<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 January 30, 2000
----------------
[ ] 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)
<TABLE>
<CAPTION>
Delaware 06-0977422
-------- ----------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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: 8,124,281 shares issued and outstanding as of
March 1, 2000
Page 1 of 18
Index to Exhibits at Page 17
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income -
Quarters ended January 30, 2000 and January 31, 1999 3
Nine months ended January 30, 2000 and January 31, 1999 4
Condensed Consolidated Balance Sheets -
January 30, 2000 and May 2, 1999 5
Condensed Consolidated Statements of Cash Flows -
Nine months ended January 30, 2000 and January 31, 1999 7
Notes to Condensed Consolidated Financial Statements -
January 30, 2000 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II. OTHER INFORMATION
ITEM 5. OTHER EVENTS 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
JANUARY 30, 2000 JANUARY 31, 1999
---------------- ----------------
<S> <C> <C>
Net sales $12,167,218 $8,087,894
Costs and expenses:
Cost of products sold 5,184,780 3,638,138
Research and product development 1,060,985 1,058,077
Selling, general and administrative 4,299,736 3,243,319
Interest expense 302,957 97,437
Other expense 97,627 11,025
----------- ----------
10,946,085 8,047,996
----------- ----------
Income before income taxes 1,221,133 39,898
Income tax provision 391,000 11,200
----------- ----------
Net income $ 830,133 $ 28,698
=========== ==========
Per common share amounts:
Basic $ 0.10 $ 0.00
=========== ==========
Diluted $ 0.10 $ 0.00
=========== ==========
</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>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 30, 2000 JANUARY 31, 1999
----------------- -----------------
<S> <C> <C>
Net sales $ 30,360,284 $ 23,249,841
Costs and expenses:
Cost of products sold 12,794,919 9,702,676
Research and product development 3,073,670 3,036,994
Selling, general and administrative 11,426,748 8,791,510
Interest expense 756,322 122,514
Other expense 187,854 34,492
------------- ------------
28,239,513 21,688,186
Income before income taxes and cumulative
effect of a change in accounting principle
------------- ------------
2,120,771 1,561,655
Income tax provision 679,100 437,300
------------- ------------
Income before cumulative effect of a
change in accounting principle 1,441,671 1,124,355
Cumulative effect of a change in
accounting principle (223,544)
------------- ------------
Net income $ 1,218,127 $ 1,124,355
============= ============
Per common share amounts:
Income before cumulative effect of a
change in accounting principle
Basic $ 0.18 $ 0.13
Diluted $ 0.18 $ 0.13
Cumulative effect of a change in
accounting principle
Basic $ (0.03)
Diluted $ (0.03)
Net income
Basic $ 0.15 $ 0.13
Diluted $ 0.15 $ 0.13
</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 JANUARY 30, 2000 MAY 2, 1999
------ ---------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 224,531 $ 269,399
Accounts receivable, less allowance for
losses of $300,000 at January 30, 2000
and $250,000 at May 2, 1999 13,271,066 11,613,251
Current portion of notes receivable 270,484 380,003
Inventories:
Finished products 4,620,454 4,193,808
Work in process 1,536,505 1,224,991
Materials 4,749,181 3,933,648
----------- -----------
10,906,140 9,352,447
Deferred income taxes, net 1,768,688 1,768,688
Prepaid expenses 1,079,527 915,610
----------- -----------
TOTAL CURRENT ASSETS 27,520,436 24,299,398
Notes receivable, less current portion 1,689,749 1,501,118
Equipment 11,606,528 10,614,053
Accumulated depreciation (8,073,635) (6,931,927)
------------ -----------
3,532,893 3,682,126
License, technology, patents and other 9,314,514 8,526,620
Accumulated amortization (4,274,741) (3,982,188)
----------- -----------
5,039,773 4,544,432
Goodwill, net of amortization of $181,013 7,576,755
Deferred income taxes, net 1,444,900 1,948,800
----------- -----------
$46,804,506 $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 JANUARY 30, 2000 MAY 2, 1999
- ------------------------------------ ---------------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,732,956 $ 2,384,925
Accrued expenses 3,129,557 2,844,124
Notes payable to banks, current portion 6,241,000 3,800,000
Capital lease obligation, current portion 39,437 36,810
----------- -----------
TOTAL CURRENT LIABILITIES 12,142,950 9,065,859
Notes payable to banks, less current portion 8,470,000 2,200,000
Capital lease obligation, less current portion 20,983 54,071
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares, issued 9,423,636 at
January 30, 2000 and 9,232,659 at
May 2, 1999, including Treasury shares 94,236 92,327
Additional paid-in capital 35,260,563 34,965,970
Retained-earnings deficit (2,042,116) (3,260,243)
Treasury stock - 1,299,355 shares (7,142,110) (7,142,110)
----------- -----------
26,170,573 24,655,944
----------- -----------
$46,804,506 $35,975,874
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 6 of 18
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 30, 2000 JANUARY 31, 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,218,127 $ 1,124,355
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 821,466 540,613
Amortization 621,678 357,880
Deferred income taxes 609,100 342,300
Cumulative effect of change in accounting principle 223,544
Net investment in sales-type lease (934,490)
Changes in operating assets and liabilities:
Accounts and notes receivable (676,944) (1,567,001)
Inventories (372,341) (1,317,972)
Prepaid expenses (414,661) (337,981)
Accounts payable (68,264) 167,414
Accrued expenses (329,887) 73,027
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
------------ -----------
1,631,818 (1,551,855)
INVESTING ACTIVITIES
Purchases of equipment (547,225) (1,543,617)
Purchases of licenses, technology, patents and other (880,748) (718,460)
Purchase of Children's Medical Ventures, Inc.,
less cash acquired (9,174,505)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (10,602,478) (2,262,077)
FINANCING ACTIVITIES
Revolving line of credit, net 521,000
Proceeds from notes payable 9,600,000 6,267,000
Principal payments on borrowings (1,440,461) (28,056)
Net proceeds from sales of Common Stock 245,253 155,576
Purchase of Treasury Stock (4,141,189)
NET CASH PROVIDED BY
FINANCING ACTIVITIES
------------ -----------
8,925,792 2,253,331
DECREASE IN CASH AND
CASH EQUIVALENTS
------------ -----------
(44,868) (1,560,601)
Cash and cash equivalents at beginning of period 269,399 1,783,596
------------ -----------
Cash and cash equivalents at end of period $ 224,531 $ 222,995
============ ===========
</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)
JANUARY 30, 2000
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 and the cumulative effect
of the change in accounting principle for the nine months ended January 30,
2000) considered necessary for a fair presentation have been included.
Operating results for the quarter and nine months ended January 30, 2000 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 nine months ended
January 30, 2000 and January 31, 1999 assuming that the acquisition had taken
place at the beginning of each period:
<TABLE>
<CAPTION>
JANUARY 30, 2000 JANUARY 31, 1999
($000's) ($000's)
Quarter Nine Months Quarter Nine Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue $ 12,167 $ 31,599 $ 9,791 $ 27,688
Income before cumulative effect of a
change in accounting principle 830 1,270 (53) 852
Net income 830 1,046 (53) 852
</TABLE>
Page 8 of 18
<PAGE> 9
<TABLE>
<CAPTION>
JANUARY 30, 2000 JANUARY 31, 1999
Quarter Nine Months Quarter Nine 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 $ 0.10 $ 0.16 $ 0.00 $ 0.10
Diluted $ 0.10 $ 0.16 $ 0.00 $ 0.10
Net income
Basic $ 0.10 $ 0.13 $ 0.00 $ 0.10
Diluted $ 0.10 $ 0.13 $ 0.00 $ 0.10
Weighted average common shares:
Basic 8,051,481 7,981,354 8,028,342 8,415,739
Diluted 8,217,237 8,187,902 8,406,268 8,768,575
</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 nine months ended January 30, 2000 and
January 31, 1999:
<TABLE>
<CAPTION>
JANUARY 30, 2000 JANUARY 31, 1999
Quarter Nine Months Quarter Nine Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE - BASIC
Income before cumulative effect of $ 0.10 $ 0.18 $ 0.00 $ 0.13
a change in accounting principle
Cumulative effect of a change in
accounting principle $(0.03)
------ ------ ------ ------
Net income per common share
$ 0.10 $ 0.15 $ 0.00 $ 0.13
====== ====== ====== ======
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION
Income before cumulative effect of $ 0.10 $ 0.18 $ 0.00 $ 0.13
a change in accounting principle
Cumulative effect of a change in
accounting principle $(0.03)
------ ------ ------ ------
Net income per common share $ 0.10 $ 0.15 $ 0.00 $ 0.13
====== ====== ====== ======
WEIGHTED AVERAGE COMMON STOCK
AND COMMON STOCK EQUIVALENT
SHARES OUTSTANDING:
Basic 8,051,481 7,981,354 8,028,342 8,415,739
Effect of dilutive securities 165,756 206,548 377,926 352,836
--------- --------- --------- ---------
Diluted 8,217,237 8,187,902 8,406,268 8,768,575
========= ========= ========= =========
</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 described
below, 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
increased its borrowings by 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% (7.7% at
January 30, 2000) 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
Page 10 of 18
<PAGE> 11
rate to LIBOR plus 1.6% (7.5% at January 30, 2000) 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% (7.5% at January 30, 2000) and expires during
June 2004. Pursuant to the terms of the amended and restated bank agreements
and the new term loan agreements, 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.
<TABLE>
<CAPTION>
DEBT AND CAPITAL LEASE OBLIGATION CONSIST OF:
January 30, 2000 May 2, 1999
---------------- ------------
<S> <C> <C>
Term loans payable to banks $ 10,990,000 $ 2,800,000
Note payable to bank under revolving
credit agreement 3,721,000 3,200,000
Capital lease obligation 60,420 90,881
------------- ------------
14,771,420 6,090,881
Less current portion 6,280,437 3,836,810
------------- ------------
$ 8,490,983 $ 2,254,071
============= ============
</TABLE>
NOTE 7--CAPITAL STOCK: On December 15, 1999, the Board of Directors of
Novametrix Medical Systems Inc. adopted a preferred share purchase rights plan
(the "Plan") to replace the existing plan which expired in 1999. Pursuant to
the Plan, the Company declared a dividend of one preferred share purchase right
(the "Right") for each outstanding share of common stock, $.01 par value, of
the Company. The dividend was payable on December 30, 1999 to the stockholders
of record on that date. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series A Preferred Stock,
$1.00 par value, of the Company at a price of $25.00 per one one-hundredth of a
Preferred Share, subject to adjustment, upon the occurrence of certain
specified "takeover" events. As of January 30, 2000, no takeover events had
occurred and no rights were exercisable.
On December 15, 1999, the Board of Directors of the Company approved an
increase in the number of shares of Series A Preferred Stock from 50,000 shares
to 90,000 shares in connection with its adoption of the Plan.
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 third quarter of fiscal 2000 increased by approximately
$4,079,000 or 50% to $12,167,000 compared to net sales of approximately
$8,088,000 for the third 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 and sales to the domestic hospital marketplace. Net sales for the
first nine months of fiscal 2000 increased by approximately $7,110,000 or 31%
to $30,360,000 compared to net sales of $23,250,000 for the first nine months
of the prior fiscal year. The increase in sales was primarily related to the
addition of CMG sales for seven months of fiscal 2000 and sales to the domestic
hospital marketplace.
Cost of products sold as a percentage of net sales was 43% for the third
quarter of fiscal 2000 compared to 45% for the third quarter of fiscal 1999.
The decrease in cost of products sold was primarily product mix related. Cost
of products sold as a percentage of net sales was 42% for both the nine months
ended January 30, 2000 and January 31, 1999. The Company is continuing to
pursue product cost reductions and manufacturing efficiency improvements.
Research and product development ("R&D") expenses increased by
approximately $3,000 for the third quarter of fiscal 2000 compared to the third
quarter of the prior fiscal year. R&D expenses increased by approximately
$37,000 for the first nine months of fiscal 2000 compared to the first nine
months of the prior fiscal year. The additional R&D expenses of CMG and
increased depreciation expense were largely offset by decreased salaries and
related benefits and lower expenditures for outside professional services and
engineering materials.
Selling, general and administrative ("S,G&A") expenses increased
approximately $1,056,000 for the third quarter of fiscal 2000 compared to the
third quarter of fiscal 1999. Approximately 58% of the increase pertained to the
addition of CMG expenses. S,G&A expenses excluding CMG increased approximately
14% over the third quarter of the prior year primarily as a result of increased
domestic selling expenses associated with the higher sales volume and the
incremental sales staff required to support the Non-Invasive Cardiac Output
monitor (NICO)(2)(TM) launch; international dealer commission expenses; and
general administrative ("G&A") expenses including outside professional services.
S,G & A expenses increased approximately $2,635,000 for the nine months ended
January 30, 2000 compared to the nine months ended January 31, 1999. CMG
expenses accounted for approximately 57% of the increase. S,G&A expenses
excluding CMG increased approximately 13% for the first nine months of fiscal
2000 compared to the first nine months of fiscal 1999. Increased domestic
selling expenses related to the increased sales volume and the expansion of the
domestic sales force, and increased international sales expense primarily
associated with dealer commissions, were primarily responsible for the remainder
of the increase. Partially offsetting these increases were reductions in
Page 12 of 18
<PAGE> 13
domestic dealer commission expenses and G&A expenses including travel and
entertainment and legal expenses.
Interest expense increased approximately $206,000 and $634,000,
respectively, for the quarter and nine months ended January 30, 2000 compared
to the corresponding periods of the prior fiscal year. Increased borrowings
associated with the Company's common stock repurchase program, general working
capital requirements and the acquisition of Children's Medical were responsible
for the increase in interest expense in the current year.
Other expense includes approximately $78,000 and $181,000, respectively,
for the quarter and nine months ended January 30, 2000 pertaining primarily to
the amortization of goodwill associated with the acquisition of Children's
Medical Ventures, Inc. on June 30, 1999.
Income tax expense for the quarter and nine months ended January 30, 2000,
excluding the cumulative effect of a change in accounting principle, increased
approximately $380,000 and $242,000, respectively, from the quarter and
nine-month period ended January 31, 1999 primarily as a result of increased
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 January 30, 2000 was approximately
$830,000 or $0.10 per diluted share compared to net income of approximately
$29,000 or $0.00 per diluted share for the quarter ended January 31, 1999. Net
income for the first nine months of fiscal 2000 before the cumulative effect of
a change in accounting principle was approximately $1,442,000 or $0.18 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 requiring a one-time charge of approximately $224,000 or $0.03 per
diluted share in the first quarter of the current year. This resulted in net
income of approximately $1,218,000 or $0.15 per diluted share for the first
nine months of fiscal 2000 compared to net income for the first nine months of
fiscal 1999 of approximately $1,124,000 or $0.13 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 $15,377,486 at January 30, 2000
compared to $15,233,539 at May 2, 1999. The increase in working capital of
approximately $144,000 was primarily attributable to the additional working
capital provided by Children's Medical, and increases in inventory and accounts
receivable before the effects of the acquisition, partially offset by the
increased debt associated with the acquisition. The Company's current ratio was
2.3 to 1 at January 30, 2000 compared to 2.7 to 1 at May 2, 1999.
Page 13 of 18
<PAGE> 14
Approximately $1,632,000 of cash was provided by the combined operations
for the nine months ended January 30, 2000 compared to approximately $1,552,000
of cash used by operations for the first nine months of the prior fiscal year.
Reductions in the growth of inventory and accounts and notes receivable, and an
increase in income before taxes, depreciation and amortization, and the
cumulative effect of a change in accounting principle were primarily
responsible for the increase of $3.2 million in cash provided by operations
compared to the prior year.
Approximately $8,926,000 of funds were provided from financing activities
during the first nine months of fiscal 2000 net of approximately $1,440,000 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
In anticipation of the Year 2000, the Company established a Year 2000 program
dedicated to assessing the potential impact of the Year 2000 on its business,
results of operations and financial condition. The Company reviewed and tested
its products, updated its operating and communication systems and addressed
Year 2000 readiness with its major suppliers. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
its operations. The Company is not aware of any material problems resulting
from Year 2000 related issues, either with its products or internal systems or
those of third parties with which it conducts business. The Company will
continue to monitor its operations throughout the year 2000 to ensure that any
Year 2000 matters that may arise are addressed promptly.
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 5. Other Events.
(a) On December 15, 1999, the Board of Directors of Novametrix Medical
Systems Inc. (the "Company") adopted a preferred share purchase rights plan (
the "Plan") and pursuant to the Plan declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, $.01 par
value of the Company. The dividend was payable on December 30, 1999 to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Preferred
Stock, $1.00 par value, of the Company at a price of $25.00 per one
one-hundredth of a Preferred Share, subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
(b) On December 15, 1999, the Board of Directors of the Company approved
an increase in the number of shares of Series A Preferred Stock from
50,000 shares to 90,000 shares in connection with its adoption of the
Plan. An Amendment to the Certificate of Designation of Series A
Preferred Stock was filed with the Secretary of State of the State of
Delaware on December 30, 1999.
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: On January 13, 2000, the Company filed a Current
Report on Form 8-K to report the adoption of the Plan, the declaration
of the dividend described in Item 5, and the execution and delivery of
the Rights Agreement dated December 29, 1999 between the Company and
ChaseMellon Shareholder Services, L.L.C.
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: March 14, 2000 s/WILLIAM J. LACOURCIERE
-------------- ------------------------
William J. Lacourciere
Chairman of the Board,
President and Chief Executive Officer
Dated: March 14, 2000 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 NINE MONTHS ENDED JANUARY 30, 2000 AND THE CONDENSED CONSOLIDATED
BALANCE SHEETS AT JANUARY 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JAN-30-2000
<CASH> 224,531
<SECURITIES> 0
<RECEIVABLES> 15,531,299
<ALLOWANCES> (300,000)
<INVENTORY> 10,906,140
<CURRENT-ASSETS> 27,520,436
<PP&E> 11,606,528
<DEPRECIATION> (8,073,635)
<TOTAL-ASSETS> 46,804,506
<CURRENT-LIABILITIES> 12,142,950
<BONDS> 8,490,983
0
0
<COMMON> 94,236
<OTHER-SE> 26,076,337
<TOTAL-LIABILITY-AND-EQUITY> 46,804,506
<SALES> 30,360,284
<TOTAL-REVENUES> 30,360,284
<CGS> 12,794,919
<TOTAL-COSTS> 12,794,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 756,322
<INCOME-PRETAX> 2,120,771
<INCOME-TAX> 679,100
<INCOME-CONTINUING> 1,441,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (223,544)
<NET-INCOME> 1,218,127
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
