criticaresept302007form10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________
Form
10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For
the quarterly period ended
September 30, 2007
OR
_____ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
1934
For
the
transition period from ____________ to ____________
Commission
file number -1-31943
CRITICARE
SYSTEMS, INC
|
(Exact
Name of Registrant as Specified in Its
Charter)
|
Delaware
|
|
39-1501563
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
20925 Crossroads
Circle, Suite 100, Waukesha, Wisconsin
|
|
53186
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant's
telephone number including area code (262)
798-8282
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
_____ Accelerated
filer
_____ Non-accelerated
filer X
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes
_____ No
X
Number
of
shares outstanding of each class of the registrant's classes of common stock
as
of September 30, 2007: Voting Common Stock, 12,318,985
shares.
CRITICARE
SYSTEMS, INC.
CONSOLIDATED
BALANCE SHEETS
SEPTEMBER
30, 2007 AND JUNE 30, 2007
(UNAUDITED)
ASSETS
|
|
September
30,
2007
|
|
|
June
30,
2007
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
5,833,213
|
|
|
$ |
4,635,823
|
|
Accounts
receivable, less allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
of $417,750 and $497,638, respectively
|
|
|
5,959,986
|
|
|
|
5,991,999
|
|
Other
receivables
|
|
|
254,298
|
|
|
|
251,950
|
|
Short-term
note receivable
|
|
|
100,000
|
|
|
|
50,000
|
|
Inventories
|
|
|
7,968,924
|
|
|
|
8,177,523
|
|
Prepaid
expenses
|
|
|
332,287
|
|
|
|
219,859
|
|
Total
current assets
|
|
|
20,448,708
|
|
|
|
19,327,154
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment – net
|
|
|
2,325,872
|
|
|
|
2,190,389
|
|
|
|
|
|
|
|
|
|
|
License
rights and patents – net
|
|
|
54,229
|
|
|
|
55,980
|
|
Long-term
note receivable
|
|
|
75,000
|
|
|
|
75,000
|
|
Total
other assets
|
|
|
129,229
|
|
|
|
130,980
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
22,903,809
|
|
|
$ |
21,648,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
4,223,325
|
|
|
$ |
3,826,834
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
Compensation
and commissions
|
|
|
1,103,477
|
|
|
|
836,720
|
|
Product
warranties
|
|
|
342,000
|
|
|
|
349,000
|
|
Other
|
|
|
119,035
|
|
|
|
191,389
|
|
Obligations
under capital lease
|
|
|
75,713
|
|
|
|
74,148
|
|
Total
current liabilities
|
|
|
5,863,550
|
|
|
|
5,278,091
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
|
Obligations
under capital lease, less current portion
|
|
|
84,436
|
|
|
|
59,678
|
|
Total
long-term liabilities
|
|
|
84,436
|
|
|
|
59,678
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
5,947,986
|
|
|
|
5,337,769
|
|
|
|
|
|
|
|
|
|
|
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,
12,413,005 and
|
|
|
|
|
|
|
|
|
12,409,631 shares issued, and 12,318,985 and 12,313,321 shares
outstanding,
respectively
|
|
|
496,520
|
|
|
|
496,385
|
|
Additional
paid-in capital
|
|
|
26,359,660
|
|
|
|
26,338,267
|
|
Common
stock held in treasury at cost (94,020 and 96,310 shares,
respectively)
|
|
|
(352,236 |
) |
|
|
(356,502 |
) |
Retained
earnings (accumulated deficit)
|
|
|
(9,450,127 |
) |
|
|
(10,088,767 |
) |
Cumulative
translation adjustment
|
|
|
(97,994 |
) |
|
|
(78,629 |
) |
Total
stockholders' equity
|
|
|
16,955,823
|
|
|
|
16,310,754
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
22,903,809
|
|
|
$ |
21,648,523
|
|
See
notes
to consolidated financial statements.
CRITICARE
SYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF INCOME
THREE
MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
|
|
2007
|
|
|
2006
|
|
NET
SALES
|
|
$ |
9,137,725
|
|
|
$ |
8,206,593
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
5,692,344
|
|
|
|
5,085,520
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
3,445,381
|
|
|
|
3,121,073
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
1,662,673
|
|
|
|
1,296,373
|
|
Research,
development and engineering
|
|
|
550,473
|
|
|
|
642,282
|
|
Administrative
|
|
|
726,922
|
|
|
|
856,228
|
|
Total
|
|
|
2,940,068
|
|
|
|
2,794,883
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
505,313
|
|
|
|
329,190
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,054 |
) |
|
|
(4,119 |
) |
Interest
income
|
|
|
44,760
|
|
|
|
33,723
|
|
Foreign
currency exchange gain (loss)
|
|
|
32,329
|
|
|
|
254
|
|
Other
income (expense)
|
|
|
59,293
|
|
|
|
(23,172
|
)
|
Total
|
|
|
133,328
|
|
|
|
6,686
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
638,641
|
|
|
|
332,876
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
638,641
|
|
|
$ |
332,876
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05
|
|
|
$ |
0.03
|
|
Diluted
|
|
$ |
0.05
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,317,478
|
|
|
|
12,293,773
|
|
Diluted
|
|
|
12,368,384
|
|
|
|
12,368,293
|
|
See
notes
to consolidated financial statements.
CRITICARE
SYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
THREE
MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
|
|
2007
|
|
|
2006
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
638,641
|
|
|
$ |
332,876
|
|
Adjustments
to reconcile net income to net cash used in
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
104,170
|
|
|
|
131,658
|
|
Amortization
|
|
|
1,751
|
|
|
|
1,750
|
|
Share
based compensation
|
|
|
9,139
|
|
|
|
29,467
|
|
Provision
for doubtful accounts
|
|
|
1,433
|
|
|
|
1,674
|
|
Provision
for obsolete inventory
|
|
|
40,168
|
|
|
|
42,000
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
9,254
|
|
|
|
(2,086,226 |
) |
Other
receivables
|
|
|
(52,348 |
) |
|
|
33,805
|
|
Inventories
|
|
|
217,450
|
|
|
|
121,578
|
|
Prepaid
expenses
|
|
|
(112,428 |
) |
|
|
(20,866 |
) |
Accounts
payable
|
|
|
396,491
|
|
|
|
491,363
|
|
Accrued
liabilities
|
|
|
188,968
|
|
|
|
(121,905 |
) |
Net
cash provided by (used in) operating activities
|
|
|
1,442,689
|
|
|
|
(1,042,826 |
) |
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment, net
|
|
|
(288,673 |
) |
|
|
(63,144 |
) |
Net
cash used in investing activities
|
|
|
(288,673 |
) |
|
|
(63,144 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Retirement
of obligations under capital lease
|
|
|
24,758
|
|
|
|
(17,960 |
) |
Proceeds
from issuance of common stock
|
|
|
16,655
|
|
|
|
11,208
|
|
Net
cash provided by (used in) financing activities
|
|
|
41,413
|
|
|
|
(6,752 |
) |
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
1,961
|
|
|
|
(5,609 |
) |
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
1,197,390
|
|
|
|
(1,118,331 |
) |
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
4,635,823
|
|
|
|
3,793,781
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
5,833,213
|
|
|
$ |
2,675,450
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Income
taxes paid-net
|
|
$ |
6,025
|
|
|
$ |
9,325
|
|
Interest
|
|
$ |
3,054
|
|
|
$ |
4,119
|
|
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-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 September 30, 2007 and June 30, 2007, respectively:
|
|
September
30,
2007
|
|
|
June
30,
2007
|
|
Component
parts
|
|
$ |
2,574,628
|
|
|
$ |
2,507,293
|
|
Work
in process
|
|
|
1,276,266
|
|
|
|
1,106,885
|
|
Finished
units
|
|
|
4,533,030
|
|
|
|
4,938,345
|
|
Total
inventories
|
|
|
8,383,924
|
|
|
|
8,552,523
|
|
Less: reserve
for obsolescence
|
|
|
415,000
|
|
|
|
375,000
|
|
Net
inventory
|
|
$ |
7,968,924
|
|
|
$ |
8,177,523
|
|
3. Property,
Plant and Equipment
Property,
plant and equipment consist of the following:
|
|
September
30,
2007
|
|
|
June
30,
2007
|
|
Machinery
and equipment
|
|
$ |
3,603,199
|
|
|
$ |
3,415,501
|
|
Furniture
and fixtures
|
|
|
988,271
|
|
|
|
946,668
|
|
Leasehold
improvements
|
|
|
329,995
|
|
|
|
290,084
|
|
Production
tooling
|
|
|
2,405,562
|
|
|
|
2,389,507
|
|
Demonstration
and loaner monitors
|
|
|
1,971,673
|
|
|
|
2,025,924
|
|
Property,
plant and equipment – cost
|
|
|
9,298,700
|
|
|
|
9,067,684
|
|
Less: accumulated
depreciation
|
|
|
(6,972,828 |
) |
|
|
(6,877,295 |
) |
Property,
plant and equipment - net
|
|
$ |
2,325,872
|
|
|
$ |
2,190,389
|
|
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 $9,139
and
$29,467 for the three months ended September 30, 2007 and 2006,
respectively.
The
Company did not grant any options for the three months ended September 30,
2007. The fair value of stock options used to compute net income per
share 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 51.0%, the risk-free interest rate of 4.73%, the expected option life of
9.00
years and the forfeiture rate of option grants approximates 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 September 30, 2007, the Company had
federal net operating loss carry forwards of approximately $17,301,000 (which
expire from 2008 through 2027) and state net operating loss carry forwards
of
approximately $10,187,000 (which expire from 2008 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.
The
Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. The
Company adopted the provisions of FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, on July 1, 2007" ("FIN 48"). As a result
of the implementation of FIN 48, the Company did not recognize an increase
in
the liability for unrecognized tax benefits. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as
follows:
Balance
at July 1, 2007
|
|
$ |
0
|
|
Additions
based on tax positions related to the current year
|
|
|
--
|
|
Additions
for tax positions of prior years
|
|
|
--
|
|
Reductions
for tax positions of prior years
|
|
|
--
|
|
Settlements
|
|
|
--
|
|
Balance
at September 30, 2007
|
|
$ |
0
|
|
The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the year
ended June 30, 2007 the Company did not recognize any interest or
penalties. As of September 30, 2007, the Company had not accrued for
any payments of interest and penalties.
6.
Line of Credit Facility
At
September 30, 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% (7.50% as
of
September 30, 2007). As of September 30, 2007 and June 30, 2007,
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 September 30, 2007.
7.
Net Income Per Common Share
Basic
net
income per share is computed using the weighted average number of common shares
outstanding during the periods. Diluted net income 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 137,750 shares for the
three months ended September 30, 2007 and by 76,250 shares for the three months
ended September 30, 2006 without this anti-dilutive impact.
CRITICARE
SYSTEMS, INC.
Management's
Discussion and Analysis of
Results
of Operations and Financial Condition
Three
Months Ended September 30, 2007 and 2006
Results
of Operations
Net
sales
of $9,137,725 for the three months ended September 30, 2007 increased 11.3%
from
$8,206,595 for the same period in fiscal 2007. A 25.2% increase in
the average sales price and an 14.8% increase in the accessory sales were
partially offset by a 7.1% reduction in number of units shipped, due to
variations in the product mix, in the current period. The increased
sales were the result of a $1,624,753 increase in international sales and
$555,174 in OEM sales, which was partially offset by a $1,127,477 decrease
in
domestic alternate care sales. The increase in international sales
was driven by the partial shipment of an order to the ministry of health of
the
Republic of Iraq of $1,520,257. OEM sales increased due to the start
of the production shipments to our newest OEM partner, Fukuda Denshi, Inc.
of
Japan. The decrease in domestic alternate care sales was due to a
large order to replace vital signs monitors in domestic plasma collection
centers shipped in the first quarter of fiscal 2007 with no corresponding sales
in fiscal 2008.
The
gross
profit percentage of 37.7% for the three months ended September 30, 2007
decreased slightly from 38.0% for the same period in fiscal 2007. The decreased
margins in the current period were mainly due to the small variations in the
product mix and the timing of the manufacturing cycle.
Operating
expenses for the three months ended September 30, 2007 increased $145,185 from
the same period in fiscal 2007 due mainly to an increase of $366,300 in sales
and marketing expenses, which was partially offset by a decrease of $129,306
in
administrative expenses. The increase of $366,300 in sales and
marketing expenses was driven by the partial shipment of the order to the
ministry of health of the Republic of Iraq in which the Company's dealer earned
commissions of $263,140. Administrative expenses decreased by
$129,306 due to the $91,540 of expenses incurred during the first quarter of
fiscal 2007, in connection with the BlueLine consent solicitation, with no
corresponding expense in fiscal 2008.
Total
other income for the three months ended September 30, 2007 increased $126,642
from the same period in fiscal 2007. This increase was mainly due to
increased foreign currency exchange rate gain of $32,075 and increased royalty
income of $30,250 received during the quarter.
The
net
income of $638,641 for the three months ended September 30, 2007 as compared
to
net income of $332,876 for the same period in fiscal 2007, was the result of
a
$324,308 increase in gross profit and a $126,642 increase in total other income,
partially offset by the increase in operating expenses of $145,185.
CRITICARE
SYSTEMS, INC.
Management's
Discussion and Analysis of
Results
of Operations and Financial Condition
Liquidity
and Capital Resources
As
of
September 30, 2007, the Company had a cash balance of $5,833,213, which was
$1,197,390 higher than its balance at June 30, 2007 of $4,635,823 and $3,157,763
higher than its balance at September 30, 2006. 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 $1,197,390 for the three months ended
September 30, 2007 mainly due to $1,442,689 of cash provided by operating
activities, which was partially offset by $288,673 of capital
expenditures. Cash provided by operating activities of $1,442,689 for the
three months ended September 30, 2007 was driven by net income of $638,641,
a
decrease of $217,450 in inventory and an increase in accounts payable of
$396,491.
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, 2008. The Company also has a $2,000,000
line of credit currently in place that could be utilized, if
necessary. At both September 30, 2007 and June 30, 2007, 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 September
30, 2007. This line expires in June 2008.
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, 2007. 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 abouto 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 September 30, 2007 and June 30, 2007. 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 September 30, 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 Vice President
- Finance, 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 Vice President - Finance 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 Vice President –Finance 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, 2007. 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, Vice President - Finance 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:
November 9, 2007
BY
/s/
Joel D.
Knudson
Joel
D.
Knudson
Vice
President – Finance
(Chief
Accounting Officer and
Duly
Authorized Officer)