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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [fee required] for the fiscal year ended June 30, 1995.
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [no fee required] for the transition period from _______
to ______.
Commission file number 0-16061
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Criticare Systems, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 39-1501563
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20925 Crossroads Circle, Waukesha, Wisconsin 53186
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-798-8282
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
NA NA
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Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, $.04 Par Value
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(Title of class)
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
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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 the Form 10-K. [ X ]
The aggregate market value of the voting common stock held by
nonaffiliates of the Registrant as of August 31, 1995 was $12,585,409.
On August 31, 1995, there were outstanding 6,712,218 shares of the
Registrant's $.04 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended June 30, 1995 are incorporated by reference into Part II of
this report.
Portions of the Proxy Statement for the Annual Meeting of the
Stockholders of the Registrant to be held November 10, 1995 are incorporated by
reference into Part III of this report.
PART I
Item 1. BUSINESS.
Criticare designs, manufactures and markets vital signs and gas
monitoring instruments and related noninvasive sensors used to monitor patients
in many healthcare settings. Since a patient's oxygen, anesthetic gas and
carbon dioxide levels can change dramatically within minutes, causing severe
side effects or death, continuous monitoring of these parameters is increasing.
The Company's monitoring equipment improves patient safety by delivering
accurate, comprehensive and instantaneous patient information to the clinician.
The Company's products also allow hospitals to contain costs primarily by
substituting cost-effective reusable pulse oximetry sensors for disposable
sensors, controlling the use of costly anesthetics and increasing personnel
productivity.
To meet the needs of end-users in a wide variety of patient settings,
the Company has developed a broad line of patient monitors which combine one or
more of its patented or other proprietary technologies, for monitoring oxygen
saturation, carbon dioxide and anesthetic agents, with standard monitoring
technologies that provide electrocardiogram ("ECG"), invasive and noninvasive
blood pressures, temperature, heart rate and respiration rate. In addition,
the Company's VitalView telemetry system allows one nurse to monitor up to
eight
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patients simultaneously from a convenient central location. This allows
hospitals to move out of the intensive care unit ("ICU") those patients that
require continuous monitoring, but do not need all of an ICU's extensive and
costly personnel and equipment resources.
The Company was incorporated under the laws of the State of Delaware
in October 1984.
Products
Criticare markets a broad range of vital signs and gas monitoring
products designed to address the needs of a variety of end-users in different
patient settings. Criticare's monitors display information graphically and
numerically. All Criticare monitors incorporate adjustable visual and audible
alarms to provide reliable patient-specific warnings of critical conditions,
and most of the Company's monitors record up to 60 hours of trend data.
Criticare monitors are available with printer capability to provide permanent
records of patient data.
Model 503, 503S, 504, 504P, 504US, 504USP and 5040 (PONI) Pulse
Oximeters . Criticare's complete line of pulse oximeters meet the needs of
virtually all clinical environments: adult, pediatric and neonatal intensive
care units, operating rooms, emergency rooms, nursing homes, physicians'
offices and ambulances. The line is designed to provide accuracy and
convenience at a competitive cost to the end-user.
Model 507S, 507SD, 507N, 507O and 507E Patient Monitors. The 507
series is comprised of small, compact, portable, full-featured vital signs
monitors configured to meet specific clinical needs. The 507S and 507SD are
well-suited to dental and physician offices. The 507N and 507O are ideal for
patient floor monitoring of noninvasive blood pressure and pulse oximetry. The
507E combines ECG, oxygen saturation and noninvasive blood pressure for a
complete vital signs monitor for physician office and hospital applications.
Combined with the VitalView central station, the 507E is an effective low-cost
monitoring system for the emergency room or the recovery room.
Model 602-3B, 602-6B, 602-11 and 602-13 Gas Monitors . The 602 series
provides monitoring of carbon dioxide, pulse oximetry and anesthetic agents
using Criticare's proprietary infrared technology. The 602 IQ series of
operating room monitors provides automatic identification and quantification of
all five approved anesthetic agents simultaneously.
Model 820 Maestro(TM) I Telemetry Monitors. The Maestro I Telemetry
system addresses the rapidly expanding telemetry market with a reliable,
inexpensive ECG telemetry system. The U.S. market for telemetry in 1996 is
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expected to reach $400 million. The Maestro I system provides a waterproof ECG
transmitter capable of five ECG lead configurations at a price approximately
30% lower than Criticare's material competitors. The ability to link
Criticare's 507E and Scholar monitors to this versatile central station is
expected to expand the market into numerous hospital departments.
Model 1100 Anesthesia Monitor . The Model 1100 monitor provides
patient monitoring for a wide variety of cardio-pulmonary parameters in an
integrated system. The Model 1100 is able to monitor two ECG waveforms,
non-invasive blood pressure, three types of invasive blood pressure,
respiration rate, heart rate, temperature, oxygen saturation, inspired/expired
oxygen, carbon dioxide and the range of anesthetic gases, including recently
developed anesthetic agents such as desflurane and sevoflurane. The Model 1100
uses the Company's proprietary disposable respiratory secretion filter system
and is designed to accommodate low-flow anesthesia situations.
Pulse Oximetry Sensors. Criticare has designed proprietary,
noninvasive sensors that can be used on any patient, from a premature infant to
a full-grown adult. Criticare's line of reusable pulse oximetry sensors offers
users significant cost savings compared to disposables. Criticare's reusable
sensors generally last longer than the one-year warranty period and are easily
and inexpensively cleaned between uses. Criticare's reusable sensors include a
finger sensor for routine applications and a multisite sensor for increased
placement flexibility. The multisite sensor is fully immersible, allowing for
sterilization between patients. The Company recently introduced the "Shell"
sensor, the first reusable sensor with a removable hard cover. The cover can
be inexpensively replaced if it becomes damaged, saving hundreds of dollars
over buying a new sensor. The Shell sensor is also the first reusable sensor
on the market that can be fully dismantled and immersed for improved cleaning
and sterilization between patients if required. The Company also sells a range
of disposable sensors designed for single use in cases where the facility would
prefer to use a patient charge disposable product.
Water Chek/Chek-Mate Filter System. The Company's patented,
disposable Water Chek system separates a patient's respiratory secretions from
a breath sample before it enters the gas monitor(s) for analysis. The
Company's proprietary, disposable Chek-Mate filter enhances the removal of
moisture from the sample, while preventing cross-contamination. This system
allows the monitor to operate effectively regardless of humidity or patient
condition. The self-sealing feature also protects the healthcare provider from
potential contamination.
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Products Under Development
Fetal Oxygen Monitor. The Company is in the active stage of
developing a fetal oxygen monitor designed to monitor the blood oxygen
saturation of a fetus during labor and delivery. The Company's potential
introduction of this product will depend to a large extent on the need for
clinical testing, engineering requirements and, in particular, the FDA approval
process. Although there were over 4 million births in the United States in
1990, it is likely that a fetal oxygen monitor would, at least initially, be
used only during deliveries where some unusual circumstances or danger were
perceived by the physician. No assurance can be given that such product will
be successfully developed and marketed by the Company or, if developed and
marketed, will be clinically or commercially accepted.
Scholar(TM). The Scholar series specifically addresses the needs of
small hospitals with broad clinical needs (the monitoring of ECG, blood oxygen
saturation, noninvasive blood pressure, temperature and invasive blood
pressure) but whose budgets are small. Scholar offers all of the primary
features a hospital needs with the capability of adding more features if
desired.
Vital Signs(TM) . The hand-held Vital Signs monitor measures heart
rate, oxygen saturation, noninvasive blood pressure and temperature using a
hand-held monitor weighing less than two pounds. These features make the Vital
Signs monitor well-suited for use on nursing floors and in physicians' offices,
ambulances and home healthcare organizations.
VitalView(TM). The VitalView central station makes it possible for one
nurse or technician to monitor numerous patients simultaneously. The VitalView
can receive, display and store data from a wide variety of Criticare monitors
such as the Scholar, 507E and MPT.
MPT(TM) . The Company believes the MPT (Multiple Parameter Telemetry)
is the first device of its kind. In today's healthcare environment, hospitals
need to move patients from expensive critical care departments as quickly as
possible to less expensive general nursing floors. MPT, because of its complete
monitoring capability and its lower cost, allows the patient to be ambulatory
while still being monitored for all vital signs. Home health applications where
the patient is monitored from the hospital while he or she is at home, reduces
hospital lengths of stay even more.
Marketing and Sales
Domestic Sales. In fiscal 1989, the Company reduced its reliance on
third party distributors to sell its products to domestic hospitals and began
the transition
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to a direct sales effort. The Company had determined that marketing its more
advanced and expensive multiparameter monitors, such as the Model 1100 vital
signs monitor and the Model 602 POET gas monitors, required a well-trained,
more focused and dedicated sales force. The Company believes its change to a
direct sales force has allowed it to exercise better control over the pricing
of its products and maintain a better understanding of the needs of the
domestic hospital market. The Company is focusing its direct sales efforts on
hospitals with over 100 beds, where the Company believes its products most
effectively address cost containment issues. Such hospitals comprise over half
of the United States' 7,500 hospitals.
As of August 31, 1995, the Company's direct sales force included nine
sales people, three regional managers and one executive manager. The Company
has augmented its direct sales effort by the appointment of nine key regional
specialty dealers employing approximately 30 sales people to improve specific
market penetration while adhering to prudent cost of sale guidelines. This
strategy will be continued until specific market share targets are achieved and
demand increases for the new products.
The Company's alternate care division markets the Company's products,
primarily the Model 503, Model 504, Model 507 and POET TE monitors, to domestic
alternate care providers such as free-standing surgery centers, oral and
plastic surgery suites, other out-patient clinics, home care services, extended
care facilities and medical transport vehicles. As of August 31, 1995, the
Company served this market through 60 independent dealers and distributors
employing approximately 650 sales people. The Company also sells monitors to
third party rental and leasing companies. The Company does not lease products
directly.
International Sales. One of the Company's principal marketing
strategies has been to target international markets, particularly Western
Europe, Latin America and the Pacific Rim countries. During fiscal 1995,
Criticare sold its products principally to hospitals in over 75 countries
through over 60 independent dealers. The Company's wholly owned subsidiary,
Criticare International GmbH Marketing Services ("Criticare International"),
coordinates international sales and distribution. Criticare believes demand
for the Company's products in international markets is primarily driven by cost
containment concerns, and increased interest in using quality patient
monitoring for improved patient management.
In fiscal 1995, 49.1% of Criticare's net sales, or $14.1 million, was
attributable to international sales, of which approximately 42.0% was from
sales in Western Europe, 28.5% was from sales to Pacific Rim countries and
29.5% was from sales to Canada and South America. In fiscal 1994, 46.5% of
Criticare's net sales, or $14.0 million, was attributable to international
sales. In fiscal 1993,
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49.8% or $14.6 million, of Criticare's net sales was attributable to exports.
There are no material identifiable assets of the Company located in foreign
markets. The Company sells its products in United States dollars and is not
subject to significant currency risks; however, an increase in the value of the
United States dollar relative to foreign currencies could make the Company's
products less price competitive in those markets.
Clinical Support. At August 31, 1995, Criticare employed two clinical
support specialists to provide customer training and education, primarily to
domestic hospitals. The clinical support staff also assists in the periodic
training and education of the direct sales force. In addition, the direct
sales force maintains contact with end-users and provides additional training
and updates. Clinical support in foreign markets is provided by Criticare
International sales coordinators.
Warranty and Service. Criticare believes that customer service is a
key element of its marketing program. Criticare's monitors are warranted
against defects for one year and its reusable sensors for six months. If a
problem develops with a Criticare product while under warranty, the Company
typically provides a replacement unit until the product can be repaired at the
Company's facility. At August 31, 1995, the Company had a customer service
staff of 14 people at its Waukesha, Wisconsin facility. The Company also
maintains product repair facilities in Bad Homburg, Germany and Kuala Lumpur,
Malaysia for its international customers. The Company offers extended
warranties and service contracts on all of its monitors.
Manufacturing
The Company continually strives to implement manufacturing
efficiencies while maintaining product quality and reliability. The Company's
oximeters and sensors are assembled from off-the-shelf components and other
parts produced to the Company's specifications, such as printed circuit board
assemblies, custom transformers and sensor cable/connector subassemblies.
However, Criticare produces certain important components in-house. All
electronic components are subjected to a 24-hour high-temperature burn-in to
eliminate early component failure. Some subassembly is performed by
subcontractors, but final assembly and quality control are performed at
Criticare's facility. Criticare maintains test and inspection procedures to
minimize errors and enhance the operating reliability of its products. Final
test procedures on fully assembled units include an operational test and a
continuous 72-hour burn-in procedure.
Certain of Criticare's products incorporate components currently
purchased from single sources. While the Company believes these components are
available from alternate sources on reasonable terms, an interruption in the
delivery of these
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or other components could have an adverse effect on the Company. In order to
reduce the risk of supply interruption, the Company maintains inventories of
certain components.
The ISO 9000 series of quality management and assurance standards was
developed by the International Organization for Standardization (ISO) and
published in 1987. In 1993 the EC (European Community) was formed with the
signing of the Maastricht Treaty by 12 European countries. One of the many
standards adopted by this group is the ISO 9000 international quality assurance
and quality management series under the designation EN2 9000. Based on this
action by the EC and specific requirements from European customers, the Company
believes ISO 9000 registration will be required to compete in EC and other
international markets as an indication of compliance with international quality
management and assurance standards. In July 1994 the Food and Drug
Administration (FDA) announced its intention of harmonizing the ISO 9000
standards with its Medical Device Good Manufacturing Practices (GMP). The
Company has achieved certification under ISO's standards 9001 and 9002. See
"Regulation."
Research, Development and Engineering
Criticare has focused its research, development and engineering
expenditures on products designed to meet identified market demands. The
Company seeks to apply its expertise in gas monitoring and related sensor
technology to develop new products and adapt existing products for new markets.
At August 31, 1995, the Company had an in-house research, development and
engineering staff of 22 people. The Company's research, development and
engineering expenditures were $1.9 million in fiscal 1995, $2.4 million in
fiscal 1994 and $2.6 million in fiscal 1993.
Competition
The markets for the Company's products are highly competitive. Many
of Criticare's competitors, including its principal competitors described
below, have greater financial resources, more established brand identities and
reputations, longer histories in the medical equipment industry and larger and
more experienced sales forces than Criticare. In these respects, such
competitors have a competitive advantage over the Company. The Company
competes primarily on the basis of product features, the quality and value of
its products (i.e., their relative price compared to performance features
provided) and the effectiveness of its sales and marketing efforts. The
Company believes that its principal competitive advantages are provided by its
focus on cost containment and its patented and other proprietary technology and
software for noninvasive, continuous monitoring of oxygen, specific anesthetic
gases, carbon dioxide and
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blood pressure, its cost-efficient manufacturing, the efficiency and speed of
its research and development efforts and its established international
presence.
The principal competing manufacturers of pulse oximeters are Nellcor
Puritan Bennett and Ohmeda, a division of The BOC Group, Inc.. The Company
estimates that Nellcor has captured a majority, and that Ohmeda and the Company
have each captured significant portions of the worldwide pulse oximeter market.
In addition, there are approximately 30 other companies which compete in the
market for pulse oximeters. The Company also indirectly competes with
manufacturers of numerous other medical equipment products for limited customer
funds.
The Company believes that the worldwide anesthetic agent and carbon
dioxide monitor markets are comparatively fragmented, with no dominant
competitor. The Company's principal competitors in the domestic gas monitor
market include Datex Medical Instrumentation, Inc., a United States subsidiary
of Instrumentarium OY, a Finnish company, Ohmeda and Datascope Corp. The
market for vital signs monitors includes competitors such as Hewlett-Packard
Company, Siemens A.G., Datex and SpaceLabs, Inc., a subsidiary of Westmark
International Incorporated.
The Company believes that its principal competitors in Western Europe
include Datex and Ohmeda and that the Company has a significant share of this
market. In the Pacific Rim countries, the Company believes that Ohmeda is the
leading competitor and that Datex and the Company also have significant market
shares.
Regulation
As a manufacturer of medical diagnostic equipment, the Company is
regulated by the FDA and similar foreign governmental agencies. In producing
its products, the Company must comply with a variety of regulations, including
the good manufacturing practices regulations of the FDA. In addition, it is
subject to periodic inspections by this agency. If the FDA believes that its
legal requirements have not been fulfilled, it has extensive enforcement
powers, including the ability to ban or recall products from the market and to
prohibit the operation of manufacturing facilities. The Company believes its
products comply with applicable FDA regulations in all material respects. In
addition, the Company received ISO 9002 certification on April 29, 1993 and ISO
9001 certification on July 8, 1994.
Under the Federal Food, Drug and Cosmetic Act, as amended, all medical
devices are classified as Class I, Class II or Class III, depending upon the
level of regulatory control to which they will be subject. Class III devices,
which are the
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most highly controlled devices, are subject to premarket approval by the FDA
prior to commercial distribution in the United States.
The Company's current products have not been subject to the FDA's
comprehensive premarket approval requirements, but are generally subject to
premarket notification requirements. If a new device is substantially
equivalent to a device that did not require premarket approval, premarket
review is satisfied through a procedure known as a "510(k) submission," under
which the applicant provides product information supporting its claim of
substantial equivalence. The FDA may also require that it be provided with
clinical trial results showing the device's safety and efficacy.
The Company believes that, with the possible exception of the fetal
oxygen monitor, the products it is currently developing generally will be
eligible for the 510(k) submission procedure and, therefore, will not be
subject to lengthy premarket approval procedures. However, these products are
still being developed and there can be no assurance that the FDA will determine
that the products may be marketed without premarket approval.
Criticare seeks, where appropriate, to comply with the safety
standards of Underwriters' Laboratories and the Canadian Standards Association
and the standards of the European Community. To date, the Company has not
experienced significant regulatory expense or delay in the foreign markets in
which it sells its products. Industry and professional groups such as the
American Society of Anesthesiologists, to the extent they have the power to
mandate certain practices or procedures as part of their profession's standard
of care, are also a source of indirect regulation of the Company's business.
Patents and Trademarks
The Company believes one of its principal competitive advantages is
provided by its patented and other proprietary technology including its sensor
technology, infrared specific anesthetic gas monitoring technology, UltraSync
signal processing software and disposable respiratory secretion filter system.
None of the Company's U.S. patents expire before 2004. Criticare also has been
granted three foreign patents and has three foreign patent applications pending
on its respiratory secretion filter system. There is no assurance that any
patents held or secured by the Company will provide any protection or
commercial or competitive benefit to the Company. There is also no assurance
that the Company's products will not infringe upon patents held by others. The
Company is the owner of a United States trademark registrations for "POET,"
"Scholar," "Vital View" and "MPT."
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The Company also relies upon trade secret protection for certain of
its proprietary technology. Although the Company requires its employees having
access to its proprietary information to sign confidentiality agreements, no
assurance can be given that such agreements can be effectively enforced or that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to or disclose the
Company's trade secrets.
Employees
At August 31, 1995, Criticare had 112 employees in the United States,
including 29 in manufacturing and operations, 11 in quality control, 38 in
marketing and sales, 12 in administration and 22 in research, development and
engineering. At August 31, 1995, Criticare International had 23 employees.
Many of the Company's technical employees are highly skilled. The
Company believes that its continued success depends in part on its ability to
continue to attract qualified management, marketing and technical personnel.
None of the Company's employees are subject to a collective bargaining
agreement. The Company believes that its relations with its employees are
good.
Backlog
Criticare's backlog on June 30, 1995 and 1994 was approximately
$899,000 and $865,000, respectively. The backlog at these dates consisted
primarily of products for which the sales order specified a delayed delivery
date. Criticare generally delivers its products out of inventory when
specified by the customer. The Company does not believe that its backlog at
any date is indicative of its future sales.
Item 2. PROPERTIES.
In November 1992, the Company purchased a new 60,000 square foot
facility for approximately $4.5 million. The Company's mortgage calls for
monthly installments of principal and interest of approximately $35,000 and a
final "balloon" payment of approximately $2.7 million in December 2003. The
Company believes this facility will be adequate for the foreseeable future.
Item 3. LEGAL PROCEEDINGS.
From time to time the Company receives notices from competitors of
potential patent infringement. Based on the advice of its patent counsel and
other considerations, the Company does not currently believe that any of such
claims which it has received, either individually or in the aggregate, will
have a material
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adverse effect on the Company's results of operations or financial condition.
However, there can be no assurance that the Company will not be sued for patent
infringement or that if sued, the outcome of such suits will not have an
adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1995.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Incorporated herein by reference to the Company's 1995 Annual Report
to Stockholders, page 23.
Item 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the Company's 1995 Annual Report
to Stockholders, page 2.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Incorporated herein by reference to the Company's 1995 Annual Report
to Stockholders, pages 7 through 9.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Balance Sheets for the Company at June 30, 1995 and 1994
and Consolidated Statements of Income, Stockholders' Equity and Cash Flows for
the years ended June 30, 1995, 1994 and 1993, and notes thereto, are
incorporated herein by reference to the Company's 1995 Annual Report to
Stockholders, pages 10 through 22.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not changed accountants during the 24 months prior to
June 30, 1995. During that period, there were no disagreements with the
accountants regarding accounting and financial disclosure.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the executive officers and directors of the
Company is incorporated herein by reference to the discussions under "Nominee
for Election as Director," "Other Directors," "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" and "Executive Officers" in the Company's
Proxy Statement for the 1995 Annual Meeting of Stockholders (the "Criticare
Proxy Statement").
Item 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the discussion under "Executive
Compensation" in the Criticare Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to the discussion under "Security
Ownership" in the Criticare Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the discussion under "Certain
Transactions" in the Criticare Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. The following consolidated financial
statements of the Company, included in the annual report of the Company to its
Stockholders for the fiscal year ended June 30, 1995, are incorporated by
reference in Item 8.
Consolidated Balance Sheets - as of June 30, 1995 and 1994.
Consolidated Statements of Income - for the years ended June
30, 1995, 1994 and 1993.
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Consolidated Statements of Stockholders' Equity - for the
years ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows - for the years ended
June 30, 1995, 1994 and 1993.
Notes to consolidated financial statements.
2. Financial Statement Schedules:
Independent Auditors' Report.
Financial Statement Schedule for the years ending June 30,
1995, 1994 and 1993:
Schedule
Number Description Page
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VIII Valuation and Qualifying Accounts 20
and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or the required
information is shown in the financial statements or notes thereto, and
therefore have been omitted.
3. Exhibits:
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the Registration Statement filed on Form S-1,
Registration No. 33-13050).
3.2 By-Laws of the Company (incorporated by reference to
the Registration Statement filed on Form S-1, Registration No. 33-13050).
4.1 Specimen Common Stock certificate (incorporated by
reference to the Registration Statement filed on Form S-1, Registration No.
33-13050).
10.1 Employment Agreement of Gerhard J. Von der Ruhr
(incorporated by reference to the Registration Statement filed on Form S-1 by
the Company, Registration No. 33-13050).
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10.2 Employment Agreement of N.C. Joseph Lai (incorporated
by reference to the Registration Statement filed on Form S-1, Registration No.
33-13050).
10.3 Blatz House Offices Limited Partnership Agreement
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1987).
10.4 Option Agreement dated March 12, 1991 between the
Company and American Healthcare Systems (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1991).
10.5 1992 Employee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-60644).
10.6 1992 Nonemployee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-60214).
10.7 1987 Employee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-33497).
10.8 1987 Nonemployee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-40038).
10.9 Form of Executive Office and Director Indemnity
Agreement (incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-13050).
10.10 Employment Agreement of Richard J. Osowski
(incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994).
10.11 Revised Option Agreement between the Company and AmHS
Purchasing Partners, L.P. dated as of July 1, 1993 (incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended June 30, 1994).
11.1 Statement regarding computation of per share earnings.
13.1 Annual Report to Stockholders for the Year Ended June
30, 1995.
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21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K for the three months
ended June 30, 1995.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.
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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.
CRITICARE SYSTEMS, INC.
By /s/ Richard J. Osowski
----------------------
Richard J. Osowski,
Senior Vice President-Finance
Date: September 28, 1995
17
<PAGE> 18
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gerhard J. Von der Ruhr and Richard J. Osowski, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report
on Form 10-K and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each them full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Gerhard J. Von der Ruhr Chairman of the Board, President and September 28, 1995
- --------------------------- Director
Gerhard J. Von der Ruhr
/s/ N.C. Joseph Lai Vice Chairman of the Board, September 28, 1995
- ------------------------------- Vice President and Director
N.C. Joseph Lai
/s/ Richard J. Osowski Senior Vice President-Finance (Principal September 28, 1995
- ----------------------------- Financial and Accounting Officer)
Richard J. Osowski
/s/ Karsten Houm Director September 28, 1995
- ------------------------------
Karsten Houm
/s/ Milton Datsopoulos Director September 28, 1995
- ------------------------------
Milton Datsopoulos
</TABLE>
18
<PAGE> 19
DELOITTE & TOUCHE LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4496
Telephone (414)271-3000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Criticare Systems, Inc.:
We have audited the consolidated financial statements of Criticare Systems,
Inc. and subsidiaries as of June 30, 1995 and 1994, and for each of the three
years in the period ended June 30, 1995, and have issued our report thereon
dated August 1, 1995; such financial statements and report are included in your
1995 Annual Report to Stockholders and are incorporated herein by reference.
Our audits also included the consolidated financial statement schedule of
Criticare Systems, Inc. listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
August 1, 1995
19
<PAGE> 20
SCHEDULE VIII
CRITICARE SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1993:
Allowance for doubtful accounts $241,000 $32,063 $42,063 $231,000
Reserve for sales returns and allowances
$162,000 $519,393 $573,393 $108,000
YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts $231,000 $45,706 $1,706 $275,000
Reserve for sales returns and allowances $108,000 $724,687 $628,687 $204,000
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $275,000 $36,878 $41,878 $270,000
Reserve for sales returns and allowances $204,000 $1,172,464 $1,007,464 $369,000
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Number
------ ------
<S> <C> <C>
3.1 Restated Certificate of (1)
Incorporation of the Company
3.2 By-Laws of the Company (1)
4.1 Specimen Common Stock (1)
certificate
10.1 Employment Agreement of (1)
Gerhard J. Von der Ruhr
10.2 Employment Agreement of (1)
N.C. Joseph Lai
10.3 Blatz House Offices Limited (1)
Partnership
10.4 Option Agreement dated March 12, (1)
1991 between the Company and
American Healthcare Systems
10.5 1992 Employee Stock Option Plan (1)
10.6 1992 Nonemployee Stock Option Plan (1)
10.7 1987 Employee Stock Option Plan (1)
10.8 1987 Nonemployee Stock Option Plan (1)
10.9 Form of Executive Officer and (1)
Director Indemnity Agreement
10.10 Employment Agreement of Richard J. Osowski (1)
10.11 Revised Option Agreement between the (1)
Company and AmHS Purchasing Partners,
L.P. dated as of July 1, 1993(1)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
11.1 Statement regarding computation
of per share earnings
13.1 Annual Report to Stockholders
for the year ended June 30, 1995
21.1 Subsidiaries
23.1 Independent Auditors' Consent
</TABLE>
(1) Exhibit incorporated by reference as indicated in Part IV.
22
<PAGE> 1
EXHIBIT 11.1
CRITICARE SYSTEMS, INC.
INFORMATION REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE FOR
THE YEARS ENDED JUNE 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
For the Years Ended
---------------------------------------
June 30, June 30, June 30,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Net earnings (loss) $ 105,643 $ 64,141 $ 114,753
========== ========== ===========
Shares applicable:
Weighted average number of shares
outstanding during the period 6,697,218 6,697,218 6,691,865
Outstanding stock options -
net issuable under treasury
stock method 12,267 22,761
---------- ---------- -----------
TOTAL SHARES APPLICABLE 6,709,485 6,719,979 6,691,865
========== ========== ===========
Primary earnings per common share $ .02 $ .01 $ .02
========== ========== ===========
FULLY DILUTED EARNINGS PER COMMON
SHARE:
Net earnings $ 105,643 $ 64,141 $ 114,753
========== ========== ===========
Shares applicable:
Weighted average number of shares
outstanding during the period 6,697,218 6,697,218 6,691,865
Outstanding stock options -
net issuable under treasury stock method 67,018 22,761 106,290
---------- ---------- -----------
TOTAL SHARES APPLICABLE 6,764,236 6,719,979 6,798,155
========== ========== ===========
Fully diluted earnings per share $ .02 $ .01 $ .02
========== ========== ===========
</TABLE>
<PAGE> 1
FOUNDED IN 1984, CRITICARE SYSTEMS, INC. (CSI) IS DEDICATED TO
ADDRESSING THE NEEDS OF A RAPIDLY CHANGING HEALTHCARE SYSTEM BY DESIGNING,
MANUFACTURING AND MARKETING COST-EFFECTIVE PATIENT MONITORING SYSTEMS AND
NONINVASIVE SENSORS--USING PROPRIETARY TECHNOLOGY--THAT REDUCE HEALTHCARE
COSTS AND IMPROVE PATIENT MANAGEMENT.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
- -------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $28,660,275 $30,114,679 $29,195,578 $26,229,673 $25,072,126
Income (Loss) Before
Income Taxes 175,643 114,141 167,753 (284,152) 1,903,605
Net Income (Loss) 105,643 64,141 114,753 (223,152) 1,192,605
Earnings (Loss) Per
Share--Fully Diluted 0.02 0.01 0.02 (0.03) 0.18
Average Shares Outstanding 6,764,236 6,719,979 6,798,155 6,564,326 6,746,041
Stockholders' Equity 17,130,449 17,022,753 16,958,709 16,763,225 14,915,731
Long-term Obligations 3,646,867 3,835,751 4,021,226 -- 595,000
Working Capital 13,401,741 13,258,880 12,725,583 13,248,113 12,000,001
Total Assets 25,468,428 25,171,231 24,418,857 20,469,645 20,256,785
</TABLE>
2
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATION
The following table sets forth, for the periods indicated, certain items from
the Company's Consolidated Statements of Income expressed as percentages of net
sales.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEARS ENDED JUNE 30,
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 50.3 49.5 48.1
- ---------------------------------------------------------------------------------------------------------------------
Gross Profit 49.7 50.5 51.9
- --------------------------------------------------------------------------------------------------------------------
Operating expenses:
Marketing 34.9 32.6 34.2
Research, development and engineering 6.7 7.9 8.8
Administrative 6.3 6.5 6.8
Litigation--competitor -- -- 0.7
Restructuring costs -- 1.8 --
- --------------------------------------------------------------------------------------------------------------------
Total 47.9 48.8 50.5
- --------------------------------------------------------------------------------------------------------------------
Income from operations 1.8 1.7 1.4
Interest expense (1.3) (1.3) (0.8)
Interest income 0.6 0.2 0.2
Equity in loss of investments (0.5) (0.2) (0.2)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 0.6 0.4 0.6
Income tax provision 0.2 0.2 0.2
- --------------------------------------------------------------------------------------------------------------------
Net income 0.4% 0.2% 0.4%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO JUNE 30, 1994
Net sales for the twelve months ended June 30, 1995 decreased 5% to $28,660,275
from $30,114,679 for the twelve months ended June 30, 1994. Alternate care
sales increased while foreign sales held constant and domestic hospital sales
decreased. The alternate care sales increase can be attributed to an increased
demand for patient monitors in non-hospital settings. Domestic hospital sales
were impacted by "managed care" pressures and consolidation trends within the
domestic hospital industry. The Company has accelerated new product development
and implemented new domestic hospital sales and marketing strategies to meet the
changes in this industry.
The gross profit percentage decreased to 49.7% in fiscal 1995 from 50.5% in
fiscal 1994. This decrease is due primarily to a change in the product mix and
continued price competition. Although efforts continue to reduce manufacturing
costs and develop lower cost products, the effect of pricing competition could
continue to negatively impact gross margins.
Operating expenses of $13,723,594 for fiscal 1995 decreased 7% from the
$14,701,878 for fiscal 1994. As a percentage of net sales, operating expenses
decreased to 47.9% from 48.8% in fiscal 1995 and 1994, respectively. Marketing
expenses for fiscal 1995 increased 2% to $10,014,656 from $9,818,625 for fiscal
1994 due primarily to an increase in sales promotional activities. Research,
development and engineering expenses for fiscal 1995 decreased 20% or $482,543
from fiscal 1994 expense levels. This decrease relates to reduced payroll costs
and project expenses which are a result of the restructuring which occurred
during fiscal 1994. Administrative expenses decreased 7% or $131,772 when
compared to fiscal 1994 due to a decrease in consulting expenses. Operating
expenses for fiscal 1995 were also $550,000 less than fiscal 1994 due to the
restructuring expenses recorded in fiscal 1994.
Interest expense decreased during fiscal 1995 due to a reduction in the
outstanding principal balance on the building mortgage and bank note. Interest
income increased due to the higher cash balances invested during a portion of
the year and an increase in the interest rate earned on invested cash balances.
7
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO JUNE 30, 1993
Net sales for the twelve months ended June 30, 1994 increased 3% to $30,114,679
from $29,195,578 for the twelve months ended June 30, 1993. Alternate care and
domestic hospital sales increased while Foreign sales decreased. The increase
in alternate care sales is due to the introduction of a handheld oximeter and a
combination non-invasive blood pressure and oximetry monitor. The increase in
domestic hospital sales can be attributed to stronger demand for anesthetic
agent monitors. The decrease in foreign sales is due to lower shipments to
European countries affected by continued economic recession. Sales to China and
Saudi Arabia were also lower than fiscal 1993. This decrease was partially
offset by continued growth in South America.
The gross profit percentage decreased to 50.5% in fiscal 1994 from 51.9% in
fiscal 1993. The decrease in gross margins is due to product mix and continued
price competition in all product lines.
Operating expenses of $14,701,878 for fiscal 1994 declined slightly from the
$14,734,256 for fiscal 1993. As a percentage of net sales, operating expenses
decreased to 48.8% from 50.5% in fiscal 1994 and 1993, respectively. Marketing
expenses for fiscal 1994 decreased 2% to $9,818,625 from $9,970,726 for fiscal
1993 due primarily to a reduction in payroll related costs which resulted from
a reorganization of the domestic hospital sales force to include fewer direct
sales personnel supplemented by an increase in equipment dealers and
manufacturers' representatives. Research, development and engineering expenses
for fiscal 1994 decreased 7%, or $183,782, when compared to fiscal 1993
expenses. This decrease relates to reduced payroll related costs which resulted
from the restructuring in December 1993. Administrative expenses for fiscal
1994 decreased 2% or $35,392 when compared to fiscal 1993 expenses due to a
reduction in consulting expenses. Litigation expense related to an action the
Company commenced in October 1991 against one of its competitors declined to
$10,000 in fiscal 1994 compared to $221,103 in fiscal 1993. In December 1993,
the Company recorded restructuring expenses of $550,000. The restructuring
costs included severance expenses associated with the elimination of certain
middle management and technical positions and the costs associated with the
discontinuance of certain products.
Interest expense increased in fiscal 1994 due to a full year of interest
expense on the building mortgage compared to eight months in fiscal 1993. The
Company also incurred interest expense on a bank note which was obtained in
June, 1993. Interest income increased due to higher levels of cash on hand
during fiscal 1994.
QUARTERLY RESULTS
The following table contains unaudited quarterly information, which includes
all adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary for a fair presentation.
<TABLE>
<Caption
QUARTERS ENDED
--------------------------------------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1993 1993 1994 1994 1994 1994 1995 1995
- -----------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $5,764 $7,717 $8,178 $8,456 $6,534 $7,463 $7,227 $7,436
Gross profit 2,851 3,853 4,093 4,409 3,317 3,629 3,717 3,578
Income (loss) from
operations (547) (423) 663 811 264 304 148 (198)
Net income (loss) (396) (522) 314 668 116 153 53 (216)
Full diluted net
income (loss) per
share (0.06) (0.08) .05 .10 .02 .02 .01 (.03)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company typically receives a substantial volume of its quarterly sales
orders at or near the end of each quarter. In anticipation of meeting this
expected demand, the Company usually builds a significant inventory of finished
products throughout each quarter. If the expected volume of sales orders is not
received during the quarter, or is received too late to allow the Company to
ship the products ordered during the quarter, the Company's quarterly results
and stock of finished inventory can be significantly affected. In addition,
the Company has historically shipped a relatively greater volume of products in
the second half of its fiscal year. The Company believes this trend is
generally explained by domestic and foreign hospital spending patterns.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $334,275 of cash for operating activities in fiscal 1995,
$537,275 for capital expenditures, and $182,541 for retirement of long-term
debt.
The Company generated $1,907,364 of cash from operating activities in fiscal
1994, used $350,782 for capital expenditures and used $169,611 for retirement
of long-term debt. The remaining cash was invested in short-term investments.
The mortgage note requires annual debt service payments of approximately
$420,000 with a final payment of approximately $2,688,000 due in December 2003.
The bank note requires annual debt service payments of approximately $137,000
through November 1997.
The Company believes its research and development activities and other capital
and liquidity requirements, including any additional funding associated with
its increased equity position in Immtech International, Inc. for the next one
to two years, will be satisfied by cash generated from operations, and if
necessary, periodic utilization of a commercial bank line of credit of up to
$4,000,000 currently in place.
9
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 2,398,278 $ 3,452,369
Accounts receivable, less allowance for doubtful accounts
of $270,000 and $275,000, respectively 8,608,340 9,344,239
Other receivables 279,458 240,420
Inventories (Notes 1 and 2) 6,639,805 4,371,549
Prepaid expenses 166,972 162,976
- -------------------------------------------------------------------------------------
Total current assets 18,092,853 17,571,607
- -------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT (NOTES 1 AND 5):
Land 925,000 925,000
Building 3,600,000 3,600,000
Machinery and equipment 1,586,177 1,518,975
Furniture and fixtures 859,182 811,914
Demonstration and loaner monitors 1,402,841 1,259,936
Production tooling 1,208,032 928,132
- -------------------------------------------------------------------------------------
Property, plant and equipment - cost 9,581,232 9,043,957
Less accumulated depreciation 2,663,208 2,134,948
- -------------------------------------------------------------------------------------
Property, plant and equipment - net 6,918,024 6,909,009
- -------------------------------------------------------------------------------------
INVESTMENTS (NOTES 1, 3 AND 11) 300,000 431,743
- -------------------------------------------------------------------------------------
OTHER ASSETS (NOTE 1):
License rights and patents - net 108,373 180,894
Goodwill - net 49,178 77,978
- -------------------------------------------------------------------------------------
Total other assets 157,551 258,872
- -------------------------------------------------------------------------------------
TOTAL $25,468,428 $25,171,231
=====================================================================================
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 6
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,661,558 $ 1,868,691
Accrued liabilities:
Compensation and commissions 714,171 924,599
Income taxes (Note 4) 21,800 55,719
Product warranties (Note 1) 375,000 281,000
Other (Note 6) 726,765 997,243
Current maturities of long-term debt (Note 5) 191,818 185,475
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,691,112 4,312,727
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 5) 3,646,867 3,835,751
- -------------------------------------------------------------------------------------------------------------------
CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY (NOTES 7 AND 11):
Preferred stock - $.04 par value, 500,000 shares
authorized, no shares issued or outstanding
Common stock - $.04 par value, 10,000,000 shares authorized,
6,697,218 shares issued and outstanding 267,889 267,889
Additional paid-in capital 10,884,910 10,884,910
Retained earnings 5,994,455 5,888,812
Cumulative translation adjustments (16,805) (18,858)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,130,449 17,022,753
- -------------------------------------------------------------------------------------------------------------------
TOTAL $25,468,428 $25,171,231
===================================================================================================================
</TABLE>
11
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (NOTE 9) $28,660,275 $30,114,679 $29,195,578
COST OF GOODS SOLD 14,419,179 14,908,372 14,043,603
- -----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 14,241,096 15,206,307 15,151,975
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Marketing 10,014,656 9,818,625 9,970,726
Research, development and engineering 1,898,404 2,380,947 2,564,729
Administrative 1,810,534 1,942,306 1,977,698
Litigation -- competitor (Note 6) 10,000 221,103
Restructuring costs (Note 10) 550,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total 13,723,594 14,701,878 14,734,256
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 517,502 504,429 417,719
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (374,264) (386,896) (228,133)
Interest income 167,092 56,608 38,167
Equity in loss of investments (Notes 1 and 3) (134,687) (60,000) (60,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Total (341,859) (390,288) (249,966)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 175,643 114,141 167,753
INCOME TAX PROVISION (NOTES 1 AND 4) 70,000 50,000 53,000
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 105,643 $ 64,141 $ 114,753
===================================================================================================================================
EARNINGS PER COMMON SHARE (NOTE 1):
Primary $0.02 $0.01 $0.02
Fully diluted $0.02 $0.01 $0.02
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Primary 6,709,485 6,719,979 6,691,865
Fully diluted 6,764,236 6,719,979 6,798,155
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Cumulative Total
Common Stock Paid-In Retained Translation Stockholders'
Shares Amount Capital Earnings Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1992 6,685,218 $267,409 $10,801,203 $5,709,918 $(15,305) $16,763,225
Exercise of stock options
(Note 7) 7,500 300 14,700 15,000
Common stock issued relating
to an employment agreement
(Note 7) 4,500 180 15,007 15,187
Granting of stock options
below market price
(Note 7) 54,000 54,000
Foreign currency translation
adjustments (3,456) (3,456)
Net income 114,753 114,753
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1993 6,697,218 267,889 10,884,910 5,824,671 (18,761) 16,958,709
Foreign currency translation
adjustments (97) (97)
Net income 64,141 64,141
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1994 6,697,218 267,889 10,884,910 5,888,812 (18,858) 17,022,753
Foreign currency translation
adjustments 2,053 2,053
Net income 105,643 105,643
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 6,697,218 $267,889 $10,884,910 $5,994,455 $(16,805) $17,130,449
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 105,643 $ 64,141 $ 114,753
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 528,260 576,917 523,709
Amortization 101,321 386,434 262,673
Common stock awarded 15,187
Equity in loss of investments 134,687 60,000 60,000
Expense related to the granting of stock
options below market price 54,000
Changes in assets and liabilities:
Accounts receivable 735,953 (1,201,080) (393,043)
Other receivables (41,982) 67,296 124,615
Refundable income taxes 785,004
Inventories (2,268,256) 933,929 490,442
Prepaid expenses (3,996) 161,883 (31,828)
Accounts payable 794,920 159,987 (573,497)
Accrued liabilities (420,825) 697,857 132,932
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (334,275) 1,907,364 1,564,947
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (537,275) (350,782) (5,495,632)
Cost of securing patents and license rights (12,801) (28,873)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (537,275) (363,583) (5,524,505)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 4,235,493
Principal payments on long-term debt (182,541) (169,611) (44,656)
Proceeds from the exercise of stock options 15,000
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (182,541) (169,611) 4,205,837
- -------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,054,091) 1,374,170 246,279
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,452,369 2,078,199 1,831,920
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 2,398,278 $ 3,452,369 $ 2,078,199
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) for:
Income taxes -- net of refunds $ 103,920 $ 16,549 $ (759,338)
Interest 375,343 387,467 198,843
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries: Criticare International GmbH Marketing Services ("Criticare
International"), Sleep Care, Inc. ("Sleep Care"), Criticare (FSC), Inc. and
CSI International (DISC). All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS--The Company considers all investments with purchased
maturities of less than three months to be cash equivalents.
INVENTORIES--Inventories are stated at the lower of cost or market, with
cost determined on the first-in, first-out method.
INVESTMENTS--The Company accounts for its investment in Intercare
Technologies, Inc. ("Intercare") on the cost method and accounts for its
investment in Immtech International, Inc. ("Immtech") and Blatz House
Offices Limited Partnership (the "Blatz Partnership") on the equity
method (see Note 3.)
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is
recorded at cost. Each member of the Company's sales force is provided with
demonstration monitors to assist them in their sales efforts. Also, the
Company has loaner monitors which are used to temporarily replace a
customer's unit when it is being repaired or upgraded. Depreciation is
provided over the estimated useful lives of the assets. The building is
being depreciated over 40 years, and the remaining assets are being
depreciated over three to seven years using the straight-line method.
CAPITALIZED SOFTWARE COSTS--Certain costs incurred to develop software
were capitalized and amortized over the expected sales life of the related
product, generally three to seven years. Software development and design
costs incurred prior to the establishment of a product's technological
feasibility are expensed as incurred. Approximately $277,000 and $120,000
of amortization was charged to operations during 1994 and 1993,
respectively.
LICENSE RIGHTS AND PATENTS--License rights and patents are amortized over
the estimated useful lives of the related agreements using primarily the
straight-line method. Approximately $73,000, $80,000 and $49,000 of
amortization was charged to operations in 1995, 1994 and 1993, respectively.
Accumulated amortization approximated $302,000 and $229,000 at June 30, 1995
and 1994, respectively.
GOODWILL--Goodwill is the excess of the cost over the fair value of the net
assets of an acquired subsidiary and is being amortized on the straight-line
method over approximately five years. Approximately $29,000 of amortization
was charged to operations in 1995, 1994 and 1993. Accumulated amortization
approximated $214,000 and $185,000 at June 30, 1995 and 1994, respectively.
REVENUE RECOGNITION--Revenues and the costs of products sold are recognized
as the related products are shipped.
PRODUCT WARRANTIES--Estimated costs for product warranties are accrued for
and charged to operations as the related products are shipped.
RESEARCH AND DEVELOPMENT EXPENSES--Research and development costs are
charged to operations as incurred. Such expense approximated $1,800,000,
$2,100,000, and $2,400,000 in 1995, 1994 and 1993, respectively.
15
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES--Prior to 1994, the Company provided deferred income taxes in
accordance with Statement of Financial Accounting Standards No. 96.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
an asset and liability approach to financial accounting and reporting for
income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income.
FOREIGN CURRENCY TRANSLATION--The effects of unrealized exchange rate
fluctuations from translating foreign currency assets and liabilities into
United States dollars are accumulated as cumulative translation adjustments
in stockholders' equity. Realized gains and losses from foreign currency
transactions are included in operating results for the period.
EARNINGS PER COMMON SHARE--Earnings per common share amounts are computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. Fully diluted earnings per common
share assumes the additional potential dilution from the exercise of
outstanding stock options.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Component parts $2,996,313 $1,520,077
Work in process 1,138,060 615,177
Finished units 2,505,432 2,236,295
------------------------------------------------------------------
Total inventories $6,639,805 $4,371,549
------------------------------------------------------------------
</TABLE>
3. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Intercare Technologies, Inc. $ 300,000 $ 300,000
Immtech International, Inc. -- 131,743
Blatz Partnership -- --
------------------------------------------------------------------
Total Investments $ 300,000 $ 431,743
------------------------------------------------------------------
</TABLE>
INTERCARE TECHNOLOGIES, INC.--During 1992, the Company's subsidiary, Sleep
Care, transferred certain assets to Intercare in exchange for 75,000 shares
of convertible preferred stock with a market value of $300,000. The
preferred stock is convertible at any time at the Company's option into an
equivalent number of shares of Intercare common stock. At any time within
four years after the date of conversion, the converted shares are
redeemable at the Company's option for an amount equal to $4.00 per share.
In connection with the transfer, Sleep Care licensed to Intercare the
rights to certain intellectual property and technology, primarily license
rights and patents, related to products previously marketed by Sleep Care.
In exchange for the license rights, the Company is to receive royalties of
5% of the gross revenues from sales of products licensed under the
agreement after February 1993. Royalties earned were approximately $68,000,
$62,500 and $12,500 in 1995, 1994 and 1993, respectively. The license
agreement is in effect through February 1997 or until approximately
$430,000 in royalties have been received, whichever is earlier. Upon
conclusion of the term of the license agreement, Sleep Care will sell the
intellectual property and technology to Intercare. The assets retained
by Sleep Care are being amortized over the greater of the straight line
method over the term of the license agreement or by the amount of royalties
received. Amortization of the intellecutal property approximated $68,000,
$73,000 and $41,000 in 1995, 1994 and 1993, respectively. Sleep Care
maintains intellectual property assets with a carrying value of
approximately $8,000 at June 30, 1995.
16
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMMTECH INTERNATIONAL, INC.--During 1989, the Company acquired an interst in
Immtech for $500,000. Immtech is a development stage company engaged in the
research and development of medical technology. Certain officers and
directors of the Company serve in similar capacities at Immtech. Pursuant
to the purchase agreement, the Company also has exclusive license rights to
a certain product being developed by Immtech, for which the Company will
pay a 5% royalty on all sales. The Company recognized investment losses of
$134,687, $60,000 and $60,000 in 1995, 1994 and 1993, respectively. As of
June 30, 1995, the Company owns approximately 5.5% of Immtech's outstanding
common stock, or approximately 1.7% on a fully diluted and as converted
basis. See Note 11 for subsequent event.
BLATZ PARTNERSHIP--The Blatz Partnership is a limited partnership which
rehabilitated the Blatz Phase II Commercial Office Buildings (the "Project")
in Milwaukee, Wisconsin. During 1988 and 1989, the Company contributed
$1,500,000 to the Blatz Partnership. The Company received tax benefits and
acquired an equity interest in the Project. The Blatz Partnership buildings
are certified historic structures for which a rehabilitation income tax
credit was passed through to the Company in its proportionate share. The
Company received total tax credits of approximately $915,000 on the Project.
The Partnership Agreement (the "Agreement") provided that profits and losses
(other than those resulting from a sale or refinancing of the Project) be
allocated 10% to the general partners and 90% to the Company. Effective
July 1, 1990, the Agreement was amended whereby profits and losses (other
than those resulting from a sale or refinancing of the Project) are to be
allocated 40% to the general partners and 60% to the Company. The Company
has the option to revert to the original allocation of profits and losses
(10% to the general partners and 90% to the Company) for a three year period
any time during the term of the limited partnership.
The carrying value of the investment is zero. Recognition of any income by
the Company for its interest in the Blatz Partnership will occur only after
the Blatz Partnership has earnings in excess of previously unrecorded
losses.
The following is summarized financial information for the Blatz Partnership
at June 30 and for the years then ended:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current assets $ 51,000 $ 18,000
Noncurrent assets 4,407,000 4,890,000
Current liabilities 116,000 178,000
Noncurrent liabilities 5,564,000 5,337,000
Net deficit (1,222,000) (607,000)
Revenues 580,000 569,000
Net loss (615,000) (494,000)
</TABLE>
4. INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109").
There was no cumulative effect related to the adoption of this standard as
of July 1, 1993. For the year ended June 30, 1994, there was no material
effect from the application of the new accounting standard.
SFAS 109 is an asset and liability approach which generally requires the
recognition of deferred income tax assets and liabilities based on the
expected future income tax consequences of events that have previously been
recognized in the Company's financial statement or tax returns. In
addition, a valuation allowance is to be recognized if it is more likely
than not that some or all of the deferred income tax asset will not be
realized. A valuation allowance is used to offset the related net deferred
income tax assets due to uncertainties of realizing the benefits of certain
net operating loss and tax credit carryforwards.
17
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred income tax assets and
deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JULY 1,
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Deferred income tax assets:
Accounts receivable and sales allowances $ 249,000 $ 187,000 $ 132,000
Inventory allowances 32,000 41,000 123,000
Product warranties 127,000 110,000 117,000
Other accrued liabilities 97,000 76,000 72,000
Federal net operating loss carryforwards 35,000 93,000 246,000
State net operating loss carryforwards 132,000 91,000 103,000
Federal tax credit carryforwards 152,000 188,000 148,000
- ----------------------------------------------------------------------------------------------------------
Total deferred income tax assets 824,000 786,000 941,000
- ----------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Excess of tax over book depreciation and amortization (765,000) (642,000) (688,000)
Prepaid expenses (7,000) (6,000) (13,000)
Reversal of DISC income (66,000) (131,000)
- ----------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities (772,000) (714,000) (832,000)
- ----------------------------------------------------------------------------------------------------------
Valuation allowance (52,000) (72,000) (109,000)
- ----------------------------------------------------------------------------------------------------------
Net deferred income taxes recognized
in the consolidated balance sheets $ 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1995, the Company had available for federal income tax purposes
approximately $41,000 of alternative minimum tax credit carryforwards which
carry forward indefinitely and approximately $111,000 tax credit carryforwards
which expire in the years 2007 and 2008. The Company also has approximately
$2,500,000 of state net operating loss carryforwards, which expire in 2003
through 2008, available to offset certain future state taxable income.
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Current 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal $57,000 $40,000 $43,000
State 13,000 10,000 10,000
- -------------------------------------------------------------------------------------------------------
Total income tax provision $70,000 $50,000 $53,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of the provision for income taxes (benefit) at the federal
statutory income tax rate to the effective income tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 4.9 5.8 3.9
Non-deductible life insurance premiums 1.4 18.6 14.6
Non-deductible losses of subsidiaries 8.7 22.4 12.1
Non-deductible meals and entertainment expenses 9.1 6.1 5.5
Goodwill amortization 5.6 8.6 5.8
Benefit of foreign sales corporation (14.4) (20.3) (46.1)
Benefit of federal and state net operating
loss carryforwards recognized (11.4) (32.4)
Other - net 2.0 1.0 1.8
- -------------------------------------------------------------------------------------------------------
Effective income tax rate 39.9% 43.8% 31.6%
- -------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Mortgage note, 9.625%, due in monthly installments
of $34,983 with a final payment of $2,688,336
due in December 2003, collateralized by real estate
with a carrying value of approximately $4,294,000
at June 30, 1995 $ 3,539,727 $ 3,615,380
Bank note, 8.5%, due in monthly installments of
$11,440 through November 1997, collateralized
by certain machinery and equipment with a carrying
value of approximately $258,000 at June 30, 1995 298,958 405,846
---------------------------------------------------------------------------------------------------
Total 3,838,685 4,021,226
Less current maturities 191,818 185,475
---------------------------------------------------------------------------------------------------
Long-term debt $ 3,646,867 $ 3,835,751
---------------------------------------------------------------------------------------------------
</TABLE>
Aggregate annual principal payments required under terms of the long-term
debt agreements are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30, PRINCIPAL PAYMENTS
<S> <C>
1996 $ 191,818
1997 216,893
1998 155,363
1999 109,354
2000 120,356
Thereafter 3,044,901
---------------------------------------------------------------------------------------------------
Total $3,838,685
---------------------------------------------------------------------------------------------------
</TABLE>
The Company has a $4,000,000 line of credit facility with a commercial bank
to meet its short-term borrowing needs. Borrowings against the line are
payable on demand with interest payable monthly at the bank's reference
rate. There were no borrowings against the line as of June 30, 1995 and
1994. The line expires on October 31, 1996.
6. CONTINGENCIES
In October 1991, the Company filed suit against a principal competitor
alleging that the competitor made false, deceptive, and misleading
statements regarding the performance of certain of the Company's oximeter
products to potential customers, and engaged in unfair trade practices in
violation of federal trademark law. The competitor filed a counterclaim
alleging the Company made misrepresentations regarding the competitor's
products. The case was settled during 1995.
The Company has been named in certain patent infringement claims in
connection with the manufacture and sale of its oximeter products. In the
opinion of management, the ultimate resolution of these matters will not
have a material effect on the consolidated financial statements.
The Company has received two grants from the State of Wisconsin for research
and development of certain products. The grants are to be repaid only upon
successful completion and marketing of the related product. Repayment of
these grants is to be made on a sales by unit basis, up to an aggregate of
$600,000. Repayments approximated $32,000, $58,000 and $41,000 1995, 1994
and 1993, respectively, and in aggregate, approximated $201,000 as of June
30, 1995. The repayments are charged to expense as the related products are
sold. The Company has been awarded a third grant from the State of
Wisconsin for an amount up to $100,000 which requires repayment of the
grant amount plus interest at 8%, and the Company is also required to pay a
royalty in the amount of 1% of net sales of the related product for a five
year period, as defined. No funds have been received under this grant at
June 30, 1995.
19
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS--In December 1992, the Board of Directors approved a new
Employee Stock Option Plan and Non-Employee Stock Option Plan. No new stock
options can be granted under the Employee Stock Option Plan and Non-Employee
Stock Option Plan which existed prior to the approval of the new plans. The
Board of Directors has authorized in connection with these new plans the
issuance of 920,000 reserved shares of common stock of which 122,850
reserved shares of common stock remain available for future issuance under
the stock option plans at June 30, 1995. The activity during 1993, 1994 and
1995 for the above plan is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF STOCK OPTIONS
SHARES PRICE RANGE
<S> <C> <C>
Outstanding at July 1, 1992 628,756 $2.00-8.50
Granted 399,100 2.63-8.50
Cancelled (310,890) 2.00-6.13
Exercised (7,500) 2.00
-----------------------------------------------------------------------------------
Outstanding at June 30, 1993 709,466 2.00-8.50
Granted 451,000 1.88-2.25
Cancelled (287,716) 2.00-6.13
-----------------------------------------------------------------------------------
Outstanding at June 30, 1994 872,750 1.88-8.50
Granted 421,500 2.00-2.19
Cancelled (253,350) 1.88-2.75
-----------------------------------------------------------------------------------
Outstanding at June 30, 1995 1,040,900 $1.88-8.50
-----------------------------------------------------------------------------------
Execisable at June 30, 1995 342,600 $1.88-8.50
-----------------------------------------------------------------------------------
</TABLE>
Outstanding options have fixed terms and are execisable over a period
determined by the Compensatin Committee of the Company's Board of Directors
but no longer than five years after the date of grant. A substantial
portion of the options issued are contingent on future services or future
events.
During 1991, the Company entered into a Purchase and Supply Agreement
and Option Agreement with a hospital purchasing alliance (the "Alliance").
As part of this agreement the Company granted the Alliance options to
purchase 300,000 shares of common stock at a price of $2.75 per share, which
was below the market price on the date of the grant. The Company also
agreed to grant the Alliance 50,000 additional options per year, beginning
in 1993 and for each of the subsequent four years, if a specified number of
monitors were purchased in 1993 and each year thereafter. The minimum
level was not reached in 1993 and all of the additional contingent options
expired during 1993 according to the agreement. During 1994, the 1991
Option Agreement was cancelled along with the related 300,000 options and a
Revised Option Agreement was entered into whereby the Company granted the
Alliance options to purchase 100,000 shares at $2.00 per share, the market
price on the date of the grant. The Company also agreed to grant the
Alliance up to 50,000 additional options per year, beginning in 1995 and for
each of the subsequent two years, as defined in the agreement, if certain
annual aggregate dollar volumes of purchases are made. The Alliance did not
earn the additional options in 1995. The exercise price of the additional
options is the last sale price reported on the day prior to the grant date
each year. These options are not included in the preceding stock option
table.
At June 30, 1995, 1,363,750 shares of common stock were reserved under
the above plans and arrangements.
EMPLOYMENT AGREEMENT--Under terms of an employement agreement with a
former principal stockholder of an acquired subsidiary, the Company, in
1993, issued 4,500 shares of common stock to such employee, in addition to
other compensation.
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan which covers substantially all employees.
Company contributions to the plan are discretionary and determined annually
by the Company's Board of Directors. The Company's contributions were
approximately $40,000, $42,000, and $46,000 in 1995, 1994 and 1993,
respectively.
20
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers include domestic hospitals, domestic
alternative health care sites, and foreign health care markets. Although
the Company's products are sold primarily to health care providers,
concentrations of credit risk with respect to trade accounts receivable are
limited due to the Company's large number of customers and their geographic
dispersion.
Criticare International coordinates substantially all international
sales and distribution. Identifiable assets located outside of the United
States are insignificant in relation to the Company's total assets. Net
export sales by geographic area are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Europe $ 5,910,000 $ 5,461,000 $ 6,056,000
Pacific Rim 4,013,000 4,430,000 5,389,000
Canada and South America 4,146,000 4,119,000 3,105,000
------------------------------------------------------------------
Net export sales $14,069,000 $14,010,000 $14,550,000
------------------------------------------------------------------
</TABLE>
10. RESTRUCTURING COSTS
In December 1993, the Company incurred $550,000 of restructuring costs.
The restructuring costs included severance expenses associated with the
elimination of certain middle management and technical positions and the
costs associated with the discontinuance of certain products.
11. SUBSEQUENT EVENT
Subsequent to June 30, 1995, the Company entered into an agreement in
principle to purchase from Marquette Venture Partners II, L.P. and MVP
Affiliates Fund, L.P. (collectively, the "Sellers") 1,000,000 shares of the
$.01 par value Series A Participating Preferred Stock ("Series A") and
1,200,000 shares of the $.01 par value Series B Participating Preferred
Stock ("Series B") of Immtech International, Inc. ("Immtech"), a
development stage company, and promissory note payable by Immtech to the
Sellers in the principal amount of $50,000 for approximately $1,900,000,
payable in the form of the Company's common stock and a note payable, the
amounts of which are subject to further negotiation. The Series A and
Series B preferred stock are convertible by the holders to equivalent
number shares of Immtech common stock. If the proposed transaction is
completed, the Company would own approximately 35% of the outstanding
common stock of Immtech on a fully diluted and as converted basis. The
proposed transaction is subject to certain conditions, and the accounting
treatment will be determined as of the closing date. As presently
contemplated, the transaction could result in a significant amount of
purchased research and development which, depending on the allocation of
the purchase price, would be charged to expense upon consummation of the
agreement.
21
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of Criticare Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Criticare
Systems, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Criticare Systems, Inc. and
subsidiaries at June 30, 1995 and 1994 and the results of their operations and
their cash flows for each of the three years in the period ended June 30,
1995, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
August 1, 1995
DIRECTORS AND OFFICERS
OFFICERS
N.C. Joseph Lai, Ph.D.
DIRECTORS Vice Chairman of the Board
Senior Vice President
Milton Datsopoulos
Attorney and Partner Michael T. Larsen
Datsopoulos, MacDonald & Lind Vice President
Quality Control/Quality Assurance
Karsten Houm Stephen D. Okland
President Vice President
Unitor (a shipping company) Alternate Care Sales
Herschel Q. Peddicord
N.C. Joseph Lai, Ph.D. Senior Vice President
Vice Chairman of the Board, Secretary, Hospital Sales, Marketing & Engineering
Senior Vice President
Criticare Systems, Inc. Richard J. Osowski
Senior Vice President--Finance
Assistant Secretary
Gerhard J. Von der Ruhr
Chairman of the Board, Treasurer, Gerhard J. Von der Ruhr
President Chairman of the Board
Criticare Systems, Inc. President
22
<PAGE> 18
FACT SHEET
FACT SHEET AS OF JULY 1, 1995
COMMON STOCK MARKET PRICE RANGE AND DIVIDEND POLICY
Criticare Systems, Inc. common stock is traded on the NASDAQ National Market
System (NASDAQ symbol CXIM). As of June 30, 1995, there were approximately 435
holders of record of CSI's common stock. The Company has never paid dividends
on its common stock and has no plans to pay cash dividends in the foreseeable
future.
<TABLE>
<CAPTION>
Year Ended June 30,
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Quarter Ended High Low High Low
<S> <C> <C> <C> <C>
September 30 $2-5/8 $1-7/8 $2-3/8 $1-11/16
December 31 $2-3/8 $1-15/16 $2-3/4 $1-3/4
March 31 $2-3/16 $1-5/8 $2-1/2 $1-3/4
June 30 $2-3/8 $1-7/8 $2-5/8 $1-13/16
- -------------------------------------------------------------------------------
</TABLE>
CORPORATE GENERAL COUNSEL
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
Milwaukee, Wisconsin
PATENT, TRADEMARK AND
COPYRIGHT COUNSEL
Willian Brinks Olds Hofer
Gilson & Lione, Ltd.
Chicago, Illinois
TRANSFER AGENT AND REGISTRAR
Firstar Trust Company
Milwaukee, Wisconsin
AUDITORS
Deloitte & Touche LLP
Milwaukee, Wisconsin
CORPORATE HEADQUARTERS
20925 Crossroads Circle
Waukesha, WI 53186
U.S.A.
NASDAQ SYMBOL: CXIM
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders
will be held on Friday, November 10, 1995
at 3:30 p.m. at the Company's corporate
headquarters in Waukesha, Wisconsin.
FORMS 10-K AND 10-Q
The Company has filed an annual
report with the Securities and Exchange
Commission on Form 10-K.
The Company also files quarterly
reports on Form 10-Q. Stockholders
may obtain copies of these reports,
without charge, by writing:
Secretary
Criticare Systems, Inc.
20925 Crossroads Circle
Waukesha, Wisconsin 53186
U.S.A.
23
<PAGE> 19
[CRITICARE SYSTEMS, INC. LETTERHEAD]
<PAGE> 20
1995 Annual Report
[CRITICARE SYSTEMS, INC. LOGO]
<PAGE> 1
SUBSIDIARIES
All of the Company's subsidiaries are wholly owned:
Criticare International GmbH Marketing Services
Sleep Care, Inc.
Criticare (FSC), Inc.
CSI International, Inc. (DISC)
<PAGE> 1
DELOITTE & TOUCHE LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4496
Telephone (414)271-3000
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Criticare Systems, Inc.:
We consent to the incorporation by reference in Registration Statements on Form
S-8 (File Nos. 33-33497, 33-40038, 33-60214 and 33-60644) of our reports dated
August 1, 1995 included and incorporated by reference in the Annual Report on
Form 10-K of Criticare Systems, Inc. for the year ended June 30, 1995.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,398,278
<SECURITIES> 0
<RECEIVABLES> 8,608,340
<ALLOWANCES> 0
<INVENTORY> 6,639,805
<CURRENT-ASSETS> 18,092,853
<PP&E> 9,581,232
<DEPRECIATION> 2,663,208
<TOTAL-ASSETS> 25,468,428
<CURRENT-LIABILITIES> 4,691,112
<BONDS> 0
<COMMON> 267,889
0
0
<OTHER-SE> 16,862,560
<TOTAL-LIABILITY-AND-EQUITY> 25,468,428
<SALES> 28,660,275
<TOTAL-REVENUES> 28,660,275
<CGS> 14,419,179
<TOTAL-COSTS> 14,419,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 374,264
<INCOME-PRETAX> 175,643
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 105,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,643
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
