<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number -0-16061
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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 (IRS Employer Identification No.)
of 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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N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ----
Number of shares outstanding of each class of the registrant's classes of
common stock as of November 6, 1996: Class A Common Stock 7,128,272 shares.
Page 1 of 9
<PAGE> 2
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1996 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 426,242 $ 806,645
Accounts receivable 8,430,283 9,870,158
Other receivables 357,749 354,638
Inventory 7,680,520 7,550,858
Prepaid expenses 254,222 188,132
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Total current assets 17,149,016 18,770,431
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PROPERTY, PLANT AND EQUIPMENT - NET 7,744,792 7,892,646
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INVESTMENTS 300,000 300,000
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OTHER ASSETS:
License and patents - net 90,367 92,467
Goodwill - net 13,178 20,378
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Total other assets 103,545 112,845
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TOTAL $25,297,353 $27,075,922
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit facility $ 1,900,000 $ 2,300,000
Accounts payable 2,681,027 3,609,188
Accrued liabilities:
Compensation and commissions 855,839 1,040,441
Income taxes -- --
Product warranties 333,369 300,000
Other 731,089 1,029,072
Current maturities of long-term debt 214,614 209,697
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Total current liabilities 6,715,938 8,488,398
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LONG-TERM DEBT, less current maturities 4,612,463 4,669,975
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STOCKHOLDERS' EQUITY
Preferred stock
Common stock 285,131 285,131
Additional paid-in capital 11,995,118 11,995,118
Retained earnings 1,714,869 1,663,466
Cumulative translation adjustments (26,166) (26,166)
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Total Stockholders' equity 13,968,952 13,917,549
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TOTAL $25,297,353 $27,075,922
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</TABLE>
See notes to consolidated financial statements.
Page 2 of 9
<PAGE> 3
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
NET SALES $6,478,165 $6,958,330
COST OF GOODS SOLD 3,354,426 3,646,439
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GROSS PROFIT 3,123,739 3,311,891
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OPERATING EXPENSES:
Marketing 1,927,294 2,172,878
Research,development and engineering 566,280 515,828
Administrative 400,519 441,534
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Total 2,894,093 3,130,240
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INCOME FROM OPERATIONS 229,646 181,651
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OTHER INCOME (EXPENSE):
Interest expense (154,483) (97,034)
Interest income 240 22,501
Equity in loss of investments (24,000) --
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Total (178,243) (74,533)
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INCOME BEFORE INCOME TAXES 51,403 107,118
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INCOME TAX PROVISION -- 43,000
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NET INCOME $ 51,403 $ 64,118
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EARNINGS PER COMMON SHARE:
Primary $ 0.01 $ 0.01
Fully diluted 0.01 0.01
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Primary 7,128,272 6,709,485
Fully diluted 7,226,643 6,764,236
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</TABLE>
See notes to consolidated financial statements.
Page 3 of 9
<PAGE> 4
CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 51,403 $ 64,118
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 144,110 135,698
Amortization 9,300 16,806
Equity in loss of investments 24,000 --
Changes in assets and liabilities:
Accounts receivable 1,439,875 192,547
Other receivables (3,111) (190,221)
Inventories (129,662) (113,467)
Prepaid expenses (66,090) (76,074)
Accounts payable (928,161) (239,794)
Accrued liabilities (449,217) (157,714)
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Net cash (used in) provided by operating activities 92,447 (368,101)
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INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,418) (388,922)
Reduction in loaner and demo equipment 25,162 --
Advances to Immtech International (24,000) --
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Net cash (used in) investing activities (20,256) (388,922)
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FINANCING ACTIVITIES:
Payments under line of credit facility (400,000) --
Principal payments on long-term debt (52,594) (48,098)
Proceeds from the exercise of stock options -- 32,500
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Net cash (used in) provided by financing activities (452,594) (15,598)
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NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (380,403) (772,621)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 806,645 2,398,278
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CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 426,242 $ 1,625,657
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</TABLE>
See notes to consolidated financial statements.
Page 4 of 9
<PAGE> 5
CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Criticare
Systems, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of the Company,
include all adjustments necessary for a fair statement of results for each
period shown. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. The Company believes that the disclosures made are adequate
to prevent the financial information given from being misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest annual
report and previously issued Form 10-K.
2. CASH EQUIVALENTS
The Company considers all investments with purchased maturities of less than
one year to be cash equivalents.
3. INVENTORY VALUATION
Inventory is stated at the lower of cost or market, with cost determined on the
first-in, first-out method. Components of inventory consisted of the following
at September 30, 1996 and June 30, 1996, respectively:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
-----------------------------------------------
<S> <C> <C>
Component parts $3,310,300 $2,879,286
Work in process 1,400,832 1,561,481
Finished units 2,969,388 3,110,091
-----------------------------------------------
Total inventories $7,680,520 $7,550,858
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</TABLE>
Page 5 of 9
<PAGE> 6
CRITICARE SYSTEMS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------------------------------------------------------
<S> <C> <C>
Land and building $ 4,525,000 $ 4,525,000
Machinery and equipment 1,678,617 1,671,309
Furniture and fixtures 884,057 882,682
Demonstration and loaner monitors 2,029,621 2,054,783
Production tooling 2,062,367 2,049,632
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Property, plant and equipment-cost 11,179,662 11,183,406
Less accumulated depreciation 3,434,870 3,290,760
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Property, plant and equipment-net $ 7,744,792 $ 7,892,646
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</TABLE>
5. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
-----------------------------------------------------------------
<S> <C> <C>
Intercare Technologies, Inc. $300,000 $300,000
Immtech International, Inc. -- --
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Total investments $300,000 $300,000
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</TABLE>
Page 6 of 9
<PAGE> 7
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended September 30, 1996 and 1995
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1996 decreased 7% to $6.5
million from $7.0 million for the same period in fiscal 1996. Domestic
Hospital sales decreased approximately $481,000 due to lower Maestro telemetry
ECG monitors, lower Model 100 Vital Signs Monitors and lower accessory sales
due primarily to continued managed care and competitive pricing pressures in
the domestic hospital industry. Alternate Care sales decreased approximately
$189,000 due to lower oximeter and accessory sales caused by increased
competitive pricing in the non-hospital market. International sales increased
approximately $190,000 related to sales of the "Scholar" and "Scholar II" Vital
Signs monitors introduced in the second quarter of fiscal 1996.
The gross profit percentage of 48% for the three months ended September 30,
1996 was equal to the 48% gross profit percentage incurrred in the three months
ended September 30, 1995; however, the lower sales volume resulted in a
$188,000 lower gross profit amount for the three months ended September 30,
1996.
Operating expenses declined approximately $236,000, or 8% for the three months
ended September 30, 1996 when compared with the same period in fiscal 1996.
Marketing expenses declined approximately $246,000, or 11%, when compared to
the same period in fiscal 1996 due to lower trade show, advertising, sales
promotion and commission expenses. Research, development and engineering
expense increased approximately $50,000, or 10%, due to increased project
expense related to MPT/VitalView product development. Administrative expenses
declined approximately $41,000, or 9%, related to lower payroll, insurance and
consulting expenses incurred in the three months ended September 30, 1996 when
compared to the same period in fiscal 1996.
Non-operating expenses were $178,243 and $74,533 for the three months ended
September 30, 1996 and 1995, respectively. The increase resulted from reduced
interest income due to lower invested cash balances, increased interest expense
related to borrowing against the Company's line of credit, increased interest
expense related to the note issued upon the acquisition of Immtech stock and
advances to Immtech during the three months ended September 30, 1996.
Page 7 of 9
<PAGE> 8
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended September 30, 1996 and 1995
Net income of $51,403 for the three months ended September 30, 1996 compares to
net income of $64,118 for the three months ended September 30, 1995.
During the three months ended September 30, 1996 the Company was able to reduce
accounts receivable balances by approximately $1,440,000 and limit inventory
increases to approximately $130,000. Accounts payable declined approximately
$928,000, accrued liabilities declined approximately $154,000, and short term
borrowings under the commercial line of credit declined $400,000 during the
three month period ended September 30, 1996. The Company believes its
marketing and research and development activities and other capital and
liquidity requirements will be satisfied by cash generated from operations and
utilization of a commercial line of credit of up to $4,000,000 which was
recently renewed for a one-year period (November 1, 1996 through October 31,
1997) by its bank.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
certain forward-looking statements and is subject to certain risks and
uncertainties that could cause actual future results and developments to differ
materially from those currently projected. such risks and uncertainties
include, but are not limited to, the timing of new product introductions,
delays in customer delivery requirements, and general economic conditions in
the Company's market segments.
Page 8 of 9
<PAGE> 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on November 1, 1996.
(b) Not applicable.
(c) At the Annual Meeting, the stockholders:
(i) Voted to elect three directors. Gerhard J. Von der Ruhr and
N.C. Joseph Lai were elected to serve until the 1999 Annual
Meeting of Stockholders. Karsten Houm was elected to serve
until the 1997 Annual Meeting of Stockholders. Each nominee
was elected by a vote of the stockholders as follows:
Director For Against
-------- --- -------
Gerhard J. Von der Ruhr 5,569,873 399,840
N.C. Joseph Lai 5,903,123 66,590
Karsten Houm 5,904,523 65,190
(ii) Voted to ratify the appointment of Deloitte & Touche as
independent auditors of the Corporation for the 1997 fiscal
year as follows:
FOR: 5,929,893
AGAINST: 25,780
ABSTAIN: 14,040
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27, Financial Data Schedule.
(b) The registrant filed no reports on Form 8-K during the quarter ended
September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRITICARE SYSTEMS, INC. (Registrant)
Date 11/6/96 BY
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Richard J. Osowski
Vice President - Finance
(Chief Accounting Officer and
Duly Authorized Officer)
Page 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 426,242
<SECURITIES> 0
<RECEIVABLES> 8,747,783
<ALLOWANCES> (317,500)
<INVENTORY> 7,680,520
<CURRENT-ASSETS> 17,149,016
<PP&E> 11,179,662
<DEPRECIATION> (3,434,870)
<TOTAL-ASSETS> 25,297,353
<CURRENT-LIABILITIES> (6,715,938)
<BONDS> 0
0
0
<COMMON> (285,131)
<OTHER-SE> (13,683,821)
<TOTAL-LIABILITY-AND-EQUITY> (25,297,353)
<SALES> 6,478,165
<TOTAL-REVENUES> 6,478,165
<CGS> (3,354,426)
<TOTAL-COSTS> (6,248,519)
<OTHER-EXPENSES> (178,243)
<LOSS-PROVISION> (22,500)
<INTEREST-EXPENSE> (154,483)
<INCOME-PRETAX> 51,403
<INCOME-TAX> 0
<INCOME-CONTINUING> 51,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,403
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
