SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-16061
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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 (262) 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 September 30, 2000: Class A Common Stock 8,991,251 shares.
<PAGE>
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 2000 2000
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 212,840 $ 114,830
Accounts receivable, less allowance for doubtful accounts
of $1,400,000 and $1,300,000, respectively. . . . . . . . . . . . . . 6,451,657 6,782,765
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,558,694 5,704,675
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,903 116,773
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,788,891 8,178,326
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491,480 219,852
--------------- ---------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 22,627,465 21,117,221
Property, plant and equipment - net. . . . . . . . . . . . . . . . . . . 5,936,119 5,988,656
License rights and patents - net . . . . . . . . . . . . . . . . . . . . 101,390 104,990
--------------- ---------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,664,974 $ 27,210,867
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,386,134 $ 2,635,344
Accrued liabilities:
Compensation and commissions . . . . . . . . . . . . . . . . . . . . 1,264,811 1,243,839
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . 325,000 325,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585,298 574,826
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 81,984 80,432
--------------- ---------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 4,643,227 4,859,441
LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . . . . . 3,263,317 3,283,892
OTHER LONG-TERM OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 232,171 268,582
STOCKHOLDERS' EQUITY:
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock - $.04 par value, 15,000,000 shares authorized,
8,991,251 and 8,976,251 shares issued and outstanding, respectively. 359,650 359,050
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 18,507,981 18,478,040
Common stock held in treasury (76,439 and 81,122 shares, respectively) . (142,388) (151,111)
Retained earnings (accumulated deficit). . . . . . . . . . . . . . . . . (5,757,678) (5,591,702)
Accumulated comprehensive income . . . . . . . . . . . . . . . . . . . . 7,558,694 5,704,675
--------------- ---------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 20,526,259 18,798,952
--------------- ---------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,664,974 $ 27,210,867
=============== ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
NET SALES . . . . . . . . . . . . . . $6,229,877 $6,603,337
COST OF GOODS SOLD. . . . . . . . . . 3,718,831 3,614,526
----------- -----------
GROSS PROFIT. . . . . . . . . . . . . 2,511,046 2,988,811
OPERATING EXPENSES:
Marketing . . . . . . . . . . . . . . 1,475,109 1,606,379
Research, development and engineering 581,282 711,456
Administrative. . . . . . . . . . . . 562,238 514,000
----------- -----------
Total . . . . . . . . . . . . . . . . 2,618,629 2,831,835
(LOSS) INCOME FROM OPERATIONS . . . . (107,583) 156,976
OTHER INCOME (EXPENSE):
Interest expense. . . . . . . . . . . (64,806) (65,781)
Interest income . . . . . . . . . . . 6,419 29,281
Gain on sale of stock . . . . . . . . - 1,760,000
----------- -----------
Total . . . . . . . . . . . . . . . . (58,387) 1,723,500
(LOSS) INCOME BEFORE INCOME TAXES . . (165,970) 1,880,476
INCOME TAX PROVISION. . . . . . . . . - -
----------- -----------
NET (LOSS) INCOME . . . . . . . . . . $ (165,970) $1,880,476
=========== ===========
NET (LOSS) INCOME PER COMMON SHARE
Basic . . . . . . . . . . . . . . . . $ (0.02) $ 0.22
Diluted . . . . . . . . . . . . . . . $ (0.02) $ 0.21
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic . . . . . . . . . . . . . . . . 8,898,607 8,706,151
Diluted . . . . . . . . . . . . . . . 8,898,607 8,921,806
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . . . . . . $(165,970) $ 1,880,476
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . 127,499 231,784
Amortization . . . . . . . . . . . . . . . . . . . 3,600 4,499
Provision for doubtful accounts. . . . . . . . . . 100,000 57,838
Gain on sale of Immtech stock. . . . . . . . . . . - (1,760,000)
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . 231,108 471,819
Other receivables. . . . . . . . . . . . . . . . (7,130) 27,157
Inventories. . . . . . . . . . . . . . . . . . . 430,907 (68,690)
Prepaid expenses . . . . . . . . . . . . . . . . (271,628) (51,536)
Accounts payable . . . . . . . . . . . . . . . . (249,210) (872,997)
Accrued liabilities. . . . . . . . . . . . . . . (4,967) (1,668,965)
---------- ------------
Net cash provided by (used in) operating activities. . 194,209 (1,748,615)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net. . . . (116,434) (78,583)
Proceeds from sale of Immtech stock. . . . . . . . . . - 1,760,000
---------- ------------
Net cash (used in) provide by investing activities . . (116,434) 1,681,417
FINANCING ACTIVITIES:
Principal payments on long-term debt . . . . . . . . . (19,023) (17,596)
Proceeds from issuance of common stock . . . . . . . . 39,258 -
---------- ------------
Net cash provided by (used in) financing activities. . 20,235 (17,596)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . 98,010 (84,794)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . 114,830 2,511,078
---------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . $ 212,840 $ 2,426,284
========== ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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 filed Form 10-K.
2. 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, 2000 and June 30, 2000, respectively:
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------- -------------------
<S> <C> <C>
Component parts . . . . . . . . $ 3,705,418 $ 3,721,474
Work in process . . . . . . . . 1,167,141 1,169,609
Finished units. . . . . . . . . 3,316,332 3,687,243
------------------- -------------------
Total inventories . . . . . . . 8,188,891 8,578,326
Less: reserve for obsolescence 400,000 400,000
------------------- -------------------
Net inventory . . . . . . . . . $ 7,788,891 $ 8,178,326
</TABLE>
3. INVESTMENTS
During August, September and October 1999, the Company sold 500,000 shares of
Immtech International, Inc. ("Immtech") stock for $2,500,000 in a private
placement. The funds were used primarily to settle a long-standing lawsuit,
which was settled in July 1999. The Company held 456,374 shares of Immtech
stock, which was trading at $16 9/16 per share, on September 30, 2000. The
market value of these shares could change substantially due to overall market
risk.
5
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------- -------------------
<S> <C> <C>
Land and building. . . . . . . . . . $ 4,525,000 $ 4,525,000
Machinery and equipment. . . . . . . 2,037,639 2,009,312
Furniture and fixtures . . . . . . . 805,055 763,282
Demonstration and loaner monitors. . 1,366,115 2,651,145
Production tooling . . . . . . . . . 2,697,479 1,407,587
------------------- -------------------
Property, plant and equipment - cost 11,431,288 11,356,326
Less: accumulated depreciation. . . 5,495,169 5,367,670
------------------- -------------------
Property, plant and equipment - net. $ 5,936,119 $ 5,988,656
</TABLE>
6
<PAGE>
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended September 30, 2000 and 1999
RESULTS OF OPERATIONS
-----------------------
Sales volume (number of units sold) for the three months ended September 30,
2000 rose 15% from the same period in fiscal 1999, however, net sales revenue
fell by approximately $400,000, or approximately 6.1%, from $6.6 million in the
first quarter of fiscal 2000 to $6.2 million in the first quarter of fiscal
2001. One of the reasons for this result is the large systems sale recorded in
the first quarter of the prior year. Resulting hospital sales in the prior year
were $1.5 million higher than that of the current year. Another reason for the
overall decrease in revenue is the decline in the selling price of some of the
Company's older product line. Prices have fallen, in part, due to increased
competition and, in part, due to the willingness of the Company to accept a
lower margin during the phase out period of some of these products, rather than
absorb future inventory obsolescence costs. However, OEM sales in the current
year have rebounded from a sluggish start in fiscal 1999, posting an $800,000
gain over the same period last year.
The gross profit percentage of 40% in the first quarter of the current year
represents a decrease of 11% from the same period in fiscal 2000, but shows an
improvement over both of the previous two quarters. A comparison of the current
year cost of sales to that of the prior year (after adjusting for the higher
margin systems sale) shows that the cost per unit has remained relatively
constant. Therefore, the lower margin in fiscal 2000 is attributed to the
profitable systems sale in the prior year, the lower sales prices on established
products as discussed above, and introductory pricing on the Company's newly
introduced products being sold as demonstration units. The Company expects to
see some improvement in its margins, as most of the demonstration units have
been moved through the backlog, and future sales of the newer products are
expected to be subject to less discounting. See "Forward-Looking Statements."
In the prior year, the Company made great strides in reducing operating expenses
from that of the year before, and that emphasis has continued into fiscal 2001.
Current year operating expenses decreased $200,000 in the first quarter from
that of the prior year. Approximately $100,000 is attributed to the service
area in the form of higher warranty sales and better control of materials and
supplies. Research and development accounts for another $100,000 in reductions,
as there was a significant amount of activity in the first quarter of the prior
year related to the development of the new products released in late fiscal
2000.
Income (loss) from operations fell approximately $250,000 for the three months
ended September 30, 2000 when compared to the same period in fiscal 2000 due to
the decrease in revenue and gross profit, which offset the reduction in
operating expense.
Net non-operating expenses were approximately $60,000, the majority of which
relates to interest expense on the building mortgage, and is comparable to the
amount spent on interest in the prior year. However, offsetting last year's
interest expense was a $1.8 million gain on the sale of Immtech stock, which
accounts for the difference in the non-operating expense totals.
7
<PAGE>
LIQUIDITY
---------
As of September 30, 2000, the Company had a cash balance of approximately
$200,000 and no short-term borrowings. In the three months ended September 30,
2000, approximately $200,000 was provided by operations, of which $100,000 was
reinvested in property, plant and equipment. In the same period of the prior
year, approximately $1.7 million was used in operations, of which a significant
portion was attributed to the settlement of a long-standing lawsuit. Proceeds
for this settlement were obtained from the sale of shares of Immtech stock in a
private placement sale. Subsequent to September 30, 2000, the Company received
$4.0 million in proceeds from the private placement of 1.8 million shares of the
Company's common stock. The primary intended use of these funds is for
additional research and development and an expanded marketing program. The
Company believes all other capital and liquidity requirements will be satisfied
by cash generated from operations and periodic utilization of a $4,000,000 line
of credit currently in place, if necessary. At September 30, 2000, there were
no borrowings outstanding under the line of credit.
FORWARD LOOKING STATEMENTS
----------------------------
A number of the matters and subject areas discussed herein that are not
historical or current facts deal with potential future circumstances and
developments. These include anticipated product introductions, expected future
financial results, liquidity needs, financing ability, management's or the
Company's expectations and beliefs and similar matters discussed in Management's
Discussion and Analysis or elsewhere herein. The discussions of such matters
and subject areas are qualified by the inherent risk and uncertainties
surrounding future expectations generally, and also may materially differ from
the Company's actual future experience.
The Company's business, operations and financial performance are subject to
certain risks and uncertainties which could result in material differences in
actual results from management's or the Company's current expectations. These
risks and uncertainties include, but are not limited to, general economic
conditions, demand for the Company's products, costs of operations, the
development of new products, the reliance on single sources of supply for
certain components in the Company's products, government regulation, health care
cost containment programs, the effectiveness of the Company's programs to manage
working capital and reduce costs, and competition in the Company's markets.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------------
(a) 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).
27 Financial Data Schedule.
(b) Reports on Form 8-K: None in the quarter ended September 30, 2000.
9
<PAGE>
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 November 13, 2000 BY /s/ Mark S. Ruehle
----------------------------------
Mark S. Ruehle
Vice President - Finance
(Chief Accounting Officer and
Duly Authorized Officer)
10
