Inventories:
Finished products 1,282,852 1,247,541
Work in process 1,456,597 1,088,864
Materials 2,933,111 2,595,455
------------ ------------
5,672,560 4,931,860
Prepaid expenses 116,821 106,440
------------ ------------
TOTAL CURRENT ASSETS 11,963,701 10,557,504
EQUIPMENT 6,058,696 5,736,892
Accumulated depreciation (deduction) (4,903,693) (4,603,479)
------------ ------------
1,155,003 1,133,413
LICENSE, TECHNOLOGY, PATENTS AND OTHER 7,732,690 7,606,069
Accumulated amortization (deduction) (3,063,081) (2,691,005)
------------ ------------
4,669,609 4,915,064
------------ ------------
$ 17,788,313 $ 16,605,981
============ ============
</TABLE>
See accompanying notes.
Page 5 of 15
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JANUARY 28, 1996 APRIL 30, 1995
- ------------------------------------ ---------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion long-term debt $ 1,375,000 $ 925,000
Accounts payable 1,792,440 1,662,950
Accrued expenses 1,242,277 1,557,798
------------ ------------
TOTAL CURRENT LIABILITIES 4,409,717 4,145,748
LONG-TERM DEBT, less current portion 1,708,333 2,308,333
REDEEMABLE PREFERRED STOCK, at
redemption and liquidation value 1,000,000 1,000,000
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
authorized 1,000,000 shares, 40,000 issued and
outstanding at January 28, 1996 and 100,000
issued and outstanding at April 30, 1995 (less
40,000 shares redeemable), at liquidation value -- 1,500,000
Common Stock, $.01 par value,
authorized 20,000,000 shares,
issued 6,926,792 at January 28, 1996
and 6,136,533 at April 30, 1995,
including 338,452 Treasury shares 69,268 61,365
Additional paid-in capital 27,964,098 26,239,685
Retained-earnings deficit (14,876,065) (16,162,112)
Treasury stock (2,487,038) (2,487,038)
------------ ------------
10,670,263 9,151,900
------------ ------------
$ 17,788,313 $ 16,605,981
============ ============
</TABLE>
See accompanying notes.
Page 6 of 15
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
JANUARY 28, 1996 JANUARY 29, 1995
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,342,298 $ 939,438
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 306,828 357,858
Amortization 382,053 368,405
Changes in operating assets and liabilities
Increase in accounts receivable (650,198) (618,893)
Increase in inventories (740,700) (266,066)
(Increase) decrease in prepaid expenses (10,381) 235,423
Increase in accounts payable 129,490 274,192
(Decrease) increase in accrued expenses (390,522) 14,994
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 368,868 1,305,351
INVESTING ACTIVITIES
Purchases of equipment (328,418) (434,362)
Purchases of license, technology, patents and other (136,598) (743,848)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (465,016) (1,178,210)
FINANCING ACTIVITIES
Proceeds from borrowings 300,000 2,500,000
Principal payments on borrowings (375,000) (6,035,007)
Principal payment on customer advance (654,400)
Dividends on Preferred Stock (56,250) (56,250)
Net proceeds from sales of Common Stock 232,316 4,087,128
NET CASH PROVIDED (USED) BY FINANCING ----------- -----------
ACTIVITIES 101,066 (158,529)
INCREASE (DECREASE) IN CASH ----------- -----------
AND CASH EQUIVALENTS 4,918 (31,388)
Cash and cash equivalents at beginning of period 272,033 267,882
----------- -----------
Cash and cash equivalents at end of period $ 276,951 $ 236,494
=========== ===========
</TABLE>
See accompanying notes.
Page 7 of 15
<PAGE> 8
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 28, 1996
NOTE 1 -- BASIS OF PRESENTATION: The condensed consolidated financial statements
of Novametrix Medical Systems Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and nine months ended January
28, 1996 are not necessarily indicative of the results that may be expected for
the year ending April 28, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended April 30, 1995.
NOTE 2 -- PER SHARE AMOUNTS: Common stock equivalents consist of the Company's
Preferred Stock, stock options, warrants and shares subscribed under the
Company's Employee Stock Purchase Plan. The computation of dilutive common stock
equivalents is based on the if-converted method for the Preferred Stock and on
the treasury stock method for the other common stock equivalents using the
average market price for the primary earnings per share computations and the
higher of average or period-end market price for the fully diluted earnings per
share computations.
NOTE 3 -- PREFERRED STOCK: There were 100,000 shares of Preferred Stock, Series
B, outstanding at April 30, 1995. In December 1995, at the request of the holder
of record, 60,000 of such shares were converted into 666,666 shares of the
Company's Common Stock. The 40,000 shares of Preferred Stock which remain
outstanding at January 28, 1996 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".
NOTE 4 -- COMMITMENTS AND CONTINGENCIES: In January 1996, the Company entered
into a lease for a new facility currently under construction, which will house
the Company's main plant and executive offices. This lease is to commence with
the Company's expected occupancy on August 1, 1996 and has an initial term of 12
years at a base rate of $34,035 per month subject to adjustment in years six and
eleven. This lease also contains an option to purchase after five years and is
renewable for one five-year term. The lease on the Company's current main plant
and offices expires on July 31, 1996.
The Company is a party to various legal proceedings generally incidental to its
business. Management believes that none of such legal proceedings will have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
Page 8 of 15
<PAGE> 9
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Operating results for both the third quarter and the first nine months of
Fiscal 1996 ended January 28, 1996 were improved compared to the quarter and
nine months ended January 29, 1995. Net sales for the third quarter increased to
approximately $6,245,000 compared to approximately $5,919,000 for the third
quarter of the prior fiscal year. Net income increased by 42% to approximately
$497,000 or $.06 per share compared to net income of approximately $349,000 or
$.05 per share reported for the third quarter of the prior fiscal year. For the
nine months ended January 28, 1996, net sales increased to approximately
$18,474,000 compared to approximately $17,438,000 reported by the Company for
the first nine months of the prior fiscal year. Net income increased by 43% to
approximately $1,342,000 or $.17 per share on a primary basis ($.16 fully
diluted) compared to net income of approximately $939,000 or $.12 per share
(primary and fully diluted) reported for the first nine months of the prior
fiscal year.
Net sales increased by 6% when comparing both the quarter ended January 28,
1996 to the quarter ended January 29, 1995 and the nine months ended January 28,
1996 to the first nine months of the previous fiscal year. The increase for both
the third quarter and nine-month comparisons was primarily due to the continued
growth of international and OEM (Original Equipment Manufacturer) product sales.
These increases were partially offset by a reduction in non-hospital product
sales compared to the unusually high levels in the prior fiscal year.
Cost of products sold as a percentage of net sales was 44.4% for the third
quarter of the current fiscal year compared to 44.9% for the third quarter of
the prior fiscal year ended January 29, 1995. For the nine months ended January
28, 1996 cost of products sold as a percentage of net sales improved to 43.5%
compared to 44.1% for the nine months ended January 29, 1995. The improvement in
cost of products sold as a percentage of net sales for both comparisons resulted
primarily from favorable product mix compared to the corresponding periods of
the prior fiscal year partially offset by the effects of higher international
sales. The Company's on-going attention to product cost improvements is expected
to continue to have a favorable impact on margins.
Research and product development ("R & D") expenses increased by
approximately $45,000 or 7% for the quarter ended January 28, 1996 compared to
the corresponding period of the prior fiscal year, and increased by
approximately $258,000 or 15% when comparing the nine months ended January 28,
1996 to the first nine months of the prior fiscal year. For both the three- and
nine-month comparisons, the increase was primarily due to higher levels of
salaries and related fringe benefits and increased outside professional
services, partially offset by reduced spending for R & D materials compared to
the prior year. The Company expects to maintain its current R & D spending
levels of approximately 10% of net sales on a going forward basis to continue to
enhance its competitive position.
Selling, general and administrative ("S,G&A") expenses increased by
approximately $31,000 or 1% for the third quarter ended January 28, 1996
compared to the third quarter of the prior fiscal year and increased by
approximately $103,000 or 2% when comparing the nine months ended January 28,
1996 to the nine months ended January 29, 1995. The increases in S,G&A for both
the three- and nine-month
Page 9 of 15
<PAGE> 10
comparisons resulted primarily from higher salaries and benefits, legal and
financial costs and insurance costs. International selling expenses, which
increased as a result of costs associated with additional sales personnel and
higher sales levels, accounted for the majority of the increase in S,G&A for
both the quarterly and nine-month comparisons. Administrative recruitment fees
and general insurance expenses, offset by lower domestic selling, marketing and
service expenses, accounted for the balance of the S,G&A expense increase when
comparing the nine months ended January 28, 1996 to the first nine months of the
prior fiscal year.
Interest expense decreased by approximately $15,000 or 18% for the quarter
ended January 28, 1996 and decreased by approximately $72,000 or 25% for the
nine months ended January 28, 1996 compared to the corresponding periods of the
prior fiscal year. The improvement for the quarterly comparison resulted from
reduced bank debt levels primarily as a result of scheduled principal payments.
The improvement shown in the nine month comparisons also reflects the favorable
impact of the Company's public offering consummated in June 1994, the proceeds
of which were used to reduce bank debt.
The Company's backlog of firm orders aggregated approximately $3,798,000 as
of January 28, 1996 compared to approximately $3,994,000 as of April 30, 1995.
Except for orders pursuant to long-term OEM agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog at any time to be a meaningful indicator of future
sales.
LIQUIDITY AND SOURCES OF CAPITAL
The Company had working capital of approximately $7,554,000 at January 28,
1996 compared to working capital of approximately $6,412,000 at April 30, 1995.
The Company's current ratio increased to 2.7 to 1 at January 28, 1996 compared
to 2.5 to 1 at April 30, 1995 primarily as a result of the Company's continued
improvement in operating results. The Company had additional borrowing capacity
of over $1,000,000 available for working capital needs under its revolving
credit facility at both January 28, 1996 and April 30, 1995.
Approximately $369,000 of cash was provided by operations for the nine
months ended January 28, 1996. This resulted from favorable operating results
for the first three quarters which were partially offset by higher inventory
levels of approximately $741,000, higher accounts receivable levels of
approximately $650,000 and decreased accrued expense levels of approximately
$391,000. These working capital requirements resulted in a $300,000 increase in
the balance outstanding against the revolving credit facility during the third
quarter. This temporary increase is expected to be repaid in the fourth quarter
as cash flow from operations is expected to exceed scheduled debt service
requirements and planned investing activities for the quarter.
Further, management believes that the cash provided by operations combined
with the availability of funds under the revolving credit agreement will support
its planned rate of growth for the next year, and that additional funds, if
required, will be available from other sources on commercially reasonable terms.
In addition, the Company has approximately $5,600,000 of additional net proceeds
that it could potentially realize upon exercise of the Class A and Class B
Warrants issued in June 1994, which are redeemable by the Company under
specified conditions.
Page 10 of 15
<PAGE> 11
PART II- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits required to be filed as part of the
Quarterly Report on Form 10-QSB are listed in the attached
Index to Exhibits.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed
during the quarter ended January 28, 1996.
Page 11 of 15
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NOVAMETRIX MEDICAL SYSTEMS INC.
Dated: March 11, 1996 /s/WILLIAM J. LACOURCIERE
------------------------------
William J. Lacourciere
Chairman of the Board,
President and
Chief Executive Officer
Dated: March 11, 1996 /s/JOSEPH A. VINCENT
------------------------------
Joseph A. Vincent
Vice President Finance,
Chief Financial Officer and
Principal Accounting Officer
Page 12 of 15
<PAGE> 13
INDEX TO EXHIBITS
PAGE
11 Statement Re: Computation of Per Share Earnings 14
27 Financial Data Schedule 15
<PAGE> 1
EXHIBIT 11
NOVAMETRIX MEDICAL SYSTEMS INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
01-28-96 01-29-95 01-28-96 01-29-95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares of
Common Stock outstanding 6,278,856 5,773,467 6,002,675 5,523,322
Net effect of dilutive common stock
equivalents (1) 1,796,031 1,862,226 2,017,621 2,093,475
Total weighted average number of shares
of Common Stock and dilutive common ---------- ---------- ---------- ----------
stock equivalents outstanding 8,074,887 7,635,693 8,020,296 7,616,797
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares of
Common Stock outstanding 6,278,856 5,773,467 6,002,675 5,523,322
Net effect of dilutive common stock
equivalents (1) 2,112,377 1,862,226 2,366,345 2,093,475
Total weighted average number of shares
of Common Stock and dilutive common ---------- ---------- ---------- ----------
stock equivalents outstanding 8,391,233 7,635,693 8,369,020 7,616,797
========== ========== ========== ==========
Net income $ 497,167 $ 349,100 $1,342,298 $ 939,438
PER COMMON SHARE AMOUNTS:
Primary $ .06 $ .05 $ .17 $ .12
Fully Diluted $ .06 $ .05 $ .16 $ .12
</TABLE>
(1) Common stock equivalents consist of the Company's Preferred Stock, stock
options, warrants and shares subscribed under the Company's Employee Stock
Purchase Plan. The computation of dilutive common stock equivalents is based on
the if-converted method for the Preferred Stock and on the treasury stock method
for the other common stock equivalents using the average market price for the
primary earnings per share computations and the higher of average or period-end
market price for the fully diluted earnings per share computations.
Page 14 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-28-1996
<PERIOD-END> JAN-28-1996
<CASH> 276,951
<SECURITIES> 0
<RECEIVABLES> 6,147,369
<ALLOWANCES> (250,000)
<INVENTORY> 5,672,560
<CURRENT-ASSETS> 11,963,701
<PP&E> 6,058,696
<DEPRECIATION> (4,903,693)
<TOTAL-ASSETS> 17,788,313
<CURRENT-LIABILITIES> 4,409,717
<BONDS> 1,708,333
0
1,000,000
<COMMON> 69,268
<OTHER-SE> 10,600,995
<TOTAL-LIABILITY-AND-EQUITY> 17,788,313
<SALES> 18,474,183
<TOTAL-REVENUES> 18,474,183
<CGS> 8,032,244
<TOTAL-COSTS> 16,830,477
<OTHER-EXPENSES> 57,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219,571
<INCOME-PRETAX> 1,366,298
<INCOME-TAX> 24,000
<INCOME-CONTINUING> 1,342,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,342,298
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
