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 September 30, 1995 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
October 30, 1995.
8,246,880
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
September 30, April 1,
1995 1995
------------ --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 395 $ 562
Trade accounts receivable, less allowances for
doubtful accounts of $139 and $132, respectively 2,614 2,847
Notes and other receivables 13 --
Inventories 2,729 2,610
Prepaid items 270 260
------- -------
Total current assets 6,021 6,279
PROPERTY, PLANT AND EQUIPMENT
Land 1,265 1,265
Buildings 4,976 4,976
Machinery and equipment 8,614 8,364
Other 2,526 2,573
Construction in progress 131 220
------- -------
17,512 17,398
Less accumulated depreciation (10,193) (9,727)
------- -------
Net property, plant and equipment 7,319 7,671
OTHER ASSETS 40 42
------- -------
$13,380 $13,992
------- -------
------- -------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
2
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, April 1,
1995 1995
------------ --------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,159 $ 1,220
Accrued liabilities 2,851 3,622
Payable to related party 826 683
Swiss debt principal and interest 824 813
Notes payable 116 220
Current maturities of long-term debt 99 93
Current maturities of capital lease obligation 216 141
------- -------
Total current liabilities 6,091 6,792
CAPITAL LEASE OBLIGATION 443 291
NOTE PAYABLE TO SCHERER 1,852 1,852
NOTE PAYABLE TO BANK 1,089 1,141
SWISS NOTES PAYABLE 2,637 2,677
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000
shares authorized; 8,267,720 and 8,102,720 shares
issued and outstanding, respectively 6,231 6,177
Warrants 599 612
Retained earnings (deficit) ($20,434 of retained
deficit eliminated at July 3, 1993 relating to the
quasi-reorganization) (5,492) (5,480)
Treasury stock, 20,840 shares (70) (70)
------- -------
Total shareholders' equity (deficit) 1,268 1,239
------- -------
$13,380 $13,992
------- -------
------- -------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
--------------------------------
September 30, October 1,
1995 1994
------------ -----------
NET REVENUES $ 5,193 $ 4,597
COST OF SALES (3,510) (3,577)
---------- ----------
GROSS PROFIT 1,683 1,020
COSTS AND EXPENSES
Selling and marketing expenses (917) (1,070)
General and administrative expenses (580) (732)
Research and development expenses (37) (32)
---------- ----------
OPERATING INCOME (LOSS) 149 (814)
OTHER INCOME (EXPENSE)
Interest and other income 10 13
Interest expense (186) (150)
Foreign exchange gain (loss) 6 (26)
Gain on sale of assets 8 18
Other expense (21) (2)
---------- ----------
LOSS FROM OPERATIONS BEFORE INCOME TAXES (34) (961)
Provision for income taxes -- --
---------- ----------
NET INCOME (LOSS) $ (34) $ (961)
---------- ----------
---------- ----------
Earnings (loss) per common share $ 0.00 $ (0.12)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding during the period 8,246,880 7,820,859
---------- ----------
---------- ----------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
4
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Six Months Ended
--------------------------------
September 30, October 1,
1995 1994
------------ -----------
NET REVENUES $ 10,477 $ 9,496
COST OF SALES (7,189) (7,295)
---------- ----------
GROSS PROFIT 3,288 2,201
COSTS AND EXPENSES
Selling and marketing expenses (1,971) (2,272)
General and administrative expenses (1,137) (1,531)
Research and development expenses (76) (92)
---------- ----------
OPERATING INCOME (LOSS) 104 (1,694)
OTHER INCOME (EXPENSE)
Interest and other income 12 26
Interest expense (337) (331)
Foreign exchange gain (loss) 17 (66)
Gain on sale of assets 217 45
Other expense (25) (11)
---------- ----------
LOSS FROM OPERATIONS BEFORE INCOME TAXES (12) (2,031)
Provision for income taxes -- --
---------- ----------
NET INCOME (LOSS) $ (12) $ (2,031)
---------- ----------
---------- ----------
Earnings (loss) per common share $ 0.00 $ (0.29)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding during the period 8,224,090 6,885,343
---------- ----------
---------- ----------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
5
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Six Months Ended
--------------------------------
September 30, October 1,
1995 1994
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (12) $ (2,031)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 567 723
Provision for losses on accounts receivable 11 10
Foreign exchange (gain) loss (17) 66
Gain on sale of assets (217) (45)
Increase (decrease) in operating assets and
liabilities:
Accounts receivable 222 964
Notes and other receivables (13) 9
Inventories and prepaid items (129) (89)
Accounts payable, accrued liabilities and
payable to related party (689) (272)
Accrued interest on Swiss bonds 28 24
Other -- (4)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (249) (645)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note from related party -- 150
Purchases of equipment (22) (305)
Proceeds from sale of assets 217 218
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 195 63
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1 --
Principal payments on borrowings (114) (171)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (113) (171)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (167) (753)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 562 1,662
---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 395 $ 909
---------- ----------
---------- ----------
(Continued)
6
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
September 30, October 1,
1995 1994
------------ -----------
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
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
----------- ----------
$ -- $ --
----------- ----------
----------- ----------
Warrants exercised:
Warrants $ (13) $ (20)
Swiss notes (40) 218
Common stock 53 (198)
----------- ----------
$ -- $ --
----------- ----------
----------- ----------
Capital lease:
Repayment of notes payable $ (104) $ --
Purchases of property and equipment (191) --
Capital lease addition 295 --
----------- ----------
$ -- $ --
----------- ----------
----------- ----------
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
7
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INVENTORIES:
Inventories consist of the following (in thousands of dollars):
September 30, 1995 April 1, 1995
------------------ -------------
Raw materials $1,569 $1,530
Work in process 199 203
Finished goods 961 877
------ ------
$2,729 $2,610
------ ------
------ ------
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
accounting 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 internal accounting 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.
During the first half of Fiscal 1996, the Company has taken
several steps to preserve cash and increase profitability on
sales. The Company believes that it can fund its current
operations and meet its obligations as they come due through the
third quarter of Fiscal 1996, however the viability of the
Company thereafter will depend on increasing operating income
and, if necessary, the successful completion of external
financing arrangements. There can be no assurance that external
financing will be available and there remains substantial 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.
4. 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.
8
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. WARRANTS:
In April, 1995 165,000 of the Company's warrants to purchase
common stock at $0.25 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, $40,000 of
the Company's 8% Swiss notes payable were used in lieu of cash to
exercise the warrants.
6. INCOME TAXES:
During Fiscal 1994, the Company received a refund of federal
income taxes of approximately $745,000 due to the carryback to
prior years of losses incurred during the temporary suspension of
operations by the United States Food and Drug Administration.
The Internal Revenue Service ("IRS") completed an audit during
Fiscal 1995 and determined that the losses could not be carried
back and issued an assessment to the Company for the taxes plus
interest. In June 1995, the Company reached agreement on a
repayment plan with the IRS whereby the Company paid $400,000 in
June 1995 and the remaining balance plus interest will be paid in
equal monthly installments over a two-year period. The Company
agreed to use its best efforts to obtain third party financing
for all or a portion of the remaining balance by January 2, 1996.
Subsequent to the end of the second quarter, the Company settled
additional tax issues related to audits by the IRS for fiscal
years 1982-1988. The Company agreed to pay approximately
$260,000 in additional taxes, plus interest. The Company is in
the process of negotiating a repayment plan with the IRS.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Revenues for the second quarter increased 13% over the same
period in Fiscal 1995, and increased 10.3% for the six months
ended September 30, 1995 over the first six months of the prior
year. Sales in the first quarter of Fiscal 1995 were low due to
a decline in hospital census which the Company believes was due
to the uncertainties of healthcare reform. Also, many of the
Company's distributors had purchased high levels of product
during the fourth quarter of Fiscal 1994 which depressed sales in
the first quarter of Fiscal 1995. During the first six months of
Fiscal 1996, the Company implemented a network of independent
manufacturer's representatives which supplements the Company's
sales force.
The gross margin increased from 22.2% in the second quarter of
Fiscal 1995 to 32.4% in the second quarter of Fiscal 1996.
Similar improvements have been achieved in the gross margin for
the first six months: 23.2% in Fiscal 1995 compared to 31.4% in
Fiscal 1996. The Company has reduced manufacturing costs through
reductions in personnel, improved operational efficiencies and
increased its vertical integration of the manufacturing process.
Selling and marketing expenses decreased 14% and 13% for the
second quarter and the first six months of Fiscal 1996,
respectively, compared to comparable periods of Fiscal 1995
primarily due to reductions in personnel which occurred during
the second quarter of Fiscal 1995 and the second quarter of
Fiscal 1996. Advertising and promotion programs costing
approximately $85,000 for the first two quarters of Fiscal 1995
were not continued into Fiscal 1996. General and administrative
expenses decreased approximately 25% during the first two
quarters of Fiscal 1996 compared to the same periods in Fiscal
1995 due to reductions in personnel during the second quarter of
Fiscal 1995.
Interest expense increased 24% in the second quarter of Fiscal
1996 compared to the same quarter in the prior fiscal year due to
interest on monthly installments paid to settle litigation as
well as interest on the Company's obligation to the Internal
Revenue Service as discussed below.
LIQUIDITY AND CAPITAL RESOURCES
The following events affecting the liquidity of the Company
occurred in the first half of Fiscal 1996: (i) the Company sold
its 10% investment in Seabrook Medical Systems, Inc., realizing
proceeds of $200,000; (ii) the Company negotiated a repayment
plan with the IRS for $745,000 in taxes owed plus interest,
whereby the Company paid $400,000 in June 1995, with the
remaining balance due in monthly installments over a two-year
period; and (iii) the Company settled a lawsuit in May 1995 with
former officers of the Company whereby the Company agreed to pay
a total of $725,000 plus interest at 9%. A total of $200,000 was
paid in May 1995 and the remainder will be paid in monthly
installments though September 1998.
The Company has taken several steps in Fiscal 1996 to preserve
cash and increase profitability on sales, including (i) the
addition of independent manufacturer's representatives, (ii) cost
reductions in all departments, and (iii) ordering of equipment to
increase the automation of the Company's manufacturing process.
Management of the Company believes that it can fund its current
operating levels and meet its obligations as they come due
through the third quarter of Fiscal 1996 from existing cash.
Thereafter, the viability of the Company will be dependent on
increasing operating income and, if necessary, the successful
completion of external financing arrangements, which the Company
is currently negotiating. There can be no assurance that
operating income can be increased or that external financing will
be available to meet operating requirements and there remains
substantial doubt about the Company's ability to continue as a
going concern.
10
PART II
OTHER INFORMATION
ITEM L. LEGAL PROCEEDINGS.
None
ITEM 3. DEFAULTS UPON SECURITIES.
On January 14, 1992, the Company was notified that the holders of
the majority of its Swiss bonds have exercised their right to put
the bonds for redemption as of March 11, 1992. The Company was
not able to honor this put, and accordingly defaulted on these
obligations. The Company did not make any payments of principal
or interest on the Swiss bonds during 1993. During Fiscal 1994,
the Company refinanced 96% of the Swiss bonds outstanding with 8%
notes, warrants to purchase Marquest common stock and cumulative
convertible preferred stock of Scherer Healthcare, Inc. The
Swiss bonds outstanding at September 30, 1995 and April 1, 1995,
including the accrued interest on these bonds of $201,000 and
$176,000, respectively, have been classified as current
liabilities.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders was held on August 24, 1995.
The following directors were elected:
Shares in Favor Shares Withheld
--------------- ---------------
Charles R. Atkins III 6,985,912 68,329
Stephen Lukas, Sr. 6,985,897 68,344
Kenneth H. Robertson 6,986,297 67,944
Robert P. Scherer, Jr. 6,986,187 68,054
William J. Thompson 6,986,112 68,129
Jack L. York 6,982,693 71,548
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description Page
---------- ----------- ----
27. Financial Data Schedule (EDGAR version only) 13
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the
quarter for which this report on Form 10-Q is
being filed.
11
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: November 10, 1995 MARQUEST MEDICAL PRODUCTS, INC.
/s/ William J. Thompson
--------------------------------
William J. Thompson
President
/s/ Margaret Von der Schmidt
--------------------------------
Margaret Von der Schmidt
Vice President - Finance and
Chief Financial Officer
12