MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 (IRS 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 May 22, 1997
- ------------------------------------ -------------------------------
Common Stock, $.10 par value 2,912,502 Shares
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
April 30, 1997 and July 31, 1996 . . . . . .. . . . . . 5
Consolidated Condensed Statements of Operations for
the Three-Month and Nine-Month Periods Ended
April 30, 1997 and 1996 . . . . . . . . . . . . . . . 6
Consolidated Condensed Statements of Cash Flows
for the Nine-Months Ended April 30, 1997
and 1996 . .. . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 12
PART II. OTHER INFORMATION
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . 17
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . .. . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 18
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
The financial statements of Meridian Medical Technologies, Inc. ("MMT" or
"Company") contained in this Form 10-Q are not comparable to the financial
statements contained in previous filings by Survival Technology, Inc. ("STI")
filed with the Securities and Exchange Commission ("Commission") as a result of
the merger of Brunswick Biomedical Corporation ("Brunswick") with and into STI
to form the Company and significant, one-time, non-recurring adjustments in
connection with such merger.
Due to the substantial differences between the revenues and results of the
Company as compared to STI and Brunswick, management believes comparisons of the
Company's revenues and results against the proforma combined statements of STI
and Brunswick have the greatest utility.
A comparison of the Company's financial statements against unaudited, proforma
financial statements assuming Brunswick Biomedical and STI were fully merged
during all prior periods and one-time, non-recurring merger costs are excluded
for all periods presented is summarized below.
Meridian Medical Technologies, Inc.
Proforma Financial Analysis Excluding Merger Cost
(Unaudited)
$000
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Proforma Proforma Proforma
Combined Combined Combined
4/30/97 1/31/97 4/30/96 4/30/97 4/30/96
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Drug Delivery $ 4,831 $ 3,942 $ 5,120 $13,904 $11,141
STI Military 5,027 4,237 3,777 13,389 11,621
Cardiopulmonary 822 608 1,418 2,370 3,145
------- ------ ----- ------- -------
Total Revenues $10,680 $ 8,787 $10,315 $29,663 $25,907
Gross Margin $ 3,805 $ 3,234 $ 2,790 $10,820 $ 7,658
% 35.6% 36.8% 27.1% 36.5% 29.6%
SG&A $ 1,450 $ 1,319 $ 1,424 $ 4,324 $ 3,986
R&D 655 627 528 2,311 1,504
Depreciation/Amort 738 744 506 2,185 1,485
Restructuring Charges 0 0 0 0 94
------- ------- ------- ------- -------
Total $ 2,843 $ 2,690 $ 2,458 $ 8,820 $ 7,069
Operating Income $ 962 $ 544 $ 332 $ 2,000 $ 589
Excludes One time non-recurring Merger Related Cost of:
- -3 Months Ended 4/30/97 $0
- -3 Months Ended 1/31/97 $3,949
- -3 Months Ended 4/30/96 $4,464
- -9 Months Ended 4/30/97 $3,949
- -9 Months Ended 4/30/96 $4,464
</TABLE>
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
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
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 differ materially. In addition to the factors
discussed generally herein, among the factors that could cause results to differ
materially from current expectations are: (i) any failure to comply with
covenants in the Company's financing arrangement; (ii) the general economic and
competitive markets and countries where the Company and its subsidiaries offer
products and services; (iii) changes in capital availability or costs; (iv)
fluctuations in demand for certain of the Company's products, including changes
in government procurement policy; (v) the continued commitment of customer and
strategic partners to the Company's products and programs; (vi) technological
challenges associated with the development and manufacture of current and
anticipated products; (vii) commercial acceptance of auto-injectors and new
products and competitive pressure from traditional and new drug delivery methods
and medical devices; and (viii) delay, costs and uncertainties associated with
government approvals required to market new drugs and medical devices.
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
CONSOLIDATED CONDENSED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
April 30, July 31,
1997 1996
(unaudited) (unaudited)
----------- -----------
ASSETS
Current assets
Cash (restricted cash, $0 and $961,200) $ 635,300 $ 1,488,900
Short-term investments 0 257,500
Receivables 6,872,800 7,439,300
Inventories 6,277,600 5,330,400
Prepaid expenses and other assets 678,400 823,200
Deferred income taxes 1,217,500 1,217,500
--------- ---------
Total current assets 15,681,600 16,556,800
---------- ----------
Fixed assets 28,925,200 27,015,700
Less accumulated depreciation 13,253,900 12,031,400
---------- ----------
15,671,300 14,984,300
---------- ----------
Goodwill, net 1,308,400 1,443,700
Developed technology, patents and licenses,
at cost, less amortization 9,967,900 7,193,100
Other intangible assets 1,453,700 1,390,000
----------- ---------
$44,082,900 $41,567,900
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to banks $ 4,242,200 $ 3,875,400
Note payable to Syntex 188,400 588,400
Current portion of long-term debt 575,000 516,800
Accounts payable 5,900,800 4,358,500
Restructuring reserve 262,800 640,400
Customer deposits 764,700 736,000
Other liabilities and accrued expenses 2,421,200 1,611,900
----------- ------------
Total current liabilities 14,355,100 12,327,400
Notes payable (long-term) 13,777,100 15,171,400
Other long-term debt 1,026,400 1,184,300
Other noncurrent liabilities 725,000 616,500
Long-term capital lease obligations 30,400
Deferred income taxes 1,605,500 1,605,500
----------- ------------
Total liabilities 31,489,100 30,935,500
----------- ------------
Minority interest in consolidated
subsidiary Shareholders' equity: 6,788,500
Common stock 291,300 700
Additional paid-in capital 28,711,000 15,866,100
Preferred stock, Series A - F 7,500
Warrants 2,072,900 2,072,900
Accumulated deficit (18,343,300) (13,907,200)
Unearned stock option compensation (139,600) (175,600)
Currency translation adjustment 13,000 (9,000)
Treasury stock, at cost (11,500) (11,500)
------------ ---------
Total shareholders' equity 12,593,800 3,843,900
---------- ---------
$44,082,900 $41,567,900
=========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
------------------------- -----------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $10,679,700 $ 2,664,500 $29,663,300 $ 4,392,100
Cost of sales 6,875,100 1,519,000 18,843,400 2,541,000
----------- ----------- ----------- ----------
Gross profit 3,804,600 1,145,500 10,819,900 1,851,100
----------- ----------- ----------- ----------
Selling, general &
administrative expense 1,449,700 431,600 4,324,500 1,217,400
Research & development
expense 655,200 369,800 2,311,400 984,300
Write off in-process R&D 4,464,000 2,702,300 4,464,000
Write off merger costs 1,246,300
Depreciation and
amortization expense 737,800 116,600 2,184,700 206,800
----------- ----------- ----------- ----------
2,842,700 5,382,000 12,769,200 6,872,500
----------- ----------- ----------- ----------
Operating income (loss) 961,900 (4,236,500) (1,949,300) (5,021,400)
----------- ----------- ----------- ----------
Other income (expense):
Interest expense (322,200) (75,800) (1,928,600) (92,900)
Other (expense)income (50,300) 11,500 74,000 16,200
----------- ----------- ----------- ----------
(372,500) (64,300) (1,854,600) (76,700)
----------- ----------- ----------- ----------
Income(loss)before income taxes 589,400 (4,300,800) (3,803,900) (5,098,100)
Provision for income taxes 367,000
Minority interest in
consolidated subsidiary 265,200
----------- ----------- ----------- ----------
Net income (loss) $ 589,400 $(4,300,800) $(4,436,100) $(5,098,100)
----------- ----------- ----------- ----------
Per common share:
Net income (loss)per share $ .20 $ (62.86) $ (2.69) $ (74.52)
=========== =========== =========== ==========
Average number of
common shares
outstanding 2,912,502 68,417 1,648,464 68,417
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter ended April 30, 1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
April 30
---------------------------
1997 1996
------------- ----------
Cash flows from operating activities:
Net loss $(4,436,100) $(5,098,100)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities
Depreciation and amortization 2,247,400 224,100
Amortization of deferred compensation 54,400 54,300
Amortization of notes payable discount 397,700
Loss on fixed asset disposals (7,200)
Write off in-process R & D 2,702,000 4,464,000
Deferred interest to note principal 757,300
Decrease in receivables 566,500 158,000
(Increase) decrease in inventories (947,200) (3,300)
(Increase) decrease in prepaid expenses
and other assets 141,000 (321,300)
Increase (decrease) in accounts payable 1,542,300 586,500
Currency Translation 22,200
Decrease in restructuring reserve (377,600)
Increase (decrease) in other liabilities and
accrued expenses (381,100) (8,700)
------------ ---------
Net cash provided by (used for)
operating activities 2,259,400 77,700
----------- ----------
Cash flows from investing activities:
Purchases of fixed assets (2,505,000) (92,100)
Purchases of patents and licenses (55,000)
(Increase) decrease in other noncurrent assets (354,300) (911,100)
Purchase of 61% in STI (21,696,500)
Majority Interest in STI for April 96 (491,000)
Sale of short-term investments 257,500
Proceeds from fixed asset dispositions 2,900
Increase (decrease) in other noncurrent
liabilities 108,500
----------- -----------
Net cash provided by (used for)
investing activities (2,545,400) (23,190,700)
----------- ------------
Cash flows from financing activities:
Proceeds on sale of preferred stock 1,722,400
(Payment) proceeds on note payable to bank 715,900 (20,900)
Payment on note payable to Syntex (400,000)
Payment on notes payable (long-term) (1,000,000) (350,000)
Proceeds (payment) on long-term debt (138,300) 16,713,600
Increase in deferred revenue 285,200
Increase in other noncurrent liabilities (30,400) (41,800)
Equity for investment in STI 5,956,700
----------- -----------
Net cash provided by (used for)
financing activities (567,600) 23,980,000
------------ -----------
Net (decrease) increase in cash (853,600) $ 867,000
Cash at beginning of period 1,488,900 85,100
----------- -----------
Cash at end of period $ 635,300 $ 952,100
=========== ===========
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
See accompanying notes to consolidated condensed financial statements.
A. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's
financial position as of April 30, 1997 and July 31, 1996, the results of
its operations for the three-month and nine-month periods ended April 30,
1997 and 1996, and its cash flows for the nine-month periods ended April
30, 1997 and 1996. The results of operations for the three-month and
nine-month periods ended April 30, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending July 31, 1997.
B. 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.
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 have been revalued to their respective fair values
and Brunswick's historical financial statements will 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.
Pursuant to the Merger Agreement, each outstanding share of Brunswick's
common stock was exchanged for 2.1 shares of STI's common stock and STI's
common stock remained outstanding and unchanged. Each of Brunswick's
outstanding shares of preferred stock was converted into a right to
receive 2.1 shares of STI's common stock and a warrant to purchase 0.4 of
a share of STI's common stock at an exercise price of $11.00 per share,
exerciseable for a period of five years following the merger. In addition,
STI assumed Brunswick's obligations under outstanding options and
warrants. These provisions of the Merger Agreement resulted in 1,708,928
shares of STI's common stock being issued in exchange for Brunswick stock
at the time of the merger and may result in the issuance of an additional
1,054,560 shares of STI's common stock if all options and warrants were
exercised and the required consideration paid. Each of the 1,888,126
shares of STI's common stock previously owned by Brunswick were retired in
the merger. Following the merger, 2,912,502 shares of STI's common stock
were outstanding. The transaction was approved by both STI's and
Brunswick's shareholders.
Upon completion of the merger, the surviving corporation's name was
changed to Meridian Medical Technologies, Inc. Also, the fiscal year end
of Brunswick was changed from June 30 to July 31 to correspond with the
fiscal year end of STI.
The Company's unaudited consolidated condensed financial statements
include Brunswick and STI's revenue and expenses for the three-month and
nine-month periods ended April 30, 1997 and Brunswick's and STI's assets
and liabilities as of July 31, 1996 (subject to minority interests) and
April 30, 1997. The
<PAGE>
Company's unaudited consolidated condensed financial statements as of an
for the three-month and nine-month periods ended April 30, 1996 do not
include STI balances. Other significant accounting principles and
practices followed by the Company are set forth in Note 1 of the Notes to
the June 30, 1996 Consolidated Financial Statements of Brunswick included
in the STI proxy statement dated October 30, 1996.
C. On November 20, 1996 Brunswick and STI completed the merger. The resulting
merger of the 39% minority interest of STI was accounted for as a
purchase. The purchase price was allocated first to tangible assets and
identifiable intangible assets and liabilities of STI based on an
independent assessment of their fair values, with the excess of fair value
over the purchase price allocated to reduce proportionately the value
assigned to noncurrent assets.
The purchase price and purchase price allocation are summarized as
follows:
Stock exchanged $11,885,000
Transaction expenses 1,200,000
-----------
Purchase Price 13,085,000
Historical net book value of assets
acquired 6,788,500
-----------
Excess of purchase price over historical net
book value of assets acquired $ 6,296,500
===========
Allocation of excess purchase price, reflecting proportionate allocation
of negative goodwill:
Decrease to property, plant and equipment $ (308,991)
In-process research and development 2,702,234
Developed technology 3,332,870
Other intangible assets 570,387
-----------
Total $ 6,296,500
===========
The developed technology and other intangible assets will be amortized on
a straight-line basis over 10 years. The allocation of excess purchase
price to in-process research and development represents the independent
assessment of the fair value of a number of research and development
projects whose technological feasibility has not yet been established.
These research and development projects have no alternative future use
and, therefore, have been charged to expense as of the date of
consummation of the transaction.
D. At the effective time of the merger ("Effective Time"), the Company
assumed Brunswick's indebtedness under a senior bridge loan of $11
million, a subordinated promissory note ("Note") of $4.7 million, and a
subordinated loan ("Subordinated Loan") of $1 million. At the Effective
Time, the senior bridge loan converted into a $10 million Term Loan ("Term
Loan") and $1 million of the outstanding principal amount was repaid. In
addition, the lenders of the senior bridge loan made available to the
Company a $5 million revolving credit loan, a portion of which was used to
discharge the Company's existing debt under the Merrill Lynch Business
Financial Services' Line of Credit Agreement.
<PAGE>
The Term Loan and the revolving credit loan bear interest at a variable
rate equal to the Prime Rate plus 1.50% and the Prime Rate plus 1.25%,
respectively. These loans are secured by substantially all of the assets
of the Company and will mature on the fifth anniversary of the Effective
Time. Quarterly principal payments on the Term Loan will be required in
scheduled amounts ranging from $250,000 to $750,000, and mandatory
prepayments of 75% of the Company's excess cash flow will be required on
an annual basis. Financial covenants will require the Company to maintain
certain levels of net worth and debt to EBITDA (earnings before interest,
taxes, depreciation and amortization) ratios while limiting the Company's
capital expenditures made in any one fiscal year. The Company was in
compliance with the financial convenants as of April 30, 1997.
The Note matures on the fifth anniversary of the Effective Time and bears
interest at the rate of 12% per annum through April 15, 1998 and 13%
thereafter. Through April 30, 1998, accrued interest will be compounded
and added to principal. Thereafter, accrued interest is payable quarterly
in arrears. Principal under the Note is payable in one payment on the
maturity date. The Company may only prepay the Note after repaying all
senior indebtedness, including the Term Loan and the revolving credit
loan, or with the consent of the senior lender. The Company is obligated
to prepay the Note, subject to the rights of the senior debt, upon
obtaining certain additional debt and equity financings to the extent of
the net cash proceeds from such financings.
The Subordinated Loan matures on the same day as the Note and bears
interest at the same rate as the Note. Principal of the Subordinated Loan
is payable in seven consecutive quarterly installments of $125,000
beginning on April 30, 1999, with one final payment on the maturity date.
The Subordinated Loan may be prepaid only after satisfaction of the Term
Loan, the revolving credit loan, or with the consent of the senior lender.
The Company is obligated to prepay the Subordinated Loan, subject to the
rights of the senior lender, upon obtaining certain additional debt and
equity financings to the extent of the net cash proceeds from such
finacings.
E. A total of $2,446,332 in transaction expenses were incurred by Brunswick
and STI to complete the merger. Of these costs, $1,200,000 was included as
transaction expenses in the determination of the purchase price. The
remaining costs amounting to $1,246,332 consisted of $1,075,670 incurred
by STI which, as the acquired company, was expensed as of the transaction
date and $170,662 of Brunswick transaction expenses not directly related
to the merger, primarily directors and officers insurance premiums of
$160,000.
F. Inventories consisted of the following:
April 30, July 31,
1997 1996
---- ----
Components and subassemblies $ 4,384,900 $ 3,260,700
Work in process 1,844,400 1,417,200
Finished goods 660,900 1,108,200
----------- -----------
6,890,200 5,786,100
Inventory reserve (612,600) (455,700)
----------- -----------
Total $ 6,277,600 $ 5,330,400
----------- -----------
G. In fiscal 1995, STI's Board of Directors approved a restructuring plan
which resulted in a $450,000 charge against earnings for the relocation of
corporate headquarters. As part of this plan, STI initiated certain
organizational changes during 1996 resulting in additional charges related
to employee severance
<PAGE>
benefits provided to certain employees terminated during fiscal 1996.
Relocation Restructuring
of Facilities of Operations Total
------------- ------------- -----
Relocation of facilities $450,000 $450,000
Restructuring of operations $321,900 321,900
Cash payments (7,200) (124,300) (131,500)
--------- --------- ---------
Reserve as of July 31, 1996 442,800 197,600 640,400
Cash payments (201,700) (175,900) (377,600)
--------- --------- ---------
Reserve as of April 30, 1997 $241,100 $ 21,700 $262,800
-------- -------- --------
In October 1996, the Company signed an agreement to sublease its corporate
office space in Rockville, Maryland and entered into a new lease in
Columbia, Maryland for the relocation of the corporate headquarters. The
reserve balance at April 30, 1997 is sufficient to cover future
anticipated costs. The Company moved its corporate headquarters in
December 1996.
H. From August 1, 1996 through November 20, 1996, income tax provisions were
calculated separately for Brunswick and STI. Thereafter, the income tax
provision was calculated for MMT consisting of the combined Brunswick/STI
entities. Through November 20, 1996 a tax provision of $415,000 was
established based on STI's income before taxes of $1,098,000. During the
period August 1, to November 20, 1996, Brunswick incurred a loss before
income taxes of $1,382,000 and hence, no tax provision was established.
As a result of net operating losses (NOL's) incurred by Brunswick in prior
fiscal periods, the Company has significant NOL carry-forwards available
to offset future tax obligations.
The combined MMT operations incurred a loss for income taxes of $126,000
in the second quarter and hence a $48,000 tax benefit was recorded.
I. Average number of common shares outstanding for the three months and the
nine months ended April 30, 1997 reflect the weighted average of Brunswick
shares through the merger date and MMT shares thereafter. Brunswick shares
were converted to STI shares at the ratio of 2.1 STI shares for each
Brunswick share. The number of Brunswick common shares outstanding as of
August 1, 1996 was 68,417. The number of MMT shares outstanding as of
April 30, 1997, was 2,912,502. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings per Share, which is
required to be adopted in the Company's quarter ending January 31, 1998.
At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under
the new requirements for calculating primary earnings per share, the
diluted effect of stock options will be excluded. The Company has not yet
determined the impact of adopting this new accounting standard.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Quarter and Nine Months in Review
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.
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 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.
For the reasons described above, the financial statements of the Company
contained in this Form 10-Q are not comparable to the financial statements
contained in reports previously filed by STI with the Commission, and, due to
substantial differences between the revenues and results of STI and Brunswick,
comparisons of results between periods before and after the purchase of
Brunswick's interest in STI are of limited utility. This report on Form 10Q
includes comparisons to STI and Brunswick's combined proforma financial
statements to enhance the utility of the information herein.
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 business units. The Drug Delivery Systems
business unit capitalizes on injectable drug delivery devices with an emphasis
on commercial auto-injectors. This business unit also supplies customized drug
delivery system design, pharmaceutical research and development, and sterile
product manufacturing to pharmaceutical and biotechnology companies. The
Cardiopulmonary Systems business unit 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 and is planning a US
expansion of its telemedicine business. The STI Military Systems business unit
focuses on the world-wide market for auto-injectors used by military personnel
for self-administration of nerve gas antidotes, morphine and diazepam.
Financial Discussion
MMT earned a net profit of $589,400 ($0.20 per share) on sales of $10.7 million
for the third quarter of fiscal 1997 ended April 30, 1997 compared with a net
loss of $4.3 million on sales of $2.7 million in the same period of fiscal 1996.
The Company incurred a net loss for the nine months ended April 30, 1997 of $4.4
million ($2.69 per share) on sales of $29.7 million compared with a net loss of
$5.1 million on sales of $4.4 million during the nine-month period ended April
30, 1996. The comparative third quarter loss and nine month loss included a
write-off totaling $4.5 million for in-process research and development
associated with the revaluation of STI's assets when Brunswick acquired its 61%
share on April 15, 1996. (See STI's proxy dated October 30, 1996.) A more
meaningful comparison of MMT's
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
current quarter and nine month financial results is against prior year proforma
combined results of STI and Brunswick. All comparisons against proforma combined
results exclude one-time, non-recurring merger related cost as shown below.
Meridian Medical Technologies, Inc.
Proforma Financial Analysis Excluding Merger Costs
(Unaudited)
$000's
Proforma
Three Months Ended Nine Months Ended
------------------ -----------------
Proforma Proforma
Combined Combined
4/30/97 4/30/96 4/30/97 4/30/96
------- ------- ------- -------
Revenue $10,680 $10,315 $29,663 $25,907
Gross Margin $ 3,805 $ 2,790 $10,820 $ 7,658
% 35.62% 27.04% 36.48% 29.56%
SG&A $ 1,450 $ 1,424 $ 4,324 $ 3,986
R&D 655 528 2,311 1,504
Depreciation/Amort 738 506 2,185 1,485
Restructuring Charges 0 0 0 94
------- ------- ------ -------
Total $ 2,843 $ 2,458 $ 8,820 $ 7,069
Operating Income $ 962 $ 332 $ 2,000 $ 589
Other (Expense) Income
Interest Expense $ (322) $ (134) $(1,929) $ (334)
Other Income $ (51) $ 12 $ 74 $ 132
------- ------- ------ -------
Income before Tax $ 589 $ 210 $ 145 $ 387
EBIT $ 911 $ 344 $ 2,074 $ 721
EBITDA $ 1,649 $ 850 $ 4,259 $ 2,206
Excludes One time Merger Related Cost of:
- -3 Months Ended 4/30/97 $0
- -3 Months Ended 4/30/96 $4,464
- -9 Months Ended 4/30/97 $3,949
- -9 Months Ended 4/30/96 $4,464
Quarter Ended April 30, 1997 and 1996
Revenues were $10.7 million in the current quarter compared to $10.3 million in
the prior year quarter, a gain of 4 percent. The increase resulted from
continued strength in the EpiPen(R) and EpiE-Zpen(R) products, initial revenue
from Mylan Laboratories under a previously announced contract for development of
injectable drug formulations, as well as higher auto-injector sales to the USDoD
for restocking.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
under the Base Maintenance Program and higher auto-injector sales to NATO allied
countries. Gross margins were 35.6 percent in the current quarter compared to
27.0 percent in the prior year quarter. The increase reflects higher revenues
and the continuation of the cost reduction programs initiated at the time of the
merger partially offset by reserve provision of approximately $500,000
established for product and equipment writedowns. Operating expenses were $2.8
million in the current quarter compared to $2.5 million in the prior year
quarter. The higher cost results primarily from development cost for the TRUJECT
auto-injector platform and development cost for the PRIME ECG(R) cardiac mapping
system and higher amortization of step-up valuation from the merger. Other
expense was $373,000 in the current quarter compared to $122,000 in the prior
year quarter. The increased cost reflects interest cost related to merger debt
partially offset by a benefit of $285,000 due to adjustment of interest cost
which was over accrued in the prior quarter.
Nine months ended April 30, 1997 and 1996
MMT reported a loss of $4.4 million for the nine months ended April 30, 1997.
Negatively impacting the nine month financial results was the recording of
one-time, non-recurring merger related costs of $3.9 million. These adjustments
consisted of (1) write-off of $2.7 million of in-process research and
development which represents the allocation of excess purchase price to
in-process research and development projects whose technical feasibility has not
yet been established and (2) the write-off of $1.2 million of merger cost
incurred by STI. Revenues for the nine months ended April 30, 1997 were $29.7
million compared to revenues of $25.9 million in the prior year period. The
increase of 14 percent results from strong demand for its core products plus
increased STI Military System shipments of auto-injectors to the USDoD for
restocking under its Base Maintenance Program and increased shipments of
auto-injectors to NATO allied countries. Gross margins for the nine months ended
April 30, 1997 were 36.5 percent compared to gross margins of 29.6 percent in
the prior year period. The increase reflects higher revenues coupled with
continued cost reductions from programs initiated with the merger. Operating
expenses for the nine months ended April 30, 1997 was $8.8 million compared to
operating expenses of $7.1 million in the prior year period. The higher cost
primarily results from higher development cost for the TRUJECT auto-injector
platform and the PRIME ECG(R) mapping systems and higher amortization of step-up
valuations from the merger. Other expense for the nine months ended April 30,
1997 was $1.9 million compared to other expense in the prior year period of
$202,000. The increased cost results from interest cost attributable to the
$16.7 million principal balance on organization debt (see liquidity and capital
resources section following) and the higher utilization of the Company's line of
credit facility to finance transaction costs associated with the merger.
Net income, earnings before interest and taxes (EBIT), and earnings before
interest, taxes, depreciation and amortization (EBITDA), exclusive of one-time,
non-recurring merger related adjustments increased due to the factors discussed
above for both the quarter and nine-months ended April 30, 1997 compared to
proforma combined results of the prior year.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Business Discussion
Meridian has three business units. The Drug Delivery Systems business unit
recorded revenues of $4.8 million in the fiscal third quarter ended April 30,
1997 and $13.9 million for the nine months ended April 30, 1997. Third quarter
revenues reflected the continued strength of EpiPen(R) and EpiE-Zpen(R) products
as well as $900,000 of revenues from Mylan Laboratories under a previously
announced contract for development of generic injectable drug formulations. YTD
revenues for the Drug Delivery Systems business unit were $13.9 million, an
increase of $2.0 million versus prior year primarily from stronger sales of the
EpiPen and EpiE-Zpen(R) products. In addition to the agreement with Mylan
Laboratories, new strategic alliances were initiated and signed to license,
develop and manufacture generic injectable drugs for the Canadian market with an
option for the marketing rights in Europe. Meridian filed three Abridged New
Drug Applications (ANDA) for generic injectable drugs during the current year.
The STI Military Systems business unit recorded revenues of $5.0 million the
fiscal third quarter and $13.4 million for the nine months ended April 30, 1997.
Current quarter and nine month revenues resulted from shipments of
auto-injectors to the USDoD for restocking under the Base Maintenance Program
and higher shipments of auto-injectors to a NATO allied governments. Additional
orders have been received from the USDoD for delivery of ComboPens and AtroPens
for delivery in the fourth quarter of this fiscal year. The STI Military Systems
business unit strategy includes pursuing development of a Morphine
auto-injector, a new multichamber auto-injector and new markets in both the US
and Europe for civil defense utilizing our AtroPen auto-injector.
The Cardiopulmonary Systems business unit recorded shipments of telemedicine
products, primarily the Cardiobeeper(R), totaling $0.8 million for the current
quarter and $2.4 million for the nine months ended April 30, 1997. This business
unit is actively pursing a strategic alliance to market the CardioBeeper CB-12L
cardiac monitor which recently received clearance by the US Food and Drug
Administration. The Cardiopulmonary Systems business unit continues its strategy
to pursue strategic partners to market the PRIME ECG(R) cardiac analysis system
and is pursuing options to dispose of non-core businesses.
Liquidity and Capital Resources
Liquidity
The Company's cash balance at April 30, 1997 was $635,300. During the nine
months ended April 30, 1997 net cash usage was $853,600. Cash generated from
operations was $2.3 million offset by cash used for investing activities of $2.5
million and financing activities of $567,600. Cash generated from operations
resulted primarily from net income, exclusive of non-cash charges, plus
increases in accounts payable. Investing cash usage was primarily for capital
equipment while financing cash usage was primarily for payment of a bridge loan
incurred with the merger offset in part by increased borrowing on the Company's
line of credit.
Debt
At the effective time of the merger ("Effective Time"), the Company assumed
Brunswick's indebtedness. (See Note D to the Notes to Consolidated Condensed
Financial Statement in
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
this 10-Q submission). Meridian's total long term debt at April 30, 1997 was
$13.8 millions, $1.5 million less than at July 31, 1996. Long-term debt maturing
in one year amounts to $575,000 with the remaining debt maturing by November 20,
2001. Under the terms of the senior bridge loan with ING (U.S.) Capital
Corporation ("ING") and the subordinated promissory note with the late founder's
estate, principal payments were deferred and interest was applied to principal
rather then paid. These third quarter transactions increased the principal
amounts owed ING by $243,500 and increased the principal amount owed the estate
by $152,800.
Meridian did not incur any new debt instruments during the third quarter. Total
cash payments for principal and interest, excluding payments for the line of
credit were $136,500, of which $29,800 was for interest.
The revolving credit line of $5 million with ING ended the quarter with a
balance of $4.2 million leaving available cash liquidity of $758,000 under the
credit line.
The Company is continuing to seek external financing through strategic partners
or alliances with entities interested in and with the resources to support the
Company's research programs and activities. The Company also is exploring
alternatives to restructure all or a portion of its indebtedness. No assurance
can be given that the Company will be successful in finding strategic partners
or alliances or restructuring its indebtedness. A failure to obtain additional
financing or restructure the debt could require the Company to curtail planned
and pending research programs as well as certain other operations.
Balance Sheet Review
Working capital at April 30, 1997 was $1.3 million, a reduction of $3.1 million
from the July 31, 1996 level. The reduction resulted primarily from higher
levels of short-term borrowings under the Company's revolving credit agreement,
higher levels of accounts payable and accrued liabilities partially offset by
increased inventories. Higher levels of accounts payable and accrued liabilities
result from merger related activities. Increased inventories support anticipated
higher shipments in near term. Capital expenditures totaled $2.5 million of
which $611,000 was financed by outside sources during the nine months ended
April 30, 1997 which consisted primarily of equipment to implement cost
reduction programs and capacity additions at MMT's St.
Louis manufacturing facility.
Increases in developed technology, patents and licenses and other intangible
assets increased as a result of the merger of STI and Brunswick on November 20,
1997.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5.
On May 29, 1997, the Board of Directors selected the accounting firm of Ernst &
Young LLP as independent public accountants for the Company based on the
recommendation of the Audit Committee.
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed as of April 29, 1997 (Item 4. Changes in Registrant's
Certifying Accountant)
<PAGE>
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
May 29, 1997 By: /s/ James H. Miller
- ------------------- -----------------------------
Date James H. Miller
President and
Chief Executive Officer
(Principal Executive
Officer)
May 29, 1997 By: /s/ G. Troy Braswell
- ------------------- -----------------------------
Date G. Troy Braswell
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated condensed balance sheets and statement of income.
</LEGEND>
<CIK> 0000095676
<NAME> Meridian Medical Technologies, Inc.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
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