<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission file number 20-8969
-------
NOVAMETRIX MEDICAL SYSTEMS INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0977422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Technology Drive, Wallingford, CT 06492
-----------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 265-7701
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal
year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.01 par value: 7,970,427 shares issued and outstanding as of
December 1, 1999
Page 1 of 18
Index to Exhibits at Page 17
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
PAGE
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- ------------------------------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income -
Quarters ended October 31, 1999 and November 1, 1998 3
Six months ended October 31, 1999 and November 1, 1998 4
Condensed Consolidated Balance Sheets -
October 31, 1999 and May 2, 1999 5
Condensed Consolidated Statements of Cash Flows -
Six months ended October 31, 1999 and November 1, 1998 7
Notes to Condensed Consolidated Financial Statements -
October 31, 1999 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
</TABLE>
Page 2 of 18
<PAGE> 3
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
OCTOBER 31, 1999 NOVEMBER 1, 1998
---------------- ----------------
<S> <C> <C>
Net sales $ 10,508,325 $ 8,134,062
Costs and expenses:
Cost of products sold 4,377,492 3,316,664
Research and product development 1,040,494 1,066,771
Selling, general and administrative 3,910,102 2,751,801
Interest expense 296,402 19,688
Other expense 56,307 13,066
-------------- --------------
9,680,797 7,167,990
-------------- --------------
Income before income taxes 827,528 966,072
Income tax provision 265,000 270,500
-------------- --------------
Net income $ 562,528 $ 695,572
============== ==============
Per common share amounts:
Basic $ 0.07 $ 0.08
============== ==============
Diluted $ 0.07 $ 0.08
============== ==============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 3 of 18
<PAGE> 4
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, 1999 NOVEMBER 1, 1998
---------------- ----------------
<S> <C> <C>
Net sales $ 18,193,066 $ 15,161,947
Costs and expenses:
Cost of products sold 7,610,139 6,064,538
Research and product development 2,012,685 1,978,917
Selling, general and administrative 7,127,012 5,548,191
Interest expense 453,365 25,077
Other expense 90,227 23,467
---------------- ----------------
17,293,428 13,640,190
Income before income taxes and cumulative ---------------- ----------------
effect of a change in accounting principle 899,638 1,521,757
Income tax provision 288,100 426,100
---------------- ----------------
Income before cumulative effect of a
change in accounting principle $ 611,538 $ 1,095,657
Cumulative effect of a change in
accounting principle (223,544)
---------------- ----------------
Net income $ 387,994 $ 1,095,657
================ ================
Per common share amounts:
Income before cumulative effect of a
change in accounting principle
Basic $ 0.08 $ 0.13
Diluted $ 0.08 $ 0.12
Cumulative effect of a change in
accounting principle
Basic $ (0.03)
Diluted $ (0.03)
Net income
Basic $ 0.05 $ 0.13
Diluted $ 0.05 $ 0.12
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 4 of 18
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS OCTOBER 31, 1999 MAY 2, 1999
------ ---------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 228,021 $ 269,399
Accounts receivable, less allowance for
losses of $300,000 at October 31, 1999 and
$250,000 at May 2, 1999 13,435,890 11,613,251
Current portion of notes receivable 174,394 380,003
Inventories:
Finished products 5,136,230 4,193,808
Work in process 1,552,362 1,224,991
Materials 4,959,984 3,933,648
---------------- -----------
11,648,576 9,352,447
Deferred income taxes, net 1,768,688 1,768,688
Prepaid expenses 1,220,131 915,610
---------------- -----------
TOTAL CURRENT ASSETS 28,475,700 24,299,398
Notes receivable, less current portion 1,663,902 1,501,118
Equipment 11,428,440 10,614,053
Accumulated depreciation (7,786,355) (6,931,927)
---------------- ------------
3,642,085 3,682,126
License, technology, patents and other 8,747,759 8,526,620
Accumulated amortization (4,126,855) (3,982,188)
---------------- ------------
4,620,904 4,544,432
Goodwill, net of amortization of $102,688 7,598,961
Deferred income taxes, net 1,795,900 1,948,800
---------------- ------------
$47,797,452 $ 35,975,874
================ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 5 of 18
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY OCTOBER 31, 1999 MAY 2, 1999
- ------------------------------------ ---------------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,954,417 $ 2,384,925
Accrued expenses 3,395,520 2,844,124
Notes payable to bank, current portion 7,120,000 3,800,000
Capital lease obligation, current portion 38,629 36,810
------------ ------------
TOTAL CURRENT LIABILITIES 13,508,566 9,065,859
Notes payable to bank, less current portion 9,100,000 2,200,000
Capital lease obligation, less current portion 31,150 54,071
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares, issued 9,269,782 at
October 31, 1999 and 9,232,659 at
May 2, 1999, including Treasury shares 92,698 92,327
Additional paid-in capital 35,079,397 34,965,970
Retained-earnings deficit (2,872,249) (3,260,243)
Treasury stock - 1,299,355 shares (7,142,110) (7,142,110)
------------ ------------
25,157,736 24,655,944
------------ ------------
$ 47,797,452 $ 35,975,874
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 6 of 8
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, 1999 NOVEMBER 1, 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 387,994 $ 1,095,657
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation 534,187 350,929
Amortization 409,175 241,304
Deferred income taxes 258,100 361,100
Cumulative effect of change in accounting principle 223,544
Net investment in sales-type lease (927,087)
Changes in operating assets and liabilities:
Accounts and notes receivable (719,832) 744,454
Inventories (1,114,777) (872,397)
Prepaid expenses (555,275) (159,135)
Accounts payable 153,162 (257,093)
Accrued expenses (89,322) (300,462)
NET CASH (USED) PROVIDED BY ---------------- ----------------
OPERATING ACTIVITIES (513,044) 277,270
INVESTING ACTIVITIES
Purchases of equipment (369,137) (837,160)
Purchases of licenses, technology, patents and other (302,258) (440,277)
Purchase of Children's Medical Ventures, Inc.
less cash acquired (9,118,386)
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (9,789,781) (1,277,437)
FINANCING ACTIVITIES
Revolving line of credit, net 1,400,000
Proceeds from notes payable 9,600,000 3,474,000
Principal payments on borrowings (801,102) (16,603)
Net proceeds from sales of Common Stock 62,549 81,687
Purchase of Treasury Stock (4,141,189)
NET CASH PROVIDED (USED) BY ---------------- ----------------
FINANCING ACTIVITIES 10,261,447 (602,105)
DECREASE IN CASH AND ---------------- ----------------
CASH EQUIVALENTS (41,378) (1,602,272)
Cash and cash equivalents at beginning of period 269,399 1,783,596
---------------- ----------------
Cash and cash equivalents at end of period $ 228,021 $ 181,324
================ ================
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 7 of 18
<PAGE> 8
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1999
NOTE 1 --BASIS OF PRESENTATION: The accompanying unaudited 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-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the quarter and six
months ended October 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending April 30, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended May 2, 1999.
NOTE 2 -- ACQUISITION OF BUSINESS: On June 30, 1999, the Company acquired 100%
of the capital stock of Children's Medical Ventures, Inc., a privately held
developer and marketer of neonatal and pediatric care products and services. The
purchase price was comprised of $8.7 million in cash and a warrant to purchase
25,000 shares of the Company's Common Stock at an exercise price of $4.3625 per
share. The purchase price and related costs were financed with two term loans
aggregating $9.6 million. The acquisition has been accounted for as a purchase;
accordingly, the purchase price has been allocated to the underlying assets and
liabilities based upon their respective estimated fair values at the date of
acquisition. The excess of the fair value of the net assets acquired (goodwill)
was approximately $7.7 million and is being amortized on a straight-line basis
over 25 years. The accompanying condensed consolidated statements of income do
not include any revenues or expenses related to this acquisition prior to the
closing date. Following are the Company's unaudited pro forma results for the
quarter and six months ended October 31, 1999 and November 1, 1998 assuming that
the acquisition had taken place at the beginning of each period:
<TABLE>
<CAPTION>
OCTOBER 31, 1999 NOVEMBER 1, 1998
($000'S) ($000'S)
Quarter Six Months Quarter Six Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue $ 10,508 $ 19,432 $ 9,893 $ 17,897
Income before cumulative effect of a
change in accounting principle 563 439 628 905
Net income 563 216 628 905
</TABLE>
Page 8 of 18
<PAGE> 9
<TABLE>
<CAPTION>
OCTOBER 31, 1999 NOVEMBER 1, 1998
Quarter Six Months Quarter Six Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C>
Per common share amounts:
Income before cumulative effect of
a change in accounting principle
Basic $ 0.07 $ 0.06 $ 0.07 $ 0.10
Diluted $ 0.07 $ 0.05 $ 0.07 $ 0.10
Net income
Basic $ 0.07 $ 0.03 $ 0.07 $ 0.10
Diluted $ 0.07 $ 0.03 $ 0.07 $ 0.10
Weighted average common shares:
Basic 7,952,768 7,946,291 8,409,010 8,629,336
Diluted 8,129,591 8,138,253 8,640,168 8,982,119
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which would have actually resulted had the acquisition been in effect as of the
first day of each of the periods presented above.
NOTE 3 -- REPORTABLE SEGMENTS: The Company is domiciled in the United States and
operates in one industry segment - the design, manufacture and marketing of cost
effective medical products that improve patient outcomes, including non-invasive
monitors, sensors, accessories and developmental care products. The Company's
acquisition of Children's Medical did not affect the composition of the
Company's reportable segments.
NOTE 4 -- ACCOUNTING CHANGE: Effective May 3, 1999, the Company adopted
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities". The SOP requires the Company to write-off any start-up costs which
had been previously capitalized and to expense any future start-up costs as
incurred. Earnings during the first quarter of fiscal 2000 were reduced by
$223,544 (approximately $329,000 before taxes) or $0.03 per diluted share as a
result of the adoption of SOP 98-5.
NOTE 5 -- PER SHARE AMOUNTS: The calculation of basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
The calculation of diluted earnings per share excludes anti-dilutive options and
warrants whose exercise price exceeds the average market price.
Page 9 of 18
<PAGE> 10
The following table sets forth the calculation of basic and diluted
earnings per share for the quarter and six months ended October 31, 1999 and
November 1, 1998:
<TABLE>
<CAPTION>
OCTOBER 31, 1999 NOVEMBER 1, 1998
Quarter Six Months Quarter Six Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE - BASIC
Income before cumulative effect of $ 0.07 $ 0.08 $ 0.08 $ 0.13
a change in accounting principle
Cumulative effect of a change in
accounting principle $ (0.03)
--------- --------- --------- ---------
Net income per common share $ 0.07 $ 0.05 $ 0.08 $ 0.13
========= ========= ========= =========
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION
Income before cumulative effect of $ 0.07 $ 0.08 $ 0.08 $ 0.13
a change in accounting principle
Cumulative effect of a change in
accounting principle $ (0.03)
--------- --------- --------- ---------
Net income per common share $ 0.07 $ 0.05 $ 0.08 $ 0.13
========= ========= ========= =========
WEIGHTED AVERAGE COMMON STOCK
AND COMMON STOCK EQUIVALENT
SHARES OUTSTANDING:
Basic 7,952,768 7,946,291 8,409,010 8,629,336
Effect of dilutive securities 176,823 191,962 231,158 352,783
--------- --------- --------- ---------
Diluted 8,129,591 8,138,253 8,640,168 8,982,119
========= ========= ========= =========
</TABLE>
NOTE 6-- DEBT AND CAPITAL LEASE OBLIGATION: On June 30, 1999, the Company
purchased Children's Medical Ventures, Inc. for $8.7 million in cash and a
warrant to purchase 25,000 shares of the Company's Common Stock. The acquisition
and related costs were financed with two term loans, each in the amount of $4.8
million, aggregating $9.6 million. Under an amended and restated agreement with
the Company's primary lender, the Company borrowed an additional $4.8 million in
the form of a five year term loan which is payable in monthly installments of
$80,000 plus interest at the London Interbank Offered Rate ("LIBOR") plus 1.8%
(7.2% at October 31, 1999) and expires during June 2004. In addition, the
Company increased the amount of credit available under the revolving credit
agreement from $5.0 million to $6.0 million, modified the interest rate to LIBOR
plus 1.60% (7.0% at
Page 10 of 18
<PAGE> 11
October 31, 1999) and extended the maturity date to August 2001. The Company
also entered into a $4.8 million five year term loan with another bank which is
payable in monthly installments of $80,000 plus interest at LIBOR plus 1.6%
(7.0% at October 31, 1999) and expires during June 2004. Pursuant to the terms
of the amended and restated bank agreements and the new term loan agreement, the
Company is required, among other things, to maintain certain financial ratios,
minimum levels of working capital and net worth, and is restricted from the
payment of dividends.
DEBT AND CAPITAL LEASE OBLIGATION CONSIST OF:
<TABLE>
<CAPTION>
October 31, 1999 May 2, 1999
---------------- -----------
<S> <C> <C>
Term loans payable to banks $ 11,620,000 $ 2,800,000
Note payable to bank under revolving
credit agreement 4,600,000 3,200,000
Capital lease obligation 69,779 90,881
------------ ------------
16,289,779 6,090,881
Less current portion 7,158,629 3,836,810
------------ ------------
$ 9,131,150 $ 2,254,071
============ ============
</TABLE>
NOTE 7 - WARRANTS: On September 29, 1999, the Company announced that the Board
of Director's approved the extension of the expiration date of it's Class B
Warrants to December 8, 2000. The Warrants, which trade on the Nasdaq Stock
Market under the symbol "NMTXZ", were previously scheduled to expire on
December 8, 1999.
Page 11 of 18
<PAGE> 12
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the second quarter of fiscal 2000 increased by approximately
$2,374,000 to $10,508,000 compared to net sales of approximately $8,134,000 for
the second quarter of fiscal 1999. The increase was primarily due to sales from
the Children's Medical Group ("CMG"), acquired by the Company on June 30, 1999.
Sales to the domestic hospital marketplace increased over the second quarter of
the prior fiscal year while sales to Original Equipment Manufacturer ("OEM")
customers were below sales for the second quarter of the prior fiscal year. Net
sales for the first six months of fiscal 2000 increased by approximately
$3,031,000 to $18,193,000 compared to net sales of $15,162,000 for the first six
months of the prior fiscal year. The increase in sales was primarily related to
the addition of CMG sales in fiscal 2000.
Cost of products sold as a percentage of net sales was 42% for the second
quarter of fiscal 2000 compared to 41% for the second quarter of fiscal 1999.
Cost of products sold as a percentage of net sales was 42% for the first six
months of fiscal 2000 compared to 40% for the corresponding period of the prior
fiscal year. The increase in the cost of products sold as a percentage of sales
for the quarter and six months ended October 31, 1999 was primarily product mix
related. The Company is continuing to pursue product cost reductions and
manufacturing efficiency improvements.
Research and product development ("R&D") expenses decreased by
approximately $26,000 or 2% for the second quarter of fiscal 2000 compared to
the second quarter of the prior fiscal year. The decrease was generated by
reduced expenditures for outside services partially offset by the additional R&D
expenses associated with CMG. R&D expenses increased by approximately $34,000
for the first six months of fiscal 2000 compared to the first six months of the
prior fiscal year. Increased salaries and related benefits, depreciation, and
the additional R&D expenses of CMG were partially offset by lower expenditures
for outside professional services.
Selling, general and administrative ("S,G&A") expenses increased
approximately $1,158,000 for the second quarter of fiscal 2000 compared to the
second quarter of fiscal 1999. Approximately 56% of the increase pertained to
the addition of CMG expenses. S,G&A expenses excluding CMG increased
approximately 19% over the second quarter of the prior year primarily as a
result of increased domestic selling expenses associated with the increased
sales volume and the incremental sales staff required to support the
Non-Invasive Cardiac Output monitor (NICO(tm)) launch; international sales
expenses including dealer commissions and travel and entertainment; and general
administrative ("G&A") expenses including outside professional services. S,G & A
expenses increased approximately $1,579,000 for the six months ended October 31,
1999 compared to the six months ended November 1, 1998. CMG expenses accounted
for approximately 56% of the increase. S,G&A expenses excluding CMG increased
approximately 13% for the first six months of fiscal 2000 compared to the first
six months of the prior fiscal year. Increased domestic selling expenses related
to the increased sales volume and the expansion of the domestic sales force,
increased international sales expenses primarily associated with dealer
commissions and increased marketing expenses including outside professional
Page 12 of 18
<PAGE> 13
services and promotional costs were primarily responsible for the remainder of
the increase. Partially offsetting these increases were reductions in G&A
expenses including travel and entertainment and legal expenses.
Interest expense increased approximately $277,000 and $428,000,
respectively, for the quarter and six months ended October 31, 1999 compared to
the corresponding periods of the prior fiscal year. Increased borrowings
associated with the Company's common stock repurchase program, certain customer
sales financing agreements, general working capital requirements and the
acquisition of Children's Medical were responsible for the increase in interest
expense for these periods.
Income tax expense for the quarter and six months ended October 31, 1999,
excluding the cumulative effect of a change in accounting principle, decreased
approximately $6,000 and $138,000, respectively, from the quarter and six months
of the prior year ended November 1, 1998 as a result of lower pre-tax earnings.
The Company expects its income tax rate to approximate 32% for fiscal 2000. Due
to net operating loss carryforwards for federal income tax purposes, the Company
expects income taxes payable, calculated on an alternative minimum tax basis, to
be minimal for fiscal 2000.
Net income for the quarter ended October 31, 1999 was approximately
$563,000 or $0.07 per diluted share compared to net income of approximately
$696,000 or $0.08 per diluted share for the quarter ended November 1, 1998. Net
income before the cumulative effect of a change in accounting principle was
approximately $612,000 or $0.08 per diluted share. This was impacted by the
adoption of an accounting standard which required the expensing of start-up
costs which were previously capitalized. The adoption resulted in a one-time
charge of approximately $224,000 or $0.03 per diluted share in the first
quarter. This resulted in net income of approximately $388,000 or $0.05 per
diluted share for the first six months of fiscal 2000 compared to net income for
the first six months of fiscal 1999 of approximately $1,096,000 or $0.12 per
diluted share.
Except for orders pursuant to long-term agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog levels to be a meaningful indicator of future sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $14,967,000 at October 31,
1999 compared to approximately $15,234,000 at May 2, 1999. The decrease in
working capital of approximately $267,000 was primarily attributable to an
increase in bank debt resulting from the Company's acquisition of Children's
Medical, partially offset by the increase in working capital provided by CMG and
an increase in inventory and accounts receivable before the effect of the
acquisition. This resulted in a current ratio of 2.1 to 1 at October 31, 1999
compared to 2.7 to 1 at May 2, 1999.
Approximately $513,000 of cash was used by the combined operations for the
six months ended October 31, 1999 compared to approximately $277,000 of cash
provided by operations for the corresponding period of the prior fiscal year.
The impact of increases in inventory, accounts receivable and prepaid expenses,
and a reduction in income before taxes, depreciation and amortization, primarily
related to the first quarter of fiscal 2000, were responsible for the reduction
in cash provided by operations compared to the prior year. Cash provided by
operating activities in the second quarter of fiscal 2000 was approximately
$638,000.
Page 13 of 18
<PAGE> 14
Approximately $10,261,000 of funds were provided from financing activities
during the first six months of fiscal 2000 net of approximately $801,000 of
principal repayments on the Company's term debt and capital lease obligation.
The majority of the funds provided from financing was used for the purchase of
Children's Medical including related transaction costs less cash acquired by the
Company.
The Company expects cash from operations and funds available under the
Company's revolving credit agreement to adequately support its planned operating
requirements for the balance of fiscal 2000. In addition, management believes
that additional funds, if needed, could be obtained on commercially reasonable
terms.
YEAR 2000 COMPLIANCE
Year 2000 compliance is a potentially significant issue for most, if not
all companies, the impact of which cannot be predicted with any degree of
certainty. The risk to the Company resulting from the failure of its own systems
or those of third parties with which it does business to attain Year 2000
readiness is similar to that of other manufacturing firms or business
enterprises. The risks include, but are not limited to, disruptions in
transacting or processing information, disruptions in the supply of material
from major vendors and delays in shipment to customers due to the Year 2000
non-compliance. The Company has established a Year 2000 program dedicated to
assessing the potential impact on its business, results of operations and
financial condition. The Company has conducted a thorough review of its
installed base of monitoring equipment and has determined that its current
products are Year 2000 compliant. The results of the Company's examination have
been posted on its web site for its customers to review. During fiscal 1999, the
Company completed the installation of a new fully-integrated operating system
and has recently completed an upgrade of its communication systems to achieve
Year 2000 compliance. To date, the Company has capitalized approximately
$375,000 to upgrade its operating and information systems and does not expect to
to incur additional capital or non-capital expenditures of a material amount for
Year 2000 compliance purposes. As a result of these expenditures, management
believes that the Year 2000 issue will not pose significant operational problems
for its internal operating systems. The Company has also contacted its major
suppliers to assess their Year 2000 readiness and is continuing to address this
issue with other suppliers and third parties with which the Company conducts
business. While the Company has not identified any Year 2000 issues as a result
of this effort, the Company cannot be certain that its suppliers will obtain
Year 2000 readiness and is developing contingency plans to mitigate exposure
resulting from non-compliance including considering the substitution of those
suppliers that provide an unacceptable response. However, it would be
impractical for the Company to attempt to address all potential Year 2000
problems of its own suppliers and other third parties. The Company will continue
to refine its contingency plans as conditions warrant.
FORWARD LOOKING INFORMATION
This Quarterly Report contains forward looking statements about the
Company's projected operating results. The Company's ability to achieve its
projected results is dependent upon a variety of factors, many of which are
outside of management's control, including without limitation, global economic
changes, an unanticipated slowdown in the healthcare industry, unanticipated
technological developments which affect the competitiveness of the Company's
products, or an unanticipated loss or delay of business. The Company does not
intend to update publicly any of the forward looking statements contained
herein.
Page 14 of 18
<PAGE> 15
PART II- OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders (the "Meeting") of the Company was
held on October 6, 1999 at the Ramada Plaza Hotel in Meriden,
Connecticut.
(b) Not applicable because:
(i) Proxies for the Meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934,
(ii) There was no solicitation in opposition to management's nominees
as listed in the Company's Proxy Statement dated
August 30, 1999,
(iii) Such nominees were elected.
(c) Matters voted upon at the Meeting were as follows:
<TABLE>
<CAPTION>
Votes Votes Withheld/
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
(i) Election of two Class A directors of
the Company for the next three years:
Paul A. Cote 6,803,688 391,996
Vartan Ghugasian 6,800,788 394,896
(2) Ratification of the Board of Directors' 7,143,296 19,557 32,831
selection of Ernst & Young LLP to
serve as the Company's independent
auditors for the fiscal year ended
April 30, 2000.
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits required to be filed as part of the Quarterly
Report on Form 10-Q are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during
the quarter ended October 31, 1999.
Page 15 of 18
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOVAMETRIX MEDICAL SYSTEMS INC.
Dated: December 14, 1999 s/WILLIAM J. LACOURCIERE
----------------- ------------------------
William J. Lacourciere
Chairman of the Board,
President and Chief Executive Officer
Dated: December 14, 1999 s/JEFFERY A. BAIRD
----------------- -----------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
Page 16 of 18
<PAGE> 17
INDEX TO EXHIBITS
PAGE
27 Financial Data Schedule 18
Page 17 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Novametrix Medical Systems Inc. Condensed Consolidated Statements of
Income for the six months ended October 31, 1999 and the Condensed Consolidated
Balance Sheets at Octoer 31, 1999, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 228,021
<SECURITIES> 0
<RECEIVABLES> 15,574,186
<ALLOWANCES> (300,000)
<INVENTORY> 11,648,576
<CURRENT-ASSETS> 28,475,700
<PP&E> 11,428,440
<DEPRECIATION> (7,786,355)
<TOTAL-ASSETS> 47,797,452
<CURRENT-LIABILITIES> 13,508,566
<BONDS> 9,131,150
0
0
<COMMON> 92,698
<OTHER-SE> 25,065,038
<TOTAL-LIABILITY-AND-EQUITY> 47,797,452
<SALES> 18,193,066
<TOTAL-REVENUES> 18,193,066
<CGS> 7,610,139
<TOTAL-COSTS> 7,610,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 453,365
<INCOME-PRETAX> 899,638
<INCOME-TAX> 288,100
<INCOME-CONTINUING> 611,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (223,544)
<NET-INCOME> 387,994
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
