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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
----------------
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
----------------- -------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20925 Crossroads Circle, Suite 100, 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
- -------------------------------------------------------------------------------
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Number of shares outstanding of each class of the registrant's classes of common
stock as of March 31, 2003: Common Stock, $0.04 par value, 11,204,024 shares.
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND JUNE 30, 2002
(UNAUDITED)
March 31, June 30,
ASSETS 2003 2002
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 5,163,809 $ 3,523,070
Accounts receivable, less allowance for doubtful accounts
of $300,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,424,820 5,481,952
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,304,689
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 291,199 502,348
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,400,307 7,134,803
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,368 453,347
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 18,612,503 19,400,209
Property, plant and equipment - net. . . . . . . . . . . . . . . . . . . 2,213,200 5,983,060
License rights and patents - net . . . . . . . . . . . . . . . . . . . . 85,736 90,987
------------ ------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,911,439 $25,474,256
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,154,129 $ 2,331,496
Accrued liabilities:
Compensation and commissions . . . . . . . . . . . . . . . . . . . . 800,492 770,578
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . 327,692 248,725
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,792 490,922
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . - 93,589
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 4,547,105 3,935,310
LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . . . . . - 3,103,536
OTHER LONG-TERM OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 37,766 48,344
STOCKHOLDERS' EQUITY:
Preferred stock - $.04 par value, 500,000 shares authorized,
no shares issued or outstanding. . . . . . . . . . . . . . . . . . . - -
Common stock - $.04 par value, 15,000,000 shares authorized,
11,204,024 and 11,199,524 shares issued, respectively. . . . . . . . 448,161 447,981
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 23,359,731 23,350,124
Common stock held in treasury (132,076 and 100,890 shares, respectively) (423,127) (309,059)
Subscriptions receivable . . . . . . . . . . . . . . . . . . . . . . . . (225,000) (225,000)
Retained earnings (accumulated deficit). . . . . . . . . . . . . . . . . (6,839,297) (7,187,501)
Cumulative translation adjustment. . . . . . . . . . . . . . . . . . . . 6,100 5,832
Unrealized gain on investments . . . . . . . . . . . . . . . . . . . . . - 2,304,689
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 16,326,568 18,387,066
------------ ------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,911,439 $25,474,256
============ ============
See notes to consolidated financial statements.
2
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
NET SALES. . . . . . . . . . . . . . . $21,857,740 $19,238,364
COST OF GOODS SOLD . . . . . . . . . . 13,041,237 12,195,255
------------ ------------
GROSS PROFIT . . . . . . . . . . . . . 8,816,503 7,043,109
OPERATING EXPENSES:
Sales and marketing. . . . . . . . . . 4,875,229 4,105,055
Research, development and engineering. 2,078,572 1,737,343
Administrative . . . . . . . . . . . . 2,977,022 2,241,884
------------ ------------
Total. . . . . . . . . . . . . . . . 9,930,823 8,084,282
LOSS FROM OPERATIONS . . . . . . . . . (1,114,320) (1,041,173)
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . (91,533) (185,457)
Interest income. . . . . . . . . . . . 40,544 61,932
Other. . . . . . . . . . . . . . . . . 1,513,513 53,592
------------ ------------
Total. . . . . . . . . . . . . . . . 1,462,524 (69,933)
INCOME (LOSS) BEFORE INCOME TAXES. . . 348,204 (1,111,106)
INCOME TAX PROVISION . . . . . . . . . - -
------------ ------------
NET INCOME (LOSS). . . . . . . . . . . $ 348,204 $(1,111,106)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic. . . . . . . . . . . . . . . . . $ 0.03 $ (0.10)
Diluted. . . . . . . . . . . . . . . . $ 0.03 $ (0.10)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic. . . . . . . . . . . . . . . . . 11,071,267 10,815,814
Diluted. . . . . . . . . . . . . . . . 11,423,100 10,815,814
See notes to consolidated financial statements.
3
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
NET SALES. . . . . . . . . . . . . . . $ 6,503,787 $ 6,402,631
COST OF GOODS SOLD . . . . . . . . . . 4,022,771 4,035,101
------------ ------------
GROSS PROFIT . . . . . . . . . . . . . 2,481,016 2,367,530
OPERATING EXPENSES:
Sales and marketing. . . . . . . . . . 1,533,931 1,001,622
Research, development and engineering. 692,917 569,642
Administrative . . . . . . . . . . . . 888,261 998,288
------------ ------------
Total. . . . . . . . . . . . . . . . 3,115,109 2,569,552
LOSS FROM OPERATIONS . . . . . . . . . (634,093) (202,022)
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . - (60,509)
Interest income. . . . . . . . . . . . 12,016 13,933
Other. . . . . . . . . . . . . . . . . 1,081,761 13,814
------------ ------------
Total. . . . . . . . . . . . . . . . 1,093,777 (32,762)
INCOME (LOSS) BEFORE INCOME TAXES. . . 459,684 (234,784)
INCOME TAX PROVISION . . . . . . . . . - -
------------ ------------
NET INCOME (LOSS). . . . . . . . . . . $ 459,684 $ (234,784)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic. . . . . . . . . . . . . . . . . $ 0.04 $ (0.02)
Diluted. . . . . . . . . . . . . . . . $ 0.04 $ (0.02)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic. . . . . . . . . . . . . . . . . 11,071,273 10,927,806
Diluted. . . . . . . . . . . . . . . . 11,370,087 10,927,806
See notes to consolidated financial statements.
4
CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 348,204 $(1,111,106)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation . . . . . . . . . . . . . . . . . 713,839 633,934
Amortization . . . . . . . . . . . . . . . . . 5,251 5,251
Provision for doubtful accounts. . . . . . . . - (386,000)
Provision for obsolete inventory . . . . . . . 184,225 451,000
Gain on sale of Immtech stock. . . . . . . . . (1,290,252) -
Gain on sale of fixed assets . . . . . . . . . (41,208) (5,292)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . 57,132 1,106,615
Other receivables . . . . . . . . . . . . 211,149 12,215
Inventories . . . . . . . . . . . . . . . (473,197) 390,567
Prepaid expenses. . . . . . . . . . . . . 120,979 102,077
Accounts payable. . . . . . . . . . . . . 822,633 (1,426,783)
Accrued liabilities . . . . . . . . . . . (127,827) (473,349)
------------ ------------
Net cash provided by (used in) operating activities . . 530,928 (700,871)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net . . . . (674,757) (194,453)
Proceeds from sale of Immtech stock . . . . . . . . . . 1,290,252 -
Proceeds from sale of building. . . . . . . . . . . . . 3,795,164 -
Proceeds from sale of fixed assets. . . . . . . . . . . - 5,500
------------ ------------
Net cash provided by (used in) investing activities . . 4,410,659 (188,953)
FINANCING ACTIVITIES:
Retirement of long-term debt. . . . . . . . . . . . . . (3,197,125) (64,945)
Repurchase of Company common stock. . . . . . . . . . . (121,359) -
Proceeds from issuance of common stock. . . . . . . . . 17,368 452,851
------------ ------------
Net cash (used in) provided by financing activities . . (3,301,116) 387,906
EFFECT OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . 268 -
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . 1,640,739 (501,918)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . 3,523,070 3,362,104
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . $ 5,163,809 $ 2,860,186
============ ============
See notes to consolidated financial statements.
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 filed Form 10-K. Certain amounts from the fiscal 2002 financial
statements have been reclassified to conform to the 2003 presentation.
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 March 31, 2003 and June 30, 2002, respectively:
March 31, 2003 June 30, 2002
--------------- --------------
Component parts . . . . . . . . $ 2,818,491 $ 3,549,397
Work in process . . . . . . . . 702,641 499,950
Finished units. . . . . . . . . 4,342,987 4,031,456
--------------- --------------
Total inventories . . . . . . . 7,864,119 8,080,803
Less: reserve for obsolescence 463,812 946,000
--------------- --------------
Net inventory . . . . . . . . . $ 7,400,307 $ 7,134,803
6
3. INVESTMENTS
During fiscal 2003, the Company completely liquidated its position in its
Immtech International, Inc. ("Immtech") common stock. The Company sold all
456,374 Immtech shares it held and realized the following gains in the first
three quarters of fiscal 2003:
Shares Realized
Sold Gain
------ --------
1st quarter ended September 30, 2002 . . . . . . 50,000 $ 241,746
2nd quarter ended December 31, 2002. . . . . . . 4,000 14,096
3rd quarter ended March 31, 2003 . . . . . . . . 402,374 1,034,410
------- ----------
Total . . . . . . . . . . . . . . . . . . 456,374 $1,290,252
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
March 31, 2003 June 30, 2002
--------------- --------------
Land and building. . . . . . . . . . $ - $ 4,525,000
Machinery and equipment. . . . . . . 2,213,520 2,007,322
Furniture and fixtures . . . . . . . 910,801 809,277
Construction in progress . . . . . . - 116,798
Leasehold improvements . . . . . . . 212,229 -
Demonstration and loaner monitors. . 1,400,295 1,616,766
Production tooling . . . . . . . . . 3,574,889 3,425,117
--------------- --------------
Property, plant and equipment - cost 8,311,734 12,500,280
Less: accumulated depreciation. . . 6,098,534 6,517,220
--------------- --------------
Property, plant and equipment - net. $ 2,213,200 $ 5,983,060
On August 30, 2002, the Company sold its building in Waukesha, Wisconsin and
leased back approximately 62% of the building's square footage. The building
was sold for $4,000,000 and a gain of $41,208 was realized on the sale after the
payment of commissions and fees and the funding of $105,396 in capitalized build
out costs needed to split the building into two leasable spaces. The proceeds
from the sale were used to retire the $3,182,160 of debt on the Company's
balance sheet at August 30, 2002 and increased the Company's cash position by
approximately $500,000.
7
5. CONTINGENCIES
The import and export rules applicable to all United States companies engaged in
international business transactions contain compliance guidelines. Violations
may result in civil or criminal penalties, or both, as well as the potential
loss of export privileges.
On August 6, 2002, in part due to the new regulations imposed under the
Sarbanes-Oxley Act, the Company initiated an internal review of its import and
export procedures. On August 28, 2002, senior management of the Company became
aware of previous events that may have violated United States import/export laws
and regulations. Senior management of the Company immediately authorized an
internal audit of these possible violations, focusing on the sale of medical
equipment directly or indirectly into an embargoed country and possible marking
issues.
The factual investigation pursuant to the internal audit is complete, no
additional compliance issues arose, and no material marking issues were
identified as a result of the investigation.
Subsequently, the Company has taken action to adopt and implement a written
compliance program with respect to applicable import/export rules. The Company
has also undertaken a voluntary disclosure with the relevant government agencies
and has filed its completed internal audit report and all requested documents.
Although there is no assurance, based upon the results of the completed internal
audit and precedents, the Company believes a negotiated settlement of any
violations will not have a material adverse effect on the Company. In
addition, the Company does not believe that the audit result supports the denial
of export privileges; however, any such penalty would have a material adverse
effect on the Company's business. The Company further believes that the
voluntary disclosure, along with other internal actions taken, will serve to
mitigate any potential adverse consequences that otherwise might accrue.
6. SUBSCRIPTIONS RECEIVABLE
Subscriptions receivable represents common stock issued in May 2002 to two
directors of the Company, Milton Datsopoulos and Karsten Houm, related to
expiring stock options. The shares were issued and promissory notes payable in
the amount of $112,500 were executed by each of the directors for the exercise
price of the stock options. In February 2003 these two directors retired from
the Board. After their retirement, the promissory notes were refinanced through
the issuance of two new notes dated March 1, 2003. These notes are non-interest
bearing and are due and payable on May 6, 2004. Each of the retired directors
have pledged the shares issued as collateral for these loans.
8
7. STOCK OPTIONS
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure". If the Company had elected
to recognize compensation cost for the options granted for the nine months and
three months ended March 31, 2003 and 2002, consistent with the method
prescribed by SFAS No. 123, net income (loss) and net income (loss) per share
would have been changed to the pro forma amounts indicated below:
Nine months ended March 31 Three Months ended March 31
------------------------------ -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) - as reported . . . . . . . . . . $348,204 $(1,111,106) $459,684 $(234,784)
Net income (loss) - pro forma . . . . . . . . . . . $208,178 $(1,209,484) $413,009 $(267,577)
Basic net income (loss) per share - as reported . . $0.03 $(0.10) $0.04 $(0.02)
Basic net income (loss) per share - pro forma . . . $0.02 $(0.11) $0.04 $(0.02)
Diluted net income (loss) per share - as reported . $0.03 $(0.10) $0.04 $(0.02)
Diluted net income (loss) per share - pro forma . . $0.02 $(0.11) $0.04 $(0.02)
The fair value of stock options used to compute pro forma net income (loss) and
net income (loss) per share is the estimated present value at the grant date
using the Black-Scholes option-pricing model.
8. GUARANTEE
Criticare Integration, Inc., a wholly owned U.S. subsidiary of Criticare
Systems, Inc., was incorporated on April 8, 2003 to supply medical equipment and
supplies to medical facilities in countries in the Black Sea Economic Zone
(Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Romania, and the Ukraine).
Criticare Systems, Inc. has set up a standby letter of credit for $300,000 on
behalf of Criticare Integration that acts as a guarantee related to this new
venture. The standby letter of credit serves as a guarantee for a $2,000,000
line of credit that has been extended by a large Austrian bank to fund this
project. The standby letter of credit expires on November 15, 2003 and would
only be called if the Austrian bank had significant collection problems with the
project. No collection problems are anticipated as stringent credit policies
are in place and the right to repossess the equipment is maintained.
9
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Nine Months Ended March 31, 2003 and 2002
RESULTS OF OPERATIONS
- -----------------------
Net sales of $21.9 million for the nine months ended March 31, 2003 were up
13.6% from the $19.2 million of net sales generated for the same period in the
prior year. The Company's domestic, international, and OEM sales were all higher
than the prior year period, with domestic and OEM sales contributing most
significantly to the sales increase. A 16.8% increase in the number of units
shipped and a 6.5% increase in the average selling price per unit, partially
offset by a 12.0% decrease in accessory sales, drove the higher year-to-date
sales.
The gross profit percentage for the first nine months of the current year of
40.3% improved almost four points from the 36.6% generated for the first nine
months of the prior year. The higher sales in the current year resulted in a
better utilization of fixed manufacturing costs and was the main contributor to
the improved margins.
Operating expenses for the nine months ended March 31, 2003 were higher than the
same period in the prior year by $1.8 million. Administrative expenses
increased $735,138 due mainly to legal and consulting fees related to the
internal review conducted by the Company of its import and export procedures
that totaled approximately $421,000, and a final payment of $150,000 made to the
Company's former CEO and founder to satisfy past severance obligation issues.
Research, development and engineering expenses were up $341,229 in the current
year due mostly to a $319,000 increase in combined labor costs and project
spending incurred to launch the Company's new line of proprietary anesthesia
monitoring products. Sales and marketing expenses were $770,174 higher in the
current year due mostly to a $386,000 reduction in the reserve for bad debts
that was recorded in the prior year, driven by cash collections on an at risk
receivable that had been specifically reserved for. In addition, a $275,000
increase in employee and dealer commissions and bonus driven by the higher
sales, and a $97,000 increase in trade show spending to support the rollout of
the Company's new anesthesia products contributed to the higher sales and
marketing expenses in the current year.
Total other income in the current year of $1,462,524 more than offset the
increase in operating expenses, resulting in a bottom line profit of $348,204
that was $1,459,310 better than the $1,111,106 net loss in the prior year. The
other income consisted mainly of a $1,290,252 gain recognized on the sale of the
Company's investment in Immtech International, Inc. Also contributing to the
higher other income was $93,000 in profits recognized on a medical integration
project in Romania and a $41,208 gain on the sale of the Company's building.
10
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three Months Ended March 31, 2003 and 2002
RESULTS OF OPERATIONS
- -----------------------
Net sales for the three months ended March 31, 2003 of $6.5 million were up
slightly from the $6.4 million for the same period in fiscal 2002. A 7.0%
increase in the number of units shipped in the quarter and a 4.7% increase in
the average selling price per unit more than offset a $391,582 reduction in
accessory sales. Higher domestic and international sales in the quarter,
combined with the Company's first shipment of Criticare products to Romania
totaling $260,260, more than offset lower OEM and government sales.
The gross profit percentage for the three months ended March 31, 2003 of 38.1%
was up from 37.0% for the same period in the prior year. The slightly improved
margins in the current quarter was driven mainly by sales of the Company's
recently introduced and higher margin anesthesia products.
Operating expenses for the three months ended March 31, 2003 were up $545,557
from the same period in the prior year due mainly to a $532,309 increase in
sales and marketing expenses. As noted above, the prior year period included a
$386,000 reduction in the reserve for bad debts and related bad debt expense,
driven by cash collections on an at risk receivable that had been specifically
reserved for. In addition, a $58,000 increase in employee and dealer
commissions driven by the higher domestic sales and a $61,000 increase in trade
show and related sales travel expenses also contributed to the higher sales and
marketing expenses in the current period.
Other income improved $1,126,539 for the three months ended March 31, 2003 from
the same period in the prior year, due mainly to a $1,034,410 gain on the sale
of the last of the Company's shares of its investment in Immtech International,
Inc. In addition, the Company incurred no interest expense in its current third
quarter ended March 31, 2003 due to the retirement of its long-term debt in the
first quarter of the current year, resulting in a $60,509 savings from the same
period in the prior year.
The higher other income for the three months ended March 31, 2003 more than
offset the increase in operating expenses, resulting in a bottom line profit of
$459,684 that was $694,468 better than the $234,784 net loss from the fiscal
third quarter of the prior year.
11
CRITICARE SYSTEMS, INC.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
As of March 31, 2003, the Company had a cash balance of $5,163,809, an increase
of $1,640,739 from its balance at June 30, 2002, and a long-term debt free
balance sheet due to the sale of the Company's building in the current fiscal
year. The Company sold its building in Waukesha, Wisconsin in August of 2002,
leased back approximately 62% of its square footage, and used the proceeds from
the sale to retire the long-term debt on the balance sheet. The sale of the
building increased the Company's cash position by approximately $500,000 and is
expected to improve future cash flows by almost $150,000 annually, through the
elimination of interest expense and excess square footage (see "Forward Looking
Statements").
The other significant event favorably impacting cash flows for the nine months
ended March 31, 2003 was the sale of all 456,374 shares of the Company's Immtech
International, Inc. stock. The sale of these shares resulted in an increase in
cash and a realized gain of $1,290,252 in the current year.
The Company believes all future capital and liquidity requirements will be
satisfied by cash generated from operations and its current cash balances. No
major capital equipment expenditures are expected for the remainder of calendar
year 2003. The Company also has a $4,000,000 line of credit currently in place
that expires in November 2003 that could be utilized, if necessary. At March
31, 2003, there were no borrowings outstanding under this 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, competition in the Company's markets,
compliance with product safety regulations and product liability and product
recall risks, risks relating to international sales and compliance with U.S.
export regulations, unanticipated difficulties in outsourcing the manufacturing
of the majority of its products to foreign manufacturers and risks related to
foreign manufacturing, including economic and political instability, trade and
foreign tax laws, production delays and cost overruns and quality control, and
the Company's ability to reduce costs by eliminating excess capacity at its
principal facility.
12
CONTROLS AND PROCEDURES
- -------------------------
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on this evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective in timely alerting
them to material information relating to the Company required to be included in
the Company's periodic filings with the Securities and Exchange Commission. It
should be noted that in designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
13
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).
4.2 Rights Agreement (incorporated by reference to the Company's Current
Report on Form 8-K filed on April 18, 1997).
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the quarter ended March 31, 2003.
14
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: May 14, 2003 BY /s/ Michael J. Sallmann
-----------------------------------
Michael J. Sallmann
Vice President - Finance
(Chief Accounting Officer and
Duly Authorized Officer)
15
CERTIFICATIONS
--------------
I, Emil H. Soika, President and Chief Executive Officer of Criticare Systems,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Criticare
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
16
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Emil H. Soika
-------------------------------------
Emil H. Soika
President and Chief Executive Officer
17
CERTIFICATIONS
--------------
I, Michael J. Sallmann, Vice President - Finance and Secretary of Criticare
Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Criticare
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
18
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Michael J. Sallman
---------------------------------------
Michael J. Sallmann
Vice President - Finance and Secretary
19