<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7,
1996].
For the fiscal year ended April 30, 2000
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
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>
<S> <C>
Delaware 06-0977422
-----------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Technology Drive
Wallingford, Connecticut 06492
-------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(203) 265-7701
-----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
</TABLE>
Securities registered under Section 12(g) of the Exchange Act:
<TABLE>
<S> <C>
Common Stock,
$.01 par value Class B Warrants
-------------- ----------------
(Title of class) (Title of class)
</TABLE>
Page 1 of 134 pages
Exhibit Index at page E-1.
<PAGE> 2
2
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant. The aggregate market value shall
be computed by reference to the price at which the common equity was sold, or
the average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.
<TABLE>
<S> <C>
Aggregate market value as of July 1, 2000 ........................ $47,080,362
</TABLE>
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, $.01 par value, as of July 1, 2000 ............. 8,670,485 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference herein and the
Part of the Form 10-K into which the document is incorporated:
Proxy Statement to be dated on or about August 11, 2000 -- Part III
<PAGE> 3
3
ITEM 1. BUSINESS.
GENERAL
Novametrix Medical Systems Inc. ("Novametrix" or the "Company"), a
Delaware corporation, is a leading provider of non-invasive cardio-pulmonary
monitors and sensors, and developmental care products and services to the
critical care marketplace. With a record of creating industry-leading technology
and concepts since its inception in 1978, Novametrix today offers solutions to
many of the clinical, technological and budgetary problems faced by its
healthcare customers. Novametrix sells these products and services principally
to hospitals around the world through a network of direct and independent
distribution channels.
Revenues are derived from one industry segment, including product sales
to the four principal areas summarized below, each of which addresses the
particular needs of our customers in those constituencies. Our products relating
to each of these areas are described in greater detail later in this section.
1. CARDIO-PULMONARY PATIENT MONITORS - Since 1979, when the Company
launched its revolutionary Pneumogard monitoring system, providing
mean airway pressure measurements in infants with serious respiratory
conditions, Novametrix has produced a number of non-invasive
monitoring devices which measure important patient parameters. In its
current product offering, Novametrix continues to innovate, selling
stand-alone patient monitors that uniquely and non-invasively measure
such physiologic parameters as cardiac output, pulmonary deadspace,
and carbon dioxide ("CO(2)") production, while continuing to lead the
way with oximetry, capnography and transcutaneous blood gas
monitoring. These monitors, used in various hospital settings
including the operating room, intensive care units, emergency
departments and for patient transport, provide clinicians with vital
information that improves the quality of patient care while helping to
reduce the hospital length of stay and operating costs.
2. CAPITATED OXIMETRY CONVERSION PROGRAMS - The pulse oximeter, which
measures a patient's pulse rate and blood oxygen levels, has become a
standard of care in most patient monitoring situations. With the use
of disposable, single-patient use sensors by many hospitals, it is
also an area of high and increasing operating expense for hospitals.
For a fraction of those operating costs and with no capital
expenditure by the customer, hospitals can upgrade to Novametrix'
state-of-the-art pulse oximeters with reusable sensors under the
Novametrix Capitated Oximetry Conversion Program. The program provides
an unconditional guarantee for the sensors and monitors over the life
of the contract, for a fixed, predictable cost which is often just
one-half of the hospital's prior spending levels for disposable
sensors alone.
3. PARTNER AGREEMENTS - Novametrix has numerous agreements with many of
the leading patient monitoring companies in the world, which utilize
our
<PAGE> 4
4
sensors and electronics in their multi-parameter monitoring systems.
The use of our technology in their monitors is not only an endorsement
of our unique technology, but also helps to establish these
leading-edge parameters as standards of care. It also provides an
opportunity for Novametrix to participate in the sale of
multi-parameter monitors, defibrillators, ventilators, etc., all of
which are product offerings that the Company does not produce on its
own.
The Company's original equipment manufacturer ("OEM") strategy gives
it a much broader access to the market than it could achieve on its
own. The additional modules placed in the field also provide a natural
market for our follow-on sensors and accessories. The ability to
interface our sensors with the monitors of our OEM partners is a plus
in a market that views standardization as an additional method of
weeding excess costs out of the healthcare system. The Company also
leverages the expanded distribution capabilities of some of its
partners, such as GE Marquette Medical Systems and Respironics, to
access the market.
4. CHILDREN'S MEDICAL VENTURES ("CHMV") - Acquired by Novametrix in June
1999, ChMV is the world's leading provider of developmental care
products and services to the Neonatal and Pediatric departments of the
hospital. ChMV offers a wide and growing assortment of developmental
care and baby care products that assist clinicians in providing
improved quality of care for premature and sick babies, helping to
improve medical outcomes, to reduce current and future costs and to
minimize therapy in future years. ChMV is very well known in the
neonatal intensive care unit ("NICU") of the hospital, and has a solid
history of growth. ChMV's separate and uniquely capable pediatric and
neonatal ICU sales distribution organization also represents
Novametrix monitoring products to that market segment.
With a unique focus and distinctive products and services in each of
these areas, Novametrix is well positioned to work with its customers to help
drive down operating costs while improving the quality of patient care.
PRODUCTS
Novametrix' line of cardio-pulmonary patient monitors includes the
Company's newest breakthrough product, NICO(TM), a non-invasive cardiac output
monitor; the revolutionary volumetric CO(2) monitor, CO(2)SMO Plus!(TM);
oximetry (including the state-of-the-art Motion Artifact Rejection System,
"MARSpO(2)(TM)"), capnography and transcutaneous blood gas monitors; as well as
respiratory mechanics monitors. Developmental care products include a variety of
products specifically designed for the care of premature infants.
NON-INVASIVE CARDIAC OUTPUT ("NICO") MONITOR.
MEDICAL BACKGROUND: Cardiac output has traditionally been measured
through the use of a highly invasive thermodilution technique, which
requires
<PAGE> 5
5
insertion of a Swan-Ganz catheter through the heart and into the
pulmonary artery ("PA") and poses a high level of risk to the patient.
Another alternative for measuring cardiac output, the original direct
Fick method, also requires invasive measurements and labor-intensive
manual tasks, and is a well-accepted standard reference technique used to
evaluate all other means of determining cardiac output. Until now, the
Fick method has been too difficult to use in most clinical practice
situations such as surgical operating rooms and intensive care units.
The Company's newest monitor, NICO, is the first commercially
available device to measure cardiac output (the amount of blood pumped
per minute by the heart) non-invasively, using the indirect Fick partial
rebreathing technique. NICO offers "hands off", automatic, continuous
operation, completely non-invasive techniques and easy to use
functionality. Although cardiac output provides a useful indication of
heart function, it has not been routinely monitored in patients
undergoing general surgery because available techniques were too invasive
(risky), costly or technically difficult.
NICO uses the indirect Fick principle to provide a continuous
display of cardiovascular monitoring variables including cardiac output,
stroke volume, cardiac index and heart rate. In addition, NICO provides
real time displays of other physiologic variables including CO(2)
elimination, end tidal CO(2), respiration, oxygen saturation, heart rate
and respiratory mechanics parameters based on measurements of
capnography, airway flow and pulse oximetry.
Clinical applications of our new device include monitoring
patients during surgery, in the emergency room and in the intensive care
unit. Patient safety can be enhanced by measuring cardiac output on all
patients and eliminating the documented hazards of the use of PA
catheters which include infection, embolism and heart or lung tissue
damage. NICO is very simple to use and eliminates the costs, risks and
complications associated with the use of PA catheters. Further, since
NICO is non-invasive and easy to operate, the use of this technology may
be expanded to other applications where cardiac output measurements were
previously deemed too risky or costly.
The NICO system and rebreathing valve and sensor are covered by
numerous patents and patents pending and are the result of many years of
work by our research and development group.
VOLUMETRIC CO(2) MONITOR.
MEDICAL BACKGROUND: Continuous volumetric CO(2) information
provides an objective measurement to guide the weaning of a patient from
a ventilator, compared to the subjective information currently used by
many clinicians. The clinical management of proper pressure and flow of
airway gases being delivered to a mechanically ventilated patient's lungs
allows therapists to wean a patient
<PAGE> 6
6
from costly mechanical ventilation to spontaneous breathing at the
clinically appropriate time. Removing the patient from the ventilator
earlier reduces potential damage to the lungs, as well as the length of
the patient's stay in the hospital and the associated costs.
The Company's CO(2)SMO Plus!(TM) is the first and only volumetric
CO(2) monitor, integrating airway flow measurements with capnography for
continuous bedside monitoring of mechanically ventilated patients. The
CO(2)SMO Plus! monitor provides continuous, non-invasive measurements of
flow, pressure and volume in a patient's airway, as well as measurements
of other pulmonary mechanics including CO(2) elimination and arterial
oxygenation. The addition of the first combined mainstream CO(2)
adapter/flow sensor provides continuous measurements of pulmonary
deadspace (the portion of the patient's lungs that does not participate
in gas exchange) and CO(2) elimination (the volume of CO(2) exhaled by
the patient), two parameters never before available continuously at the
bedside. The use of these parameters, and the impact of each parameter on
patient ventilation, provides the clinician with important feedback to
optimize the patient's care. The use of the CO(2)SMO Plus! enhances
patient care by minimizing the trauma, length of stay and costs
associated with mechanical ventilation.
BLOOD GAS MONITORS (OXIMETRY, CAPNOGRAPHY, TRANSCUTANEOUS)
MEDICAL BACKGROUND: Levels of oxygen and carbon dioxide in the
blood are important indicators of the condition of critically ill or
injured patients. These levels are particularly important to doctors,
nurses, therapists and other clinicians who are managing patients
undergoing anesthesia in the operating room, who are assessing patients
in the emergency room, and who are monitoring patients in the various
intensive care units in the hospital. Healthy people have a normal range
of oxygen and CO(2) levels in their blood, lungs and other tissue. In the
past, determination of a patient's oxygen and CO(2) levels involved an
invasive technique of withdrawing blood samples from the patient's artery
and waiting for laboratory analysis of the samples. The Company's
products offer healthcare providers the alternative of non-invasive,
continuous and immediate measurement of oxygen and CO(2) in the patient's
blood. Our blood gas monitoring products utilize three different
technologies described below, each of which is suitable for various
applications.
PULSE OXIMETERS. The Company's pulse oximeters provide a
continuous and non-invasive measurement and display of pulse rate and
arterial blood oxygen saturation through the detection and measurement of
infrared light absorbed by hemoglobin in the blood. The Company's new
MARSpO(2)(TM) (motion artifact rejection system) technology provides
superior performance during periods of motion or low perfusion
(insufficient blood flow). Reusable finger and multi-position sensors
(Y-Sensor(TM)) are available for adult, pediatric and neonatal
applications and eliminate the use of costly disposable sensors.
<PAGE> 7
7
Pulse oximeters have been clinically demonstrated as safe,
accurate and cost-effective for the determination and trending of levels
of blood oxygen saturation and pulse rates. Applications for these
monitors are widespread since the level of oxygen in a patient's blood
can be as important a vital sign of a patient's condition as the
patient's temperature, blood pressure, respiratory rate and
electrocardiogram. Pulse oximetry is used in many departments of the
hospital, including the operating room by anesthesiologists, emergency
rooms and intensive care units by nurses and respiratory therapists, and
neonatal intensive care units by neonatologists. Additional applications
include inter- and intra-hospital transport situations and clinical
applications in surgical centers, doctors' offices and clinics during
outpatient procedures.
The Company has a family of pulse oximeters designed to meet the
individual needs of clinicians in a variety of settings. Each oximeter
utilizes the Company's reusable Superbright(TM) sensors, which provide
safe and accurate results on all types of patients, including neonates
and poorly perfused patients. MARSpO(2)(TM) is the next generation of
pulse oximetry technology from Novametrix that significantly enhances
performance during motion or low perfusion. The Model 2001 MARSpO(2)
full-featured pulse oximeter incorporates technological breakthroughs in
digital signal processing to provide exceptional performance in
challenging motion and low perfusion situations. This technology assists
in minimizing the frustrations associated with nuisance alarms, which
occur with most traditional pulse oximeters when motion is present.
The Company's full-featured oximeter, the OXYPLETH(R), provides
high visibility of the plethysmogram (a graphic display of arterial
pulse) through the use of digital technology combined with advanced
software developed by the Company. The Model 515B and Model 515C (with
plethysmogram) pulse oximeters utilize the same basic technology and
software as our more expensive model to provide the same oxygen
saturation and pulse rate information but with fewer available added
features.
This family of pulse oximeters also includes battery operated
hand-held pulse oximeters, the Models 512 and 513. The lightweight (less
than 1 pound) design and portability of these monitors permit wide
applications throughout the hospital, as well as in non-hospital
locations including doctors' offices, clinics and homecare.
The Company also offers a unique Sensor Management Program
designed to reduce hospital operating costs. Under this program,
typically three years or longer, hospitals are able to achieve
significant operating cost reductions by switching from disposable
oximetry sensors to Novametrix reusable sensors. The program capitates
(or limits) contract expenditures while providing the hospital with new
pulse oximetry monitors, sensors, and accessories, each of which is
warranted over the life of the contract.
<PAGE> 8
8
CAPNOGRAPHS. The Company's capnographs (or end-tidal CO(2)
monitors) provide continuous, non-invasive measurement and display of the
amount of CO(2) in each breath exhaled by the patient. Clinically,
end-tidal CO(2) levels have been correlated to a patient's arterial blood
CO(2) levels. These measurements provide a simple, non-invasive method of
estimating the CO(2) levels of the patient. Applications for capnographs
include (i) intubation verification - the verification of the
introduction of an airway tube into the trachea (air tube) rather than
the esophagus (food tube) and the verification of an open and
unobstructed airway; (ii) extubation detection - the disclosure of the
accidental dislodging from the trachea of an airway tube; (iii)
ventilation management through the disclosure of ventilator malfunctions
and the proper adjustment of mechanical ventilation to match a patient's
condition and needs; and (iv) verification of the effectiveness of
cardio-pulmonary resuscitation (CPR).
The Company's capnographs utilize a form of infrared spectrometry
(a method of analyzing gas content by measuring the amount of infrared
energy absorbed) developed by the Company to measure levels of expired
CO(2) throughout the patient's respiratory cycle. These monitors provide
both a graphical and digital display of CO(2) levels and respiratory
rate. The reliability and accuracy of capnography have made its use a
rapid indicator of proper and continuous intubation, obstructions in the
airway and pulmonary efficiency in eliminating CO(2). In addition,
end-tidal CO(2) and respiratory rate measurements facilitate proper and
cost-efficient ventilator use. In recognition of its accurate measurement
of clinically significant facts, as well as the added degree of safety
that it affords patients, capnography has been recommended for use in the
operating room by the American Society of Anesthesiologists and in the
intensive care unit by the Society of Critical Care Medicine.
The Company's TIDAL WAVE(TM) monitor is the first commercially
available hand-held, battery operated mainstream CO(2) monitor with a
graphical waveform. Applications for this monitor include areas outside
the traditional bedside setting, such as emergency medical services,
where a smaller, portable monitor is required. The Company also offers
the TIDAL WAVE Sp, a hand-held monitor which provides both capnography
and pulse oximetry. The Company also has two bedside capnographs: the
CAPNOGARD(R), and the CO(2)SMO(R), a combined capnograph and pulse
oximeter. These "mainstream" (on the airway) capnographs are designed to
take measurements at the patient's airway through infrared measurements
as compared to "sidestream" measurements of exhaled breath which involve
the drawing of samples through tubes connected to bedside monitors and
which are susceptible to moisture and other secretion contaminants. All
models utilize a durable solid-state sensor developed by the Company.
TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous
(through the skin) blood gas monitor provides continuous and non-invasive
measurements of oxygen and CO(2) levels in the skin tissue of patients.
This monitor utilizes dual parameter sensors attached to the patient's
skin surface to measure the amount of oxygen and CO(2) diffusing through
the skin. Based upon
<PAGE> 9
9
the magnitude of the diffusion of the blood gas molecules, the monitor
converts the sensor readings into a value corresponding to the oxygen or
CO(2) at the patient's skin surface and displays the information on the
monitor. Premature and other critically ill newborn infants are the
primary beneficiaries of transcutaneous monitoring. In view of their
limited blood supply, frequent invasive blood sampling is traumatic and
unsatisfactory for these patients.
The TCO(2)M(R) Model 860 is a lightweight, portable unit with a
simple menu system which guides the user through set-up and operation.
The TCO(2)M is the first monitor of its kind to provide on-screen
graphical trending information allowing patient data to be reviewed
directly at the bedside. TCO(2)M accepts combination or single oxygen and
CO(2) sensors for optimum versatility.
RESPIRATORY MECHANICS MONITORS.
MEDICAL BACKGROUND: Depending on a person's size and age, there is
a range of normal airway and lung pressure, flow and volume levels. By
continuously monitoring these ranges, a change in a patient's status can
be detected at an early stage and treatment can be modified before
serious deterioration in a patient's condition occurs. In addition, if a
patient's blood gas levels or respiratory mechanics are outside their
normal ranges, continuous monitoring provides healthcare professionals
with important information concerning the progress of the medical
treatment undertaken to restore them to normal ranges.
Respiratory mechanics monitors provide continuous information on a
patient's ventilatory status to help prevent Barotrauma (lung rupture)
and other complications associated with mechanical ventilation.
Vent(check)(TM) (Ventcheck), the Company's hand-held respiratory
mechanics monitor, measures flow, pressure and volume at the airway and
graphically displays flow and pressure waveforms and loops, breath by
breath. This battery operated monitor is designed for spot checking
mechanically ventilated patients and, when used during transport,
provides an additional level of safety for the patient. Respiratory
therapy and critical care departments with patients requiring mechanical
ventilation represent the primary users of the Vent(check).
The Company's VenTrak(R) Model 1550 respiratory mechanics monitor
also provides information regarding the pressure, flow and volume in a
patient's airway, both continuously and non-invasively. In addition, the
VenTrak can be combined with the Company's capnography technology for
enhanced monitoring of mechanical ventilation effectiveness and patient
respiratory capabilities.
The Company also maintains the exclusive rights to patented
technology for the commercial manufacture and marketing of a family of
disposable airway sensors and a combined CO(2)/flow adapter.
<PAGE> 10
10
DEVELOPMENTAL CARE PRODUCTS AND PROGRAMS.
MEDICAL BACKGROUND: Technology advances which support very
premature infants until they have sufficiently developed, often provide a
harsh environment for the immature baby and lead to developmental issues
associated with the long length of stay in the NICU. Environmental issues
and improper handling can lead to sleep deprivation, diminished growth,
disorganized motor activity, adverse physiologic reactions, cranial
molding, joint deformities and delays in development. The average NICU
patient is handled over 200 times a day and has 130 different caregivers
during their hospital stay. The cost of caring for premature infants is
significant. Infants weighing less than 1,000 grams (2.2 pounds) cost
hospitals an average of $140,000 per patient. While preterm babies
represent about 24% of all cases identified as poor or problematic birth
outcomes, they represent nearly 50% of the cost.
The philosophy of developmentally supportive care recognizes that
these issues exist and addresses the long-term developmental implications
of care. The Company's developmental care products and programs support
this standard of care by creating a more "uterine-like" NICU environment,
promoting proper positioning, modifying handling techniques, encouraging
advocacy of the infant by the staff and parents, and requiring staff
education and training.
The benefits of developmentally supportive care include reduced
lengths of stay, reduced days on a ventilator and supplemental oxygen,
increased daily weight gains, and decreased sedation and medication days.
Developmental care contributes to controlling costs as less agitation and
increased sleep accelerates growth and decreases length of stay. It also
contributes to decreased incidents of complications such as IVH,
pneumothorax and BPD, and improves short-term outcomes.
Children's Medical Ventures, a Novametrix company, develops and
markets products and programs which help hospital staff and parents care
for premature, ill, and full-term babies. The Company's products are
comprised primarily of developmental care products, baby care products,
medical equipment and disposables, educational programs and sales to
parents.
The Company's developmental care products and programs include:
SnuggleUp(TM), a nesting aid that promotes physiologic stability;
Bendy(TM) Bumper, a bendable positioning aid that provides boundaries and
containment; WeePee(TM) Diaper, appropriately-sized to minimize hip
abduction; Wee Thumbie(TM) Pacifier, modeled after the size and shape of
a preemie thumb; Enteral Only Extension sets, which provide a safer
method of enteral feeding; Wee Care(TM) Program, comprehensive training
in developmental care for the entire NICU staff; and Preemie For A
Day(TM), an experiential learning opportunity.
<PAGE> 11
11
Other products offered by the Company include infusion
sets, nasal aspirators, specialty feeding products, saline wipes
and educational products such as positioning dolls and books.
SALES, MARKETING AND CUSTOMERS
Novametrix markets its products domestically and internationally
through direct salespersons and outside distributors and manufacturer
representatives. The Company's products are marketed primarily to
hospitals for use in operating rooms; emergency rooms; adult, pediatric,
and neonatal intensive care units; respiratory therapy departments; and
patient transport. The Company is expanding its marketing efforts to
physician groups, nursing homes, surgical centers, outpatient clinics,
other healthcare facilities and the homecare market.
The Company also markets its products to original equipment
manufacturers (OEM's) which incorporate certain of the Company's products
and technologies in the manufacture of their own multi-parameter systems,
ventilators and other non-competing products. Generally, the Company
sells its products to OEM customers pursuant to long-term contracts
which, in certain cases, provide for the purchase of minimum quantities
of products at specified prices. The Company designs and assembles
products to be sold to OEM customers and, generally, also agrees to
provide maintenance and replacement parts. The Company continues to seek
new agreements with other OEM customers and additional agreements for
other products with its current customers. However, there can be no
assurance that the Company will be successful in obtaining other
long-term OEM contracts.
The Company employs a 28-person direct United States (U.S.) sales
organization and also utilizes a national distributor and several outside
manufacturer representative groups to sell its products throughout the
country. Developmental care products and programs are sold through a five
person direct U.S. sales organization, two distributors and nine
independent representative groups. Typically, all of the Company's
distributors and manufacturer representatives sell other medical
instruments and products, but do not sell products which compete directly
with those offered by the Company.
On July 1, 1999, the Company entered into a three year
co-marketing agreement with GE Marquette Medical Systems, Inc.
("Marquette") under which Marquette and the Company would cooperate in a
joint program to market the Company's Non-Invasive Cardiac Output
(NICO(TM)) monitor throughout the United States and Canada. On February
14, 2000, the Company signed a private label agreement with Respironics,
Inc. to market the Company's CO(2)SMO Plus!TM monitor in the United
States.
Internationally, the Company currently employs four sales and
marketing managers and has approximately 85 outside international
distributors. The Company markets its products in over 75 countries. The
Company's international net sales of products and services constituted
32%, 37% and 41% of total net sales during fiscal 2000, 1999 and 1998,
respectively. The Company is engaged in continuing efforts to improve
<PAGE> 12
12
and expand the international distribution of its products and expects
international sales to continue to constitute a significant portion of
total net sales.
Many of the countries into which the Company sells its products
require governmental approval for the sale of medical instruments. In
most countries which require approval, the approval process is shorter
than that in the United States and, generally, the Company shares the
costs associated with the approval process with its international
distributors. The Company believes it has all of the necessary approvals
to sell the products which it currently distributes internationally.
Since the Company's international sales are denominated in U.S.
dollars, exchange rate fluctuations may affect the competitiveness of the
Company's prices in foreign markets. The Company believes that
fluctuations in the strength of the U.S. dollar have had a minimal impact
on its international sales in fiscal 2000.
No customer accounted for more than 10% of the Company's net sales
in fiscal 2000, 1999 and 1998.
Advertising of the Company's products consists primarily of
displays at medical meetings and trade shows. The Company also advertises
in trade journals and periodicals and cooperates in the publication of
technical papers written by medical authorities in areas relating to the
Company's products.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are devoted to
the design and development of new monitor and sensor technologies and to
the development and enhancement of its existing products. The Company
anticipates offering new products in the future, however, there can be no
assurance that the Company will introduce new products in successive
fiscal years. With the advent of managed care and continuing healthcare
cost containment efforts, these research and development activities are
focused on providing technology and related products which measure and
record medically necessary information in a safe and cost-effective
manner.
The Company's research and development activities presently are,
and during the foreseeable future are expected to be, devoted primarily
to the development and enhancement of the Company's existing products and
technologies and to the design and development of new products. For
fiscal 2000, 1999 and 1998, the Company incurred research and development
costs aggregating approximately $11,686,000, of which approximately
$4,205,000 was attributable to fiscal 2000, $3,958,000 was attributable
to fiscal 1999 and $3,523,000 was attributable to fiscal 1998. All of the
Company's research and development activities are sponsored by the
Company.
The Company's Cascadia Technology Division, located in Redmond,
Washington, is principally engaged in research and development. The
research and development portion of expenses related to this division are
included in the amounts stated in the preceding paragraph.
<PAGE> 13
13
PRODUCTION AND SERVICE
Substantially all of the components in the Company's products,
including those designed to the Company's specifications, are
manufactured by others and then assembled by the Company. The Company's
assembly operations require a variety of electronic and mechanical
components and supplies, as well as specialized equipment which the
Company owns or leases.
The Company does not have any long-term contracts with any of its
suppliers and believes that the needed components and supplies are
available from alternate sources. The Company has not experienced any
interruption of production or deliveries of components, supplies or
equipment. However, there can be no assurance that the Company will
continue to receive timely service or that the Company would be able to
find readily a substitute manufacturer if one were needed on short
notice. Interruption of the Company's sources of supply or quality
problems with the supplied components could have a material adverse
effect on the Company's business and financial position.
The Company provides maintenance service for its products through
service technicians who are employees of the Company and, to a lesser
extent, through independent service representatives. The Company's
products utilize modular components which have been designed for maximum
maintenance accessibility and ease of removal for repair or replacement.
The Company generally warrants its products against defects in material
and workmanship, including parts and labor, for up to one year. The costs
related thereto are recognized as incurred and are not material to the
Company's financial statements. The Company also enters into multi-year
sales agreements under which the estimated repair costs are provided for
at the time of sale. The Company also offers extended warranty programs
that may be purchased by its customers.
<PAGE> 14
14
BACKLOG
Except for orders pursuant to long-term OEM agreements, the
Company ships its products on a current basis and substantially all of
the product backlog at April 30, 2000 is expected to be shipped within
its normal operating cycle. As such, the Company does not consider its
backlog to be a meaningful indicator of future sales.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company holds 33 U.S. patents and has pending applications for
35 additional U.S. patents. The Company's patents primarily cover its
capnography and respiratory flow technologies which the Company believes
provide it with a competitive advantage in the marketplace. Although the
Company holds patents and has patents pending related to certain of the
Company's products, the Company does not believe that its business as a
whole is or will be materially dependent upon patent protection of these
products. However, the Company will continue to seek patents as it deems
advisable to protect its research and development and the market for its
products.
Due to extensive patent coverage in the medical electronics
instruments industry and the rapid rate of issuance of new patents,
certain components of the Company's products may involve infringement of
existing patents. The Company believes that any risks presently being
assumed with respect to any possible patent infringement are reasonable
business risks similar to those being assumed by other companies in the
industry.
The Company is the owner of approximately 19 trademarks in the
United States including, but not limited to, Novametrix(R), CAPNOGARD(R),
CAPNOSTAT(R), CO(2)SMO(R), CO(2)SMO Plus!(TM), NICO(TM), Y-Sensor(TM),
SPO(2)T(check), OXYPLETH(R), SuperBright(TM), VenTrak(R), PNEUMOGARD(R),
TIDAL WAVE(TM), TCO(2)M(R) and Vent(check)(TM).
The Company relies on trade secrets and proprietary know-how,
which it will seek to protect, in part, by confidentiality agreements
with certain of its employees, suppliers and customers. However, there
can be no assurance that the Company's confidentiality agreements, when
in place, will not be breached or that the Company would have adequate
remedies for any breach. There can be no assurance that the Company's
trade secrets or proprietary know-how will not otherwise become known or
be independently discovered by competitors.
COMPETITION
The electronic medical instrumentation industry is extremely
competitive. The Company considers the most significant competitive
factors in its industry to be product capability and performance
(including reliability and ease of use), price and terms of purchase,
availability of prompt and effective maintenance, and an ability to
introduce new and improved products with regularity. The Company believes
that it competes effectively in each of these areas.
<PAGE> 15
15
While the Company's line of monitoring products is generally
available from several of its competitors, the Company believes that its
monitors provide advantages over currently available competing products
in terms of accuracy, reliability and versatility. Additionally, what the
Company believes to be the technological superiority in size, performance
and durability of its products provides it with a competitive advantage.
The electronic medical instrumentation industry is characterized
by rapid technological changes and advances. Although the Company
believes that its products are technologically current, the development
of new technologies or refinements of existing ones by the Company's
competitors could at any time make the Company's existing products
technologically or economically obsolete. Although the Company is not
aware of any pending technological developments that would be likely to
materially and adversely affect its business or financial position, there
can be no assurance that such developments will not occur at any time.
Although all of the Company's competitors do not market all of the
products which the Company markets, the Company estimates that it
competes with at least ten competitors. Such competitors vary in size
from those which are smaller than the Company to divisions or
subsidiaries of multinational corporations. There can be no assurance
that the Company will be able to compete successfully with its
competitors, some of which also have extensive production facilities,
well-established marketing and service organizations, recognized
reputations in the electronic medical instrumentation industry and/or far
greater financial resources than the Company has or will have in the
foreseeable future.
PRODUCT LIABILITY AND INSURANCE COVERAGE
From time to time, the Company is subject to product liability
claims, suits and complaints incidental to its business. These claims,
suits and complaints are covered by insurance policies maintained by the
Company, subject to certain policy limits. In addition, certain of the
Company's OEM agreements require the Company to maintain certain levels
of product liability insurance. The Company currently maintains product
liability insurance in the amount of $5,000,000 with a $50,000 per
occurrence deductible up to an aggregate annual deductible of $250,000.
The Company is not aware of any pending claims, suits or complaints, the
disposition of which, in the opinion of management, would have a material
adverse effect upon the Company's financial position, results of
operations or liquidity. The Company, however, could be materially
adversely affected by successful product liability claims, and there can
be no assurance that the Company will have sufficient resources to
satisfy any liability resulting from claims not covered by existing
insurance policies.
<PAGE> 16
16
REGULATION
The Company's products are subject to regulation in the United
States and in many of the foreign countries where the Company markets or
seeks to market its products.
Certain of the Company's products are "devices" within the meaning
of the Federal Food, Drug and Cosmetics Act. Under that Act, a
manufacturer must obtain approval by the United States Food and Drug
Administration ("FDA") of certain new devices before they can be marketed
in the United States. The approval process requires that the safety and
efficacy of such devices be demonstrated by the manufacturer to the FDA.
Under certain circumstances, the cost of obtaining such pre-marketing
approval may be high and the process lengthy, and no assurance can be
given that approval will be obtained. All of the products currently
marketed domestically by the Company requiring pre-marketing approval
from the FDA have been so approved.
In the future, certain other classes of medical devices may be
required to comply with industry-wide performance standards with respect
to safety and efficacy when these standards are promulgated by the FDA
and internationally recognized standards organizations (such as ISO and
IEC). The FDA has not yet developed industry-wide performance standards
with respect to the safety and efficacy of those products manufactured
by the Company which would be subject to such standards. When and if
these standards are adopted, the Company will be required to submit data
demonstrating compliance with the standards (during which period the
Company may be permitted to continue to market products which have
previously been approved by the FDA).
There can be no assurance that the Company's products will comply
with the applicable industry-wide performance standards when and if
adopted or that the Company will receive the requisite approvals to
market any of its future products. Any failure to receive approvals or
non-compliance with performance standards would have a material adverse
effect on the Company's business and financial position.
Underwriters' Laboratories, Inc. ("UL") has established safety
standards for patient-connective electrical apparatus. These standards,
or their equivalent, have been adopted as purchase specifications by many
hospitals. The Company has obtained UL or equivalent approval with
respect to certain of its products and has applied or intends to apply
for approval with respect to all its other products to which these
standards apply. In addition, state and municipal testing agencies have
imposed similar standards with which the Company's products sold in
particular areas may be required to comply. The Company does not believe
that compliance with these state and municipal standards will involve
significant expense.
Various countries in which the Company markets its products have
regulatory agencies which perform functions comparable to those of the
FDA. Compliance to international standards is a growing factor in
conducting business in such markets. Novametrix has obtained ISO 9001
(Quality System) and EN46001 (Quality System specific to medical device
manufacturing) certification. By obtaining certification to
<PAGE> 17
17
these standards, the Company is permitted to place a "CE" mark on its
products which indicates product compliance as specifically required by
the European marketplace. To date, foreign regulations have not adversely
affected the Company's business. However, there can be no assurance that
any such regulations will not have a material adverse effect on the
Company's business and financial condition in the future.
Changes within the United States healthcare market continue at a
rapid pace. The move toward managed care, and the growing influence of
managed care networks, hospital group purchasing organizations ("GPOs"),
integrated delivery networks ("IDNs") and hospital cooperatives, have had
a major impact on the healthcare industry by accelerating trends toward
shorter hospital stays, the use of outpatient facilities rather than
hospitalization and by lowering annual cost increases for healthcare
spending. Today, hospitals in general have expanded their efforts toward
reducing operating costs and improving cost controls as well as managing
the purchase price of goods and services. Additional cost saving changes,
consolidation and restructuring could further influence decision-making
by hospitals, clinics and other healthcare providers, which form the
Company's customer base. These possible changes could potentially reduce
or delay capital expenditures by these providers, and could change the
users and markets for the Company's products. However, the acute care
portion of a hospital (including the operating room and intensive care
unit), which is a significant market for the Company's products, should
not be greatly affected by the trend toward the use of outpatient
facilities as such outpatient facilities generally care for patients who
are not critically ill. In addition, the trend toward managed competition
may improve sales of certain of the Company's non-disposable products
which provide substantial cost savings compared to similar disposable
products sold by its competitors, and may also improve sales of other
Company products that improve patient throughput and thereby result in
shorter hospital stays.
Although the trend toward managed competition may have a positive
impact on the Company's business by providing increased coverage for
medical procedures utilizing the Company's products, thereby increasing
demand for the Company's products, it is not possible at this time to
predict what, if any, further changes in healthcare will occur.
EMPLOYEES
As of April 30, 2000, the Company had a total of 228 full-time
employees, consisting of 88 production personnel, 41 research and
development personnel, 76 sales, marketing and service personnel and 23
administrative, managerial and financial personnel. None of the Company's
employees is covered by a collective bargaining agreement. The Company
considers its relationship with its employees to be satisfactory.
<PAGE> 18
18
ITEM 2. PROPERTIES.
The Company's main plant and executive offices are located at 5
Technology Drive, Wallingford, Connecticut where it occupies approximately
53,000 square feet of office and manufacturing space under a twelve year lease
expiring in August 2008. The lease provides for minimum annual lease payments of
$408,425, and contains one five-year renewal option and a purchase option upon
the commencement of the sixth year of the lease. The lease requires the Company
to pay for property taxes, insurance and repairs related to the facility.
The Company also leases a building in Redmond, Washington under a
one-year lease expiring in March 2001, and comprising approximately 5,200 square
feet of space utilized for research and development and manufacturing support.
The lease provides for minimum annual lease payments of $76,150 plus taxes,
insurance and other expenses.
The Company's subsidiary, Children's Medical Ventures, Inc., occupies a
facility in South Weymouth, Massachusetts comprising approximately 6,200 square
feet under a three-year lease which expires in August 2000. Children's Medical
Ventures is currently negotiating a lease for a similar facility in an adjacent
location.
The Company believes that its facilities are well maintained, in good
operating condition and adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
See also "Patents, Trademarks and Proprietary Rights" and "Product
Liability and Insurance Coverage" under "Item 1. Business."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE> 19
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock, $.01 par value (the "Common Stock"), trades
on The Nasdaq Stock Market(R) under the symbol "NMTX". The following table sets
forth the range of high and low sales prices per share for the Common Stock for
each of fiscal 2000 and 1999.
<TABLE>
<CAPTION>
High Sale Low Sale
--------- --------
<S> <C> <C>
FISCAL 2000
First Quarter........................... $5 7/16 $3 5/8
Second Quarter.......................... 4 7/8 3
Third Quarter........................... 5 7/8 3 3/8
Fourth Quarter.......................... 8 1/2 4 5/8
FISCAL 1999
First Quarter........................... $8 7/16 $6 1/8
Second Quarter.......................... 6 1/2 3 13/16
Third Quarter........................... 7 1/4 4 7/8
Fourth Quarter.......................... 6 5/16 3 1/8
</TABLE>
On July 21, 2000, the last sale price of the Common Stock as reported on
The Nasdaq Stock Market(R) was $ 6.6875.
As of July 21, 2000, there were approximately 785 record holders of the
Common Stock. No dividends have been declared on the Common Stock since the
Company was organized. In addition, loan agreements to which the Company is a
party contain, among other provisions, various covenants restricting the
Company's ability to pay cash dividends to holders of the Common Stock.
In addition, the Company has Class B Warrants that trade on The Nasdaq
Stock Market(R) under the symbol "NMTXZ". The Warrants are each exercisable for
one share of Common Stock at an exercise price of $5.85 and are scheduled to
expire on December 8, 2000. The Warrants are callable by the Company under
specified circumstances.
<PAGE> 20
20
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial and operating data of
the Company as of the end of each fiscal year and for each of the years in the
five-year period ended April 30, 2000.
<TABLE>
<CAPTION>
April 30, May 2, May 3 April 27, April 28,
FOR YEAR ENDED 2000 (1)(5) 1999 (1) 1998(1) 1997 1996
----------- -------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $43,682,223 $32,864,673 $31,561,144 $28,253,750 $25,260,180
Income Before Income Taxes and
Non-recurring Expenses 3,654,155 2,870,367 3,951,598 3,073,469 2,136,795
Net Income(2)(3)(4) 2,241,281 2,066,667 2,903,598 4,923,559 3,116,795
Net Income Per Share(2)(3)(4)
Basic 0.28 0.25 0.35 0.70 0.50
Diluted 0.27 0.24 0.31 0.59 0.38
Cash Dividends on Common Stock - - - - -
AT YEAR END
Total Assets 47,150,667 35,975,874 31,001,896 27,224,432 18,823,362
Working Capital 17,520,691 15,233,539 18,602,648 10,831,127 8,363,914
Long-Term Debt 5,850,601 2,254,071 90,881 782,275 1,333,333
Redeemable Preferred Stock - - - 1,000,000 1,000,000
Stockholders' Equity 30,265,822 24,655,944 27,032,439 18,109,926 12,528,549
</TABLE>
----------------------
(1) The above data should be read in conjunction with the consolidated
financial statements, related notes and other financial information set
forth elsewhere herein.
(2) Fiscal 2000 includes a reduction in first quarter earnings of $223,544,
or $.03 per basic and diluted share, from the cumulative effect of a
change in accounting principle. Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities", was adopted by the
Company on May 3, 1999 and required that start-up costs previously
capitalized be written-off and future startup costs be expensed as
incurred.
(3) Includes income tax benefits of $4,030,000 ($0.58 per basic share and
$0.49 per diluted share) and $1,020,000 ($0.17 per basic share and $0.12
per diluted share), respectively, for fiscal 1997 and fiscal 1996 as a
result of a reduction in the Company's net deferred tax asset valuation
allowance.
(4) Fiscal 1997 net income includes non-recurring expenses of $2,149,910
($0.31 per basic share and $0.26 per diluted share) pertaining to an
attempted merger and related proxy contest.
(5) Reflects the acquisition of Children's Medical Ventures, Inc. on June 30,
1999.
<PAGE> 21
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended April 30, 2000 Compared to Year Ended May 2, 1999
Fiscal 2000 net sales increased by approximately $10.8 million or 32.9%
to approximately $43.7 million compared to $32.9 million reported in fiscal
1999. The increase was primarily attributable to the acquisition of Children's
Medical Ventures and record domestic sales. Children's Medical, acquired June
30, 1999 accounted for sales of approximately $7.7 million over the last ten
months of fiscal 2000. Domestic sales performance was led by an increase in
pulse oximetry conversion sales and higher Non-Invasive Cardiac Output
("NICOTM") sales compared to fiscal 1999. International sales and Original
Equipment Manufacturer ("OEM") sales were also positive compared to the prior
year
Cost of sales as a percentage of net sales increased by 1.4% to 42.7% in
fiscal 2000 compared to 41.3% for fiscal 1999, primarily as the result of
product mix. In fiscal 1999, the Company had recorded certain favorable domestic
sales transactions that had resulted in an overall improvement of 1.1% in cost
of sales as a percentage of sales in that year. The Company continues to target
improvements in product costs to maintain the Company's competitive position.
Research and Product Development ("R&D") expenses increased by 6.3% to
approximately $4.2 million for fiscal 2000 compared to the prior year. Higher
levels of salaries and related expenses, clinical research and outside
consulting were primarily responsible for the increase. While spending increased
approximately $250,000 compared to the prior year, R&D as a percentage of sales
dropped from 12.0% in fiscal 1999 to 9.6% in fiscal 2000 due to the increase in
sales.
Selling, General and Administrative ("S,G&A") expenses increased by 29.7%
in the current year compared to fiscal 1999 levels. Approximately 56% of the
overall increase in S,G&A was attributable to the addition of Children's Medical
Ventures in July 1999. The majority of the remaining portion of the increase was
associated with increased sales and marketing expenses in the current year
compared to fiscal 1999.
Domestic selling expenses increased by approximately $615,000 compared to
fiscal 1999 due to higher salaries and related headcount expenses offset by
lower dealer commissions than were recorded in the prior year. International
selling expenses increased by approximately $392,000 from the prior year
primarily associated with dealer commissions on tenders awarded to the Company
in fiscal 2000. Marketing related expenses were up approximately $428,000
compared to the prior year. Higher advertising expenses, outside marketing
services and clinical research expenses, primarily associated with non-invasive
cardiac output and pulse oximetry, accounted for the year-to-year increase.
Administrative expenses were up 3.3% compared to the prior year before the
impact of the Children's Medical acquisition, primarily associated with higher
costs for accounting/legal services and general insurance.
<PAGE> 22
22
Interest expense increased by approximately $787,000 to $1.0 million for
fiscal 2000 compared to the prior year. Higher debt levels in fiscal 2000,
primarily associated with the purchase of Children's Medical Ventures on June
30, 1999, and the full year effect of borrowings related to the fiscal 1999
stock repurchase programs, accounted for the increase in interest expense.
Income tax expense for fiscal 2000 of approximately $1,189,000 compared
to $804,000 in the prior year reflected the Company's higher earnings and an
increase in the effective tax rate from 28% to 32.5%. The increase in the
effective tax rate resulted primarily from goodwill amortization associated with
the Children's Medical acquisition, which is not deductible for income tax
purposes. The Company's effective tax rate for fiscal 2000 remained below the
statutory rate as a result of benefits derived from R&D tax credits, the
Company's Foreign Sales Corporation and the depletion of the deferred tax
valuation allowance. Management believes that current levels of pre-tax earnings
will be sufficient to generate approximately $9,000,000 of future taxable income
required to utilize the deferred income tax benefit at April 30, 2000.
Management expects the effective tax rate to approximate the statutory rate for
fiscal 2001.
Earnings per diluted share, before the impact of a change in accounting
principle, increased by 25% to $0.30 per share for fiscal 2000 compared to $0.24
per share for fiscal 1999. Earnings per diluted share increased in the second
half of fiscal 2000, with earnings per diluted share of $0.22 compared to $0.12
for the last six months of the previous year.
The Company recorded the cumulative effect of a change in accounting
principle of approximately $224,000 (net of income taxes of $105,000) or $0.03
per diluted share in fiscal 2000. As required under Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" issued by the AICPA, the Company
expensed the unamortized balance of previously capitalized start-up costs in the
first quarter of the current year. Effective with fiscal 2000, start-up costs
were expensed as incurred.
Year Ended May 2, 1999 Compared to Year Ended May 3, 1998
The Company reported net income of $2.1 million or $0.24 per diluted
share for the fiscal year ended May 2, 1999 compared to net income of
approximately $2.9 million or $0.31 per diluted share for the fiscal year ended
May 3, 1998. Sales shortfalls to international and OEM customers, combined with
increased investment in R&D and sales and marketing to support the Company's new
products and the growing domestic effort, were the primary cause for the
reduction in earnings.
Net sales increased approximately $1.3 million or 4% to approximately
$32.9 million for the fiscal year ended May 2, 1999 compared to approximately
$31.6 million for the fiscal year ended May 3, 1998. The increase in sales, led
by significant growth in domestic sales which resulted primarily from an
increase in pulse oximetry sales, was partially offset by reductions in
international sales and sales to OEM customers primary due to the impact of
global economic conditions.
<PAGE> 23
23
Cost of sales as a percentage of net sales was 41.3% for fiscal 1999
compared to 42.4% for fiscal 1998 led by the improvement in domestic sales. The
improvement in the cost of sales percentage resulted primarily from favorable
product and market mix in fiscal 1999 compared to the prior year. Management
planned to continue focusing on product cost reductions through increased
automation, improved product design and product efficiencies.
R&D expenses increased by approximately $435,000 or 12% to approximately
$3,958,000 for fiscal 1999 compared to approximately $3,523,000 for fiscal 1998.
The increase was primarily attributable to higher expenditures for salaries and
related fringe benefits associated with increased R&D personnel which was
partially offset by lower levels of expenditures for engineering materials. R&D
spending, which approximated 12% of net sales for fiscal 1999, was expected to
approximate 10% to 11% of net sales in fiscal 2000 on about the same level of
spending as fiscal 1999 but on the higher level of expected sales.
S,G&A expenses increased by approximately $1,723,000 or 16% to
approximately $12,321,000 for fiscal 1999 compared to approximately $10,598,000
for fiscal 1998. The vast majority of the increase was related to increased
expenditures associated with the expansion of domestic sales including salaries
and related fringe benefits, employee and dealer commissions, outside consulting
and travel and entertainment expenses. Marketing expenses, including salaries
and related fringe benefits, outside professional services and travel and
entertainment expenses also accounted for a portion of the increase in S,G&A
expense. Decreased international sales and marketing expenses, including
commissions on reduced sales volume and marketing promotional costs, partially
offset the increase in overall S,G&A expense.
Interest expense increased approximately $99,000 to approximately
$212,000 for fiscal 1999 compared to approximately $113,000 for fiscal 1998.
During fiscal 1999, the Company entered into new debt agreements with its bank
primarily to finance the Company's purchase of its treasury stock and for
general working capital requirements.
Income tax expense was approximately $804,000 during fiscal 1999 compared
to approximately $1,048,000 for fiscal 1998 which reflected the lower earnings.
The Company's effective tax rate of 28% for fiscal 1999 was below the statutory
rate as a result of benefits derived from R&D tax credits, the Company's Foreign
Sales Corporation and a further reduction in the deferred tax valuation
allowance. Management believed that current levels of pre-tax earnings would be
sufficient to generate approximately $11,000,000 of future taxable income
required to utilize the deferred tax benefit recorded as of May 2, 1999.
Management expected the effective tax rate to approximate 31% to 33% for fiscal
2000.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased approximately $2.3 million to $17.5 million at
April 30, 2000 compared to $15.2 million at May 2, 1999. The current ratio was
2.6 to 1 at April 30, 2000 compared to 2.7 to 1 at May 2, 1999. The increase in
working capital was primarily attributable to higher levels of accounts
receivable associated with the increased sales, partially offset by higher
levels of borrowing, primarily associated with the acquisition of Children's
Medical Ventures in fiscal 2000.
<PAGE> 24
24
Cash provided by operating activities was approximately $3.6 million in
fiscal 2000, compared to cash used by operating activities in fiscal 1999 of
approximately $228,000. Income before deferred income taxes, the cumulative
effect of a change in accounting principle, depreciation and amortization of
$5.4 million, and a reduction in inventory partially offset by the increase in
accounts receivable accounted for the majority of the cash provided by operating
activities.
During fiscal 2000, the Company invested approximately $9.2 million for
the purchase of Children's Medical Ventures, which was funded by an increase in
bank term debt. In fiscal 2000, the Company also received $3.0 million from the
sale of treasury shares in a private transaction, with the proceeds applied to
pay down bank debt.
The Company has an $8 million revolving credit agreement of which $1.8
million has been borrowed at April 30, 2000. The revolving credit agreement
expires August 31, 2001.
Cash provided by operations and through the Company's revolving credit
agreement is expected to be the principal source of capital for fiscal 2001 and
sufficient to fund the Company's growth plans. In addition, approximately $3.3
million of additional proceeds may potentially be realized from the exercise of
the Company's Class B Warrants, which are callable under specified conditions,
exercisable at $5.85 per share and expire on December 8, 2000. Management
further believes that additional funds are obtainable on commercially acceptable
terms.
MARKET RISK
The Company's revolving credit facility and term loan agreements are
based upon the London Interbank Offered Rate ("LIBOR") and, as such, are
sensitive to changes in interest rates. The Company has an interest rate swap
agreement on the remaining balance ($2.2 million) of the term loan established
in fiscal 1999, which provides an effective interest rate of 6.77% and limits
interest rate risk during times of fluctuation. The agreement had no material
effect on interest expense for fiscal 2000. At April 30, 2000, the result of a
hypothetical one percentage point increase in LIBOR rates would not have
resulted in a material impact on the pre-tax profit of the Company. The Company
has not entered into any additional interest rate swap agreements. At April 30,
2000, the carrying value of debt approximates its fair value. Bank debt
decreased from $16.7 million at August 1, 1999 to $10.1 million at April 30,
2000. The Company projects a further decrease in debt in fiscal 2001, reducing
long-term risk associated with potentially higher interest rates.
GOODWILL AND INTANGIBLE ASSETS
In connection with the acquisition of Children's Medical Ventures, Inc.
in fiscal 2000, the Company recorded $7.7 million of goodwill representing the
excess of the purchase price over the fair value of net assets acquired. The
goodwill is being amortized over 25 years. Based on the operating histories of
the Company and Children's Medical Ventures, Inc., as well as other factors,
management believes that the amortization period is appropriate. As of April
30, 2000, intangible assets, consisting of
<PAGE> 25
25
goodwill, license, technology, patent and other costs, represented 26.6% of
total assets and 41.5% of shareholders' equity.
YEAR 2000 COMPLIANCE
In anticipation of the Year 2000, the Company established a Year 2000
program to assess 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.
IMPACT OF INFLATION
The rate of inflation continues to have minimal effect on the operations
of the Company. Management routinely monitors the possible effects of inflation
with respect to the Company's future business plans, and does not expect
inflation to have a material impact upon the growth or operating results of the
Company during fiscal 2001.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements about the
Company's products and projected operating results. Shareholders and potential
investors are cautioned that such statements are predictions and that actual
events or results may vary significantly. 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: an unanticipated
slowdown in the healthcare industry; unanticipated technological developments
which affect the competitiveness of the Company's products; or an unanticipated
delay or loss of business. The Company does not intend to update publicly any of
the forward-looking statements contained herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the caption "Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For information concerning this Item, see "Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K."
<PAGE> 26
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
<PAGE> 27
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the executive officers and directors of
the Registrant is set forth below:
<TABLE>
<CAPTION>
Positions
Name with the Company Age
---- ---------------- ---
<S> <C> <C>
William J. Lacourciere Chairman of the Board, 60
Chief Executive Officer and Director (Class C)
Thomas M. Patton President and Chief Operating Officer 36
Joseph A. Vincent Executive Vice President, Chief Financial 48
Officer and Secretary
Philip F. Nuzzo Vice President - Marketing and Product 47
Development
Jeffery A. Baird Corporate Controller and Treasurer 46
Paul A. Cote Director (Class A) 70
Vartan Ghugasian Director (Class A) 55
Thomas M. Haythe Director (Class C) 60
John P. Mahoney Director (Class B) 52
Photios T. Paulson Director (Class B) 61
Steven J. Shulman Director (Class B) 49
</TABLE>
William J. Lacourciere has been Chairman of the Board of the Company
since September 1991, Chief Executive Officer since February 1991 and a director
since October 1982. He served as President from August 1986 to May 2000. He
served as Chief Operating Officer from March 1983 to February 1991. Mr.
Lacourciere served as Executive Vice President from March 1983 to August 1986.
From October 1982 to March 1983, he served as Executive Vice President -
Marketing. From April 1980 to October 1982, Mr. Lacourciere served as Vice
President - Domestic Sales.
Thomas M. Patton was named President and Chief Operating Officer of the
Company in May 2000. Prior to joining the Company, Mr. Patton was employed as
President and Chief Executive Officer of Wright Medical Technology, Inc. (a
manufacturer of orthopedic medical devices located in Tennessee) from 1998 until
January 2000. He joined Wright Medical in 1993 as general counsel and later
served as Executive Vice President, Corporate Development &
<PAGE> 28
28
General Counsel. From 1989 until 1993, Mr. Patton served as a legal associate
with the law firm of Williams and Connolly in Washington, D.C.
Joseph A. Vincent, CMA is Executive Vice President, Chief Financial
Officer and Secretary of the Company and has been employed by the Company since
1983. He was named Executive Vice President in February 1997, Chief Financial
Officer in October 1999, and Secretary in April 1990. He previously served as
Vice President - Finance, Treasurer, Controller and Chief Operating Officer. Mr.
Vincent held various positions with Picker International, Inc. (Marconi), a
manufacturer of medical diagnostic instruments and supplies, from August 1974
until joining the Company in August 1983. Mr. Vincent was a director of the
Company from February 1994 to November 1996.
Philip F. Nuzzo was appointed Vice President - Marketing and Product
Development of the Company in August 1996. He served as Director of Marketing
from February 1993 to August 1996, as Marketing Manager from July 1989 to
February 1993, and as Product Manager from January 1986 to July 1989. Prior to
joining Novametrix, Mr. Nuzzo, a licensed Respiratory Care Practitioner,
obtained his clinical experience with several hospitals including St. Joseph's
Hospital in Bellingham, Washington and LAC/USC Medical Center in Los Angeles,
California.
Jeffery A. Baird is the Corporate Controller and Treasurer of the
Company, and has been employed by the Company since February 1988. He was named
Treasurer in October 1999 and has been Corporate Controller since February 1993.
Mr. Baird previously served the Company as Director of Budgets and Financial
Analysis and Chief Financial Officer. Prior to joining the Company, Mr. Baird
was employed at Philips Medical Systems, Inc., a manufacturer of diagnostic
medical imaging equipment.
Paul A. Cote has been a director of the Company since November 1996. Mr.
Cote has been a practicing lawyer in Maine since 1955 and is the President and
Director of the law firm of Cote, Cote & Hamann. Mr. Cote was a member of the
Board of Directors of Secor Federal Savings & Loan, Birmingham, Alabama (1992
-1994) and Northeast Bankshare Association (later became Norstar and
subsequently Fleet) (1975-1989). He also served on the advisory boards of
Norstar and Fleet banks (1990-1992).
Vartan Ghugasian has been a director of the Company since November 1996.
Dr. Ghugasian has been a practicing dentist in Massachusetts since 1972
specializing in prosthodontics. Dr. Ghugasian has enjoyed a number of academic
appointments, including as an associate in prosthetic dentistry, Harvard
University School of Dental Medicine from 1980 until 1993 and Director of
Pre-Clinical Studies at Tufts University School of Dental Medicine from 1974 to
1980. Dr. Ghugasian has also served as a director of the Karagheusian
Commemorative Corporation, New York, New York.
Thomas M. Haythe has been a director of the Company since March 1978. Mr.
Haythe has been a legal and business consultant since February 1, 2000. He was a
partner at the law firm of Haythe & Curley (renamed Torys) from 1981 through
January 31, 2000. Mr. Haythe also serves as a director of Guest Supply, Inc., a
provider of hotel guest room amenities, accessories and products, Westerbeke
Corporation, a manufacturer of marine engine products, and Ramsay Youth
Services, Inc., a provider of youth and educational services.
<PAGE> 29
29
John P. Mahoney has been a director of the Company since October 1997.
Dr. Mahoney has served as a staff pathologist with Pathology Associates, Inc.
(pathology group providing services in surgical, cytologic, clinical and
forensic pathology) from 1981 to 1994 and since 1996. During such time, Dr.
Mahoney has served as Chief of Staff, Tallahassee Community Hospital; President,
Capital Medical Society; and Associate Medical Examiner, State of Florida,
District II. From 1987 to 1995, Dr. Mahoney was President and Chief Executive
Officer of Health Enterprises, Inc., a holding company that included a 62,000
member health maintenance organization, which was merged with Coastal Physicians
Group in 1995.
Photios T. Paulson has been a director of the Company since July 1992.
Mr. Paulson has served as Vice President of bioMerieux Alliance S.A., a
privately-held French holding company in the clinical diagnostics field, since
January 1995, Chairman of bioMerieux Vitek Inc., a manufacturer of clinical
diagnostic systems, from July 1991 to 1995 and as Senior Advisor-Health Care
Industry and International Investment Banking for Prudential Securities Inc.
from 1987 to 1991. Prior to that Mr. Paulson spent 27 years with Becton
Dickinson and Company (a major worldwide producer of medical and clinical
diagnostics products). His last position held was that of Executive Vice
President and Chief Operating Officer. Mr. Paulson also serves as a director of
Vasomedical, Inc., a provider of EECP cardiovascular therapy products, and
Silliker, Inc., a provider of laboratory testing services for the food industry.
Steven J. Shulman has been a director of the Company since November 1993.
Since September 1999, Mr. Shulman has served as Chairman and Chief Executive
Officer of Internet HealthCare Group, L.L.C., a company which acquires private
equity positions in and builds emerging healthcare related companies. Prior to
that date, he served as President and Chief Executive Officer of Prudential
HealthCare from August 1997 to July 1999. Mr. Shulman was a founder and director
of Value Health, Inc., a provider of specialty managed care programs, from 1987
to 1997. During that time he served as President of the Pharmacy and Disease
Management Group as well as Executive Vice President. Prior to 1989, Mr. Shulman
was President of the East Central Division at CIGNA Healthplan, Inc., a provider
of group life and health insurance, including managed care products. Mr. Shulman
is also a director of Ramsay Youth Services, Inc., a provider of youth and
educational services.
For additional information concerning this item, see text under caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Proxy Statement, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see text under the captions
"Executive Compensation," "Compensation of Directors," "Employment Agreements,"
"Compensation and Stock Option Committee Interlocks and Insider Participation,"
"Performance Graph" and "Report of the Compensation and Stock Option Committee"
in the Proxy Statement, which information is incorporated herein by reference.
<PAGE> 30
30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
For information concerning this item, see text under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see text under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement, which
information is incorporated herein by reference.
<PAGE> 31
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM
8-K.
(a) 1. Consolidated Financial Statements:
Information with respect to this Item regarding the
consolidated financial statements is contained on page F-1 of this Annual Report
on Form 10-K.
2. Consolidated Financial Statement Schedule
Information with respect to this Item regarding the
consolidated financial statement schedule is contained on page F-1 of this
Annual Report on Form 10-K.
3. Exhibits
Information with respect to this Item regarding Exhibits
required to be filed pursuant to Item 601 of Regulation S-K is contained in the
attached Index to Exhibits, which Exhibits are incorporated herein by
reference. Exhibits 10(a), 10(b), 10(s), 10(t), 10(u), 10(y), 10(gg), 10(ii),
10(kk) 10(ll), 10(ww) and 10(xx) are the management contracts and compensatory
plans or arrangements required to be filed as part of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K:
On July 15, 1999, the Company filed a Current Report on Form
8-K to report the acquisition of Children's Medical Ventures, Inc. dated July 1,
1999. On September 15, 1999, the Company filed Form 8-K/A to amend Item 7,
sections (a) and (b) to include financial statements and pro forma financial
information relating to such acquisition.
On January 13, 2000, the Company filed a Current Report on
Form 8-K to report the adoption of a rights plan and the grant of a dividend of
one right for each outstanding share of the Common Stock.
(c) Exhibits:
Information with respect to this Item regarding Exhibits
required to be filed pursuant to Item 601 of Regulation S-K is contained in the
attached Index to Exhibits, which Exhibits are incorporated herein by
reference. Exhibits 10(a), 10(b), 10(s), 10(t), 10(u), 10(y), 10(gg), 10(ii),
10(kk) 10(ll), 10(ww) and 10(xx) are the management contracts and compensatory
plans or arrangements required to be filed as part of this Annual Report on
Form 10-K.
(d) Consolidated Financial Statement Schedule:
Information with respect to this Item regarding the
consolidated financial statement schedule required by Regulation S-X which is
excluded from the annual report to shareholders by Rule 14a-3(b) is contained on
page F-1 in this Annual Report on Form 10-K.
<PAGE> 32
32
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoint each of William J. Lacourciere and Joseph A. Vincent as
attorneys-in-fact with full power of substitution, severally, to execute in the
name and on behalf of the Registrant and each such person, individually and in
each capacity stated below, one or more amendments to this Annual Report on Form
10-K which amendments may make such changes in this Report as the
attorney-in-fact acting in the premises deems appropriate and to file any such
amendment to this Report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: July 27, 2000
NOVAMETRIX MEDICAL SYSTEMS INC.
By:/s/William J. Lacourciere
-----------------------------------------
William J. Lacourciere
Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: July 27, 2000
By:/s/William J. Lacourciere
-----------------------------------------
William J. Lacourciere
Chairman of the Board,
Chief Executive Officer
and Director
<PAGE> 33
33
Dated: July 27, 2000
By:/s/Joseph A. Vincent
---------------------------------
Joseph A. Vincent
Executive Vice President and
Chief Financial Officer
Dated: July 27, 2000
By:/s/Paul A. Cote
---------------------------------
Paul A. Cote
Director
Dated: July 27, 2000
By:/s/Vartan Ghugasian
---------------------------------
Vartan Ghugasian
Director
Dated: July 27, 2000
By:/s/Thomas M. Haythe
---------------------------------
Thomas M. Haythe
Director
Dated: July 27, 2000
By:/s/John P. Mahoney
---------------------------------
John P. Mahoney
Director
Dated: July 27, 2000
By:/s/Photios T. Paulson
---------------------------------
Photios T. Paulson
Director
Dated: July 27, 2000
By:/s/Steven J. Shulman
---------------------------------
Steven J. Shulman
Director
<PAGE> 34
Annual Report on Form 10-K
Item 8--Financial Statements
Item 14(a)(1) and (2)--List of Financial Statements and
Financial Statement Schedule
Item 14(d)--Financial Statement Schedule
Year ended April 30, 2000
Novametrix Medical Systems Inc.
Wallingford, Connecticut
<PAGE> 35
Novametrix Medical Systems Inc.
Index to Financial Statements and Financial Statement Schedule
The report of Ernst & Young LLP, independent auditors, dated June 16, 2000, and
the following consolidated financial statements of Novametrix Medical Systems
Inc. are included in Item 8:
Consolidated Balance Sheets--April 30, 2000 and May 2, 1999
Consolidated Statements of Income--Years ended April 30, 2000, May 2, 1999
and May 3, 1998
Consolidated Statements of Shareholders' Equity--Years ended April 30,
2000, May 2, 1999 and May 3, 1998
Consolidated Statements of Cash Flows--Years ended April 30, 2000, May 2,
1999 and May 3, 1998
Notes to Consolidated Financial Statements--April 30, 2000
The following consolidated financial statement schedule of Novametrix Medical
Systems Inc. is included in Item 14(d):
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-2
<PAGE> 36
Report of Independent Auditors
Board of Directors
Novametrix Medical Systems Inc.
We have audited the accompanying consolidated balance sheets of Novametrix
Medical Systems Inc. as of April 30, 2000 and May 2, 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended April 30, 2000. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Novametrix Medical
Systems Inc. at April 30, 2000 and May 2, 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended April 30, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Hartford, Connecticut /s/ Ernst & Young LLP
June 16, 2000
F-3
<PAGE> 37
Novametrix Medical Systems Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, 2000 MAY 2, 1999
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 283,262 $ 269,399
Accounts receivable, less allowance for losses of $300,000 in
2000 and $250,000 in 1999 15,412,529 11,613,251
Current portion of notes receivable 260,722 380,003
Inventories:
Finished products 4,450,432 4,193,808
Work in process 1,321,196 1,224,991
Materials 4,091,089 3,933,648
-----------------------------
9,862,717 9,352,447
Deferred income taxes, net 1,880,866 1,768,688
Prepaid expenses and other current assets 854,839 915,610
-----------------------------
Total current assets 28,554,935 24,299,398
Notes receivable, less current portion 1,607,563 1,501,118
Equipment, less accumulated depreciation and amortization of
$8,028,572 in 2000 and $6,913,927 in 1999 3,350,115 3,682,126
License, technology, patent and other costs, less accumulated
amortization of $4,409,429 in 2000 and $3,982,188 in 1999 5,118,945 4,544,432
Goodwill, less accumulated amortization of $258,591 7,444,848
Deferred income taxes, net 1,074,261 1,948,800
-----------------------------
$47,150,667 $35,975,874
=============================
</TABLE>
F-4
<PAGE> 38
<TABLE>
<CAPTION>
APRIL 30, 2000 MAY 2, 1999
---------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt and capital lease obligation $ 4,335,264 $ 3,836,810
Accounts payable 2,968,833 2,384,925
Accrued expenses 3,730,147 2,844,124
--------------------------------
Total current liabilities 11,034,244 9,065,859
Long-term debt and capital lease obligation, less current portion 5,850,601 2,254,071
Shareholders' equity:
Common Stock, $.01 par value, authorized 20,000,000 shares;
issued 9,450,304 shares in 2000 and 9,232,659 shares in 1999 94,503 92,327
Additional paid-in capital 34,997,342 34,965,970
Retained-earnings (deficit) (1,018,962) (3,260,243)
Treasury Stock; 799,355 shares in 2000 and 1,299,355 shares in 1999 (3,807,061) (7,142,110)
--------------------------------
30,265,822 24,655,944
--------------------------------
$ 47,150,667 $ 35,975,874
================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 39
Novametrix Medical Systems Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
APRIL 30, 2000 MAY 2, 1999 MAY 3, 1998
---------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $ 43,682,223 $ 32,864,673 $ 31,561,144
Interest 170,799 113,491 45,761
---------------------------------------------------
43,853,022 32,978,164 31,606,905
Costs and expenses:
Cost of products sold 18,669,287 13,568,836 13,377,206
Research and product development 4,205,157 3,957,760 3,522,687
Selling, general and administrative 15,980,271 12,320,693 10,597,621
Interest 999,803 212,365 113,246
Goodwill amortization 258,591
Other expense, net 85,758 48,143 44,547
---------------------------------------------------
40,198,867 30,107,797 27,655,307
---------------------------------------------------
Income before income taxes and cumulative effect of a
change in accounting principle 3,654,155 2,870,367 3,951,598
Income taxes 1,189,330 803,700 1,048,000
---------------------------------------------------
Income before cumulative effect of a change
in accounting principle 2,464,825 2,066,667 2,903,598
Cumulative effect of a change in accounting
principle (net of income taxes
of $105,456) (223,544)
---------------------------------------------------
Net income $ 2,241,281 $ 2,066,667 $ 2,903,598
===================================================
Earnings per common share:
Income before cumulative effect of a change in
accounting principle:
Basic $ .31 $ .25 $ .35
Diluted $ .30 $ .24 $ .31
Cumulative effect of a change in accounting principle:
Basic $ (.03)
Diluted $ (.03)
Net income:
Basic $ .28 $ .25 $ .35
Diluted $ .27 $ .24 $ .31
</TABLE>
See accompanying notes.
F-6
<PAGE> 40
Novametrix Medical Systems Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------------------- PAID-IN
SHARES AMOUNT CAPITAL
-------------------------------------------------------
<S> <C> <C> <C>
Year ended May 3, 1998:
Balance at April 27, 1997 7,525,539 $ 75,255 $ 28,737,217
Common Stock issued under stock purchase
plan and stock option and warrant exercises 1,204,372 12,045 4,734,204
Tax benefit related to stock option exercises 287,666
Conversion of Redeemable Preferred Stock 444,444 4,444 995,556
Dividends on Preferred Stock ($.75 a share)
Net income
--------------------------------------------------------
Balance at May 3, 1998 9,174,355 91,744 34,754,643
Year ended May 2, 1999:
Common Stock issued under stock purchase plan
and stock option and warrant exercises 58,304 583 193,380
Tax benefit related to stock option exercises 17,947
Purchase of Common Stock for treasury
Net income
--------------------------------------------------------
Balance at May 2, 1999 9,232,659 92,327 34,965,970
Year ended April 30, 2000:
Common Stock issued under stock purchase plan
and stock option and warrant exercises 217,645 2,176 297,999
Tax benefit related to stock option exercises 49,049
Issuance of warrants in connection with business acquisition 51,250
Sale of Common Stock and warrants, net of transaction fees of
$31,877 (366,926)
Net income
--------------------------------------------------------
Balance at April 30, 2000 9,450,304 $ 94,503 $ 34,997,342
========================================================
</TABLE>
<TABLE>
<CAPTION>
RETAINED- TREASURY STOCK
EARNING -------------------------------
(DEFICIT) SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C>
Year ended May 3, 1998:
Balance at April 27, 1997 $ (8,215,508) (338,452) $ (2,487,038)
Common Stock issued under stock purchase
plan and stock option and warrant exercises
Tax benefit related to stock option exercises
Conversion of Redeemable Preferred Stock
Dividends on Preferred Stock ($.75 a share) (15,000)
Net income 2,903,598
---------------------------------------------------------
Balance at May 3, 1998 (5,326,910) (338,452) (2,487,038)
Year ended May 2, 1999:
Common Stock issued under stock purchase plan
and stock option and warrant exercises
Tax benefit related to stock option exercises
Purchase of Common Stock for treasury (960,903) (4,655,072)
Net income 2,066,667
---------------------------------------------------------
Balance at May 2, 1999 (3,260,243) (1,299,355) (7,142,110)
Year ended April 30, 2000:
Common Stock issued under stock purchase plan
and stock option and warrant exercises
Tax benefit related to stock option exercises
Issuance of warrants in connection with business acquisition
Sale of Common Stock and warrants, net of transaction fees of
$31,877 500,000 3,335,049
Net income 2,241,281
---------------------------------------------------------
Balance at April 30, 2000 $ (1,018,962) (799,355) $ (3,807,061)
=========================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
-----------------
<S> <C>
Year ended May 3, 1998:
Balance at April 27, 1997 $ 18,109,926
Common Stock issued under stock purchase
plan and stock option and warrant exercises 4,746,249
Tax benefit related to stock option exercises 287,666
Conversion of Redeemable Preferred Stock 1,000,000
Dividends on Preferred Stock ($.75 a share) (15,000)
Net income 2,903,598
-----------------
Balance at May 3, 1998 27,032,439
Year ended May 2, 1999:
Common Stock issued under stock purchase plan
and stock option and warrant exercises 193,963
Tax benefit related to stock option exercises 17,947
Purchase of Common Stock for treasury (4,655,072)
Net income 2,066,667
-----------------
Balance at May 2, 1999 24,655,944
Year ended April 30, 2000:
Common Stock issued under stock purchase plan
and stock option and warrant exercises 300,175
Tax benefit related to stock option exercises 49,049
Issuance of warrants in connection with business acquisition 51,250
Sale of Common Stock and warrants, net of transaction fees of
$31,877 2,968,123
Net income 2,241,281
-----------------
Balance at April 30, 2000 $ 30,265,822
=================
</TABLE>
See accompanying notes.
F-7
<PAGE> 41
Novametrix Medical Systems Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
APRIL 30, 2000 MAY 2, 1999 MAY 3, 1998
----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,241,281 $ 2,066,667 $ 2,903,598
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Deferred income taxes 970,940 686,700 954,000
Cumulative effect of change in accounting principle 223,544
Depreciation 1,114,645 882,410 635,426
Amortization 840,999 501,500 524,092
Changes in operating assets and liabilities:
Accounts and notes receivable (2,619,566) (3,781,558) (1,384,299)
Inventories 671,082 (1,750,741) (1,038,119)
Prepaid expenses and other current assets (189,973) (217,730) (384,660)
Accounts payable 167,613 501,691 (174,908)
Accrued expenses 225,126 882,683 (338,268)
-----------------------------------------------
Net cash provided (used) by operating activities 3,645,691 (228,378) 1,696,862
INVESTING ACTIVITIES
Purchases of equipment (657,625) (1,699,674) (944,720)
Purchases of licenses, technology, patents and other (1,138,499) (1,091,135) (304,730)
Purchase of Children's Medical Ventures, Inc., less cash acquired (9,198,986)
-----------------------------------------------
Net cash used by investing activities (10,995,110) (2,790,809) (1,249,450)
FINANCING ACTIVITIES
Revolving line of credit, net (1,425,000) 3,200,000
Proceeds from term loans 9,600,000 3,000,000
Principal payments on term loans and capital lease obligation (4,080,016) (233,901) (3,631,873)
Proceeds from Common Stock issued under stock purchase plan
and stock option and warrant exercises 300,175 193,963 4,746,249
Purchase of Common Stock for treasury (4,655,072)
Proceeds from sale of Common Stock, net 2,968,123
Dividends on Preferred Stock (15,000)
-----------------------------------------------
Net cash provided by financing activities 7,363,282 1,504,990 1,099,376
-----------------------------------------------
Increase (decrease) in cash and cash equivalents 13,863 (1,514,197) 1,546,788
Cash and cash equivalents at beginning of year 269,399 1,783,596 236,808
-----------------------------------------------
Cash and cash equivalents at end of year $ 283,262 $ 269,399 $ 1,783,596
===============================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 42
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements
April 30, 2000
1. ACCOUNTING POLICIES
NATURE OF BUSINESS
Novametrix Medical Systems Inc. develops, manufactures and markets non-invasive
critical care monitors, sensors and accessories, and developmental care and baby
care products and services. The Company's current product offering and future
development plans utilize leading-edge technologies and developmental care
concepts. The Company markets its products domestically and internationally
directly through salespersons and outside distributors to its customers, most of
which are hospitals. The Company also markets its products to original equipment
manufacturers ("OEM's") which incorporate certain of the Company's products and
technologies into the manufacture of their own products.
BASIS OF PRESENTATION AND CHANGE IN ACCOUNTING PRINCIPLE
The consolidated financial statements include the accounts of Novametrix Medical
Systems Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany accounts and transactions are eliminated in
consolidation.
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 were reduced by $223,544
(net of income taxes of $105,456) or $0.03 per diluted share as a result of the
adoption of SOP 98-5. 1999 and 1998 pro forma disclosures are not presented as
the effects of the change in accounting principle would not have been
significant to those years.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and
assumptions used in the preparation of the financial statements are appropriate,
actual results could differ from these estimates.
F-9
<PAGE> 43
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION AND PRODUCT WARRANTY COSTS
Revenues from sales are generally recognized when products are shipped. The
Company generally warrants its products against defects for up to one year;
costs related thereto are recognized as incurred and are not material to the
Company's financial statements. The Company provides for the estimated costs to
repair products under multi-year agreements at the time of sale.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents. These investments are valued at cost,
which approximates fair value.
INTEREST RATE SWAPS
The Company may enter into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate debt. Such agreements involve the
exchange of amounts based on the London Interbank Offered Rate ("LIBOR") for
amounts based on a fixed interest rate over the life of the agreement, without
an exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment to interest expense. The related amount payable or
receivable from counter parties is included in accrued expenses. The fair value
of these agreements is not recognized in the financial statements.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, notes receivable and trade
receivables. The Company places its cash equivalents with high credit-quality
financial institutions and has established guidelines that seek to maintain
safety and liquidity. The Company's customer base consists of a large number of
diverse customers. The Company performs ongoing credit evaluations of its
customers and does not require collateral. The Company provides for potential
credit losses; such losses have not been significant and have been within
management's expectations.
F-10
<PAGE> 44
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Equipment, including assets of $175,480 purchased under a capital lease
obligation, are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization is computed over the estimated useful lives of the
assets using the straight-line method. Capital lease amortization is included in
depreciation expense.
Intangible assets (consisting primarily of goodwill, license, technology, patent
and other costs) are stated at cost, less accumulated amortization. Amortization
is computed by the straight-line method over periods ranging from 3 to 25 years.
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If such impairment indicators are present, the Company recognizes a
loss on the basis of whether these amounts are fully recoverable from projected
discounted cash flows of the related asset or product.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred and are included in
selling, general and administrative expenses. Advertising costs were $998,573 in
2000, $603,670 in 1999 and $494,330 in 1998.
DEFERRED INCOME TAXES
Deferred income taxes are provided on temporary differences between the tax and
financial reporting bases of assets and liabilities based on enacted tax rates
applicable to the periods in which the differences are expected to reverse.
EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) savings plan which covers all
employees who meet the eligibility requirements, as defined. Participants may
contribute a percentage of their compensation, as defined by the plan agreement.
Matching contributions to the plan are determined annually by the Company and
are equal to a stated percentage of the amount contributed by the participants.
The expense related thereto was not material for fiscal years 2000, 1999 and
1998.
F-11
<PAGE> 45
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The Company maintains an Employee Stock Ownership Plan ("ESOP") under which all
shares have previously been allocated to participants. The 112,814 shares held
by the ESOP in participant accounts are treated as outstanding for the purpose
of computing earnings per share. Expenses pertaining to the ESOP were not
material for fiscal years 2000, 1999 and 1998.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock compensation plans in accordance
with Accounting Principle Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees." Under APB No. 25, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock. As required by Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
pro forma disclosures of net earnings and earnings per share, as if the fair
value based method of accounting had been applied, are presented in Note 6.
2. ACQUISITION
On June 30, 1999, the Company acquired 100% of the capital stock of Children's
Medical Ventures, Inc. (ChMV), a privately owned developer and marketer of
neonatal and pediatric care products and services. The purchase price was
comprised of cash of $8.7 million 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 was financed with two term loans aggregating $9.6 million. The acquisition
was accounted for as a purchase; accordingly, the purchase price was allocated
to the underlying assets and liabilities based on 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 consolidated statements
of income do not include any revenues or expenses related to this acquisition
prior to the closing date.
F-12
<PAGE> 46
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITION (CONTINUED)
Following are the Company's unaudited proforma results for both fiscal year 2000
and 1999 assuming that the acquisition had taken place at the beginning of each
period (in thousands except share and per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
2000 1999
--------------------------
<S> <C> <C>
Net revenue $ 45,092 $ 39,793
Income before cumulative effect of a change in accounting principle 2,313 1,608
Net income 2,090 1,608
Per common share amounts:
Income before cumulative effect of a change in accounting principle:
Basic 0.29 0.19
Diluted 0.28 0.19
Net income:
Basic 0.26 0.19
Diluted 0.25 0.19
Weighted average common shares:
Basic 8,086,432 8,299,707
Diluted 8,307,334 8,602,126
</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 the periods presented above.
F-13
<PAGE> 47
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
3. NOTES RECEIVABLE
During fiscal 1999, the Company sold products in exchange for long-term
non-interest bearing notes receivable, generally payable over a period of eight
years. The Company has imputed interest on these notes based upon its estimated
incremental borrowing rate. In addition, the Company has notes receivable from
various officers and directors. These notes bear interest at a fixed rate
determined by the Applicable Federal Rate, as defined (6.31% at April 30, 2000),
and provide for quarterly interest payments until the third anniversary of the
note at which time the principal is due. Notes receivable consist of:
<TABLE>
<CAPTION>
APRIL 30, 2000 MAY 2, 1999
----------------------------------
<S> <C> <C>
Notes exchanged for product sales (net of unamortized
discount of $241,964 in 2000 and $318,679 in 1999) $1,226,079 $1,474,136
Officer and director notes receivable 532,554 272,100
Other 109,652 134,885
-------------------------------
1,868,285 1,881,121
Less current portion 260,722 380,003
-------------------------------
$1,607,563 $1,501,118
===============================
</TABLE>
4. DEBT AND CAPITAL LEASE OBLIGATION
Debt and capital lease obligation consist of:
<TABLE>
<CAPTION>
APRIL 30, 2000 MAY 2, 1999
------------------------------
<S> <C> <C>
Note payable to bank under revolving credit agreement $ 1,775,000 $ 3,200,000
Term loan(s) payable to bank(s) 8,360,000 2,800,000
Capital lease obligation 50,865 90,881
----------- -----------
10,185,865 6,090,881
Less current portion 4,335,264 3,836,810
----------- -----------
$ 5,850,601 $ 2,254,071
=========== ===========
</TABLE>
F-14
<PAGE> 48
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
The Company's revolving credit agreement, as amended April 28, 2000, limits
borrowing to a maximum of $8,000,000, bears interest at LIBOR plus 1.6% (7.89%
at April 30, 2000), and expires August 31, 2001. The Company is required to pay
an availability fee, as defined, equal to 0.125% of the unused available
principal amount under the revolving credit agreement.
The acquisition of ChMV (see Note 2) and related costs were financed with two
term loans, each in the amount of $4,800,000, aggregating $9,600,000. Under an
amended and restated agreement with the Company's primary lender, the Company
increased its borrowings by an additional $4,800,000 in the form of a five-year
term loan which is payable in monthly installments of $80,000 plus interest at
LIBOR plus 1.8% (8.09% at April 30, 2000) through June 2004. The Company also
entered into a $4,800,000 five-year term loan with another bank which is payable
in monthly installments of $80,000 plus interest at LIBOR plus 1.6% (7.89% at
April 30, 2000) through June 2004. Total unpaid principal relating to these term
loans is $6,160,000 at April 30, 2000.
The Company also has a term loan payable to its primary bank with an outstanding
principal balance of $2,200,000 at April 30, 2000. The term loan is due in
monthly installments of $50,000, plus interest at LIBOR plus 1.4% (7.69% at
April 30, 2000) through November 30, 2003. In fiscal 1999, the Company entered
into an interest rate swap agreement to hedge a notional amount equal to the
remaining principal balance of the term loan. The rate is fixed at 6.77% and the
agreement expires November 2003. The Company believes the interest rate swap
transaction agreement limits the risk of increasing interest rates. The interest
rate swap agreement had no material effect on interest expense in 2000 or 1999.
Under the terms of the term loans and revolving credit agreement (the
"Facilities"), the Company is required to maintain certain financial ratios and
minimum levels of working capital and net worth. Borrowings under the Facilities
are secured by the Company's business assets.
The capital lease obligation is at a fixed interest rate of 8.87% and is
collateralized by the leased property.
F-15
<PAGE> 49
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
4. DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
Aggregate annual maturities of debt and the capital lease obligation as of
April 30, 2000 follow:
<TABLE>
<CAPTION>
DEBT CAPITAL LEASE TOTAL
--------------------------------------------
<S> <C> <C> <C>
2001 $ 2,520,000 $ 42,994 $ 2,562,994
2002 4,295,000 10,748 4,305,748
2003 2,520,000 2,520,000
2004 800,000 800,000
----------- ----------- -----------
Total 10,135,000 53,742 10,188,742
Less amount representing interest on capital lease 2,877 2,877
----------- ----------- -----------
$10,135,000 $ 50,865 $10,185,865
=========== =========== ===========
</TABLE>
The Company paid interest under its bank debt agreements and capital lease
obligation of $963,940 in 2000, $172,768 in 1999 and $135,921 in 1998.
The carrying amounts of the financing arrangements approximate their fair
values.
5. CAPITAL STOCK
The Company has authorized 1,000,000 shares of $1.00 par value Preferred Stock
of which 50,000 shares are designated as Series A (none issued) and 120,000
shares are designated as Series B. The Series B shares have been fully issued
and converted to Common Stock. The Board of Directors of the Company is
authorized to establish, among other things, the rate of dividends payable,
redemption rights and voting rights prior to issuance.
At April 30, 2000 there were 8,650,949 preferred share purchase rights
outstanding. Each right entitles the registered holder to purchase one
one-hundredth of a share of Preferred Stock, Series A, for $25.00 upon the
occurrence of certain specified "takeover" events. The rights are redeemable and
exchangeable only in certain specified circumstances. As of April 30, 2000, no
takeover events had occurred and no rights were exercisable.
During fiscal 1999, the Company purchased 960,903 shares of its Common Stock for
$4,655,072 under its stock repurchase programs which have expired.
F-16
<PAGE> 50
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. CAPITAL STOCK (CONTINUED)
On March 16, 2000, the Company completed a $3,000,000 private equity placement
with GE Marquette Medical Systems Inc. Under the terms of the agreement, the
Company issued 250,000 units (the "Units") at $12 per Unit with each Unit
consisting of two shares of Common Stock and a five-year warrant to purchase one
share of Common Stock at $7.50 per share (A total of 500,000 shares of Common
Stock and warrants for an additional 250,000 shares of Common Stock).
6. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS
In fiscal 2000, the Board of Directors approved the 1999 Long-term Incentive
Plan (the "Incentive Plan") which provides for the granting of nonqualified
stock options to non-officer employees of the Company. The Company reserved
100,000 shares of its Common Stock for issuance under the Incentive Plan. The
Company also has a limited number of remaining issuable stock options from stock
option plans authorized during previous years.
Activity relating to the Company's stock option plans follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 758,453 $ 5.07 709,953 $ 5.94
Granted 225,000 4.41 65,000 5.03
Exercised (28,668) 2.06 (9,000) 2.83
Cancelled (12,502) 4.71 (7,500) 5.44
---------------------------------------------------------------------------
Outstanding at end of year 942,283 $ 5.01 758,453 $ 5.07
===========================================================================
Options exercisable at end of
year 589,597 $ 5.05 476,453 $ 5.01
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
1998
---------------------------------------
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------------------------------------
<S> <C> <C>
Outstanding at beginning
of year 457,618 $ 4.23
Granted 278,000 8.50
Exercised (20,665) 2.93
Cancelled (5,000) 4.38
----------------------------------
Outstanding at end of year 709,953 $ 5.94
==================================
Options exercisable at end of
year 343,619 $ 3.95
==================================
</TABLE>
Options outstanding as of April 30, 2000 had exercise prices as follows:
494,283 options ranging from $1.00 to $5.00 and 448,000 options ranging from
$5.50 to $6.31. The weighted average remaining contractual life of these
options is 6.9 years.
F-17
<PAGE> 51
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
During fiscal 1999, the Company repriced 250,000 options with an exercise price
of $9.125 and 50,000 options with an exercise price of $7.625 to $6.3125, the
fair value of the Company's Common Stock on the date of repricing.
At April 30, 2000, options for 82,003 shares have been authorized but not yet
granted under the Company's stock option plans.
The Company has an employee stock purchase plan expiring on December 31, 2002
for which 150,000 shares of Common Stock have been reserved. As of April 30,
2000, 122,734 shares of Common Stock had been issued under this plan.
The Company has redeemable Class B Warrants outstanding covering an aggregate of
566,785 shares. The warrants, each exercisable into one share of Common Stock at
an exercise price of $5.85, are scheduled to expire on December 8, 2000. They
are callable by the Company under certain circumstances and traded on the NASDAQ
Stock Market under the symbol NMTXZ. The Company's outstanding warrants also
include warrants issued in fiscal 2000 in connection with the private equity
placement and acquisition of ChMV as well as warrants previously granted to a
director and consultants to purchase shares of the Company's Common Stock. Data
relating to warrants outstanding at April 30, 2000 follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
FISCAL YEAR RANGE OF COVERED BY OUTSTANDING
WARRANTS GRANTED EXERCISE PRICES WARRANTS
---------------------------------------------------------------------------------------
<S> <C> <C>
1992 $.93 417
1993 $2.625 10,000
1995 $4.125 to $5.85 639,964
2000 $4.3625 to $7.50 275,000
---------------------
925,381
=====================
</TABLE>
The warrants were granted at prices which equaled or exceeded the market price
of the Company's Common Stock at the date of grant. The warrants expire at
various dates through March 2005, and are all currently exercisable. During
fiscal 2000, an aggregate of 163,812 warrants were exercised at prices ranging
from $.89 to $1.81 per share and 361 warrants expired.
At April 30, 2000, there were 1,976,933 shares of Common Stock reserved for the
issuance and exercise of options and warrants, and purchases through the
Company's employee stock purchase plan.
F-18
<PAGE> 52
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
If compensation costs for the Company's stock-based compensation plans had been
determined based on the fair value at the grant dates for 2000, 1999 and 1998
consistent with the method prescribed by SFAS No. 123, the Company's net income
and earnings per common share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income:
Basic $ 1,674,576 $ 1,576,060 $ 2,546,338
Diluted 1,674,576 1,576,060 2,561,338
Pro forma earnings per share:
Basic $ .21 $ .19 $ .31
Diluted .20 .18 .27
</TABLE>
Pro forma compensation cost relating to the stock options is recognized over the
vesting period which ranges from 36 to 60 months. The fair value of each stock
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for grants in
fiscal 2000, 1999 and 1998: dividend yield of 0%; expected volatility of .961%
in 2000, .892% in 1999 and .524% for 1998; risk free interest rate of 6.5% in
2000, 6% in 1999 and 5% in 1998; and expected life of ten years. The weighted
average fair value of stock options granted in fiscal 2000, 1999 and 1998 was
$4.01, $4.45 and $5.84, respectively.
F-19
<PAGE> 53
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
7. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Income before cumulative effect of a change
in accounting principle $ 2,464,825 $ 2,066,667 $ 2,903,598
Preferred stock dividends (15,000)
--------------------------------------------------
Income available to common shareholders before
cumulative effect of a change in accounting principle 2,464,825 2,066,667 2,888,598
Effect of dilutive securities:
Preferred Stock dividends 15,000
--------------------------------------------------
Income available to common shareholders before cumulative
effect of a change in accounting principle
and assumed conversion $ 2,464,825 $ 2,066,667 $ 2,903,598
--------------------------------------------------
DENOMINATOR
Denominator for basic earnings per share:
Weighted average shares outstanding 8,086,432 8,299,707 8,147,451
Effect of dilutive securities:
Employee stock options and warrants 220,902 296,455 1,045,661
Convertible Preferred Stock 180,892
==================================================
Dilutive potential common shares 220,902 296,455 1,226,553
==================================================
Denominator for diluted earnings per share 8,307,334 8,596,162 9,374,004
==================================================
Basic earnings per share $ .31 $ .25 $ .35
=================================================-
Diluted earnings per share $ .30 $ .24 $ .31
==================================================
</TABLE>
Certain options and warrants to purchase 1,342,964, 919,285 and 250,000 shares
of the Company's Common Stock outstanding in 2000, 1999 and 1998, respectively,
were not included in the computation of diluted earnings per share because their
exercise price was greater than the average market price of the common shares
and, therefore, their inclusion would have been antidilutive.
F-20
<PAGE> 54
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
8. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
Management believes that none of these legal proceedings will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
9. OPERATING LEASES
The Company has a noncancellable long-term operating lease for its main plant
and office facility which expires in 2008. The lease requires the Company to pay
for related property taxes and insurance, contains a renewal option for five
years, a purchase option upon commencement of the sixth year of the lease and
stipulates a general inflation escalation clause. In addition, the Company
leases other facilities and certain equipment under various noncancellable
long-term operating leases. Future minimum annual lease payments for these
long-term operating leases for the next five years and thereafter are:
<TABLE>
<S> <C>
2001 $ 611,491
2002 494,797
2003 458,848
2004 414,860
2005 408,425
Thereafter 1,327,381
----------------
$ 3,715,802
================
</TABLE>
Total rental expense under operating leases was $756,844 in 2000, $687,219 in
1999 and $702,438 in 1998.
F-21
<PAGE> 55
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES
The components of the Company's deferred income tax accounts follow:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Deferred income tax assets:
Tax credits $ 1,138,886 $ 1,079,585 $ 971,545
Net operating loss carryforwards 710,932 1,976,314 3,033,564
Inventories - valuation allowance and other 679,242 734,492 646,692
Pre-production costs 119,177 - -
Warranty accrual 187,993 - -
Other 253,036 190,058 163,096
---------------------------------------------------
Total deferred income tax assets 3,089,266 3,980,449 4,814,897
Valuation allowance for deferred income tax assets - (158,780) (328,428)
---------------------------------------------------
3,089,266 3,821,669 4,486,469
Less deferred income tax liabilities 134,139 104,181 102,803
---------------------------------------------------
Net deferred income tax assets $ 2,955,127 $ 3,717,488 $ 4,383,666
===================================================
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
2000 1999 1998
---------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $ 102,470 $ 78,000 $ 89,000
State 115,920 39,000 5,000
---------------------------------------------------
218,390 117,000 94,000
Deferred tax expense (benefit):
Federal 983,277 685,700 930,000
State (12,337) 1,000 24,000
---------------------------------------------------
970,940 686,700 954,000
---------------------------------------------------
Income tax expense $ 1,189,330 $ 803,700 $ 1,048,000
===================================================
</TABLE>
F-22
<PAGE> 56
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The provision for income taxes at the Company's tax rate differed from the
provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
2000 1999 1998
----------------------------------------------------
<S> <C> <C> <C>
Computed tax expense at expected statutory rate $ 1,242,413 $ 975,925 $ 1,343,543
Benefit of foreign sales corporation (88,627) (60,629) (113,000)
State taxes, net of federal effect 68,365 26,465 19,000
Goodwill amortization 87,921
Other permanent items--net effect 34,239 63,689 63,392
Tax credits 3,799 (32,102) (87,222)
Reduction in valuation allowance (158,780) (169,648) (177,713)
----------------------------------------------------
$ 1,189,330 $ 803,700 $ 1,048,000
====================================================
</TABLE>
At April 30, 2000, the Company had net operating loss carryovers for federal
income tax reporting purposes of approximately $2,091,000 of which $1,718,000
expires in 2006 and $373,000 expires in 2007. At April 30, 2000, the Company had
unused research and other tax credits of approximately $873,000 which expire in
varying amounts between 2001 and 2019 and AMT credits of $266,000 which do not
have expiration dates..
During 2000, 1999 and 1998, the Company reduced its valuation allowance due to
the increased likelihood that the Company would generate sufficient taxable
income to fully utilize the net deferred tax asset recorded at the end of each
reporting period.
Income taxes paid in 2000, 1999 and 1998 were not significant.
11. RECENT ACCOUNTING PRONOUNCEMENT
On December 3, 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB 101 explains how the SEC staff believes existing rules on
revenue recognition should be applied or analogized to for transactions not
addressed by existing rules. The Company has not quantified the impact, if any,
upon the adoption of SAB 101. The Company is not required to adopt SAB 101 until
the fourth quarter of its fiscal 2001.
F-23
<PAGE> 57
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
11. RECENT ACCOUNTING PRONOUNCEMENT (CONTINUED)
In June 1997, the Financial Accounting Standard Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
establishes the accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities measured at their fair value. Depending on the intended use of
the derivative, changes in fair value will be reported in the period of change
as either a component of earnings or a component of other comprehensive income.
The Company has not quantified the impact of adoption on its financial
statements. The Statement is effective for the Company's 2002 fiscal year.
12. REPORTABLE SEGMENTS
The Company is domiciled in the United States and operates in one industry
segment--the design, manufacture and marketing of non-invasive monitors, sensors
and accessories, and developmental care products for the critical care
marketplace. The Company's products are marketed domestically and
internationally with no one customer accounting for more than 10% of net sales.
The Company has earned revenue from sales to customers in the following
geographic locations:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
United States $29,742,578 $20,608,666 $18,565,126
Europe 5,679,667 4,484,675 5,075,086
Asia 3,184,791 3,234,864 2,892,071
Western Hemisphere (other than U.S.) 3,870,443 3,437,907 3,496,434
Other 1,204,744 1,098,561 1,532,427
--------------------------------------------------
$43,682,223 $32,864,673 $31,561,144
==================================================
</TABLE>
F-24
<PAGE> 58
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
13. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Revenues $ 7,684,741 $10,508,325 $12,167,218 $13,492,738
Gross profit 4,452,094 6,130,833 6,982,438 7,618,370
Research and product development expenses 972,191 1,040,494 1,060,985 1,131,487
Selling, general and administrative expenses 3,216,910 3,910,102 4,299,736 4,553,523
Income tax provision 23,100 265,000 391,000 510,230
Income before cumulative effect of change in
accounting principle 49,010 562,528 830,133 1,023,154
Net income (174,534) 562,528 830,133 1,023,154
Diluted earnings per share data:
Income before cumulative effect of change in
accounting principle $ 0.01 $ 0.07 $ 0.10 $ 0.12
Cumulative effect of change in accounting
principle $ (0.03) - - -
Net income $ (0.02) $ 0.07 $ 0.10 $ 0.12
1999
Revenues $ 7,027,885 $ 8,134,062 $ 8,087,894 $ 9,728,323
Gross profit 4,280,011 4,817,398 4,449,756 5,862,163
Research and product development expenses 912,146 1,066,771 1,058,077 920,766
Selling, general and administrative expenses 2,796,390 2,751,801 3,243,319 3,529,183
Income tax provision 155,600 270,500 11,200 366,400
Net income 400,085 695,572 28,698 942,312
Diluted earnings per share $ 0.04 $ 0.08 $ 0.00 $ 0.12
</TABLE>
F-25
<PAGE> 59
Novametrix Medical Systems Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
April 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) END OF PERIOD
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 2000:
Allowance for doubtful accounts
deducted from accounts receivable $250,000 $ 47,000 $ 50,000 (2) $ 47,000 $300,000
===================================================================================
Year ended May 2, 1999:
Allowance for doubtful accounts
deducted from accounts receivable $250,000 $ 12,000 $ 12,000 $250,000
============================= ====================================
Year ended May 3, 1998:
Allowance for doubtful accounts
deducted from accounts receivable $250,000 $ 29,000 $ 29,000 $250,000
============================= ====================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Increase in fiscal year 2000 related to Children's Medical Ventures, Inc.
acquisition.
F-26
<PAGE> 60
Index to Exhibits*
<TABLE>
<CAPTION>
Page
<S> <C>
3(a) Certificate of Incorporation of the Company, as amended --
(incorporated by reference to Exhibit 3(a) and 3(e) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994).
3(b) Certificate of Designation of Series A Preferred Stock of the --
Company filed with the Secretary of State of the State of
Delaware on March 17, 1989 (incorporated by reference to Exhibit
3(b) to the Company's Registration Statement on Form SB-2 dated
June 8, 1994).
3(c) Certificate of Designation of Series B Preferred Stock of the --
Company filed with the Secretary of State of the State of
Delaware on August 29, 1991 (incorporated by reference to Exhibit
1 to the Company's Current Report on Form 8-K dated August 29,
1992).
3(d) By-Laws of the Company, as amended to date (incorporated by --
reference to Exhibit 3(d) of the Company's Form 10-KSB for the
year ended April 28, 1996).
3(e) Amendment to By-Laws of the Company effective September 30, 1997 --
(incorporated by reference to Exhibit 3(e) of the Company's Form
10-QSB for the quarter ended November 2, 1997).
3(f) Amendment to Certificate of Designation of Series A Preferred --
Stock of the Company filed with the Secretary of State of the
State of Delaware on December 30, 1999 (incorporated by reference
to Exhibit 10(ss) of the Company's Current Report of Form 8-K
dated January 13, 2000)..
10(a) Employment Agreement dated as of June 1, 1988 between the Company --
and William J. Lacourciere, as amended (incorporated by reference
to Exhibit 10(a) to the Company's Registration Statement on Form
SB-2 dated June 8, 1994).
10(b) Amendment dated as of August 1, 1988 to the Employment Agreement --
between the Company and William J. Lacourciere (incorporated by
reference to Exhibit 10(b) to the Company's Registration
Statement on Form SB-2 dated June 8, 1994).
10(c) Warrant Certificate of the Company, the warrants evidenced --
thereby exercisable commencing on December 29, 1989, together
with Schedule of substantially identical warrants (incorporated
by reference to Exhibit 10(c) to the Company's Form 10-KSB for
the year ended April 28, 1996).
</TABLE>
--------
* Copies of exhibits filed with this Annual Report on Form 10-K or incorporated
by reference herein do not accompany copies hereof for distribution to
stockholders of the Company. The Company will furnish a copy of any of such
exhibits to any stockholder requesting the same for a nominal charge to cover
duplicating costs.
E-1
<PAGE> 61
Index to Exhibits
(Continued)
<TABLE>
<S> <C>
10(d) Warrant Certificate of the Company, the warrants evidenced --
thereby exercisable commencing on May 23, 1990 (incorporated by
reference to Exhibit 10(d) to the Company's Form 10-KSB for the
year ended April 28, 1996).
10(e) Warrant Certificate of the Company, the warrants evidenced --
thereby exercisable commencing on September 15, 1988, together
with Schedule of substantially identical warrants (incorporated
by reference to Exhibit 10(e) to the Company's Registration
Statement on Form SB-2 dated June 8, 1994).
10(f) First Amendment to Warrant Certificate of the Company dated as of --
September 19, 1989, together with Schedule of substantially
identical amendments (incorporated by reference to Exhibit 10(f)
to the Company's Form 10-KSB for the year ended April 28, 1996).
10(g) Warrant Certificate of the Company, the warrants evidenced --
thereby exercisable commencing on May 1, 1989, together with
Schedule of substantially identical warrants (incorporated by
reference to Exhibit 10(g) to the Company's Registration
Statement on Form SB-2 dated June 8, 1994).
10(h) First Amendment to Warrant Certificate of the Company dated as of --
September 19, 1989, together with Schedule of substantially
identical amendments (incorporated by reference to Exhibit 10(h)
to the Company's Form 10-KSB for the year ended April 28, 1996).
10(i) Warrant Certificate of the Company, the warrants evidenced --
thereby exercisable commencing on January 2, 1991 (incorporated
by reference to Exhibit 10(dd) to the Company's Registration
Statement on Form S-1 dated December 30, 1991).
10(j) Form of Warrant Certificate of the Company, the warrants --
evidenced thereby exercisable commencing on December 2, 1991
(incorporated by reference to Exhibit 10(ee) to the Company's
Registration Statement on Form S-1 dated December 30, 1991).
10(k) Rights Agreement dated as of March 14, 1989 between the Company --
and The Connecticut Bank and Trust Company, N.A., as Rights Agent
("CBT"), which includes the form of Certificate of Designation
setting forth the terms of the Series A Preferred Stock, $1.00
par value, as Exhibit A, the form of Right Certificate as Exhibit
B and the Summary of Rights to Purchase Preferred Shares as
Exhibit C (incorporated by reference to Exhibit 10(l) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994).
</TABLE>
E-2
<PAGE> 62
Index to Exhibits
(Continued)
<TABLE>
<S> <C>
10(l) Amendment to Rights Agreement dated as of October 30, 1990 among --
the Company, CBT and Mellon Bank, N.A. (incorporated by reference
to Exhibit 10(o) to the Company's Annual Report on Form 10-K for
the year ended April 28, 1991).
10(m) Amendment to Rights Agreement dated as of August 29, 1991 between --
the Company and Mellon Bank, N.A. (incorporated by reference to
Exhibit 10(p) to the Company's Registration Statement on Form S-1
dated December 30, 1991).
10(p) Securities Purchase Agreement dated as of August 29, 1991 among --
the Company, William W. Nicholson, Auric Partners Limited, a
Michigan limited partnership, and Union Trust Company
(incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K dated August 29, 1991).
10(q) Third Amended and Restated Loan and Security Agreement dated as --
of August 29, 1991 among the Company, NTC Technology Inc., a
Delaware corporation ("NTC"), and Union Trust Company
(incorporated by reference to Exhibit 3 to the Company's Current
Report on Form 8-K dated August 29, 1991).
10(r) First Amendment to Third Amended and Restated Loan and Security --
Agreement dated as of April 29, 1993 among the Company, NTC and
Union Trust Company (incorporated by reference to Exhibit 5(a) to
the Company's Current Report on Form 8-K dated April 28, 1993).
10(s) 1979 Stock Option Plan, as amended (incorporated by reference to --
Exhibit 10(ee) to the Company's Annual Report on Form 10-K for
the year ended May 2, 1993).
10(t) 1990 Stock Option Plan (incorporated by reference to Exhibit --
10(ff) to the Company's Annual Report on Form 10-K for the year
ended May 2, 1993).
10(u) 1992 Employee Stock Purchase Plan (incorporated by reference to --
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for
the year ended May 2, 1993) (incorporated by reference to Exhibit
10(y) to the Company's Registration Statement on Form SB-2 dated
June 8, 1994).
10(v) Form of Letter Agreement between the Company and Keane Securities --
Co., Inc. ("Keane") pursuant to which Keane will act as finder
for the Company (incorporated by reference to Exhibit 10(z) to
the Company's Registration Statement on Form SB-2 dated June 8,
1994).
</TABLE>
E-3
<PAGE> 63
Index to Exhibits
(Continued)
<TABLE>
<S> <C>
10(w) Fourth Amended and Restated Loan and Security Agreement dated as --
of June 16, 1994 among the Company, NTC and Union Trust Company
(incorporated by reference to Exhibit 10A to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
July 31, 1994).
10(x) Amendment to Securities Purchase Agreement dated as of June 16, --
1994 among the Company, William W. Nicholson, Auric Partners
Limited and Union Trust Company (incorporated by reference to
Exhibit 10B to the Company's Quarterly Report on Form 10-QSB for
the three month period ended July 31, 1994).
10(y) 1994 Stock Option Plan (incorporated by reference to Exhibit 4(i) --
to the Company's Registration Statement on Form S-8, dated August
3, 1994).
10(z) Form of Representative Warrant Agreement, certificate included --
(incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994).
10(aa) Form of Warrant Agreement, certificate included (incorporated by --
reference to Exhibit 4(b) to the Company's Registration Statement
on Form SB-2 dated June 8, 1994).
10(bb) Amendment No. 1 to Fourth Amended and Restated Loan and Security --
Agreement dated as of July 26, 1995 among the Company, NTC and
First Fidelity Bank, formerly Union Trust Company (incorporated
by reference to Exhibit 10(ff) to the Company's Annual Report on
Form 10-KSB for the year ended April 30, 1995).
10(cc) Amendment No. 3 to Rights Agreement dated as of November 28, 1995 --
between the Company and Mellon Bank, N.A. (incorporated by
reference to Exhibit 10(cc) to the Company's Form 10-KSB for the
year ended April 28, 1996).
10(dd) Lease dated January 4, 1996 between Nova Associates, L.L.C. and --
the Company (incorporated by reference to Exhibit 10(dd) to the
Company's Form 10-KSB for the year ended April 28, 1996).
10(ee) Amendment No. 2 to Fourth Amended and Restated Loan and Security --
Agreement dated as of October 25, 1996 among the Company, NTC and
First Union Bank of Connecticut, formerly First Fidelity Bank
(incorporated by reference to Exhibit 10(ee) to the Company's
Form 10-KSB for the year ended April 27, 1997).
10(ff) Amendment No. 3 to Fourth Amended and Restated Loan and Security --
Agreement dated as of April 25, 1997 among the Company, NTC and
First Union Bank of Connecticut (incorporated by reference to
Exhibit 10(ff) to the Company's Form 10-KSB for the year ended
April 27, 1997).
</TABLE>
E-4
<PAGE> 64
Index to Exhibits
(Continued)
<TABLE>
<S> <C>
10(gg) Restricted Stock Agreement between the Company and Joseph A. --
Vincent (incorporated by reference to Exhibit 10(gg) to the
Company's Form 10-KSB for the year ended April 27, 1997).
10(hh) Stockholders Agreement between the Company and the Charles F. --
Manning, Jr., M.D., Group dated as of September 30, 1997
(incorporated by reference to Exhibit 10(hh) of the Company's
Form 10-QSB for the quarter ended November 2, 1997).
10(ii) Amendment dated as of November 24, 1997 to Employment Agreement --
dated as of June 1, 1988 between the Company and William J.
Lacourciere (incorporated by reference to Exhibit 10(ii) of the
Company's Form 10-Q for the quarter ended February 1, 1998).
10(jj) Amendment No. 4 to Fourth Amended and Restated Loan and Security --
Agreement dated as of January 1, 1998 among the Company, NTC and
First Union Bank of Connecticut (incorporated by reference to
Exhibit 10(jj) of the Company's Form 10-K for the year ended May
3, 1998).
10(kk) 1997 Long Term Incentive Plan (incorporated by reference to --
Exhibit A of the Company's Proxy Statement for the Annual Meeting
held October 14, 1997).
10(ll) Form of Promissory Note under the Novametrix Medical Systems Inc. --
Director and Senior Officer Stock Retention Program (incorporated
by reference to Exhibit 10(ll) of the Company's Form 10-Q/A for
the quarter ended January 2, 1999).
10(mm) Stock Purchase Agreement dated as of June 30, 1999 by and among --
the Company, Children's Medical Ventures, Inc. ("ChMV") and the
Stockholders of ChMV (incorporated by reference to Exhibit 10(mm)
of the Company's Current Report of Form 8-K dated July 15, 1999).
10(nn) 1998 Loan Agreement dated as of August 1, 1998 among the Company, --
NTC and First Union National Bank (incorporated by reference to
Exhibit 10(nn) of the Company's Form 10-K for the year ended May
2, 1999).
10(oo) Amended and Restated 1998 Loan Agreement dated as of October 9, --
1998 among the Company, NTC and First Union National Bank
(incorporated by reference to Exhibit 10(oo) of the Company's
Form 10-K for the year ended May 2, 1999).
10(pp) Second Amended and Restated 1998 Loan Agreement dated as of --
December 11, 1998 among the Company, NTC and First Union National
Bank (incorporated by reference to Exhibit 10(pp) of the
Company's Form 10-K for the year ended May 2, 1999).
</TABLE>
E-5
<PAGE> 65
Index to Exhibits
(Continued)
<TABLE>
<S> <C>
10(qq) 1999 Amended and Restated Loan Agreement dated as of June 30, --
1999 among the Company, NTC, ChMV and First Union National Bank
(incorporated by reference to Exhibit 10(qq) of the Company's
Form 10-K for the year ended May 2, 1999).
10(rr) Loan Agreement dated as of June 30, 1999 among the Company, NTC, --
ChMV and Webster Bank (incorporated by reference to Exhibit
10(rr) of the Company's Form 10-K for the year ended May 2, 1999).
10(ss) Rights Agreement dated as of December 29, 1999 between the --
Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, which includes the form of Certificate of Designation
setting forth the terms of the Series A Preferred Stock, $1.00
par value, as Exhibit A, the form of Right Certificate as Exhibit
B and the Summary of Rights to Purchase Preferred Shares as
Exhibit C (incorporated by reference to Exhibit 10(ss) of the
Company's Current Report of Form 8-K dated January 13, 2000).
10(tt) Amendment No. 1 to 1999 Amended and Restated Loan Agreement dated E-8
as of April 28, 2000 among the Company, NTC, ChMV and First Union
National Bank.
10(uu) Amendment No. 1 to Loan Agreement dated as of April 28, 2000 E-17
among the Company, NTC, ChMV and Webster Bank
10(vv) Unit Purchase and Master Agreement dated as of March 16, 2000 by E-25
and between the Company and GE Marquette Medical
Systems, Inc.
10(ww) Employment Agreement dated as of May 22, 2000 by and between the E-48
Company and Thomas Patton
10(xx) Stock Option Agreement dated as of May 22, 2000 by and between E-63
the Company and Thomas Patton
21 Subsidiaries of the Company. E-74
23.1 Consent of Ernst & Young LLP, Independent Auditors. E-75
24 Power of Attorney (See "Power of Attorney" in Form 10-K). --
27 Financial Data Schedule. --
</TABLE>
E-6
