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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998 or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
MERIT MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Utah 0-18592 87-0447695
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1600 West Merit Parkway
South Jordan, Utah 84095
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 253-1600
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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 |_|
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant, based upon the closing sale price of the Common Stock on the
NASDAQ National Market System on March 26, 1999, was approximately $32,156,930.
Shares of Common Stock held by each officer and director and by each person who
may be deemed to be an affiliate have been excluded.
As of March 26, 1999 the Registrant had 7,508,914 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement relating to the Annual
Meeting of Shareholders scheduled for May 26, 1999 is incorporated by reference
in Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
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TABLE OF CONTENTS
PART I....................................................................................... 1
Disclosure regarding forward-looking statements........................................................ 1
Item 1. Business..................................................................................... 1
GENERAL ..................................................................................... 1
PRODUCTS..................................................................................... 2
Inflation Devices........................................................................ 2
Control Syringes......................................................................... 3
Specialty Syringes....................................................................... 3
High Pressure Contrast Injection Line and Sherlock Connectors............................ 3
Manifolds................................................................................ 3
Waste Containment System................................................................. 3
Disposable Blood Pressure Transducer..................................................... 4
Safety Basin............................................................................. 4
Hemostasis Valves........................................................................ 4
Torque Device............................................................................ 4
Stopcock ................................................................................ 4
Contrast Management Systems.............................................................. 4
Angiographic Needles..................................................................... 4
Captiva Blood Containment Device......................................................... 4
Fountain Infusion Guidewire.............................................................. 4
Tomcat (PTCA) Guidewire.................................................................. 4
Mentor................................................................................... 4
Squirt................................................................................... 4
Angiography Pigtail Catheter............................................................. 4
Pericardiocentesis....................................................................... 4
Meritrans Pressure Transducers........................................................... 4
Custom Kits.............................................................................. 5
MARKETING AND SALES.......................................................................... 5
Market Strategy.......................................................................... 5
U.S. Sales............................................................................... 5
International Sales...................................................................... 5
CUSTOMERS.................................................................................... 5
RESEARCH AND DEVELOPMENT..................................................................... 6
MANUFACTURING................................................................................ 6
COMPETITION.................................................................................. 6
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS............................ 7
REGULATION................................................................................... 7
EMPLOYEES.................................................................................... 8
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES............................................................................ 8
Item 2. Properties................................................................................... 8
Item 3. Legal Proceedings............................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 9
PART II ............................................................................................ 10
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters........................ 10
Item 6. Selected Financial Data..................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10
Item 8. Financial Statements and Supplementary Data................................................. 10
Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure........... 10
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PART III ............................................................................................ 11
Item 10, 11, 12 and 13................................................................................ 11
PART IV ............................................................................................ 12
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 12
SIGNATURES............................................................................................ 14
Exhibit 24.1 Consent of Independent Public Accountants................................................ 15
ii
PART I
DISCLOSURE REGARDING FORWARD -LOOKING STATEMENTS
This Form 10-K Report include "Forward-Looking Statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "Forward-Looking Statements" for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or services,
any statements regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. In some cases,
Forward-Looking Statements can be identified by the use of terminology such as
"may," "will," "expects," "plans," "anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in the Forward-Looking
Statements contained herein are reasonable, there can be no assurance that such
expectations or any of the ForwardLooking Statements will prove to be correct,
and actual results could differ materially from those projected or assumed in
the Forward-Looking Statements. Future financial condition and results of
operations, as well as any Forward- Looking Statements are subject to inherent
risks and uncertainties, including market acceptance of the Company's products,
potential product recalls, delays in obtaining regulatory approvals, cost
increases, price and product competition, availability of labor and material,
foreign currency fluctuations, changes in health care markets related to health
care reform initiatives and other factors referred to in the Company's press
releases and reports filed with the Securities and Exchange Commission. All
subsequent Forward-Looking Statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
Item 1. Business.
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GENERAL
Merit Medical Systems, Inc. (the "Company") was formed in 1987 by
members of its current management for the purpose of producing single-use
medical products of high quality and superior value primarily for use in
diagnosis and treatment of cardiovascular disease. The Company's products are
designed to provide physicians and other health care professionals with devices
that enable them to perform interventional and diagnostic procedures safely and
effectively. Initially, the Company's expertise in innovative product design and
its proprietary technology and skills in injection and insert molding enabled it
to introduce innovative new products and capture significant market share. The
Company subsequently combined its plastics molding capability with the
application of proprietary electronics and sensor-based technologies to develop
a line of angioplasty inflation products with electronic sensing and display
features. These devices are now included in a series of sensor-based products
that address a broad range of needs related to diagnostic and interventional
catheterization procedures performed in hospitals. Since 1997 the Company has
expanded its product offerings to include catheters, guide wires, needles, drug
infusion and wound irrigation devices.
The Company's strategy is to offer a broad line of innovative,
disposable products for use in angiography, angioplasty and similar procedures
and to increase market acceptance and penetration for both its existing and new
products in the U.S. and in international markets. Longer term, the Company's
strategy is to extend the application of its plastics molding, electronic and
sensor-based technologies to develop products for diagnostic and interventional
procedures in additional markets such as neuroradiology, urology, wound care,
nephrology pain management and critical care. The Company's sales of products in
combination and in custom kits have increased as additions have been made to the
Company's product lines. In 1998, approximately 53% of the Company's sales were
made directly to U.S. hospitals and approximately 25% of sales were made to
custom packagers, distributors and O.E.M. companies who also distribute to U.S.
hospitals. Approximately 22% of the Company's sales in 1998 were made in
international markets.
The Company was organized in July 1987 as a Utah corporation. In July
1994, the Company purchased a controlling interest in Sentir, Inc., a
California-based manufacturer of silicon sensors. The Company has also organized
subsidiaries in Ireland, Germany, France, the United Kingdom, Belgium, and the
1
Netherlands to conduct its international business. On January 31, 1997, the
Company purchased the operating assets and product lines of Universal Medical
Instruments Corp.("UMI"). The Company's principal offices are located in a
manufacturing and office facility at 1600 West Merit Parkway, South Jordan, Utah
84095, and its telephone number is (801) 253-1600. See "Item 2. Properties."
PRODUCTS
The Company's products have been designed and developed in response to
the needs of customers and patients. These needs have been identified primarily
through observation of procedures in the cardiac catheterization laboratories,
consultation with the Company's medical advisors and consultants through direct
communication with customers. Since 1988, the Company has developed and
introduced several product lines, including control syringes ("CCS"and "Smart
Tip"), inflation devices ("Intellisystem," "Monarch," and " Basix," including
new 25-atmosphere versions of the (Intellisystem, Monarch and Basix devices),
specialty syringes ("Medallion" and "VacLoc"), high pressure tubing and
connectors ("Excite" and "Sherlock") , waste handling and disposal products
("Merit Disposal Depot" and "Backstop"), a disposable blood pressure transducer
("Meritrans"), disposable hemostasis valves ("Passage" and "Access-9" Access
Plus), manifolds and stopcocks ("Marquis Series") a torque device and contrast
management systems ("Miser" and "In-line Contrast Management System")
Angiography needles ("Majestick series"), and blood containment devices
("Captiva"), pericardiocentesis catheters and procedure trays, PTCA Guide wires
("Tom Cat") and extension wires, thrombolytic infusion catheters ("Fountain")
and accessories (Squirt") and diagnostic angiographic pigtail catheters. These
products are sold separately and in custom kits consisting primarily of selected
combinations of products Guide wires.
The Company has not experienced any product liability claims; however,
the sale and use of its products entails an inherent risk that product liability
claims may be asserted against the Company. The Company maintains product
liability insurance in the amount of $5,000,000 per occurrence and in the
aggregate, which may not be adequate for expenses or liabilities actually
incurred.
Inflation Devices. Inflation devices are specialized syringes used in
interventional catheterization procedures to inflate and deflate balloon-tipped
catheters. The Company has received a 510(k) for use of its digital inflation
devices for a wide range of additional clinical applications such as esophageal
dilation, trigeminal nerve compression, retinal detachment and discography. Each
of the Company's inflation devices incorporates proprietary design features
which contribute to ease of use, including allowing the clinicians to engage or
release the syringe plunger with one hand while increasing or decreasing the
pressure. Each syringe also provides a clear view of the fluid path that
simplifies debubbling and contributes to accurate measurement of pressure.
The Company's Intellisystem(TM) 25 inflation device, which was the
first such device to incorporate electronic sensing and display features,
consists of a disposable 20cc inflation syringe and an integral pressure
transducer which connects to an electronic monitor outside of the sterile field.
To aid the marketing process and encourage use of the Company's products, the
electronic monitor is provided without charge to customers using the
IntelliSystem. The IntelliSystem measures, times, records and digitally displays
information concerning the pressure, duration and number of each inflation and
deflation of the angioplasty balloon. The Company believes that electronic
sensing and display of such information is much more accurate and precise than
that which can be obtained from conventional analog gauges. The data is stored
and may be displayed, retrieved, graphed and printed.
The Monarch(TM) 25 is a disposable inflation device which digitally
displays data concerning pressure and duration of inflations and deflations on a
small electronic monitor mounted on the barrel of the inflation syringe. The
monitor does not offer all of the display, storage or printing capabilities of
the IntelliSystem but offers the convenience of portable operation.
The Basix(TM) 25 and the new basixCOMPAK(TM) are disposable inflation
devices which incorporate a conventional analog pressure gauge, mounted on the
barrel of the inflation syringe. The Basix more closely resembles devices
marketed by the Company's competitors but incorporates the Company's proprietary
design features and benefits. The Company believes that the Basix represents a
significant addition to its line of inflation devices that will contribute to
sales where both clinical and economic outcomes are a priority.
2
Control Syringes. The Company's disposable control syringes are
utilized for one-handed control of the injection of contrast media and other
fluids during angiography and angioplasty procedures. The control syringes are
molded from polycarbonate material which is stronger than glass and other
plastics used in the industry. The Company offers different models and sizes of
the control syringes with varying features which respond primarily to physician
preferences. These features include different configurations of syringe handles
and plungers and connections which allow operation of the syringe in a fixed or
rotating position. In response to customer demand, Merit launched latex- free
control syringes in 1998.
Specialty Syringes. Merit's Medallion(TM) syringes, a line of
disposable latex-free, color-coded specialty syringes are used for injection of
medications, flushing of manifolds and other general purposes. These syringes
are molded of polycarbonate material for added strength and are available in
hundreds of sizes, colors and custom printing combinations. The color coding
allows a clinician to assign a color for each medication to be dispensed and to
differentiate syringes by their contents. The syringes can also be custom
printed to the specifications of the user. In response to customer requests, the
Company has developed and added additional sizes of its specialty syringes which
have applications in dispensing various medications required in a broader range
of peripheral procedures. The Company believes that the design, color coding and
materials used in its specialty syringes contribute to patient safety and more
efficient procedures. The specialty syringes are sold separately but are an
important component of the Company's custom kits.
High Pressure Contrast Injection Line and Sherlock Connectors. During
angiographic and diagnostic radiology procedures, contrast media must be
injected through a catheter into the blood vessel. This is sometimes
accomplished by a mechanical injector which can generate pressures up to 1200
psi, and requires tubing that can withstand these pressures. The Company offers
high pressure specialty tubing with proprietary Sherlock connectors. In 1998 the
Company launched Excite(TM), a new line of clear, flexible high pressure tubing
that combines the features of tubing clarity and strength. Sherlock connectors
allow coupling and uncoupling of tubing with injectors, syringes and manifolds
without over-tightening or breakage. The Company is currently offering specialty
tubing which can handle pressures ranging from 500 to 1200 psi. The specialty
tubing with Sherlock connectors is an important component of custom kits.
Manifolds. The administration of saline, imaging and contrast fluids
and the management of blood pressure monitoring, fluid injection and waste
collection in angiography or angioplasty procedures is accomplished through a
series of valves on a manifold which control the flow of various fluids in
different directions. The Company has designed its own manifold consisting of
two, three, four or five valves. The Company believes its manifold offers
greater ease of use, simplified identification of flow direction and leak-free
operation under the pressures of manual or mechanical injection of fluids when
compared to manifolds sold by competitors. The Merit Manifold is sold separately
but is also a key component of the Company's custom kits.
Waste Containment System. Because of heightened awareness of the risk
associated with blood and related waste materials, hospitals have moved toward
closed systems whenever possible. To address these concerns, the Company has
designed a waste containment bag which connects to a manifold and collects waste
materials such as blood and other fluids during angiography, angioplasty or
other procedures. The Merit Disposal Depot(TM) is self-contained for ease of
disposal and reduces risk of contamination. The Backstop(TM) is a unique and
proprietary alternative fluid disposal basin designed to reduce exposure to
blood-borne pathogens.
Disposable Blood Pressure Transducer. The Meritrans (TM) is a disposal
blood pressure transducer designed to provide reliable and precise blood
pressure measurements. The device has a clear transducer housing and a
flow-through design for easy flushing and debubbling.
Hemostasis Valves. The Passage(TM) and Access-9(TM) and Access
Plus(TM) hemostasis valves are used in conjunction with the Company's inflation
devices and as a component of the Company's Angioplasty Packs. These valves are
made with polycarbonate plastics for clarity and include Sherlock connectors.
The devices differ in size and function.
3
Torque Device. The Merit torque device is a guidewire steering tool
with a tapered design and contrasting colors for improved visibility. The torque
device typically is included as a component of the Company's angioplasty packs.
Stopcock. The Company's Marquis(TM) Series Stopcock offers
improvements to competitive stopcock devices, including a large, easy grip
handle. The Marquis Series Stopcock is used in connection with Sherlock
connectors to provide improved connections during procedures.
Contrast Management Systems. The Miser(TM) and the In-line Contrast
Management System have been designed to increase catheterization lab
efficiencies by reducing contrast media waste.
Angiographic Needles. The angiography needle creates the percutaneous
access site for all angiography and angioplasty procedures. This site is the
point of entry for the introducer sheath, guide wires, catheters and any other
interventional devices. The Merit Majestik(TM) Needle helps the physician
achieve precision vascular access with one of the sharpest angiography needles
on the market.
Captiva(TM) Blood Containment Device. The Captiva helps protect health
care workers from the potential of blood-borne pathogens by minimizing the
escape of blood during an initial needle puncture in vascular access procedures.
This product is complementary to the angiographic needles and can be utilized in
virtually every diagnostic and interventional case where needle introducers are
used.
Fountain(TM) Infusion Catheter. The Fountain catheter delivers
specialized clot-dissolving drugs to help remove blood clots (thrombi) in
peripheral vessels. This catheter is used to treat peripheral arterial
occlusions, hemodialysis graft occlusions, and deep vein thrombosis. Marketing
clearance was obtained for U.S. and European markets and sales of the Fountain
catheter began in the second quarter of 1998. This product incorporates the
Squirt fluid dispensing system for controlled fluid delivery.
Tomcat (TM) (PTCA) Guide wire. Tomcat guide wires are used in
percutaneous transluminal coronary angioplasty (PTCA) and stent deployment
procedures. Guide wires are used to guide and place balloon angioplasty and
stent deployment catheters into coronary arteries. This new product complements
our existing lines of inflation devices and accessories currently used in
balloon angioplasty procedures, and was designed, developed and manufactured in
the Company's Ireland facility. Marketing clearance was recently obtained for
U.S. and European markets and sales of the Tomcat guide wire began in the second
quarter of 1998.
Squirt(TM) Wound Irrigation. In any traumatic wound, the risk of
infection is greatly decreased by the removal of bacteria and soil from the
site. Merit launched a new line of Squirt wound irrigation products in 1998
designed for the emergency room to deliver large volumes of irrigation fluid.
The product features a proprietary, one- handed Squirt fluid delivery syringe
and an adjustable nozzle and splash protecting shield.
Angiography Pigtail Catheter. In 1997 Merit acquired new product lines
and technologies from UMI, a small specialty medical manufacturing firm in
upstate New York. At that time the Company began marketing a new line of
thin-wall, high flow, pigtail angiographic catheters ideally suited for smaller
patients.
Pericardiocentesis. Merit offers a complete pericardiocentesis kit
which combines a high-flow drainage catheter and virtually all components needed
to place the device in the pericardial sack. This combination saves the
physician both time and money by having all components in one convenience tray.
Meritrans(TM) Pressure Transducers. Diagnostic blood pressure
monitoring is a clinical priority in virtually all diagnostic and interventional
procedures. The Meritrans provides clinicians with reliable and precise blood
pressure measurement. The clear, flow-through design makes flushing and
debubbling simple and safe. The transducer is a critical component in many
custom kit configurations.
4
Custom Kits. Custom kits allow physicians to obtain the medical
devices and accessories that they most frequently use during angiography,
angioplasty and similar procedures in a convenient, prepackaged and preassembled
form. Custom kits also provide cost savings over purchasing single products and
reduce the hospital's administrative costs associated with maintaining an
inventory of individual, sterile products.
MARKETING AND SALES
Market Strategy. The Company's marketing strategy is strongly focused
on identifying and introducing differentiated products that meet customer needs.
The Company has targeted selected hospital market segments in cardiology and
radiology where its products are used. Suggestions for new products and product
improvements may come from engineers, sales persons, physicians and other
technicians who perform the clinical procedures.
When a product suggestion demonstrates sustainable competitive
advantage, meets customer needs, fits strategically and technologically, and has
good potential financial return, a "project team" is chartered with individuals
from Marketing, Engineering, Manufacturing and Quality Assurance. This team
identifies the customer requirements, integrates the design, compiles all
necessary documentation and testing and prepares the product for market
introduction. The Company strongly believes that one of its marketing strengths
is its capacity to rapidly conceive, design, develop, and introduce new
products.
U.S. Sales. The Company's direct sales force currently consists of a
vice president of sales, five regional sales managers and 36 direct sales
representatives located in major metropolitan areas throughout the U.S. The
Company's sales persons are trained by Company personnel at the Company's
facilities, by a senior sales person in their respective territories, at regular
national and regional sales meetings by consulting cardiologists and employees
of the Company and by observation of procedures in catheterization laboratories.
International Sales. Outside of the U.S., the Company's products are
presently sold by 42 independent dealer organizations and 14 direct sales
representatives in Germany, France, the United Kingdom, Canada, Belgium, the
Netherlands, and Ireland. In 1998, the Company's international sales grew by 11%
and accounted for approximately 22% of total sales. The Company has appointed a
vice president for international sales and established an international sales
and distribution office in Maastricht, The Netherlands. With the recent and
planned additions to its product lines, the Company believes that international
sales will continue to increase.
International dealers are required to inventory products and sell
directly to customers within defined sales territories. Each of the Company's
products must be approved for sale under the laws of the country in which they
are sold. International dealers are responsible for compliance with all
applicable laws and regulations in their respective countries.
CUSTOMERS
The Company serves hospital-based cardiologists, radiologist,
anesthesiologists, physiatrists (pain management), neurologists, ER physicians,
technicians and nurses who practice. These clinicians influence the purchasing
decision for Merit's products. Hospitals also purchase the Company's products in
the U.S. through custom packagers and packers who assemble and combine products
in custom kits and packs. The Company's customers outside the U.S. are hospitals
and other end users in those countries where a direct sales force has been
established, and in other countries are independent dealers in medical products
who resell to hospitals and other customers.
In 1998 OEM sales represented 3.4 % of Merit's total revenue. The
Company is investing heavily in people and programs to expand the OEM business.
Merit recognizes the growth opportunity in this area. Sales to the Company's
single largest customer, a foreign dealer, accounted for 5.1% of total sales
during the year ended December 31, 1998. In 1998, approximately 53% of the
Company sales were made directly to domestic hospitals, 25% to custom packagers
and packers and 22% to international markets.
5
RESEARCH AND DEVELOPMENT
The Company believes that one of its important strengths is its
ability to quickly adapt its expertise and experience in injection molding and
to apply its electronic and sensor technologies to a perceived need for a new
product or product improvement. The Company's development efforts are presently
focused on disposable, innovative single-patient or single-use items which can
be included in the Company's custom kits or sold separately. Longer-term
projects include use of sensor-based technologies in a variety of applications
and additional inflation devices with added capacities and features. There is a
new focus on interventional vascular access products, such as needles, guide
wires, and catheters. Certain of the Company's executive officers also devote a
substantial portion of their time to research and development. Research and
development expenses were $3,244,477, $4,446,795, and $2,533,171, in 1998, 1997
and 1996, respectively. There was no customer-sponsored research and
development. The Company anticipates that such expenses will be at approximately
4.0% to 6.0% of sales for 1999.
MANUFACTURING
Many of the Company's products are manufactured utilizing its
proprietary technology and expertise in plastic injection and insert molding.
Tooling of molds is contracted with third parties but the Company designs and
owns all of its molds. The Company utilizes its experience in injection and
insert molding technologies in the manufacture of most of the custom components
used in its products.
The electronic monitors and sensors used in the Company's
IntelliSystem and Monarch inflation devices are assembled from standard
electronic components or purchased from suppliers. In July 1994, the Company
acquired a 73% interest in Sentir, Inc. ("Sentir"), a Utah corporation with its
principal offices in Santa Clara, California, which is engaged in development
and marketing of silicon sensors. Sentir was founded in 1991 by the Company's
President and Chief Executive Officer, Fred P. Lampropoulos, to develop
micromachining technology and silicon sensors. Sentir is presently providing
virtually all of the sensors utilized by the Company in certain of its inflation
devices.
The Company's products are manufactured at several facilities,
including in South Jordan, Utah, Galway, Ireland, and a leased expansion
facility in Murray, Utah. See "Item 2. Properties."
COMPETITION
The principal competitive factors in the markets in which the
Company's products compete are quality, performance, service and price. The
Company believes that its products have achieved rapid market acceptance due, in
part, to the quality of materials and workmanship, innovative design and ease of
operation, the Company's attention to customer service and product managers who
respond promptly to customer inquiries. The Company's products are priced
competitively, but not below prices for competing products.
There are several companies which are in the business of designing,
manufacturing and marketing devices similar to the Company's products, most of
which have substantially greater financial, technical and marketing resources
than the Company. There are several companies which compete with the Company in
the U.S. market for products and accessories used in angiography and angioplasty
procedures. The Company believes, based on available industry data with respect
to the number of such procedures performed, that it is one of two market leaders
in the U.S. for control syringes (together with NAIMIC USA Corporation, a
subsidiary of Boston Scientific), and is the leader in the U.S. market for
inflation devices. The Company also believes that the recent and planned
additions to its product lines will enable it to compete more effectively in
both U.S. and international markets. There is no assurance, however, that the
Company will be able to maintain its existing competitive advantages or to
compete successfully in the future.
6
A substantial majority of the Company's revenues are presently derived
from sales of products used in coronary angiography and angioplasty procedures.
Other procedures, devices and drugs for the treatment and prevention of coronary
artery disease have been developed and are currently being used such as laser
angioplasty, vascular stents, atherectomy procedures and drug therapies, the
effect of which may be to render certain of the Company's products obsolete or
to limit the markets for its products.
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS
The Company considers its proprietary technology to be important in
the development and manufacture of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements with
its employees and others. Two U.S. patents were issued in 1991 covering the
mechanical aspects of the Company's angioplasty inflation devices which relate
to the ability of the user to engage or release the syringe plunger while
increasing or decreasing pressure and two U.S. patents were obtained in 1992 and
1993 covering digital control aspects of the Company's IntelliSystem inflation
device and for displaying, storing and retrieving inflation data. The Company
has obtained other patents covering each of its Monarch and Basix inflation
devices and additional features of the IntelliSystem.
Corresponding patent applications covering the claims included in the
Company's U.S. patents and patent applications have been initiated in several
foreign countries. The Company deems its patents and patents pending to be
materially important to its business but does not believe its business is
dependent on securing such patents. The Company negotiated a license in 1992
with respect to patents concerning technology utilized in its IntelliSystem and
Monarch inflation devices in consideration of a 5.75% ongoing royalty not to
exceed $450,000 annually. Royalties paid in each of 1998, 1997 and 1996 were
$450,000.
While the Company has obtained U.S. patents and filed additional U.S.
and foreign patent applications as discussed above, there can be no assurance
that issued patents will provide the Company with any significant competitive
advantages or will not be challenged by third parties or that the patents of
others will not have an adverse effect on the ability of the Company to conduct
its business. The Company could incur substantial costs in seeking enforcement
of its patents against infringement or the unauthorized use of its proprietary
technology by others or in defending itself against similar claims of others.
Insofar as the Company relies on trade secrets and proprietary know-how to
maintain its competitive position, there can be no assurance that others may not
independently develop similar or superior technologies.
The Company has registered or applied for registration of several
trade names or trademarks. See "--Products." The Company also places copyright
notices on its instructional and advertising materials and has registered
copyrights relating to certain software used in its electronic inflation
devices.
REGULATION
The development, testing, packaging, labeling and marketing of medical
devices and the manufacturing procedures relating to these devices are regulated
under the Federal Food, Drug and Cosmetic Act and additional regulations
promulgated thereunder by the Food and Drug Administration "FDA". In general,
these statutes and regulations require that manufacturers adhere to certain
standards designed to ensure the safety and effectiveness of medical devices.
The Company employs a director of regulatory affairs who is responsible for
compliance with all applicable FDA regulations. Although the Company believes it
is currently in material compliance with all applicable FDA requirements, the
Company's business could be adversely affected by failure to comply with all
applicable FDA and other government regulations presently existing and
promulgated in the future.
The FDA's Good Manufacturing Practices standards regulate the
Company's manufacturing processes, require the maintenance of certain records
and provide for unscheduled inspections of the Company's facilities. Certain
requirements of state, local and foreign governments must also be complied with
in the manufacture and marketing of the Company's products.
7
New medical devices may also be subject to either the Section 510(k)
Pre-Market Notification regulations or the Pre-Market Approval ("PMA")
regulations of the FDA and similar regulatory authorities in foreign countries.
New products in either category require extensive documentation, careful
engineering and manufacturing controls to ensure quality. Products needing PMA
approval require extensive pre-clinical and clinical testing and clearance by
the FDA prior to marketing. Products subject to the Section 510(k) Pre-Market
Notification regulations require FDA clearance prior to marketing. To date, the
Company's products have required only compliance with the Section 510(k)
Pre-Market Notification regulations. The Company's products are subject to
foreign regulatory approvals before they may be marketed abroad. The Company
places the "CE" mark on devices and products sold in Europe. The Company has
received ISO 9001 certification for its South Jordan facility, as well ISO 9002
for its Galway, Ireland facility.
EMPLOYEES
As of March 23, 1999, the Company employed 956 persons, including 760
in manufacturing, 90 in sales and marketing, 52 in engineering, research and
development and 54 in administration.
Many of the Company's present employees are highly skilled. The
Company's failure or success will depend, in part, upon its ability to retain
such employees. Management is of the opinion that an adequate supply of skilled
employees is available. The Company has from time to time experienced rapid
turnover among its entry level assembly workers as well as occasional shortages
of such workers, resulting in increased labor costs and administrative expenses
related to hiring and training of replacement and new entry-level employees. The
Company has confidentiality agreements with its key employees, including each of
its executive officers. None of the Company's employees are represented by a
union or other collective bargaining group and management of the Company
believes that its relations with its employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For financial information relating to the Company's foreign and
domestic sales, transfers between geographic areas, net income and identifiable
assets, see note 8 to the Consolidated Financial Statements incorporated by
reference in this report.
Item 2. Properties.
-----------
The Company is the owner of approximately 35 acres of real property
situated in the city of South Jordan, Utah, which surrounds the site of its
175,000 square foot principal office and manufacturing facility where it
relocated and consolidated operations in November 1994. The Company sold to the
developer ten acres of land on which the facility was constructed and entered
into a 25-year lease agreement to finance the new facility. Monthly lease
payments are approximately $108,000. The Company also holds an option to
purchase the facility, exercisable at market value after ten years and, if not
exercised, after 25 years. The new facility has been constructed to the
Company's specifications and is presently 75% utilized.
The Company is leasing a building of approximately 26,500 square feet
in Galway, County Galway, Republic of Ireland as its principal office and
manufacturing facility for European operations. This facility is used as the
administrative headquarters to support the European direct sales force. The
facility also houses a research and development team which has developed a new
PTCA guide wire and is developing other new products. Beginning in the fourth
quarter of 1997, the Company initiated manufacturing operations for several new
and existing products at the Galway facility, including custom kits, the BASIX
inflation device and the Company's PTCA guide wire. In 1998 Merit began the
manufacture of the hemostasis valve products. The property has been improved and
equipped on terms favorable to the Company in connection with economic
development grant incentives and grants provided by the Irish Government. This
lease is for 20 years at approximately $135,000 per year, less a 40% subsidy
from the Irish government, available through 1999. The Company also has a
purchase option exercisable on terms deemed favorable to the Company through the
term of the lease.
8
During 1998 the Company sold approximately 1 1/2 acres of land and a
building of approximately 25,000 square feet in Castlerea, County Roscommon,
Republic of Ireland.
In September, 1998, the Company closed a 32,000 square foot facility
in Saratoga Springs, New York, where the product lines acquired from UMI
(needles, catheters and guide wires) were being manufactured. The needles and
catheters have been transferred to Salt Lake City and the guide wires to Galway,
Ireland.
In October 1997, the Company began manufacturing operations in a
facility of approximately 25,000 square feet of manufacturing space formerly
occupied by the Company in Murray, Utah and shifted production of several
well-established products to this facility. In 1998 Merit added an additional
25,000 square feet of manufacturing space to its Murray location. The additional
manufacturing space was obtained to create room at the Company's principal
manufacturing facility for production of new products. The leases are for a term
of five years with monthly lease payments of approximately $26,365.
The Company believes that its facilities are generally adequate for
its present level of operations and for anticipated increases in the level of
operations.
Item 3. Legal Proceedings.
------------------
On February 4, 1994, an action was filed in the Third District Court
of Salt Lake County, State of Utah by an individual claiming to be a shareholder
of the Company and naming the Company, Fred P. Lampropoulos, President of the
Company, and Sentir, a company founded by Mr. Lampropoulos, as defendants. The
claims against the Company were subsequently dismissed. The complaint also
asserts claims on behalf of the Company (derivative claims) against Mr.
Lampropoulos and Sentir, alleging breach of fiduciary duty, and the improper
taking of a corporate opportunity in connection with the formation of Sentir.
The relief sought in connection with the derivative claims included
disgorgement, costs, and attorney's fees. The Company appointed an independent
Special Litigation Committee of the Board to determine the Company's course of
action on the derivative claims which engaged counsel separate from the
Company's usual counsel for purposes of the derivative claims. On November 7,
1995, pursuant to a Motion filed on behalf of the Company's Special Litigation
Committee, the Court made a minute entry granting the motion to Dismiss the
derivative claims, without prejudice. On November 4, 1996, the Special
Litigation Committee delivered its report essentially concluding that the
derivative claims were not well founded. Nevertheless, on November 22,1996, the
plaintiff refiled only the derivative claims in the Third District court of Salt
Lake County, State of Utah and on January 22, 1997, a motion to dismiss was
filed on behalf of the Company, seeking to terminate the litigation and
asserting that the report of the Special Litigation Committee is entitled to
deference under the law. The motion to dismiss was granted by the court, and
judgment was entered on September 21, 1998, dismissing the action. The Plaintiff
has appealed the judgment and the appeal is still pending.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
9
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters.
---------------------------------------------------------------------
The "Market Information" included in the Company's Annual Report to
Shareholders for the year ended December 31, 1998 furnished herewith to the
Commission as Exhibit 13.1 to this report on Form 10-K, is incorporated herein
by reference.
Item 6. Selected Financial Data.
------------------------
The "Selected Financial Data" included in the Company's Annual Report
to Shareholders for the year ended December 31, 1998 furnished herewith to the
Commission as Exhibit 13.1 to this report on Form 10-K, is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations.
----------------------
The "Management's Discussion and Analysis of Financial Condition"
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1998 furnished herewith to the Commission as Exhibit 13.1 to this
report on Form 10-K, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The Company's financial statements and notes included in the Company's
Annual Report to Shareholders for the year ended December 31, 1998 furnished
herewith to the Commission as Exhibit 13.1 to this report on Form 10-K are
incorporated herein by reference.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
----------------------------------------------------------------------
Disclosure.
-----------
There has been no Form 8-K filed reporting a change of accountants or
reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure or auditing scope or procedure.
10
PART III
Item 10, 11, 12 and 13.
These items are incorporated by reference to the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders scheduled for May
26, 1999. The definitive Proxy Statement will be filed with the Commission not
later than 120 days after December 31, 1998, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents Filed as Part of this Report:
Financial Statements. The following financial statements are
incorporated by reference as provided in Item 8 of this report:
-- Independent Auditors' Report
-- Balance Sheets as of December 31, 1998 and 1997
-- Statements of Operations for the Years Ended December
31, 1998, 1997 and 1996
-- Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996
-- Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996
-- Notes to Financial Statements
(b) Reports on Form 8-K:
None.
(C) Exhibits:
The following exhibits required by Item 601 of Regulation S-K
are filed herewith or have been filed previously with the Commission
as indicated below:
Description Exhibit No.
----------------------------------------------------------------------- -------------------------------
3.1 Articles of Incorporation of the Company, as amended and restated* [Form 10-Q filed August 14,
1996, Exhibit No. 1]
3.2 Bylaws of the Company* [Form S-18 filed October 19,
1989, Exhibit No. 2]
4 Specimen Certificate of the Company's Common Stock, no par value* [Form S-18 filed October 19,
1989, Exhibit No. 10]
10.1 Merit Medical Systems, Inc. Long Term Incentive Plan (as amended and [Form 10-Q filed August 14,
restated) dated March 25, 1996* 1996, Exhibit No. 2]
10.2 Merit Medical Systems, Inc. 401(k) Profit Sharing Plan (as amended [Form S-1 filed February 14,
effective January 1, 1991* 1992, Exhibit No. 8]
10.3 License Agreement, dated April 8, 1992 between the Company and Utah [Form S-1 filed February 14,
Medical Products, Inc.* 1992, Exhibit No. 5]
10.4 Lease Agreement dated as of June 8, 1993 for office and manufacturing [Form 10-K for year ended
facility* December 31, 1994, Exhibit
No. 10.5]
10.5 Loan Agreement with Zions First National Bank dated October 10, [Form 10-K for year ended
1995* December 31, 1995, Exhibit
No. 10.5]
12
Description Exhibit No.
----------------------------------------------------------------------- -------------------------------
10.6 Amendment to Loan Agreement with Zions First National Bank dated [Form 10-K for year ended
October 10, 1997 December 31, 1997, Exhibit
No. 10.5]
10.7 Amendment to Loan Agreement with Zions First National Bank dated
October 10, 1998 Filed herewith
13.1 Annual Report to Shareholders for the year ended December 31, 1998.
Certain portions of this exhibit are incorporated by reference into Filed herewith
this report on Form 10-K; except as so incorporated by reference, the
Annual Report to Shareholders is not deemed filed as part of this
report on Form 10-K.
23.1 Consent of Independent Auditors Filed herewith
27 Financial Data Schedule - Twelve months ended December 31, 1998 Filed herewith
- ----------------------------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules: There are no financial statement
schedules required to be filed with this report.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 1999.
MERIT MEDICAL SYSTEMS, INC.
By: /s/ Fred P. Lampropoulos
----------------------------------------------
Fred P. Lampropoulos, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29,1999.
Signature Capacity in Which Signed
--------- ------------------------
/s/ Fred P. Lampropoulos
- -----------------------------
Fred P. Lampropoulos President, Chief Executive Officer
and Director
/s/ Kent W. Stanger
- -----------------------------
Kent W. Stanger Chief Financial Officer,
Secretary, Treasurer and Director
(Principal financial and
/s/ Richard W. Edelman accounting officer)
- -----------------------------
Richard W. Edelman Director
/s/ Rex C. Bean
- -----------------------------
Rex C. Bean Director
/s/ James J. Ellis
- -----------------------------
James J. Ellis Director
/s/ Michael E. Stillabower
- -----------------------------
Michael E. Stillabower Director
14
SECOND LOAN EXTENSION AND
MODIFICATION AGREEMENT
This Second Loan Extension and Modification Agreement (this
"Agreement") is made and entered into this 2nd day of October, 1998, by and
between ZIONS FIRST NATIONAL BANK ("Lender") and MERIT MEDICAL SYSTEMS, INC.,
("Merit Medical Systems"), MERIT MEDICAL INTERNATIONAL, INC. ("Merit Medical
International"), MERIT HOLDINGS, INC. ("Merit Holdings"), and SENTIR, INC.
("Sentir"). Merit Medical Systems, Merit Medical International, Merit Holdings,
and Sentir are hereafter collectively referred to as "Borrowers").
Recitals
--------
A. Borrowers have a revolving line of credit (the "Line of Credit")
with Lender in the current maximum principal amount of $10,500,000.00, evidenced
and governed by the following documents, among others (collectively the "Loan
Documents"):
1. Loan Agreement dated October 10, 1995 entered into by
Merit Medical Systems (the "Loan Agreement");
2. Promissory Note dated October 10, 1995 in the
original maximum principal amount of $8,500,000.00
entered into by Merit Medical Systems (the "Note");
3. Trust Deed with Assignment of Rents dated October 10,
1995, executed by Merit Medical Systems, as Trustor,
and recorded October 18, 1995 as Entry No. 6192795 in
Book 7251 beginning at Page 0903 of the official
records of the Salt Lake County Recorder (the "Trust
Deed");
4. Security Agreement dated October 10, 1995, entered
into by Merit Medical Systems, whereby Merit Medical
Systems granted to Lender a security interest in,
among other things, all of its inventory, accounts,
general intangibles (including, without limitation,
certain patents described in the Security Agreement),
equipment, furnishings, and fixtures, all as more
particularly described in the Security Agreement (the
"Security Agreement");
5. Loan Extension and Modification Agreement dated
October 10, 1997 entered into by Merit Medical
Systems, whereby the Line of Credit was modified as
follows: (a) the maturity date of the Line of Credit
was extended to October 1, 1998, (b) the maximum
principal amount of the Line of Credit was increased
to $10,500,000.00, (c) the interest rate on the Line
of Credit was reduced by .25%, (d) the maximum amount
of raw materials and finished goods used to calculate
the limitation on advances under the Line of Credit
was increased from $3,000,000.00 to $3,500,000.00,
(e) the ratio of total liabilities to tangible net
worth was increased from [1.0 to 1.0] to [1.10 to
1.0], and (f) the maximum working capital requirement
was increased from $7,000,000.00 to $9,000,000.00;
6. Supplemental Trust Deed dated October 10, 1997
executed by Merit Medical Systems, as Trustor, and
1
recorded October 21, 1997 as Entry No. 6768327 in
Book 7786 beginning at Page 0554 of the official
records of the Salt Lake County Recorder;
7. Loan Assumption Agreement dated October 10, 1997
entered into by Borrowers, whereby Merit Medical
International, Merit Holdings, and Sentir assumed the
liabilities, duties, and obligations of Merit Medical
Systems under the Loan Documents and became
additional makers of the Note, and Merit Holdings and
Sentir became additional debtors under the Security
Agreement, all without affecting the existing
liabilities of Merit Medical Systems thereunder (the
"Assumption Agreement").
B. Borrowers have requested that Lender extend the maturity date of
the Line of Credit until October 1, 1999 and modify the Line of Credit by: (a)
reducing the interest rate based on the LIBOR Rate by 1.00% and (b) increasing
the maximum amount of raw materials and finished goods used to calculate the
limitation on advances under the Line of Credit from $3,500,000.00 to
$4,000,000.00. Lender is willing to do so, subject to the terms and conditions
of this Agreement, which include not interrupting or otherwise adversely
affecting the priority of Lender's lien and security interests created under and
evidenced by the Trust Deed and the Security Agreement.
Agreement
---------
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrowers hereby agree and modify the
Line of Credit and Loan Documents as follows:
1. Except as otherwise expressly provided herein, terms defined in the
Loan Documents shall have the same defined meanings in this Agreement.
2. The parties represent and warrant to each other that, in deciding to
enter into this Agreement, they each (a) made their own due diligence
investigation and evaluation; (b) had all of the information they needed; (c)
did not rely on any statements, acts, or omissions except as expressly set forth
in this Agreement; (d) were not acting under any duress, compulsion, or undue
influence; and (e) were (or had the opportunity to be) advised by independent
legal counsel.
3. By this Agreement, the Line of Credit and the Loan Documents are
modified as follows:
A. The maturity date of the Line of Credit is extended from
October 1, 1998 to October 1, 1999. All amounts owing on the Line of
Credit shall become immediately due and payable on October 1, 1999.
B. The interest rate based on the LIBOR Rate (as defined in
the Note) specified in the Note shall be reduced by 1.00%, or in other
words from 2.85% above the LIBOR Rate to 1.85% above the LIBOR Rate.
2
C. The maximum amount of raw materials and finished goods
used to calculate the limitation on advances under the
Line of Credit are increased from $3,500,000.00 to
$4,000,000.00.
D. The following provision is hereby added to the Loan
Agreement:
Year 2000 Compliance. "Year 2000 compliant" means,
with regard to any entity, that all material software utilized
by such entity is able to fully function without causing any
error to such entity's date-sensitive data. "Providers" means
the key suppliers, vendors, and customers of Borrowers whose
business failure would, with reasonable probability, result in
a material adverse change in the financial condition or
prospects of Borrowers.
Borrower has or will soon have (i) undertaken a
detailed assessment of all areas within its initial business
and operations that could be adversely affected by the failure
of Borrowers to be Year 2000 compliant, (ii) developed and
implemented a detailed plan for becoming Year 2000 compliant
on a timely basis, and (iii) made written inquiry of each of
its Providers as to whether the Providers will be Year 2000
compliant on a timely basis. Borrowers will promptly advise
Lender in writing upon the occurrence of any of the following:
(i) Borrowers determine or Borrowers are advised by their
accountants, financial advisers, consultants, or any Provider
that Borrowers or any Provider will not be Year 2000 compliant
on a timely basis or (ii) Borrowers or any Provider
experiences data or data processing problems due to failure to
be Year 2000 compliant.
4. Contemporaneous with the execution and delivery of this Agreement,
Merit Medical Systems shall execute and deliver to Lender a Supplemental Trust
Deed, in a form acceptable to Lender, whereby the Trust Deed is supplemented to
state the extended maturity date and reduced interest rate under the Line of
Credit.
5. Except as expressly modified by this Agreement, all of the terms
and conditions of the Line of Credit and the Loan Documents shall remain in full
force and effect, and, as modified by this Agreement, the Line of Credit shall
continue to be secured as provided in the Loan Documents.
6. Representations and Warranties. Borrowers each hereby affirm and
again make the representations and warranties set forth in Article 5
Representations and Warranties of the Loan Agreement and Paragraph 5 of the
Assumption Agreement as of the date of this Agreement.
7. Authorization. Borrowers each represent and warrant that the
execution, delivery, and performance of this Agreement and all agreements,
documents, obligations, and transactions herein contemplated have been duly
3
authorized by all necessary corporate action on the part of each Borrower and
are not inconsistent with the Articles of Incorporation, By-Laws, or any
resolution of the Board of Directors of any Borrower, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract, or other instrument to which any Borrower is a party or by
which any Borrower is bound, and that upon execution and delivery hereof, this
Agreement will constitute a legal, valid, and binding agreement and obligation
of each Borrower, enforceable in accordance with its terms.
8. Conditions to Modification. This Agreement shall become valid,
binding, and enforceable only upon satisfaction of the following conditions. All
of the documents referred to below must be in a form and substance acceptable to
Lender.
a. This Agreement and all other documents requested by Lender
shall have been fully executed and delivered to Lender.
b. All of the documents requested by Lender which require
filing or recording have been properly filed and recorded so that all
of the liens and security interests granted to Lender in connection
with the Loan will be properly created and perfected and will have a
priority acceptable to Lender.
All conditions precedent set forth in this Agreement are for the sole
benefit of Lender and may be waived unilaterally by Lender.
9. Integrated Agreement; Amendment. This Agreement and the Loan
Documents, as modified by this Agreement, constitute the entire agreements and
understandings between the parties with respect to the Line of Credit, and may
not be altered or amended except by written agreement signed by the parties.
PURSUANT TO UTAH CODE SECTION 25-5-4, BORROWERS ARE NOTIFIED THAT THIS AGREEMENT
AND THE LOAN DOCUMENTS, AS MODIFIED BY THIS AGREEMENT, ARE A FINAL EXPRESSION OF
THE AGREEMENTS BETWEEN LENDER AND BORROWERS AND THESE AGREEMENTS MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL AGREEMENT.
10. This Agreement is made pursuant to and shall be construed in
accordance with the laws of the State of Utah.
LENDER:
-------
ZIONS FIRST NATIONAL BANK
By: /s/ Jennifer T. Sullivan
-----------------------------------------
Title: Asst. Relationship Manager
--------------------------------------
4
BORROWERS:
----------
MERIT MEDICAL SYSTEMS, INC.
By: /s/ Kent Stanger
-----------------------------------------
Title: CFO
--------------------------------------
MERIT MEDICAL INTERNATIONAL, INC.
By: /s/ Kent Stanger
-----------------------------------------
Title: V.P.
--------------------------------------
MERIT HOLDINGS, INC.
By: /s/ Kent Stanger
-----------------------------------------
Title: V.P.
--------------------------------------
SENTIR, INC.
By: /s/ Kent Stanger
-----------------------------------------
Title: SEC
--------------------------------------
5
Annual Report 1998
MERIT MEDICAL SYSTEMS, INC.
Table of Contents and Financial Highlights
- --------------------------------------------------------------------------------
Letter from the President 1
- --------------------------------------------------------------------------------
Products and Technology 5
- --------------------------------------------------------------------------------
Selected Financial Data 15
- --------------------------------------------------------------------------------
Management's Discussion and Analysis 16
- --------------------------------------------------------------------------------
Financial Information 20
- --------------------------------------------------------------------------------
Corporate Information 35
================================================================================
Year Ended December 31,
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Operating Data:
Sales $68,377,357 $60,579,011 $50,455,766 $42,587,284 $33,324,245
Gross profit 25,943,484 22,812,895 21,136,149 17,599,286 14,325,230
Income before taxes 4,290,346 1,775,516 3,630,152 2,000,695 1,993,265
Net income 2,451,159 787,532 2,162,608 1,221,237 1,250,847
Net income per share $ .33 $ .11 $ .31 $ .18 $ .19
Weighted average
shares outstanding 7,488,225 7,369,668 7,051,911 6,851,164 6,678,041
Balance Sheet Data:
Working capital $15,779,725 $14,737,971 $12,761,211 $ 9,518,971 $ 9,032,899
Total assets 50,664,786 45,269,678 41,718,553 34,503,858 27,024,267
Long-term debt 3,388,835 3,913,686 4,822,126 1,778,953 827,592
Stockholders' equity $29,086,368 $25,802,149 $22,487,123 $19,264,525 $17,537,029
Corporate Headquarters
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
801-253-1600
President's letter to Shareholders
Dear Shareholders:
Your Company experienced a very rewarding and exciting year in 1998. Merit
recorded the highest revenues and net income in its history, despite continuing
challenges in health care reform. Considerable improvements made in Merit's
European operations, which includes the Ireland manufacturing facility and the
European direct sales force, were the major contributing factors to these
financial benchmarks.
During 1998 the Ireland facility became profitable by converting research
and development expenditures into manufacturing allocations for the new
Tomcat(tm) PTCA guide wire. In addition, this facility began producing other
products for sale by the Company's European and domestic sales forces. Merit
created additional manufacturing space at the Ireland facility by moving its
warehouse and customer service functions to a more central location in
Maastricht, The Netherlands, thereby improving the Company's distribution
capabilities and response times in foreign markets.
Also, management effected cost-cutting measures during the year.
Particularly, the manufacturing facility in New York was closed. Guide wire and
catheter technologies were transferred from this facility to either Ireland or
the Salt Lake headquarters to assist with our primary use strategy. By moving
these operations to existing facilities, Merit saves approximately $250,000 per
year in duplicate operating expenses.
Financial Performance
Merit's strategy of marketing its existing and new products by a direct
sales force both domestically and in Europe resulted in a record year in terms
of revenues and earnings per share. Revenues for the fiscal year were $68.4
million compared with $60.6 million in 1997, a gain of 13 percent. Net income
rose to a record $2.452 million, or $0.33 per share, compared to $0.787 million,
or $0.11 per share in 1997. The Company's cost of sales rose only 12.4 percent
and its gross profit margin expanded two basis points to 37.9 percent.
1
Revenue growth slowed somewhat from previous years due to changes in the
health care environment and Merit's close monitoring of its margin-sensitive
custom kits, as well as effects on sales from discontinued items pertaining to
the closure of our manufacturing facility in New York. Margins continued to
increase due to several factors, including pricing strategies on kits, a better
sales mix of higher margin products, economies of scale and contributions from
new products.
Merit maintained its control on overall costs throughout the year. With the
Ireland manufacturing facility becoming operational, research and development
costs declined to 4.7 percent from 7.3 percent in 1997. The Company continues to
invest heavily in research and development, however, with over thirty projects
ongoing. As selling, general and administrative costs are mostly fixed, these
expenditures continued to decline as a percent of sales to 25.6 percent from 26
percent in 1997. Income from operations grew to 7.6 percent of sales from 4.4
percent of sales the prior year, and income before taxes grew to 6.4 percent of
sales compared with 2.9 percent in 1997.
Changing Environment
As most people are now aware, the health care industry has been going
through sweeping changes for the last several years. These changes are being
driven by the ways in which hospitals are reimbursed for the procedures they
perform and the products they purchase. These reimbursement procedures have
caused hospitals to maximize purchasing efficiencies and reduce overall costs,
resulting in rapid consolidation among industry vendors as they attempt to
provide "one-stop shopping" for the hospitals. In addition, hospitals have been
purchased by large hospital product purchasing consortium groups which are
becoming more dominant on a nationwide basis.
These purchasing groups are now determining the vendors and products used
by their hospitals in an attempt to consolidate suppliers, bundle products
together and further reduce costs. Merit recognizes that hospital buying groups
are now looking at cardiac catheterization labs as an area for cost reduction.
The Company has developed an internal team solely for the purpose of responding
to these organizations, and for submitting and securing bids for their hospital
members. In November 1998, a national contract was awarded to Merit by Tenet
Healthcare Corporation for Merit's proprietary inflation devices. Additional
contracts with other national groups are being negotiated for many of Merit's
products.
2
In order to evolve its core competency of injection and insert molding
of plastic parts, Merit is developing a rapidly growing OEM contract business
for third parties. A small sales force has been established to meet the growing
demands of our OEM customers. New, proprietary opportunities in emerging
technologies are being identified that have not come under the scrutiny of
purchasing organizations. In the first quarter of 1999 Merit established a
presence on the Internet with the web site, www.merit.com. One of the major
focuses of this new site is the Company's OEM business. Merit plans to further
develop the OEM portion of this site to include an E-commerce application from
which a customer can design and directly order his own product. By utilizing its
strengths in national accounts and OEM manufacturing, along with the continued
introduction of new products, Merit should be able to preserve and grow its
existing business in a steady and profitable manner.
Merit Medical is the world market leader in inflation devices used for PTCA
balloon angioplasty and/or stent deployment and has a strong market position
with other molded plastic products used in cardiology and radiology. We have
made a conscious decision to augment our base business in this molded parts
arena to include differentiated, high-quality components like new needles,
syringes, manifolds, hemostasis valves, check relief valves and other products
with sustainable competitive advantages. Last year the Company introduced nine
new products, including the Tomcat(tm) guide wire, the Fountain(tm) Infusion
Catheter and the Squirt(tm) Fluid Delivery System. Merit's new product pipeline
has many products under development, several of which are planned for 1999
introduction.
Looking Ahead
In order to continue its growth strategy beyond the year 2000, Merit has
developed a carefully structured plan centered on several fronts. We have
focused on cardiology and radiology procedures by developing primary use
products for emerging technologies that provide better outcomes for patients or
better safety for hospital personnel. This expansion has provided several
opportunities for new product ideas and improvements to products currently used
in these procedures.
For the last two years, Merit has been directing its research and
development efforts toward primary use products-those that are more invasive in
nature such as guide wires and catheters-and has plans to extend this strategy
into multiple fronts. Merit Medical has developed a state-of-the-art guide wire
manufacturing facility in Galway, Ireland. In 1998 the Company launched its
first interventional PTCA guide wire and will be introducing many different
types of guide wires in 1999 and beyond. It is Merit's intention to expand these
capabilities and utilize existing resources in Ireland to create a Center of
Excellence in guide wire technology and production.
3
Merit's satellite manufacturing facility in Salt Lake City has been
developing expertise in catheter technology, some of which was acquired in 1997
from the facility in New York. Several different types of catheters are being
researched and the Company anticipates designating this facility as a Center of
Excellence in catheter technology.
For over two years, your company has been in the process of implementing a
new Oracle database system for use with its accounting, operations and computer
systems. I am happy to report that the system went live last November. This
system ensures that Merit is Y2K compliant, as well as enabling the Company to
better monitor and control its day-to-day operations. Merit is investing in its
labor force to address availability of new hires, turnover and a number of other
issues. Last year the Company began a new pilot program for Spanish-speaking
employees to learn English. Called the "English as a Second Language Program,"
or ESL, this program is designed to broaden the capabilities of its
Spanish-speaking employees, presenting them with additional career opportunities
within Merit and better utilizing their excellent work ethics. If the pilot
program is deemed successful, Merit intends to expand its ESL program to other
nationalities within its work force.
There are considerable challenges facing us in 1999, particularly in terms
of maintaining and growing the base business. Stabilizing the pricing of our
products and securing national accounts will be two hurdles we face. We believe
these challenges create opportunities. Merit has secured the European CE mark
for most of its products. This allows us the opportunity to develop distribution
relationships with small medical device companies with fine products but lacking
the CE mark and no distribution capabilities. As an adjunct to this philosophy,
our European sales network is being expanded. Merit currently has 13 direct
sales representatives, with plans to add two more sales people in 1999.
With the addition of many new products in primary use niches and by closely
monitoring the margin-sensitive portions of our business, we believe we have an
excellent opportunity to continue top-line growth and expand the bottom line. We
look forward to 1999 with enthusiasm as we implement these strategies. I thank
you, the shareholders, for your continued support and confidence in Merit
Medical and its drive for excellence throughout the years to come.
Best personal regards,
/s/ Fred P. Lampropoulos
Fred P. Lampropoulos
Chairman, Chief Executive Officer and President
4
Products and Technology
Worldwide, cardiology procedures including balloon angioplasty and stent
placement are growing at an average rate of about 15 percent per annum. The
aging population rate, along with the use of new technology, has fueled this
growth. Radiology procedures, such as diagnostic angiograms, and the use of
thrombolytic procedures to dissolve and remove blood clots has kept pace with
the aging population, growing at about 10 percent per annum. Worldwide, over 11
million people each year are referred to either a radiology or cardiology
laboratory in a hospital to undergo diagnostic angiograms.
Serving Customers' Needs Through Innovation
The driving force behind Merit Medical's growth has been its strength in
serving customers' needs by producing high-quality products that improve
clinical and economic outcomes. Many of Merit's key products have been developed
by collaborating with clinical users. Merit Medical is well known in cardiac
catheterization and radiology laboratories around the world for its innovation
and quality of products. Developing these customer relationships over time has
enabled Merit to maintain and expand its leadership position.
Several years ago, it became evident to Merit that clinicians used varied
methods of combining Merit's products to perform diagnostic and therapeutic
procedures according to their particular needs. In order to address the many
different techniques used, Merit developed a custom kit strategy that allows
each hospital or clinician to order exactly the type of products they want in a
bundled format. Merit's custom kit program has become enormously popular since
its inception in the early 1990's and now accounts for about 50 percent of its
overall business.
5
Merit Medical has long been a leader in many of the disposable products
needed to perform diagnostic and therapeutic procedures in the cardiology and
radiology markets. These products include inflation devices, syringes, needles,
pressure monitoring devices, contrast administration kits, manifold kits,
hemostasis valves, blood management systems, diagnostic and therapeutic
catheters, guide wires, introducers, stopcocks, and high-pressure tubing. The
market segments into which these products are sold account for roughly $600
million annually.
6
Existing Products
Stand-alone products consist of the same products a hospital might purchase
in a kit, but are sold separately. Merit's inflation devices are the Company's
leading stand-alone product line and, through their innovation and quality, have
established a world market leadership position. The inflation devices, which are
used to inflate angioplasty balloons or deploy stents, come in three different
models, depending upon the amount and accuracy of information the clinician
desires during the procedure.
The Basix(tm) inflation device provides the means for a clinician to safely
and effectively inflate a balloon during an angioplasty procedure, or deploy a
stent. Its features include a 20ml syringe barrel with unmatched visual clarity,
and it provides a strong vacuum during deflation. In addition it has a simple,
analog gauge attached to the barrel which allows the clinician to view the
inflation pressure being applied to the balloon or stent.
The second model, the Monarch25(tm), features a patented, digital display
attached to the barrel of the syringe. It features higher-pressure performance
and lets clinicians toggle display readings from ATM to PSI. It also allows
access to previous inflations, highest pressure and duration of the inflation.
The third model, the IntelliSystem25(tm), is the flagship of this product
line. Rather than having a small display attached to the barrel of the syringe,
the IntelliSystem25(tm) provides a separate, patented digital monitor with a
microprocessor. The monitor clearly displays the pressure, time and number of
each inflation. It also tracks the time elapsed from the previous inflation,
highest inflation pressure, and other information the clinician may need for an
extremely accurate reading during the procedure. Merit is the only company that
offers all three inflation device choices for clinicians around the world.
7
Merit frequently receives proposals involving new product development
opportunities. A careful assessment is made to determine how well each
opportunity fits with Merit's core competencies in injection and insert molding
of plastics, electronic and sensor-based technologies, and wire and catheter
technologies. With these basic guidelines in mind, Merit has developed a new
product strategy to enter markets with devices that involve more invasive
procedures and will yield higher margins.
8
New Products
The Fountain(tm) Infusion Catheter, introduced last year, fits well with
Merit's existing catheter technology and strategy to enter more invasive
markets. This innovative, patented catheter line was developed to help address
the need for clinicians to dissolve, or lyse, blood clots in peripheral arteries
and veins in order to restore blood flow. Pulsed infusion of thrombolytic drugs
to dissolve these obstructions has been successful in dialysis grafts,
peripheral bypass grafts, and peripheral arteriesand veins. The procedure to
dissolve blood clots essentially combines the use of thrombolytic drugs with
mechanical delivery to the site of the obstruction using Merit's Fountain(tm)
Infusion Catheter.
As an adjunct to the Fountain(tm) catheter, the Squirt(tm) Infusion System
was developed to allow doctors to deliver fluid into a patient's blood vessels
using a one-handed method. Previously, doctors had to bring together syringes
and other devices and create a small pumping system to infuse the fluid through
the catheter. In order to activate the pumping system, it was necessary to use
both hands to alternately pulse the syringes. The patented Squirt(tm) Infusion
System saves doctors time and effort and, importantly, allows them a free hand
to manipulate the position of the catheter during the lysing process.
Merit Medical's new product development efforts have been extremely active
over the last several years and are accelerating. In 1998, Merit introduced nine
new products, three of which have the potential to significantly impact Merit's
revenues and earnings. Two of these products, the Tomcat(tm) guide wire and the
Fountain(tm) Infusion Catheter, were introduced in response to Merit's strategy
to enter new market segments with more invasive products. The third product, the
Squirt(tm) Infusion System, is a proprietary delivery system that works in
conjunction with the Fountain(tm) catheter to infuse fluids into a peripheral
vessel.
9
The Tomcat(tm) line of PTCA guide wires was an important new product
introduced in 1998. This device is used to guide a balloon angioplasty catheter
through a vessel's tortuous pathway, penetrating an arterial lesion (blockage in
an artery) in the patient's heart. Following over two years in the development
process, Merit is proud of the high quality and excellent performance of this
guide wire. Clinicians have labeled this product as one of the very best guide
wires on the market. The technology and know-how needed to produce this product
have been developed internally over the last several years and allow Merit to
continue developing new guide wires for additional market niches.
10
New Products
Merit Medical was one of the first companies to introduce a 25 ATM
inflation device, which is used for angioplasty balloon inflation for PTCA and
stent deployment, and has since broadened its product offering in that line. The
most recent addition to the 25 ATM product line came in April 1998 with the
addition of the new basixCOMPAK(tm) inflation syringe with an angled gauge for
easier visibility. The basixCOMPAK(tm) syringe is substantially smaller than its
predecessors and takes less room on the procedure table, yet combines all of the
features and benefits of larger devices. Sales of this device have rapidly
expanded during 1998 and show the market's strong acceptance for this fine
product. In addition to the basixCOMPAK(tm) device, Merit is developing a new,
improved IntelliSystem(tm) monitor. Introduction of this new device is scheduled
for late fiscal 1999.
To complement the Company's industry-leading line of inflation devices,
Merit developed a complete angioplasty accessory pack. These packs include a new
Access-Plus(tm) hemostasis valve to complement the Passage(tm) or Access-9(tm)
hemostasis valves, torque device and guide wire introducer. Merit's hemostasis
valves include a special, airless rotator to eliminate bubbles, exclusive
Sherlock(tm) connector for easier connection, and a clear inner lumen for
improved visualization. The Access-9(tm) model has a 9-french inner diameter
which allows the entry of alternate therapy devices while maintaining
hemostasis.
11
Tiny balloons are placed via long, thin catheters into an artery obstructed
by plaque or blood clots. The balloon is seated directly in the center of the
lesion and inflated with contrast solution under pressure using Merit's
inflation device, compressing the obstruction into the wall of the artery.
12
New Products
The acceleration of Merit's research and development program goes hand in
hand with its strategy of improving the overall product mix to yield higher
margins. New products are under development to expand Merit's clinical expertise
and broaden its offerings in both the guide wire and catheter arenas. Early in
1999, Merit plans to introduce three new products-two catheter lines and a guide
wire extension with tool-which leverages and strengthens Merit's current
technology.
The Company is expanding its existing products into new markets. There is a
growing interest in markets outside of cardiology and radiology for the use of
the IntelliSystem(tm) monitor to more accurately measure pressures in clinical
applications such as discography, trigeminal nerve compression, esophageal
dilation and retinal detachment. Another example is the use of the Squirt(tm)
universal fluid dispensing syringe for wound irrigation in trauma centers,
emergency rooms, burn units and alternate care units such as nursing homes.
Other new products are upgrades in quality and performance to existing
devices; some are line extensions which broaden Merit's product offering; while
others are innovative, new products which will allow Merit to gain entry into
new niches. In conjunction with the sale of existing products, the impact upon
sales from these new products will help continue Merit's revenue growth.
13
There are more than twenty products in the pipeline with intended
introduction dates later in 1999 and 2000. Some of these include line extensions
to Merit's guide wire and catheter technologies. For example, the 5 french size
Fountain(tm) Infusion Catheter is used primarily in the upper to mid-leg and
arms. In the first half of 1999 Merit will make available to clinicians a new
line of smaller 4 French Fountain(tm) catheters which will expand the market to
include lower arms and areas below the knee.
14
Selected Financial Data
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Operating Data:
Sales $ 68,377,357 $ 60,579,011 $ 50,455,766 $ 42,587,284 $ 33,324,245
Cost of sales 42,433,873 37,766,116 29,319,617 24,987,998 18,999,015
Gross profit 25,943,484 22,812,895 21,136,149 17,599,286 14,325,230
Selling, general, and
administrative expenses 17,528,002 15,726,651 14,311,049 12,808,805 10,232,215
Research and
development expenses 3,244,477 4,446,795 2,533,171 2,330,324 2,069,882
Income from operations 5,171,005 2,639,449 4,291,929 2,460,157 2,023,133
Other expense 880,659 863,933 661,777 459,462 29,868
Income before
income tax expense 4,290,346 1,775,516 3,630,152 2,000,695 1,993,265
Income tax expense 1,687,379 944,981 1,277,431 700,418 775,453
Minority interest in (income)
loss of subsidiary (151,808) (33,003) (190,113) (79,040) 33,035
Net income 2,451,159 797,532 2,162,608 1,221,237 1,250,847
Net income per share $ .33 $ .11 $ .31 $ .18 $ .19
Weighted average
shares outstanding 7,488,225 7,369,668 7,051,911 6,851,164 6,678,041
Balance Sheet Data:
Working capital $ 15,779,725 $ 14,737,971 $ 12,761,211 $ 9,518,971 $ 9,032,899
Total assets 50,664,786 45,269,678 41,718,553 34,503,858 27,024,267
Long-term debt 3,388,835 3,913,686 4,822,126 1,778,953 827,592
Stockholders' equity $ 29,086,368 $ 25,802,149 $ 22,487,123 $ 19,264,525 $ 17,537,029
15
Management's Discussion & Analysis
OVERVIEW
Since its inception in 1987, Merit has made significant progress toward
accomplishing its business plan objectives, including becoming a world leader
for accessories in the cardiology and radiology markets, and developing
world-class facilities with manufacturing, quality and regulatory capabilities
supported by state-of-the-art accounting, data and communications systems.
There have been many challenges in accomplishing Merit's business
objectives, such as major changes and reforms in the health care industry,
particularly in the United States. The Company has experienced increased product
and price competition in its markets. The Company also has managed rapid growth
with limited capital.
Near the end of 1997, Merit's management evaluated the Company's market
position in diagnostic and therapeutic accessory products and determined that
bold new initiatives would be required to expand the Company's technology bases
and product lines, resulting in growth in revenues, margins and profitability.
Merit's growth strategy resulted in increased research and development
expenditures to design, develop and deliver new, proprietary niche products.
These new products are being marketed though the Company's distribution system
to existing and new customers.
Merit's product development strategy has focused on vascular access markets
with product families such as angiographic needles, guide wires, and catheters.
To accomplish this expansion, the Company has made long-term investments,
increasing its marketing and research and development capabilities in Utah,
California, and Ireland. In January, 1997, Merit acquired a small, medical
device company in New York which offered vascular access products. The acquired
technology, along with major R&D efforts in both Salt Lake and Ireland, have led
to the introduction of a line of angiographic needles, a thrombolytic catheter
and a specialty guide wire with other new, proprietary products to follow.
The Company's facility in Ireland has developed and begun to manufacture a
significant new product-a PTCA (balloon angioplasty) guide wire. The Company's
72% owned subsidiary, Sentir, has expanded its marketing of high-quality sensors
to new markets such as the defense and automotive industries. These initiatives
required substantial expenditures, resulting in lower earnings in 1997. However,
management believes the Company is now well positioned for growth and expansion
of products, markets and profits.
1998 proved to be a record-breaking year for the Company, and Merit was
able to achieve substantially all of its major financial objectives: Sales
growth of 13% while achieving an increase in gross margin percentage; the
ramp-up of manufacturing in our Galway, Ireland facility including the transfer
of our hemostasis product; the completion of the development of the TomCat guide
wire, and the ramp-up of production of this product with the associated
reduction in R&D expenses. The resulting profitability in Ireland caused a
significant improvement in Merit's effective tax rate of 39%, down from 53% in
1997. All of these factors resulted in an increase in earnings compared to 1997.
16
Management's Discussion & Analysis
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operational data as a percent of sales:
1998 1997 1996
100.0% 100.0% 100.0%
------ ------ ------
Sales
Gross profit 37.9 37.7 41.9
Selling, general and administrative 25.6 26.0 28.4
Research and development 4.7 7.3 5.0
Income from operations 7.6 4.4 8.5
Income before income tax expense 6.3 2.9 7.2
Net Income 3.6 1.3 4.3
Sales increased by $7,798,346, or 12.9%, in 1998 compared to an increase of
$10,123,245, or 20.1%, in 1997, and an increase of $7,868,482, or 18.5%, in
1996. Sales growth from 1996 through 1998 was favorably affected by the
introduction of new products and increased sales of existing products sold
separately and packaged in custom kits, and increased penetration of the market
by Merit's inflation devices. International sales in 1998 were approximately
$15,198,000, or 22%, compared to $13, 722,000, or 23%, in 1997, and $11,900,000,
or 24%, in 1996. These increases were primarily a result of the ongoing growth
in the direct sales force in Europe, as well as greater acceptance of the
Company's products in other international markets. Direct sales in France,
Germany, the U.K., Belgium, the Netherlands and Canada were $7,334,793,
$6,615,697, and $5,350,786 in 1998, 1997 and 1996, respectively.
Gross profit as a percent of sales was 37.9%, 37.7%, and 41.9% in 1998,
1997, and 1996, respectively. Margins improved in 1998 compared to 1997 through
increased production volumes, automation and efficiencies in the manufacturing,
and some tighter price controls on some of the Company's low margin products.
The decrease in gross profit in 1997 from 1996 was due to several factors,
including increased sales of lower-margin custom kits; price competition,
especially in European markets; a strong U.S. dollar affecting the currency
translation of the Company's European sales; and domestic wage increases in
response to competition for direct-labor employees. Gross margins were also
affected by start-up and transition costs in the Company's newly organized
Vascular Access Division relating to acquisition of assets from UMI.
Selling, general and administrative expense increased $1,801,351, or
11.5%, in 1998 over 1997 and $1,415,602, or 9.9%, in 1997 over 1996. These
additional expenditures were related principally to the costs of implementing
and supporting the Company's new Oracle system and the development of new
business opportunities such as acquisitions, product distribution agreements,
and the O.E.M segment of the business. Although total selling, general and
administrative expenses have increased during the periods, these expenses as a
percent of sales declined to 25.6% in 1998 compared to 26.0% in 1997 and 28.4%
in 1996. These reductions have been accomplished - despite substantial
expenditures related to starting up the Company's European operations- in part
through a Company-wide focus on achieving greater productivity. In addition,
increased sales have permitted the Company to achieve economies of scale through
the spread of fixed costs over a greater number of units.
17
Management's Discussion & Analysis
Research and development expenditures for 1998 were $3,244,477, a decrease
of 27%, compared to $4,446,795 in 1997. This decrease primarily was due to the
conversion of much of the R&D expenses in Ireland to production resources for
the manufacture of the newly introduced line of guide wires. Research and
development costs in 1997 grew by 76% from 1996, which as a percent of sales was
4.7%, 7.3% and 5.0% for 1998, 1997 and 1996, respectively. This major increase
in 1997 was related to new product development and reflected management's
decision to expand into new markets for the future growth of the Company.
These factors significantly affected income from operations in 1998 which
increased to $5,171,005, up 95.9%, compared to $2,639,449 in 1997, a decrease of
38.5% from $4,291,929 in 1996. The income tax provision for 1998 was $1,687,379,
an effective rate of 39.3%, compared to $944,981, or 53.2 % in 1997 and
$1,277,431or 35.2% in 1996. The Company's consolidated effective tax rate in
1997 was high principally because the tax benefits of losses associated with the
start-up of international operations were limited to Ireland's manufacturing tax
rate of 10%. The effective tax rate improved significantly in 1998 as Ireland
became profitable and their lower tax rate improved the Company's overall
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998 the Company's working capital was $15,779,725,
representing a current ratio of 2.0 to 1. During 1997 the Company increased its
secured bank line of credit to $10.5 million. In 1998 the Company negotiated a
reduction in the interest rate and fees for its line of credit, significantly
reducing the cost of this capital. The Company had $7,634,607 outstanding under
its line of credit at December 31, 1998. Merit has financed leasehold
improvements and equipment acquisitions through secured notes payable and
capital lease arrangements with an outstanding balance of $5,197,805 at December
31, 1998. For the year ended December 31, 1998 the Company generated cash from
operations in the amount of $1,674,728.
Historically, the Company has incurred significant expenses in connection
with product development and introduction of new products. This was particularly
true in 1998 with regard to an increase in inventory and equipment and the
ramp-up of European operations. Substantial capital has also been required to
finance growth in inventories and receivables in the U.S.. The Company's
principal source of funding for these and other expenses has been the cash
generated from operations, secured loans on equipment, bank lines of credit and
sales of equity. The Company believes that its present sources of liquidity and
capital are adequate for its current operation.
MARKET RISK DISCLOSURES
The Company does not engage in significant derivative financial
instruments. The Company does experience risk associated with foreign currency
fluctuations, and interest rate risk associated with its variable rate debt;
however, such risks have not been material to the Company and , accordingly, the
Company has not deemed it necessary to enter into agreements to hedge such
risks. The Company may enter into such agreements in the event that such risks
become material in the future.
18
Management's Discussion & Analysis
YEAR 2000
In 1996 the Company began the conversion of the principal computer software
systems to a new integrated system to support future growth and improve
productivity. The Company has completed a review of its business information
systems with regard to Year 2000 compliance and is either replacing or
correcting those computer systems that have been found to have date-related
deficiencies. A new Oracle integrated business information system for the order
administration, financial and manufacturing processes was implemented and
completed in November 1998.
Through December 31, 1998 the Company has incurred approximately $3.5
million in costs to improve the Company's information technology systems and for
Year 2000 readiness efforts. Of this amount, most represents the costs of
implementing and transitioning to new computer hardware and software for its
Oracle enterprise-wide business systems. Substantially all of these costs have
been capitalized. The Company anticipates incurring an additional $500,000 in
connection with the Year 2000 readiness efforts. The Company expects to have all
Year 2000 readiness efforts completed by September 30, 1999.
The Company believes its non-IT systems and products being shipped today
have been assessed and found to be Year 2000 compliant. The Company relies on
third-party providers for materials and services such as telecommunications,
utilities, financial services and other key services. Interruption of those
materials or services due to Year 2000 issues could affect the Company's
operations. The Company has completed the process of contacting its major
suppliers and has determined that all major suppliers are in the process of
ensuring Year 2000 compliance. However, since the Company is dependent on key
third parties, there can be no guarantee that the Company's efforts will prevent
a material adverse impact on its financial position, results of operations or
liquidity in future periods in the event that a significant number of suppliers
and/or customers experience business disruptions as a result of their lack of
Year 2000 readiness.
The Company is in the process of implementing the Oracle system in its
Irish facility with a planned completion date for the end of the third quarter
of 1999. Both the Company's cost estimates and completion time frames could be
influenced by the Company's ability to successfully identify all Year 2000
issues, the nature and amount of corrective action required, the availability
and cost of trained personnel in this area and the Year 2000 success that key
third parties and customers attain While these and other unforeseen factors
could have a material adverse impact on the Company's financial position,
results of operations or liquidity in future periods, management believes that
it has implemented an effective Year 2000 compliance program that will minimize
the possible negative consequences to the Company.
Throughout 1999, the Company will determine areas where contingency
planning is needed. The planning efforts will include, but are not limited to,
identification and mitigation of potential serious business interruptions,
adjustments of inventory levels to meet customer needs, and establishing crisis
response processes to address unexpected problems.
The foregoing discussion of the Company's Year 2000 readiness includes
forward looking statements, including estimates of the time frames and costs for
addressing the known Year 2000 issues confronting the Company, and is based upon
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved, and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel with required remediation skills, the ability
of the Company to identify and correct or replace all relevant computer code and
the success of third parties with whom the Company does business in addressing
their Year 2000 issues.
19
Consolidated Balance Sheets
DECEMBER 31, 1998 AND 1997
ASSETS 1998 1997
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 851,910 $ 976,692
Trade receivables - net of allowance for uncollectible
accounts: 1998 - $197,331; 1997 - $175,114 10,436,485 9,599,443
Employee and related party receivables 472,994 288,812
Irish Development Agency grant receivable 198,445 747,888
Inventories 17,785,743 14,535,440
Prepaid expenses and other assets 636,124 538,259
Deferred income tax assets 739,595 782,435
------------ ------------
Total current assets 31,121,296 27,468,969
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,065,985 1,101,544
Building 932,448
Automobiles 89,469 112,633
Manufacturing equipment 13,669,599 10,909,529
Furniture and fixtures 7,963,835 4,817,738
Leasehold improvements 5,035,288 4,483,071
Construction-in-progress 1,182,669 2,747,414
------------ ------------
Total 29,006,845 25,104,377
Less accumulated depreciation and amortization (12,043,130) (9,648,746)
------------ ------------
Property and equipment - net 16,963,715 15,455,631
------------ ------------
OTHER ASSETS:
Intangible assets - net of accumulated amortization:
1998 - $1,014,617; 1997 - $821,641 2,333,456 2,024,050
Cost in excess of the fair value of assets acquired - net
of accumulated amortization: 1998 - $31,615; 1997 - $15,015 150,673 167,273
Prepaid royalty - net of accumulated amortization:
1998 - $578,572; 1997 - $492,857 21,428 107,143
Deposits 74,218 46,612
------------ ------------
Total other assets 2,579,775 2,345,078
------------ ------------
TOTAL $ 50,664,786 $ 45,269,678
------------ ------------
(Continued)
20
Consolidated Balance Sheets
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ ------------
CURRENT LIABILITIES:
Line of credit $ 7,634,607 $ 4,624,727
Current portion of long-term debt 1,808,970 1,802,932
Trade payables 3,573,333 3,438,349
Accrued expenses 2,055,849 2,414,050
Advances from employees 74,090 81,245
Income taxes payable 194,722 369,695
------------ ------------
Total current liabilities 15,341,571 12,730,998
DEFERRED INCOME TAX LIABILITIES 1,275,651 883,002
LONG-TERM DEBT 3,388,835 3,913,686
DEFERRED CREDITS 1,023,861 1,543,151
------------ ------------
Total liabilities 21,029,918 19,070,837
------------ ------------
MINORITY INTEREST IN SUBSIDIARY 548,500 396,692
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 10, and 11)
STOCKHOLDERS' EQUITY:
Preferred stock - 5,000,000 shares authorized as of December 31, 1998
and 1997, no shares issued
Common stock - no par value; 20,000,000 shares
authorized; 7,508,914 and 7,395,091 shares issued
at December 31, 1998 and 1997, respectively 17,793,094 17,178,971
Retained earnings 11,564,928 9,113,769
Accumulated other comprehensive loss (271,654) (490,591)
------------ ------------
Total stockholders' equity 29,086,368 25,802,149
------------ ------------
TOTAL $ 50,664,786 $ 45,269,678
------------ ------------
See notes to consolidated financial statements.
(Concluded)
21
Consolidated Statements of Operations
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1998 1997 1996
------------ ------------ ------------
SALES $ 68,377,357 $ 60,579,011 $ 50,455,766
COST OF SALES 42,433,873 37,766,116 29,319,617
------------ ------------ ------------
GROSS PROFIT 25,943,484 22,812,895 21,136,149
------------ ------------ ------------
EXPENSES:
Selling, general, and administrative 17,528,002 15,726,651 14,311,049
Research and development 3,244,477 4,446,795 2,533,171
------------ ------------ ------------
Total 20,772,479 20,173,446 16,844,220
------------ ------------ ------------
INCOME FROM OPERATIONS 5,171,005 2,639,449 4,291,929
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 33,662 28,223 23,377
Interest expense (826,778) (854,859) (707,878)
Miscellaneous income (expense) (87,543) (37,297) 22,724
------------ ------------ ------------
Other expense - net (880,659) (863,933) (661,777)
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 4,290,346 1,775,516 3,630,152
INCOME TAX EXPENSE (1,687,379) (944,981) (1,277,431)
MINORITY INTEREST IN INCOME OF
SUBSIDIARY (151,808) (33,003) (190,113)
------------ ------------ ------------
NET INCOME $ 2,451,159 $ 797,532 $ 2,162,608
------------ ------------ ------------
EARNINGS PER COMMON SHARE -
Basic and diluted $ .33 $ .11 $ .31
------------ ------------ ------------
AVERAGE COMMON SHARES -
Basic 7,420,224 7,263,253 6,878,165
------------ ------------ ------------
Diluted 7,488,225 7,369,668 7,051,911
------------ ------------ ------------
See notes to consolidated financial statements.
22
Consolidated Statements of Stockholders' Equity
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
Accumulated
Other
Compre-
Common Stock hensive Retained
Total Shares Amount Loss Earnings
------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 1, 1996 $ 19,264,525 6,786,239 $ 13,088,265 $ 22,631 $ 6,153,629
Comprehensive income:
Net income 2,162,608 2,162,608
Foreign currency translation adjustment (36,720) (36,720)
------------ ------------ ------------ ------------ ------------
Comprehensive income 2,125,888
Tax benefit attributable to appreciation of
common stock options exercised 65,679 65,679
Issuance of common stock for cash 309,370 39,996 309,370
Options and warrants exercised for cash 643,028 104,117 643,028
Issuance of common stock under Employees
Stock Purchase Plans 78,633 11,938 78,633
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 22,487,123 6,942,290 14,184,975 (14,089) 8,316,237
Comprehensive income:
Net income 797,532 797,532
Foreign currency translation adjustment (476,502) (476,502)
------------ ------------ ------------ ------------ ------------
Comprehensive income 321,030
Tax benefit attributable to appreciation of
common stock options exercised 222,887 222,887
Issuance of common stock for cash 273,202 35,582 273,202
Options and warrants exercised 1,316,812 227,200 1,316,812
Issuance of common stock under Employee
Stock Purchase Plans 245,129 42,056 245,129
Stock issued in connection with UMI acquisition 975,000 152,424 975,000
Shares surrendered in exchange for the recording
of payroll tax liabilities (7,534) (861) (7,534)
Shares surrendered in exchange for the exercise
of stock options (31,500) (3,600) (31,500)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 25,802,149 7,395,091 17,178,971 (490,591) 9,113,769
Comprehensive income:
Net income 2,451,159 2,451,159
Foreign currency translation adjustment 218,937 218,937
------------ ------------ ------------ ------------ ------------
Comprehensive income 2,670,096
Tax benefit attributable to appreciation of
common stock options exercised 33,398 33,398
Issuance of common stock for cash 81,850 13,819 81,850
Issuance of common stock under Employee
Stock Purchase Plans 267,549 52,425 267,549
Options and warrants exercised 370,914 64,840 370,914
Shares surrendered in exchange for the
exercise of stock options (139,588) (17,261) (139,588)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $ 29,086,368 7,508,914 $ 17,793,094 $ (271,654) $ 11,564,928
------------ ------------ ------------ ------------ ------------
See notes to consolidated financial statements.
23
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,451,159 $ 797,532 $ 2,162,608
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,923,484 2,796,425 2,497,850
Losses on sales and abandonment of
property and equipment 46,897 11,245 6,867
Amortization of deferred credits (114,607) (91,155) (73,619)
Deferred income taxes 435,489 (22,951) 162,475
Tax benefit attributable to appreciation of
common stock options exercised 33,398 222,887 65,679
Minority interest in income of subsidiary 151,808 33,003 190,113
Changes in operating assets and liabilities, net of effects from
purchase of UMI:
Trade receivables (837,042) (2,220,364) (651,119)
Employee and related party receivables (184,182) 38,613 35,841
Irish Development Agency grant receivable 549,443 (330,997) 142,637
Inventories (3,250,303) (79,236) (1,695,565)
Prepaid expenses and other assets (97,865) (19,436) (115,409)
Deposits and other (27,606) 122,565 (122,193)
Trade payables 134,984 872 381,188
Accrued expenses (358,201) 133,378 526,563
Advances from employees (7,155) (26,662) 55,044
Income taxes payable (174,973) 353,789 (113,879)
----------- ----------- -----------
Total adjustments (776,431) 921,976 1,292,473
----------- ----------- -----------
Net cash provided by operating activities 1,674,728 1,719,508 3,455,081
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (4,138,219) (1,046,890) (2,736,477)
Intangible assets (522,671) (521,270) (486,414)
UMI acquisition (70,486)
Proceeds from the sale of property and equipment 584,688 22,645 41,156
----------- ----------- -----------
Net cash used in investing activities (4,076,202) (1,616,001) (3,181,735)
----------- ----------- -----------
(Continued)
24
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1998 1997 1996
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) line of credit $ 3,009,880 $ 90,854 $(1,337,666)
Proceeds from:
Issuance of common stock 580,725 1,835,143 1,031,031
Long-term debt 677,802 2,200,000
Principal payments on:
Long-term debt (2,172,753) (1,764,343) (1,068,415)
Deferred credits (37,899) (74,917) (69,467)
----------- ----------- ------------
Net cash provided by financing activities 2,057,755 86,737 755,483
----------- ----------- ------------
EFFECT OF EXCHANGE RATES ON CASH 218,937 (476,502) (36,720)
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (124,782) (286,258) 992,109
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 976,692 1,262,950 270,841
----------- ----------- ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 851,910 $ 976,692 $ 1,262,950
----------- ----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - Cash paid during the year for:
Interest (including capitalized interest
of $93,142, $109,701, and $177,133 during
1998, 1997, and 1996, respectively) $ 995,417 $ 782,676 $ 761,430
----------- ----------- ------------
Income taxes $ 1,393,465 $ 591,192 $ 1,163,156
----------- ----------- ------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
* During 1998, 1997, and 1996, the Company entered into capital lease
obligations and notes payable for $867,629, $1,270,259, and $2,522,076,
respectively, for manufacturing equipment.
* In connection with the sale in 1998 of the Company's manufacturing
facility in Castlerea, Ireland, the buyer assumed debt of the Company in
the amount of $258,275.
* During 1997, options to purchase 861 shares of the Company's common
stock were surrendered in exchange for the Company's recording of
payroll tax liabilities in the amount of $7,534.
* During 1998 and 1997, 17,261 and 3,600 shares of Company common stock
with a value of $139,588 and $31,500 were surrendered in exchange for
the exercise of stock options.
* During 1997, the Company acquired UMI for 152,424 shares of Company
restricted common stock. In connection with this acquisition, the
Company recorded the following as of the acquisition date:
Assets acquired $ 863,198
Cost in excess of fair market value 182,288
----------
Total purchase price $1,045,486
----------
See notes to consolidated financial statements. (Concluded)
25
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Merit Medical Systems, Inc. (Merit) and its wholly-owned
subsidiaries, Merit Holdings, Inc. (MHI), and Merit Medical International, Inc.
(MMI), and Merit's majority-owned subsidiary, Sentir, Inc. (Sentir),
(collectively, the Company) develop, manufacture, and market disposable medical
products primarily for use in the diagnosis and treatment of cardiovascular
disease which is considered to be one segment line of business. The Company
manufactures its products in plants located in the United States and, beginning
in 1997, in Ireland. The Company has export sales to dealers and has direct
sales forces in the United States, Canada, and Western Europe (see Note 8).
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. The following is a
summary of the more significant of such policies.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation - The consolidated financial statements include
those of Merit, MMI, MHI, and Sentir. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition - Sales are recognized at the time the products are shipped.
Inventories - Inventories are stated at the lower of cost (computed on a
first-in, first-out basis) or market.
Long-lived Assets - Impairment of long-lived assets is determined in accordance
with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-lived Assets and of Long-lived Assets to be Disposed Of,"
which was adopted on January 1, 1996. There were no impairments as of December
31, 1998 or 1997.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
estimated useful lives as follows:
Building 30 years
Automobiles 4 years
Manufacturing equipment 5 to 10 years
Furniture and fixtures 3 to 10 years
Leasehold improvements 4 to 25 years
Intangible Assets - Costs associated with obtaining patents, issued and pending,
and trademarks have been capitalized and are amortized over the patent or
trademark period or charged to expense if not approved. Costs associated with
obtaining customer lists are amortized over two years.
Earnings per Common Share - Effective December 31, 1997, the Company adopted
SFAS No. 128, "Earnings Per Share", and retroactively restated its earnings per
share for 1996, to conform with the statement. Accordingly, net income per
common share is computed by both the basic method, which uses the weighted
average number of the Company's common shares outstanding, and the diluted
method, which includes the dilutive common shares from stock options and
warrants, as calculated using the treasury stock method. The amounts of such
options and warrants are not significant and, accordingly, the Company's basic
and diluted earnings per share are the same.
Prepaid Royalty - The prepaid royalty paid by the Company under an agreement
which grants to the Company a license and certain rights to technology has been
capitalized. Amortization of the prepaid royalty is computed using the
straight-line method over the seven year term of the agreement.
Financial Instruments - The Company's financial instruments, when valued using
market interest rates, would not be materially different from the amounts
presented in the consolidated financial statements.
26
Notes to Consolidated Financial Statements
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers interest bearing deposits with an original maturity date of
three months or less to be cash equivalents.
Foreign Currency Translation Adjustment - The financial statements of the
Company's foreign subsidiaries are measured using local currencies as the
functional currency. Assets and liabilities are translated into U.S. dollars at
year-end rates of exchange and results of operations are translated at average
rates for the year. Gains and losses resulting from these translations are
included in accumulated other comprehensive income or loss as a separate
component of stockholders' equity.
Comprehensive Income (Loss) - Effective January 1, 1998, the Company adopted
SFAS No. 130, Reporting Comprehensive Income, and reclassified comprehensive
loss for 1997 and 1996 to conform with SFAS No. 130. This statement requires the
Company to display an amount representing total comprehensive income or loss for
each period. Accumulated other comprehensive loss consists entirely of foreign
currency translation adjustments.
2. ACQUISITION OF UNIVERSAL MEDICAL INSTRUMENT CORPORATION
On January 31, 1997, the Company acquired certain assets of Universal Medical
Instrument Corporation (UMI) in exchange for 152,424 shares of the Company's
restricted common stock. UMI is a privately held company located in Saratoga
County, New York.
The Company's acquisition of UMI's assets was accounted for as a purchase and,
accordingly, the results of operations of UMI are included in the Company's
consolidated financial statements from the date of acquisition. The total
purchase price, including related costs, was allocated to the assets acquired
based on their fair values with the excess purchase price over the fair value of
assets acquired of $182,288 being allocated to goodwill, which is being
amortized over 12 years. The proforma financial information reflecting this
transaction for 1996 has not been presented as it is not materially different
from the Company's historical results.
3. INVENTORIES
Inventories consist of the following at December 31, 1998 and 1997:
1998 1997
Finished goods $ 7,458,133 $ 6,261,203
Work-in-process 1,954,696 2,459,081
Raw materials 8,981,007 6,481,714
Less reserve for obsolete inventory (608,093) (666,558)
------------- -------------
Total $ 17,785,743 $ 14,535,440
------------- -------------
4. INCOME TAXES
Deferred income tax assets and liabilities at December 31, 1998 and 1997 consist
of the following temporary differences and carryforward items:
Current Long-Term
-------------------- -----------------
1998 1997 1998 1997
Deferred income tax assets:
Allowance for uncollectible
accounts receivable $ 79,809 $ 70,535
Accrued compensation expense 126,603 124,997
Tax credits 79,668 29,990 $ 24,681
Inventory capitalization for
tax purposes 116,574 82,411
Inventory obsolescence reserve 210,026 181,729
Net operating losses of
subsidiaries 70,000 256,645 368,690
Other 56,915 36,128 72,713
------- ------- ------- -------
Total deferred income tax assets 739,595 782,435 466,084
27
Notes to Consolidated Financial Statements
Current Long-Term
----------------------------- --------------------------
1998 1997 1998 1997
Deferred income tax liabilities -
differences between tax basis
and financial reporting basis
of property and equipment (1,741,735) $ (883,002)
----------- ----------- ----------- -----------
Net $ 739,595 $ 782,435 $(1,275,651) $ (883,002)
----------- ----------- ----------- -----------
Income tax expense for the years ended December 31, 1998, 1997, and 1996 differs
from amounts computed by applying the statutory Federal rate to pretax income as
follows:
1998 1997 1996
Computed Federal income tax expense at
statutory rate of 35% $ 1,501,621 $ 621,431 $ 1,270,553
State income taxes 186,948 124,878 231,126
Creation of tax credits (133,529) (164,319) (61,435)
Tax benefit of foreign sales corporation (96,808) (106,574) (85,614)
Losses of subsidiaries recorded at
foreign rates 183,622 496,685 289,594
Change in deferred income tax asset valuation
allowance (353,710)
Other - including the effect of graduated rates 45,525 (27,120) (13,083)
----------- ----------- -----------
Total income tax expense $ 1,687,379 $ 944,981 $ 1,277,431
----------- ----------- -----------
Consisting of:
Current $ 1,251,890 $ 967,932 $ 1,114,956
Deferred 435,489 (22,951) 162,475
----------- ----------- -----------
Total $ 1,687,379 $ 944,981 $ 1,277,431
=========== =========== ===========
5. LINE OF CREDIT AND LONG-TERM DEBT
Line of Credit - As of December 31, 1998, the Company had a line of credit for
$10,500,000. The credit line is collateralized by trade receivables,
inventories, property and equipment, and intangible assets and accrues interest
at the bank's prime rate. Under the terms of the line, among other things, the
Company is required to maintain positive earnings for each fiscal quarter during
the term of the loan, maintain a ratio of total liabilities to tangible net
worth not to exceed 1.1 to 1.0, maintain a ratio of current assets to current
liabilities of at least 1.5 to 1.0, maintain minimum working capital of
$9,000,000, and is restricted from paying dividends to shareholders. As of
December 31, 1998 and 1997, the Company owed $7,634,607 and $4,624,727,
respectively, under this line of credit.
Long-term Debt - Long-term debt consists of the following at December 31, 1998
and 1997:
Notes payable to financial institutions;
payable in monthly installments through
2004, including interest at rates 1998 1997
ranging from 6.5% to 9.34%;
collateralized by equipment $4,699,219 $4,777,090
Capital lease obligations (see Note 6) 498,586 939,528
---------- ----------
Total 5,197,805 5,716,618
Less current portion 1,808,970 1,802,932
---------- ----------
Long-term portion $3,388,835 $3,913,686
========== ==========
28
Notes to Consolidated Financial Statements
Scheduled maturities of long-term debt at December 31, 1998 are as follows:
Year ending December 31:
1999 $1,808,970
2000 1,731,877
2001 855,406
2002 433,835
2003 293,723
Thereafter 73,994
----------
Total $5,197,805
----------
6. COMMITMENTS AND CONTINGENCIES
Leases - The Company has noncancelable operating lease agreements for off-site
office and production facilities and equipment. The leases for the off-site
office and production facilities are for 5 years and have renewal options of one
to five years. The Company subleased these facilities during 1997 and 1996.
Total rental income from these subleases for the years ended December 31, 1997
and 1996 was approximately $97,000 and $153,000, respectively. Total rental
expense on these operating leases and on the Company's new manufacturing and
office building (see below) for the years ended December 31, 1998, 1997, and
1996 approximated $3,293,000, $2,783,000, and $2,448,000, respectively.
In June 1993, the Company entered into a 25 year lease agreement with a
developer for a new manufacturing and office building. Under the agreement, the
Company was granted an option to purchase the building at fair market value
after 10 years and, if not exercised, after 25 years. In connection with this
lease agreement, the Company in 1993 sold to the developer 10 acres of land on
which the building was constructed. The $166,136 gain on the sale of the land
has been recorded as a deferred credit and is being amortized as a reduction of
rent expense over ten years. During 1998, 1997, and 1996, $16,614, $16,614, and
$16,614, respectively, of this deferred credit was amortized as a reduction of
rent expense. In connection with the lease agreement, the Company issued to the
developer warrants to purchase 155,461 shares of the Company's common stock at
$4.95 per share subject to carrying cost increases of 3% per year ($5.41 as of
December 31, 1998). The warrants expire in 2005.
The Company leases certain manufacturing and office equipment under long-term
capital lease agreements. Capital leases are collateralized by equipment
approximating $967,000 and $1,607,000 with accumulated amortization of
approximately $200,000 and $296,000 as of December 31, 1998 and 1997,
respectively.
The future minimum lease payments, together with the present value of the net
minimum lease payments as of December 31, 1998, are as follows:
Operating Capital
Leases Leases
Year ending December 31:
1999 $ 3,028,407 $ 198,377
2000 2,517,374 183,845
2001 1,847,510 179,202
2002 1,634,483
2003 1,479,152
Thereafter 22,870,967
------------ ------------
Total minimum lease payments $ 33,377,893 561,424
============ ============
Less amount representing interest and executory costs (62,838)
------------
Present value of net minimum lease payments (see Note 5) $ 498,586
============
29
Notes to Consolidated Financial Statements
Irish Government Development Agency Grants - Through December 31, 1998, the
Company has entered into several grant agreements with the Irish Government
Development Agency of which $198,445 and $747,888 remained in receivables at
December 31, 1998 and 1997, respectively. The grant agreements reimburse the
Company for a portion of the cost of property and equipment purchased in
Ireland, specific research and development projects in Ireland, and costs of
hiring and training employees located in Ireland. The Company has recorded the
grants related to research and development projects and costs of hiring and
training employees as a reduction of operating expenses in 1998, 1997, and 1996
in the amounts of $164,423, $146,476, and $230,654, respectively. Grants related
to the acquisition of property and equipment purchased in Ireland are recorded
as deferred credits and are amortized to income over lives corresponding to the
depreciable lives of such property. During 1998, 1997, and 1996, $97,993,
$74,541, and $57,005, respectively, of the deferred credit was amortized as a
reduction of operating expenses.
Preferred Share Purchase Rights - In August 1997, the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of Common Stock which entitles the holder of a Right to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $40 in the event a person or group acquires or announces an
intention to acquire 15% or more of the Company's common stock. Until such an
event, the Rights are not exercisable and are transferable with the common stock
and may be redeemed at a price of $.0001 per Right.
Litigation - Bennett vs. Merit Medical Systems, Inc., et. - On February 4, 1994,
an action was filed in the Third District Court of Salt Lake County, State of
Utah by an individual claiming to be a shareholder of the Company and naming the
Company, Fred P. Lampropoulos, President of the Company, and Sentir, a company
founded by Mr. Lampropoulos, as defendants. The claims against the Company were
subsequently dismissed. The complaint also asserted claims on behalf of the
Company (derivative claims) against Mr. Lampropoulos and Sentir, alleging breach
of fiduciary duty and the improper taking of a corporate opportunity in
connection with the formation of Sentir. The relief sought in connection with
the derivative claims included disgorgement, costs, and attorneys' fees. The
Company appointed an independent Special Litigation Committee of the Board to
determine the Company's course of action on the derivative claims which engaged
counsel separate from the Company's usual counsel for purposes of the derivative
claims. On November 7, 1995, pursuant to a Motion filed on behalf of the
Company's Special Litigation Committee, the Court made a minute entry granting
the Motion to Dismiss the derivative claims, without prejudice. On November 4,
1996, the Special Litigation Committee delivered its report essentially
concluding that the derivative claims were not well founded. Nevertheless, on
November 22, 1996, the plaintiff refiled only the derivative claims in the Third
District Court of Salt Lake County, State of Utah and on January 22, 1997, a
Motion to dismiss was filed on behalf of the Company, seeking to terminate the
litigation and asserting that the report of the Special Litigation Committee is
entitled to deference under the law. The motion to dismiss was granted by the
court, and judgment was entered on September 21, 1998. The plaintiff has
appealed the judgment and the appeal is still pending.
7. EMPLOYEE STOCK PURCHASE PLAN AND STOCK OPTIONS AND WARRANTS
The Company offers to its employees an Employee Stock Purchase Plan which allows
the employee on a quarterly basis to purchase shares of the Company's common
stock at the lesser of 85% of the market value on the offering commencement date
or offering termination date. The total number of shares available to employees
to purchase under this plan is 250,000 of which 106,419 have been purchased as
of December 31, 1998.
The Company has a long-term incentive plan which provides for the issuance of
incentive stock options, nonstatutory stock options, and certain corresponding
stock appreciation rights. The maximum number of shares of common stock for
which options may be granted is 2,400,000. Options may be granted to directors,
officers, outside consultants, and key employees of the Company and may be
granted upon such terms and such conditions as the Compensation Committee in its
sole discretion shall determine. In no event, however, shall the exercise price
be less than the fair market value on the date of grant.
Changes in stock options and warrants for the years ended December 31, 1998,
1997, and 1996 are as follows:
30
Notes to Consolidated Financial Statements
Options Warrants
------------------------- -------------------------
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
1998:
Granted 203,500 $ 6.41
Exercised 64,840 5.80
Forfeited/expired 47,990 6.41
Outstanding at December 31 1,147,770 7.02 155,461 $ 5.41
Exercisable 486,230 7.45 155,461 5.41
Weighted average fair value of
options and warrants granted
during year $ 3.14
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $ 0.90
1997:
Granted 522,700 $ 6.65
Exercised 227,200 5.80
Forfeited/expired 43,100 7.19 60,000 $ 7.65
Outstanding at December 31 1,057,100 7.04 155,461 5.25
Exercisable 315,100 7.48 155,461 5.25
Weighted average fair value of
options and warrants granted
during year $ 3.33
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $ 1.03
1996:
Granted 340,000 $ 8.19 517 $ 6.83
Exercised 84,850 6.08 19,267 6.65
Forfeited/expired 43,750 6.02
Outstanding at December 31 804,700 6.96 215,461 5.85
Exercisable 364,600 6.64 215,461 5.85
Weighted average fair value of
options and warrants granted
during year $ 4.50
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $ 1.16
31
Notes to Consolidated Financial Statements
The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:
Options and Warrants
Options and Warrants Outstanding Exercisable
- --------------------------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (in years) Price Exercisable Price
Options:
$4.87 to $7.25 635,770 3.29 $ 6.13 213,430 $ 6.25
$7.50 to $10.63 512,000 3.21 8.13 272,800 8.40
Warrants:
$5.41 155,461 6.0 $ 5.41 155,461 $5.41
The Company accounts for stock options granted using Accounting Principles Board
(APB) Opinion 25. Accordingly, no compensation cost has been recognized for its
fixed stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with SFAS No. 123, the Company's net
income and net income per common and common equivalent share would have changed
to the pro forma amounts indicated below (in thousands):
1998 1997 1996
Net income:
As reported $ 2,451,159 $ 797,532 $ 2,162,608
Pro forma 1,840,182 385,340 1,753,765
Net income per common (both basic
and diluted) share:
As reported $ 0.33 $ 0.11 $ 0.31
Pro forma 0.25 0.05 0.25
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997, and 1996, dividend yield of 0%;
expected volatility of 55.2%, 57.5%, and 55% for 1998, 1997, and 1996,
respectively; risk-free interest rates ranging from 4.58% to 7.36%; and expected
lives ranging from 2.8 to 4.5 years.
8. SEGMENT REPORTING AND FOREIGN OPERATIONS
During the years ended December 31, 1998, 1997, and 1996, the Company had sales
of approximately $15,198,000, $13,722,000, and $11,900,000 or approximately 22%,
23%, and 24%, respectively, of total sales primarily in Japan, Germany, France,
and United Kingdom.
The Company operates primarily in one segment in which it develops,
manufactures, and markets disposable medical products, principally for use in
the diagnosis and treatment of cardiovascular disease. Major operations outside
the United States include a leased manufacturing and distribution facility in
Ireland and sales subsidiaries in Europe. The following is a summary of the
Company's foreign operations by geographic area for fiscal years 1998, 1997, and
1996:
32
Notes to Consolidated Financial Statements
Transfers
Sales to Between Net
Unaffiliated Geographic Income Identifiable
Customers Areas Revenue (Loss) Assets
Fiscal year ended December 31, 1998:
United States, Canada, and
international distributors $ 60,407,019 $ 1,386,073 $ 61,793,092 $ 3,373,280 $ 41,477,669
Europe direct 7,970,338 2,546,099 10,516,437 (593,677) 9,117,117
Eliminations (3,932,172) (3,932,172) (328,444)
------------ ------------ ------------ ------------ ------------
Consolidated $ 68,377,357 None $ 68,377,357 $ 2,451,159 $ 50,594,786
============ ============ ============ ============ ============
Fiscal year ended December 31, 1997:
United States, Canada, and
international distributors $ 54,226,210 $ 860,482 $ 55,086,692 $ 2,774,516 $ 36,584,122
Europe direct 6,352,801 838,219 7,191,020 (2,110,415) 8,685,556
Eliminations (1,698,701) (1,698,701) 133,431
------------ ------------ ------------ ------------ ------------
Consolidated $ 60,579,011 None $ 60,579,011 $ 797,532 $ 45,269,678
============ ============ ============ ============ ============
Fiscal year ended
December 31, 1996:
United States, Canada, and
international distributors $ 45,106,815 $ 1,212,962 $ 46,319,777 $ 3,315,534 $ 34,013,025
Europe direct 5,348,951 89,081 5,438,032 (1,029,204) 7,705,528
Eliminations (1,302,043) (1,302,043) (123,722)
------------ ------------ ------------ ------------ ------------
Consolidated $ 50,455,766 None $ 50,455,766 $ 2,162,608 $ 41,718,553
============ ============ ============ ============ ============
Transfers between geographic areas are accounted for at amounts which are
generally above cost and consistent with the rules and regulations of governing
tax authorities. Such transfers are eliminated in the consolidated financial
statements. Net income by geographic areas reflects foreign earnings reported by
the foreign entities. Identifiable assets are those assets that can be directly
associated with a particular foreign entity and thus do not include assets used
for general corporate purposes.
9. RELATED PARTY TRANSACTIONS
Receivables from employees at December 31, 1998 and 1997 totaled approximately
$384,000 and $245,000, respectively, (including approximately $249,000 and
$120,000, respectively, from officers of the Company).
10. ROYALTY AGREEMENT
On April 8, 1992, the Company settled litigation involving, among other things,
allegations that certain of the Company's inflation device products infringed
patents issued to another medical product manufacturing company (the Licensor).
Pursuant to the settlement, the Company entered into a license agreement with
the Licensor, whereby the Licensor granted to the Company a nonexclusive right
and license to manufacture and sell products which are subject to the patents
issued to the Licensor. For the rights and license granted under the agreement,
the Company paid the Licensor a nonrefundable prepaid royalty in the amount of
$600,000. The royalty was paid upon execution of the agreement and represents a
prepaid royalty covering the first seven years of the agreement. In addition to
the prepaid royalty, the Company agreed to pay the Licensor a continuing royalty
beginning January 1, 1992 of 5.75% of sales (which will not exceed $450,000 for
any calendar year) made in the United States, of products covered by the license
agreement. Royalties of $450,000 were paid or accrued in each of the years ended
December 31, 1998, 1997, and 1996.
33
Notes to Consolidated Financial Statements
11. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) savings and profit sharing plan (the Plan)
covering all full-time employees who are at least 21 years of age and have a
minimum of one year of service to the Company. The Company may contribute at its
discretion matching contributions up to 2.25% of the employees' compensation.
Additional employer contributions are determined at the discretion of the Board
of Directors. Contributions made by the Company to the Plan for the years ended
December 31, 1998, 1997, and 1996 totaled approximately $18,000, $223,000, and
$227,000, respectively.
The Plan purchased unissued shares of the Company's common stock at market value
during each of the three years ended December 31, 1998 as follows:
Market
Shares Value
Years ended December 31:
1998 13,819 $ 81,850
1997 35,582 273,202
1996 39,996 309,370
12. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an enterprise recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. Management believes the adoption
of SFAS No. 133 will not have a material impact on the Company's financial
position or results of operations.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Merit Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Merit Medical
Systems, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Merit Medical Systems, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
March 16, 1999
34
EXECUTIVE OFFICERS
Fred P. Lampropoulos
Chairman, President/Chief Executive Officer
Kent W. Stanger
Secretary-Treasurer, Chief Financial Officer
Leigh Weintraub
Chief Operating Officer
Brian L. Ferrand
Vice President, Sales
BOARD OF DIRECTORS
Fred P. Lampropoulos
Chairman, President/Chief Executive Officer
Kent W. Stanger
Secretary-Treasurer, Chief Financial Officer
Rex C. Bean, Private Investor
Ogden, Utah
Richard W. Edelman, Senior Vice President
Southwest Securities
Dallas, Texas
James J. Ellis, Managing Partner
Ellis/Rosier & Associates
Dallas, Texas
Michael E. Stillabower, M.D.
Chief, Cardiology, Christiana Care Health Systems;
Member, Cardiology Consultants PA
Wilmington, Delaware
CORPORATE OFFICES
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
(801) 253-1600
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Salt Lake City, Utah
LEGAL COUNSEL
Parr Waddoups Brown Gee & Loveless
Securities/General Counsel
Workman, Nydegger & Jensen
Patent Counsel
FORM 10-K
Merit Medical Systems, Inc. filed an annual report on Form 10-K with the
Securities and Exchange Commission for the fiscal year ended December 31, 1998.
A copy may be obtained by written request from Kent W. Stanger, Secretary, at
the Company's offices.
35
ANNUAL MEETING
All shareholders are invited to attend our Annual Meeting on Wednesday, May 26,
1999 at 3:00 p.m. at the Company's corporate offices in South Jordan, Utah.
STOCK TRANSFER AGENT/REGISTRAR
Zions First National Bank
Stock Transfer Department
P. O. Box 30880
Salt Lake City, Utah 84130
PRIMARY MARKET MAKERS
Herzog, Heine, Geduld, Inc. Wien Securities Corp.
Piper Jaffray Cos., Inc. Wilson-Davis & Co., Inc.
Knight Securities L.P. Olsen Payne & Company
Sherwood Securities, Inc. Ernst & Company
Mayer & Schweitzer, Inc. The Brass Utility, L.L.C.
Dain Rauscher, Inc. Island System Corporation
Instinet Corporation
MARKET INFORMATION
The Company's common stock is traded on the NASDAQ National Market System under
the symbol "MMSI." As of December 31, 1998, there were 7,508,914 shares of
common stock outstanding. The following chart sets forth the high and low
closing sale prices for the Company's common stock for the last two years:
High Low
1998
First Quarter $7.63 $5.50
Second Quarter 9.13 6.25
Third Quarter 9.00 5.50
Fourth Quarter 9.00 7.00
1997
First Quarter $10.25 $7.25
Second Quarter 8.25 6.63
Third Quarter 7.63 6.50
Fourth Quarter 8.75 5.50
As of March 27, 1999, the company had approximately 300 shareholders of record,
not including shareholders whose shares are held in securities position
listings.
The Company has never declared or paid any cash dividends on its common stock.
The Company intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
INVESTOR RELATIONS CONTACT
Nancy Schultz, Director, Corporate Communications
(801) 253-1600
FOR MORE INFORMATION, CONTACT
Kent W. Stanger, Chief Financial Officer
Merit Medical Systems, Inc.
(801) 253-1600
36
DISCLOSURE REGARDING FORWARD -LOOKING STATEMENTS
This Form 10-K Report include "Forward-Looking Statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "Forward-Looking Statements" for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or services,
any statements regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. In some cases,
Forward-Looking Statements can be identified by the use of terminology such as
"may," "will," "expects," "plans," "anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in the Forward-Looking
Statements contained herein are reasonable, there can be no assurance that such
expectations or any of the ForwardLooking Statements will prove to be correct,
and actual results could differ materially from those projected or assumed in
the Forward-Looking Statements. Future financial condition and results of
operations, as well as any Forward- Looking Statements are subject to inherent
risks and uncertainties, including market acceptance of the Company's products,
potential product recalls, delays in obtaining regulatory approvals, cost
increases, price and product competition, availability of labor and material,
foreign currency fluctuations, changes in health care markets related to health
care reform initiatives and other factors referred to in the Company's press
releases and reports filed with the Securities and Exchange Commission. All
subsequent Forward-Looking Statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
Exhibit 23.1 Consent of Independent Public Accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-48227, 33-46964, and 33-10509 of Merit Medical Systems, Inc. on Form S-8 of
our report dated March 16, 1999, incorporated by reference in this Annual Report
on Form 10-K of Merit Medical Systems, Inc. for the year ended December 31, 1998
DELOITTE & TOUCHE LLP
Sale Lake City, Utah
March 30, 1999
15
5
0000856982
MERIT MEDICAL SYSTEMS, INC.
1
12-MOS
DEC-31-1998
JAN-01-1998
DEC-31-1998
851,910
0
10,633,816
(197,331)
17,785,743
31,121,296
29,006,845
(12,043,130)
50,664,786
15,341,571
3,388,835
0
0
17,793,094
11,293,274
50,664,786
68,377,357
68,377,357
42,433,873
42,433,873
0
43,669
826,778
4,290,346
1,687,379
0
0
0
0
2,451,159
0.33
0.33
