CONSOLIDATED
BALANCE SHEETS
MARCH
31,
2007 AND JUNE 30, 2006
(UNAUDITED)
|
|
March
31,
2007
|
|
June
30,
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,038,871
|
|
$
|
3,793,781
|
|
Accounts
receivable, less allowance for doubtful accounts
|
|
|
|
|
|
|
|
of
$586,388 and $829,700, respectively
|
|
|
5,642,413
|
|
|
6,187,351
|
|
Other
receivables
|
|
|
349,740
|
|
|
591,008
|
|
Short-term
note receivable
|
|
|
50,000
|
|
|
50,000
|
|
Inventories
|
|
|
8,326,103
|
|
|
9,464,037
|
|
Prepaid
expenses
|
|
|
199,524
|
|
|
227,606
|
|
Total
current assets
|
|
|
18,606,651
|
|
|
20,313,783
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment - net
|
|
|
2,287,258
|
|
|
2,452,314
|
|
|
|
|
|
|
|
|
|
License
rights and patents - net
|
|
|
57,730
|
|
|
62,981
|
|
Long-term
note receivable
|
|
|
87,500
|
|
|
150,000
|
|
Total
other assets
|
|
|
145,230
|
|
|
212,981
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
21,039,139
|
|
$
|
22,979,078
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,002,653
|
|
$
|
5,408,746
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
Compensation
and commissions
|
|
|
740,128
|
|
|
914,889
|
|
Product
warranties
|
|
|
370,000
|
|
|
425,000
|
|
Obligations
under capital lease
|
|
|
72,616
|
|
|
68,205
|
|
Other
|
|
|
130,133
|
|
|
174,667
|
|
Total
current liabilities
|
|
|
4,315,530
|
|
|
6,991,507
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
Obligations
under capital lease
|
|
|
78,799
|
|
|
133,826
|
|
Other
long-term obligations
|
|
|
—
|
|
|
659
|
|
Total
long-term liabilities
|
|
|
78,799
|
|
|
134,485
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
4,394,329
|
|
|
7,125,992
|
|
|
|
|
|
|
|
|
|
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, 12,399,631
and
|
|
|
|
|
|
|
|
12,398,131
shares issued, and 12,301,071 and 12,291,454 shares outstanding,
respectively
|
|
|
495,985
|
|
|
495,925
|
|
Additional
paid-in capital
|
|
|
26,261,311
|
|
|
26,156,864
|
|
Common
stock held in treasury at cost (98,560 and 106,677 shares,
respectively)
|
|
|
(360,693
|
)
|
|
(375,813
|
)
|
Retained
earnings (accumulated deficit)
|
|
|
(9,723,059
|
)
|
|
(10,436,794
|
)
|
Other
comprehensive income (loss)
|
|
|
(28,734
|
)
|
|
12,904
|
|
Total
stockholders' equity
|
|
|
16,644,810
|
|
|
15,853,086
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
21,039,139
|
|
$
|
22,979,078
|
|
See
notes
to consolidated financial statements.
CRITICARE
SYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF INCOME
NINE
MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)
|
|
2007
|
|
2006
|
|
NET
SALES
|
|
$
|
23,790,883
|
|
$
|
24,254,956
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
14,376,860
|
|
|
14,653,789
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
9,414,023
|
|
|
9,601,167
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
4,284,603
|
|
|
5,005,091
|
|
Research,
development and engineering
|
|
|
1,813,672
|
|
|
1,913,355
|
|
Administrative
|
|
|
2,699,106
|
|
|
2,450,762
|
|
Total
|
|
|
8,797,381
|
|
|
9,369,208
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
616,642
|
|
|
231,959
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(11,303
|
)
|
|
(15,360
|
)
|
Interest
income
|
|
|
94,983
|
|
|
66,999
|
|
Other
(expense) income
|
|
|
13,414
|
|
|
452,740
|
|
Total
|
|
|
97,094
|
|
|
504,379
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
713,736
|
|
|
736,338
|
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
713,736
|
|
$
|
736,338
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.06
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING:
|
|
|
|
|
|
|
|
Basic
|
|
|
12,297,011
|
|
|
11,997,319
|
|
Diluted
|
|
|
12,361,484
|
|
|
12,215,149
|
|
See
notes
to consolidated financial statements.
CRITICARE
SYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF INCOME
THREE
MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)
|
|
2007
|
|
2006
|
|
NET
SALES
|
|
$
|
7,121,548
|
|
$
|
7,811,830
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
4,244,719
|
|
|
4,722,411
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
2,876,829
|
|
|
3,089,419
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
1,470,988
|
|
|
1,712,397
|
|
Research,
development and engineering
|
|
|
613,978
|
|
|
613,688
|
|
Administrative
|
|
|
816,760
|
|
|
836,863
|
|
Total
|
|
|
2,901,726
|
|
|
3,162,948
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(24,897
|
)
|
|
(73,529
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,414
|
)
|
|
(4,794
|
)
|
Interest
income
|
|
|
32,323
|
|
|
25,024
|
|
Other
income
|
|
|
26,115
|
|
|
45,323
|
|
Total
|
|
|
55,024
|
|
|
65,553
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
|
30,127
|
|
|
(7,976
|
)
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
30,127
|
|
$
|
(7,976
|
)
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING:
|
|
|
|
|
|
|
|
Basic
|
|
|
12,300,136
|
|
|
12,122,819
|
|
Diluted
|
|
|
12,358,827
|
|
|
12,122,819
|
|
See
notes
to consolidated financial statements.
CRITICARE
SYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)
|
|
2007
|
|
2006
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
713,736
|
|
$
|
736,338
|
|
Adjustments
to reconcile net income to net cash provided by (used in)
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
354,817
|
|
|
488,231
|
|
Amortization
|
|
|
5,251
|
|
|
5,251
|
|
Share
based compensation
|
|
|
92,421
|
|
|
129,194
|
|
Provision
for doubtful accounts
|
|
|
7,454
|
|
|
23,510
|
|
Provision
for obsolete inventory
|
|
|
120,144
|
|
|
(93,300
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
494,893
|
|
|
(358,703
|
)
|
Note
receivable
|
|
|
62,500
|
|
|
—
|
|
Other
receivables
|
|
|
241,268
|
|
|
40,791
|
|
Inventories
|
|
|
1,113,193
|
|
|
(2,340,217
|
)
|
Prepaid
expenses
|
|
|
28,082
|
|
|
37,966
|
|
Accounts
payable
|
|
|
(2,406,093
|
)
|
|
406,991
|
|
Accrued
liabilities
|
|
|
(274,954
|
)
|
|
(110,697
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
552,712
|
|
|
(1,034,645
|
)
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment, net
|
|
|
(285,165
|
)
|
|
(535,236
|
)
|
Net
cash used in investing activities
|
|
|
(285,165
|
)
|
|
(535,236
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Retirement
of obligations under capital lease
|
|
|
(50,616
|
)
|
|
(46,559
|
)
|
Proceeds
from issuance of common stock
|
|
|
27,206
|
|
|
1,180,956
|
|
Net
cash (used in) provided by financing activities
|
|
|
(23,410
|
)
|
|
1,134,397
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
953
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
245,090
|
|
|
(434,405
|
)
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
3,793,781
|
|
|
3,680,965
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
4,038,871
|
|
$
|
3,246,560
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Income
taxes paid-net
|
|
$
|
10,547
|
|
$
|
4,385
|
|
Interest
|
|
$
|
11,303
|
|
$
|
15,360
|
|
See
notes
to consolidated financial statements.
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. The three and nine month results represent past
performance, and are not necessarily indicative of results for an entire
year.
Certain amounts from the fiscal 2006 financial statements have been reclassified
to conform to the 2007 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, 2007 and June 30, 2006, respectively:
|
|
March
31, 2007
|
|
June
30, 2006
|
|
Component
parts
|
|
$
|
2,795,980
|
|
$
|
2,605,751
|
|
Work
in process
|
|
|
1,282,173
|
|
|
1,470,893
|
|
Finished
units
|
|
|
4,575,950
|
|
|
5,747,393
|
|
Total
inventories
|
|
|
8,654,103
|
|
|
9,824,037
|
|
Less:
reserve for obsolescence
|
|
|
328,000
|
|
|
360,000
|
|
Net
inventory
|
|
$
|
8,326,103
|
|
$
|
9,464,037
|
|
3.
Property, Plant and Equipment
Property,
plant and equipment consist of the following:
|
|
March
31, 2007
|
|
June
30, 2006
|
|
Machinery
and equipment
|
|
$
|
3,342,815
|
|
$
|
3,157,328
|
|
Furniture
and fixtures
|
|
|
942,872
|
|
|
952,193
|
|
Leasehold
improvements
|
|
|
269,423
|
|
|
243,604
|
|
Production
tooling
|
|
|
2,362,382
|
|
|
2,294,360
|
|
Demonstration
and loaner monitors
|
|
|
2,111,351
|
|
|
1,997,844
|
|
Property,
plant and equipment - cost
|
|
|
9,028,843
|
|
|
8,645,329
|
|
Less:
accumulated depreciation
|
|
|
(6,741,585
|
)
|
|
(6,193,015
|
)
|
Property,
plant and equipment - net
|
|
$
|
2,287,258
|
|
$
|
2,452,314
|
|
4.
Stock Options
The
Company has adopted the fair value recognition provisions of SFAS No. 123
(R),
“Share-Based Payment”. Under the modified prospective method of adoption
selected by the Company, compensation cost recognized is the same as that
which
would have been recognized had the recognition provisions of SFAS No. 123
been
applied from its original effective date. Stock-based employee compensation
expense included in reported net income totaled $35,876 and $48,054 for the
three months ended March 31, 2007 and 2006, respectively. Stock-based employee
compensation expense included in reported net income totaled $92,421 and
$129,194 for the nine months ended March 31, 2007 and 2006,
respectively.
For
the
three and nine months ended March 31, 2007, the Company granted options totaling
39,000 shares at a weighted average exercise price of $3.47, which have a
fair
value of $81,166. The fair value of stock options is the estimated fair value
at
the grant date using the Black-Scholes option-pricing model. The assumptions
used when calculating the option-pricing model include the expected volatility
of Criticare’s common stock at 45.0%, the risk-free interest rate of 4.79%, the
expected option life of 8.88 years and the forfeiture rate of option grants
at
0%.
5.
Income Taxes
No
income
tax provision has been made in the consolidated statements of income due
to
federal and state net operating loss carry forwards that will be utilized
to
offset taxable income earned. At March 31, 2007, the Company had federal
net
operating loss carry forwards of approximately $17,706,000 (which expire
from
2008 through 2026) and state net operating loss carry forwards of approximately
$11,930,000 (which expire from 2007 through 2021) available to offset future
taxable income. The Company has recorded a valuation allowance to offset
the
related deferred income tax assets arising from these net operating loss
carry
forwards due to the uncertainty of realizing the benefits of these assets
in
future years.
6.
Line of Credit Facility
At
March
31, 2007, the Company had a $2,000,000 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, less 0.25% (8.00% as of March 31, 2007). As of March 31,
2007
and June 30, 2006, 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 income
or
liquidity levels. The Company was in compliance with the covenants at March
31,
2007.
7.
Net Income (Loss) Per Common Share
Basic
net
income (loss) per share is computed using the weighted average number of
common
shares outstanding during the periods. Diluted net income (loss) per share
is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the periods. Additionally, antidilution
occurs when the exercise price of the option is higher than the average market
price of the common stock. The diluted weighted average common shares
outstanding would be higher by 112,750 shares for the three and nine months
ended March 31, 2007 and by 28,000 shares for the three and nine months ended
March 31, 2006 without this anti-dilutive impact.
CRITICARE
SYSTEMS, INC.
Management's
Discussion and Analysis of
Results
of Operations and Financial Condition
Nine
Months Ended March 31, 2007 and 2006
Results
of Operations
Net
sales
of $23,790,883 for the nine months ended March 31, 2007 decreased 1.9% from
$24,254,956 for the same period in fiscal 2006. A 1.2% increase in the number
of
units shipped was offset by a 1.2% reduction in average sales price, due
to
variations in the product mix, and a 0.7% decrease in the accessory sales
in the
current period. The decreased net sales were the result of a $1,583,888 decrease
in international sales, which was partially offset by a $1,017,315 increase
in
domestic alternate care sales.
The
gross
profit percentage remained at 39.6% for the nine months ended March 31, 2007
and
March 31, 2006.
Operating
expenses for the nine months ended March 31, 2007 decreased $571,827 from
the
same period in fiscal 2006 due mainly to a decrease of $720,488 in sales
and
marketing expenses, which was partially offset by an increase of $248,344
in
administrative expenses. The increase of $248,344 in administrative expenses
was
due to the $442,116 of expenses incurred during the period in connection
with
the two consent solicitation actions initiated by BlueLine Partners and the
subsequent settlement of those actions in the third quarter. The decrease
of
$720,488 in sales and marketing expenses was due mainly to a $328,989 decrease
in India operation expenses, a $134,095 decrease in advertising and trade
show
expenses and a $59,148 decrease in commissions earned for the nine months
ended
March 31, 2007.
Total
other income for the nine months ended March 31, 2007 decreased $407,285
from
the same period in fiscal 2006. This decrease was mainly due to the $300,000
received pursuant to a patent license agreement in fiscal 2006 with no
corresponding income in fiscal 2007 and a decrease of $114,050 in royalty
income
received during the first nine months of fiscal 2007.
Income
from operations of $616,642 for the nine months ended March 31, 2007 increased
$384,683 as compared to income from operations of $231,959 for the same period
in fiscal 2006, which was the result of a $571,827 decrease in operating
expenses, partially offset by a decrease in gross profit of $187,144. The
increased income from operations was offset by the decrease in other income
of
$407,285, resulting in net income of $713,736 for the nine months ended March
31, 2007 as compared to net income of $736,338 for the same period in fiscal
2006.
CRITICARE
SYSTEMS, INC.
Management's
Discussion and Analysis of
Results
of Operations and Financial Condition
Three
Months Ended March 31, 2007 and 2006
Results
of Operations
Net
sales
of $7,121,548 for the three months ended March 31, 2007 decreased 8.8% from
$7,811,830 for the same period in fiscal 2006. A 0.7% increase in average
sales
price, due to variations in the product mix, was offset by an 8.3% decrease
in
the number of units shipped and a 10.3% decrease in the accessory sales.
The
decrease in net sales was the result of a $761,666 decrease in international
sales and a $267,903 decrease in domestic acute care sales , which was partially
offset by a $293,928 increase in domestic alternate care sales and a $252,230
increase in OEM sales.
The
gross
profit percentage of 40.4% for the three months ended March 31, 2007 increased
from 39.6% for the same period in fiscal 2006. The increased margins in the
current period were mainly due to the small variations in the product mix.
Operating
expenses for the three months ended March 31, 2007 decreased $261,222 from
the
same period in fiscal 2006 due mainly to a decrease of $241,409 in sales
and
marketing expenses. The decrease in sales and marketing expenses was due
mainly
to a $119,957 decrease in India operation expenses, a $28,335 decrease in
commissions earned, a $26,557 decrease in operating supplies and a $26,555
decrease in advertising and trade show expenses for the three months ended
March
31, 2007.
Total
other income for the three months ended March 31, 2007 decreased $10,529
from
the same period in fiscal 2006. This decrease was driven by decreased royalty
income received during the third quarter in fiscal 2007.
Loss
from
operations of $(24,897) for the three months ended March 31, 2007 decreased
$48,632 as compared to loss from operations of $(73,529) for the same period
in
fiscal 2006, which was the result of the decreased operating expenses of
$261,222, partially offset by a $212,590 decrease in gross profit. With the
decreased loss from operations, despite a decrease in other income of $10,529,
the Company had net income of $30,127 for the three months ended March 31,
2007
as compared to a net loss of $(7,976) for the same period in fiscal
2006.
CRITICARE
SYSTEMS, INC.
Management's
Discussion and Analysis of
Results
of Operations and Financial Condition
Liquidity
and Capital Resources
As
of
March 31, 2007, the Company had a cash balance of $4,038,871, which was
$1,363,421 higher than its balance at September 30, 2006 of $2,675,450, $91,574
higher than its balance at December 31, 2006 of $3,947,297 and $245,090 higher
than its balance at June 30, 2006 of $3,793,781. The Company continues to
maintain a long-term bank debt free balance sheet since August 30, 2002 when
it
sold its building and used the proceeds from the sale to retire the long-term
bank debt on the facility.
The
Company’s cash position increased by $245,090 for the nine months ended March
31, 2007 mainly due to $555,226 of cash provided by operating activities,
which
was partially offset by $285,165 of capital expenditures. Cash provided by
operations was $555,226 for the nine months ended March 31, 2007 as a decrease
of $2,406,093 in accounts payable was offset by a $1,113,193 decrease in
inventory, a $494,893 decrease in accounts receivable, depreciation of $354,817
and net income of $713,736.
The
Company believes all future capital and liquidity requirements will be satisfied
by cash generated from operations, proceeds received from the issuance of
common
stock related to the exercise of stock options, and its current cash balances.
No major capital equipment expenditures are expected in the Company’s current
fiscal year ending June 30, 2007. The Company also has a $2,000,000 line
of
credit currently in place that could be utilized, if necessary. At both March
31, 2007 and June 30, 2006, there were no borrowings outstanding under this
line
of credit. The credit facility has covenants that require minimum income
or
liquidity levels. The Company was in compliance with the covenants at March
31,
2007. This line expires in June 2007.
Recently
Issued Accounting Pronouncements
FASB
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes
-
An Interpretation of FASB Statement No. 109, clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with Statement 109 (Accounting for Income Taxes). FIN 48 also
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. The provisions of FIN 48 are effective for fiscal
years
beginning after December 15, 2006. The Company is currently evaluating the
pronouncement and the potential impact of this accounting change on the
financial statements.
Forward
Looking Statements
A
number
of the matters and subject areas discussed in this report 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 in
this
report. These statements may be identified by the use of forward-looking
words
or phrases such as "anticipate," "believe," "could," "expect," "intend,"
"may,"
"hope," "plan," "potential," "should," "estimate," "predict," "continue,"
"future," "will," "would" or the negative of these terms or other words of
similar meaning.
Such
forward-looking statements are inherently subject to known and unknown risks
and
uncertainties. The Company's actual results and future developments could
differ
materially from the results or developments expressed in, or implied by,
these
forward-looking statements. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements
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. Such
uncertainties and other risks that may affect the Company's performance are
discussed further in Part I, Item 1A, "Risk Factors," in the Company's Form
10-K
for the year ended June 30, 2006. The Company undertakes no obligation to
make
any revisions to the forward-looking statements contained in this report
or to
update them to reflect events or circumstances occurring after the date of
this
report.
Quantitative
and Qualitative Disclosures about Market Risk
The
Company has a demand line of credit facility with a commercial bank with
interest payable monthly at 25 basis points below the bank's reference rate.
The
Company had no borrowings outstanding under this bank facility at March 31,
2007
and June 30, 2006. Due historically to the lack of need to borrow from this
credit facility and due to the Company’s current cash position, the Company is
not subject to financial risk on this obligation if interest rates in the
market
change significantly.
The
Company’s net sales are primarily denominated in United States dollars, except
for a small amount of net sales from the Company’s operation in India
denominated in Indian rupees. As a result, part of the Company’s accounts
receivable are denominated in rupees and translated into U.S. dollars for
financial reporting purposes. A 10% change in the exchange rate of the U.S.
dollar with respect to the Indian rupee would not have a material adverse
effect
on the Company’s financial condition or results of operations for the quarter
ended March 31, 2007. The Company does not use any hedges or other derivative
financial instruments to manage or reduce exchange rate risk.
Controls
and Procedures
As
of the
end of the period covered by 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 Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of
1934, as amended). Based on this evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of such
period, the Company’s disclosure controls and procedures were effective in
recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by the Company in reports that the Company files
with
or submits to 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.
The Company has designed its disclosure controls and procedures to reach
a level
of reasonable assurance of achieving the desired control objectives and based
upon the evaluation described above, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective at reaching that level of reasonable
assurance.
There
was
no change in the Company’s internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
as
amended) during the Company’s most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II -
OTHER INFORMATION
Item
1A. Risk Factors.
There have been no material changes from the risk factors
previously disclosed in Part I, Item 1A, "Risk Factors," of the Company's
Form
10-K for the year ended June 30, 2006. Please refer to that section for
disclosures regarding the risks and uncertainties relating to the Company's
business.
Item 6.
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
|
Amended
and Restated Rights Agreement, dated as of March 27, 2007, between
the
Company and LaSalle Bank National Association, as rights agent
(incorporated by reference to the Company’s Current Report on Form 8-K
filed on March 30, 2007).
|
|
31.1
|
Certification
of Emil H. Soika, President and Chief Executive Officer (Principal
Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
31.2
|
Certification
of Joel D. Knudson, Chief Financial Officer and Secretary (Principal
Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
32*
|
Certification
of Principal Executive Officer and Principal Financial Officer
pursuant to
18 U.S.C. Section 1350.
|
__________________
*
This
Exhibit is not “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, or incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as
amended.
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
10, 2007 BY
/s/
Joel D.
Knudson
_
Joel
D.
Knudson
Chief
Financial Officer
(Chief
Accounting Officer and
Duly
Authorized Officer)
14