UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
0-6944
(Commission File Number)
RESEARCH MEDICAL, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0277827
(State of Incorporation) (IRS Employer
Identification number)
6864 SOUTH 300 WEST, SALT LAKE CITY, UTAH 84047
(Address of registrant's principal executive office)
801-562-0200
(Registrant's telephone number)
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), (2) has been subject to such filing requirements
for the past 90 days. (1) Yes X No (2) Yes X No
The number of shares of common stock outstanding as of March 31, 1996 was
9,603,348.
RESEARCH MEDICAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1996 and June 30, 1995
Consolidated Statements of Income and Retained Earnings for the
Three Month Periods Ended March 31, 1996 and 1995
Consolidated Statements of Income and Retained Earnings for the
Nine Month Periods Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis
PART II OTHER INFORMATION
Signature
RESEARCH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, June 30,
1996 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and equivalents $1,350,099 $2,093,326
Short-term investments 5,369,865 3,923,055
Accounts receivable 8,640,916 6,118,031
Current portion of notes receivable 5,660,700 3,931,583
Inventories 10,716,724 8,084,838
Prepaid expenses 1,105,085 1,006,990
Deferred tax asset 460,500 401,300
TOTAL CURRENT ASSETS 33,303,889 25,559,123
LAND HELD FOR RESALE 1,469,728 2,314,924
PROPERTY AND EQUIPMENT 9,396,105 7,949,774
LONG-TERM INVESTMENTS 1,469,192 2,483,277
NOTES RECEIVABLE, less current portion 7,956,398 5,586,078
PATENTS AND LICENSES 2,642,006 2,651,516
$56,237,318 $46,544,692
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 974,203 $ 913,330
Income taxes payable 561,260 103,260
Accrued payroll, commissions and royalties 586,914 746,005
Other accrued expenses 202,176 171,415
Current portion of long-term debt 99,996 99,996
TOTAL CURRENT LIABILITIES 2,424,549 2,034,006
LONG-TERM DEBT, less current portion 97,434 172,430
DEFERRED INCOME TAXES 355,000 485,800
SHAREHOLDERS' EQUITY
Common Stock, par value $.50 per
share authorized 20,000,000 shares,
issued 9,603,348 shares in March
and 9,206,683 shares in June 4,840,735 4,759,846
Additional paid-in capital 11,961,048 9,391,071
Retained earnings 37,152,195 30,621,604
Treasury stock, at cost (593,643) (920,065)
53,360,335 43,852,456
$56,237,318 $46,544,692
RESEARCH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31,
1996 1995
REVENUES
Health care $9,058,278 $7,701,955
Real estate 2,624,702 2,100,772
11,682,980 9,802,727
COSTS AND EXPENSES
Cost of health care sales 3,572,750 3,065,744
Real estate transaction costs 2,111,205 1,774,851
Selling, general and administrative 1,969,357 1,786,077
Research and development 400,510 297,627
8,053,822 6,924,299
OPERATING INCOME 3,629,158 2,878,428
OTHER INCOME (EXPENSE)
Interest expense (12,832) (20,695)
Interest income and other 177,700 120,615
164,868 99,920
INCOME BEFORE INCOME TAXES 3,794,026 2,978,348
INCOME TAX EXPENSE 1,350,000 1,065,000
NET INCOME 2,444,026 1,913,348
Retained earnings at beginning of period 34,708,169 26,336,589
RETAINED EARNINGS AT END OF PERIOD $37,152,195 $28,249,937
EARNINGS PER SHARE $ .26 $ .21
WEIGHTED AVERAGE SHARES OUTSTANDING 9,579,000 9,271,000
PRIMARY EARNINGS PER SHARE $ .25 $ .20
PRIMARY WEIGHTED AVERAGE SHARES OUTSTANDING 9,929,000 9,538,000
FULLY-DILUTED EARNINGS PER SHARE $ .25 $ .20
FULLY-DILUTED WEIGHTED AVERAGE SHARES 9,936,000 9,654,000
OUTSTANDING
RESEARCH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
Nine Months Ended March 31,
1996 1995
REVENUES
Health care $24,597,477 $20,233,700
Real estate 5,678,665 4,216,786
30,276,142 24,450,486
COSTS AND EXPENSES
Cost of health care sales 9,675,375 8,013,828
Real estate transaction costs 3,985,903 3,012,874
Selling, general and administrative 5,686,220 5,008,223
Research and development 1,298,863 833,725
20,646,361 16,868,650
OPERATING INCOME 9,629,781 7,581,836
OTHER INCOME (EXPENSE)
Interest expense (47,900) (48,965)
Interest income and other 553,710 385,467
505,810 336,502
INCOME BEFORE INCOME TAXES 10,135,591 7,918,338
INCOME TAX EXPENSE 3,605,000 2,845,000
NET INCOME 6,530,591 5,073,338
Retained earnings at beginning of period 30,621,604 23,176,599
RETAINED EARNINGS AT END OF PERIOD $37,152,195 $28,249,937
EARNINGS PER SHARE $ .69 $ .55
WEIGHTED AVERAGE SHARES OUTSTANDING 9,518,000 9,212,000
PRIMARY EARNINGS PER SHARE $ .66 $ .54
PRIMARY WEIGHTED AVERAGE SHARES OUTSTANDING 9,888,000 9,478,000
FULLY-DILUTED EARNINGS PER SHARE $ .66 $ .53
FULLY-DILUTED WEIGHTED AVERAGE SHARES 9,868,000 9,595,000
OUTSTANDING
RESEARCH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31,
1996 1995
OPERATING ACTIVITIES
Net income $6,530,591 $5,073,338
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation and amortization 962,989 725,807
Deferred income taxes (190,000) (115,000)
Income tax benefit from exercise of
non-qualified stock options 978,000 263,003
Changes in operating assets and
liabilities:
Accounts receivable (2,522,885) 560,948
Notes receivable (4,275,406) (2,232,092)
Inventories (2,631,886) (2,919,347)
Land held for resale 845,196 1,782,089
Other assets (248,106) (1,403,576)
Current liabilities 390,543 (1,067,889)
NET CASH PROVIDED BY (USED IN) OPERATING (160,964) 667,281
ACTIVITIES
INVESTING ACTIVITIES
Net change in investments (432,725) 1,198,059
Issuance of investment notes receivable (171,436)
Repayment of investment notes receivable 347,407 59,495
Purchase of property and equipment (2,249,799) (3,053,235)
NET CASH USED IN INVESTING ACTIVITIES (2,506,553) (1,795,681)
FINANCING ACTIVITIES
Repayment of long-term debt (74,997) (74,997)
Purchase of treasury stock (338,140)
Reissuance of treasury stock 326,422 509,683
Proceeds from the sale of Common Stock 1,672,865 411,248
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,924,290 507,794
DECREASE IN CASH AND EQUIVALENTS (743,227) (620,606)
Cash and Equivalents at Beginning of Period 2,093,326 2,794,092
CASH AND EQUIVALENTS AT END OF PERIOD $1,350,099 $2,173,486
RESEARCH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated financial statements of Research Medical, Inc. and its
subsidiaries as of March 31, 1996, and for the three-month period then
ended, were prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. In the opinion of management, all
necessary adjustments (which are of a normal recurring nature) have been
made to the financial statements to present fairly its financial position,
results of operations and cash flows. The results of operations for the
periods presented are not necessarily indicative of the results for the
respective complete years. The Company has an audited annual report for
the three years ended June 30, 1995. It is suggested that the attached
financial statements be read in conjunction with the annual report and the
financial statements and notes contained therein.
INVENTORIES
MARCH 31, June 30,
1996 1995
Raw materials $4,393,467 $3,574,729
Work-in-process 1,359,402 861,860
Finished goods 4,963,855 3,648,249
$10,716,724 $8,084,838
EARNINGS PER SHARE
Earnings per share of Common Stock are computed on the basis of the
weighted average shares outstanding plus any common stock equivalents which
would arise from the exercise of stock options. Fiscal 1995 earnings per
share were computed based on weighted average shares only because the
dilutive effect of common stock equvalents was not material. For
comparative purposes, both simple and primary earnings per share have been
presented for all periods.
STATEMENTS OF CASH FLOWS
Interest paid was approximately $48,000 in fiscal 1996 and $49,000 in
fiscal 1995. Income taxes paid were $2,359,000 and $3,166,000 for the
first nine months of fiscal 1996 and 1995, respectively.
CONTINGENCIES
The Company is a party to certain legal actions which have arisen in the
ordinary course of business. After consultation with legal counsel,
management is of the opinion that there are no pending or threatened legal
matters which will have a material effect on the consolidated financial
position of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED OPERATING HIGHLIGHTS
Research Medical Inc.'s earnings were $2,444,026 for the third quarter
of fiscal 1996, a 28% increase over net income of $1,913,348 recorded in
the same quarter of the prior year. Earnings per share were $.25 and $.20
for these two periods, respectively. Total revenues increased 19% from
$9,802,727 in the third quarter of fiscal 1995 to $11,682,980 in the same
quarter of fiscal 1996. The total growth rate is comprised of an 18%
increase in health care revenues and a 25% increase in real estate revenues
over the comparable period in 1995.
Selling, general and administrative expenses (SG&A) for the third
quarter of fiscal 1996 were 22% of health care revenues compared to 23% in
1995. SG&A has been compared only against health care revenues since there
are substantially no such costs charged against real estate operations and
the nature of real estate sales can result in unusual fluctuations in
ratios that are difficult to understand if SG&A is compared against total
revenue. The growth in SG&A of 10% is lower than health care revenue
growth for the period, providing continued positive operating leverage for
the year.
Interest income and other increased for the third quarter months of
fiscal 1996 compared with 1995, reflecting more investable assets.
The combined effective federal and state income tax rate was
approximately 36% for both periods.
HEALTH CARE OPERATIONS
Net health care sales were $9,058,278 in the third quarter of 1996 compared
to $7,701,955 in the same quarter of 1995, which represents a 18% increase.
Medical device and solution sales increased by 17%, proprietary
pharmaceuticals increased by 43% and sterile solution product sales
decreased by 17% for the quarter. The growth in medical device revenues
reflects an increase in domestic and international open-heart surgeries as
well as market share gains for bypass circuitry cannulae, balloon
cardioplegia delivery catheters and cardioplegia solutions, and cardiac-
assist devices. The Company's new Biofiltera hemocentrator product line
was well received in its third quarter launch, with sales in excess of
$250,000. Sales of the Company's, vascular carotid shunts improved from
the prior year and should continue to improved with the fourth quarter
introduction of the Neurofloa shunt, which addresses the rapidly expanding
stroke-prevention market.
The increase in proprietary pharmaceuticals resulted from an increase in
the number of units sold to international distributors. Sterile solutions
sales are directly attributable to OEM customer orders which decreased
during the current quarter.
The Company has new products in various stages of development and
approval which it believes will contribute to sales growth in the future.
Management also believes that it will continue to experience growth in the
sales of its existing cardiovascular surgical products.
Although the Company does not have foreign operations, it does sell
worldwide to specialized cardiovascular distributors and other customers in
foreign markets. Foreign sales increased by 1% in the third quarter over
the same quarter of the prior year. These sales represented 24% of sales
in the third quarter of 1996 compared to 28% in 1995.
Gross margins were 61% in the third quarter of fiscal 1996 compared to
60% for the same quarter in the prior year
SG&A costs are discussed in the consolidated operating highlights since
direct SG&A costs related to real estate have become insignificant which
makes the allocation of corporate SG&A costs between health care and real
estate rather arbitrary, impractical and difficult for investors to
understand. Management believes the comparison of total SG&A costs
provides the investor with a better understanding of its efforts to control
costs.
The Company continues to invest resources in research and product
development at a more rapid pace. These expenditures increased 35% from
$297,627 in the third quarter of 1995 to $400,510 in the third quarter of
fiscal 1996. This increase reflects the Company's preparation for new
products, such as Biofiltera hemocentrator, carotid artery vascular shunts,
the ongoing human clinical trials of the Heparin Removal Device, the
Autologous Fibrinogen Delivery Kit and CirkuitGuarda. Royalty costs, which
in many respects represent the cost of acquired research and development
technologies, are recorded as a component of cost of sales. All R&D
expenses relate to the health care segment.
REAL ESTATE OPERATIONS
The Company has a real estate portfolio remaining from its earlier years
of operations. In past years this portfolio was used to help finance the
Company's start-up of health care operations. The Company continues to
divest these assets as reasonable offers are received.
Real estate sales in the third quarter and the first nine months of 1996
include the sale of industrial land, interest on real estate contracts and
revenue from the sale of the Company's interests in other real estate
projects.
Gross margins for real estate were 20% for the third quarter of 1996
compared to 16% for the same period in 1995 and 30% for the nine months of
fiscal 1996 compared to 29% for the same period in fiscal 1995. The gross
margins are reflective of the Company's cost basis in the specific
properties sold and the related selling prices. The gross margins,
therefore, may vary significantly between specific pieces of property sold.
FINANCIAL CONDITION
The Company's balance sheet strengthened during the third quarter of fiscal
1996. The following key measurements are indicative of the excellent
liquidity and strong financial position of the Company:
MARCH 31, JUNE 30,
(In thousands except ratios) 1996 1995
Cash and investments $8,189 $8,500
Working capital 30,879 23,525
Shareholders' equity 50,360 43,852
Current ratio 14:1 13:1
Cash and investments decreased from June 30, 1995 as a result of the
Company's operations. Funds used in investing activities were generated
from operations and the sale of common stock through the exercise of stock
options.
Accounts receivable increased by approximately $2,522,885 or 41% from
June 30, 1995. This increase is a result of sales during the third quarter
generating a higher level of period-end receivables.
Inventories increased by approximately $2,631,886 or 33% from June 30,
1995. This increase is comprised of higher inventory levels in all
categories. As the Company adds new products, its inventory levels
increase. Each new product category adds numerous product codes for
various sizes and configurations which must be stocked in both finished
goods inventory and in raw materials. Additionally, with the commencement
of manufacturing operations to produce previously purchased catheter
subassemblies, all of the component parts of the manufactured products must
be carried in inventory. Moreover, as the Company began producing the new
raw material catheter subassemblies, it continued purchasing sufficient
catheter subassemblies from its suppliers assuring a continuous flow of
finished goods products through the transition to in-house produced raw
material catheter subassemblies.
There have been no other significant changes in capitalization or
financial status during the quarter that are not reflected in the financial
statements.
REGULATORY AND COMPETITIVE ENVIRONMENT
Products manufactured or sold by the Company in the United States are
subject to regulation by the Food and Drug Administration ("FDA"), as well
as by other federal and state agencies. The FDA's approval process for new
drugs and devices is complex and often requires long-term and sustained
investment with no reliable basis for predicting the FDA's eventual
decision regarding market approval, nor how long the approval process may
continue. The FDA has the power to seize drugs or devices which it
considers to be adulterated or misbranded or to require the manufacturer to
remove them from the market and the power to publicize relevant facts.
Recent political and regulatory changes and uncertainties relating to
the health care industry may affect both the underlying demand for health
care products and the pricing of such products.
Historically, competition in the health care industry has been
characterized by the search for technological and therapeutic innovations
in the treatment, diagnosis and prevention of disease. The Company believes
that it has benefited from the technological advantages of certain of its
products. While competitors will continue to introduce new products in
competition with those sold by the Company, the Company believes that its
research and development efforts will permit it to remain competitive in
the product areas where it now competes; however, all medical technologies
are subject to the unanticipated risk of technological or scientific
progress which may subject the Company's products, both those already
manufactured and those in development, to the risk of technological
obsolescence.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference from "Notes to Consolidated Financial
Statements--Contingencies" on page 6 herein.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit 11--Statement Re: Computation of Per Share Earnings
(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.
RESEARCH MEDICAL, INC.
/s/ Gary L. Crocker April 30, 1996
Gary L. Crocker, President and Date
Chief Executive Officer
/s/ Mark W. Winn April 30, 1996
Mark W. Winn, Sr. Vice President, Date
Chief Financial Officer, and Secretary
/s/ J. Steven Johnson April 30, 1996
J. Steven Johnson, Date
Corporate Controller
EXHIBIT 11
RESEARCH MEDCIAL, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Nine Months Ended March 31,
1996 1995
PRIMARY
Average shares outstanding 9,518,000 9,212,000
Net effect of dilutive stock options based
on treasury stock method using average
market price 370,000 266,000
Total 9,888,000 9,478,000
Net income $6,530,591 $5,073,338
Earning per share $.66 $.54
FULLY DILUTED
Average shares outstanding 9,518,000 9,212,000
Net effect of dilutive stock options based
on the treasury stock method using period-
end market prices 350,000 383,000
Total 9,868,000 9,595,000
Net income $6,530,591 $5,073,338
Earnings per share $.66 $.53
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