SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended December 31, 1994 Commission File No. 0-11484
MARQUEST MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0785259
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11039 East Lansing Circle, Englewood, Colorado 80112
(Address of principal executive offices, including zip code)
(303) 790-4835
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changes since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares of common stock, no par value, of Registrant outstanding at
January 25, 1995.
8,081,880
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
December 31, April 2,
1994 1994
------------ --------
(Unaudited)
Cash and cash equivalents $ 769 $ 1,662
Trade accounts receivable, less allowances for
doubtful accounts of $168 and $178, respectively 2,495 3,075
Notes and other receivables 38 74
Current portion of note from related party 225 300
Inventories 2,658 2,955
Prepaid items 220 212
------- -------
Total current assets 6,405 8,278
NOTE FROM RELATED PARTY -- 75
PROPERTY, PLANT AND EQUIPMENT
Land 1,265 1,265
Buildings 4,976 4,976
Machinery and equipment 8,326 8,920
Other 2,550 2,404
Construction in progress 19 --
------- -------
17,136 17,565
Less accumulated depreciation (9,411) (9,021)
------- -------
Net property, plant and equipment 7,725 8,544
OTHER ASSETS 43 32
------- -------
$14,173 $16,929
------- -------
------- -------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
Page 2
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, April 2,
1994 1994
------------ ---------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,441 $ 1,260
Accrued liabilities 3,057 3,355
Payable to related party 547 375
Swiss debt principal and interest 690 599
Current maturities of long-term debt 92 1,389
Current maturities of capital lease obligation 136 125
--------- --------
Total current liabilities 5,963 7,103
CAPITAL LEASE OBLIGATION 328 432
NOTE PAYABLE TO SCHERER 1,852 4,352
NOTE PAYABLE TO BANK 1,165 --
SWISS NOTES PAYABLE 2,677 2,875
OTHER LONG-TERM LIABILITIES 176 176
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000 and
20,000,000 shares authorized; 8,102,720
and 4,505,466 shares issued and outstanding,
respectively 6,177 3,459
Warrants 612 632
Retained earnings(deficit) ($20,434 of retained
deficit eliminated at July 3, 1993 relating to the
quasi-reorganization) (4,707) (2,030)
Treasury stock, 20,840 shares (70) (70)
--------- --------
Total shareholders' equity (deficit) 2,012 1,991
--------- --------
$ 14,173 $ 16,929
--------- --------
--------- --------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
Page 3
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
------------------------------
December 31, January 1,
1994 1994
------------ ------------
NET REVENUES $ 5,234 $ 5,102
COST OF SALES (3,985) (4,156)
------------ ------------
GROSS PROFIT 1,249 946
COSTS AND EXPENSES
Selling and marketing expenses (1,015) (922)
General and administrative expenses (733) (766)
Research and development expenses (24) (28)
------------ ------------
OPERATING INCOME (LOSS) (523) (770)
OTHER INCOME (EXPENSE)
Interest and other income 11 28
Interest expense (145) (183)
Foreign exchange gain (loss) 11 48
Gain on sale of assets 7 --
Other expense (7) (75)
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (646) (952)
Provision for income taxes -- --
------------ ------------
NET LOSS BEFORE EXTRAORDINARY ITEM (646) (952)
Gain on extinguishment of debt -- 11
------------ ------------
NET LOSS $ (646) $ (941)
------------ ------------
------------ ------------
EARNINGS (LOSS) PER COMMON SHARE
Before extraordinary item $ (0.08) $ (0.21)
Extraordinary item -- --
------------ ------------
Net earnings (loss) $ (0.08) $ (0.21)
------------ ------------
------------ ------------
Weighted average number of common shares
outstanding during the period 8,081,880 4,484,626
------------ ------------
------------ ------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
Page 4
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Nine Six Three
Months Months Months
Ended Ended Ended
December 31, January 1, July 3,
1994 1994 1993
------------ ------------ ------------
NET REVENUES $ 14,730 $ 10,283 $ 5,327
COST OF SALES (11,280) (8,671) (4,513)
------------ ------------ ------------
GROSS PROFIT 3,450 1,612 814
COSTS AND EXPENSES
Selling and marketing expenses (3,287) (1,830) (969)
General and administrative expenses (2,264) (1,600) (941)
Research and development expenses (116) (65) (39)
------------ ------------ ------------
OPERATING INCOME (LOSS) (2,217) (1,883) (1,135)
OTHER INCOME (EXPENSE)
Interest and other income 37 92 109
Interest expense (476) (371) (81)
Foreign exchange gain (loss) (55) (30) 20
Gain on sale of assets 53 275 50
Other expense (19) (319) (5)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (2,677) (2,236) (1,042)
Provision for income taxes -- -- --
------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY ITEM (2,677) (2,236) (1,042)
Gain on extinguishment of debt -- 11 706
------------ ------------ ------------
NET LOSS $ (2,677) $ (2,225) $ (336)
------------ ------------ ------------
------------ ------------ ------------
EARNINGS (LOSS) PER COMMON SHARE
Before extraordinary item $ (0.37) $ (0.50) $ (0.23)
Extraordinary item -- -- 0.16
------------ ------------ ------------
Net earnings (loss) $ (0.37) $ (0.50) $ (0.07)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares
outstanding during the period 7,284,189 4,484,634 4,466,907
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
Page 5
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Nine Months Ended
------------------------------
December 31, January 1,
1994 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,677) $ (2,561)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 1,047 1,429
Provision for losses on accounts receivable 15 76
Gain from extinguishment of debt -- (717)
Foreign exchange (gain) loss 55 (128)
Gain on sale of assets (53) (275)
Increase(decrease) in operating assets and
liabilities:
Accounts receivable 565 (517)
Notes and other receivables 36 1,102
Inventories and prepaid items 289 340
Accounts payable, accrued liabilities and
payable to related party 55 (2,659)
Accrued interest on Swiss bonds 36 --
Other (11) 30
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (643) (3,880)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note from related party 150 150
Purchases of equipment (400) (1,524)
Proceeds from sale of assets 225 694
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (25) (680)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable -- 1,750
Payments on note payable -- (1,750)
Principal payments on borrowings (225) (67)
Proceeds from capital lease -- 591
Issuance of common stock -- 24
Proceeds from sale of ABG line -- 4,500
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (225) 5,048
(Continued)
Page 6
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Nine Months Ended
------------------------------
December 31, January 1,
1994 1994
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (893) 488
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,662 966
------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 769 $ 1,454
------------ ------------
------------ ------------
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Refinancing of Swiss bonds:
Warrants issued $ -- $ 714
Notes issued -- 6,745
Prospective interest on notes -- 3,246
------------ ------------
$ -- $ 10,705
------------ ------------
------------ ------------
Sale leaseback of ABG product line:
Warrants issued $ -- $ 3,290
Net book value of ABG assets -- 245
Deferred gain -- 965
------------ ------------
$ -- $ 4,500
------------ ------------
------------ ------------
Quasi-reorganization:
Prospective interest on notes $ -- $ (3,226)
Deferred gain -- (965)
Goodwill -- 4,283
Retained deficit -- 20,434
Common stock -- (17,125)
Warrants -- (3,456)
Treasury stock -- 55
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
(Continued)
Page 7
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Nine Months Ended
------------------------------
December 31, January 1,
1994 1994
------------ ------------
Debt conversion:
Note payable converted $ (2,500) $ --
Common stock issued 2,500 --
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
Refinancing of Industrial Revenue Bonds:
Bonds retired $ (1,300) $ --
Note payable issued to bank 1,300 --
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
Income tax refund:
Income tax receivable $ -- $ (745)
Increase in common stock -- 745
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
Warrants:
Warrants exercised $ (20) $ --
Common stock issued 218 --
Swiss notes retired (198) --
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
Page 8
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INVENTORIES:
Inventories consist of the following (in thousands of dollars):
December 31, 1994 April 2, 1994
----------------- -------------
Raw materials $1,535 $1,372
Work in process 247 236
Finished goods 876 1,347
------ ------
$2,658 $2,955
====== ======
2. REPORT OF MANAGEMENT:
The management of Marquest Medical Products, Inc. (the "Company") is
responsible for the integrity of the financial information presented. The
financial statements have been prepared in accordance with generally
accepted accounting principles and they include amounts that are based on
management's best estimates and judgment. These unaudited interim financial
statements reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results of the interim periods
presented.
Management relies upon the Company's system of internal controls in meeting
its responsibilities for maintaining reliable financial records. This
system is designed to provide reasonable assurance that assets are
safeguarded and that transactions are properly recorded and executed in
accordance with management's intentions. Judgments are required to assess
and balance the relative cost and expected benefits of such controls.
3. BASIS OF PRESENTATION:
The Company's consolidated financial statements have been presented on the
basis that it will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business.
In the first quarter of Fiscal 1995, the Company refinanced its Industrial
Revenue Bonds which were due December 31, 1993. Management has made
significant progress in reducing costs and improving gross margins since
the first quarter of Fiscal 1994. However, the Company continues to
generate an operating cash flow deficit and there remains doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
9
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands of dollars):
December 31, 1994 April 2, 1994
----------------- -------------
Swiss Bond Issue, 720,000 Swiss Francs outstanding,
interest payable annually on March ll at a rate of 6%,
increased to 9% effective March 12, 1992; due March
11, 1994; unsecured; including $140,000 and $94,000
accrued interest, respectively $ 690 $ 599
Note payable to Scherer; 8% interest due semi-annually;
due March 31, 1999; unsecured; convertible into 2,468,800
and 5,802,000 shares of Marquest common stock,
respectively 1,852 4,352
Swiss notes payable; 8% interest due semi-annually;
due March 31, 1999; unsecured; denominated in U.S.
dollars 2,677 2,875
Note payable to bank; floating interest rate; currently
7.75%, interest and principal due monthly; secured by
receivables, inventory, and property, plant and
equipment, due June 30, 2004 1,165 --
Industrial Revenue Bonds; 7.5% interest; due December
31, 1993 -- 1,389
------- -------
$6,384 $9,215
Less current maturities 782 1,988
------- -------
Long-term debt $5,602 $7,227
======= =======
On June 30, 1994, the Company refinanced $1.3 million of the Industrial
Revenue Bonds. As part of the loan agreement, the Company cannot, without
the written consent of the bank, declare or pay dividends on its common
stock.
In May, 1994, Scherer Healthcare, Inc., holder of the Company's 8%
convertible note payable, notified the Company's Board of Directors that it
had elected to convert $2,500,000 of the principal balance of the note into
3,333,333 shares of the Company's common stock at the conversion price of
$0.75 per share, pursuant to the terms of the note.
10
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. RELATED PARTY TRANSACTION:
In May, 1994, the Company executed a management agreement with Scherer
Healthcare, Inc., the Company's largest stockholder, to provide certain
management services, including financial and marketing consulting, for
approximately $29,000 per month.
6. WARRANTS:
In September, 1994, 263,921 of the Company's warrants to purchase common
stock at $0.75 per share were exercised. These warrants had been issued to
the Swiss bondholders in an exchange in Fiscal 1994, and, in accordance
with the warrant agreement, $198,000 of the Company's 8% Swiss notes
payable were used in lieu of cash to exercise the warrants.
7. QUASI-REORGANIZATION:
In June 1993, the Company's Board of Directors approved
quasi-reorganization procedures which were effective July 3, 1993, the end
of the Company's first quarter of Fiscal 1994. The Company has segregated
its Consolidated Statements of Operations for Fiscal 1994 into the
three-month period prior to and the six-month period subsequent to the
quasi-reorganization.
8. REGISTRATION STATEMENTS
In the third quarter of Fiscal 1995 the Company filed a registration
statement with the Securities and Exchange Commission for a secondary
offering of 873,363 warrants to purchase common stock and 1,137,287 shares
of common stock. The registration statement was effective December 12,
1994.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales have increased 2.6% for the third quarter of Fiscal 1995 and
decreased 5.6% for the first nine months of Fiscal 1995 versus the same
periods in Fiscal 1994. The increase in sales in the third quarter is due
to a sales promotion for the Company's arterial blood gas products. The
Company entered the first quarter of Fiscal 1994 with a backorder due to
the closing of the Company's manufacturing plant in Nogales, Mexico and its
distribution center in Nogales, Arizona. At the beginning of the second
quarter of Fiscal 1995, the Company implemented a territorial
reorganization of its distributors. This reorganization expanded certain
distributors' sales territories and dropped other distributors from the
Company's network, resulting in a decrease in sales as not all business to
customers of the dropped distributors has been retained by the Company.
Sales have also decreased in the first nine months of Fiscal 1995 because
of a decline in hospital census due to uncertainties surrounding health
care reform.
The gross margin has increased from 18.5% in the third quarter of Fiscal
1994 to 23.9% in the third quarter of Fiscal 1995, and from 15.5% for the
first nine months of Fiscal 1994 to 23.4% for the same period in Fiscal
1995. During Fiscal 1994, the gross margin in the first nine months was
negatively impacted by the closing and relocation of the Company's
manufacturing and warehousing facilities in Nogales, Mexico; Nogales,
Arizona and Parker, Colorado to its prinicpal location in Englewood,
Colorado. The efficiencies of one manufacturing operation plus reductions
in personnel and a continued emphasis to improve operations and reduce
costs have favorably impacted the gross margin in the first nine months of
Fiscal 1995.
During the first quarter of Fiscal 1994, the Company reduced its sales and
marketing management to preserve cash. During the fourth quarter of Fiscal
1994 and the first quarter of Fiscal 1995, the Company has strategically
hired additional sales and marketing personnel to support the Company's
distributor network and refocus its marketing efforts.
General and administrative expenses have decreased in the third quarter of
Fiscal 1995 and for the nine months ended December 31, 1994 versus the same
periods in Fiscal 1994 because of reductions in the workforce implemented
in the second quarter of Fiscal 1995.
Interest expense decreased approximately $38,000 in the third quarter of
Fiscal 1995 over the same period of Fiscal 1994 due to Scherer Healthcare,
Inc.'s ("Scherer") conversion of debt to equity of the Company at the end
of May 1994 (first quarter of Fiscal 1995). The overall increase in
interest expense during the first nine months of Fiscal 1995 versus the
same period for Fiscal 1994 was primarily due to $4,352,000 of debt issued
to Scherer to purchase Scherer preferred stock used in the Swiss Bond
exchange during Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of Fiscal 1995, the Company's operations were
funded by cash on hand at the beginning of the year. Sales were not
adequate to cover the level of the Company's operating expenses. In
response to this cash flow deficit, the Company reduced personnel in the
second quarter and has been concentrating on strictly controlling operating
expenses. In addition, the Company continues to phase-in implementation of
its in-house molding operation to lower costs of producing molded plastic
components.
The Company has no commitments for capital expenditures, and purchases of
equipment will be made as cash flow allows or as the Company is able to
obtain financing.
12
PART II
OTHER INFORMATION
Item l. Legal Proceedings.
In an action filed in July 1993 in the Supreme Court of the State of New
York, a former advisor to the Company, The Argosy Group, L.P., brought suit
against the Company and Scherer Healthcare, Inc. seeking compensatory and
punitive damages in excess of $2.35 million. The plaintiff alleged that the
Company had refused to pay for financial services rendered, breached
agreements with the plaintiff, wrongfully interfered with their agreements
and business relationships and otherwise caused them harm. In January, 1995,
the Company settled with The Argosy Group, L.P. for $300,375, to be paid by
the Company in monthly payments through November, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Exhibit Page
------- ------- ----
3(b) By-Laws, as amended (Part II) 15
27 Financial Data Schedule (Part I) 29
(b) There have been no reports on Form 8-K filed during the quarter for
which this report on Form 10-Q is being filed.
13
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.
Dated: February 13, 1995 MARQUEST MEDICAL PRODUCTS, INC.
/s/ James E. Brands
________________________________
James E. Brands
Chief Executive Officer
/s/ Margaret Von der Schmidt
________________________________
Margaret Von der Schmidt
Vice President - Finance
14