UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended June 30, 2001
[ ] 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 000-16061
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Criticare Systems, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1501563
------------------------- -----------------------------
(State or Other Jurisdiction of (I.R.S. 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: 262-798-8282
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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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[COVER PAGE 1 OF 2 PAGES.]
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, $.04 Par Value
(together with associated Preferred Stock Purchase Rights)
--------------------------------------------------------------------
(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 [ ]
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. [ ]
The aggregate market value of the voting common stock held by nonaffiliates
of the registrant as of August 31, 2001 was approximately $34,866,000. Shares of
voting common stock held by any executive officer or director of the Registrant
and any person who beneficially owns 10% or more of the outstanding voting
common stock have been excluded from this computation because such persons may
be deemed to be affiliates. This determination of affiliate status is not a
conclusive determination for other purposes.
On August 31, 2001, there were outstanding 10,796,224 shares of the
registrant's $.04 par value voting common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of the Stockholders
of the Registrant to be held November 30, 2001 are incorporated by reference
into Part III of this report.
[COVER PAGE 2 OF 2 PAGES.]
2
Criticare Systems, Inc. (the "Company") is amending Item 8 of Part II of the
Company's Annual Report on Form 10-K for the year ended June 30, 2001, as filed
with the Securities and Exchange Commission on September 27, 2001 (the "Annual
Report"), to reflect a change in Note 11 to the Financial Statements. The
Company is also amending Item 14 of Part IV of the Annual Report to replace
Exhibit 10.9. Accordingly, Item 8 of Part II and Item 14 of Part IV of the
Annual Report are hereby amended in their entirety as follows:
3
PART II
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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FINANCIAL STATEMENTS
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
ASSETS 2001 2000
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents (Note 1) . . . . . . . . . . . . $ 3,362,104 $ 114,830
Accounts receivable, less allowance for doubtful accounts
of $1,000,000 and $1,300,000, respectively . . . . . . . 7,122,464 6,782,765
Investments (Notes 1 and 3). . . . . . . . . . . . . . . . 3,970,454 5,704,675
Other receivables. . . . . . . . . . . . . . . . . . . . . 33,788 116,773
Inventories (Notes 1 and 2). . . . . . . . . . . . . . . . 8,600,413 8,178,326
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 502,172 219,852
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . 23,591,395 21,117,221
PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 5):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 925,000 925,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000 3,600,000
Machinery and equipment. . . . . . . . . . . . . . . . . . 2,055,518 2,009,312
Furniture and fixtures . . . . . . . . . . . . . . . . . . 837,238 763,282
Demonstration and loaner monitors. . . . . . . . . . . . . 1,463,909 1,407,587
Production tooling . . . . . . . . . . . . . . . . . . . . 3,122,938 2,651,145
----------- -----------
Property, plant and equipment - cost . . . . . . . . . . . 12,004,603 11,356,326
Less accumulated depreciation. . . . . . . . . . . . . . . 5,822,133 5,367,670
----------- -----------
Property, plant and equipment - net. . . . . . . . . . . . 6,182,470 5,988,656
OTHER ASSETS (Note 1):
License rights and patents - net . . . . . . . . . . . . . 97,989 104,990
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . 97,989 104,990
----------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . $29,871,854 $27,210,867
=========== ===========
See notes to consolidated financial statements.
4
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------ ------------
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,421,776 $ 2,635,344
Accrued liabilities:
Compensation and commissions. . . . . . . . . . . . . . . . . . . . . 1,187,493 1,243,839
Product warranties (Note 1) . . . . . . . . . . . . . . . . . . . . . 220,000 325,000
Accrued taxes other than income . . . . . . . . . . . . . . . . . . . 96,947 126,769
Accrued audit and legal fees . . . . . . . . . . . . . . . . . . . . . 35,900 20,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547,025 428,057
Current maturities of long-term debt (Note 5) . . . . . . . . . . . . . 86,766 80,432
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 5,595,907 4,859,441
LONG-TERM DEBT, less current maturities (Note 5). . . . . . . . . . . . 3,197,126 3,283,892
OTHER LONG-TERM OBLIGATIONS (Note 12) . . . . . . . . . . . . . . . . . 73,005 268,582
CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 5 and 7):
Preferred stock - $.04 par value, 500,000 shares authorized,
no shares issued or outstanding . . . . . . . . . . . . . . . . . . . -- --
Common stock - $.04 par value, 15,000,000 shares authorized,
10,796,224 and 8,976,251 shares issued and outstanding, respectively 431,849 359,050
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 22,494,548 18,478,040
Common stock held in treasury (64,134 and 81,122 shares, respectively). (119,467) (151,111)
Retained earnings (accumulated deficit) . . . . . . . . . . . . . . . . (5,771,568) (5,591,702)
Accumulated comprehensive income. . . . . . . . . . . . . . . . . . . . 3,970,454 5,704,675
------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . 21,005,816 18,798,952
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,871,854 $27,210,867
============ ============
See notes to consolidated financial statements.
5
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
2001 2000 1999
------------ ------------ ------------
NET SALES (NOTE 9) . . . . . . . . . . . . . . $27,736,304 $27,154,236 $28,512,507
COST OF GOODS SOLD . . . . . . . . . . . . . . 16,469,119 16,462,477 15,528,314
------------ ------------ ------------
GROSS PROFIT . . . . . . . . . . . . . . . . . 11,267,185 10,691,759 12,984,193
OPERATING EXPENSES:
Marketing (Note 1) . . . . . . . . . . . . . . 6,367,395 8,014,129 8,941,036
Research, development and engineering (Note 6) 2,446,907 2,861,733 2,963,134
Administrative (Note 6). . . . . . . . . . . . 2,538,938 2,333,445 4,157,811
Severance pay (Note 12). . . . . . . . . . . . -- -- 810,000
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . 11,353,240 13,209,307 16,871,981
LOSS FROM OPERATIONS . . . . . . . . . . . . . (86,055) (2,517,548) (3,887,788)
OTHER INCOME (EXPENSE):
Interest expense (Note 5). . . . . . . . . . . (253,150) (259,280) (427,008)
Interest income. . . . . . . . . . . . . . . . 157,782 90,440 82,094
Equity in loss of investments (Notes 1 and 3). -- -- (150,000)
Gain on sale of stock (Note 3) . . . . . . . . -- 2,500,000 --
Other income/(expense) . . . . . . . . . . . . 3,191 -- (5,469)
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . (92,177) 2,331,160 (500,383)
LOSS BEFORE INCOME TAXES . . . . . . . . . . . (178,232) (186,388) (4,388,171)
INCOME TAX PROVISION (NOTES 1 AND 4) . . . . . -- -- --
------------ ------------ ------------
NET LOSS . . . . . . . . . . . . . . . . . . . $ (178,232) $ (186,388) $(4,388,171)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic. . . . . . . . . . . . . . . . . . . . . $ (0.02) $ (0.02) $ (0.51)
Diluted. . . . . . . . . . . . . . . . . . . . $ (0.02) $ (0.02) $ (0.51)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (NOTE 7):
Basic. . . . . . . . . . . . . . . . . . . . . 10,171,394 8,694,918 8,581,863
Diluted. . . . . . . . . . . . . . . . . . . . 10,171,394 8,694,918 8,581,863
See notes to consolidated financial statements.
6
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
Retained
Additional Common Stock Earnings Accumulated
Common Stock Paid-In Treasury (Accumulated Comprehensive
Shares Amount Capital Shares Cost Deficit) Income/Loss
BALANCE, JUNE 30, 1998. . . . . . . 8,351,151 $334,046 $17,964,250 $(1,015,299)
Net loss. . . . . . . . . . . . . . (4,388,171)
Comprehensive income/(loss) . . . .
Issuance of common stock for
patented technology . . . . . . . 350,000 14,000 (14,000)
Exercise of options and warrants. . 5,000 200 10,113
Common stock repurchased. . . . . . 103,840 (193,430)
BALANCE, JUNE 30, 1999. . . . . . . 8,706,151 348,246 17,960,363 103,840 (193,430) (5,403,470) 0
Net loss. . . . . . . . . . . . . . (186,388)
Unrealized gain on investment . . . 5,704,675
Comprehensive income/(loss) . . . .
Common stock issued in settlement
of lawsuit. . . . . . . . . . . . 30,000 1,200 68,175
Exercise of options . . . . . . . . 240,100 9,604 448,746
Employee common stock
purchased from treasury . . . . . 756 (22,718) 42,319 (1,844)
BALANCE, JUNE 30, 2000. . . . . . . 8,976,251 359,050 18,478,040 81,122 (151,111) (5,591,702) 5,704,675
Net loss. . . . . . . . . . . . . . (178,232)
Unrealized (loss) on investment . . (1,734,221)
Comprehensive income/(loss) . . . .
Common stock issued . . . . . . . . 1,801,273 72,051 3,977,063
Exercise of options . . . . . . . . 18,700 748 2,273
Employee common stock
purchased from treasury . . . . . 37,172 (16,988) 31,644 (1,634)
BALANCE, JUNE 30, 2001. . . . . . . 10,796,224 $431,849 $22,494,548 64,134 $(119,467) $(5,771,568) $3,970,454
Total
Stockholders'
Equity
BALANCE, JUNE 30, 1998. . . . . . . $17,282,997
Net loss. . . . . . . . . . . . . . (4,388,171)
Comprehensive income/(loss) . . . . (4,388,171)
Issuance of common stock for
patented technology . . . . . . . -
Exercise of options and warrants. . 10,313
Common stock repurchased. . . . . . (193,430)
BALANCE, JUNE 30, 1999. . . . . . . 12,711,709
Net loss. . . . . . . . . . . . . . (186,388)
Unrealized gain on investment . . . 5,704,675
Comprehensive income/loss . . . . . 5,518,287
Common stock issued . . . . . . . . 69,375
Exercise of options . . . . . . . . 458,350
Employee common stock
purchased from treasury . . . . . 41,231
BALANCE, JUNE 30, 2000. . . . . . . 18,798,952
Net loss. . . . . . . . . . . . . . (178,232)
Unrealized (loss) on investment . . (1,734,221)
Comprehensive income/loss . . . . . (1,912,453)
Common stock issued . . . . . . . . 4,049,114
Exercise of options . . . . . . . . 3,021
Employee common stock
purchased from treasury . . . . . 67,182
BALANCE, JUNE 30, 2001. . . . . . . $21,005,816
See notes to consolidated financial statements.
7
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
2001 2000 1999
------------ ------------ -----------
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (178,232) $ (186,388) $(4,388,171)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 742,931 871,510 486,610
Amortization . . . . . . . . . . . . . . . . . . . . . . . . 7,001 7,001 7,002
Provision for doubtful accounts. . . . . . . . . . . . . . . (300,000) 925,000 380,004
Gain on sale of Immtech stock. . . . . . . . . . . . . . . . -- (2,500,000) --
Litigation settled with common stock . . . . . . . . . . . . -- 69,375 --
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . (39,699) (1,349,278) 183,222
Other receivables. . . . . . . . . . . . . . . . . . . . . 82,985 (33,667) 239,870
Inventories. . . . . . . . . . . . . . . . . . . . . . . . (670,510) 341,955 (461,786)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . (282,320) (27,562) 146,007
Accounts payable . . . . . . . . . . . . . . . . . . . . . 786,432 (442,676) 772,299
Accrued liabilities. . . . . . . . . . . . . . . . . . . . (251,877) (2,401,762) 2,950,520
------------ ------------ -----------
Net cash (used in) provided by operating activities. . . . . . . (103,289) (4,726,492) 315,577
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net. . . . . . . . . (688,322) (595,412) (515,017)
Proceeds from sale of Immtech stock. . . . . . . . . . . . . . . -- 2,500,000 --
------------ ------------ -----------
Net cash (used in) provided by investing activities. . . . . . . (688,322) 1,904,588 (515,017)
FINANCING ACTIVITIES:
Net proceeds from mortgage refinancing . . . . . . . . . . . . . -- -- 256,413
Repurchase of Company stock. . . . . . . . . . . . . . . . . . . -- -- (193,430)
Principal payments on long-term debt . . . . . . . . . . . . . . (80,432) (73,925) (92,776)
Proceeds from issuance of common stock . . . . . . . . . . . . . 4,119,317 499,581 10,313
------------ ------------ -----------
Net cash provided by (used in) financing activities. . . . . . . 4,038,885 425,656 (19,480)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . 3,247,274 (2,396,248) (218,920)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . 114,830 2,511,078 2,729,998
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . $ 3,362,104 $ 114,830 $2,511,078
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income taxes paid-net. . . . . . . . . . . . . . . . . . . . . $ 16,639 $ 7,535 $ 8,010
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,653 259,590 437,401
Noncash investing and financing activities:
Litigation settled with common stock . . . . . . . . . . . . . -- 69,375 --
Cost of fixed asset disposals. . . . . . . . . . . . . . . . . -- 201,072 --
Unrealized (loss)/gain on investment in Immtech. . . . . . . . (1,734,221) 5,704,675 --
See notes to consolidated financial statements.
8
NOTES TO FINANCIAL STATEMENTS
CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Criticare Systems Inc. designs, manufactures and
markets patient monitoring equipment and related accessories to the health care
community worldwide and is headquartered in Waukesha, Wisconsin. The Company
sells domestically primarily to oral and stand-alone general surgery centers and
hospitals through regional sales managers and a dealer network. Internationally,
the Company sells mainly to hospitals through country managers and a worldwide
dealer network.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Criticare Systems, Inc. (the "Company") and its wholly owned
subsidiaries: Criticare International GmbH Marketing Services ("Criticare
International"), CSI Trading, Inc. ("CSI Trading"), Criticare Service GmbH,
Criticare Biomedical, Inc. ("Criticare Biomedical"), Sleep Care, Inc. ("Sleep
Care"), Criticare (FSC), Inc. and CSI International Corp. (DISC). CSI Trading
was incorporated in November 1996 to assist with European marketing activities
and includes a branch sales office in India. 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 - In fiscal 2000, the Company ceased accounting for its
investment in Immtech International, Inc ("Immtech") under the equity method and
recorded the asset on the balance sheet at its fair market value in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (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
primarily the straight-line method.
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 $7,000 of amortization was charged to
operations in each of the fiscal years ended June 30, 2001, 2000 and 1999.
Accumulated amortization approximated $99,000 and $92,000 at June 30, 2001 and
2000, respectively.
9
REVENUE RECOGNITION - Revenues and the costs of products sold are
recognized as the related products are shipped or installed, if there are
significant installation costs. This revenue recognition policy is utilized for
shipment of product to customers including both distributors and end-users.
PRODUCT WARRANTIES - Estimated costs for product warranties are accrued for
and charged to operations as the related products are shipped.
MARKETING EXPENSES - Marketing expenses include all of the Company's sales
related costs. In fiscal 2001, recoveries of bad debts expensed in prior years
more than offset additional provisions expensed in the current year, resulting
in a net credit of bad debt expense of $(25,757). The amount incurred in fiscal
2000 includes a $900,000 charge to bad debt expense related to the accounts
receivable balances of certain international customers. Bad debt expense totaled
$1,160,614 and $380,004 for the years ended June 30, 2000 and 1999,
respectively.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development costs are
charged to operations as incurred. Such expenses approximated $2,325,000,
$2,696,000 and $2,798,000 in 2001, 2000 and 1999, respectively.
INCOME TAXES - The Company accounts for income taxes using an asset and
liability approach. 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.
NET INCOME (LOSS) PER COMMON SHARE - Basic income (loss) per share is
computed using the weighted average number of common shares outstanding during
the periods. Diluted income per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
periods. The basic and diluted weighted average number of common shares
outstanding in the financial statements are the same because including a diluted
calculation in a loss position would produce an anti-dilutive per share amount.
The number of diluted weighted average common shares outstanding would be higher
by 370,260 shares in 2001 and 236,024 shares in 2000 without this anti-dilutive
impact.
10
FAIR VALUE OF FINANCIAL STATEMENTS - The Company's financial instruments
under SFAS No. 107 "Disclosure About Fair Value of Financial Instruments,"
includes cash, accounts receivable, accounts payable, borrowings under line of
credit facility and long-term debt. The Company believes that the carrying
amounts of these accounts are a reasonable estimate of their fair value because
of the short-term nature of such instruments or, in the case of long-term debt
because of interest rates available to the Company for similar obligations.
COMPREHENSIVE INCOME - In 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes rules for the
reporting of comprehensive income and its components. Comprehensive income
consists of net income, foreign currency translation adjustments and unrealized
gains on investments, and is presented in the Consolidated Statement of
Stockholders' Equity.
APPROVED ACCOUNTING STANDARDS - In June 2001, the Financial Accounting
Standards Board finalized FASB Statements No. 141, "Business Combinations" (SFAS
141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141
requires the use of the purchase method of accounting and prohibits the use of
the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to all business combinations initiated
after June 30, 2001 and for purchase business combinations completed on or after
July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company
reclassify the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company does not have any goodwill recorded as an asset as of June 30,
2001 and has only a small investment in intangible assets at June 30, 2001.
Therefore, the Company does not expect adoption of SFAS 141 and 142 to have a
material effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No.133) issued by the FASB
is effective for financial statements with fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change.
11
Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
In March 2000, the FASB issued FASB interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44") which is effective
July 1, 2000. This interpretation clarifies the application of APB Opinion 25
for certain issues related to stock issued to employees. The Company believes
its existing stock based compensation policies and procedures are in compliance
with FIN 44 and, therefore, that the adoption of FIN 44 will not have a material
effect on the Company's financial statements.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain amounts from the fiscal 2000 financial
statements have been reclassified to conform to the fiscal 2001 presentation.
2. INVENTORIES
Inventories consist of the following as of June 30:
2001 2000
Component parts . . . . . . . . $3,784,491 $3,721,474
Work in process . . . . . . . . 1,372,587 1,169,609
Finished units. . . . . . . . . 3,768,335 3,687,243
---------- ----------
Total inventories . . . . . . . 8,925,413 8,578,326
Less: reserve for obsolescence 325,000 400,000
---------- ----------
Net inventory . . . . . . . . . $8,600,413 $8,178,326
3. INVESTMENTS
IMMTECH INTERNATIONAL, INC. - The Company owns common stock of Immtech
International, Inc. ("Immtech"). Immtech is a biopharmaceutical company
focusing on the discovery and commercialization of therapeutics for treatment of
patients afflicted with opportunistic infectious diseases, cancer or comprised
immune systems. Immtech has two independent programs for developing drugs: one
based on a technology for the design of a class of pharmaceutical compounds
referred to as dications. The second is based on developing a series of
biological proteins that work in conjunction with the immune system. Immtech
has no products currently for sale, and none are expected to be commercially
available for several years. Immtech has a March 31 fiscal year end.
During the first and second quarters of fiscal 2000, the Company sold a
portion of its Immtech stock in a Private Placement. The proceeds from this sale
were $2,500,000. As a result of this sale, the Company owns less than 20% of
Immtech's issued and outstanding common stock as of June 30, 2000. Therefore,
beginning in fiscal 2000, in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Company ceased
accounting for the Immtech investment under the equity method and recorded the
12
asset on the balance sheet at the fair market value of $5,704,675. An unrealized
gain was also recorded as a component of stockholders' equity. The Company held
456,374 shares of Immtech common stock, which was trading at $8.70 and $12.50
per share, on June 30, 2001 and 2000, respectively.
The following is a summary of the Company's investment in and advances to
Immtech as of June 30, 1999:
1999
Investment in Immtech . . . . . . $ 2,736,000
Advances to Immtech . . . . . . . 863,940
------------
Total . . . . . . . . . . . . . . 3,599,940
Less investment losses recognized (3,599,940)
------------
Net investment. . . . . . . . . . $ 0
During July 1998, the Company purchased certain intangible assets and an
additional 172,414 shares of Immtech stock for $150,000. These intangibles and
shares of stock were subsequently sold to the former President and Chief
Executive Officer of the Company as part of a severance agreement for $150,000
(see Note 12). At the time of this transaction, the shares of Immtech stock were
carried at zero value under the equity method of accounting.
The Company has recognized investment losses related to the investment in
Immtech of $150,000 in 1999.
During April 1999, Immtech completed an Initial Public Offering ("IPO") of
its stock. As part of this IPO, the Company was required to sign a lock-up
agreement by which it was agreed that no shares owned by the Company could be
sold in the public market until the Immtech stock traded at $20 (200% of its
initial IPO price of $10) for 20 consecutive trading days and one year had
passed from the date of the IPO. As of June 30, 2000, these lock up provisions
have been satisfied.
The following is summarized financial information for Immtech at June 30,
1999 and for the twelve months then ended.
1999
Current assets. . . . . . . . . . . . . . . . $ 8,541,000
Noncurrent assets . . . . . . . . . . . . . . 68,000
Current liabilities . . . . . . . . . . . . . 253,000
Noncurrent liabilities. . . . . . . . . . . . --
Redeemable preferred stock. . . . . . . . . . --
Common stockholders' equity (deficit) . . . . 8,356,000
Revenues. . . . . . . . . . . . . . . . . . . 136,000
Net loss. . . . . . . . . . . . . . . . . . . (8,341,000)
Net loss attributable to common stockholders. (4,657,000)
13
4. INCOME TAXES
The Company accounts for income taxes using 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 statements or tax
returns. In addition, a valuation allowance is 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.
Significant components of the Company's deferred income tax assets and
deferred income tax liabilities are as follows:
JUNE 30, JUNE 30, JUNE 30,
2001 2000 1999
Deferred income tax assets:
Accounts receivable and sales allowances. . . . . . . $ 415,000 $ 533,000 $ 170,000
Inventory allowances. . . . . . . . . . . . . . . . . 164,000 191,000 254,000
Product warranties. . . . . . . . . . . . . . . . . . 86,000 128,000 128,000
Other accrued liabilities . . . . . . . . . . . . . . 210,000 246,000 392,000
Severance pay accrual . . . . . . . . . . . . . . . . 52,000 145,000 279,000
Lawsuit settlement. . . . . . . . . . . . . . . . . . -- -- 626,000
Federal net operating loss carryforwards. . . . . . . 3,665,000 3,320,000 2,014,000
State net operating loss carryforwards. . . . . . . . 467,000 483,000 291,000
Federal tax credit carryforwards. . . . . . . . . . . 152,000 152,000 152,000
Investment losses not deducted. . . . . . . . . . . . 709,000 709,000 1,532,000
------------ ------------ ------------
Total deferred income tax assets. . . . . . . . . . . 5,920,000 5,907,000 5,838,000
Deferred income tax liabilities:
Excess of tax over book depreciation and amortization (625,000) (616,000) (620,000)
Prepaid expenses. . . . . . . . . . . . . . . . . . . (28,000) (13,000) (7,000)
Unrealized gain on investments. . . . . . . . . . . . (1,557,000) (2,237,000) --
------------ ------------ ------------
Total deferred income tax liabilities . . . . . . . . (2,210,000) (2,866,000) (627,000)
Valuation allowance . . . . . . . . . . . . . . . . . (3,710,000) (3,041,000) (5,211,000)
Net deferred income taxes recognized in the
consolidated balance sheets . . . . . . . . . . . . $ 0 $ 0 $ 0
At June 30, 2001, the Company had federal net operating loss carryforwards
of approximately $10,779,000 which expire in 2008 through 2021. At June 30,
2001, 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 of tax credit carryforwards which expire
in the years 2007 through 2009. The Company also has approximately $9,339,000 of
state net operating loss carryforwards, which expire in 2003 through 2016,
available to offset certain future state taxable income.
The income tax provision consists of the following:
2001 2000 1999
Current
Federal. . . . . . . . . . $ 0 $ 0 $ 0
State. . . . . . . . . . . 0 0 0
Total income tax provision $ 0 $ 0 $ 0
14
A reconciliation of the provision for income taxes (benefits) at the
federal statutory income tax rate to the effective income tax rate follows:
2001 2000 1999
Federal statutory income tax rate . . . . . . (34.0)% (34.0)% (34.0)%
Losses for which no benefit was provided. . . 17.5 35.3 29.3
Non-deductible losses of subsidiaries . . . . 15.6 27.6 3.2
Other-net (principally stock options in 2000) 0.9 (28.9) 1.5
------- ------- -------
Effective income tax rate . . . . . . . . . . 0% 0% 0%
5. LINE OF CREDIT FACILITY AND LONG-TERM DEBT
2001 2000
Long-term debt consists of the following:
Mortgage note, 7.5% due in monthly installments of $27,793
with a final payment of $3,048,253 due April 1, 2004,
collateralized by real estate with a carrying value of
approximately $3,754,000 at June 30, 2001. . . . . . . . $3,283,892 $3,364,324
Less current maturities. . . . . . . . . . . . . . . . . . 86,766 80,432
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . $3,197,126 $3,283,892
Aggregate annual principal payments required under terms of the long-term
debt agreement are as follows:
YEARS ENDING JUNE 30, PRINCIPAL PAYMENTS
2002. . . . . . . . . $ 86,766
2003. . . . . . . . . 93,600
2004. . . . . . . . . 3,103,526
2005. . . . . . . . . 0
2006. . . . . . . . . 0
-------------------
Total . . . . . . . . $ 3,283,892
At June 30, 2001, the Company had a $4,000,000 demand line of credit
facility with a commercial bank to meet its short-term borrowing needs.
Borrowings against the line were payable on demand with interest payable monthly
at the bank's reference rate, plus .25% (7.0% as of June 30, 2001). As of June
30, 2001, there were no borrowings against the line. Borrowings under the line
of credit facility are collateralized by substantially all assets of the
Company. The credit facility has covenants which require minimum levels of
tangible net worth and income levels. The Company was not in compliance with
these covenants at June 30, 2001. This non-compliance was waived by the lending
institution.
15
In March 1999, the Company refinanced its mortgage note on the Company's
office and manufacturing facility. The Company incurred a prepayment penalty of
approximately $120,000, which was recorded as interest expense.
6. CONTINGENCIES
From time to time, various lawsuits arise out of the normal course of
business. These proceedings are handled by outside counsel. Currently management
is not aware of any claim or action pending against the Company that would have
a material adverse effect on the Company.
The Company received two grants from the State of Wisconsin for research
and development of certain products. The grants were to be repaid only upon
successful completion and marketing of the related product. Repayment of these
grants was to be made on a sales by unit basis. Repayments approximated $182,000
in 1999 and constituted full repayment of one of these grants. The repayments
were charged to expense as the related products were sold. Since the second
grant did not result in the successful completion and marketing of a product,
the Company did not have to repay the grant.
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 2,220,000 reserved shares of common stock of which 137,930 reserved
shares of common stock remain available for future issuance under the stock
option plans at June 30, 2001. The Board of Directors increased the number of
reserved shares for issuance under the Plans from 1,720,000 to 2,220,000 during
2001. The activity during 1999, 2000 and 2001 for the above plans are
summarized as follows:
NUMBER OF STOCK OPTIONS WEIGHTED AVG.
SHARES PRICE RANGE EXERCISE PRICE
Outstanding at July 1, 1998 . . . . . . . . . 839,700 1.88-3.63 2.50
Granted . . . . . . . . . . . . . . . . . . 993,700 1.50-1.88 1.74
Cancelled . . . . . . . . . . . . . . . . . (636,800) 1.69-3.00 2.06
Exercised . . . . . . . . . . . . . . . . . (5,000) 2.06 2.06
-----------
Outstanding at June 30, 1999. . . . . . . . . 1,191,600 1.50-3.00 1.83
Granted . . . . . . . . . . . . . . . . . . 489,100 2.00-2.25 2.24
Cancelled . . . . . . . . . . . . . . . . . (287,700) 1.63-3.63 1.99
Exercised . . . . . . . . . . . . . . . . . (240,100) 1.50-2.75 1.91
-----------
Outstanding at June 30, 2000. . . . . . . . . 1,152,900 1.50-2.75 1.96
Granted . . . . . . . . . . . . . . . . . . 780,520 1.88-3.69 2.47
Cancelled . . . . . . . . . . . . . . . . . (279,100) 1.88-2.75 2.01
Exercised . . . . . . . . . . . . . . . . . (18,700) 1.63-2.97 2.03
-----------
Outstanding at June 30, 2001. . . . . . . . . 1,635,620 1.50-3.69 2.19
Exercisable at June 30, 2001. . . . . . . . . 735,120 1.50-3.69 2.11
16
The following table summarizes information about stock options outstanding
as of June 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Average
Shares Remaining Weighted Shares
Range of Outstanding Contractual Average Exercise Exercisable Weighted Average
Exercise Prices at June 30, 2001 Life-Years Price at June 30, 2001 Exercise Price
1.50-1.875 . . . . . 794,000 2.99 $ 1.75 344,000 $ 1.69
2.00-3.69. . . . . . 841,620 3.10 2.61 391,120 2.49
1.50-3.69. . . . . . 1,635,620 3.05 2.19 735,120 2.11
Outstanding options have fixed terms and are exercisable over a period
determined by the Compensation Committee of the Company's Board of Directors but
no longer than five years after the date of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its plans. If the Company had elected to
recognize compensation cost for the options granted during the years ended June
30, 2001, 2000 and 1999, consistent with the method prescribed by SFAS No. 123,
net loss and net loss per share would have been changed to the pro forma amounts
indicated below:
YEARS ENDED JUNE 30,
2001 2000 1999
Net income (loss)-as reported . . . . . . . . . $(178,232) $ (186,388) $(4,388,171)
Net income (loss)-pro forma . . . . . . . . . . $(507,678) $ (365,626) $(4,555,200)
Net income (loss) per common share-as reported. $ (0.02) $ (0.02) $ (0.51)
Net income (loss) per common share-pro forma. . $ (0.05) $ (0.04) $ (0.53)
Assumptions used:
Expected volatility . . . . . . . . . . . . . 37.5% 23% 15%
Risk-free interest rate . . . . . . . . . . . 5% 6% 5%
Expected option life (in years) . . . . . . . 4 4 3
Weighted average fair market value of options
granted during the fiscal year ended June 30 $ 0.61 $ 0.38 $ 0.23
The fair value of stock options used to compute pro forma net loss and net
loss per common share is the estimated present value at the grant date using the
Black-Scholes option-pricing model.
STOCK WARRANTS - In September 1995, the Company executed a warrant
agreement with a consultant. The warrant agreement provided for the issuance of
warrants to purchase up to 150,000 shares of the common stock of the Company,
exercisable at a price of $2.00 per share. The warrant was exercisable as to
37,500 shares upon execution of the agreement and the warrants to purchase the
remaining 112,500 shares were to become exercisable if certain performance
parameters were achieved by September 1996. Such parameters were not met as of
such date. In January 1997, the agreement was extended and the parameters were
changed. By June 30, 1997, warrants to purchase the remaining 112,500 shares of
17
common stock at a price of $2.00 per share became exercisable. The warrant
holder exercised rights and purchased 41,000 shares of common stock at $2.00 per
share during the year ended June 30, 1998. The warrants were exercised to
purchase 15,000 shares of common stock at $2.00 per share during the year ended
June 30, 2001, and the remainder of such warrants expired.
In February 1998, the Company executed a similar warrant agreement with the
consultant. The warrant agreement provides for the issuance of warrants to
purchase up to 150,000 shares of common stock at a price of $3.00 per share. The
warrant is exercisable as to 30,000 shares upon execution of the agreement and
the warrants to purchase the remaining 120,000 shares will be exercisable if
certain performance parameters are achieved by February 1999. No such parameters
were achieved. During the year ended June 30, 1998, the Company recognized
$23,065 of expense related to the value of the services performed under the
agreement. As of June 30, 2001, 30,000 warrants were exercisable. Such warrants
expire in February 2003.
In December 2000, the Company executed another warrant agreement with the
consultant. The warrant agreement provides for the issuance of warrants to
purchase up to 70,000 shares of common stock at a price of $1.875 per share. The
warrant vests over a four year period in four equal increments each year on the
anniversary date of the warrant. The warrant terminates as to any shares that
are unvested at the time the consultant ceases to provide consulting services to
the Company. As of June 30, 2001, none of these warrants were exercisable. Such
warrants expire in December 2005.
COMMITMENT TO ISSUE SHARES OF COMMON STOCK - In April 1998, the Company
agreed to and accepted the patent rights assigned to them by a third party with
respect to certain technology related to the transmission of clinical data. In
consideration for the patent, the Company has agreed to provide the third party
with 400,000 shares of common stock payable over a four-year time period with
additional consideration of up to 112,000 shares contingent upon the achievement
of certain sales levels. The Company recorded a charge to operations of
$900,000 in fiscal 1998 with respect to the value of the in-process technology
which was expensed as research and development costs. The 400,000 shares to be
issued have been considered to be outstanding shares for purposes of computing
basic and diluted income (loss) per common share in 1998. During 1999, the
Company renegotiated the agreement and issued the third party 350,000 shares
instead of the 400,000 shares payable over four years and the 112,000 contingent
shares.
PREFERRED STOCK - The Company's Board of Directors has the authority to
determine the relative rights and preferences of any series it may establish
with respect to the 500,000 shares of $.04 par value authorized preferred
shares. No preferred stock is issued or outstanding.
On March 27, 1997, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock of the Company. The dividend was made on April 24, 1997
to the stockholders of record on that date to purchase Preferred Stock
("Preferred") upon the occurrence of certain events. The Rights will be
exercisable the tenth business day after a person or group acquires 20% of the
Company's common stock, or makes an offer to acquire 30% or more of the
Company's common stock. When exercisable, each right entitles the holder to
purchase for $25, subject to adjustment, one-hundredth of a share of Preferred
for each share of common stock owned. Each share of Preferred will be entitled
to a minimum preferential quarterly dividend of $25 per share, but not less than
an aggregate dividend of 100 times the common stock dividend. Each share will
have 100 votes, voting together with the common stock. In the event of any
merger, each share of Preferred will be entitled to receive 100 times the amount
received per share of common stock. The Rights expire on April 1, 2007.
18
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
$87,000, $77,000, and $84,000 in 2001, 2000 and 1999, respectively.
9. BUSINESS AND CREDIT CONCENTRATIONS
The Company is a manufacturer of medical monitors and telemetry products
whose customers include hospitals and alternative health care sites throughout
the world. 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. The Company currently coordinates substantially all
international sales and distribution activities through its headquarters in
Waukesha, Wisconsin. Such activities were previously provided by the Company
with the assistance of Criticare International. 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:
2001 2000 1999
Europe and Middle East . . . . . . . $ 6,833,000 $ 5,437,000 $ 4,635,000
Pacific Rim. . . . . . . . . . . . . 2,313,000 2,662,000 2,243,000
Canada and Central and South America 2,217,000 3,035,000 3,634,000
----------- ----------- -----------
Export net sales . . . . . . . . . . $11,363,000 $11,134,000 $10,512,000
U.S. net sales . . . . . . . . . . . 16,373,000 16,020,000 18,001,000
----------- ----------- -----------
Total net sales. . . . . . . . . . . 27,736,000 27,154,000 28,513,000
Note: Sales in Europe and the Middle East have been combined due to joint sales
responsibility in these areas. No country made up more than 10% of the Company's
total sales.
10. OTHER BUSINESS CONCENTRATIONS
During 1999, the Company entered into an OEM agreement with a customer.
Sales to this customer approximated $3,383,000, $2,031,000, and $4,360,000 in
fiscal 2001, 2000, and 1999, respectively. These sales represented approximately
12%, 8%, and 15% of the Company's total sales, respectively. This customer had a
receivable balance of $630,716, $935,520, and $448,546 on June 30, 2001, 2000,
and 1999, respectively, which represented 9%, 14%, and 7% of the Company's total
receivables as of these dates.
The Company also has a supplier that it made purchases from totaling
approximately $4,461,000, $3,358,000, and $3,087,000 in fiscal 2001, 2000, and
1999, respectively. These purchases represent approximately 19%, 16%, and 16% of
the Company's total purchases, respectively. The Company had a payable balance
owed to this vendor of $144,131, $220,999, and $122,603 on June 30, 2001, 2000,
and 1999, respectively, which represents 4%, 8%, and 4% of the Company's total
payables as of these dates.
19
11. COMMITMENTS
The Company leases certain operating equipment under various operating
leases for varying periods through fiscal 2006. Rent expense was $165,361 in
2001 and $207,553 in 2000.
The future minimum rental commitments under these leases are as follows:
Year ended June 30,
2002 $91,222
2003 35,084
2004 22,008
2005 18,831
Thereafter 15,693
--------
Total $182,838
During fiscal 2001 the Company entered into supply partnership agreements with
two offshore contract manufacturing firms that exclusively manufacture medical
devices in a regulated environment. These two firms will manufacture specific
products designated by the Company in accordance with formal purchase orders.
The initial term of the agreements is for a period of three years and is
automatically extended for additional periods of two years each, unless either
party gives written notice at least sixty days prior to the end of the initial
term or the then current extension term. To ensure an adequate supply of
products manufactured by these companies is maintained, the agreements require
that these firms keep on hand in their finished goods inventories one full month
of supply of all products under current purchase orders. At June 30, 2001, a one
month supply of product maintained at these two firms would total approximately
$475,000. In the event the Company would cancel a purchase order under either of
these agreements, the Company would be required to purchase at cost all raw
materials, work-in-progress and finished goods inventories for that purchase
order. In addition, any property or equipment that these firms purchased
specifically for the production of the Company's products would be purchased at
mutually agreed upon prices. There have not been any purchase order
cancellations under these agreements.
12. SEVERANCE PAY
During November 1998, the two co-founders of the Company resigned from
their positions. The Company has provided each of these individuals with a
severance agreement, which includes a portion of their salary and fringe
benefits for a period which approximates three years. The salary portion of the
severance expires on November 30, 2001 and the fringe benefit portion expires on
September 30, 2001, with the exception of health and dental benefits, which
continue until age 65 or comparable coverage is available through another
employer.
20
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, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 2001. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Criticare Systems,
Inc. and subsidiaries at June 30, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Milwaukee, Wisconsin
August 21, 2001
21
QUARTERLY RESULTS
The following table contains quarterly information, which includes all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation. The Company recorded a gain of
$2,500,000 in the quarter ended September 30, 1999 related to the sale of
Immtech stock. This item was an unusual, nonrecurring adjustment.
QUARTERS ENDED
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
2001 2001 2000 2000 2000 2000 1999 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales . . . . . $ 7,678 $ 7,264 $ 6,564 $ 6,230 $ 7,519 $ 6,131 $ 6,901 $ 6,603
Gross profit. . . . 3,252 2,923 2,581 2,511 2,326 2,235 3,142 2,989
(Loss) income from
operations. . . . (149) 37 134 (108) (1,317) (1,143) (215) 157
Net (loss) income . (161) 44 106 (166) (1,367) (1,197) 489 1,880
Net (loss) income
per common
share-Basic . . . (0.01) 0.00 0.01 (0.02) (0.16) (0.14) 0.06 0.22
-Diluted . . (0.01) 0.00 0.01 (0.02) (0.16) (0.14) 0.06 0.21
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.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT 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 are included in Item 8 of this report.
Consolidated Balance Sheets - as of June 30, 2001 and 2000.
Consolidated Statements of Operations - for the years ended June 30,
2001, 2000 and 1999.
Consolidated Statements of Stockholders' Equity - for the years ended
June 30, 2001, 2000 and 1999.
22
Consolidated Statements of Cash Flows - for the years ended June 30,
2001, 2000 and 1999.
Notes to consolidated financial statements.
2. Financial Statement Schedules:
-------------------------------
Independent Auditors' Report.
The Valuation and Qualifying Accounts and Reserves Financial Statement Schedule
for the years ending June 30, 2001, 2000 and 1999 has been previously filed with
the Securities and Exchange Commission in the Annual Report on Form 10-K for the
year ended June 30, 2001.
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 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).
4.2 Rights Agreement (incorporated by reference to the Company's
Current Report on Form 8-K filed on April 18, 1997).
10.1* 1999 Employee Stock Purchase Plan (incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended June 30, 1999).
10.2* 1992 Employee Stock Option Plan (incorporated by reference
to the Company's Registration Statement on Form S-8, Registration No. 33-60644).
10.3* 1992 Nonemployee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-60214).
10.4* 1987 Employee Stock Option Plan (incorporated by reference
to the Company's Registration Statement on Form S-8, Registration No. 33-33497).
10.5* 1987 Nonemployee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-40038).
10.6* Form of Executive Officer and Director Indemnity Agreement
(incorporated by reference to the Company's Registration Statement on Form S-1,
Registration No. 33-13050).
23
10.7* Severance Agreement, dated as of November 16, 1998, of
Gerhard J. Von der Ruhr (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999).
10.8* Severance Agreement, dated as of November 16, 1998, of N.C.
Joseph Lai (incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999).
10.9* Employment Agreement of Emil H. Soika, dated as of June 26,
2001.
10.10* Employment Agreement of Stephen D. Okland (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended June
30, 1999).
10.11* Employment Agreement of Drew M. Diaz (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended June
30, 1999).
10.12+ Supply Partnership Agreement, dated as of August 1, 2000,
between the Company and BioCare Corporation.
10.13+ Supply Agreement, dated as of October 26, 2000, between the
Company and TriVirix International Limited.
21 Subsidiaries (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1999).
23.1 Consent of BDO Seidman, LLP.
24+ Power of Attorney.
__________________
* Management contract or compensatory plan or arrangement.
+ Previously filed.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended June 30,
2001.
(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.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A to be
signed on its behalf by the undersigned, thereunto duly authorized.
CRITICARE SYSTEMS, INC.
By /s/ Emil H. Soika
----------------------------------
Emil H. Soika, President
and Chief Executive Officer
Date: May 20, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K/A has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
------------------------- ------------------------------------- ------------
/s/ Emil H. Soika President, Chief Executive Officer May 20, 2002
------------------------- and Director (Principal Executive
Emil H. Soika Officer)
/s/ Michael J. Sallmann Vice President-Finance and Secretary May 20, 2002
------------------------- (Principal Financial and Accounting
Michael J. Sallmann Officer)
* Chairman of the Board and Director
-------------------------
Karsten Houm
* Director
-------------------------
Milton Datsopoulos
* Director
-------------------------
N.C. Joseph Lai, Ph.D.
* Director
-------------------------
Dr. Higgins Bailey
* Director
-------------------------
Jeffrey T. Barnes
* Director
-------------------------
Stephen K. Tannenbaum
*By: /s/ Emil H. Soika May 20, 2002
--------------------
Attorney-in-fact
Pursuant to Power of
Attorney
25