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 JUNE 30, 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 (I.R.S. Identification No.)
of 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 6,912,742
TITLE OR CLASS Number of Shares Outstanding at
August 13, 1996
MERIT MEDICAL SYSTEMS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 . . . . . . . . . 1
Consolidated Statements of Operations for the three
and six months ended June 30, 1996 and 1995 . . . . . . 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . 10
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
June 30,
1996 December 31,
ASSETS (Unaudited) 1995
CURRENT ASSETS: ----------- ------------
Cash $ 428,781 $ 270,841
Trade receivables - net 7,379,586 6,727,960
Employee and related party receivables 328,524 363,266
Irish Development Agency grant receivable 305,198 544,725
Inventories 12,985,549 12,156,795
Prepaid expenses and other assets 704,175 403,414
Deferred income tax assets 655,609 655,609
---------- ----------
Total current assets 22,787,422 21,122,610
---------- ----------
PROPERTY AND EQUIPMENT:
Land 595,904 595,959
Building 985,013 782,195
Automobiles 139,491 174,651
Manufacturing equipment 8,429,197 7,959,952
Furniture and fixtures 3,175,558 3,005,093
Leasehold improvements 3,134,087 3,087,602
Construction-in-progress 3,148,687 1,465,945
---------- ----------
Total 19,607,937 17,071,397
Less accumulated depreciation
and amortization (6,594,026) (5,479,589)
---------- -----------
Property and equipment - net 13,013,911 11,591,808
---------- -----------
OTHER ASSETS:
Intangible assets - net 1,749,469 1,463,885
Deposits 38,518 46,984
Prepaid royalty - net 235,714 278,571
--------- ---------
Total other assets 2,023,701 1,789,440
------------ -----------
TOTAL $ 37,825,034 $ 34,503,858
============ ============
Continued on Page 2
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
JUNE 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY June 30,
1996 December 31,
(Unaudited) 1995
CURRENT LIABILITIES: ---------- -------------
Line of credit $ 4,626,283 $ 5,871,539
Current portion of long-term debt 1,073,585 778,088
Trade payables 2,573,332 3,056,289
Accrued expenses 2,178,048 1,715,075
Advances from employees 95,907 52,863
Income taxes payable 178,825 129,785
----------- -----------
Total current liabilities 10,725,980 11,603,639
DEFERRED INCOME TAX LIABILITIES 572,650 616,652
LONG-TERM DEBT 4,339,453 1,778,953
DEFERRED CREDITS 961,621 1,066,513
---------- -----------
Total liabilities 16,599,704 15,065,757
---------- -----------
MINORITY INTEREST IN SUBSIDIARY 276,262 173,576
---------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value;
10,000,000 shares authorized;
6,899,080 and 6,786,239 shares
issued at June 30, 1996
and December 31, 1995, respectively 13,793,066 13,088,265
Retained earnings 7,172,534 6,153,629
Foreign currency translation adjustment (16,532) 22,631
---------- ----------
Total stockholders' equity 20,949,068 19,264,525
---------- ----------
TOTAL $ 37,825,034 $ 34,503,858
============ ============
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 and 1995 (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- --------
SALES $ 12,652,128 $10,673,727 $ 24,782,143 $ 20,405,204
COST OF SALES 7,431,664 6,275,619 14,444,334 12,187,148
GROSS PROFIT 5,220,464 4,398,108 10,337,809 8,218,056
OPERATING EXPENSES:
Selling, general and
administrative 3,621,522 3,440,544 7,039,554 6,482,154
Research and development 575,469 541,369 1,191,313 1,063,473
------------ ---------- ------------ -----------
TOTAL 4,196,991 3,981,913 8,230,867 7,545,627
------------ ---------- ------------ -----------
INCOME FROM OPERATIONS 1,023,473 416,195 2,106,942 672,429
OTHER EXPENSE 184,132 105,699 346,746 148,905
------------ ---------- ------------ -----------
INCOME BEFORE INCOME TAX EXPENSE 839,341 310,496 1,760,196 523,524
INCOME TAX EXPENSE 312,743 60,020 638,605 218,878
MINORITY INTEREST IN (INCOME)
LOSS OF SUBSIDIARY (40,140) (1,516) (102,686) 7,782
------------ ---------- ------------ -----------
NET INCOME $ 486,458 $ 248,960 $ 1,018,905 $ 312,428
============ =========== ============ ============
NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $ .07 $ .04 $ .15 $ .05
============ =========== ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 7,107,358 6,864,474 7,024,424 6,864,600
============ =========== ============ ============
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 and 1995 (Unaudited)
June 30, June 30,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,018,905 $ 312,428
----------- ---------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,204,057 969,583
Bad debt expense 14,143 17,998
Losses on sales and abandonment of
property and equipment 2,150 695
Deferred income taxes (44,002) (261,053)
Minority interest in income (loss) of subsidiary 102,686 (7,782)
Tax benefit attributable to appreciation of
common stock options exercised 9,846
Changes in operating assets and liabilities:
Trade receivables (665,769) (926,447)
Employee and related party receivables 34,742 8,162
Irish Development Agency grant receivable (119,100) (298,695)
Inventories (828,754) (1,541,331)
Prepaid expenses (300,761) (344,859)
Deposits 8,466 47,620
Trade payables (482,957) 301,345
Accrued expenses 462,973 473,647
Advances from employees 43,044 40,280
Income taxes 49,040 185,871
Other (39,163) 21,174
----------- -----------
Total adjustments (559,205) (1,303,946)
----------- -----------
Net cash provided by (used in) operating activities 459,700 (991,518)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction advances receivable 2,184,630
Property and equipment (1,230,254) (3,495,864)
Intangible assets (326,888) (11,084)
----------- -----------
Net cash used in investing activities (1,557,142) (1,322,318)
----------- -----------
Continued on page 5
See Notes to Consolidated Financial Statements
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
June 30, June 30,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES: --------- ---------
Proceeds from:
deferred credits 320,404
line of credit 851,971
issuance of common stock 704,801 312,047
long-term debt 2,200,000 1,508,658
Principal payments on:
long-term debt (689,833) (275,918)
line of credit (1,245,256)
deferred credit (34,734)
---------- ----------
Net cash provided by financing activities 1,255,382 2,396,758
---------- ----------
NET INCREASE IN CASH 157,940 82,922
CASH AT BEGINNING OF PERIOD 270,841 155,836
---------- ----------
CASH AT END OF PERIOD $ 428,781 $ 238,758
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest
(including capitalized interest of
$85,291 and $72,092, respectively) $ 315,065 $ 173,558
========== ==========
Income taxes $ 633,567 $ 294,060
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1996 and 1995 the Company issued notes
payable totaling $1,345,830 and $488,714 respectively, for manufacturing
equipment, furniture and fixtures, land and building.
.
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 the financial
position of the Company as of June 30, 1996 and December 31, 1995, and the
results of its operations and cash flows for the three and six months ended June
30, 1996 and 1995. The results of operations for the three and six months ended
June 30, 1996 and 1995 are not necessarily indicative of the results for a full
year period.
2. Inventories. Inventories at June 30, 1996 and December 31, 1995 consisted of
the following:
June 30, December 31,
1996 1995
--------- ------------
Raw materials $ 2,922,431 $3,091,679
Work-in-process 4,693,133 3,337,315
Finished goods 5,369,985 5,727,801
----------- ----------
Total $12,985,549 $12,156,795
=========== ===========
3. Income Taxes. For the three months ended June 30, 1995 the effective tax rate
is lower than the federal statutory tax rate due to the recognition of tax
benefits of approximately $82,000 relating to losses incurred by the Company's
foreign subsidiaries prior to April 1, 1995.
MERIT MEDICAL SYSTEMS, INC.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operations. The Company achieved significant increases in sales and income for
the three and six months ended June 30, 1996 compared to the same periods in
1995. The following table sets forth certain operational data as a percentage of
sales for the three and six months ended June 30, 1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
--------- ---------
1996 1995 1996 1995
------ ------ ------ ------
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross Margin 41.3 41.2 41.7 40.3
Operating Expenses 33.2 37.3 33.2 37.0
Income From Operations 8.1 3.9 8.5 3.3
Other Expense 1.5 1.0 1.4 .7
Net Income 3.8 2.3 4.1 1.5
Sales. Sales for the second quarter and for the six months of 1996 increased 19%
and 21% respectively, compared to the same periods for 1995.This increase was
largely attributable to growth of 22% and 29% in the sales of custom kits for
the three and six months ended June 30, 1996 respectively, when compared to the
same periods for 1995. Custom kits represented 56% and 54% of sales for the
three months ended June 30, 1996 and 1995, respectively. For the six months
ended June 30, 1996 and 1995, custom kits represented 57% and 53% of total
sales, respectively. In March 1995, the Company began transitioning from sales
through a dealer network in Germany, France, the U.K. and Ireland to a direct
sales force. Direct international sales in these countries for the three months
ended June 30, 1996 was $1.3 million compared to $355,671 for the same period in
1995, an increase of 256%. For the six months ended June 30, 1996 direct
international sales was $2.4 million compared to $362,731 for the same period in
1996, an increase of 573%.
Gross Margin. Gross margin as a percentage of sales for the second quarter of
1996 was 41.3% compared to 41.2% for the same period in 1995. For the six months
ended June 30, 1996, gross margin was 41.7% as compared to 40.3% for the same
period in 1995. The increase in gross margin for the three and six months ended
June 30, 1996 was primarily due to manufacturing efficiencies and economies of
scale achieved in the Company's new facility in South Jordan, Utah. Gross
margins were also favorably impacted by increased direct sales in Western Europe
at retail prices compared to wholesale prices to dealers as the Company replaced
it's dealers with a direct sales force in Germany, France, the U.K. and Ireland.
Sentir, the Company's semiconductor subsidiary, also contributed to the gross
margin improvement due to economies of scale on higher sales volume with gross
margins of approximately 48%.
MERIT MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Expenses. Operating expenses decreased to 33.2% of sales for the
second quarter and for the first six months of 1996 compared to 37.3%and 37.0%
for the same periods in 1995. The improvement in both periods is primarily due
to economies of scale associated with increasing sales volumes and a continuing
Company wide focus on achieving greater individual productivity. Product
research and development expenses were 4.5% and 4.8% of sales, respectively, for
the three and six months ended June 30, 1996, compared to 5.1% and 5.2% for the
same periods in 1995. Such expenses are expected to be approximately five
percent of sales on an annual basis.
Operating Income. During the quarter ended June 30, 1996, the Company reported
income from operations of over $1.0 million, an increase of 146% compared to
income from operations of $416,195 for the comparable period in 1995. Operating
income for the first six months of 1996 was $2.1 million, an increase of 213% as
compared to income from operations of $672,429 for the same period in 1995. The
increase in the three and six months ended June 30, 1996 was primarily the
result of lower operating expenses as a percent of sales.
Liquidity and Capital Resources. At June 30, 1996, the Company's working capital
was $12.1 million which represented a current ratio of 2.1 to 1. During 1995,
the Company increased an available secured bank line of credit to $8.5 million
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 bank's prime rate and
contains various conditions and restrictions. At June 30, 1996, the outstanding
balance under the line of credit was $4.6 million. 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: 4 Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders (the "Annual Meeting")
on May 30, 1996 in South Jordan Utah. The following items of business were
considered at the Annual Meeting:
A: Election of Directors
Five persons were elected as members of the Board of Directors to serve
until the next annual meeting in 1996 or until their respective successors have
been duly elected and qualified. They are as follows:
Shares
Voted For
-----------
Fred P. Lampropoulos 5,202,913
Kent W. Stanger 5,203,313
Rex C. Bean 5,203,783
Richard W. Edelman 5,203,783
James Ellis 5,204,183
Michael Stillabower 5,204,183
B. Amendment of the Long Term Incentive Stock Option Plan
A proposal to amend the Long Term Incentive Stock Option Plan was
presented at the Annual Meeting and such proposal was approved by the
shareholders of the Company. The number of shares voted for such proposal was
2,894,640. The number of shares voted against such proposal was 627,417. The
number of shares abstaining from voting or broker non votes was 1,825,096.
C. Adoption of the Merit Medical Systems, Inc. 1996 Employee Stock Purchase
Plan.
A proposal to adopt the Employee Stock Purchase Plan was presented at the
Annual Meeting and such proposal was approved by the shareholders of the
Company. The number of shares voted for the proposal was 3,429,081. The number
of shares voted against such proposal was 117,296. The number of shares
abstaining from voting or broker non votes was 1,800,776.
D. Amendment to Articles of Incorporation.
A proposal to amend the Articles of Incorporation was presented at the
Annual Meeting and such proposal was approved by the shareholders of the
Company. The number of shares voted for the proposal was 3,066,014. The number
of shares voted against such proposal was 594,928. The number of shares
abstaining from voting or broker non votes was 1,686,211.
E. Selection of Auditors.
A proposal to ratify the appointment of Deloitte & Touche LLP as the
independent auditor of the Company for 1995 was presented at the Annual Meeting
and such proposal was approved by the shareholders of the Company. The number of
shares voted for the proposal was 5,317,828. The number of shares voted against
such proposal was 12,350. The number of shares abstaining from voting was
16,775.
MERIT MEDICAL SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K - none
(b) Exhibits
S - K No. Description Exhibit No.
3 Articles of Incorporation as Amended 1
10 Amendment to Long Term Incentive Stock 2
Option Plan
27 Financial Data Schedule 3
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: AUGUST 13, 1996 /s/ FRED P. LAMPROPOULOS
FRED P. LAMPROPOULOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: AUGUST 13, 1996 /s/ KENT W. STANGER
KENT W. STANGER
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER