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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1997
[ ] 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: 0-5958
MERIDIAN MEDICAL TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-0898764
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10240 Old Columbia Road, Columbia, Maryland 21046
- ------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-309-6830
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 21 , 1997
- ----------------------------- ------------------------------------
Common Stock, $.10 par value 2,917,049 Shares
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<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited except July 31, 1997 balance sheet)
Consolidated Balance Sheets as of
October 31, 1997 and July 31, 1997 . . . . . . . . . . . . . 4
Consolidated Statements of Operations for
the Three-Months Ended October 31, 1997 and 1996 . . . . . . 5
Consolidated Statements of Cash Flows for the
Three-Months Ended October 31, 1997 and 1996 . . . . . . . . 6
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
Meridian Medical Technologies, Inc. (hereinafter referred to as the "Company" or
"MMT" or "Meridian") was formed in November 1996 through the merger of Survival
Technology, Inc. ("STI") and Brunswick Biomedical Corporation ("Brunswick"). At
the time of the merger, Brunswick held approximately 61% of STI's outstanding
common stock, which Brunswick purchased from the estate of STI's late founder on
April 15, 1996. As a result, STI had been treated for financial accounting
purposes as a consolidated, majority-owed subsidiary of Brunswick from that
date.
Although STI was the surviving corporation of the merger as a legal matter, the
merger was treated as a purchase of STI by Brunswick for financial accounting
purposes. As a result, Brunswick's historical financial statements became the
Company's financial statements, STI's assets and liabilities were revalued to
their respective fair values and the Company's historical financial statements
reflect the combined operations of STI and Brunswick after April 15, 1996
(subject to minority interests). The minority interests in the first quarter of
fiscal 1997 presented in this Form 10-Q were eliminated upon completion of the
merger on November 20, 1996.
MMT's business plan following the merger is to operate as a medical device
company focusing on Early Intervention Home Healthcare and Emergency Medical
Technologies. The Company has three areas of business. The Drug Delivery Systems
business capitalizes on injectable drug delivery devices with an emphasis on
commercial auto-injectors. This group also supplies customized drug delivery
system design, pharmaceutical research and development, and sterile product
manufacturing to pharmaceutical and biotechnology companies. The Cardiopulmonary
Systems business focuses on non-invasive cardiac diagnostics and telemedicine.
It is continuing the research and development activities for the PRIME ECG(TM)
program, an 80-lead cardiac mapping system for rapid and improved diagnostic
accuracy of cardiac ischemia. The STI Military Systems business focuses on the
world-wide market for auto-injectors used by military personnel for
self-administration of nerve gas antidotes, morphine and diazepam.
Certain statements in the Quarterly Report on Form 10-Q are forward-looking and
are identified by the use of forward-looking words or phrases such as,
"believes," "expects," is or are "expected," "anticipates," "anticipated," and
words of similar import. These forward-looking statements are based on the
Company's current expectations. Because forward-looking statements involve risk
and uncertainties, the Company's actual results could differentiate materially.
In addition to the factors discussed generally herein, among the factors that
could cause results to differ materially from current expectations are: (i) the
general economic and competitive conditions in markets and countries where the
Company and its subsidiaries offer products and services; (ii) changes in
capital availability or costs; (iii) fluctuations in demand for certain of the
Company's products, including changes in government procurement policy; (iv)
technological challenges associated with the development and manufacture of
current and anticipated products; (v) commercial acceptance of auto-injectors
and competitive pressure from traditional and new drug delivery methods; and
(vi) delays, costs and uncertainties associated with government approvals
required to market new drugs and medical devices.
3
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
CONSOLIDATED CONDENSED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
(in thousands of dollars)
<TABLE>
<CAPTION>
October 31, July 31
1997 1997
(unaudited) (audited)
----------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 686 $ 23
Restricted cash 264 264
Receivables 5,328 7,508
Inventories 7,030 6,046
Prepaid expenses and other assets 518 531
Deferred income taxes 1,659 1,659
------------ -----------
Total current assets 15,485 16,031
------------ -----------
Fixed assets 17,702 17,246
Less accumulated depreciation 1,998 1,468
------------ -----------
15,704 15,778
------------ -----------
Excess of cost over net assets, acquired, net 8,902 9,168
Other intangible assets 3,010 3,105
------------ -----------
$ 43,101 $ 44,082
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 5,986 $ 7,733
Lines of credit 4,212 4,113
Current portion of long-term debt 2,290 2,299
Customer deposits 798 918
Restructuring reserve 123 124
------------ -----------
Total Current Liabilities 13,409 15,187
Long-term debt:
Notes payable 13,104 13,062
Other long-term debt 747 859
Deferred revenue 275 315
Other noncurrent liabilities 669 625
Deferred income taxes 1,741 1,741
------------ -----------
Total Liabilities 29,945 31,789
------------ -----------
Shareholders' equity:
Common stock $.10 par, 18,000,000 authorized,
2,917,049 and 2,912,502 issued and outstanding 292 291
Additional paid-in capital 28,723 28,660
Warrants 2,073 2,073
Accumulated deficit (17,697) (18,312)
Unearned stock option compensation (139) (139)
Foreign currency translation adjustment 117 (67)
Treasury stock, at cost (213) (213)
------------ -----------
Total shareholders' equity 13,156 12,293
------------ -----------
$ 43,101 $ 44,082
------------ -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Net sales $ 10,643 $ 10,196
Cost of sales 6,508 6,416
---------------- -----------------
Gross profit 4,135 3,780
---------------- -----------------
Selling, general &
administrative expense 1,372 1,556
Research & development
expense 366 1,029
Depreciation and
amortization expense 891 703
---------------- -----------------
2,629 3,288
---------------- -----------------
Operating Income(loss) 1,506 492
---------------- -----------------
Other income (expense):
Interest expense (713) (514)
Other income 8 114
---------------- -----------------
(705) (400)
---------------- -----------------
Income before income taxes 801 92
Provision for income
taxes 186 415
Minority interest in
consolidated subsidiary 256
---------------- -----------------
Net Income (loss) $ 615 $ (579)
================ =================
Per common share:
Net income (loss) $ .20 $ (8.51)
================ =================
Average number of
common and common equivalent
shares outstanding 3,138 68
---------------- -----------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
Three Months Ended
October 31,
<TABLE>
<CAPTION>
1997 1996
------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 615 $ (579)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization 873 703
Amortization of deferred compensation 18 18
Amortization of notes payable discount 292 -
Loss on fixed asset disposals - 3
Minority Interest - 256
Changes in assets and liabilities
Receivables 2,180 2,575
Inventories (984) 493
Prepaid expenses and other assets 13 (455)
Accounts payable (1,747) 527
Restructuring reserve (1) (71)
Other liabilities and and accrued expenses (48) (133)
Deferred revenue (40) -
Other noncurrent assets - -
Other noncurrent liabilities 44 43
------------------- ------------------
Net cash provided by
operating activities 1215 3380
Cash flows from investing activities:
Purchases of fixed assets (456) (498)
Purchases of patents and licenses - (9)
Decrease (increase) in restricted cash - 296
Increase in short-term investments - (1)
Proceeds from sale of fixed assets - 2
------------------- ------------------
Net cash (used for)
investing activities (456) (210)
Cash flows from financing activities:
Proceeds from line of credit 99 (3,246)
(Net payment) proceeds on note payable (long-term) (250) -
(Net payment) proceeds on other long-term debt (9) (102)
Proceeds from issuance of common stock 64 -
Proceeds from issuance of preferred stock - -
------------------- ------------------
Net cash (used for)
financing activities (96) (3,348)
Net increase (decrease) in cash $ 663 $ (178)
Cash at beginning of period $ 23 528
------------------- ------------------
Cash at end of period $ 686 $ 350
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's financial
position as of October 31, 1997 and July 31, 1997, the results of its
operations for the three-month periods ended October 31, 1997 and 1996,
and its cash flows for the three-month periods ended October 31, 1997,
and 1996. The results of operations for the three-month period ended
October 31, 1997 are not necessarily indicative of the results that may
be expected for the fiscal year ending July 31, 1998.
2. On November 20, 1996, Brunswick Biomedical Corporation ("Brunswick")
was merged into Survival Technology, Inc. ("STI") to form Meridian
Medical Technologies, Inc. ("MMT" or the "Company"). At the time of the
merger, Brunswick held approximately 61% of STI's outstanding common
stock, which it had purchased from the estate of STI's late founder on
April 15, 1996. As a result, STI had been treated for financial
accounting purposes as a consolidated, majority-owned subsidiary of
Brunswick from that date and Brunswick's historical financial statements
became the Company's financial statements, STI's assets and liabilities
have been revalued to their respective fair values and Brunswick's
historical financial statements reflect the combined operations of STI
and Brunswick after April 15, 1996 (subject to minority interests). The
minority interests were eliminated upon completion of the merger on
November 20, 1996. (See Meridian's Annual report on Form 10-K for fiscal
year ended July 31, 1997 for a complete discussion of the merger
accounting.)
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
---- ----
<S> <C> <C>
Components and subassemblies $ 5,059 $ 4,788
Material, labor and overhead
costs in process 1,990 1,460
Finished goods 546 345
---------- ----------
7,595 6,593
Inventory reserve (565) (547)
---------- ----------
Total $ 7,030 $ 6,046
========== ==========
</TABLE>
7
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
4. Average number of common shares outstanding for the three months ended
October 31, 1996 and 1997 reflect the weighted average of Brunswick
shares and MMT shares, respectively. The number of Brunswick shares
outstanding as of October 31, 1996 was 68,417. The average number of MMT
shares outstanding as of October 31, 1997 was 2,915,386. (See the
Company's Form 10-K for fiscal year ended July 31, 1997 for a more
complete discussion on the share conversion from the merger.)
5. On October 8, 1997, the Company announced a product exchange program for
all of its EpiEZPen(R) product sold since March 1996 (approximately
500,000 units). This exchange program was initiated after a minimal
amount of units (less than 10 units) were returned for premature
activation in the package. Management performed an analysis of potential
costs of the exchange program and made their best estimate regarding
these costs. The estimated cost of the exchange program is $1.5 million
and was included in fiscal 1997 results of operations as reported in the
Company's Annual report on Form 10-K. Actual costs could differ
materially from management's estimates. The Company has not included any
anticipated cost sharing of this exchange with potentially responsible
parties as the benefit and probability of such an arrangement are not
determinable at this time. The Company believes the exchange will be
substantially complete by the end of fiscal 1998. Actual costs incurred
through October 31, 1997 have been minimal.
8
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Quarter in Review
MMT reported a net income of $615 thousand or $0.20 per share on sales of $10.6
million for the first quarter of 1998 ended October 31, 1997 compared with a net
loss of ($579 thousand) or ($8.51) per share, on sales of $10.2 million in the
same period of fiscal 1997. The fiscal 1997 net loss for the three months ended
October 31, 1996 consisted of a net profit for STI of $.7 million on revenues of
$9.3 million offset by a net loss for Brunswick of $1.3 million on revenues of
$.9 million. Earnings before interest, taxes, depreciation and amortization
(EBITDA) for the first quarter of fiscal 1998 was $2.2 million compared to $.6
million for the same period in fiscal 1997.
Gross profit and Revenues of MMT's three areas of business for quarter ended
October 31, 1997 and 1996 are as follows:
Quarter ended Quarter ended
($millions) October 31, 1997 October 31, 1996
---------------- ----------------
Drug Delivery $ 5.1 $ 5.2
Cardiopulmonary .2 .9
STI Military Systems 5.3 4.1
----- -----
Total Revenues $10.6 $10.2
===== =====
Gross Profit $ 4.1 $ 3.8
Gross Profit % 38.9% 37.0%
Revenue in the Drug Delivery business was $5.1 million in the three month period
ended October 31, 1997 compared to $5.2 million for the same period of fiscal
1997. The lower revenues in fiscal 1998 first quarter compared to fiscal 1997 is
due to lower R&D and contract filling revenues (Janssen) of $600 thousand and
the absence of a $400 thousand contract settlement in the prior year. These
lower revenues were offset by higher EpiPen(R) shipments. The EpiPen(R) family
of product revenues were 18% higher in the current quarter compared to the same
period as last year reflecting generally higher demand.
Cardiopulmary revenues were down in the first quarter compared to the same
period of fiscal 1997 primarily due to the sale of a non-core emergency care
product line previously included as part of the cardiopulmonary business. The
majority of sales in the first quarter fiscal 1998 were cardiobeepers. The
company is actively pursuing a stategic alliance to market the Cardiobeeper
CB-12L cardiac monitor which recently received clearance by the U.S. FDA.
The STI Military Systems revenues in the first quarter of fiscal 1998 were $5.3
million up from $4.1 million for the same period last year. This growth in
revenues is primarily attributable to increased auto-injector sales to allied
foreign governments.
9
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Gross profits were 39% of revenues in the first quarter of fiscal 1998 compared
to 37% in the same period of fiscal 1997. This compares to 38% in the full
fiscal year ended July 31, 1997. This margin improvement is due to the increased
revenues and continuing cost reduction programs.
Operating costs were $2.6 million for the first quarter of fiscal 1998 compared
to $3.3 million in the same period of fiscal 1997. This decrease in operating
costs was a result of R&D overhead reductions, primarily in the Cardiopulmonary
business unit, G&A staff reductions and other cost reduction programs
implemented following the merger. Interest expense was $.7 million for the first
quarter compared to $.5 million in the same period of fiscal 1997. The higher
interest costs are associated with the merger debt and increased working capital
bank line of credit balance. The working capital line increase is primarily
attributable to funding first quarter increase in inventories.
The provision for income taxes in the first quarter of fiscal 1998 reflects the
benefits of utilizing the net operating loss carryforwards of Brunswick
available for use subsequent to the merger. The provision for first quarter
fiscal 1997 is high because the Company needed to provide for taxes on STI
earnings but could not realize the benefit from losses incurred by Brunswick.
Liquidity and Capital Resources
Total cash balance as of October 31, 1997 was $686,000, an increase of $663,000
in the first quarter of fiscal 1998. The Company generated $1.2 million of cash
from operations in the current quarter of fiscal 1998. This generation of cash
was attributable to the net profits, plus non-cash depreciation and
amortization, for the first quarter ($1.8 million) offset by cash to fund
working capital changes. Investing activities in the first quarter of fiscal
1998 used $.5 million of cash for capital additions. The majority of capital was
for automation equipment associated with cost reduction projects and for the
installation of equipment used in the production operation in St. Louis.
Financing activities required payment of $250,000 on the long-term debt with
International Nederlanden (U.S.) Capital Corporation ("ING") which was partially
offset by borrowings under the working capital line ($99,000) and proceeds from
issuance of common stock on options exercised ($64,000).
During the first quarter of fiscal 1998 ended October 31, 1997, the Company
increased its asset based working capital credit line with ING CAPITAL to a
maximum of $6.5 million from $5.0 million. The amount outstanding under this
working capital line at October 31, 1997 was $3.9 million. The Company is in
active discussions with ING CAPITAL to either restructure the existing ING
CAPITAL term loan and/or to assist the Company in a broader refinancing of its
long-term debt. This refinancing may result in an approximate $1.6 million ($1.0
million after tax) non-cash, extraordinary charge for extinguishment of debt.
The extraordinary charge will not affect operating income or gross margins and
will not distort the core financial measures of the Company. No assurances can
be made that the Company will be successful in this effort and a delay in such
restructuring could have an adverse effect on the Company's liquidity.
Management believes that existing financing sources and other actions available,
such as reducing discretionary spending on research and development, capital
expenditures and other costs if necessary, will enable it to meet its financing
obligations through the end of fiscal 1998.
10
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Working capital at October 31, 1997 was $2.1 million, up from $.8 million at
July 31, 1997. Most of the increase resulted from lower accounts payable ($1.7
million), increased cash ($.7 million) and higher inventories ($1.0 million)
offset partially by decreased receivables ($2.2 million). Accounts receivable
were $5.3 million representing 45 days-sales-outstanding and component, work in
process and finished goods inventories (net) were $7.0 million up $1.0 million
from the balance at July 31, 1997. Accounts payable at the end of this first
quarter of fiscal 1998 was $6.0 million, down $1.7 million from the balance at
July 31, 1997. This reduction was primarily associated with final payments on
merger related costs. Borrowings under working capital lines were $4.2 at
October 31, 1997.
11
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MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K:
(b) Reports on Form 8-K
On October 17, 1997, the Company filed a Form 8-K (Item 5) to report the
Company's voluntary EpiEZPen(R) Product exchange Program.
12
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended October 31, 1997
SIGNATURES
Pursuant to the requirement 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.
MERIDIAN MEDICAL TECHNOLOGIES, INC.
Registrant
12/3/97 By: /s/ James H. Miller
- ----------------------- ------------------------------
Date James H. Miller
President and
Chief Executive Officer
(Principal Executive
Officer)
12/3/97 By: /s/ G. Troy Braswell
- ----------------------- ------------------------------
Date G. Troy Braswell
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
