SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File Number 0-18592
MERIT MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Utah 87-0447695
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
1600 West Merit Park Way, South Jordan, UT, 84095
(Address of Principal Executive Offices)
(801) 253-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock 6,856,756
TITLE OR CLASS Number of Shares Outstanding at
May 7, 1996
MERIT MEDICAL SYSTEMS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995. . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995. . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
March 31, December 31,
ASSETS 1996 1995
(Unaudited)
CURRENT ASSETS:
Cash $ 297,413 $ 270,841
Trade receivables - net 6,970,406 6,727,960
Employee and related
party receivables 313,431 363,266
Irish Development Agency grant receivable 238,304 544,725
Inventories 12,556,849 12,156,795
Prepaid expenses other assets 689,114 403,414
Deferred income tax assets 655,609 655,609
Total current assets 21,721,126 21,122,610
PROPERTY AND EQUIPMENT:
Land 595,325 595,959
Building 878,060 782,195
Manufacturing equipment 8,203,173 7,959,952
Automobiles 139,570 174,651
Furniture and fixtures 3,078,467 3,005,093
Leasehold improvements 3,091,791 3,087,602
Construction-in-progress 2,604,952 1,465,945
Total 18,591,338 17,071,397
Less accumulated depreciation
and amortization (6,018,776) (5,479,589)
Property and equipment - net 12,572,562 11,591,808
OTHER ASSETS:
Intangible assets - net 1,555,287 1,463,885
Deposits 34,327 46,984
Prepaid royalty 257,143 278,571
Total other assets 1,846,757 1,789,440
TOTAL $ 36,140,445 $ 34,503,858
Continued on Page 2
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
MARCH 31, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' March 31, December 31,
EQUITY 1996 1995
(Unaudited)
CURRENT LIABILITIES:
Line of credit $4,613,728 $5,871,539
Current portion of long-term debt 1,182,890 778,088
Trade payables 2,477,125 3,056,289
Accrued expenses 1,571,119 1,715,075
Advances from employees 102,102 52,863
Income taxes payable 274,545 129,785
Total current liabilities 10,221,509 11,603,639
DEFERRED INCOME TAX LIABILITIES 618,586 616,652
LONG-TERM DEBT 3,966,237 1,066,513
DEFERRED CREDITS 945,632 1,778,953
Total Liabilities 15,751,964 15,065,757
MINORITY INTEREST IN SUBSIDIARY 236,122 173,576
STOCKHOLDERS' EQUITY:
Common stock - no par value;
10,000,000 shares authorized;
6,839,606 and 6,786,239 shares
issued and outstanding at
March 31, 1996 and December
31, 1995, respectively 13,483,134 13,088,265
Foreign currency translation
adjustment (16,851) 22,631
Retained earnings 6,686,076 6,153,629
Total stockholders' equity 20,152,359 19,264,525
TOTAL $35,140,445 $34,503,858
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited)
March 31, March 31,
1996 1995
SALES $12,130,015 $9,731,477
COST OF SALES 7,012,670 5,911,529
GROSS PROFIT 5,117,345 3,819,948
OPERATING EXPENSES:
Selling, general and administrative 3,418,032 3,041,610
Research and development 615,844 522,104
TOTAL 4,033,876 3,563,714
INCOME FROM OPERATIONS 1,083,469 256,234
OTHER EXPENSE - NET 162,614 43,206
INCOME BEFORE INCOME TAX EXPENSE 920,855 213,028
INCOME TAX EXPENSE 325,862 158,858
MINORITY INTEREST IN (INCOME ) LOSS OF SUBSIDIARY (62,546) 9,298
NET INCOME $532,447 $63,468
NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $.08 $.01
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 6,941,491 6,722,538
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited)
March 31, March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 532,447 $ 63,468
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 568,955 455,859
Losses on sales and abandonment of
property and equipment 2,186 -
Deferred income taxes 1,934 -
Minority interest in income (loss) of subsidiary 62,546 (9,298)
Tax benefit attributable to appreciation of
common stock options exercised - 9,846
Changes in operating assets and liabilities:
Trade receivables (242,446) (196,820)
Employee and related party receivables 49,835 (18,856)
Irish Development Agency grant receivable (44,305) (146,710)
Inventories (400,054) (19,670)
Prepaid expenses and other assets (285,700) (318,430)
Deposits 12,657 25,218
Trade payables (579,164) (256,007)
Accrued expenses (143,956) 20,574
Advances from employees 49,239 (2,958)
Income taxes payable 144,760 153,358
Other, net (39,482) 15,912
Total adjustments (842,995) (287,982)
Net cash used in operating activities (310,548) (224,514)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections (advances) on construction
advances receivable - 2,184,630
Capital expenditures for:
Property and equipment (996,598) (2,751,616)
Intangible assets (92,891) (37,779)
Proceeds from sale of property and equipment 20,119 -
Net cash used in investing activities (1,069,370) (604,765)
Continued on page 5
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited)
March 31, March 31,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds included in deferred credits 277,719 -
Proceeds from issuance of common stock 394,869 138,583
Principal payments on:
long-term debt (190,920) (90,599)
line of credit (1,257,811) (609,850)
deferred credits (17,367) -
Proceeds from issuance of long-term debt 2,200,000 1,459,546
Net cash provided by financing activities 1,406,490 897,680
NET INCREASE IN CASH 26,572 68,401
CASH AT BEGINNING OF PERIOD 270,841 155,836
CASH AT END OF PERIOD $297,413 $224,237
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest
(including capitalized interest of
$34,384 and $29,309, respectively) $136,695 $34,162
Income taxes $179,168 $5,500
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During the three month period ended March 31, 1996 and 1995, the Company
entered into notes payable totaling $583,006 and $391,435 respectively, for
manufacturing equipment and furniture and fixtures.
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of financial
position of the Company as of March 31, 1996 and December 31, 1995, and the
results of its operations and cash flows for the three months ended
March 31, 1996 and 1995. The results of operations for the three months
ended March 31, 1996 and 1995 are not necessarily indicative of the results
for a full year period.
2. Inventories. Inventories at March 31, 1996 and December 31, 1995
consisted of the following:
March 31, December 31,
1996 1995
Raw materials $ 3,123,519 $ 3,091,679
Work-in-process 4,244,921 3,337,315
Finished goods 5,188,409 5,727,801
Total $12,556,849 $12,156,795
3. Income Taxes. The Company has not fully allocated income tax expense
between current and deferred for the quarters ended March 31, 1996 and 1995.
The effective tax rate for the quarter ended March 31, 1995 is higher than
the federal statutory tax rate due to losses incurred by the Company's
subsidiaries for which a tax benefit had not yet been recorded.
MERIT MEDICAL SYSTEMS, INC.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operations. The Company has achieved significant increases in sales for the
three months ended March 31, 1996 compared to the same period in 1995.
The following table sets forth certain operational data as a percentage of
sales for the three months ended March 31, 1996 and 1995:
Three Months Ended
March 31,
1996 1995
Sales 100.0 % 100.0%
Gross Profit 42.2 39.3
Operating Expenses 33.3 36.6
Income From Operations 8.9 2.6
Other Expense 1.3 .4
Net Income 4.4 .7
Sales for the first quarter of 1996 increased by 25% or $2,398,538 compared
to the same period for 1995. This increase was largely attributable to a
growth rate of 37% in the sales of custom kits as compared to the first
quarter of 1995. When the Company's products are sold as part of a custom kit,
the revenues attributable to each component are not separately reported.
In the first quarter of 1996, custom kits represented 58% of total sales,
up from 53% of sales for the three months ended March 31, 1995. International
sales for the first quarter of 1996 represented 21% of total company sales vs
16% of sales for the comparable period in 1995. In March 1995, the Company
began transitioning from sales through a dealer network in the U.K., France
and Germany to a direct sales force. For the first quarter of 1996 the
direct sales force accounted for $1,174,000, an increase of 223% in these
markets, which represented 45% of total international sales. For the same
period a year ago sales in the U.K., France, and Germany totaled approximately
$363,000 of which $356,000 of the sales were made through third party dealers
and $7,000 through the Company's direct sales force.
During the quarter ended March 31, 1996, the Company introduced a new line of
25 ATM inflation devices designed to meet the higher pressures demanded during
stent procedures. Based on orders received during the quarter and subsequent
to the end of the quarter the Company believes that these new inflation
products will contribute to increase revenues and profits over the next several
quarters.
Gross Profit. Gross profit as a percentage of sales increased in the first
quarter of 1996 to 42.2% as compared to 39.3% in the first quarter of 1995.
The increase was primarily due to continuous manufacturing efficiencies and
economies of scale achieved in the Company's new facility located in South
Jordan Utah, and increased direct sales in Western Europe at retail prices
compared to wholesale prices to dealers. Sentir the Company's semiconductor
subsidiary also contributed to the first quarter of 1996 gross margin
improvement due to economies of scale on higher sales volume with margins of
over 50%.
MERIT MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Operating Expenses. Operating expenses decreased as a percentage of sales
to 33.3% of sales in the first quarter of 1996 compared to 36.6% in the first
quarter of 1995. The improvement in the current period is due primarily
to economics of scale associated with increasing sales volumes and a
continuous company wide focus on achieving greater individual productivity.
European operating expenses as a percentage of sales improved to 57.4% of
sales down from over 4,700% of sales for the first quarter of 1995. Product
research and development expenses were 5.1% of sales in the first quarter of
1996 compared to 5.4% in the first quarter of 1995. Such expenses are
expected to be approximately five percent of sales on an annual basis.
Income. During the quarter ended March 31, 1996, the Company reported income
from operations of $920,855 an increase of 332% from income from operations
of $213,028 for the comparable period in 1995. This increase is primarily
the result of increased sales, improved gross margins and lower operating
expenses as a percent of sales as discussed previously.
Liquidity and Capital Resources. At March 31, 1996, the Company's working
capital was $11,540,931 which represented a current ratio of 2.1 to 1.
During 1995, the Company increased an available secured bank line of credit
to $8,500,000 and obtained $2.2 million in term debt which was drawn down in
February of 1996. The line of credit bears interest at .25 percent over the
banks prime rate and contains various conditions and restrictions.
At March 31, 1996, the outstanding balance under the line of credit was
$4,613,728. Historically, the company has incurred significant expenses
in connection with product development and introduction of new products.
Substantial capital has also been required to finance growth in inventories
and receivables. The Company's principal source of funding for these and
other expenses has been the sale of equity and cash generated from operations.
Based on the Company's current rate of growth and expansion plans, additional
debt or equity financing may be required by the fourth quarter of 1996.
There are no present commitments or arrangement for additional financing.
If such financing is required and unavailable, the Company may be required to
slow its growth or expansion plans, particularly in international markets.
MERIT MEDICAL SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - none required to be filed
(b) Reports on Form 8-K - none
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.
MERIT MEDICAL SYSTEMS, INC.
REGISTRANT
Date: May 7, 1996
FRED P. LAMPROPOULOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: May 7, 1996
KENT W. STANGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER