<PAGE> 1
U.S. Securities And Exchange Commission
Washington, D.C. 20549
--------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-15963
SAFETYTEK CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
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(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
49050 MILMONT DRIVE, FREMONT, CALIFORNIA 94538
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(Address of principal executive offices) (Zip Code)
TELEPHONE: (510) 226-9600
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(Registrant's telephone number)
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Indicate by check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
The number of shares outstanding of the issuer's Common Stock, par value $.0008
per share, at September 30, 1995 was 3,210,093 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAFETYTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1995
SEPTEMBER 30, (DERIVED FROM
1995 AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 147,700 321,600
Trade receivables, net 6,304,300 6,199,600
Inventories 5,002,200 5,082,400
Deferred taxes 519,500 519,500
Prepaid expenses and other current assets 484,400 456,500
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Total current assets 12,458,100 12,579,600
Property and equipment, net 2,580,300 2,516,600
Intangible and other assets 4,731,100 4,763,900
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$19,769,500 19,860,100
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 1,601,900 1,967,200
Accounts payable 1,428,800 1,343,500
Current portion of long-term debt and
bank borrowings 1,566,500 2,483,300
Income taxes payable 634,800 267,800
Other 70,000 90,300
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Total current liabilities 5,302,000 6,152,100
Long-term debt, excluding current portion 836,900 926,400
Deferred Income Taxes 165,500 165,500
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Total liabilities 6,304,400 7,244,000
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,435,400 12,406,500
Retained Earnings 1,027,100 207,000
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Total stockholders' equity 13,465,100 12,616,100
Commitments and contingencies
$19,769,500 19,860,100
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
SAFETYTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---- ----
<S> <C> <C>
Sales $ 7,842,000 7,587,400
Cost of goods sold 3,892,000 3,660,500
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Gross Profit 3,950,000 3,926,900
Operating expenses:
Selling, general
and administrative 2,184,500 2,398,900
Research and experimental 467,800 474,400
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Total operating expenses 2,652,300 2,873,300
Income from operations 1,297,700 1,053,600
Other income (expense):
Interest expense (59,000) (29,500)
Other, net 3,900 5,300
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Income before income taxes 1,242,600 1,029,400
Income tax expense 422,500 370,700
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Net income $ 820,100 658,700
=========== =========
Net income per common share
and common share equivalent $ .24 .20
=========== =========
Weighted average common shares
outstanding 3,460,332 3,358,085
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
SAFETYTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 820,100 658,700
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 132,100 124,300
Change in operating assets and liabilities:
Trade receivables (104,700) (538,900)
Inventories 80,200 (156,300)
Prepaid expenses and other current assets (27,900) (141,200)
Accrued expenses (365,300) 195,300
Accounts payable 85,300 351,200
Income taxes payable 367,000 185,000
Other current liabilities (20,300) 21,200
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Net cash provided by operating activities 966,500 699,300
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (163,000) (229,800)
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Net cash used by investing activities (163,000) (229,800)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 28,900 7,500
Bank borrowings 1,125,000 518,800
Principal payments under acquisition notes
payable, long term debt and other (2,131,300) (1,058,100)
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Net cash used in financing activities (977,400) (531,800)
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Net decrease in cash and cash equivalents (173,900) (62,300)
Cash and cash equivalents at beginning of period 321,600 215,700
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Cash and cash equivalents at end of period $ 147,700 153,400
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 5,000 378,800
=========== ==========
Interest $ 61,815 29,500
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
SAFETYTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of September 30, 1995; and the
related consolidated statements of operations for the three-month periods ended
September 30, 1995 and 1994; and the consolidated statements of cash flows for
the three-month periods ended September 30, 1995 and 1994 are unaudited. The
consolidated financial statements reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position and results of
operations as of the end of and for the periods indicated. Interim results are
not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's annual
financial statements and notes.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND 1994
Sales
Sales increased 3.36% for the three month period ended September 30,
1995 as compared to the same periods in fiscal 1995. The increase was primarily
the result of increased volume from the Company's gas detection business which
was attributable to strong demand for the "MicroMax" portable multi-gas monitor.
The increase in the Company's gas detection business offset a decline in sales
volume at the Company's patient safety monitoring and oxygen monitoring
businesses. Sales at the patient safety monitoring business were negatively
affected by the delay in receiving FDA approval for its new non-invasive blood
pressure monitor in the first quarter of fiscal 1996 as planned. The Company
believes that FDA approval will be forthcoming. In the first quarter of fiscal
1996, the Company's oxygen monitoring business experienced manufacturing yield
problems which resulted in lower sales volume and higher manufacturing costs.
Gross Profit
Gross profit margin decreased to 50.4% in the first quarter of fiscal
1996 from 51.8% in the first quarter of fiscal 1995. This decrease was
principally due to the manufacturing yield problems at the Company's oxygen
monitoring business.
Operating Expenses
Selling, general and administrative expenses for the three month period
ended September 30, 1995 decreased 8.9% from the previous fiscal period.
Selling, general and administrative expenses were 27.9% of sales in the first
three months of fiscal 1996 compared with 31.6% for the same periods of fiscal
1995. The decrease in these expenditures was largely attributable to lower sales
commission expenses due to the lower than anticipated sales at the Company's
patient safety monitoring business.
Research and experimental expenses remained stable at approximately
6.0% of sales for the three month period ended September 30, 1995 as the Company
continues its efforts in developing the next generation of its multi-parameter
vital signs monitor and other vital signs monitoring products.
Other Income and Expense
Interest expense increased to $59,000 in the first three months of
fiscal 1996 compared to $29,500 in the first three months of fiscal 1995. This
increase reflected the increased borrowings on the Company's revolving bank line
of credit.
Provision for Income Taxes
The effective tax rate for the three months ended September 30, 1995
was 34.0% compared with 36.0% for same period in fiscal 1995. This reduction in
the effective tax rate was principally due to the review and subsequent
beneficial changes in the Company's state income tax filing status in the
various state tax jurisdictions.
6
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1995 increased to $7,156,100 compared
with $6,427,500 at June 30, 1995. Cash and cash equivalents at September 30,
1995 were $147,700 compared with $321,600 at June 30, 1995. Net cash provided
from operating activities was $966,500 for the three months ended September 30,
1995 compared with $699,300 for the three months ended September 30, 1994 as net
income and depreciation along with an increase in income taxes payable and
accounts payable and a decrease in inventories more than offset increases in
trade receivables and a decrease in accrued expenses. Capital expenditures were
$163,000 for the three months ended September 30, 1995 compared to $229,800 for
the first three months of fiscal 1995.
In fiscal 1993, the Company purchased 80% of the outstanding common
stock of Invivo Research, Inc. The agreement provided for a contingent payment
resulting in an initial payment of $1,000,000 made on July 15, 1994 and a final
payment of $2,000,000 paid on July 15, 1995. In fiscal 1994, the Company entered
into an agreement to acquire the remaining 20% of the Invivo Research, Inc.
shares. The contingent purchase price for such shares is to be paid in one or
more installments. One-fifth of the price "vests" on each of January 1, 1996,
1997 and 1998 and two-fifths vest on January 1, 1999. The former Invivo
shareholders can make one election each year beginning in 1996 to be paid any
vested payment. The amount of any payment is based on the after tax profits of
Invivo for the calendar year preceding the year that the payment is made,
regardless of when the payment vested, subject to a minimum share price if
certain milestones are achieved. The former Invivo shareholders must, generally,
elect to receive a payment in any calendar year by giving notice to the Company
by March of that year and the payment so elected is to be made on June 1 of that
year. The payments are to be made in cash, but if the shareholders require that
more than one-fifth of the payments be made in any year, the Company can elect
to make the excess amount of the payment in the form of its shares.
Bank borrowings increased $1,125,000 in the first three months of
fiscal 1996 as the contingent payment of $2,000,000 was made on July 15, 1995 in
connection with the Invivo Research acquisition. The Company's revolving bank
line of credit and $406,250 acquisition related term loan are collateralized by
the Company's accounts receivable, inventory, and equipment. At September 30,
1995, $1,125,000 was outstanding on the $3,000,000 revolving line of credit.
The Company believes that its cash flow from operations and amounts
available from the bank line of credit will be adequate to meet its anticipated
cash needs for working capital and capital expenditures through the end of
fiscal 1996. The Company will continue to explore opportunities for the possible
acquisitions of technologies or businesses, which may require the Company to
seek additional financing.
7
<PAGE> 8
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
None.
ITEM 2: CHANGES IN SECURITIES:
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
None.
ITEM 5: OTHER INFORMATION:
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Statement of computation of net income per share
(b) Reports on Form 8-K:
None.
8
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SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SAFETYTEK CORPORATION
Date: November 13, 1995 By:/S/ John F. Glenn
-----------------
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
<PAGE> 10
EXHIBIT 11.1
SAFETYTEK CORPORATION STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---- ----
<S> <C> <C>
Net income $ 820,100 658,700
========== =========
Computation of weighted
common and common equivalent
shares outstanding:
Common Stock 3,203,535 3,180,835
Common Stock
equivalents 256,797 177,250
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Weighted common and common
equivalent shares used
in the calculation of
income per share 3,460,332 3,358,085
========== =========
Net income per common and
common equivalent share $ 0.24 0.20
========== =========
</TABLE>
10
<PAGE> 11
EXHIBIT EXHIBIT DESCRIPTION
NO.
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 148
<SECURITIES> 0
<RECEIVABLES> 6,541
<ALLOWANCES> 237
<INVENTORY> 5,002
<CURRENT-ASSETS> 12,458
<PP&E> 5,239
<DEPRECIATION> 2,659
<TOTAL-ASSETS> 19,770
<CURRENT-LIABILITIES> 5,302
<BONDS> 0
<COMMON> 3
0
0
<OTHER-SE> 13,463
<TOTAL-LIABILITY-AND-EQUITY> 19,770
<SALES> 7,842
<TOTAL-REVENUES> 7,842
<CGS> 3,892
<TOTAL-COSTS> 3,892
<OTHER-EXPENSES> 2,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 1,243
<INCOME-TAX> 433
<INCOME-CONTINUING> 820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 820
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
