<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 28, 1996 Commission File No. 0-11484
________________________
MARQUEST MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 84-0785259
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11039 EAST LANSING CIRCLE, ENGLEWOOD, COLORADO 80112
(Address of principal executive offices, including zip code)
(303) 790-4835
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changes since last report)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding 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
--- ---
Number of shares of common stock, no par value, of Registrant outstanding at
October 21, 1996.
14,265,624
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
September 28, March 30,
1996 1996
------------- ---------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 481 $ 1,635
Trade accounts receivable, less allowances for
doubtful accounts of $105 and $94, respectively 2,990 2,915
Notes and other receivables 76 181
Inventories 3,468 3,393
Prepaid items 201 173
------------ ---------
Total current assets 7,216 8,297
PROPERTY, PLANT AND EQUIPMENT
Land 1,265 1,265
Buildings 4,985 4,985
Machinery and equipment 8,880 8,866
Other 2,552 2,523
Construction in progress 64 2
------------ ---------
17,746 17,641
Less accumulated depreciation (11,000) (10,586)
------------ ---------
Net property, plant and equipment 6,746 7,055
OTHER ASSETS 39 41
------------ ---------
$ 14,001 $ 15,393
------------ ---------
------------ ---------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
2
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 28, March 30,
1996 1996
------------- ---------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 725 $ 1,001
Accrued liabilities 3,136 3,728
Payable to related party 41 48
Swiss debt principal and interest 389 397
Current maturities of long-term debt 91 117
Current maturities of capital lease obligation 305 289
------------ ---------
Total current liabilities 4,687 5,580
CAPITAL LEASE OBLIGATION 379 536
NOTE PAYABLE TO BANK 837 858
SWISS NOTES PAYABLE 2,851 2,896
NOTE PAYABLE TO SCHERER CAPITAL, LLC. 700 700
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000
shares authorized; 14,286,464 and 14,207,435 shares
issued and outstanding, respectively 9,899 9,834
Warrants 593 599
Retained earnings(deficit) ($20,434 of retained
deficit eliminated at July 3, 1993 relating to the
quasi-reorganization) (5,875) (5,540)
Treasury stock, 20,840 shares (70) (70)
------------ ---------
Total shareholders' equity (deficit) 4,547 4,823
------------ ---------
$ 14,001 $ 15,393
------------ ---------
------------ ---------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
---------------------------
September 28, September 30,
1996 1995
------------- -------------
NET REVENUES $ 5,653 $ 5,193
COST OF SALES (3,925) (3,510)
------------ ---------
GROSS PROFIT 1,728 1,683
COSTS AND EXPENSES
Selling and marketing expenses (945) (917)
General and administrative expenses (549) (580)
Research and development expenses (55) (37)
------------ ---------
OPERATING INCOME (LOSS) 179 149
OTHER INCOME (EXPENSE)
Other income (expense) 13 (11)
Interest expense (165) (186)
Foreign exchange gain (loss) 1 6
Gain on sale of assets -- 8
------------ ---------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES 28 (34)
Provision for income taxes -- --
------------ ---------
NET INCOME (LOSS) $ 28 $ (34)
------------ ---------
------------ ---------
Earnings (loss) per common share $ 0.00 $ 0.00
------------ ---------
------------ ---------
Weighted average number of common shares
outstanding during the period 14,245,315 8,246,880
------------ ---------
------------ ---------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
4
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Six Months Ended
---------------------------
September 28, September 30,
1996 1995
------------- -------------
NET REVENUES $ 10,805 $ 10,477
COST OF SALES (7,685) (7,189)
------------ ---------
GROSS PROFIT 3,120 3,288
COSTS AND EXPENSES
Selling and marketing expenses (2,012) (1,971)
General and administrative expenses (1,070) (1,137)
Research and development expenses (98) (76)
------------ ---------
OPERATING INCOME (LOSS) (60) 104
OTHER INCOME (EXPENSE)
Other income (expense) 39 (13)
Interest expense (335) (337)
Foreign exchange gain (loss) 21 17
Gain on sale of assets -- 217
------------ ---------
LOSS FROM OPERATIONS BEFORE INCOME TAXES (335) (12)
Provision for income taxes -- --
------------ ---------
NET INCOME (LOSS) $ (335) $ (12)
------------ ---------
------------ ---------
Earnings (loss) per common share $ (0.02) $ 0.00
------------ ---------
------------ ---------
Weighted average number of common shares
outstanding during the period 14,218,621 8,224,090
------------ ---------
------------ ---------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
5
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Six Months Ended
---------------------------
September 28, September 30,
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (335) $ (12)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 414 567
Provision for losses on accounts receivable 11 11
Foreign exchange (gain) loss (21) (17)
Gain on sale of assets -- (217)
Increase (decrease) in operating assets and
liabilities:
Accounts receivable (86) 222
Notes and other receivables 105 (13)
Inventories and prepaid items (103) (129)
Accounts payable, accrued liabilities and
payable to related party (876) (689)
Accrued interest on Swiss bonds 13 28
Other 2 --
------------ ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (876) (249)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (105) (22)
Proceeds from sale of assets -- 217
------------ ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (105) 195
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 15 1
Principal payments on borrowings (188) (114)
------------ ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (173) (113)
------------ ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,154) (167)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,635 562
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CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 481 $ 395
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------------ ---------
(Continued)
6
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
September 28, September 30,
1996 1995
------------ ---------
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Warrants exercised:
Warrants $ (6) $ (13)
Swiss notes (45) (40)
Common stock 51 53
------------ ---------
$ -- $ --
------------ ---------
------------ ---------
Capital lease:
Repayment of notes payable $ -- $ (104)
Purchases of property and equipment -- (191)
Capital lease addition -- 295
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$ -- $ --
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The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
7
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. REPORT OF MANAGEMENT:
The management of Marquest Medical Products, Inc. (the "Company") is responsible
for the integrity of the financial information presented. The financial
statements have been prepared in accordance with generally accepted accounting
principles and they include amounts that are based on management's best
estimates and judgment. These unaudited interim financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results of the interim periods presented.
Management relies upon the Company's system of internal controls in meeting its
responsibilities for maintaining reliable financial records. This system is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's
intentions. Judgments are required to assess and balance the relative cost and
expected benefits of such controls.
2. INVENTORIES:
Inventories consist of the following (in thousands of dollars):
September 28, 1996 March 30, 1996
------------------ --------------
Raw materials $1,870 $1,782
Work in process 297 233
Finished goods 1,301 1,378
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$3,468 $3,393
------ ------
------ ------
3. QUASI-REORGANIZATION:
In June 1993, the Company's Board of Directors approved quasi-reorganization
procedures which were effective July 3, 1993, the end of the Company's first
quarter of fiscal 1994.
4. WARRANTS:
In June and August 1996, 19,411 and 59,618, respectively, of the Company's
warrants to purchase common stock at $0.75 per share were exercised. These
warrants had been issued to the Swiss bondholders in an exchange in fiscal 1994.
5. LINE OF CREDIT
The Company has obtained a two and one-half year revolving line of credit from
Norwest Business Credit, Inc. ("Norwest") secured by receivables with an
interest rate of 2.25% over Norwest's prime rate. The maximum line of credit to
be extended is 80% of eligible accounts receivable or $2,000,000, whichever is
less.
8
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6. FOOD AND DRUG ADMINISTRATION
The Company is subject to regulation by the Food and Drug Administration ("FDA")
regarding the manufacture and sale of the Company's products. On October 1,
1991, the Company entered into a five-year Consent Decree with the FDA in which
the Company agreed to comply with the FDA's Current Good Manufacturing Practices
("cGMP"). As of October 1, 1996, the Company has satisfactorily met the
requirements of the Consent Decree and all other obligations required by the
FDA. The Company continues to manufacture product in compliance with cGMP's.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S FISCAL 1996 ANNUAL REPORT
ON FORM 10-K.
RESULTS OF OPERATIONS
Sales for the second quarter of fiscal 1997 were $5,653,000, an increase of
$460,000 or 8.8% compared to sales for the second quarter of the previous year.
A portion of this increase is due to the timing of orders. The first quarter
sales were $132,000 less than the prior year because orders expected in June
were received in July. Approximately $300,000 of the increased sales is due to
sales to Ciba Corning Diagnostics, with whom Marquest signed a contract in late
fiscal 1996 for the sale of arterial blood gas syringes.
The gross margin decreased from 32.4% in the second quarter of fiscal 1996 to
30.6% in the second quarter of fiscal 1997, and decreased from 31.4% to 28.9%
for the first six months of fiscal 1996 and 1997, respectively. The decrease is
due to incremental manufacturing costs related to component quality and an
increase in the cost of heated humidification units provided to customers.
Units are provided to hospitals at no charge in exchange for agreements to
purchase specified levels of disposable products. In fiscal 1997, more new
units are being provided to hospitals.
Operating expenses have remained flat for the second quarter and for the first
six months compared to the prior year. During the first quarter of fiscal 1996,
the Company sold its 10% investment in Seabrook Medical Systems, Inc. for a
$200,000 gain.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash used in operations was $876,000 for the first six
months of fiscal 1997. This decrease was due to a reduction in payables and
accrued liabilities due to normal seasonal selling patterns and the payment of
various legal settlements.
FINANCING ACTIVITIES: During fiscal 1996, the Company and Scherer Capital, LLC.
signed a loan agreement under which the Company may borrow up to $1,500,000 at
1-1/2% over prime, secured by inventory and equipment. At September 28, 1996,
there is $800,000 of borrowing capacity available to the Company. On March 29,
1996, Scherer Capital purchased $1,000,000 of common stock of the Company at a
rate of $0.485 per share.
The Company has obtained a two and one-half year revolving line of credit from
Norwest Business Credit., Inc. ("Norwest") secured by receivables with an
interest rate of 2.25% over Norwest's prime rate. The maximum line of credit to
be extended is 80% of eligible accounts receivable or $2,000,000, whichever is
less.
Management of the Company believes that it can fund its current operating levels
and capital expenditures from the funds from the sale of common stock in March
1996 and from available borrowings under the loan agreement
9
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with Scherer Capital
and the line of credit. To the extent that fiscal 1997 operations and
borrowings are not sufficient to support anticipated capital expenditures, the
Company's planned investment in capital projects will be reduced.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders was held on August 22, 1996. The following
directors were elected:
Shares in Favor Shares Withheld
--------------- ---------------
Charles R. Atkins III 13,187,661 407,643
Stephen Lukas, Sr. 13,185,551 409,753
Jack W. Payne 13,187,151 408,153
Kenneth H. Robertson 13,188,151 407,153
Robert P. Scherer, Jr. 13,187,156 408,148
Mack D. Tindal 13,188,051 407,253
William J. Thompson 13,187,107 408,197
Jack L. York 13,130,461 464,843
The proposal to amend the Marquest Medical Products, Inc. Incentive and
Non-Qualified Stock Option Plan to increase the number of shares of common stock
as to which options may be granted from 1,250,000 to 1,750,000 was approved with
the following vote: FOR - 13,065,880, AGAINST - 407,143, ABSTAIN - 16,199.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description Page
----------- ----------- ----
27. Financial Data Schedule (EDGAR version only) 12
(b) Reports on Form 8-K
There have beeen no reports on Form 8-K filed during the quarter for which
this report on Form 10-Q is being filed.
10
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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.
Dated: November 12, 1996 MARQUEST MEDICAL PRODUCTS, INC.
/s/ William J. Thompson
---------------------------------------------
William J. Thompson
President
/s/ Margaret Von der Schmidt
---------------------------------------------
Margaret Von der Schmidt
Vice President - Finance and Chief Financial
Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS AS OF SEPTEMBER 28, 1996 AND FOR THE SIX MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> SEP-28-1996
<CASH> 481
<SECURITIES> 0
<RECEIVABLES> 3,095
<ALLOWANCES> 105
<INVENTORY> 3,468
<CURRENT-ASSETS> 7,216
<PP&E> 17,746
<DEPRECIATION> (11,000)
<TOTAL-ASSETS> 14,001
<CURRENT-LIABILITIES> 4,687
<BONDS> 4,767
0
0
<COMMON> 9,899
<OTHER-SE> (5,352)
<TOTAL-LIABILITY-AND-EQUITY> 14,001
<SALES> 10,805
<TOTAL-REVENUES> 10,805
<CGS> 7,685
<TOTAL-COSTS> 7,685
<OTHER-EXPENSES> 3,180
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> (335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0
</TABLE>
