SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File Number 0-18592
MERIT MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Utah 87-0447695
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 West Merit Park Way, South Jordan, Utah, 84095
----------------------------------------------------
(Address of Principal Executive Offices)
(801) 253-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
----- ----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock 13,706,687
-------------- -------------------------------
TITLE OR CLASS Number of shares Outstanding at
August 12, 2002
MERIT MEDICAL SYSTEMS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001 1
Consolidated Statements of Operations for
the three and six months ended June 30, 2002 and 2001 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
PART I - FINANCIAL INFORMATION
ITEM 1:
FINANCIAL STATEMENTS
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001 (Unaudited)
- --------------------------------------------------------------------------------
June 30, December 31,
2002 2001
--------------- --------------
ASSETS
- -------
CURRENT ASSETS:
Cash and cash equivalents $ 3,656,071 $ 341,690
Short-term investments 223,956 85,286
Trade receivables - net 15,986,060 14,748,021
Employee and related
party receivables 105,011 266,905
Irish Development Agency grant receivable 98,081
Inventories 20,006,704 20,823,616
Prepaid expenses and other assets 865,839 514,786
Deferred income tax assets 723,299 723,299
--------------- --------------
Total current assets 41,566,940 37,601,684
--------------- --------------
PROPERTY AND EQUIPMENT:
Land 1,252,066 1,252,066
Building 1,500,000 1,500,000
Manufacturing equipment 24,096,212 23,289,880
Automobiles 87,536 91,573
Furniture and fixtures 10,460,550 9,963,045
Leasehold improvements 5,872,659 5,659,457
Construction-in-progress 2,556,782 1,738,540
--------------- --------------
Total 45,825,805 43,494,561
Less accumulated depreciation
and amortization (23,788,721) (21,671,501)
--------------- --------------
Property and equipment - net 22,037,084 21,823,060
--------------- --------------
OTHER ASSETS:
Intangible assets - net 2,154,435 2,434,632
Deposits 34,978 34,843
Cost in excess of the fair value of assets acquired-net 4,764,596 4,764,596
--------------- --------------
Total other assets 6,954,009 7,234,071
--------------- --------------
TOTAL ASSETS $ 70,558,033 $ 66,658,815
=============== ==============
Continued on Page 2
See Notes to Consolidated Financial Statements
1
MERIT MEDICAL SYSTEMS, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS (Continued)
JUNE 30, 2002 AND DECEMBER 31, 2001 (Unaudited)
- --------------------------------------------------------------------------------
June 30, December 31,
2002 2001
---------------- --------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 495,463 $ 598,086
Trade payables 4,715,390 4,659,295
Accrued expenses 6,941,030 4,817,595
Advances from employees 168,967 128,624
Income taxes payable 290,427 486,763
---------------- --------------
Total current liabilities 12,611,277 10,690,363
DEFERRED INCOME TAX LIABILITIES 1,732,723 1,654,383
LONG-TERM DEBT 199,192 5,727,381
DEFERRED CREDITS 845,897 928,280
---------------- --------------
Total Liabilities 15,389,089 19,000,407
---------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock- 5,000,000 shares authorized
as of June 30, 2002 and December
31, 2001, respectively, no shares issued
Common stock- no par value; 20,000,000 shares
authorized; 13,696,098 and
13,377,020 shares issued at June 30,
2002 and December 31, 2001,
respectively 28,350,049 25,958,295
Retained earnings 27,381,774 22,353,053
Accumulated other comprehensive loss (562,879) (652,940)
---------------- --------------
Total stockholders' equity 55,168,944 47,658,408
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,558,033 $ 66,658,815
---------------- --------------
See Notes to Consolidated Financial Statements
2
MERIT MEDICAL SYSTEM, INC.
- --------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 and 2001 (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET SALES $ 28,789,370 $ 26,264,015 $ 57,461,538 $ 53,052,388
COST OF SALES 16,756,292 16,837,858 34,276,680 34,406,857
------------ ------------ ------------ ------------
GROSS PROFIT 12,033,078 9,426,157 23,184,858 18,645,531
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 6,984,180 6,158,130 13,689,428 12,164,203
Research and development 944,879 1,090,791 1,908,168 2,220,863
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 7,929,059 7,248,921 15,597,596 14,385,066
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 4,104,019 2,177,236 7,587,262 4,260,465
GAIN ON SALE OF LAND (786,279) (786,279)
OTHER EXPENSE - NET 26,098 318,787 86,460 754,854
INCOME BEFORE INCOME TAXES 4,077,921 2,644,728 7,500,802 4,291,890
INCOME TAX EXPENSE 1,376,107 785,935 2,472,081 1,246,672
------------ ------------ ------------ ------------
NET INCOME $ 2,701,814 $ 1,858,793 $ 5,028,721 $ 3,045,218
EARNINGS PER COMMON SHARE -
Basic $ 0.20 $ 0.15 $ 0.37 $ 0.25
============ ============ ============ ============
Diluted $ 0.18 $ 0.14 $ 0.34 $ 0.24
============ ============ ============ ============
AVERAGE COMMON SHARES -
Basic 13,535,651 12,336,344 13,476,275 12,258,742
============ ============ ============ ============
Diluted 14,750,259 12,880,073 14,631,076 12,607,819
============ ============ ============ ============
See Notes to Consolidated Financial Statements
3
MERIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Unaudited)
- -------------------------------------------------------------------------------
June 30, June 30,
2002 2001
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,028,721 $ 3,045,218
---------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,247,503 2,248,160
Bad debt expense 127,182 124,558
Losses (gains) on sales and abandonment of
property, equipment and land 888 (786,279)
Amortization of deferred credits (93,221) (68,912)
Abandonment of certain patents and trademarks 177,816
Deferred income taxes 78,340 84,824
Changes in operating assets and liabilities:
Trade receivables (1,365,221) (1,217,353)
Employee and related party receivables 161,894 14,405
Short-term investments (138,670)
Irish Development Agency grant receivable 108,919 173,415
Inventories 816,912 2,968,792
Prepaid expenses and other assets (351,053) (26,721)
Deposits (135) 2,285
Trade payables 56,095 (36,911)
Accrued expenses 2,123,435 1,407,533
Advances from employees 40,343 13,743
Income taxes payable (196,336) 1,393,280
---------- --------
Total adjustments 3,794,691 6,294,819
---------- --------
Net cash provided by operating activities 8,823,412 9,340,037
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (2,089,241) (1,693,544)
Intangible assets (129,743)
Proceeds from sale of property, equipment and land 376 938,303
---------- --------
Net cash used in investing activities (2,088,865) (884,984)
---------- --------
See Notes to Consolidated Financial Statements
4
MERIT MEDICAL SYSTEMS, INC.
- ---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Unaudited)
- --------------------------------------------------------------------------------
June 30, June 30,
2002 2001
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 2,391,754 $ 1,378,251
Principal payments on long-term debt (5,901,981) (9,830,435)
---------- ----------
Net cash used in financing activities (3,510,227) (8,452,184)
---------- ----------
EFFECT OF EXCHANGE RATES ON CASH 90,061 (56,510)
---------- ----------
NET INCREASE (DECREASE) IN CASH 3,314,381 (53,641)
---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 341,690 412,384
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,656,071 $ 358,743
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest (including
capitalized interest of $17,282 and $44,738, respectively) $ 78,614 $ 804,396
========== ==========
Income taxes $ 1,099,649 $ 120,565
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 2001, the Company issued notes payable
totaling $271,169, for manufacturing equipment and furniture and fixtures.
See Notes to Consolidated Financial Statements
5
MERIT MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Basis of Presentation. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of financial
position of the Company as of June 30, 2002 and December 31, 2001, and the
results of its operations and cash flows for the three and six months ended June
30, 2002 and 2001. The results of operations for the three and six months ended
June 30, 2002 and 2001 are not necessarily indicative of the results for a
full-year period.
2. Inventories. Inventories at June 30, 2002 and December 31, 2001 consisted of
the following:
June 30, December 31,
2002 2001
--------------- ----------------
Raw materials $ 7,174,627 $ 7,501,253
Work-in-process 4,332,097 3,001,250
Finished goods 12,263,900 13,716,474
Less reserve for obsolete inventory (3,763,920) (3,395,361)
--------------- ---------------
Total $ 20,006,704 $ 20,823,616
=============== ================
3. Income Taxes. The Company has not fully allocated income tax expense between
current and deferred for the quarters and six months ended June 30, 2002 and
2001. The effective tax rates for the three and six months ended June 30, 2002
and 2001 were below the 35% federal statutory rate as the result of increased
research tax credits and the Company's profitable operations in Ireland which
are taxed at a tax rate that is lower than the Company's U.S. overall effective
tax rate.
4. Reporting Comprehensive Income - The Company determined that the only
transaction considered to be an additional component of comprehensive income is
the cumulative effect of foreign currency translation adjustments. As of June
30, 2002 and December 31, 2001, the cumulative effect of such transactions
reduced stockholders' equity by $562,879 and $652,940, respectively.
Comprehensive income for the three and six months ended June 30, 2002 and 2001
has been computed as follows:
Three months ended Six months ended
------------------------- --------------------------
June 30, June 30,
-------- --------
2002 2001 2002 2001
----------- ----------- ----------- ------------
Net income $ 2,701,814 $ 1,858,793 $ 5,028,721 $ 3,045,218
Foreign currency translation 87,655 (13,619) 90,061 (56,510)
----------- ----------- ----------- -----------
Comprehensive income $ 2,789,469 $ 1,845,174 $ 5,118,782 $ 2,988,708
=========== =========== =========== ===========
6
MERIT MEDICAL SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ( Continued)
- --------------------------------------------------------------------------------
5. Goodwill and Other Intangible Assets. The Company has adopted, effective
January 1, 2002, Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, the Company will no
longer amortize goodwill from past business acquisitions and will review
annually the impairment of goodwill, or more frequently if impairment indicators
arise. The Company has completed its initial testing of goodwill and has
determined that there is no impairment. The unamortized amount of goodwill at
December 31, 2001, was $4.8 million.
With the adoption of SFAS No. 142, the Company reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, no adjustments were
made to the amortization period or residual values of other intangible assets.
The following table reconciles net income and earnings per share information for
the three and six months ended June 30, 2002 and 2001, for the non amortization
provision of goodwill for SFAS No. 142:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2002 2001 2002 2001
----------------------- ------------------------
Reported net income $2,701,814 $1,858,793 $5,028,721 $3,045,218
Add back: goodwill amortization, net of tax -- 53,615 -- 107,230
----------------------- ------------------------
Adjusted net income $2,701,814 $1,912,408 $5,028,721 $3,152,448
======================= ========================
Basic earnings per share:
Reported earnings per common share $0.20 $0.15 $0.37 $0.25
Add back: goodwill amortization, net of tax 0.01 0.01
---------------------- ------------------------
Adjusted earnings per common share $0.20 $0.16 $0.37 $0.26
======================= ========================
Diluted earnings per share:
Reported earnings per common share $0.18 $0.14 $0.34 $0.24
Add back: goodwill amortization, net of tax 0.01 0.01
---------------------- ------------------------
Adjusted earnings per common share $0.18 $0.15 $0.34 $0.25
======================= ========================
The following table reflects the components of intangible assets as of June 30,
2002:
Gross Carrying Accumulated
Amount Amortization Net
--------------------------------------------------------
Amortized Intangible Assets:
Patents $ 2,335,287 $ (603,470) $ 1,731,817
Trademarks 341,409 (167,012) 174,397
Licenses 591,005 (342,784) 248,221
-------------------------------------------------------
Total $ 3,267,701 $(1,113,266) $ 2,154,435
=======================================================
Unamortized Intangible Assets:
Goodwill $ 5,477,356 $ (712,760) $ 4,764,596
=======================================================
7
MERIT MEDICAL SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Estimated amortization expense for the intangible assets for the current year
and five succeeding fiscal years is as follows:
Aggregate Amortization Expense:
- ------------------------------------------------
For year ended 12/31/2002 $235,596
Estimated Amortization Expense:
- ------------------------------------------------
For year ended 12/31/2003 $203,940
For year ended 12.31/2004 183,385
For year ended 12/31/2005 177,286
For year ended 12/31/2006 174,496
For year ended 12/31/2007 $172,283
6. Accounting for the Impairment or Disposal of Long-Lived Assets. In August of
2001, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, was issued which addresses accounting and financial reporting for the
impairment of disposal of long-lived assets. This statement was effective for
the Company beginning January 1, 2002. The effect on the Company's financial
statements of adopting this statement was not significant.
7. Stock Split. On March 28, 2002, the Company announced a five-for-four stock
forward split effective April 8, 2002. The stock split entitled each stockholder
of record to receive an additional share for every four shares of common stock
held. All earnings per share and share data have been adjusted to reflect the
split.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Overview
Merit Medical Systems, Inc. is happy to report its best quarter and six months
in history, with record revenues and earnings. Company sales increased over 10%
for the second quarter 2002 compared to the second quarter of 2001, across all
product lines, including kits, stand-alone devices, inflation devices and
catheters. The Company is pleased to report a continued positive momentum in
manufacturing efficiencies and the resulting drop in costs per unit,
particularly in our Salt Lake operations. This increase in both sales volume and
manufacturing efficiencies has resulted in very favorable labor and overhead
utilization compared to the first few months of 2001. Management believes that
this trend toward lower costs per unit and higher gross margins will continue,
although not in so dramatic a manner.
Merit is pleased to announce a significant reduction in its inventory of over
$8.6 million since January 2000, along with the associated benefits of lower
inventory carrying costs. The Company's cash flow from operations continues to
be strong (over $8.6 million in cash flow from operations for the first six
months of 2002), resulting in a decline of the Company's line of credit balance
from $30.4 million at August 24, 2000 to $0 as of March 31, 2002. The Company
has since built cash balances of over $3.7 million. Therefore, the Company has
paid back the bank $30 million in less than twenty months. This lower debt,
combined with falling interest rates, has resulted in a significant decrease in
interest expense.
8
MERIT MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
- -------------------------------------------------------------------------------
Management is pleased to report that the fundamental financial performance of
the Company has dramatically improved over the last year in almost every area.
Sales are up, productivity has increased, gross margins are improving, and
interest costs are down, resulting in much improved cash flow, net income and
earnings per share.
Operations. The Company enjoyed its best quarter and six months in history,
experiencing record revenues and earnings. The following table sets forth
certain operational data as a percentage of sales for the three and six months
ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
--------- --------
2002 2001 2002 2001
-------- -------- -------- ------
Sales 100.0 % 100.0% 100.0% 100.0%
Gross profit 41.8 35.9 40.3 35.1
Selling, general and administrative 24.3 23.4 23.8 22.9
Research and development 3.3 4.2 3.3 4.2
Income from operations 14.3 8.3 13.2 8.0
Other expense (income) (1.8) .2 (.1)
Net Income 9.4 7.1 8.8 5.7
Sales. Sales for the three months ended June 30, 2002 were a record $28.8
million, compared to $26.3 million for the same period last year, representing
an increase of 10%. Merit's increased sales were fueled by growth in sales of
custom kits, which rose by 13%, stand-alone products which grew by 10% and
inflation device and catheter sales, each of which grew by 8%. For the six-month
period ended June 30, 2002, total sales were a record $57.5 million compared
with $53.1 million for the same period in 2001, an increase of 8%. Growth in
sales for the six-month period was attributable to growth in sales of inflation
devices, catheters and custom kits, all of which grew by 9%, as well as sales of
stand-alone products which grew by 7%.
Gross Margin. For the three months ended June 30, 2002, gross margin as a
percentage of sales was 41.8% compared to 35.9% for the same period in 2001. For
the six months ended June 30, 2002, gross margin was 40.3%, as compared to 35.1%
for the same period in 2001. The significant rise in gross margin is the
greatest contributing factor to the large rises in both operating income and net
income. The increase in gross margin for the three and six months ended June 30,
2002 was primarily the result of lower costs per unit for both labor and
overhead. The Company is benefiting from an almost 20% reduction in head count
and a 10% reduction in inventory, while growing the top line by over 14% in 2001
and over 8% so far in 2002.
Operating Expenses. Operating expenses remained constant as a percentage of
sales at 27.5% and 27.1% for the three and six months ended June 30, 2002
respectively, compared to 27.5% and 27.1% for the three months and six months,
respectively, ended June 30, 2001. Selling, general and administrative expenses
increased as a percentage of sales to 24.3% and 23.8% for the three and six
months ended June 30, 2002, respectively, compared to 23.4% and 22.9%,
respectively, for the comparable periods in 2001. The S,G&A expense was higher
in 2002 than it would have been because of an unusual write off of some high
maintenance cost international intellectual property that the Company has chosen
not to continue. Research and development costs declined to 3.3% of sales for
the three months ended June 30, 2002, compared to 4.2% for the same period in
2001. For the six months ended June 30, 2002, research and development
expenditures decreased to 3.3% of sales, down from 4.2% of sales for the six
months ended June 30, 2001.
Operating Income. During the three months ended June 30, 2002, the Company
reported income from operations of $4.1 million compared to $2.2 million, an
increase of 88%, for the comparable period in 2001. Operating income for the
first six months of 2002 was $7.6 million compared to $4.3 million in 2001, an
increase of 78%.
9
MERIT MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
- -------------------------------------------------------------------------------
Net income for the three months ended June 30, 2002 increased to a record $2.7
million from $1.9 million for the same three-month period of 2001, and net
income for the six months ended June 30, 2002, grew to a record $5.0 million
compared to $3.0 million for the first half of 2001. The comparison of net
income for the second quarter of 2002 would have grown by 107% if not for the
sale of land in June of 2001.
Liquidity and Capital Resources. At June 30, 2002, the Company's working capital
was $29.0 million, which represented a current ratio of 3.3 to 1. At June 30,
2002, the outstanding balance under the line of credit was $0. Historically, the
Company has incurred significant expenses in connection with product development
and introduction of new products. The Company's principal sources of funding for
these and other expenses has been the cash generated from operations, secured
loans on equipment and bank lines of credit and the sale of equity. Now that the
Company's debt has been eliminated we believe that the cash flow from operations
will be sufficient for its current operations.
Critical Accounting Policies and Estimates. In December 2001, the SEC requested
that all registrants discuss their most critical accounting policies. The SEC
indicated that a "critical accounting policy" is one which is both important to
the representation of the Company's financial condition and results and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. The Company bases estimates on past experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. The following are the Company's most critical accounting policies:
Inventory Obsolescence Reserve: The Company writes down its inventory for
estimated obsolescence for unmarketable and slow moving products that may expire
prior to being sold. If market conditions become less favorable than those
projected by management, additional inventory write-downs may be required. The
Company's obsolescence reserve was $3.8 million on June 30, 2002.
Allowance for Doubtful Accounts: The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of customers to make
required payments. The allowance is based upon historical experience and current
customer information. If the financial condition of the Company's customers were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The Company's bad debt reserve was
$533,621 at June 30, 2002, in line with its historical experience with
collection of receivables.
Forward-Looking Statements. This Report includes "Forward-Looking Statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange of 1934, as amended. All statements other
than statements of historical fact are "Forward-Looking Statements" for purpose
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
statements of assumptions underlying any of the foregoing. All Forward-Looking
Statements included in this document are made as of the date hereof and are
based on information available to Merit as of such date. Merit assumes no
obligation to update any Forward-Looking Statement. In some cases,
Forward-Looking Statements can be identified by the use of terminology such as
"may," "will," "expects," "plans," "anticipates," "intends," "believes,"
"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 Forward-Looking
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, timing and acceptance of product
introductions, potential product recalls, delays in obtaining regulatory
approvals, cost increases, fluctuations in and obsolescence of inventory, price
and product competition, availability of labor and materials, decrease in
productivity, increase in interest costs, development of new products and
techniques that render the Company's products obsolete, foreign currency
fluctuation,
10
MERIT MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
- -------------------------------------------------------------------------------
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 person acting on its behalf are
expressly qualified in their entirety by these cautionary statements.
Item 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company principally hedges the EURO. The Company enters into forward foreign
exchange contracts to protect the Company from the risk that the eventual net
dollar cash flows resulting from transactions with foreign customers and
suppliers may be adversely affected by changes in currency exchange rates. Such
contracts are not significant to financial results of the Company.
PART II - OTHER INFORMATION
Item: 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders (the "Annual
Meeting") on May 23, 2002 in South Jordan, Utah. The following items of business
were considered at the Annual Meeting:
A: Election of Directors
---------------------
Two persons were elected as members of the Board of Directors to
serve three-year terms. They are as follows:
Shares Shares
Voted For Abstained
----------- -----------
Rex C. Bean 11,136,779 88,161
Richard W. Edelman 11,136,216 88,724
Each of the following persons' term of office continued after the meeting: Fred
P. Lampropoulos, Kent W. Stanger, James J. Ellis and Michael E. Stillabower,
M.D.
B. Selection of Auditors.
---------------------
A proposal to ratify the appointment of Deloitte & Touche LLP as
the independent auditor of the Company for fiscal 2002 was presented at the
Annual Meeting and such proposal was approved by the shareholders of the
Company. The number of shares voted for the proposal was 11,031,725. The number
of shares voted against such proposal was 145,457 The number of shares
abstaining from voting was 47,758.
11
MERIT MEDICAL SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERIT MEDICAL SYSTEMS, INC.
REGISTRANT
Date: AUGUST 12, 2002 /s/: FRED P. LAMPROPOULOS
--------------- -------------------------------------------------
FRED P. LAMPROPOULOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: AUGUST 12, 2002 /s/: KENT W. STANGER
--------------- -------------------------------------------------
KENT W. STANGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
CERTIFICATION
-------------
In connection with the accompanying Form 10-Q of Merit Medical Systems, Inc. for
the quarter ended June 30, 2002, the following officers of Merit Medical
Systems, Inc. hereby certify that, to the best of their knowledge and belief:
1- such Form 10-Q fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2- the information contained in such Form 10-Q fairly presents,
in all material respects, the financial condition and
results of Merit Medical Systems, Inc.
By: /s/: Fred P. Lampropoulos
-----------------------------------------------
Fred P. Lampropoulos
President and Chief Executive Officer
/s/: Kent W. Stanger
------------------------------------------------
Kent W. Stanger
Chief Financial Officer
Date: August 13, 2002
---------------
12