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 SEPTEMBER 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
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MERIT MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
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Utah 87-0447695
(State or other jurisdiction of incorporation (I.R.S. Identification No.)
or organization)
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1600 West Merit Park Way, South Jordan UT, 84095
(Address of Principal Executive Offices)
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(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, 925,857
TITLE OR CLASS Number of Shares Outstanding at
November 12, 1996
MERIT MEDICAL SYSTEMS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 ....................1
Consolidated Statements of Operations
for the three and nine months ended
September 30, 1996 and 1995...................................3
Consolidated Statements of Cash Flows for
the nine months ended September 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 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
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
September 30,
1996 December 31,
ASSETS (Unaudited) 1995
- ------ ----------- ----------
CURRENT ASSETS:
Cash $ 357,768 $ 270,841
Trade receivables - net 7,064,312 6,727,960
Employee and related party receivables 354,770 363,266
Irish Development Agency grant receivable 391,359 544,725
Inventories 13,418,409 12,156,795
Prepaid expenses and other assets 596,000 403,414
Deferred income tax assets 655,609 655,609
------------- -------------
Total current assets 22,838,227 21,122,610
----------- -----------
PROPERTY AND EQUIPMENT:
Land 595,991 595,959
Building 1,028,259 782,195
Automobiles 139,844 174,651
Manufacturing equipment 8,956,337 7,959,952
Furniture and fixtures 3,261,270 3,005,093
Leasehold improvements 3,164,160 3,087,602
Construction-in-progress 3,172,076 1,465,945
------------ ------------
Total 20,317,937 17,071,397
Less accumulated depreciation
and amortization (7,138,965) (5,479,589)
---------- ----------
Property and equipment - net 13,178,972 11,591,808
---------- -----------
OTHER ASSETS:
Intangible assets - net 1,667,072 1,463,885
Deposits 126,261 46,984
Prepaid royalty - net 214,286 278,571
------------- ------------
Total other assets 2,007,619 1,789,440
------------ -----------
TOTAL $38,024,818 $34,503,858
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Continued on Page 2
See Notes to Consolidated Financial Statements
1
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY September 30,
1996 December 31,
(Unaudited) 1995
CURRENT LIABILITIES:
Line of credit $ 4,448,400 $ 5,871,539
Current portion of long-term debt 1,216,761 778,088
Trade payables 1,844,127 3,056,289
Accrued expenses 1,812,757 1,715,075
Advances from employees 75,718 52,863
Income taxes payable 499,330 129,785
----------- -----------
Total current liabilities 9,897,093 11,603,639
DEFERRED INCOME TAX LIABILITIES 543,985 616,652
LONG-TERM DEBT 4,552,889 1,778,953
DEFERRED CREDIT 962,356 1,066,513
------------ -------------
Total liabilities 15,956,323 15,065,757
---------- -----------
MINORITY INTEREST IN SUBSIDIARY 311,195 173,576
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock - no par value;
10,000,000 shares authorized;
6,899,880 and 6,786,239 shares
issued at September 30, 1996
and December 31, 1995, respectively 13,949,053 13,088,265
Retained earnings 7,848,557 6,153,629
Foreign currency translation adjustment (40,310) 22,631
-------------- --------------
Total stockholders' equity 21,757,300 19,264,525
---------- -----------
TOTAL $ 38,024,818 $ 34,503,858
------------ ------------
See Notes to Consolidated Financial Statements
2
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995 (Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
SALES $12,702,407 $11,280,734 $37,484,550 $31,685,938
COST OF SALES 7,352,304 6,487,512 21,796,638 18,674,660
---------- ---------- ----------- -----------
GROSS PROFIT 5,350,103 4,793,222 15,687,912 13,011,278
----------- ---------- ------------- ------------
OPERATING EXPENSES
Selling, general and administrative 3,437,619 3,237,470 10,477,173 9,719,624
Research and development 534,632 618,441 1,725,945 1,681,914
------------ ----------- ------------ -----------
TOTAL 3,972,251 3,855,911 12,203,118 11,401,538
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,377,852 937,311 3,484,794 1,609,740
OTHER EXPENSE (142,678) (154,098) (489,424) (303,003)
------------ ------------- -------------- ---------------
INCOME BEFORE INCOME TAX EXPENSE
AND MINORITY INTEREST 1,235,174 783,213 2,995,370 1,306,737
MINORITY INTEREST IN (INCOME) LOSS
OF SUBSIDIARY (34,933) (7,234) (137,619) 548
INCOME TAX EXPENSE (524,218) (322,074) (1,162,823) (540,952)
---------- ------------ ------------ -------------
NET INCOME $ 676,023 $ 453,905 $1,694,928 $ 766,333
========== ========== ========== ==========
NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $ .10 $ .07 $ .24 $ .11
============== ============== =============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 7,054,457 6,915,267 7,035,095 6,874,096
========== =========== ========== ===========
See Notes to Consolidated Financial Statements
3
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995 (Unaudited)
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September 30, September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,694,928 $ 766,333
----------- ---------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Minority interest in income (loss) of subsidiary 137,619 (548)
Tax benefit attributable to appreciation of
common stock options exercised 9,846
Depreciation and amortization 1,803,489 1,588,042
Deferred income tax benefit (72,667) (321,291)
Bad debt expense 14,992 57,871
Loss on sales and abandonment of
property and equipment 3,705 35,581
Changes in operating assets and liabilities:
Trade receivables (351,344) (1,023,461)
Employee and related party receivables 8,496 28,602
Irish Development Agency grant receivable (209,691) (337,424)
Inventories (1,261,614) (2,421,197)
Prepaid expenses and other assets (192,586) (249,018)
Deposits (79,277) 16,804
Trade payables (1,212,162) 586,967
Accrued expenses 97,682 177,424
Advances from employees 22,855 51,677
Income taxes payable 369,545 531,846
Other, net (62,941) 15,905
----------- ----------
Total adjustments (983,899) (1,252,374)
--------- ----------
Net cash provided by (used in) operating activities 711,029 (486,041)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (1,362,413) (3,145,030)
Intangible assets (302,437) (58,151)
Proceeds from sale of equipment 41,147
Collection of construction advance receivable 2,184,630
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Net cash used in investing activities (1,623,703) (1,018,551)
------------- -------------
Continued on page 5
See Notes to Consolidated Financial Statements
4
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited)
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September 30, September 30,
1996 1995
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
deferred credits 341,289
common stock 860,788 360,998
issuance of long-term debt 2,200,000 1,674,823
Principal payments on:
long-term debt (927,236) (452,073)
deferred credit (52,101)
line of credit (1,423,139) (69,594)
----------- ------------
Net cash provided by financing activities 999,601 1,514,154
---------- -----------
NET INCREASE IN CASH 86,927 9,562
CASH AT BEGINNING OF PERIOD 270,841 155,836
---------- ----------
CASH AT END OF PERIOD $ 357,768 $ 165,398
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest (including capitalized interest of $123,569 and
$122,582, respectively) $601,890 $ 280,474
======== =============
Income taxes $865,945 $ 330,397
======== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During the nine month periods ended September 30, 1996 and 1995, the Company
issued notes payable totaling $1,960,729 and $ 696,224, respectively, for
manufacturing equipment, furniture and fixtures, land and building.
See Notes to Consolidated Financial Statements
5
MERIT MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 September 30, 1996 and December 31, 1995 and the
results of its operations and cash flows for the three and nine months ended
September 30, 1996 and 1995. The results of operations for the three and nine
months ended September 30, 1996 and 1995 are not necessarily indicative of the
results for a full year period.
2. Inventories. Inventories at September 30, 1996 and December 31, 1995
consisted of the following:
September 30, December 31,
1996 1995
Raw materials $ 2,999,881 $ 3,091,679
Work-in-process 4,537,550 3,337,315
Finished goods 5,880,978 5,727,801
------------ ----------
Total $13,418,409 $12,156,795
----------- -----------
3. Income Taxes. The effective tax rate for the three and nine months ended
September 30, 1996 and 1995, is higher than the federal statutory tax rate due
to losses incurred by the Company's foreign subsidiaries which were recognized
as tax benefits but at their applicable foreign tax rates, which in the
aggregate were lower than the federal statutory rate.
6
MERIT MEDICAL SYSTEMS, INC.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Operations. The Company has achieved significant increases to record levels in
sales and earnings for the three and nine months ended September 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 nine months ended
September 30, 1996 and 1995:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross Profit 42.1 42.5 41.9 41.1
Operating Expenses 31.3 34.2 32.5 36.0
Income From Operations 10.8 8.3 9.3 5.1
Other Expense (1.1) (1.4) (1.3) (1.0)
Net Income 5.3 4.0 4.5 2.4
Sales. Sales for the third quarter and for the nine months of 1996 increased
13% and 18% respectively, compared to the same periods for 1995. This increase
resulted from growth in sales of custom kits and sales of new products sold in
custom kits and on a stand alone basis. In the third quarter of 1996, custom
kits represented 62% of total sales, up from 55 % of sales for the three months
ended September 30, 1995. For the nine months ended September 30, 1996 and 1995,
custom kits represented 60 % of sales and 56% of total sales, respectively.
International sales for the third quarter of 1996 and year to date for 1996
increased 51% and 56%, respectively, compared to the same periods for 1995.
Sales through the Company's direct sales force in Europe was $1,429,641 and
$3,870,494 for the three and nine months ended September 30, 1996, an increase
of 124% and 287% compared to the same periods in 1995.
Gross Profit. Gross profit as a percentage of sales for the third quarter of
1996 was 42.1% down slightly from 42.5% for the third quarter of 1995. For the
nine months ended September 30, 1996, gross profit was 41.9% as compared to
41.1% for the same period in 1995. The slight increase is due primarily to
improving efficiencies in the Company's operations and increasing volumes of
product coming out of the Company's new facility. These improvements continue to
be offset by price pressures to varying degrees throughout the Company's product
lines and to a continuing change in product mix toward lower margin custom
kits.
7
MERIT MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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Operating Expenses. Operating expenses decreased to 31.3% and 32.5% of sales,
respectively, for the three and nine months ended September 30, 1996 compared to
34.2% and 36.0% for the same periods in 1995. The Company is beginning to see
the absorption of the increased sales expense associated with the expansion of
the direct sales force in Europe. Combining this improved selling efficiency
with better coverage of administration costs in relation to increased sales
volumes has resulted in the nearly 3% improvement in operating expenses for the
third quarter of 1996. Product research and development expenses were 4.2% and
4.6% of sales, respectively, for the three and nine months ended September 30,
1996, compared to 5.5% and 5.3% for the same periods in 1995. Such expenses are
expected to be approximately four to five percent of sales on an annual basis.
Income. During the quarter ended September 30, 1996, the Company reported income
from operations of $1,377,852, an increase of 47.0% compared to income from
operations of $937,311 for the comparable period in 1995. This increase was
primarily the result of increasing revenues, improving selling, general and
administrative efficiencies, as previously discussed. Operating income for the
nine months of 1996 was $3,484,794, an increase of 116.5% compared to income
from operations of $1,609,740 for the same period in 1995.
Liquidity and Capital Resources. At September 30, 1996, the Company's working
capital was $12,941,134 which represented a current ratio of 2.3 to 1. In
October of 1995 the Company increased an available secured bank line of credit
from $6,500,000 to $8,500,000. The line of credit bears interest at one quarter
percent over the bank's prime rate and contains various conditions and
restrictions. At September 30, 1996, the outstanding balance under the line of
credit was $4,448,400. Also in October 1995 in conjunction with the new credit
line, the Company obtained a commitment for a four year term loan for $2.2
million secured by real and intangible property at a rate of one half percent
over prime. This loan was used to finance the leasehold improvements the Company
paid for in completing the construction and equipping of it's new facility,
thereby decreasing the balance of the line of credit and increasing the
Company's available working capital. During 1996, the Company negotiated a lease
line for $3,000,000 expiring December 31, 1997. This lease line as of September
30, 1996, has not been utilized. The Company intends to use this lease line to
purchase production equipment for new and expanding product lines.
8
MERIT MEDICAL SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(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: NOVEMBER 12, 1996 /s/ FRED P. LAMPROPOULOW
FRED P. LAMPROPOULOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: NOVEMBER 12, 1996 /s/ KENT W. STANGER
KENT W. STANGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
9
5
9-MOS
DEC-31-1996
SEP-30-1996
357768
0
7142752
(78440)
13418409
22838227
20317937
(7138965)
38024818
9897093
4552889
0
0
13949053
7848557
38024318
37484550
37484550
21796638
21796638
0
15712
517382
2995370
1162823
3484794
0
0
0
1694928
.24
.24
