SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended June 29, 1996 Commission File No. 0-11484
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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
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Number of shares of common stock, no par value, of Registrant outstanding at
July 18, 1996.
14,206,006
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
June 29, March 30,
1996 1996
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(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 920 $ 1,635
Trade accounts receivable, less allowances for
doubtful accounts of $99 and $94, respectively 2,181 2,915
Notes and other receivables 128 181
Inventories 3,618 3,393
Prepaid items 202 173
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Total current assets 7,049 8,297
PROPERTY, PLANT AND EQUIPMENT
Land 1,265 1,265
Buildings 4,985 4,985
Machinery and equipment 8,875 8,866
Other 2,527 2,523
Construction in progress 15 2
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17,667 17,641
Less accumulated depreciation (10,797) (10,586)
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Net property, plant and equipment 6,870 7,055
OTHER ASSETS 40 41
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$ 13,959 $ 15,393
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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)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 29, March 30,
1996 1996
-------- ---------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 668 $ 1,001
Accrued liabilities 3,096 3,728
Payable to related party 36 48
Swiss debt principal and interest 383 397
Current maturities of long-term debt 89 117
Current maturities of capital lease obligation 297 289
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Total current liabilities 4,569 5,580
CAPITAL LEASE OBLIGATION 459 536
NOTE PAYABLE TO BANK 860 858
SWISS NOTES PAYABLE 2,896 2,896
NOTE PAYABLE TO SCHERER CAPITAL, LLC. 700 700
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000
shares authorized; 14,226,846 and 14,207,435 shares
issued and outstanding, respectively 9,850 9,834
Warrants 598 599
Retained earnings(deficit) ($20,434 of retained
deficit eliminated at July 3, 1993 relating to the
quasi-reorganization) (5,903) (5,540)
Treasury stock, 20,840 shares (70) (70)
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Total shareholders' equity (deficit) 4,475 4,823
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$13,959 $15,393
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The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
----------------------------
June 29, July 1,
1996 1995
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NET REVENUES $ 5,152 $ 5,284
COST OF SALES (3,760) (3,679)
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GROSS PROFIT 1,392 1,605
COSTS AND EXPENSES
Selling and marketing expenses (1,067) (1,054)
General and administrative expenses (521) (557)
Research and development expenses (43) (39)
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OPERATING INCOME (LOSS) (239) (45)
OTHER INCOME (EXPENSE)
Other income/(expense) 26 (2)
Interest expense (170) (151)
Foreign exchange gain (loss) 20 11
Gain on sale of assets -- 209
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NET INCOME (LOSS) $ (363) $ 22
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----------- ----------
Earnings (loss) per common share $ (0.03) $ 0.00
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Weighted average number of common shares
outstanding during the period 14,191,928 8,201,047
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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 CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Three Months Ended
------------------------
June 29, July 1,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (363) $ 22
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 211 290
Provision for losses on accounts receivable 5 5
Foreign exchange (gain) loss (20) (11)
Gain on sale of assets -- (209)
Increase(decrease) in operating assets and
liabilities:
Accounts receivable 729 580
Notes and other receivables 53 (18)
Inventories and prepaid items (254) 130
Accounts payable, accrued liabilities and
payable to related party (977) (633)
Accrued interest on Swiss bonds 6 14
Other 1 1
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (609) 171
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (26) (9)
Proceeds from sale of assets -- 209
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (26) 200
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 15 1
Principal payments on borrowings (95) (57)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (80) (56)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (715) 315
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,635 562
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 920 $ 877
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(Continued)
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Three Months Ended
------------------------
June 29, July 1,
1996 1995
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NONCASH INVESTING AND FINANCING TRANSACTIONS:
Warrants exercised:
Warrants $ (1) $ (13)
Swiss notes -- (40)
Common stock 1 53
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$ -- $ --
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The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
6
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. 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.
2. INVENTORIES:
Inventories consist of the following (in thousands of dollars):
June 29, 1996 March 30, 1996
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Raw materials $1,983 $1,782
Work in process 250 233
Finished goods 1,385 1,378
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$3,618 $3,393
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3. 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.
4. WARRANTS:
In June 1996, 19,411 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.
5. LINE OF CREDIT
In August 1996, the Company obtained a three-year revolving line of credit
commitment from Norwest Business Credit, Inc. ("Norwest") secured by
receivables with an interest rate of 2.25% over Norwest's prime rate. The
maximum line of credit to be extended is 80% of eligible accounts receivable
or $2,000,000, whichever is less. The line of credit is subject to executing
satisfactory loan documentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S FISCAL 1996 ANNUAL
REPORT ON FORM 10-K.
RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 1997 were $5,152,000, a decrease of
$132,000 or 2.5% compared to sales for the first quarter of the previous
year. The slight decrease in sales was due to the timing of sales orders.
Orders expected in June 1996 were received in July 1996.
The gross margin decreased from 30% in the first quarter of fiscal 1996 to
27% in the first quarter of fiscal 1997 due to a combination of the decrease
in sales discussed above and overtime incurred for rework of certain products
and to increase the level of inventory.
General and administrative expenses of $521,000 for the first quarter of
fiscal 1997 decreased 6.4% compared to the first quarter of fiscal 1996
primarily due to the elimination in the second quarter of fiscal 1996 of the
management fee charged by Scherer Healthcare of approximately $20,000 per
month and a decrease in legal fees due to the settlement of several pieces of
litigation in fiscal 1996.
Interest expense increased 12.6% in the first quarter of fiscal 1997 compared
to the same quarter in the prior fiscal year due to the accrual of interest
expense to the Internal Revenue Service for settlements reached in fiscal
1996. During fiscal 1996, the Company sold its 10% investment in Seabrook
Medical Systems, Inc. for a $200,000 gain.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash used in operations was $609,000 for the first
quarter of fiscal 1997. In the first quarter, inventories increased
approximately $225,000 due to the Company's commitment to stocking inventory
for improved customer service. Also, in May 1996, the Company paid $170,000
to settle a lawsuit with an insurance company. Receivables and payables both
declined in the first quarter due to normal seasonal selling patterns.
FINANCING ACTIVITIES: During fiscal 1996, the Company and Scherer Capital,
LLC. signed a loan agreement under which the Company may borrow up to
$1,500,000 at 1-1/2% over prime, secured by inventory and equipment. At June
29, 1996, there is $800,000 of borrowing capacity available to the Company.
On March 29, 1996, Scherer Capital purchased $1,000,000 of common stock of
the Company at a rate of $0.70 per share.
The Company has obtained a three-year revolving line of credit commitment
from Norwest Business Credit., Inc. ("Norwest") secured by receivables with
an interest rate of 2.25% over Norwest's prime rate. The maximum line of
credit to be extended is 80% of eligible accounts receivable or $2,000,000,
whichever is less.
Management of the Company believes that it can fund its current operating
levels and capital expenditures from the funds from the sale of common stock
in March 1996 and from available borrowings under the loan agreement with
Scherer Capital and the committed line of credit. To the extent that Fiscal
1997 operations and borrowings are not sufficient to support anticipated
capital expenditures, the Company's planned investment in capital projects will
be reduced.
8
PART II
OTHER INFORMATION
ITEM L. LEGAL PROCEEDINGS.
A products liability action was filed against the Company in California in
1990 which was defended and settled during the trial by the Company's
insurance company. Under the insurance policy, the Company may have been
responsible for a $250,000 self-insured retention plus the cost of defense.
The Company claimed that the insurance company mishandled the lawsuit and
declined to pay. The Company was sued by the insurance company in District
Court, Arapahoe County, Colorado in February, 1994 who alleged damages of
either $540,000 or $290,000. In May 1996, the Company paid the insurance
company $170,000 to settle the lawsuit and the lawsuit was dismissed with
prejudice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION PAGE
27. Financial Data Schedule (EDGAR version only) 11
(b) Reports on Form 8-K
There have beeen no reports on Form 8-K filed during the quarter for
which this report on Form 10-Q is being filed.
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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: August 13, 1996 MARQUEST MEDICAL PRODUCTS, INC.
/s/ William J. Thompson
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William J. Thompson
President
/s/ Margaret Von der Schmidt
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Margaret Von der Schmidt
Vice President -- Finance and Chief
Financial Officer
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