Item 1. Business.
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.
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 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 1996, approximately 60% of the Company's sales were made directly to U.S. hospitals and approximately 16% of sales were made to custom packagers who also distribute to U.S. hospitals. Approximately 24% of the Company's sales in 1996 were made in international markets.
The Company was organized in July 1987 as a Utah corporation. In July 1994 the Company purchased 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 Netherlands to conduct its international business. On January 31, 1997 the Company purchased the operating assets and product lines of Universal Medical Instrument Corp.("UMI"). The Company also leased from UMI a 32,000 square foot factility in Saratoga Springs New York. 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.
Item 2. Properties.
The Company is the owner of approximately 35 acres of real property situated in South Jordan City, Utah, which surrounds the site of its 175,000 square foot office and manufacturing facility where it relocated and consolidated its 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 utilized to the extent of approximately 75% on a single-shift basis. The facility is deemed adequate for the Company's present level of operations and for anticipated increases in the level of operations.
The Company continues to lease approximately 25,000 square feet at its former location which are being subleased to third parties.
The Company is leasing a building of approximately 26,500 square feet in Galway County Galway, Republic of Ireland, as its principal office and future manufacturing and research and development facility for European operations. The property has been leased and is being improved and equipped on terms deemed favorable to the Company in connection with economic development incentives and grants provided by the Irish Government. This lease is for 20 years at approximately $156,000 per year less a 50% subsidy from the Irish government for 3 years. The Company also has a perpetual purchase option available at favorable terms through the term of the lease.
The Company has also acquired approximately 1 1/2 acres and a building of approximately 25,000 square feet in Castlerea, County Roscommon, Republic of Ireland.
The Company also entered into a short term (18 months, with options to extend for three additional two year terms) lease of a 32,000 square foot facility in Saratoga Springs New York with very favorable terms.
Item 3.
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 complaint 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 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. Plaintiff has not yet responded
Item 4.
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.
PART II
Item 5.
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, 1996 furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K, is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data.
The "Selected Financial Data" included in Company's Annual Report to Shareholders for the year ended December 31, 1996 furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K, is incorporated herein by reference.
Item 7.
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, 1996 furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K, is incorporated herein by reference.
Item 8.
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, 1996 furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K are incorporated herein by reference.
Item 9.
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.
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 21, 1997. The definitive Proxy Statement will be filed with the Commission not later than 120 days after December 31, 1996, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.
PART IV
Item 14.
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, 1996 and 1995
-- Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994
-- Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994
-- Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
-- 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:
- -------- -----------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules: There are no financial statement schedule required to be filed with this report.
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 27, 1997.
MERIT MEDICAL SYSTEMS, INC.
By:______________________________________ 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 27,1997.
Signature Capacity in Which Signed
____________________________ President, Chief Executive Officer and Director Fred P. Lampropoulos
____________________________ Chief Financial Officer, Secretary, Treasurer and Director (Principal Kent W. Stanger financial and accounting officer)
____________________________ Director Richard W. Edelman
- ---------------------------- Rex C. Bean Director
- ---------------------------- James J. Ellis Director
- ---------------------------- Michael E. Stillabower Director