<PAGE> 1
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 March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number -0-16061
CRITICARE SYSTEMS, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1501563
- - -------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
20925 Crossroads Circle, Waukesha, Wisconsin 53186
- - -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (414) 798-8282
N/A
- - -------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ------
Number of shares outstanding of each class of the registrant's classes of
common stock as of May 10, 1995: Class A Common Stock 6,697,218 shares.
<PAGE> 2
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND JUNE 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1995 1994
-------------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,999,068 $ 3,452,369
Accounts receivable 8,659,516 9,344,293
Other receivables 424,769 240,420
Inventories 7,172,601 4,371,549
Prepaid expenses 159,856 162,976
- - -----------------------------------------------------------------------------------------
Total current assets 19,415,810 17,571,607
- - -----------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - NET 6,840,786 6,909,009
- - -----------------------------------------------------------------------------------------
INVESTMENTS 390,397 431,743
- - -----------------------------------------------------------------------------------------
OTHER ASSETS:
License and patents - net 117,429 180,894
Goodwill - net 56,378 77,978
- - -----------------------------------------------------------------------------------------
Total other assets 173,807 258,872
- - -----------------------------------------------------------------------------------------
TOTAL $26,820,800 $25,171,231
- - -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,501,959 $ 1,868,691
Accrued liabilities:
Compensation and commissions 768,765 924,599
Income taxes 164,770 55,719
Product warranties 404,000 281,000
Other 760,220 997,243
Current maturities of long-term debt 186,221 185,475
- - -----------------------------------------------------------------------------------------
Total current liabilities 5,785,935 4,312,727
- - -----------------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities 3,690,733 3,835,751
- - -----------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 267,889 267,889
Additional paid-in capital 10,884,910 10,884,910
Retained earnings 6,210,304 5,888,812
Cumulative translation adjustments (18,971) (18,858)
- - -----------------------------------------------------------------------------------------
Total stockholders' equity 17,344,132 17,022,753
- - -----------------------------------------------------------------------------------------
TOTAL $26,820,800 $25,171,231
- - -----------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 2 of 11
<PAGE> 3
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
NET SALES $21,224,716 $21,658,804
COST OF GOODS SOLD 10,561,680 10,861,017
- - -----------------------------------------------------------------------------------------------
GROSS PROFIT 10,663,036 10,797,787
- - -----------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Marketing 7,181,284 7,273,994
Research, development and engineering 1,368,513 1,836,593
Administrative 1,397,323 1,443,443
Restructuring costs 550,000
- - -----------------------------------------------------------------------------------------------
Total 9,947,120 11,104,030
- - -----------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 715,916 (306,243)
- - -----------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (279,801) (291,609)
Interest income 137,377 39,103
Equity in loss of investment (45,000) (45,000)
- - -----------------------------------------------------------------------------------------------
Total (187,424) (297,506)
- - -----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 528,492 (603,749)
- - -----------------------------------------------------------------------------------------------
INCOME TAX PROVISION (BENEFIT) 207,000
- - -----------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 321,492 $ (603,749)
- - -----------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE:
Primary $ 0.05 $ (0.09)
Fully diluted 0.05 (0.09)
- - -----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary 6,730,389 6,679,218
Fully diluted 6,730,389 6,679,218
- - -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 3 of 11
<PAGE> 4
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
NET SALES $ 7,227,302 $ 8,177,936
COST OF GOODS SOLD 3,509,791 4,084,723
- - ------------------------------------------------------------------------------------------------
GROSS PROFIT 3,717,511 4,093,213
- - ------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Marketing 2,585,037 2,557,115
Research, development and engineering 532,742 424,869
Administrative 451,345 447,778
- - ------------------------------------------------------------------------------------------------
Total 3,569,124 3,429,762
- - ------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 148,387 663,451
- - ------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (92,234) (96,169)
Interest income 46,784 14,059
Equity in loss of investment (15,000) (15,000)
- - ------------------------------------------------------------------------------------------------
Total (60,450) (97,110)
- - ------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 87,937 566,341
- - ------------------------------------------------------------------------------------------------
INCOME TAX PROVISION 35,000 252,000
- - ------------------------------------------------------------------------------------------------
NET INCOME $ 52,937 $ 314,341
- - ------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE:
Primary $ 0.01 $ 0.05
Fully diluted 0.01 0.05
- - ------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary 6,730,389 6,723,062
Fully diluted 6,730,389 6,723,062
- - ------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 4 of 11
<PAGE> 5
CRITICARE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 321,492 $ (603,749)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 428,454 504,064
Amortization 85,065 339,152
Equity in loss of investment 45,000 45,000
Changes in assets and liabilities:
Accounts receivable 684,777 (912,473)
Other receivables (188,003) (23,644)
Inventories (2,801,052) 477,364
Prepaid expenses 3,120 170,442
Accounts payable 1,623,655 (82,103)
Accrued liabilities (151,306) 322,446
- - -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,202 236,499
- - -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES-
Purchases of property, plant and equipment (360,231) (386,082)
- - -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (360,231) (386,082)
- - -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES-
Principal payments on long-term debt (144,272) (131,894)
- - -----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (144,272) (131,894)
- - -----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (453,301) (281,477)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,452,369 2,078,199
- - -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,999,068 $ 1,796,722
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 5 of 11
<PAGE> 6
CRITICARE SYSTEMS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Criticare
Systems, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of the Company,
include all adjustments necessary for a fair statement of results for each
period shown. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. The Company believes that the disclosures made are adequate
to prevent the financial information given from being misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest annual
report and previously issued Form 10-K.
2. Cash Equivalents
The Company considers all investments with purchased maturities of less than
one year to be cash equivalents.
3. Inventory Valuation
Inventory is stated at the lower of cost or market, with cost determined on the
first-in, first-out method. Components of inventory consisted of the following
at March 31, 1995 and June 30, 1994, respectively:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
- - -----------------------------------------------------------------------------------------
<S> <C> <C>
Component parts $ 2,782,331 $ 1,520,077
Work in process 1,314,884 615,177
Finished units 3,075,386 2,236,295
- - -----------------------------------------------------------------------------------------
Total inventories $ 7,172,601 $ 4,371,549
- - -----------------------------------------------------------------------------------------
</TABLE>
Page 6 of 11
<PAGE> 7
CRITICARE SYSTEMS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Land and building $ 4,525,000 $ 4,525,000
Machinery and equipment 1,573,672 1,518,975
Furniture and fixtures 839,274 811,914
Demonstration and loaner monitors 1,286,814 1,259,936
Production tooling 1,179,428 928,132
-------------------------------------------------------------------------------
Property, plant and equipment - cost 9,404,188 9,043,957
Less accumulated depreciation 2,563,402 2,134,948
-------------------------------------------------------------------------------
Property, plant and equipment - net $ 6,840,786 $ 6,909,009
-------------------------------------------------------------------------------
</TABLE>
5. Investments
Investments consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Intercare Technologies, Inc. $ 300,000 $ 300,000
Immtech International, Inc. 90,397 131,743
------------------------------------------------------------------------------
Total investments $ 390,397 $ 431,743
------------------------------------------------------------------------------
</TABLE>
Page 7 of 11
<PAGE> 8
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Nine Months Ended March 31, 1995 and 1994
Results of Operations
Net sales for the nine months ended March 31, 1995 decreased 2% to $21.2
million from $21.7 million for the same period in fiscal 1994. Sales increased
in the Alternate Care and International divisions, while sales in the Domestic
Hospital division decreased. Alternate Care sales increased due primarily to
sales of the Model 503S hand held oximeter and the Model 1100 vital signs
monitor, along with an increase in accessory sales. International sales
increased due primarily to sales of the POET TE+, a combination oximeter and
carbon dioxide monitor, the Company's blood pressure monitors and increased
accessory sales, partially offset by a decrease in the sales of vital signs and
gas monitors. Domestic Hospital sales decreased due primarily to a reduction
in demand for gas and vital signs monitors partially offset by sales of the
Maestro Central Station monitor, which was introduced in the second quarter of
1995, and increased accessory sales.
Gross profit decreased 1.2% to $10.6 million for the nine months ended March
31, 1995 compared to $10.8 million for the same period in fiscal 1994. The
gross profit percentage was 50.2% and 49.9% for the nine months ended March 31,
1995 and 1994, respectively. The improved gross profit margins are due to
decreased manufacturing spending.
Operating expenses decreased 10.4% to $9.9 million for the nine months ended
March 31, 1995 from $11.1 million for the same period in fiscal 1994.
Marketing expenses decreased 1.3% to $7.2 million from $7.3 million for the
nine months ended March 31, 1995 and 1994, respectively, due primarily to a
reduction in advertising expenses. Research, development and engineering
expenses for the nine months ended March 31, 1995 decreased approximately
$468,000 or 25.5% when compared with the same period in fiscal 1994. This
decrease is due primarily to the restructuring which occurred in the second
quarter of fiscal 1994. The restructuring eliminated certain middle management
and technical positions. Administrative expenses decreased 3.2% or
approximately $46,000 when compared with the same period in fiscal 1994 due
primarily to a reduction in consulting expenses.
Page 8 of 11
<PAGE> 9
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Nine Months Ended March 31, 1995 and 1994
Non-operating expenses were $187,424 and $297,506 for the nine months ended
March 31, 1995 and 1994, respectively. The decrease in non-operating expenses
is due to an increase in interest income which is a result of higher cash
balances on hand during the nine months ended March 31, 1995 when compared to
the same period in fiscal 1994.
Net income of $321,492 for the nine months ended March 31, 1995 represents an
improvement from the loss of $603,749 recorded for the nine months ended March
31, 1994. This increased profitability is due to a reduction in operating and
non-operating expenses as well as the effect of the prior year's restructuring
costs.
The proposed health care reform in the United States continues to provide
uncertainties as to possible changes in the health care industry. Also, the
devaluation of the peso in Mexico and the trade dispute in China provide
uncertainties regarding the level of future sales in these regions. It is not
possible at this time to determine the effect of these items on the future
operations of the Company.
Page 9 of 11
<PAGE> 10
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended March 31, 1995 and 1994
Results of Operations
Net sales for the three months ended March 31, 1995 decreased 11.6% to $7.2
million from $8.2 million for the same period in fiscal 1994. The reduction in
sales was attributable to a combination of certain domestic hospital purchasing
decisions being deferred to the fourth quarter and delays incurred in the
shipment of recently developed products. The Company had a backlog in excess
of $2,000,000 at the end of the quarter related primarily to recently developed
products not ready for shipment. The Company expects to ship these products in
the fourth quarter of fiscal 1995 and the first quarter of fiscal 1996.
Gross profit decreased 9.2% to $3.7 million for the three months ended March
31, 1995 compared to $4.1 million for the same period in fiscal 1994; however,
the gross profit percentage improved to 51.4% from 50.1% for the three months
ended March 31, 1995 and 1994, respectively. The improved gross profit margins
resulted from price decreases in raw materials and decreased manufacturing
spending.
Operating expenses increased 4.1% to $3.6 million for the three months ended
March 31, 1995 from $3.4 million for the same period in fiscal 1994. Marketing
expenses increased 1.1% or approximately $28,000 due primarily to an increase
in sales promotion expenses. Research, development and engineering expenses
for the three months ended March 31, 1995 increased approximately $108,000 or
25.4% when compared with the same period in fiscal 1994. This increase is due
primarily to payroll and development costs related to the Company's new blood
pressure, oximetry and ECG monitors. Administrative expenses for the three
months ended March 31, 1995 were consistent with those incurred in the same
period in fiscal 1994.
Non-operating expenses were $60,450 and $97,110 for the three months ended
March 31, 1995 and 1994, respectively. The decrease in non-operating expenses
is due to an increase in interest income which is a result of higher cash
balances on hand during the three months ended March 31, 1995 when compared
with the same period in fiscal 1994.
Net income of $52,937 for the three months ended March 31, 1995 represents a
decrease from the net income of $314,341 recorded for the three months ended
March 31, 1994. The decreased profitability is due to the reduced sales volume
and increased operating expenses.
Page 10 of 11
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) The registrant filed no reports on Form 8-K during the quarter
ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRITICARE SYSTEMS, INC.
(Registrant)
Date / / BY
- - --------------------------- ---------------------
Richard J. Osowski
Vice President - Finance
(Chief Accounting Officer and
Duly Authorized Officer)
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 2,999,068
<SECURITIES> 0
<RECEIVABLES> 8,659,516
<ALLOWANCES> 0
<INVENTORY> 7,172,601
<CURRENT-ASSETS> 19,415,810
<PP&E> 9,404,188
<DEPRECIATION> 2,563,402
<TOTAL-ASSETS> 26,820,800
<CURRENT-LIABILITIES> 5,785,935
<BONDS> 3,690,733
<COMMON> 267,889
0
0
<OTHER-SE> 17,076,243
<TOTAL-LIABILITY-AND-EQUITY> 26,820,800
<SALES> 21,224,716
<TOTAL-REVENUES> 21,224,716
<CGS> 10,561,680
<TOTAL-COSTS> 10,561,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,801
<INCOME-PRETAX> 528,492
<INCOME-TAX> 207,000
<INCOME-CONTINUING> 321,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321,492
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
