<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 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: 7,947,804 shares issued and outstanding as of
February 26, 1999
Page 1 of 24
Index to Exhibits at Page 18
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
I. INTRODUCTION 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income -
Three months ended January 31, 1999 and February 1, 1998 4
Nine months ended January 31, 1999 and February 1, 1998 5
Condensed Consolidated Balance Sheets -
January 31, 1999 and May 3, 1998 6
Condensed Consolidated Statements of Cash Flows -
Nine months ended January 31, 1999 and February 1, 1998 8
Notes to Condensed Consolidated Financial Statements -
January 31, 1999 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
</TABLE>
Page 2 of 24
<PAGE> 3
I. INTRODUCTION
On July 1, 1999, Novametrix Medical Systems Inc. ("the Company") announced
that it had restated its quarterly results for the first three quarters of
fiscal 1999. The restatement was due principally to modifications to the
accounting treatment for sales financing arrangements which the Company entered
into with customers during the first three quarters of fiscal 1999 and the
reversal of certain dealer sales where products were ultimately returned to the
Company due to cancellation of dealer orders by end users.
Financial statement information and related disclosures included in this
amended filing reflect, where appropriate, changes as a result of the
restatements.
All other information is presented as of the original filing date and has
not been updated in this amended filing.
Page 3 of 24
<PAGE> 4
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
RESTATED
THREE MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, 1999 FEBRUARY 1, 1998
---------------- ----------------
<S> <C> <C>
Net sales $8,087,894 $7,378,240
Costs and expenses:
Cost of products sold 3,638,138 3,307,401
Research and product development 1,058,077 884,429
Selling, general and administrative 3,243,319 2,433,411
Interest expense 97,437 5,267
Other expense 11,025 4,737
---------- ----------
8,047,996 6,635,245
---------- ----------
INCOME BEFORE INCOME TAXES 39,898 742,995
Income tax provision 11,200 208,000
---------- ----------
NET INCOME $ 28,698 $ 534,995
========== ==========
Per common share amounts:
Basic $ 0.00 $ 0.06
========== ==========
Diluted $ 0.00 $ 0.06
========== ==========
Weighted average common shares outstanding:
Basic 8,028,342 8,650,811
Diluted 8,406,268 9,336,310
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 4 of 24
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
RESTATED
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 FEBRUARY 1, 1998
---------------- ----------------
<S> <C> <C>
Net sales $23,249,841 $22,250,661
Costs and expenses:
Cost of products sold 9,702,676 9,700,283
Research and product development 3,036,994 2,595,742
Selling, general and administrative 8,791,510 7,467,567
Interest expense 122,514 109,599
Other expense 34,492 36,829
----------- -----------
21,688,186 19,910,020
----------- -----------
INCOME BEFORE INCOME TAXES 1,561,655 2,340,641
Income tax provision 437,300 655,000
----------- -----------
NET INCOME $ 1,124,355 $ 1,685,641
=========== ===========
Per common share amounts:
Basic $ 0.13 $ 0.21
=========== ===========
Diluted $ 0.13 $ 0.18
=========== ===========
Weighted average common shares outstanding:
Basic 8,415,739 7,928,820
Diluted 8,768,575 9,377,118
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 5 of 24
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
RESTATED
ASSETS JANUARY 31, 1999 MAY 3, 1998
- ------ ---------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 222,995 $ 1,783,596
Accounts receivable, less
allowance for losses of $250,000 9,779,488 9,712,814
Net investment in sales-type lease 229,225
Notes receivable 98,567
Inventories:
Finished products 3,621,927 3,067,625
Work in process 1,586,874 1,777,028
Materials 3,982,105 3,028,281
------------ ------------
9,190,906 7,872,934
Deferred income taxes, net 2,414,000 2,414,000
Prepaid expenses 1,035,861 697,880
------------ ------------
TOTAL CURRENT ASSETS 22,971,042 22,481,224
Net investment in sales-type lease 705,265
Notes receivable 1,401,760
Equipment 10,171,343 8,627,726
Accumulated depreciation (6,572,130) (6,031,517)
------------ ------------
3,599,213 2,596,209
License, technology, patents and other 8,176,255 7,521,371
Accumulated amortization (3,860,878) (3,566,574)
------------ ------------
4,315,377 3,954,797
Deferred income taxes, net 1,627,366 1,969,666
------------ ------------
$ 34,620,023 $ 31,001,896
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 6 of 24
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
RESTATED
LIABILITIES AND SHAREHOLDERS' EQUITY JANUARY 31, 1999 MAY 3, 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,050,648 $ 1,883,234
Accrued expenses 2,034,468 1,961,441
Notes payable to bank, current portion 3,817,000
Capital lease obligation, current portion 36,307 33,901
------------ ------------
TOTAL CURRENT LIABILITIES 7,938,423 3,878,576
Capital lease obligation, less current portion 60,419 90,881
Notes payable to bank, less current portion 2,450,000
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares, issued 9,220,915 at
January 31, 1999 and 9,174,355 at
May 3, 1998, including Treasury shares 92,209 91,744
Additional paid-in capital 34,909,754 34,754,643
Retained-earnings deficit (4,202,555) (5,326,910)
Treasury stock - 1,181,255 shares at January 31,
1999 and 338,452 shares at May 3, 1998 (6,628,227) (2,487,038)
------------ ------------
24,171,181 27,032,439
------------ ------------
$ 34,620,023 $ 31,001,896
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited) .
Page 7 of 24
<PAGE> 8
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
RESTATED
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 FEBRUARY 1, 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,124,355 $ 1,685,641
Adjustments to reconcile net income
to net cash (used) provided by operating activities:
Depreciation 540,613 441,913
Amortization 357,880 398,690
Deferred income taxes 342,300 607,000
Net investment in sales-type lease (934,490)
Changes in operating assets and liabilities:
Accounts and notes receivable (1,567,001) 577,802
Inventories (1,317,972) (621,353)
Prepaid expenses (337,981) (100,389)
Accounts payable 167,414 (537,588)
Accrued expenses 73,027 (1,124,866)
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
----------- -----------
(1,551,855) 1,326,850
INVESTING ACTIVITIES
Purchases of equipment (1,543,617) (646,546)
Purchases of licenses, technology, patents and other (718,460) (408,927)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,262,077) (1,055,473)
FINANCING ACTIVITIES
Proceeds from notes payable 6,267,000
Principal payments on borrowings (28,056) (3,626,285)
Dividends on Preferred Stock (15,000)
Net proceeds from sales of Common Stock 155,576 4,580,970
Purchase of Treasury Stock (4,141,189)
NET CASH PROVIDED BY FINANCING ----------- -----------
ACTIVITIES 2,253,331 939,685
(DECREASE) INCREASE IN CASH ----------- -----------
AND CASH EQUIVALENTS (1,560,601) 1,211,062
Cash and cash equivalents at beginning of period 1,783,596 236,808
----------- -----------
Cash and cash equivalents at end of period $ 222,995 $ 1,447,870
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 8 of 24
<PAGE> 9
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 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 three and nine
months ended January 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending May 2, 1999. 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 3, 1998.
On July 1, 1999, the Company announced that it had restated its quarterly
earnings for the first three quarters of fiscal 1999 to adjust recognition of
revenue and related costs and expenses in those periods. The restatement was
principally due to modifications to the accounting treatment for sales financing
arrangements which the Company entered into with customers during the first
three quarters of fiscal 1999 and the reversal of certain dealer sales where
products were ultimately returned to the Company due to cancellation of dealer
orders by end users. The restatement resulted in a decrease in revenues from
approximately $8,408,000, as previously reported, to approximately $8,088,000
for the three months ended January 31, 1999. Net income decreased from
approximately $337,000 or $0.04 per diluted share, as previously reported, to
approximately $29,000 or $0.00 per diluted share for the same period. For the
nine months ended January 31, 1999, revenues decreased from approximately
$24,686,000, as previously reported, to approximately $23,250,000. Net income
for the same period decreased from approximately $1,693,000 or $0.19 per
diluted share, as previously reported, to approximately $1,124,000 or $0.13
per diluted share.
NOTE 2 -- 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.
The following table sets forth the calculation of basic and diluted
earnings per share for the quarter and nine months ended January 31, 1999 and
February 1, 1998:
Page 9 of 24
<PAGE> 10
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
01-31-99 02-01-98 01-31-99 02-01-98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NUMERATOR
Net Income $ 28,698 $ 534,995 $1,124,355 $1,685,641
Preferred Stock dividends 15,000
---------- ---------- ---------- ----------
Numerator for basic earnings per share 28,698 534,995 1,124,355 1,670,641
Effect of dilutive securities:
Preferred Stock dividends 15,000
---------- ---------- ---------- ----------
Numerator for diluted earnings per share $ 28,698 $ 534,995 $1,124,355 $1,685,641
========== ========== ========== ==========
DENOMINATOR
Denominator for basic earnings per share:
Weighted average shares outstanding 8,028,342 8,650,811 8,415,739 7,928,820
Effect of dilutive securities:
Employee stock options and warrants 377,926 685,499 352,836 1,207,028
Convertible Preferred Stock 241,270
---------- ---------- ---------- ----------
Dilutive potential common shares 377,926 685,499 352,836 1,448,298
---------- ---------- ---------- ----------
Denominator for diluted earnings per share 8,406,268 9,336,310 8,768,575 9,377,118
========== ========== ========== ==========
Basic earnings per share $ 0.00 $ 0.06 $ 0.13 $ 0.21
========== ========== ========== ==========
Diluted earnings per share $ .00 $ 0.06 $ 0.13 $ 0.18
========== ========== ========== ==========
</TABLE>
NOTE 3 - NET INVESTMENT IN SALES-TYPE LEASE: During the first quarter of fiscal
1999, the Company entered into a sales-type lease with a customer which will
result in payments over a multi-year period. The lease is for a term of five
years and provides for the transfer of title to the lessee at the end of the
lease term. The Company's net investment in this lease at January 31, 1999
consists of:
<TABLE>
<S> <C>
Minimum lease payments receivable $ 1,162,620
Less unearned income (28,130)
------------
Net investment in sales-type lease $ 934,490
============
</TABLE>
Page 10 of 24
<PAGE> 11
NOTE 4 - NOTES RECEIVABLE: During the third quarter ended January 31, 1999, the
Company exchanged equipment for long-term non-interest bearing notes receivable,
generally payable over a period of eight years. Interest has been imputed on the
notes based upon the Company's estimated incremental borrowing rate.
<TABLE>
<S> <C>
Face amount of the notes $ 1,572,257
Less unearned income (307,217)
------------
$ 1,265,040
============
</TABLE>
The Company has also recorded other interest bearing notes totaling $87,187
as of January 31, 1999.
During the third quarter ended January 31, 1999, the Company made loans in
the aggregate amount of $148,100 under the Novametrix Medical Systems Inc.
Director and Senior Officer Stock Retention Plan. The loans bear interest at a
fixed rate equal to the Applicable Federal Rate under Section 1274(d) of the
Internal Revenue Code of 1986, as amended. The loans provide for payments of
interest on a quarterly basis, in arrears, until the third anniversary of the
loans at which time the principal is payable.
NOTE 5 - DEBT: The Company maintains a revolving credit agreement with its
lender which provides for borrowing to a maximum of $5,000,000, expires August
31, 2000, and bears interest at the London Interbank Offered Rate ("LIBOR") plus
.98% (totaling 5.94% at February 26, 1999). During the third quarter ended
January 31, 1999, the Company entered into a five-year $3,000,000 term loan with
its lender. The term loan is payable in monthly installments of $50,000 plus
interest at 6.77% under an interest rate swap agreement with its lender. The
Company utilizes the interest rate swap to manage its interest rate risk on its
variable rate term loan. Under the agreement, the Company is required to make
fixed rate payments and in return receives payments from its lender at variable
rates. The risk of loss to the Company in the event of non-performance by its
lender, a major financial institution, is not significant. The Company is
required under both loan agreements to maintain certain financial ratios,
minimum working capital and net worth, has pledged its assets as collateral, and
is limited among other things, on the purchase of its capital stock and new
borrowings.
NOTE 6 - CAPITAL STOCK: As of January 31, 1999, the Company had purchased
842,803 shares of its common stock at a cost of $4,141,189 under the previously
approved repurchase plans. There are 349,995 remaining shares authorized for
purchase under the repurchase program.
Page 11 of 24
<PAGE> 12
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On July 1, 1999, the Company announced that it had restated its quarterly
earnings for the first three quarters of fiscal 1999 to adjust recognition of
revenue and related costs and expenses in those periods. The restatement was due
principally to modifications to the accounting treatment for sales financing
arrangements which the Company entered into with customers during the first
three quarters of fiscal 1999 and the reversal of certain dealer sales where
products were ultimately returned to the Company due to cancellation of dealer
orders by end users. The restatement resulted in a decrease in revenues from
approximately $8,606,000, as previously reported, to approximately $8,088,000
for the three months ended January 31, 1999 and from approximately $24,686,000,
as previously reported, to approximately $23,250,000 for the first nine months
of fiscal 1999. Net income for the three months ended November 1, 1998
decreased from approximately $337,000 or $0.04 per diluted share, as previously
reported, to approximately $29,000 or $0.00 per diluted share for the same
period as compared to net income of approximately $535,000 or $0.06 per
diluted share for the third quarter of the prior fiscal year ended February 1,
1998. Net income for the first nine months of fiscal 1999 decreased from
approximately $1,693,000 or $0.19 per diluted share, as previously reported, to
approximately $1,124,000 or $0.13 per diluted share as compared to net income
of approximately $1,686,000 or $0.18 per diluted share for the first nine
months of fiscal 1998.
Net sales for the third quarter of fiscal 1999 increased 10% to
approximately $8,088,000 compared to net sales of approximately $7,378,000 for
the third quarter of fiscal 1998. The increase was led by continued strong
growth in domestic sales which was partially offset by a decline in
international shipments. Net sales for the first nine months of fiscal 1999
increased 4% to approximately $23,250,000 compared to net sales of approximately
$22,251,000 for the corresponding period of the prior fiscal year. The
improvement in sales was led by strong growth in domestic sales, partially
offset by decreases in international shipments and OEM sales.
Cost of products sold as a percentage of net sales was 45% for both the
third quarter of fiscal 1999 and fiscal 1998. Cost of products sold was 42% of
net sales for the first nine months of fiscal 1999 compared to 44% for the first
nine months of fiscal 1998. The improvement in cost of products sold for the
nine months ended January 31, 1999 was primarily related to increased domestic
sales as a percentage of total sales and product mix. The Company is continuing
to pursue product cost reductions.
Research and product development ("R&D") expenses increased by
approximately $174,000 for the quarter ended January 31, 1999 compared to the
quarter ended February 1, 1998. Higher levels of salaries and related fringe
benefits from increased personnel and additional engineering materials were
primarily responsible for the increase. R&D expenses for the nine months ended
January 31, 1999
Page 12 of 24
<PAGE> 13
increased approximately $441,000 compared to the first nine months of the prior
fiscal year. The increase was primarily due to higher levels of salaries and
related fringe benefits from increased personnel, outside professional services
and depreciation expense related to the Company's new non-invasive cardiac
output monitor and disposable rebreathing circuit.
Selling, general and administrative ("S,G&A") expenses increased
approximately $810,000 for the third quarter of fiscal 1999 compared to the
third quarter of fiscal 1998. Increased sales and marketing expenses including
higher levels of salaries and related fringe benefits on increased personnel,
increased dealer and employee sales commissions on the expanded domestic sales
volume, and increased outside professional services, accounted for the majority
of the increase in S,G&A expense. G&A expenses also increased for the third
quarter of fiscal 1999 compared to the third quarter of the prior fiscal year
primarily as a result of increased salaries and related fringe benefits and
outside professional services. S,G&A expenses increased approximately $1,324,000
for the first nine months of fiscal 1999 as compared to the first nine months of
the prior fiscal year. Increased sales and marketing expenses were primarily
responsible for the overall increase in S,G&A expenses including dealer and
employee sales commissions on the expanded domestic sales efforts, salaries and
related fringe benefits on increased personnel, and outside professional
services. Increased G&A expenses including salaries and related fringe benefits
and increased outside professional services also contributed to the increase in
S,G&A expenses.
Interest expense increased approximately $92,000 for the quarter ended
January 31, 1999 compared to the corresponding quarter of the prior fiscal year.
Interest expense increased approximately $13,000 for the nine months ended
January 31, 1999 compared to the corresponding nine months of the prior fiscal
year. The increase in the Company's borrowings for both comparisons was
primarily associated with the Company's common stock repurchase program and
certain customer sales financing agreements.
Income tax expense for the first nine months of both fiscal 1999 and 1998
was based upon the estimated effective tax rate of 28%. 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 1999.
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 levels to be a meaningful indicator of future sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $15,033,000 at January 31,
1999 compared to approximately $18,603,000 at May 3, 1998. The decrease in
working capital of approximately $3,570,000 was primarily attributable to an
increase in bank debt resulting from the Company's repurchase of its common
stock for $4,141,189. This resulted in a current ratio of 2.9 to 1 at January
31, 1999 compared to 5.8 to 1 at May 3, 1998.
Page 13 of 24
<PAGE> 14
Approximately $1,552,000 of cash was used by operations for the nine months
ended January 31, 1999 compared to approximately $1,327,000 of cash provided by
operations for the corresponding period of the prior fiscal year. The reduction
in cash provided from operations of approximately $2,879,000 compared to the
first nine months of fiscal 1998 was primarily attributable to a significant
sales financing agreement entered into during the first quarter, increases in
accounts and notes receivable, prepaid expenses and inventory, and a reduction
in net income which was partially offset by increases in accounts payable and
accrued expenses.
During the first nine months of fiscal 1999, the Company invested
approximately $1,544,000 in capital expenditures compared to approximately
$647,000 for the first nine months of fiscal 1998. The Company expects that
capital expenditures will continue to exceed its normal requirements for the
balance of fiscal 1999 primarily due to costs pertaining to tooling and
production equipment associated with the Company's new products.
Approximately $2,253,000 of funds were provided from financing activities
during the first nine months of fiscal 1999. As of January 31, 1999, the Company
had $6,267,000 of bank debt outstanding including $3,267,000 outstanding against
its revolving credit agreement and a $3,000,000 term loan which was consummated
during December 1998. The bank debt was used primarily to repurchase 842,803
shares of the Company's common stock at a cost of $4,141,189 and to support
certain sales financing agreements which call for payments by the Company's
customers over a multi-year period. There were 349,995 remaining shares
authorized for purchase under the stock repurchase plan as of January 31, 1999.
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 1999. In addition, management believes
that additional funds, if needed, could be obtained on commercially reasonable
terms.
YEAR 2000 COMPLIANCE
The Company has addressed the Year 2000 compliance issue with regard to the
potential impact on its business, results of operations and financial condition.
The Company conducted a thorough review of its installed base of monitoring
equipment and has determined that its products are Year 2000 compliant. The
results of the Company's examination have been posted on its website for its
customers to review. During 1998, the Company completed the installation of a
new fully-integrated operating system which is Year 2000 compliant. Other less
significant office technology is scheduled to be upgraded by mid-1999, the costs
of which are expected to be less than $50,000. Further, the Company does not
believe that it will be significantly impacted by the inability of third parties
used by the Company to provide products and services. While the Company cannot
be certain that all third parties will meet the Year 2000 requirements, the
estimated cost or disruption of services is not expected to be material to the
Company's financial position or results of operations.
Page 14 of 24
<PAGE> 15
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 15 of 24
<PAGE> 16
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-Q are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K filed during
the quarter ended January 31, 1999.
Page 16 of 24
<PAGE> 17
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: July 14, 1999 /s/ WILLIAM J. LACOURCIERE
-------------- -------------------------
William J. Lacourciere
Chairman of the Board,
President and Chief Executive Officer
Dated: July 14, 1999 /s/ JEFFERY A. BAIRD
-------------- -------------------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
Page 17 of 24
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
<S> <C>
10(ll) Form of Promissory Note under the Novametrix Medical Systems Inc.
Director and Senior Officer Stock Retention Program 19
27 Financial Data Schedule 24
</TABLE>
Page 18 of 24
<PAGE> 1
EXHIBIT 10(ll)
PROMISSORY NOTE
[ $ Amount ] [ Date ]
FOR VALUE RECEIVED, the undersigned, __________ (the "Borrower"), hereby
promises to pay to the order of NOVAMETRIX MEDICAL SYSTEMS INC., a Delaware
corporation (the "Lender"), the principal sum of ___________________ Dollars ($
Amount), together with interest on the balance of unpaid principal from the date
hereof until paid in full at a rate per annum equal to the Applicable Federal
Rate of _____% (the "Loan"). Interest shall be payable quarterly, in arrears,
commencing on the last day of March, 1999 and thereafter on the last day of
June, September, December and March and at maturity. Principal shall be payable
on the third anniversary of the date hereof. Any principal that is not paid when
due (whether at the stated maturity, by acceleration or otherwise) shall
thereafter bear interest at a rate per annum equal to the Applicable Federal
Rate plus five (5) percentage points until the Loan is paid in full. As used
herein, "Applicable Federal Rate" shall mean a fixed rate equal to the rate
prescribed for the month in which the Loan is made, under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), for loans with a term of
not more than three (3) years and with interest payable quarterly.
All payments of principal and interest shall be made in money of the
United States of America which at the time of payment is legal tender for the
payment of public and private debts, at the offices of the Lender, 5 Technology
Drive, Wallingford, Connecticut 06492 (or at such other office as the Lender may
from time to time designate by notice to the Borrower).
Section 1. Use of Proceeds; Prepayment; Repayment Limitation.
1.1 Use of Proceeds. The proceeds of the Loan shall be used by the
Borrower to assist the Borrower to continue to own ("to carry") shares of Stock.
This Promissory Note is not secured, directly or indirectly, by shares of Stock.
The Borrower shall designate in a manner satisfactory to the Lender the shares
of Stock carried with the proceeds of the Loan. The number of shares of Stock
deemed carried with the proceeds of the Loan (the "Shares") shall be that number
(rounded to the nearest whole number) equal to the principal amount of the Loan
divided by the per share Value of the Stock on the date the Loan is made.
1.2 Prepayment. This Promissory Note may be prepaid in full or in part, at
any time and without notice, at the option of the Borrower, without charge,
premium or penalty therefor. Any partial prepayment shall be applied first to
accrued interest and then to principal.
1.3 Repayment Limitation. If the Borrower holds all of the Shares until
maturity of the Loan and the per share Value of the Stock on the maturity date
shall be less than the per share Value of the Stock on the date hereof, the
Borrower's repayment obligation under this Promissory Note shall be limited to
the greater of (A) twenty-five percent (25%) of the principal amount of the Loan
and (B)
Page 19 of 24
<PAGE> 2
1.4 that principal amount which bears the same proportion to the original
principal amount of the Loan as the per share Value of the Stock on the maturity
date of the Loan bears to the per share Value of the Stock on the date hereof,
together with accrued interest in the case of (A) or (B) on the principal amount
of the Loan (determined before application of the limitation provided in this
sentence).
In the event of a Sale (as hereinafter defined) by the Borrower of any of
the Shares prior to the maturity date of the Loan for a Selling Price (as
hereinafter defined) per Share less than the per share Value of the Stock on the
date hereof, the Borrower's repayment obligation with respect to the portion of
the Loan allocable to such Shares (the "Loan Portion") shall be limited to the
greater of (A) twenty-five percent (25%) of the original principal amount of the
Loan Portion and (B) the principal amount which bears the same proportion to the
original principal amount of the Loan Portion as the Selling Price of the Shares
bears to the per share Value of the Stock on the date hereof, together with
accrued interest in the case of (A) or (B) on the principal amount of the Loan
Portion (determined before application of the limitation provided in this
sentence to the date of Sale, and after application of such limitation from and
after the date of Sale). As used herein:
"Loan Portion" shall mean the original principal amount of the Loan
multiplied by a fraction, the numerator of which is the number of Shares sold
and the denominator of which is the total number of Shares. The applicable Loan
Portion shall be determined each time Shares are sold for a Selling Price less
than the per share Value on the date hereof;
"Selling Price" shall mean the gross selling price per Share net of
brokerage commissions;
"Sale" shall mean a public sale of the Shares through a national
securities exchange, NASDAQ (as hereinafter defined) or the over-the-counter
market or a bona fide private sale of the Shares; and
"Value" shall mean the last sale price regular way on the date of
reference, or, in case no sale takes place on such date, the average of the high
bid and low asked prices, in either case on the principal national securities
exchange on which the Stock is listed or admitted to trading, or if the Stock is
not listed or admitted to trading on any national securities exchange, the last
sale price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or the
average of the closing high bid and low asked prices in the over-the-counter
market reported on NASDAQ on such date, whichever is applicable, or if there are
no such prices reported on NASDAQ on such date, as furnished to the Committee by
any New York Stock Exchange member selected from time to time by the Committee
for such purpose. If there is no bid or asked price reported on any such date,
Value shall be determined by the Board of Directors of the Lender in accordance
with the regulations promulgated under Section 2031 of the Code or by any other
appropriate method selected by the Board. The Borrower understands that the
portion of the principal amount of the Loan which the Borrower is not required
to pay pursuant to this Section 1.3 shall constitute cancellation of
indebtedness income and shall be taxable to the Borrower as such.
Page 20 of 24
<PAGE> 3
Section 2. Events of Default, Etc.
2.1 Events of Default. If any one or more of the following events ("Events
of Default") shall happen:
(a) default shall be made by the Borrower in the payment of principal or
interest under this Promissory Note when and as the same shall become due and
payable; or
(b) default shall be made by the Borrower in the due performance or
observation of any other covenant, agreement or provision contained in this
Promissory Note to be performed or observed by the Borrower, or a breach shall
exist in any representation or warranty by the Borrower contained herein and
such default or breach shall continue for a period of ten (10) days after notice
to the Borrower with respect thereto; or
(c) the Borrower shall:
(i) admit in writing his inability to pay his debts generally as
they become due;
(ii) file a petition in bankruptcy under the bankruptcy laws of the
United States or any other jurisdiction (as such laws are now or in the
future amended) or any admission seeking the relief therein provided;
(iii) make an assignment for the benefit of his creditors;
(iv) consent to the appointment of a receiver or trustee for all or
a substantial part of his property or to the filing of a petition against
him under said bankruptcy laws; or
(v) be adjudicated a bankrupt; or
(d) a proceeding shall have been instituted seeking a decree or order for
relief in respect of the Borrower in an involuntary case under applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or for
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Borrower or for any substantial part
of his property and such proceeding shall remain undismissed or unstayed and in
effect for a period of thirty (30) days or such court shall enter a decree or
order granting the relief sought in such proceeding; or
(e) a court of competent jurisdiction shall assume custody of or sequester
all or substantially all the property of the Borrower; or
(f) an attachment shall be made on any substantial part of the property of
the Borrower;
then in each and every case the Lender may (unless every such Event of Default
shall have been made good and cured) by notice in writing to the Borrower
declare the unpaid principal of this Promissory Note to be forthwith due and
payable and thereupon such principal together with interest accrued to the date
of payment shall become so due and payable without presentation, protest or
further demand or notice of any kind, all of which are hereby expressly waived;
provided that in the case of an Event
Page 21 of 24
<PAGE> 4
of Default specified in subsections (c), (d), (e) or (f) above, no notice to the
Borrower shall be required and upon the occurrence of such Event of Default the
unpaid principal of this Promissory Note together with interest accrued to the
date of payment shall become immediately due and payable.
2.2 Collection Costs. The Borrower covenants that if default be made in
any payment on this Promissory Note, the Borrower will pay to the Lender such
further amount, to the extent lawful, as shall be sufficient to cover the cost
and expense of collection, including reasonable compensation to counsel of the
Lender for all services rendered in that connection.
2.3 Cumulative Powers. All powers and remedies given hereunder to the
Lender shall, to the extent permitted by law, be deemed cumulative and shall not
be exclusive of any other powers and remedies available to the Lender hereunder,
by judicial proceedings or otherwise, to enforce the performance or observance
of the covenants and agreements contained in this Promissory Note, and every
power and remedy given hereunder or by law to the Lender may be exercised from
time to time, and as often as shall be deemed expedient by the Lender.
Section 3. Miscellaneous.
3.1 No Waiver. No waiver by the Lender of any breach hereof or default
hereunder shall be deemed a waiver of any preceding or succeeding breach or
default and no failure of the Lender to exercise any right or privilege
hereunder shall be deemed a waiver of the Lender's rights to exercise the same
or any other right or privilege at any subsequent time or times.
3.2. Notice. Each notice or communication required or permitted hereunder
shall be deemed validly given and received if delivered personally or if sent by
registered or certified mail, return receipt requested, addressed as follows:
(a) If to the Lender:
Novametrix Medical Systems Inc.
5 Technology Drive
Wallingford, Connecticut 06492
Attention: President
(b) If to the Borrower:
at the address for Borrower indicated on the signature page of
this Promissory Note
or to such other address as the party to whom notice is to be given may
subsequently designate by like notice. A notice given in accordance with the
preceding sentence shall be deemed to have been duly given upon receipt, if
delivered personally, or upon mailing, if given by registered or certified mail,
return receipt requested.
Page 22 of 24
<PAGE> 5
3.3 Waiver of Presentment and Notice of Dishonor. The Borrower and all
endorsers, guarantors and any other parties that may be liable under this
Promissory Note hereby waive presentment, notice of dishonor, protest and all
other demands and notices in connection with the delivery, acceptance,
performance or enforcement of this Promissory Note.
3.4 Usury. Nothing contained in this Promissory Note shall authorize or
permit the exaction by the Lender or payment by the Borrower of interest where
the same would be unlawful or prohibited by any applicable law or would violate
the applicable usury law of any jurisdiction which is applicable hereto. In any
such event, this Promissory Note shall automatically be deemed amended to permit
interest charges at an amount equal to, but no greater than, the maximum
permitted by law. Any excess payment shall be applied against the principal
amount outstanding under this Promissory Note, or if not permitted to be so
applied by applicable law, shall be refunded to the Borrower.
3.5. Binding Effect. This Promissory Note shall be binding upon the
Borrower and his heirs, personal representatives, successors and assigns and
shall inure to the benefit of the Lender and its successors and assigns.
3.6. Governing Law. This Promissory Note shall be construed and enforced
in accordance with the laws of the State of Connecticut without regard to the
principles of conflicts of law thereof.
3.7. Headings. The headings of the Sections and subparagraphs of this
Promissory Note are inserted for convenience only and shall not constitute a
part hereof.
3.8. Consent to Jurisdiction. The Borrower hereby submits to the
jurisdiction of the Courts of the State of Connecticut for the enforcement of
this Promissory Note.
IN WITNESS WHEREOF, the Borrower has duly executed and delivered this
Promissory Note as of the date first above written.
-----------------------------------
Signature of Borrower
Print Borrower's Name and Address:
-----------------------------------
-----------------------------------
-----------------------------------
Page 23 of 24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Novametrix Medical Systems Inc. Condensed Statements of Income for the
nine months ended January 31, 1999 and the Condensed Consolidated Balance Sheets
at January 31, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-02-1999
<PERIOD-END> JAN-31-1999
<CASH> 222,995
<SECURITIES> 0
<RECEIVABLES> 11,529,815
<ALLOWANCES> (250,000)
<INVENTORY> 9,190,906
<CURRENT-ASSETS> 22,971,042
<PP&E> 10,171,343
<DEPRECIATION> (6,572,130)
<TOTAL-ASSETS> 34,620,023
<CURRENT-LIABILITIES> 7,938,423
<BONDS> 2,510,419
0
0
<COMMON> 92,209
<OTHER-SE> 24,078,972
<TOTAL-LIABILITY-AND-EQUITY> 34,620,023
<SALES> 23,249,841
<TOTAL-REVENUES> 23,249,841
<CGS> 9,702,676
<TOTAL-COSTS> 9,702,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,514
<INCOME-PRETAX> 1,561,655
<INCOME-TAX> 437,300
<INCOME-CONTINUING> 1,124,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,124,355
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
