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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JULY 31, 2000
OR
[ ] 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
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
10240 OLD COLUMBIA ROAD, COLUMBIA, MARYLAND 21046
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-309-6830
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K any amendment
to this Form 10-K. [X]
As of October 2, 2000, the aggregate market value of voting stock held
by non-affiliates of the Registrant, based on the average of the high and low
sales prices of such stock reported by the National Association of Securities
Dealers, Inc. on such date, was approximately $56.1 million.
There were 3,012,360 shares of Registrant's common stock
outstanding as of October 2, 2000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Meridian Medical Technologies, Inc. definitive Proxy Statement
for the Annual Meeting of Shareholders for the fiscal year ended July 31, 2000
are incorporated by reference into Part III of this Form 10-K.
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Page 1 of 55
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS
General 4
Products and Services 5
Pharmaceutical Systems 5
Cardiopulmonary Systems 9
Competition 11
Backlog 12
Patents, Trademarks, and Licenses 12
Product Liability Insurance 12
Sources and Availability of Raw Materials 13
Government Regulation 13
Employees 14
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
EXECUTIVE OFFICERS OF THE REGISTRANT
(UNNUMBERED ITEM) 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS 17
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
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TABLE OF CONTENTS
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 45
PART III
ITEMS 10. THROUGH 13.
(Incorporated by reference from the definitive Proxy Statement for the
Annual Meeting of Shareholders for the fiscal year ended July 31, 2000,
which will be filed with the Securities and Exchange Commission not
later than 120 days after the end of that fiscal year)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K 44
SIGNATURES 50
EXHIBIT INDEX 51
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FORWARD LOOKING STATEMENTS
This report and other written and oral statements made by the Company may
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act with respect to financial performance and other financial
and business matters. Forward-looking statements are typically identified by
future or conditional verbs or similar expressions regarding events that have
yet to occur. These forward-looking statements are based on the Company's
current expectations and are subject to numerous assumptions, risks and
uncertainties. The following factors, among others, could cause actual results
to differ materially from forward-looking statements: economic and competitive
conditions; capital availability or costs; fluctuations in demand for the
Company's products; government procurement timing and policies; technological
challenges associated with the development and manufacture of the Company's
products; commercial acceptance of the Company's products; delays, costs and
uncertainties associated with clinical testing and government approvals required
to market new drugs and medical devices; availability and quality of raw
materials; success and timing of cost reduction and quality enhancement
programs; regulatory and contract compliance; relationships with significant
customers; adequacy of product liability insurance; ability to obtain, timing
and success of marketing representatives and strategic alliances; and adequacy
of intellectual property protection. Meridian assumes no duty to update
forward-looking statements.
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PART I
ITEM 1. BUSINESS
GENERAL
Meridian Medical Technologies, Inc. (hereinafter referred to as the "Company" or
"MMT" or "Meridian") is a medical technology company operating in two segments:
Pharmaceutical Systems and Cardiopulmonary Systems.
PHARMACEUTICAL SYSTEMS - The Pharmaceutical Systems segment consists of the
Commercial Systems and Government Systems businesses, both of which utilize the
Company's auto-injector technology. The principal source of Commercial Systems
revenue currently is the EpiPen(R) family of auto-injectors, which are
prescribed for severe allergic reactions and other causes of anaphylaxis. The
Company expects, over the coming years, to realize significant revenue growth
from new commercial applications of its auto-injector products. Additionally,
revenue growth is anticipated from alliances that introduce new products in
auto-injectors and other drug delivery devices. Current new therapies under
development or in negotiations for delivery in auto-injectors include glucagon
for hypoglycemia and an anti-seizure drug for management of breakthrough
seizures. Government Systems revenues are principally generated from
auto-injector products and services marketed to the U.S. Department of Defense
(DoD), and other federal, state, local, and foreign governments. Marketing
efforts from this unit will focus on maintaining the Industrial Base Maintenance
Contract with the U.S. Department of Defense, as well as expanding international
markets and domestic preparedness applications.
CARDIOPULMONARY SYSTEMS - The Cardiopulmonary Systems segment utilizes the
Company's electrocardiology and telemedicine technologies. Telemedicine sales
currently are the principal source of revenue. In fiscal 2000, the Company
introduced its PRIME ECG(TM) electrocardiac mapping system after several years
of development. Management believes that PRIME ECG has the potential to become
the standard ECG system of the future and to generate significant revenues and
profits for the Company.
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PRODUCTS AND SERVICES
Revenues from MMT's two segments and gross profit for the years ended July 31,
2000, 1999, and 1998 are as follows (in thousands):
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Year Ended July 31,
2000 1999 1998
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Pharmaceutical Systems
Commercial Systems $ 27,036 $ 14,405 $ 22,414
Government Systems 26,070 24,485 21,165
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53,106 38,890 43,579
Cardiopulmonary Systems 1,501 1,840 1,089
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Total Revenues 54,607 40,730 44,668
Gross Profit 22,016 12,710 17,577
Gross Profit % 40.3% 31.2% 39.4%
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Commercial Systems revenues in fiscal 1999 and 1998 above were adversely
impacted by the 1998 EpiPen recall. See Item 7 - Management's Discussion and
Analysis for further discussion.
PHARMACEUTICAL SYSTEMS
The Company pioneered the development of auto-injectors for the
self-administration of injectable drugs. An auto-injector is a prefilled,
pen-like device that allows a patient to automatically inject a precise drug
dosage quickly, safely, and reliably. Meridian manufactures a spring-loaded,
needle based auto-injector. These auto-injectors are a convenient,
disposable, one-time use drug delivery system designed to improve the medical
and economic value of many drug therapies. The product is well-suited for the
administration of certain drugs and is currently marketed with epinephrine
for the treatment of allergic reactions, lidocaine for the treatment of
cardiac arrhythmias, morphine for the management of pain, diazepam for the
treatment of seizures, and antidotes for the treatment of nerve agent
exposure. The auto-injector offers a common delivery system platform that can
be used for both commercial and government new product needs. It is
anticipated that the Company's initial new product range will be based on its
auto-injector delivery systems but over time will expand to include other
innovative product technologies currently under development. MMT also
supplies customized drug delivery system design, pharmaceutical research and
development and FDA current Good Manufacturing Practice (cGMP)-approved
sterile product manufacturing to pharmaceutical and biotechnology companies.
COMMERCIAL SYSTEMS
MMT currently manufactures the EpiPen and other commercial auto-injectors,
provides contract research and development, and performs pharmaceutical
manufacturing for some of the leading pharmaceutical and biotechnology
companies. Utilizing its sterile product manufacturing and cartridge filling
capabilities, MMT focuses on providing customized drug delivery systems to its
customers.
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a. EXISTING PRODUCTS
Currently, a substantial majority of the Company's commercial sales come from
its EpiPen epinephrine auto-injectors, which are prescribed to patients at risk
of anaphylaxis resulting from severe allergic reactions to insect stings or
bites, foods, drugs and other allergens, as well as idiopathic or exercise
induced anaphylaxis. EpiPen is available in two dosage strengths, and permits
the immediate self-injection of epinephrine, the drug of choice for emergency
treatment of such conditions. The EpiPen was the Company's first major
commercial auto-injector, and demand for the EpiPen continues to be strong due
to increased awareness of the health risks associated with allergic reactions.
The Company markets the EpiPen through Dey L.P., a subsidiary of E. Merck based
in Germany. Dey Laboratories has a marketing agreement with ALK, Inc., a Danish
company, for international markets in 13 foreign countries, and with Allerex in
Canada.
b. PHARMACEUTICAL MANUFACTURING AND PACKAGING
The Company has complete sterile parenteral pharmaceutical manufacturing and
packaging capabilities for a broad range of sterile injectable dosage forms
which includes vials, cartridges, pre-filled syringes, and auto-injectors.
Further, the Pharmaceutical Systems business provides fully validated
formulation and aseptic filling services and regulatory and clinical trial
assistance for pharmaceutical and biotechnology companies not currently
possessing such capabilities or requiring outside support. The Company also
supplies customized drug delivery system design, cGMP-approved sterile product
manufacturing and pharmaceutical research and development to a number of
different companies. Development programs include feasibility and stability
studies as well as the manufacturing of clinical trial materials in the
Company's pilot plant. If feasibility and stability studies are successful and
all regulatory approvals are received, the Company anticipates licensing fees
and contracts in the coming years to manufacture these products in vials,
prefilled syringes and proprietary auto-injector systems. Revenue from
customer-funded research and development activities was $1.5, $1.8 and $1.3
million during fiscal years 2000, 1999 and 1998, respectively. The Company
expects fiscal 2001 revenue from funded R&D activities and licensing fees to
increase.
The Company currently has commercial manufacturing agreements with Schering
Plough and Mylan Labs. In 1997, the Company formed a long term strategic
alliance with Mylan Laboratories ("Mylan") under which Meridian will license,
develop and manufacture a line of generic injectable drugs to be marketed by
Mylan. Sales revenue from Mylan has been modest to date.
c. POTENTIAL NEW PRODUCTS
The Company continues to explore additional pharmaceutical products to further
capitalize on its auto-injector technologies. These will be products that
usually require emergency administration and where the patient or caregiver will
benefit by administration with an auto-injector. Such products are anticipated
to be developed internally or acquired outside and will be manufactured
utilizing the Company's existing technology and facilities. The Company
anticipates it will develop the necessary sales and marketing organization to
support the products.
GOVERNMENT SYSTEMS
The Government Systems business unit supplies auto-injector-based antidotes and
emergency medicine products to military and civilian organizations and has
recently expanded its sales activities to include major countries throughout the
world. MMT's major Government Systems customer continues to be the DoD. Through
a combination of the Industrial Base Maintenance Contract and new product
development contracts, MMT expects to maintain a strong and stable business
relationship with the DoD.
MMT plans to capitalize on the auto-injector delivery systems developed for
government applications to
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expand Government Systems revenue and provide new drug delivery technology for
application in its commercial business unit. The Company continues to advance
its multichambered auto-injector which provides a two chamber technology for the
enhanced absorption of two incompatible drug compounds from the same injection
site. The auto-injector is currently in advanced development for the US
military, and other governments have expressed interest in this innovative
delivery system for their antidote formulations. The Company also has an
auto-injector in early development that has both a dry chamber and a wet chamber
for rapid administration of drugs that have poor stability in solution.
Currently fielded products for the U.S. include: the AtroPen, containing
atropine, ComboPen containing pralidoxime, both used as nerve agent antidotes; a
morphine containing auto-injector for pain management; and a ComboPen containing
diazepam for seizure management. These auto-injectors are intended for use
primarily by military personnel but are also now available for use by first
responders as antidotes to counteract the effects of exposure to highly toxic
chemical warfare nerve agents.
a. U.S. DEPARTMENT OF DEFENSE
The Company has been the supplier of auto-injectors to the DoD for many years.
DoD procurements of auto-injectors are restricted to qualified producers and the
FDA must approve all products. The Company is currently the only FDA-approved
and the only qualified producer for all DoD military auto-injectors.
The Company's auto-injectors are classified as critical "war stopper" items by
the DoD and have been the subject of an Industrial Base Maintenance Contract
("IBMC") between the Company and the DoD since 1992. This contract is part of a
program by the DoD to ensure adequate supplies of critical items in the event of
armed conflict.
This innovative contract calls for production of auto-injectors filled with
nerve agent antidotes, the retention by the Company of key personnel and
facilities to assure expertise for manufacturing auto-injectors containing nerve
agent antidotes, the management of the U.S. Army's Shelf Life Extension Program,
and the pre-stocking of critical components to enhance readiness and
mobilization capability. A surge capability provision allows for the coverage of
defense mobilization requirements in the event of rapid military deployment.
During fiscal 1999, MMT concluded negotiations with the DoD for its third IBMC
beginning August 1, 1999. This contract includes renewal options for two
additional years through July 31, 2002. The DoD renewed the option for the
second year of the contract in fiscal 2000. Revenues under this contract have
ranged from $13 to $21 million over each of the last three years and are
expected to exceed $15 million per year under the current contract.
The Government Systems business unit plans to build upon its strong relationship
with the DoD and remain the source of first choice for military auto-injector
products. To that end, the Company continues to maintain leadership by
introducing new products into this market. New products include the
Multi-chambered Auto-injector ("MA") delivery system specifically developed for
the U.S. Army. This system will allow military personnel to use a single
auto-injector to sequentially administer the specified antidotes under
battlefield conditions. The MA is expected to receive FDA approval by December
2000, with customer shipments expected during the third fiscal quarter of MMT's
fiscal 2001
b. INTERNATIONAL
The Company will continue its strategy of seeking to expand its international
military sales into new markets worldwide as a principal supplier of critical
life saving antidotes for chemical warfare defense. The foreign government
customer base includes many allied countries in Europe, the Middle East and the
Far East. International government sales for fiscal 2000, 1999 and 1998 were
$7.8, $2.5 and $1.6 million, respectively.
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The product range for the international community includes the same type
auto-injectors and antidote formulations as used by the U.S. community, however,
it also includes a number of variations to address the formulation specific
requests of client countries.
During fiscal 1999, the Company was granted a Product License - Marketing
Authorization by the German Federal Institute for Medicinal Drugs and Medicinal
Products for its atropine-filled auto-injectors ("AtroPen"). This approval also
allows MMT to expand the marketing of the AtroPen under the European Mutual
Recognition Procedures to supply allied armed forces throughout Europe.
c. CIVIL DEFENSE - DOMESTIC PREPAREDNESS
The demand for nerve agent antidote auto-injectors has recently expanded to
include growing numbers of state agencies and local communities, for domestic
preparedness purposes in response to potential terrorist attacks and as
protection for populations in high risk areas. At the request of several
government agencies, state and local experts have formed the MMRS (Metropolitan
Medical Response System), which includes training and equipping emergency teams
as initial, on-site responders. This concept has a goal to develop MMRS in the
120 most populous metropolitian areas in the U.S. in the next five years. The
Company believes that this is essentially an untapped market with a significant
growth potential. While revenues to date have not been material, the Company
believes that enhanced awareness of the Company and its products could result in
increased contributions.
RESEARCH AND DEVELOPMENT
With the intent of developing and commercializing its own family of
pharmaceutical products, Meridian is looking to both its own technologies and
those technologies within the industry that can be brought into the Meridian
product range. The general thrust initially will be towards products that have
emergency medicine applications such as anti-convulsants, management of
hypoglycemia and antidotes for drugs of abuse. Several military-developed
products currently in production are being considered for their application into
the commercial arena using existing auto-injector applications. Currently,
improved auto-injector configurations are also being considered as well as drug
products outside of Meridian's traditional market applications. Product
development emphasis will be placed on those products that would have market
applications in both the commercial and government sectors.
The Company expensed $2.9 million, $1.2 million and $1.3 million on research and
development activities in fiscal 2000, 1999, and 1998, respectively, excluding
costs associated with customer-funded projects. The Company expects research and
development expenditures in fiscal 2001 to be higher than the fiscal 2000 level.
While not engaged in basic research, Meridian does have both externally and
internally funded development efforts. The externally funded programs involve
activities that include the formulation and sterile filling of developmental
products for commercial customers and new product development of military
injectables. The later development activities include new auto-injector delivery
systems, drug formulations, assay developments, clinical studies and regulatory
submissions. Internally funded activities include the development of new
pharmaceuticals that will be marketed by MMT. Initially MMT's new product line
will be developed using drug compounds whose safety and efficacy have already
been established and placing these compounds in the Company's basic
auto-injector delivery systems. As the product range is expanded, new product
opportunities may evolve utilizing alternate delivery systems and drug compounds
obtained through acquisitions and/or joint ventures.
Commercial customer product programs include feasibility and stability studies
as well as the manufacturing of clinical trial materials in the Company's pilot
plant. If feasibility and stability studies are successful and all regulatory
approvals are received, the Company anticipates licensing fees and contracts in
the coming years to manufacture these products in vials, prefilled syringes and
proprietary
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auto-injector systems.
The Company has signed a feasibility contract with a major European country to
develop the MA auto-injector incorporating its antidote formulation. The second
phase of this program is currently being negotiated which could result in a full
scale development effort that, if successful, could lead to product registration
in Europe as early as FY2003. This product registration would allow the Company
to negotiate a licensing agreement to permit the sale of this product to major
NATO countries.
With the renewed interest by a number of NATO countries in the nerve agent
antidote HI-6, Meridian's technology group has begun work to develop a
specialized auto-injector that could be used to administer this antidote. HI-6
has only a short shelf-life when in solution which necessitates an auto-injector
that contains individual chambers separating the drug and the diluent. Prior
efforts by others have resulted in auto-injectors that are cumbersome, difficult
to manufacture and use, and expensive. Meridian has developed several prototype
units that meet the performance requirements expected while being easier to
make, are less bulky and provide ease of use. Negotiations are underway to seek
multi-national funding to complete the development of this innovative
auto-injector.
MMT also has Truject, a single-chambered auto-injector for subcutaneous
injection which utilizes a very thin (27 gauge) needle, under development for
potential new applications. This new auto-injector is designed for use in
emergency situations and for any episodic treatment where a subcutaneous
injection is the preferred drug delivery route. This new auto-injector will be
subject to clinical testing and regulatory approval prior to the product
reaching the marketplace. See "Government Regulation" below.
CARDIOPULMONARY SYSTEMS
The Company's Cardiopulmonary Systems unit is focused on the development and
sale of non-invasive cardiopulmonary diagnostic products. In addition to a line
of telemedicine products, the Company has completed the development phase of its
innovative PRIME ECG electrocardiac mapping system and has introduced the
product for sale in a number of countries.
a. PRIME ECG(TM) ELECTROCARDIAC MAPPING SYSTEM
The PRIME ECG system is a unique electrocardiac mapping system developed in
collaboration with university and medical school researchers. This system offers
the potential to significantly improve the diagnosis and treatment of heart
disease, which affects over 13 million people in the U.S. alone, including 1.5
million heart attack victims each year.
The PRIME ECG system consists of a patented 80-lead disposable electrode vest,
80-channel recording module, computer assisted analysis software and a full
color multi-dimensional graphic display. The system initially has been
introduced for the early detection of acute myocardial infarction ("AMI") or
heart attack. European clinical tests conclude that the PRIME ECG system can
allow earlier and more accurate diagnosis of AMI for significantly more patients
than the standard 12-lead ECG. Further, the PRIME ECG system displays results in
a manner that can allow the clinician to identify the nature of the infarct,
which can be utilized in determining the most effective course of treatment.
Without early and accurate diagnosis of AMI, potentially life-saving treatment
is delayed for AMI victims. For non-AMI chest pain patients, unnecessary tests
and hospital admissions to rule-out AMI are estimated to cost health care
systems and individuals billions of dollars each year. The Company anticipates
that the clinical and economic benefits of this new system can create the
opportunity for the Cardiopulmonary Systems business to become a prominent
participant in the electrocardiography market in future years.
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The Company expects the PRIME ECG(TM) system will be used initially by the
emergency room physician who needs faster and more accurate diagnosis for more
than 20 million chest pain patients each year. The Company is pursuing
additional applications where this technology may enhance detection and/or
treatment of heart conditions known to affect the electrophysiology of the
heart. Potential applications include the ability to detect changes in
reperfusion of the coronary arteries following intervention. The use of serial
recordings has been shown to allow detection of reduced flow before this
condition becomes critical. This may prevent potentially life threatening and
costly emergencies. The Company in unaware of a non-invasive alternative means
to detect this condition. Other potential applications involving arrhythmia
management and sudden cardiac death are being investigated. The Company
estimates that the market size for the potential use of PRIME ECG is
substantial, with the total combined markets for diagnosis of AMI and other
applications exceeding $6 billion annually.
The use of the PRIME ECG system requires purchase of a disposable electrode
array or vest. This patented, simple to use device is expected to provide a
recurring source of revenue to the Company, which anticipates that it will be
the sole manufacturer. The Company projects that the disposable electrode vest
design can be modified to meet a range of applications, allowing lower cost and
greater convenience in potential future applications.
The PRIME ECG system received the CE Mark from European authorities during
fiscal 1999. To date, the Company has signed representation agreements with
companies to market PRIME ECG in Italy, Austria, Denmark, Switzerland, Poland,
Hungary, Spain, Portugal and Australia. The Company sells PRIME ECG directly in
the United Kingdom and is actively negotiating with additional candidates to
service the remaining European markets. Initial shipment of the product was made
in fiscal 2000 and additional orders have been shipped in the first quarter of
2001.
The Company is sponsoring a multi-center clinical study that is designed to
demonstrate superior performance compared to the 12-lead ECG. The study is
ongoing at the Medical College of Virginia in Richmond and Maine Medical Center
in Portland. The University of Cincinnati and the Manchester Heart Center will
be added during the early months of fiscal 2001. These are expected to generate
the necessary evidence to support the Company's planned 510(k) filing with the
FDA, targeted for early calendar 2001. Subject to gaining FDA approval, the
introduction of PRIME ECG in the U.S. is targeted for 2001.
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B. TELEMEDICINE PRODUCTS
The Company is a leader in the development of devices that measure and
transmit diagnostic information by telephone. These products allow a
patient's condition to be monitored while at home, which can reduce expensive
office visits, allow for earlier diagnosis and minimize emergency room and
hospital admissions. Meridian's CB-12L CardioBeeper-R- electronic heart
monitor transmits a standard 12-lead electrocardiogram ("ECG") by telephone.
A new heart monitor, the CardioPocket(TM) was introduced in 1999, providing
unprecedented convenience by incorporating a miniaturized single-lead version
into a wallet. The CardioPocket was awarded a Millennium Product Award for
innovation and creativity in the U.K. from the Design Council of Britain, and
has already been purchased by more than 15,000 users. In 2000, the Company
completed development of the CB12/12, a next generation CB12L that is more
convenient and faster than its predecessor.
The telemedicine product line is sold by Shahal Medical Services, Ltd.
("Shahal"), which has exclusive international marketing rights. Shahal, based
in Israel, is a home healthcare monitoring company serving more than 60,000
subscribers. Last year, Shahal formed SHL International for the purpose of
accelerating its program to expand its business to other countries with a
focus in Europe and the United States.
C. RESEARCH & DEVELOPMENT
The Company invested $1.4 million in Cardiopulmonary Systems research &
development in fiscal 2000. The majority of this expenditure was dedicated to
the PRIME ECG system and included design of dedicated hardware and software
systems, as well as the funding of certain university research projects selected
for their potential to lead to new and improved applications.
The Company intends to continue to invest in PRIME ECG, projecting overall
increased expenditures in fiscal 2001. These development investments include
algorithm enhancement to further improve heart attack detection, software
development to provide new applications such as reperfusion, hardware
development to provide portability and reduce costs, and graphics
enhancements to further improve ease of interpretation, in addition to
increased sales and marketing expenditures.
COMPETITION
In the commercial auto-injector market, the Company competes directly with
companies that manufacture drug injection devices, whether such devices are
automatic like the Company's products or non-automatic, variable dose
pen-like injection devices, reloadable injection devices and disposable
needle-free injection systems. The Company is the leading manufacturer of
automatic injectors in the world. The Company expects competition to
intensify.
Meridian is the sole supplier of auto-injectors to the U.S. Government for
military use, and effective August 1, 1999, renewed its three-year base
maintenance contract (an initial base year and two option years, the first of
which has been exercised in fiscal 2000) with the U.S. Department of Defense.
The Company competes with a small number of companies selling to foreign
military markets.
The Company's pharmaceutical manufacturing and packaging services operate in
an intensely competitive field that is presently dominated by larger
pharmaceutical companies. There are numerous other disposable, prefilled
syringe systems presently available which can be less expensive than those
offered by the Company. A small group of independent companies and a few
pharmaceutical companies offer contract syringe filling services similar to
those that the Company offers.
The Cardiopulmonary business operates in a highly competitive sector of the
healthcare industry. Meridian's telemedicine products compete against the
products of numerous other companies. The
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PRIME ECG-TM- product will compete with existing diagnostic equipment and
testing procedures such as blood markers for detection of AMI, and potentially
with products and technologies currently under development that may be brought
to market, such as enhanced 12-lead ECG algorithms, invasive cardiac mapping and
improved cardiac stress testing.
BACKLOG
As of July 31, 2000, the backlog of orders was approximately $17.0 million, of
which $5.2 million related to production and delivery of commercial products and
services, and $11.8 million related to military products and the IBMC contract.
This compares with commercial product sales backlog of $6.2 million and a
military backlog of $13.5 million, for a total of $19.7 million at July 31,
1999.
PATENTS, TRADEMARKS, AND LICENSES
The Company considers its proprietary technology to be important in the
development, marketing and manufacture of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements with
its employees and others. Patents covering important features of the Company's
current principal auto-injector products have expired. This loss of patent
protection could have an adverse effect on the Company's revenues and results of
operations. MMT is currently developing a new generation of auto-injector
products (see "Research and Development") for which a number of patents have
been granted to the Company. Over the last few years, the Company was granted
U.S. patent protection for several of its new auto-injector drug delivery
systems, designed for fast and reliable patient self-administration of the
expanding range of new pharmaceutical and biotechnology products that require
injection. Some of these patents cover the multi-chambered auto-injector (MA)
expected to be launched in fiscal 2001. The MA patents cover various components
running through 2010. In addition, the Company holds several patents and
licenses on the PRIME ECG(TM) electrocardiac mapping system, including the
patent on the PRIME ECG disposable electrode vest. Most of the other patents are
licensed from the Northern Ireland Bioengineering Center at the University of
Ulster in Northern Ireland for a minimum remaining term of 17 years.
The Company intends to file for additional protection for its new auto-injector
and cardiopulmonary products currently under development. The new auto-injector
products are expected to replace or supplement the Company's existing line of
auto-injectors over time.
PRODUCT LIABILITY INSURANCE
The Company maintains product liability coverage for its products aggregating
$40 million. The Company will continue to maintain liability insurance as it
relates to divested operations to cover potential claims incurred but not
reported prior to their disposition. Although the Company's management is of the
opinion that, with respect to amounts, types and risks insured, the insurance
coverage is adequate for the business conducted by the Company, there can be no
assurance that such insurance will provide sufficient coverage against any or
all potential product liability claims.
<PAGE>
13
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases, in the ordinary course of business, necessary raw
materials, components and supplies essential to the Company's operations from
numerous suppliers in the U.S. and overseas. Several of the ingredients used in
the antidote formulations are unique and require highly specialized synthesis
facilities, consequently, limited amounts of these ingredients are available
from time to time. Auto-injector components also require specialized tooling and
by commercial manufacturing standards are considered low volume production.
Cardiopulmonary product components availability are subject to worldwide demand
within the electronics industry. Component requirements frequently compete with
high volume, high demand vendor manufacturing time. The Company monitors these
situations carefully to ensure a continued supply of both raw materials and
components. The Company procures inventory principally when supported by
customer purchase orders.
GOVERNMENT REGULATION
The business of the Company is highly regulated by governmental entities,
including the FDA and corresponding agencies of states and foreign countries.
The summary below does not purport to be complete and is qualified in its
entirety by reference to the complete text of the statutes and regulations cited
herein.
As a manufacturer of auto-injectors, cardiopulmonary products, vials and
pre-filled syringes, the Company's products are subject to regulation by the FDA
under the Federal Food, Drug and Cosmetic Act ("Act"). All of the Company's
auto-injectors are "new drugs" and may be marketed only with the FDA's approval
of a New Drug Application "NDA" or a supplement to an existing NDA. The Company
currently holds approved NDAs for each of its existing auto-injector products.
The use of the Company's existing auto-injectors to administer another FDA
approved drug generally would require the filing of a NDA, supplement to an
existing NDA or an Abbreviated New Drug Application ("ANDA"). In addition, the
introduction of the Company's new generation auto-injectors will require FDA
approvals based on data demonstrating the safety, effectiveness, and/or
bioequivalence of the drug delivered by these auto-injectors. There is no
assurance that the NDAs will be processed in a timely manner or that FDA
ultimately will approve such NDAs.
The Company's prefilled syringe systems are also regulated as drugs; however,
the requisite FDA approval is held by the supplier of the drug that the Company
fills into the syringe. To the extent the Company's auto-injector and syringe
systems are expected to be used to administer new drugs under development, FDA
approval to market such drugs first must be received by the pharmaceutical
manufacturer. Obtaining the requisite FDA approval is a time consuming and
costly process through which the manufacturer must demonstrate the safety and
effectiveness of a new drug product. Once acquired, this approval is specific to
company and manufacturing sites.
The Company's Cardiopulmonary Systems Products must have FDA Registration for
U.S. sales and CE Marking for European sales.
In connection with its manufacturing operations, the Company must comply with
cGMP regulations, and its manufacturing facilities are subject to periodic
inspections. The Company's St. Louis facility has undergone multiple routine,
satisfactory inspections by the United States, the United Kingdom, and the
Republic of Germany of both the facilities as well as individual drug products
manufactured there in 2000, 1999, and 1998.
Suppliers of bulk drugs for filling into the Company's drug delivery systems, as
well as subcontractors that manufacture components for the Company's medical
devices, also are subject to FDA regulation and inspection. The Company has only
limited control over these other companies' compliance with FDA regulations.
Failure of these companies to comply with FDA requirements could adversely
affect the
<PAGE>
14
Company's ability to procure component parts, market finished products and may
cause the Company's products made with non-compliant components to be
adulterated or misbranded in violation of the Act, subjecting the products to a
variety of FDA administrative and judicial actions.
The FDA is empowered with broad enforcement powers. The FDA may initiate
proceedings to withdraw its approval for marketing of the Company's product
should it find that the drugs are not manufactured in compliance with cGMP
regulations, that they are no longer proven to be safe and effective or that
they are not truthfully labeled. Noncompliance with cGMP regulations also can
justify nonpayment of an existing government procurement contract and, until the
deficiencies are corrected to FDA's satisfaction, can result in a nonsuitability
determination, precluding the award of future procurement contracts.
For any of the Company's auto-injectors and syringe systems, noncompliance with
FDA regulations could result in civil seizure of the drugs, an injunction
against the continued distribution of the drugs or criminal sanctions against
the Company. The Company's medical devices also are subject to seizure by the
FDA through administrative or judicial proceedings. In addition, the FDA may
impose civil money penalties for most violations of law and may order that
defective devices be recalled, repaired or replaced or that purchasers be
refunded the cost of the device.
Certain states have instituted needle protection standards. Presently, to the
best of the Company's knowledge, the Company's products are not covered by these
standards. The applicability of these needle protection standards in the future
could require the Company to change its product design and production methods.
The Company also is subject to regulation by other federal and state agencies
under various statues, regulations and ordinances, including environmental laws,
occupational health and safety laws, labor laws and laws regulating the
manufacture and sale of narcotics.
The Company's supply contracts with the DoD are subject to post-award audit and
potential price redetermination. From time to time, the DoD makes claims for
pricing adjustments with respect to completed contracts. At present, no claims
are pending.
All U.S. Government contracts provide that they may be terminated for the
convenience of the Government as well as for default. Upon termination for
convenience of cost reimbursement type contracts, the Company would be entitled
to reimbursement of allowable costs plus a portion of the fixed or target fee
related to work accomplished. Upon termination for convenience of fixed-price
contracts, the Company normally would be entitled to receive the contract price
for items which have been delivered under the contract, as well as reimbursement
for allowable costs for undelivered items, plus an allowance for profit thereon
or adjustment for loss if completion of performance would have resulted in a
loss. The Company anticipates no such contract terminations.
EMPLOYEES
As of September 30, 2000, the Company employed a total of 342 employees: 267
employees work at the Company's plant and warehouse facilities in St. Louis,
Missouri; 43 employees work at the facility in Belfast, Northern Ireland, and 32
employees work at the Company's corporate headquarters in Columbia, Maryland
(see "Properties"). Effective March 1, 1999, the Company entered into a
three-year agreement with the Teamsters Local Union No. 688 ("Teamsters") which
is affiliated with the International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America. Teamsters are the exclusive agent for all
production and maintenance employees of the Company at its St. Louis facility.
Approximately 148 employees are covered by this collective bargaining agreement.
<PAGE>
15
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in an 11,000 square foot
facility in Columbia, Maryland. The facility is leased through 2002. The
corporate headquarters facility houses the corporate administration, human
resources, finance, commercial business development, government programs, and
the product design and development functions. Meridian had entered into a
ten-year lease expiring in 2002 on a 17,000 square foot facility in Rockville,
Maryland, which previously served as the Company's headquarters. The Rockville,
Maryland facility has been sub-leased to a third party through 2002.
The Company's primary R&D and pharmaceutical operations are located in St.
Louis, Missouri. These facilities are used primarily for formulation, stability
testing, aseptic filling, assembly and final packaging of the Company's
auto-injectors, vials and pre-filled syringes. The St. Louis manufacturing
facilities consist of eight separate buildings occupying over 100,000 square
feet.
In fiscal 1999, the Company opened a new facility in Belfast, Northern Ireland,
and consolidated the operations previously performed at the Antrim, N. Ireland
and Rochester, Kent England facilities. The 28,000 square foot facility is
designed to develop and produce innovative technology products for its
Cardiopulmonary Systems Group, including the PRIME ECG(TM) system, and supply
auto-injectors for the Government Systems Group for sale to international
markets. The Company is leasing the new facility under a lease expiring in 2014.
The Company has a 4,200 square foot facility in Rochester, Kent in the United
Kingdom previously used for aseptic assembly and packaging of auto-injector
product under contracts with foreign countries. This facility was also used as a
sales and marketing office to promote the Company's commercial and military
products in Europe and the Middle East. The facility is leased pursuant to a
lease that expires in 2010, and the Company has sub-leased the facility to a
third party through 2003. The operations of the Rochester facility were
consolidated with the Antrim, N. Ireland facility into the new Belfast facility
in fiscal 1999.
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed from time to time against the Company and its
subsidiaries in the ordinary course of business. Management of the Company,
after reviewing developments to date with legal counsel, is of the opinion that
the outcome of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
<PAGE>
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted by the Company during the fourth quarter of
fiscal 2000 to a vote of security holders, through the solicitation of proxies
or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists, as of September 30, 2000, the names and ages of all
executive officers of the Company, and their positions and offices held with the
Company
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITIONS WITH THE COMPANY
---- --- ----------------------------------
<S> <C> <C>
James H. Miller 62 Chairman, President and Chief Executive Officer
Gerald L. Wannarka 61 Senior Vice President, Technology and Government Systems
Robert J. Kilgore 50 Senior Vice President, General Manager, Pharmaceutical Systems
Dennis P. O'Brien 42 Vice President, Finance and Chief Financial Officer
Peter A. Garbis 59 Vice President, Organization Development
</TABLE>
MR. MILLER joined the Company as President in June 1989, was elected Chief
Executive Officer in June 1990 and was elected Chairman of the Board in April
1996. Prior to joining the Company, Mr. Miller served as Executive Vice
President of Beecham Laboratories from February 1987 to May 1989, responsible
for the Pharmaceutical and Animal Health Divisions. Prior to joining Beecham,
Mr. Miller spent ten years with Frank J. Corbet Inc. (healthcare advertising
agency) as Executive Vice President and fourteen years in marketing management
with Abbott Laboratories.
DR. WANNARKA joined Meridian in December 1997 as Vice President, Technology and
Government Systems and was promoted to Senior Vice President in September 1998.
Dr. Wannarka is a former US Army Medical Service Corps Officer retiring in 1992
at the rank of Colonel. While on active duty, Dr. Wannarka had responsibilities
in research, research management and FDA regulatory affairs, and served in
positions of gradually increasing responsibility such as: Project Manager,
Pharmaceutical Systems, Deputy Director, USA Medical Research Institute of
Chemical Defense, and Director, Clinical Investigation Program, US Army Health
Services Command. Since retiring from the military, he has held positions as
Vice President, Research and Development, for DPT Laboratories and Coloplast
Corporation. He has conducted research with therapeutics for high-hazard virus
infections, medical chemical defense, topical therapeutics and drug delivery to
include auto-injectors, transdermal, inhalation, sustained release oral and
parenteral systems.
MR. KILGORE joined Meridian in April 2000 as Senior Vice President, General
Manager Pharmaceutical Systems. From January 1997 to March 2000, Mr. Kilgore was
Director of Marketing and Business Development for Becton Dickinson
Pharmaceutical Systems. There he was also responsible for worldwide licensing
activities including sales and marketing activities associated with Becton
Dickinson Advanced Injection Systems, which focused on new delivery technology
for the delivery of parenteral pharmaceuticals. Prior to his position at Becton
Dickinson, Mr. Kilgore was Director of Business Development at Reed & Carnrick
Pharmaceuticals where he negotiated several major strategic alliances with
multi-national pharmaceutical companies and has held marketing management
positions with Schering Plough and Winthrop Pharmaceuticals.
MR. O'BRIEN joined Meridian in March 1999 as Vice President, Finance and Chief
Financial Officer. Prior to joining Meridian, he was Vice President of Finance
and Chief Financial Officer of Ogden Environmental & Energy Services Co., Inc.
from 1996 to February 1999. Previous positions held by Mr. O'Brien include Vice
President of Finance/Chief Financial Officer positions of After Six, Ltd. and
Tate Global Corporation from 1990 through 1996. Prior to joining Tate, Mr.
O'Brien was with Flow Laboratories, Inc., a biomedical products supply company,
and KPMG Peat Marwick. Mr. O'Brien is a Certified Public Accountant and a
Certified Management Accountant.
<PAGE>
17
MR. GARBIS joined Meridian in May 1996 as Executive Director, Organization
Development and was promoted to Vice President in April 1998. Prior to joining
Meridian, Mr. Garbis was Director of Human Resources at Lamb Associates, a
high-tech engineering consulting firm, from 1993 to 1996. Prior to this, he was
Director of Human Resources at Solarex Corp., a division of Amoco/Enron, from
1981 to 1993. Other experience in the field of human resources and
organizational management has been with such major companies as Lockheed Martin,
ITT Telecommunications, and Nuclear-Chicago, a division of G.D. Searle.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the over-the-counter market and is
quoted in the NASDAQ National Market System under the symbol MTEC.
The following table shows the high and low sales price of the Company's common
stock for each fiscal quarter during the two year period ended July 31, 2000, as
reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
2000 1999
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $ 6.750 $4.375 $11.625 $6.500
Second 7.000 4.250 8.000 4.625
Third 9.625 4.625 7.000 4.000
Fourth 13.000 5.750 7.125 5.000
</TABLE>
The Board of Directors has not declared any dividends on the Company's common
stock since its organization. As of October 1, 2000, there were approximately
1,200 holders of the Company's common stock known to the Company.
<PAGE>
18
ITEM 6. SELECTED FINANCIAL DATA
The Company was formed in November 1996 through the merger (the "Merger") of
Survival Technology, Inc. ("STI") and Brunswick Biomedical Corporation
("Brunswick"). STI was a publicly traded company that primarily sold
auto-injectors to commercial and military markets. Brunswick was primarily a
privately held research and development company with core technologies focused
on enhancing the diagnosis of cardiac ischemia and arrhythmias, and was engaged
principally in the development of the PRIME ECG(TM) electrocardiac mapping
system. 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-owned subsidiary of Brunswick
from that date. Upon completion of the Merger, STI was the surviving corporation
as a legal matter but the Merger was recorded as a purchase of STI by Brunswick
for financial accounting purposes.
Through April 15, 1996, only Brunswick's revenues and other financial data are
included in the amounts reflected in the following table. STI revenues and other
financial data are included from April 15, 1996, the date when Brunswick
acquired a majority interest in STI.
<TABLE>
<CAPTION>
Year End Year End Year End Year End Month End Year End
July 31, July 31, July 31, July 31, July 31, June 30,
(in thousands, except per share data) 2000 1999 1998 1997 1996 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net sales $54,607 $40,730 $44,668 $40,665 $4,511 $10,375
Gross profit 22,016 12,710 17,577 15,044 1,901 3,420
Operating income (loss) 7,349 1,287 3,067 (1,699) 908 (6,212)
Other expense, net (3,536) (3,027) (2,629) (2,395) (140) (539)
Income (loss) before income tax, minority
interest, and extraordinary loss 3,813 (1,740) 438 (4,094) 768 (6,751)
Provision for income tax 1,514 - 343 45 440 27
Minority interest in consolidated subsidiary - - - 266 327 17
Income (loss) before extraordinary loss 2,299 (1,740) 95 (4,405) 1 (6,795)
Extraordinary loss on debt refinancing - - (494) - - -
-------------------------------------------------------------------------
Net income (loss) $ 2,299 $(1,740) $ (399) $(4,405) $ 1 $(6,795)
Basic income(loss) per share $ 0.77 $ (0.58) $ (0.13) $ (2.16) $ 0.02 $(99.32)
Diluted income(loss) per share $ 0.70 $ (0.58) $ (0.12) $ (2.16) $ 0.02 $(99.32)
Weighted average shares:
Basic 2,996 2,993 2,971 2,040 68 68
Diluted 3,276 2,993 3,328 2,040 68 68
EBITDA (1) $10,913 $ 5,103 $ 6,861 $ 1,615 $1,191 $(5,397)
EBITDA margin 20.0% 12.5% 15.4% 4.0% 26.4% (52.0)%
FINANCIAL POSITION:
Current assets $18,809 $20,233 $18,296 $16,031 $ 16,557 $16,352
Working capital 7,586 4,373 6,046 844 4,230 4,145
Fixed assets, net 15,795 15,826 16,389 15,778 14,984 14,990
Total assets 44,685 47,751 46,847 44,082 41,568 41,694
Long-term debt 16,823 17,639 18,850 13,921 16,385 16,056
Shareholders' equity 14,091 11,738 13,338 12,293 3,844 4,387
</TABLE>
(1) EBITDA represents operating income plus other income and depreciation and
amortization. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles, but is presented to provide
additional information related to operating results. EBITDA
<PAGE>
19
should not be considered in isolation or as a substitute for other measures of
financial performance or liquidity under generally accepted accounting
principles. While EBITDA is frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily comparable to
other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues and operating income by segment for the years ended July 31 are as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Pharmaceutical systems $53,106 $38,890 $43,579
Cardiopulmonary systems 1,501 1,840 1,089
------- ------- -------
Total revenues $54,607 $40,730 $44,668
======= ======= =======
Operating income (loss):
Pharmaceutical systems $10,064 $ 2,125 $ 4,183
Cardiopulmonary systems (2,715) (838) (1,116)
-------- -------- --------
Total operating income $ 7,349 $ 1,287 $ 3,067
======== ======== ========
</TABLE>
2000 COMPARED WITH 1999
MMT's net income after taxes for the year ended July 31, 2000 was $2,299,000, or
$0.70 per share, on revenues of $54.6 million compared to a fiscal 1999 net loss
of $1,740,000, or ($0.58) per share, on revenues of $40.7 million, reflecting a
34% increase in revenues. Gross margins increased to 40% in 2000 compared to 31%
in 1999, when revenues and margins were negatively impacted by supplying free
units of EpiPen as a result of the 1998 EpiPen recall. Operating expenses
increased by 28.4% from 1999 to 2000, but decreased overall as a percentage of
net sales. This reflects the cost reduction efforts in place in 1999 versus the
investment in research and development, and a marketing infrastructure in 2000.
Operating income and EBITDA were $7.3 and $10.9 million, respectively, in 2000,
up from $1.3 and $5.1 million in 1999 due to improved operations and the absence
of recall obligations.
Commercial Systems sales were $27.0 million in 2000, 88% higher than 1999
resulting from increasing demand for the EpiPen and the absence of recall
obligations. Government Systems sales were $26.1 million, 6.5% higher than 1999
as sales to foreign governments increased. Cardiopulmonary Systems sales were
$1.5 million in 2000, 18% lower than 1999 reflecting lower telemedicine sales.
Gross margins were 40% of sales in 2000 compared to 31% in 1999. The increased
gross margins from 1999 to 2000 resulted primarily from higher production volume
to support increased customer orders, and the recall obligations in 1999. The
Company shipped 771,000 free EpiPens in fiscal 1999, both for actual units
returned and to reimburse the distributor for cash costs. While the direct cost
of these free units was fully reserved, the lost revenue from those units
depressed gross margins in that year. Sales of the EpiPen in 2000 exceeded
pre-recall levels, and management believes the current gross margin is a more
accurate reflection of the core business performance.
Operating costs were $14.7 million in 2000, an increase of $3.2 million from
1999. The Company initiated cost reduction programs in 1999 to compensate for
the lower margins, while in 2000, it was able to invest in the Company's growth.
Research and development and selling, general and administrative expenses both
increased as product development efforts increased and a marketing
infrastructure was enhanced to support corporate long-term goals.
<PAGE>
20
Non-operating expenses in 2000 were $3.5 million, 17% higher than in 1999.
The higher level in 2000 is a result of decreased grant income from Northern
Ireland. The income tax provision was $1.5 million in 2000 and $0 in 1999,
reflecting a 40% effective rate for the current year. The current tax rate is
a result of the Company's utilization of net operating loss carryforwards,
offset by permanent book to tax differences as a result of the amortization
of intangibles. The Company continues to have operating loss carryforwards as
explained in Note 7 to the financial statements.
Line of Business Discussion
The Pharmaceutical Systems segment consists of Commercial Systems and
Government Systems. Commercial Systems operations include sales of Meridian's
highly recognized EpiPen product, used in the emergency treatment of allergic
reactions to insect stings or bites, foods, drugs and other allergens, as
well as idiopathic or exercise induced anaphylaxis.
Within the Pharmaceutical Systems segment, Commercial Systems sales were
$27.0 million in 2000, 88% higher than in 1999 due to increased revenue from
the EpiPen product. The level of demand of EpiPen has surpassed any previous
period, and is expected to continue its growth. In 1999, free units of EpiPen
were supplied to satisfy obligations from the May 8, 1998 product recall as
discussed above. It is estimated that the delivery of EpiPen units to
reimburse recall cash costs depressed 1999 revenues by $3.2 million.
Within Government Systems, the Company has a long-standing relationship with
the U.S. Department of Defense (DoD), and also markets its products to
foreign governments and state and local governments for domestic
preparedness. A New Drug Application (NDA) for Meridian's new multi-chambered
(MA) auto-injector has been submitted to the FDA on behalf of the U.S. Army
with approval anticipated in fiscal 2001. The MA features a dual chamber that
allows the automatic injection of two drugs in succession through the same
needle. The FDA recently concluded a successful Pre-Approval audit for the MA
in the Company's St. Louis facility, and production is anticipated to begin
in fiscal 2001 subject to receipt of FDA approval. A contract has recently
been signed with a major European nation to develop a version of the MA that
will contain other chemical defense antidotes.
Government Systems revenues increased by 6.5% in 2000 over the prior year to
$26.1 million. The increase resulted from higher sales to foreign
governments, reflecting an expanding international market for the Company's
products. The Company maintains a core business relationship with the DoD
through its industrial base maintenance contract, which was successfully
renegotiated in 1999. The DoD exercised the second year option of the
contract in fiscal 2000. The contract calls for the retention by the Company
of key personnel and facilities to assure expertise for manufacturing
auto-injectors containing nerve agent antidotes, the management of the U.S.
Army's Shelf Life Extension Program, the pre-stocking of critical components
to enhance readiness and mobilization capability, and new product orders.
This contract is expected to generate at least $15 million in revenues in
fiscal 2001. For purposes of complying with terms of a contract, the Company
discloses that for the year ended July 31, 2000, sales of diazapam
auto-injectors to customers other than the U.S. DoD totaled 2,035 units.
Cardiopulmonary Systems consists of the telemedicine line of business, as
well as the Company's PRIME ECG advanced electrocardiac mapping system. The
PRIME ECG system, which includes propriety software, offers the potential to
significantly improve the non-invasive diagnosis and treatment of heart
disease. U.S. clinical trials are scheduled to be completed by the end of
calendar 2000. Subject to a successful completion of the clinical trials, a
510(k) application will be made to the FDA for approval to market the product
in the U.S. The Company has signed agreements for PRIME ECG distribution in
Australia, Austria, Denmark, Switzerland, Poland, Hungary, Spain, Portugal,
and Italy and is actively negotiating agreements with several companies to
market the product throughout the remainder of Europe. The Company will
market the product directly in the United Kingdom. Initial shipment of the
<PAGE>
21
product occurred during fiscal 2000 and additional orders have been received
for which shipments began during the first quarter of fiscal 2001.
Cardiopulmonary Systems product revenues in 2000 were $1.5 million, a
decrease from 1999 sales of $1.8 million. The decrease was due to a
fluctuation in telemedicine orders.
Significant activities in the Cardiopulmonary business continued to focus on
moving the PRIME ECG system from the development phase towards market
introduction. A CE Mark was received in 1999, approving the product for sale
in Europe, and a distribution network in Europe and Australia has been
developed and continues to be expanded. US clinical trials began in November
1999 and, subject to the successful completion, an application for FDA
approval is expected to be filed in 2001.
1999 COMPARED WITH 1998
MMT's net loss after taxes for fiscal 1999 was $1,740,000 ($0.58 per share)
on revenues of $40.7 million compared to a fiscal 1998 net loss of $399,000
($0.13 per share) on revenues of $44.7 million. Included in the net loss for
1999 was a fourth quarter charge of $454,000 for the EpiPen recall, and
included in the net loss for 1998 were charges of $2.7 million for the EpiPen
recall and $494,000 for the extraordinary loss on debt extinguishment. Gross
margins decreased to 31% in 1999 compared to 39% in 1998. This decrease
reflects the impact of supplying free units of EpiPen as a result of the 1998
EpiPen recall. Operating expenses decreased by 6.8% from 1998 to 1999,
excluding the recall charges from 1999 and 1998. This reduction reflects
planned cost reductions in selling, general and administrative expenses.
Operating income and EBITDA were $1.3 and $5.1 million, respectively, in
1999, down from $3.1 and $6.9 million in 1998 due to the gross margin decline
associated with the recall.
The Company has estimated results excluding the impact of the 1998 EpiPen
recall and the 1997 EpiEZPen voluntary exchange program for the years ended
July 31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
(In thousands) Impact of the 1998 Epipen
recall and the 1997
EpiEZPen voluntary
Reported results exchange program Estimated results
---------------- ---------------- -----------------
<S> <C> <C> <C>
The year ended July 31, 1999
Net sales $ 40,730 $ 3,187 $ 43,917
Operating income 1,287 2,842 4,129
(Loss) income before income taxes (1,740) 2,842 1,102
The year ended July 31, 1998
Net sales $ 44,668 1,294 $ 45,962
Operating income 3,067 3,713 6,780
Income before income taxes and extraordinary
loss 438 3,713 4,151
</TABLE>
The table above removes the estimated impact of the 1998 EpiPen recall and
the 1997 EpiEZPen voluntary exchange program from actual reported results.
The impact includes lost sales and gross margins due to free units supplied
to reimburse for cash costs, as well as the actual expense provided. The
above analysis does not quantify the impact that the free units supplied for
replacement purposes had on sales and gross margins.
Commercial business sales were $14.4 million in 1999, 36% lower than 1998
resulting from free units of EpiPen supplied to satisfy replacement units and
cash costs relating to the EpiPen recall. Government business sales were
$24.5 million, 16% higher than 1998 as sales to the U.S. Department of
Defense (DoD) and civilian defense customers grew. Cardiopulmonary sales were
$1.8 million in 1999, 69% higher than 1998 reflecting increased telemedicine
sales, primarily the CardioBeeper product.
<PAGE>
22
Gross margins were 31% of sales in 1999 compared to 39% in 1998. The decreased
gross margins from 1998 to 1999 resulted primarily from recall obligations.
Operating costs were $11.4 million in 1999, a decrease of $3.1 million from
1998. Most of the decreased cost was from reserve provisions for the EpiPen
recall totaling $2.7 million which was expensed in 1998. Additionally,
administrative costs were lower by 10% due to cost reduction programs.
Non-operating expenses in 1999 were $3.0 million, 15% higher than in 1998.
The higher costs in 1999 resulted from increased interest cost on debt.
Interest cost includes a full year of the Senior Subordinated Debt compared
to only 3 months in 1998, following the April 30, 1998 refinancing.
Additionally, borrowings on the Revolving Line of Credit were higher in 1999
due to working capital requirements relating to production for recall
obligations. The Company generated other income items amounting to $340,000
in 1999 and $256,000 in 1998, mostly from grant income in 1999 and sales of
nonstrategic technology in 1998. The income tax provision was $0 in 1999 and
$26,000 in 1998 for Alternative Minimum Tax. The Company continues to have
significant operating loss carryforwards as explained in Note 7 to the
financial statements.
Line of Business Discussion
Commercial sales were $14.4 million in 1999, 36% lower than in 1998 due to
free units of EpiPen supplied to satisfy obligations from the May 8, 1998
product recall. R&D services and contract filling both had an increase in
revenues from 1998 to 1999, including the initial shipment to Mylan
Laboratories of Acyclovir, contributing modestly toward this business unit's
results.
Government revenues increased by 16% in 1999 over the prior year to $24.5
million. The increase resulted from higher sales to the DoD under the IBMC
contract, as well as sales to local municipalities for civil defense -
domestic preparedness applications. Sales to foreign governments were 58%
higher in 1999 than 1998 reflecting a favorable timing of orders and an
expanding international market for the Company's products.
Cardiopulmonary product revenues in 1999 were $1.8 million, an increase from
1998 sales of $1.1 million. The increase was due to higher telemedicine
sales, specifically the CardioBeeper and CardioPocket products. The Company
capitalized $1,043,000 in 1999 for software development costs relating to
PRIME.
Extraordinary Loss
The Company refinanced its term debt on April 30, 1998 and took a $494,000
after-tax charge to write-off unamortized debt discount associated with
warrants issued in conjunction with the original debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company provided $8.5 million of cash from operations in 2000. Positive
cash flows from operations consisted primarily of net income, non-cash
expenses for depreciation and amortization, and a decrease in accounts
receivable, which were partially offset by an increase in inventories.
Investing activities used $1.8 million of cash in fiscal 2000 primarily for
capital additions. Financing activities used $6.9 million primarily for the
paydown of debt.
Working capital at July 31, 2000 was $7.6 million, up from $4.4 million at
July 31, 1999. The increase is primarily attributable to the paydown of the
Company's lines of credit. At July 31, 2000, accounts receivable were $7.2
million, representing 54 days-sales-outstanding, and inventories were $8.1
million reflecting a turn-over rate of 4.4 times per year. Borrowings under
the working capital lines were $1.7 million, leaving $7.0 million available
credit at July 31, 2000. The maximum available under the
<PAGE>
23
Company's asset based line of credit will revert to $6.5 million on October
31, 2000, down from the $8.5 million maximum, to which it was increased in
fiscal 1999.
OUTLOOK
The Company anticipates that the two core business units within
Pharmaceutical Systems will have strong years in fiscal 2001 which will
result in double digit percentage earnings per share growth for the year as a
whole, and increased EBITDA over fiscal year 2000. Commercial Systems plans
to build upon last year's impressive growth. Percentage revenue growth in
this business unit is not expected to approach the rate of increase of fiscal
year 2000, but the Company anticipates an increase in demand for its core
products of approximately ten percent. The Government Systems group is
expecting to continue to maintain its strong and stable core U.S. DoD
business, while experiencing increasing demand for its products in foreign
markets. Additionally, further inroads into the Domestic Preparedness market
are expected.
The Cardiopulmonary Systems business unit is expected to contribute
additional revenue growth to the Company in fiscal year 2001. PRIME ECG sales
in Europe and Australia are expected to begin to accelerate during the year,
as the business unit's primary focus continues its shift to sales and
marketing of this new technology. Clinical trials in the United States and
the United Kingdom are expected to be completed during the second quarter.
This will be followed by a 510(k) filing with the FDA. The Company
anticipates that initial sales of PRIME ECG will occur in the United States
during the fourth quarter of fiscal year 2001, subject to gaining FDA
approval.
The Company expects to generate increased EBITDA during fiscal year 2001. The
Company will invest substantial amounts in developing the market for PRIME
ECG and will increase its expenditures in research and development focused on
further applications for its auto injector technology. Additionally, the
Company expects to reduce its debt during the year through cash generated by
operations and/or a placement of equity securities.
INFLATION
In the view of management, the low levels of inflation in recent years and
changing prices have had no significant effect on the Company's financial
condition and results of operations. Generally, the Company is able to
mitigate the effects of inflation on operating costs and expenses through
price increases and productivity gains.
<PAGE>
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar, as compared to foreign currencies, as a result of transactions in
foreign markets. At July 31, 2000, the result of a uniform 10% strengthening
in the value of the dollar relative to the currencies in which the Company's
transactions are denominated would have resulted in an increase in net income
of approximately $169,000 for the year ended July 31, 2000. This calculation
assumes that each exchange rate would change in the same direction relative
to the U.S. dollar. In addition to the direct effects of changes in exchange
rates, which are a changed dollar value of the resulting sales, changes in
exchange rates also affect the volume of sales or the foreign currency sales
price as competitors' services become more or less attractive. The Company's
sensitivity analysis of the effects of changes in foreign currency exchange
rates does not factor in a potential change in sales levels or local currency
prices.
While the Company is exposed to changes in interest rates as a result of its
outstanding debt, the Company does not currently utilize any derivative
financial instruments related to its interest rate exposure. Total short-term
and long-term debt outstanding at July 31, 2000 was $19.6 million, consisting
of $5.2 million in variable rate borrowing and $14.4 million in fixed rate
borrowing. At this level of variable rate borrowing, a hypothetical 10%
increase in interest rates would have decreased pre-tax earnings by
approximately $49,000 for the year ended July 31, 2000. At July 31, 2000, the
fair value of the Company's fixed rate debt outstanding was estimated at
$15.0 million. A hypothetical 10% change in interest rates would not result
in a material change in the fair value of the Company's fixed rate debt.
<PAGE>
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
July 31,
2000 1999
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 79 $ 227
Restricted cash 285 278
Receivables, less allowances of $524
and $467, respectively 7,229 9,557
Inventories 8,061 6,889
Deferred income taxes 1,937 1,965
Prepaid income taxes - 546
Other current assets 1,218 771
---------- ----------
Total current assets 18,809 20,233
---------- ----------
Property, plant and equipment 23,261 21,407
Less - Accumulated depreciation 7,466 5,581
---------- ----------
Net property, plant and equipment 15,795 15,826
---------- ----------
Deferred financing fees 691 749
Capitalized software costs 1,429 1,588
Excess of cost over net assets acquired, net 6,340 7,403
Other intangible assets, net 1,621 1,952
---------- ----------
Total assets $ 44,685 $ 47,751
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 8,062 $ 7,080
Note payable to bank 1,743 7,317
Customer deposits 392 54
Current portion of long-term debt 1,026 1,409
---------- ----------
Total current liabilities 11,223 15,860
---------- ----------
Long-term debt - notes payable, net of discount 16,823 17,582
Long-term debt - other - 57
Deferred income taxes 1,765 1,793
Other non-current liabilities 783 721
Commitments and contingencies (Note 9) - -
---------- ----------
Total liabilities 30,594 36,013
---------- ----------
Shareholders' equity:
Common stock (voting and non-voting)-
Par value $.10 per share; 18,000,000 shares
authorized; 3,001,962 and 2,994,930 shares issued 300 299
Additional capital 32,345 32,187
Accumulated other comprehensive income --cumulative
translation adjustment (154) (14)
Accumulated deficit (18,152) (20,451)
Unearned stock option compensation (35) (70)
Treasury stock, 30,176 shares at cost (213) (213)
----------- -----------
Total shareholders' equity 14,091 11,738
---------- ----------
Total liabilities and shareholders' equity $ 44,685 $ 47,751
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
26
MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net sales $ 54,607 $ 40,730 $ 44,668
Cost of sales 32,591 28,020 27,091
------------- ------------- ------------
Gross profit 22,016 12,710 17,577
Selling, general, and administrative expenses 8,174 6,245 6,928
Research and development expenses 2,853 1,248 1,300
Depreciation and amortization 3,640 3,476 3,538
Product exchange/recall expense - 454 2,744
------------- ------------- ------------
14,667 11,423 14,510
------------- ------------- ------------
Operating income 7,349 1,287 3,067
Other (expense) income:
Interest expense (3,301) (3,367) (2,885)
Other (expense) income (235) 340 256
-------------- ------------- ------------
(3,536) (3,027) (2,629)
-------------- -------------- ------------
Income (loss) before income taxes and
extraordinary loss 3,813 (1,740) 438
Provision for income taxes 1,514 - 343
------------- ------------- ------------
Income (loss) before extraordinary loss 2,299 (1,740) 95
Extraordinary loss on debt extinguishment (net
of an income tax benefit of $317) - - (494)
------------- ------------- ------------
Net income (loss) $ 2,299 $ (1,740) $ (399)
============= ============= ============
Earnings per common share:
Income (loss) before extraordinary item $ 0.77 $ (0.58) $ 0.03
Extraordinary loss - - (0.16)
------------- ------------- ------------
Net income (loss) per common share $ 0.77 $ (0.58) $ (0.13)
============= ============= ============
Earnings per common share assuming dilution:
Income (loss) before extraordinary item $ 0.70 $ (0.58) $ 0.03
Extraordinary loss - - (0.15)
------------- ------------- ------------
Net income (loss) per common share assuming
dilution $ 0.70 $ (0.58) $ (0.12)
============= ============= =============
Weighted average shares:
Basic 2,996 2,993 2,971
Diluted 3,276 2,993 3,328
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
27
MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,299 $ (1,740) $ (399)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization 3,640 3,476 3,538
Amortization of unearned stock compensation 35 35 35
Amortization of capitalized software costs 159 - -
Amortization of notes payable discount and
deferred financing fees 369 246 876
Non-cash charge to modify warrant terms - 75 166
Deferred income taxes - (280) 28
Extraordinary loss on debt extinguishment - - 811
Changes in assets and liabilities
Receivables 2,328 (2,912) 720
Inventories (1,172) 1,723 (2,565)
Other current assets 99 (636) (150)
Accounts payable and other accrued
liabilities 958 (261) (1,299)
Other (184) 149 (101)
------------- ------------- --------------
Net cash provided by (used for) operating
activities 8,531 (125) 1,660
INVESTING ACTIVITIES
Purchase of fixed assets (1,747) (1,493) (2,668)
Increase in restricted cash (7) (7) (7)
Capitalized software costs - (1,043) (545)
------------ -------------- --------------
Net cash used for investing activities (1,754) (2,543) (3,220)
FINANCING ACTIVITIES
Net (payment) proceeds from line of credit (5,574) 3,329 (125)
Payment on long-term debt (1,440) (717) (12,447)
Proceeds on long-term debt - - 14,070
Proceeds from issuance of warrants - - 930
Payment of financing fees (70) (30) (868)
Proceeds from issuance of common stock 159 29 261
------------ ------------- -------------
Net cash (used for) provided by financing
activities (6,925) 2,611 1,821
------------- ------------- -------------
Net (decrease) increase in cash (148) (57) 261
Cash and cash equivalents at beginning of period 227 284 23
------------ ------------- -------------
Cash and cash equivalents at end of period $ 79 $ 227 $ 284
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
28
MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Unearned
Cumulative Stock
Common Additional Accumulated Translation Treasury Option Shareholders'
Stock Capital Deficit Adjustment Stock Compensation Equity
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1997 $ 292 $ 30,733 $(18,312) $ (67) $ (213) $ (140) $12,293
Warrants issued with notes
payable - 930 - - - - 930
Modification of warrant terms - 166 - - - - 166
Issuance of common stock from
the exercise of stock options
and warrants 7 254 - - - - 261
Amortization of stock option
compensation - - - - - 35 35
Foreign currency translation - - - 52 - - 52
Net loss - - (399) - - - (399)
------------
Total comprehensive loss (347)
------------------------------------------------------------------------------
Balance at July 31, 1998 299 32,083 (18,711) (15) (213) (105) 13,338
Issuance of common stock from
the exercise of stock options
and warrants - 29 - - - - 29
Modification of warrant terms - 75 - - - - 75
Amortization of stock option
compensation - - - - - 35 35
Foreign currency translation - - - 1 - - 1
Net loss - - (1,740) - - - (1,740)
------------
Total comprehensive loss (1,739)
------------------------------------------------------------------------------
Balance at July 31, 1999 299 32,187 (20,451) (14) (213) (70) 11,738
Issuance of common stock from
the exercise of stock options
and warrants 1 158 - - - - 159
Amortization of stock option
compensation - - - - - 35 35
Foreign currency translation - - - (140) - - (140)
Net income - - 2,299 - - - 2,299
------------
Total comprehensive income 2,159
------------------------------------------------------------------------------
Balance at July 31, 2000 $ 300 $ 32,345 $(18,152) $ (154) $ (213) $ (35) $14,091
==============================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
29
ITEM 8. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERIDIAN MEDICAL TECHNOLOGIES, INC.
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Meridian Medical Technologies, Inc. ("Company") is a technology-based health
care company that designs, develops and produces a broad range of automatic
injectors, prefilled syringes, cardiopulmonary diagnostic and monitoring
products, and other innovative health care devices. The Company also supplies
customized drug delivery system design, pharmaceutical research and
development and FDA current Good Manufacturing Practice (cGMP)-approved
sterile product manufacturing to pharmaceutical and biotechnology companies.
PRINCIPLES OF CONSOLIDATION
All intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all investments with a maturity of three months or less
on their acquisition date to be cash equivalents. Restricted cash consists of
cash pledged as collateral on an outstanding letter of credit supporting the
working capital line of credit at the Company's Belfast subsidiary.
INVENTORIES
Inventories relating to commercial and military products are stated at the
lower of cost (first-in, first-out) or market.
FIXED ASSETS
Fixed assets are stated at cost. The Company computes depreciation and
amortization under straight-line and accelerated methods using the following
estimated useful lives:
<TABLE>
<S> <C>
Furniture and equipment 2 to 15 years
Capital leases and leasehold improvements 4 to 31.5 years
</TABLE>
The Company uses either the units of production method or the straight-line
method over a 10-year life (whichever period is shorter) to depreciate
production molds and tooling over their estimated production life cycle.
<PAGE>
30
INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
July 31,
2000 1999
---- ----
<S> <C> <C>
Excess of cost over net assets acquired $ 10,351 $ 10,351
Patents and licenses 2,418 2,418
Other 1,805 1,805
--------------- ---------------
14,574 14,574
Less: accumulated amortization (6,613) (5,219)
--------------- ---------------
$ 7,961 $ 9,355
=============== ===============
</TABLE>
Excess of cost over net assets acquired and other intangible assets are
amortized over 10 years. Legal costs incurred in connection with patent
applications and costs of acquiring patents and licenses are capitalized and
amortized on a straight-line basis over the shorter of the patent life (not to
exceed seventeen years) or the period of expected benefit.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets to determine whether an event or
change in circumstances indicates that the carrying amount of the asset may not
be recoverable. For long-lived assets to be held and used, the Company bases its
evaluation on such impairment indicators as the nature of the assets, the future
economic benefit of the assets, any historical or future profitability
measurements, as well as other external market conditions or factors that may be
present. If such impairment indicators are present or other factors exist that
indicate that the carrying amount of the asset may not be recoverable, the
Company determines whether an impairment has occurred through the use of an
undiscounted cash flows analysis of assets at the lowest level for which
identifiable cash flows exist. If impairment has occurred, the Company
recognizes a loss for the difference between the carrying amount and the
estimated value of the asset. The fair value of the asset is measured using
discounted cash flow analysis or other valuations techniques. No impairment
expense was recognized for the years ended July 31, 2000, 1999 and 1998.
REVENUE RECOGNITION
Sales of medical products are recorded when shipments are made to customers.
Shipping terms are FOB shipping point. Revenues from the U.S. Department of
Defense ("DoD") industrial base maintenance contract are recorded ratably
throughout the contract term, with the exception of revenue from product sales,
which are recorded upon acceptance by the customer, and revenue from the
component prestocking program. Under the component prestocking program, the
customer purchases raw material inventory from the Company. Upon receipt and
inspection of raw materials from suppliers, title passes to the customer, at
which point the Company invoices the customer and records revenue. Revenues from
license fees are recorded when the fees are due and non-refundable. Revenues
from research and development arrangements are recognized in the period related
work has been substantially completed.
FOREIGN CURRENCY
Assets and liabilities of foreign operations are translated at the exchange rate
in effect at the balance sheet date. Revenue and expense accounts are translated
using a weighted average of exchange rates in effect during the year. Cumulative
translation adjustments are shown in the accompanying consolidated balance
sheets as a separate component of shareholders' equity. The aggregate exchange
gain (loss) included in determining net income was $40,000, ($62,000), and
($12,000) for the years ended July 31, 2000, 1999, and 1998, respectively.
<PAGE>
31
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to operations in the period
incurred. Customer funded R&D projects generated $1.5 million and $1.8 million
of revenues for the years ended July 31, 2000 and 1999, respectively. Costs
associated with these projects are reported as costs of goods sold in the same
period that revenue is recognized.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of temporary differences between carrying amounts and
the tax basis of assets and liabilities. A valuation allowance reduces deferred
tax assets when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
VALUE OF FINANCIAL INSTRUMENTS
Other than described below, the Company considers the recorded value of its
financial assets and liabilities, which consist primarily of cash, accounts
receivable, accounts payable and other accrued liabilities to approximate the
fair value of the respective assets and liabilities at July 31, 2000 and 1999.
Management believes the principal balance of its long-term debt, which is
$927,000 and $1.2 million higher than the carrying value at July 31, 2000 and
1999, respectively, is a better estimate of the fair value of that liability.
The debt is carried net of unamortized discount.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates and assumptions.
NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
NUMERATOR:
<S> <C> <C> <C>
Income (loss) before extraordinary loss $ 2,299 $(1,740) $ 95
Extraordinary loss on debt extinguishment (net
of an income tax benefit of $317) - - (494)
------- -------- --------
Net income (loss) $ 2,299 $(1,740) $ (399)
======= ======== ========
DENOMINATOR:
Denominator for basic earnings per share -
weighted average shares outstanding 2,996 2,993 2,971
Dilutive effect of stock options and warrants 280 - 357
------- -------- --------
Denominator for diluted earnings per share 3,276 2,993 3,328
======= ======== ========
</TABLE>
<PAGE>
32
RECLASSIFICATION
Certain reclassifications have been made to prior year financial statements in
order to conform with the current year presentation.
2. INVENTORIES
Inventories as of July 31, 2000 and 1999 consist of the following (in
thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Components and subassemblies $ 4,673 $ 3,667
Work in process 3,250 3,325
Finished goods 884 335
------------ ------------
8,807 7,327
Less: inventory valuation allowance (746) (438)
------------ ------------
$ 8,061 $ 6,889
============ ============
</TABLE>
3. FIXED ASSETS
Fixed assets as of July 31, 2000 and 1999 consist of the following (in
thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Furniture and equipment $ 15,957 $ 14,889
Leasehold improvements 4,852 4,862
Construction in progress 2,452 1,656
------------ ------------
23,261 21,407
Less: accumulated depreciation (7,466) (5,581)
------------ ------------
$ 15,795 $ 15,826
============ ============
</TABLE>
The Company capitalized interest costs of $0 and $51,000 on internally
constructed fixed assets for the years ended July 31, 2000 and 1999,
respectively.
Depreciation expense was $2.2, $2.1 and $2.2 million for the years ended July
31, 2000, 1999 and 1998, respectively.
4. CAPITALIZED SOFTWARE COSTS
During fiscal 1999 and 1998, the Company capitalized $1,043,000 and $545,000,
respectively, of software development costs related to a product under
development, the PRIME ECG Electrocardiac Mapping System. No further costs were
capitalized on this project during fiscal 2000. The Company accounts for these
development costs in accordance with SFAS 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." The Company began
amortizing the capitalized costs during the third quarter of fiscal 2000, the
time the product was available for general release to customers. The capitalized
costs are amortized on a product by product basis based on the greater of the
ratio of current sales to estimated total sales or a straight-line basis over
the remaining estimated economic life of the product, not exceeding five years.
The Company periodically evaluates the capitalized software costs for
recoverability against anticipated future revenues, and writes down or writes
off a portion of the capitalized costs if recoverability is in question.
<PAGE>
33
5. DEBT
SENIOR SUBORDINATED NOTES
In April 1998, the Company entered into a note agreement with Nomura Holding
America, Inc. for $15 million of senior subordinated notes, at a 12% fixed rate
of interest, due April 2005. The Company issued a warrant to Nomura to purchase
204,770 shares of the Company's common stock in conjunction with the
transaction. $930,000 of the proceeds was allocated to the value of the warrant;
accordingly, the note is carried net of the related unamortized discount. The
Company is amortizing the discount over the term of the debt. This resulted in
charges against operations of $132,800 in fiscal 2000 and 1999, and $33,000 in
fiscal 1998. Subsequent to this transaction, the Company modified the terms of
the warrant issued to Nomura, lowering the per share exercise price from $11.988
to $4.625. The Company recorded additional interest expense of $75,000 and
$166,000 in fiscal 1999 and 1998, respectively, relating to the modification of
terms.
Proceeds from the transaction were used for the following (in thousands):
<TABLE>
<S> <C>
Paydown of ING term note (see below) $ 3,500
Payoff of Sarnoff note 6,004
Payoff of EM Industries subordinated loan 1,277
Paydown of ING Line of Credit 3,351
Financing fees (deferred) 868
---------
$ 15,000
=========
</TABLE>
Among other things, the Company is required to maintain certain financial
covenants and is restricted from paying cash dividends.
LINES OF CREDIT
The Company has an agreement with International Nederlanden (U.S.) Capital
Corporation ("ING") for an $8.5 million line of credit and a $5 million
long-term loan.
The ING line of credit accrues interest at either the greater of the prime rate
plus 1.25% (10.75% at July 31, 2000) or the federal funds rate plus 1.75%; or
the eurodollar loan rate plus 3.25%. The ING line is secured by certain accounts
receivable and inventory. The outstanding borrowing on the Company's ING line of
credit was $1.7 million and $7.2 million at July 31, 2000 and 1999,
respectively. The Company pays a commitment fee to ING of .5% on the average
unused portion of the line of credit. The interest rate on outstanding
borrowings was 10.75% at July 31, 2000 and 9.25% at July 31, 1999.
An additional line of credit exists for the Company's operation in N. Ireland.
The line of credit is for (pound)145,000 and is secured by an irrevocable
standby Letter of Credit. The line of credit matures annually each December and
bears interest on outstanding borrowings at the bank's published rate of 8.00%
at July 31, 2000. The outstanding borrowing on this line of credit was $93,000
and $168,000 at July 31, 2000 and 1999, respectively.
LONG-TERM DEBT (ING)
The term loan with ING accrues interest at either the Eurodollar loan rate plus
3.5%; or the greater of the prime rate plus 1.5% (11.0% at July 31, 2000) or the
federal funds rate plus 2.00%. The loan is repayable in quarterly principal
payments of $250,000 until March 2002, at which point payments increase to
$500,000 per quarter. The loan matures on March 31, 2003. As noted above, a
portion of the proceeds of the Nomura note were used to pay down this term debt
in April 1998. The outstanding balance was $3,750,000 and $4,750,000 at July 31,
2000 and 1999, respectively.
<PAGE>
34
Warrants were issued to ING in the financing described above. The Company
allocated $2,072,900 of the note proceeds to the warrants based on the relative
fair value of the warrants and the note at the agreement date. Accordingly, the
note is carried at a discount from its maturity value. $811,000 of the remaining
unamortized discount ($494,000 after the tax benefit of $317,000) was written
off as an extraordinary loss on extinguishment of debt in April 1998. The
Company is amortizing the remaining discount over the term of the debt. This
resulted in charges against operations of $108,000 in fiscal 2000 and 1999, and
$181,000 in fiscal 1998. Among other things, the Company is required to maintain
certain financial covenants and is restricted from paying cash dividends.
OTHER LONG-TERM DEBT
In May 1995, the Company entered into a loan agreement with the CIT
Group/Equipment Financing, Inc. ("CIT") to assist in financing the Company's
capital investment programs. This arrangement consists of a series of loans for
the acquisition of production molds, high-speed component preparation and
filling equipment and facility renovations. Loan principal outstanding was
$26,000 and $294,000 as of July 31, 2000 and 1999, respectively. The interest
rate in both years was approximately 8.8%. Repayment of each loan is due in
sixty (60) equal monthly installments. The agreement with CIT is collateralized
by the asset financed with the loan.
In January 1996, the Company received a non-interest bearing loan in the amount
of $375,000 from Dey Laboratories (Dey), STI's exclusive distributor for the
EpiPen(R). The proceeds from this loan assisted the Company in purchasing
high-speed filling and automated packaging equipment. Repayment of this loan
commenced during the first quarter of fiscal 1997 with an agreed upon credit per
unit of product shipments to Dey. The balance at July 31, 1999 was $172,000 and
the loan was repaid in full during the year ended July 31, 2000.
Maturities of all long term-debt are as follows (in thousands):
<TABLE>
<S> <C> <C>
2001 $ 1,026
2002 1,250
2003 1,500
2004 -
2005 15,000
Thereafter -
-------------
Subtotal 18,776
Discounts on term loans (927)
-------------
Total debt per balance sheet $ 17,849
=============
</TABLE>
Interest paid for the years ended July 31, 2000, 1999 and 1998 was $2,958,000,
$2,882,000 and $2,314,000, respectively.
6. SHAREHOLDERS' EQUITY
STOCK OPTIONS
The Company has adopted two Stock Option Plans ("the Plans") which reserve
500,000 shares for granting of options through 2001 and 500,000 shares, subject
to shareholder approval, for granting of options through 2007. The Plans provide
for issuance of non-qualified stock options, incentive stock options, stock
appreciation rights, incentive shares and restricted stock. The Company also has
assumed stock options granted by predecessor companies.
Options granted to employees, officers and directors pursuant the Company's
stock option plans generally have been exercisable in varying amounts in
cumulative annual installments up to ten years
<PAGE>
35
from the date of grant. The exercise price on all options granted during years
ended July 31, 2000 and 1999 was equivalent to the market value of the Company's
stock on the date of grant. The Company recognized $35,000 of expense in each of
fiscal 2000, 1999, and 1998 as a result of options issued in prior years with
exercise prices less than fair market value at the date of grant.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," recommends a fair value based methodology of
accounting for all stock option plans. Under SFAS No. 123, companies may account
for stock options under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations and provide
pro forma disclosure of net income, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. The Company has elected to
follow APB 25 and related Interpretations in accounting for its employee stock
options and provide pro forma fair value disclosure under SFAS 123.
For SFAS 123, the fair value of options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998. Risk-free interest rate of 5.0%, 6.5%, and
4.2%, respectively; no dividends; a volatility factor of the expected market
price of the Company's common stock of .55, .49, and .53, respectively, and a
weighted-average expected life of the options of approximately 4-10 years. The
weighted average fair value of options granted during 2000, 1999 and 1998 was
$4.36, $4.89, and $3.93, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the purpose of pro forma disclosures, the estimated fair value of the stock
options is amortized to expense over the options' vesting periods. The Company's
pro forma net income (loss) and net income (loss) per share calculated using the
provisions of FAS 123 were as follows (in thousands except per share data):
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ 2,299 $ (1,740) $ (399)
Pro forma FAS 123 expense (394) (284) (155)
--------------- ---------------- ----------------
Pro forma net income (loss) $ 1,905 $ (2,024) $ (554)
=============== ================ ================
Weighted average shares outstanding 2,996 2,993 2,971
Pro forma net income (loss) per share $ 0.64 $ (0.68) $ (0.19)
</TABLE>
<PAGE>
36
The following table summarizes stock option activity and stock options
exercisable for the years ended July 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
2000 Weighted Average 1999 Weighted Average 1998 Weighted Average
---- Exercise Price ---- Exercise Price ---- Exercise Price
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Number of shares
Options outstanding at
beginning of year 795,435 $ 6.81 645,100 $ 6.83 553,300 $ 6.15
Granted during the year
281,326 6.20 203,685 7.07 163,200 8.62
Exercised during the
year (7,032) 9.13 (4,067) 7.49 (40,200) 6.98
Expired or terminated (59,895) 8.02 (49,283) 8.11 (31,200) 6.04
------------- -------- ----------- -------- ----------- ---------
Options outstanding at
end of year 1,009,834 $ 6.54 795,435 $ 6.81 645,100 $ 6.83
============ ======== =========== ======== =========== =========
Options exercisable at
end of year 519,334 $ 6.18 473,800 $ 6.04 383,200 $ 6.13
============ ======== =========== ======== =========== =========
</TABLE>
The price range of options outstanding are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Less than $1.00 148,512 148,512 148,512
$1.00 to $5.00 66,950 56,950 61,950
$5.00 to $9.00 586,059 353,960 196,075
$9.00 + 208,313 236,013 238,563
-------------------- -------------------- --------------------
1,009,834 795,435 645,100
==================== ==================== ====================
</TABLE>
The average contractual life of the Company's options is approximately 6-10
years.
COMMON STOCK WARRANTS
Outstanding warrants to acquire the Company's common stock as of July
31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Exercise price:
Less than $1.00 83,579 83,579
$1.00 -$10.99 381,968 397,302
@$11.00 512,645 513,271
-------------------- --------------------
978,192 994,152
==================== ====================
</TABLE>
598,931 of the warrants expire during calendar year 2001, 204,770 expire in
2005, and 174,491 expire in 2006.
<PAGE>
37
7. INCOME TAXES
The provision for federal, state, and foreign income taxes exclusive of taxes
related to the extraordinary loss consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,357 $ (230) $ 554
State 447 (50) 122
Foreign 185 - -
NOL utilization (1,475) - (358)
----------- ----------- -----------
1,514 (280) 318
Deferred:
Federal and state - 280 25
Other - - -
----------- ----------- -----------
- 280 25
----------- ----------- -----------
$ 1,514 $ - $ 343
=========== =========== ===========
</TABLE>
The following is a reconciliation of the provision for income taxes from
continuing operations to the provision calculated at the statutory rate (in
thousands):
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes at federal statutory
rate $ 1,296 $ (592) $ 149
State taxes, net of federal income tax benefit 261 (122) 20
Non-deductible costs 483 474 512
Changes in valuation allowance (920) 172 (358)
Foreign taxes 321 - -
Other 73 68 20
----------- ----------- -----------
$ 1,514 $ - $ 343
=========== =========== ===========
</TABLE>
The Company paid income taxes of $126,400, $761,700, and $508,000 for the years
ended July 31, 2000, 1999, and 1998, respectively.
<PAGE>
38
The Company provides deferred income taxes for temporary differences between the
book basis of assets and liabilities for financial reporting purposes and the
basis of assets and liabilities for tax return purposes. Deferred tax assets and
liabilities were as follows at July 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
July 31,
2000 1999
---- ----
<S> <C> <C>
Foreign net operating loss carryforwards $ 1,456 $ 1,003
U.S. net operating loss and tax credits carryforward 787 2,391
Inventory valuation 244 113
Uniform inventory capitalization 421 530
Postretirement benefits 305 281
Vacation expense 163 136
Restructuring charge 31 51
Product exchange reserve - 139
Other 522 233
Valuation allowance (1,992) (2,912)
------------ -------------
Deferred tax asset $ 1,937 $ 1,965
============ ============
Depreciation $ (1,648) $ (1,666)
Patent costs (117) (127)
Other - -
------------ -------------
Deferred tax liability $ (1,765) $ (1,793)
============= =============
</TABLE>
At July 31, 2000, the Company has net operating losses (NOLs) available for
future use to offset U.S. income of approximately $2.0 million. These NOLs begin
to expire in 2005. At July 31, 2000, MMT Ltd., a U.K. subsidiary, has NOLs to
offset its future U.K. income of approximately $4.9 million, which have no
expiration date.
Realization of net deferred tax assets at the balance sheet date is dependent
upon future earnings. Based on hisortical net operating losses and uncertain
future earnings, a valuation allowance to offset a substantial portion of net
deferred tax assets has been recorded at July 31, 2000 and 1999.
For financial statement reporting purposes, income before income taxes includes
the following components:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
U.S. $ 5,321 $ (1,116) $ 1,319
Foreign (1,508) (624) (881)
---------- ------------ -----------
$ 3,813 $ (1,740) $ 438
========== ============ ==========
</TABLE>
8. EMPLOYEE RETIREMENT PLANS
PENSION AND SAVINGS PLANS
The Company maintains a profit sharing thrift plan covering all full-time
employees. Annual contributions under the plan may be made up to 6.6% of the
base annual salary of all plan participants not covered by a collective
bargaining agreement. Plan benefit allocations are based on the participants'
annual compensation. The Company made no contributions in fiscal 2000, 1999, or
1998. As part of this profit sharing thrift plan, eligible employees may elect
to contribute up to 12% of their base salary to the plan. The Company matches a
portion of the contributions by employees not covered by a collective
<PAGE>
39
bargaining agreement. The Company match amounted to $156,700, $153,600, and
$151,300 in fiscal years 2000, 1999, and 1998, respectively.
The Company also made payments to a pension plan for its full-time employees in
St. Louis, Missouri covered by a collective bargaining agreement. Contributions
to this plan resulted in expense of $125,600, $103,400, and $101,700 in fiscal
years 2000, 1999, and 1998, respectively.
OTHER POSTRETIREMENT BENEFITS
The Company sponsors a postretirement benefit plan (the "Plan") to provide
certain medical and life insurance benefits to retirees, their spouses and
dependents. The Plan is contributory for medical benefits based on the retiree's
years of service and is noncontributory for life insurance benefits. The Company
funds its obligations under the Plan as incurred.
The following table sets forth the Plan's funded status (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Benefit obligation at the beginning of the year $ 991 $ 945
Service cost 20 34
Interest cost 54 71
Actuarial (gain)/loss (319) (13)
Benefits paid (36) (46)
------------- -------------
Benefit obligation at the end of the year 710 991
Unrecognized prior service cost (24) (33)
Unrecognized net gain 680 391
Unrecognized transition obligation (583) (628)
------------- -------------
Accrued benefit costs $ 783 $ 721
============ ============
</TABLE>
The Company recognized net periodic postretirement expense of $98,100, $111,000
and $91,000 for the years ended July 31, 2000, 1999 and 1998, respectively, as
follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits attributed to service during
periods $ 20 $ 34 $ 29
Interest cost on accumulated postretirement benefit
obligation 54 71 67
Amortization of prior service 9 9 9
Amortization of net gain (30) (48) (59)
Amortization of transition obligation 45 45 45
------------ ------------ ------------
Net periodic postretirement benefit cost $ 98 $ 111 $ 91
============ ============ ============
</TABLE>
For measurement purposes, an 7.5% annual rate of increase in cost of health care
was assumed for fiscal 2000; the rate was assumed to decrease gradually to 5% by
2005 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing assumed health care cost by 1% in each year would increase the
accumulated postretirement benefit obligation as of July 31, 2000 by $109,000
and the aggregate of the service and interest cost component of net periodic
postretirement benefit cost by $15,000 for the year ended July 31, 2000. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for 2000 and 1999.
<PAGE>
40
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has various commitments under operating leases through 2014 relating
to computer hardware and software, its pharmaceutical manufacturing facility and
warehouses in St. Louis, Missouri, its facility in the United Kingdom, a
facility in Belfast, Northern Ireland, and administrative offices in Columbia,
Maryland and St. Louis, Missouri.
Future minimum rentals as of July 31, 2000 under noncancellable leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Operating Sublease
Year Ending July 31, Leases Revenue
-------------------- ------ -------
<S> <C> <C>
2001 $ 1,434 $ 374
2002 982 207
2003 606 29
2004 552 2
2005 475 -
Thereafter 3,190 -
------------ ------------
$ 7,239 $ 612
============ ============
</TABLE>
The Company incurred net rental expense of $1,282,500, $1,066,200 and $986,200
in 2000, 1999 and 1998, respectively.
SALE/LEASEBACK OF FORMER HEADQUARTERS BUILDING
In connection with the December 1988 sale of the Company's former headquarters
building in Bethesda, Maryland, the Company's obligations under the Leasehold
Deed of Trust ("Ground Lease") were assigned to and assumed by the purchaser of
the building. The Company remains contingently liable under the Ground Lease.
The annual commitment under the Ground Lease aggregated $160,000 in 2000
(adjusted for increases in the Consumer Price Index) and extends until the year
2042.
LITIGATION
Lawsuits and claims are filed from time to time against the Company and its
subsidiaries in the ordinary course of business. Management of the Company,
after reviewing developments to date with legal counsel, is of the opinion that
the outcome of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
GOVERNMENT CONTRACT REVENUE
The Company's supply contracts with the Department of Defense ("DoD") are
subject to post-award audit and potential price redetermination. In the opinion
of management, adjustments, if any, on completed contracts would not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
<PAGE>
41
EMPLOYEE CONTRACTS
The Company has an agreement with a key employee which provides for certain
benefits should the employee be terminated within the term of the agreement for
other than specified reasons. The Company also has agreements with certain key
employees which provide for certain benefits should the employees be terminated
within a two year period subsequent to a change of control (as defined by the
agreements) for other than specified reasons. Benefits to be provided under
these agreements include continued life, disability, accident and health
insurance coverage for a period of two years and a severance payment up to
100-200% of the employee's annual base compensation. Additionally, all stock
options held by the employee become immediately exercisable and any restrictions
on transfer of the Company's stock held by the employee shall lapse. These
arrangements renew for three-year periods unless timely notice of non-renewal is
given. The maximum contingent liability under these agreements at July 31, 2000
is $1,598,000.
10. SEGMENT INFORMATION
The Company operates in two industry segments: pharmaceutical systems and
cardiopulmonary systems. Both segments include the design, development,
manufacture and sale of medical products and related services, with a major
focus on safe and convenient participation by the patient. The cardiopulmonary
business unit operates in N. Ireland with most of its revenue generated
overseas. Revenues, operating income, and long-lived asset additions by segment
for the years ended July 31, and total assets at July 31 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Pharmaceutical systems $ 53,106 $ 38,890 $ 43,579
Cardiopulmonary systems 1,501 1,840 1,089
-------------- -------------- --------------
Total revenues 54,607 40,730 44,668
Operating income (loss):
Pharmaceutical systems $ 10,064 $ 2,125 $ 4,183
Cardiopulmonary systems (2,715) (838) (1,116)
--------------- --------------- ---------------
Total operating income 7,349 1,287 3,067
Long-lived asset additions
Pharmaceutical systems $ 1,747 $ 840 $ 2,668
Cardiopulmonary systems - 1,696 545
-------------- -------------- --------------
Total long-lived asset additions 1,747 2,536 3,213
Total assets
Pharmaceutical systems $ 40,018 $ 42,667 $ 43,934
Cardiopulmonary systems 4,667 5,084 2,913
-------------- -------------- --------------
Total assets 44,685 47,751 46,847
</TABLE>
<PAGE>
42
11. SIGNIFICANT CUSTOMERS & FOREIGN OPERATIONS
Financial information relating to major customers and export sales follows (in
thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Sales to major U.S. customers:
U.S. Department of Defense $ 17,904 $ 20,698 $ 16,939
Dey L.P. 23,918 11,449 20,734
Other 3,459 4,270 1,730
-------------- -------------- --------------
Total 45,281 36,417 39,403
Export sales:
Contract sales to the Governments of foreign
countries 7,825 2,474 1,565
Other 1,501 1,839 3,700
-------------- -------------- --------------
Total export sales 9,326 4,313 5,265
-------------- -------------- --------------
Total net sales $ 54,607 $ 40,730 $ 44,668
============== ============== ==============
</TABLE>
The Company extends credit to domestic customers and generally requires a letter
of credit for export sales.
At July 31, 2000 and 1999, the Company had 62% and 56%, respectively, of its
accounts receivable from two customers, Dey and the U.S. government. Dey's
parent is a shareholder of the Company.
The Company operates subsidiaries in the U.K which represent 5.9% and 8.5% of
the Company's sales for the years ended July 31, 2000 and 1999, respectively,
and 6.3% and 8.1% of the Company's total assets at July 31, 2000 and 1999,
respectively. Long-lived assets located in the U.K. were 12.3% and 11.3% of the
Company's total long-lived assets at July 31, 2000 and 1999, respectively.
12. PRODUCT EXCHANGE/RECALL
On May 8, 1998, the Company announced a voluntary Class I recall of 47 lots of
its EpiPen and EpiPen Jr. auto-injectors (approximately 1,000,000 units) because
some may not have provided effective doses of medication. The cost of the recall
was $3.2 million and was included in 1998 and 1999 results.
The Company had $1.6 million, $3.2 million and $1.3 million of EpiPen shipments
during fiscal 2000, 1999 and 1998, respectively, to satisfy cash costs incurred
by the distributor for the 1998 EpiPen recall and the 1997 EpiEZPen voluntary
exchange program.
<PAGE>
43
13. QUARTERLY OPERATING RESULTS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
Fiscal Year 2000 Oct. 31, 1999 Jan. 31, 2000 Apr. 30, 2000 Jul. 31, 2000
---------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 11,755 $ 12,066 $ 14,068 $ 16,718
Cost of sales 7,067 7,296 8,607 9,621
---------- ---------- ---------- ----------
Gross profit 4,688 4,770 5,461 7,097
Operating expenses 3,206 3,609 3,548 4,304
---------- ---------- ---------- ----------
Operating income 1,482 1,161 1,913 2,793
Other expense, net (901) (822) (906) (907)
---------- ---------- ---------- ----------
Income before income tax 581 339 1,007 1,886
Provision for income tax 227 132 316 839
---------- ---------- ---------- ----------
Net income $ 354 $ 207 $ 691 $ 1,047
========== ========== ========== ==========
Basic net income per share $ 0.12 $ 0.07 $ 0.23 $ 0.35
========== ========== ========== ==========
Diluted net income per share $ 0.11 $ 0.06 $ 0.21 $ 0.31
========== ========== ========== ==========
Fiscal Year 1999 Oct. 31, 1998 Jan. 31, 1999 Apr. 30, 1999 Jul. 31, 1999
---------------- ------------- ------------- ------------- -------------
Net sales $ 10,850 $ 9,824 $ 9,620 $ 10,436
Cost of sales 6,673 7,422 7,937 5,988
---------- ---------- ---------- ----------
Gross profit 4,177 2,402 1,683 4,448
Operating expenses 2,980 2,816 2,309 3,318
---------- ---------- ---------- ----------
Operating income (loss) 1,197 (414) (626) 1,130
Other expense, net (838) (453) (705) (1,031)
---------- ---------- ---------- ----------
Income (loss) before income tax 359 (867) (1,331) 99
Provision for income tax 93 (93) - -
---------- ---------- ---------- ----------
Net income (loss) $ 266 $ (774) $ (1,331) $ 99
========== ========== ========== ==========
Basic net income (loss) per share $ 0.09 $ (0.26) $ (0.44) $ 0.03
========== =========== =========== ==========
Diluted net income (loss) per share $ 0.08 $ (0.26) $ (0.44) $ 0.03
========== ========== ========== ==========
</TABLE>
During the quarter ended July 31, 1999, the Company recorded a charge of
$454,000 for the estimated additional cost of a recall of the Company's EpiPen
product.
Gross Margins for the quarters ended January 31, 1999 and April 30, 1999 were
both negatively impacted by the shipment of free units to satisfy recall
obligations. In addition, the gross margin for the quarter ended January 31,
1999 was affected by product mix, and that of the quarter ended April 30, 1999
was affected by a planned upgrade and renovation of the Company's clean room
manufacturing facility, which caused a temporary closure of the plant.
<PAGE>
44
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Meridian Medical Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Meridian Medical
Technologies, Inc. and subsidiaries as of July 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended July 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Meridian Medical Technologies, Inc. and subsidiaries at July 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended July 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
McLean, VA
September 8, 2000
<PAGE>
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10. THROUGH 13.
Information required by Part III (Items 10 through 13) of this form 10-K is
incorporated by reference to the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders for the fiscal year ended July 31, 2000, which
will be filed with the Securities and Exchange Commission not later than 120
days after the end of the fiscal year to which this report relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS FORM 8-K
(a) The following documents are included under Item 8 in this report:
1. Financial Statements:
Consolidated Balance Sheets at July 31, 2000 and 1999
Consolidated Statements of Operations for the years ended July
31, 2000, 1999, and 1998.
Consolidated Statements of Shareholders' Equity for the years
ended July 31, 2000, 1999, and 1998.
Consolidated Statements of Cash Flows for the years ended July
31, 2000, 1999, and 1998.
Notes to Consolidated Financial Statements
Report of Independent Auditors
The above-listed financial statements are included in Item 8
to this Form 10-K.
2. Financial Statement Schedule:
The following financial statement schedule immediately
precedes the signatures to this report:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are immaterial,
not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
<PAGE>
46
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
(3.1) The Company's Bylaws (As Amended). Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
July 31, 1997.
(3.2) First Amended and Restated Certificate of Incorporation and
certification of the amendment of first amended and restated
Certificate of Incorporation. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended July
31, 1997.
(4.1) Form of warrant issued by the Registrant to former holders of
Brunswick preferred stock. Incorporated by reference herein
from Exhibit 4.1 to Form 8-K filed by the Registrant dated
December 5, 1996.
(4.2) Forms of warrants assumed and issued by the Registrant in
connection with the merger with Brunswick. Incorporated by
reference herein from Exhibit 4.1 to Form 8-K filed by the
Registrant dated December 5, 1996.
(4.3) Form of warrant issued to the Estate of Stanley J. Sarnoff,
assumed by the Registrant. Incorporated by reference herein
from Exhibit 4b to Schedule 13D filed by Brunswick dated April
15, 1996.
(10.1) Indenture of Lease, dated January 1, 1982, between Survival
Technology, Inc. and Abraham M. Morrison, Incorporated by
reference to Exhibit (10.1) to the Company's Annual Report on
Form 10-K for the year ended July 31, 1988 (File No. 0-5958).
(10.5) Survival Technology, Inc. 1986 Stock Option Plan (As Amended).
Incorporated by reference to Exhibit (4.2) to Registration
Statement No. 33-46981 on Form S-8.*
(10.7.1) Letter Agreement dated as of January 31, 1990 between Center
Laboratories, a division of EM Industries, Inc. and the
Company. Incorporated by reference to Exhibit (10.10.1) to the
Company's Annual Report on Form 10-K for the year ended July
31, 1990.
(10.8) Agreement dated June 23, 1981 between Survival Technology,
Inc, and American Home Products Corporation. Incorporated by
reference to Exhibit (10.12) to the Company's Annual Report on
Form 10-K for the year ended July 31, 1988 (File No. 0-5958).
(10.8.1) License Agreement dated April 20, 1982 between Survival
Technology, Inc. and American Home Products Corporation.
Incorporated by reference to Exhibit (10.12.1) to the
Company's Annual Report on Form 10-K for the year ended July
31, 1988 (File No. 0-5958).
(10.10) Development, Manufacturing and Supply Agreement between Mylan
Laboratories, Inc. and Survival Technology, Inc. dated August
31, 1993. Incorporated by reference to Exhibit (10.11) to the
Company's Annual Report on Form 10-K for the year ended July
31, 1993 (File No. 0-5958).
(10.10.1) Development, Manufacturing and Supply Amendment Agreement
dated July 28, 1994 between Mylan Laboratories, Inc. and
Survival Technology, Inc. Incorporated by reference to Exhibit
(10.12.1) to the Company's Annual Report on Form 10-K for the
year ended July 31, 1994.
<PAGE>
47
(10.11) Lease Agreement dated August 26, 1991 between Pru Beta 2 and
the Company. Incorporated by reference to Exhibit (10.12) the
Company's Annual Report on Form 10-K for the year ended July
31, 1991 (File No. 0-5958).
(10.15) Credit Agreement, dated as of April 15, 1996, among Brunswick,
as the Borrower, Various Lenders and Internationale
Nederlanden (U.S.) Capital Corporation as the Agent for the
Lenders (incorporated by reference herein Exhibit 1 to
Schedule 13D filed by ING (U.S.) Investment Corporation dated
December 2, 1996).
(10.16) Warrant Purchase Agreement, dated as of April 15, 1996,
between Brunswick and Internationale Nederlanden (U.S.)
Capital Corporation (incorporated by reference herein from
Exhibit 2 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996)
(10.17) Registration Rights Agreement, dated as of April 15, 1996,
between Brunswick and Internationale Nederlanden (U.S.)
Capital Corporation (incorporation by reference herein from
Exhibit 3 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.18) First Amendment to Credit Agreement, dated as October 25,
1996, between Brunswick and Internationale Nederlanden (U.S.)
Capital Corporation (incorporation by reference herein from
Exhibit 4 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.18.1) Second Amendment to Credit Agreement, date September 2, 1997
between Meridian Medical Technologies, Inc. and Internationale
Nederlanden (U.S.) Capital Corporation. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended July 31, 1997 (File No. 0-5958).
(10.19) First Amendment to warrant Purchase Agreement, dated as of
October 25, 1996, between Brunswick and Internationale
Nederlanden (U.S.) Capital Corporation (incorporated by
reference herein from Exhibit 5 to Schedule 13D filed by ING
(U.S.) Investment Corporation dated December 2, 1996).
(10.20) Assumption Agreement to the Credit Agreement, dated as of
November 20, 1996, between Meridian Medical Technologies, Inc.
and Internationale Nederlanden (U.S.) Capital Corporation
(incorporated by reference herein from Exhibit 6 to Schedule
13D filed by ING (U.S.) Investment Corporation dated December
2, 1996).
(10.21) Assumption Agreement to the Warrant Purchase Agreement, dated
as of November 20, 1996, between Meridian Medical
Technologies, Inc. and Internationale Nederlanden (U.S.)
Capital Corporation (incorporated by reference herein from
Exhibit 7 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
<PAGE>
48
(10.22) $10,000,000 Term Note of Meridian Medical Technologies, Inc.
dated November 20, 1996 (incorporated by reference herein from
Exhibit 9 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.23) $15,000,000 Revolving Note of Meridian Medical Technologies,
Inc. dated November 20, 1996 (incorporated by reference herein
from Exhibit 10 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.24) Warrant Certificate for 90,912 Warrants of Meridian Medical
Technologies, Inc. Certificate No. 1 (incorporated by
reference herein from Exhibit 10 to Schedule 13D filed by ING
(U.S.) Investment Corporation dated December 2, 1996).
(10.25) Warrant Certificate for 83,579 Warrants of Meridian Medical
Technologies, Inc. - Certificate No. 1 (incorporated by
reference herein from Exhibit 11 to Schedule 13D filed by ING
(U.S.) Investment Corporation dated December 2, 1996).
(10.26) Employment agreement with James H. Miller, dated November 20,
1996. Incorporated by reference to the Company's Form 10K for
the year ended July 31, 1996 (File No.
0-5958). *
(10.27) Form of Registration Rights Agreement with former Brunswick
stockholders (Incorporated by reference to the Company's Form
10K for the year ended July 31, 1996. (File No. 0-5958).
(10.28) Note and Warrant Purchase Agreement dated as of April 30,
1998. Incorporated by reference to the Company's Form 10-Q for
the quarter ended April 30, 1998.
(10.29) Registration Rights Agreement dated as of April 30, 1998.
Incorporated by reference to the Company's Form 10-Q for the
quarter ended April 30, 1998.
(10.30) Warrant Agreement dated as of April 30, 1998. Incorporated by
reference to the Company's Form 10-Q for the quarter ended
April 30, 1998.
(10.31) First Amendment to the Note and Warrant Purchase Agreement
dated October 15, 1998. Incorporated by reference to the
Company's Form 10-K for the year ended July 31, 1998.
(10.32) Fifth Amendment to the Credit Agreement dated October 15,
1998. Incorporated by reference to the Company's Form 10-K for
the year ended July 31, 1998.
(10.33) Contract SP0200-99-D-0007 dated July 30, 1999 between the U.S.
Government (Defense Personnel Support Center) and the Company.
Incorporated by reference to the Company's Form 10-K for the
year ended July 31, 1999.
(10.34) Form of Change of Control Agreement between the Company and
Dr. Gerald L. Wannarka and Mr. Peter A. Garbis dated October
26, 1998, and between the Company and Mr. Dennis P. O'Brien
dated March 8, 1999. Incorporated by reference to the
Company's Form 10-K for the year ended July 31, 1999. *
(10.35) Sixth Amendment to the Credit Agreement dated November 6, 1998
between the Company and Internationale Nederlanden (U.S.)
Capital Corporation. Incorporated by reference to the
Company's Form 10-K for the year ended July 31, 1999.
<PAGE>
49
(10.36) Waiver and Amendment Agreement dated June 14, 1999 between the
Company and Nomura Holding America Inc. Incorporated by
reference to the Company's Form 10-K for the year ended July
31, 1999.
(10.37) Agreement by and between Survival Technology, Inc. and EM
Industries, Inc., dated as of October 21, 1996. Incorporated
by reference to the Company's Form 10-Q for the quarter ended
October 31, 1999.
(10.38) Waiver and Amendment Agreement dated October 29, 1999 between
the Company and Nomura Holding America Inc. Incorporated by
reference to the Company's Form 10-Q for the quarter ended
October 31, 1999.
(10.39) Seventh Amendment to the Credit Agreement dated October 29,
1999 between the Company and ING (U.S.) Capital Corporation.
Incorporated by reference to the Company's Form 10-Q for the
quarter ended October 31, 1999.
(10.40) Form of Change of Control Agreement between the Company and
Mr. Robert J. Kilgore dated April 1, 2000. Filed herewith. *
(22) A list of the Company's subsidiaries is not provided because
they, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary as of the end of
the year covered by this report.
(23.1) Consent of Independent Auditors. Filed herewith.
(24.0) Power of Attorney of the Company's Directors. Filed herewith.
(27.0) Financial Data Schedule dated July 31, 2000. Filed herewith.
</TABLE>
*Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
July 31, 2000.
<PAGE>
50
SCHEDULE II
MERIDIAN MEDICAL TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to
Beginning of other Costs and Write-off Balance at
Period Accounts Expenses Deductions End of Period
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JULY 31, 2000
Allowance for doubtful accounts $ 466,500 $ - $ 57,200 $ - $ 523,700
Inventory reserves $ 438,000 $ - $ 663,600 $ 356,100 $ 745,500
Restructuring reserves $ 134,300 $ - $ - $ 55,600 $ 78,700
=========== ========== =========== =========== ===========
FOR THE YEAR ENDED JULY 31, 1999
Allowance for doubtful accounts $ 324,800 $ - $ 141,700 $ - $ 466,500
Inventory reserves $ 458,900 $ - $ 45,800 $ 66,700 $ 438,000
Restructuring reserves $ 121,800 $ - $ 80,000 $ 67,500 $ 134,300
=========== ========== =========== =========== ===========
FOR THE YEAR ENDED JULY 31, 1998
Allowance for doubtful accounts $ 247,800 $ - $ 77,000 $ - $ 324,800
Inventory reserves $ 546,300 $ - $ 92,600 $ 180,000 $ 458,900
Restructuring reserves $ 123,800 $ - $ - $ 2,000 $ 121,800
=========== ========== =========== =========== ===========
</TABLE>
<PAGE>
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MERIDIAN MEDICAL TECHNOLOGIES, INC.
-----------------------------------
(Registrant)
By /S/JAMES H. MILLER
------------------ James H. Miller
Chairman of the Board
President & CEO
Dated: October 25, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/S/ JAMES H. MILLER Chairman of the Board October 25, 2000
----------------------------- President and Director
James H. Miller (Principal Executive Officer)
/S/ DENNIS P. O'BRIEN Vice President of Finance October 25, 2000
----------------------------- (Principal Financial and
Dennis P. O'Brien Accounting Officer)
* Director October 25, 2000
-----------------------------
Bruce M. Dresner
* Director October 25, 2000
-----------------------------
Robert G. Foster
* Director October 25, 2000
-----------------------------
David L. Lougee
* Director October 25, 2000
-----------------------------
E. Andrews Grinstead, III
* - By: /S/ JAMES H. MILLER October 25, 2000
-----------------------------
James H. Miller
Attorney-in-fact
</TABLE>
<PAGE>
52
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
(3.1) The Company's Bylaws (As Amended). Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
July 31, 1997.
(3.2) First Amended and Restated Certificate of Incorporation and
certification of the amendment of first amended and restated
Certificate of Incorporation. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended July
31, 1997.
(4.1) Form of warrant issued by the Registrant to former holders of
Brunswick preferred stock. Incorporated by reference herein
from Exhibit 4.1 to Form 8-K filed by the Registrant dated
December 5, 1996.
(4.2) Forms of warrants assumed and issued by the Registrant in
connection with the merger with Brunswick. Incorporated by
reference herein from Exhibit 4.1 to Form 8-K filed by the
Registrant dated December 5, 1996.
(4.3) Form of warrant issued to the Estate of Stanley J. Sarnoff,
assumed by the Registrant. Incorporated by reference herein
from Exhibit 4b to Schedule 13D filed by Brunswick dated April
15, 1996.
(10.1) Indenture of Lease, dated January 1, 1982, between Survival
Technology, Inc. and Abraham M. Morrison, Incorporated by
reference to Exhibit (10.1) to the Company's Annual Report on
Form 10-K for the year ended July 31, 1988 (File No. 0-5958).
(10.5) Survival Technology, Inc. 1986 Stock Option Plan (As Amended).
Incorporated by reference to Exhibit (4.2) to Registration
Statement No. 33-46981 on Form S-8.*
(10.7.1) Letter Agreement dated as of January 31, 1990 between Center
Laboratories, a division of EM Industries, Inc. and the
Company. Incorporated by reference to Exhibit (10.10.1) to the
Company's Annual Report on Form 10-K for the year ended July
31, 1990.
(10.8) Agreement dated June 23, 1981 between Survival Technology,
Inc, and American Home Products Corporation. Incorporated by
reference to Exhibit (10.12) to the Company's Annual Report on
Form 10-K for the year ended July 31, 1988 (File No. 0-5958).
(10.8.1) License Agreement dated April 20, 1982 between Survival
Technology, Inc. and American Home Products Corporation.
Incorporated by reference to Exhibit (10.12.1) to the
Company's Annual Report on Form 10-K for the year ended July
31, 1988 (File No. 0-5958).
(10.10) Development, Manufacturing and Supply Agreement between Mylan
Laboratories, Inc. and Survival Technology, Inc. dated August
31, 1993. Incorporated by reference to Exhibit (10.11) to the
Company's Annual Report on Form 10-K for the year ended July
31, 1993 (File No. 0-5958).
(10.10.1) Development, Manufacturing and Supply Amendment Agreement
dated July 28, 1994 between Mylan Laboratories, Inc. and
Survival Technology, Inc. Incorporated by reference to Exhibit
(10.12.1) to the Company's Annual Report on Form 10-K for the
year ended July 31, 1994.
<PAGE>
53
(10.11) Lease Agreement dated August 26, 1991 between Pru Beta 2 and
the Company. Incorporated by reference to Exhibit (10.12) the
Company's Annual Report on Form 10-K for the year ended July
31, 1991 (File No. 0-5958).
(10.15) Credit Agreement, dated as of April 15, 1996, among Brunswick,
as the Borrower, Various Lenders and Internationale
Nederlanden (U.S.) Capital Corporation as the Agent for the
Lenders (incorporated by reference herein Exhibit 1 to
Schedule 13D filed by ING (U.S.) Investment Corporation dated
December 2, 1996).
(10.16) Warrant Purchase Agreement, dated as of April 15, 1996,
between Brunswick and Internationale Nederlanden (U.S.)
Capital Corporation (incorporated by reference herein from
Exhibit 2 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996)
(10.17) Registration Rights Agreement, dated as of April 15, 1996,
between Brunswick and Internationale Nederlanden (U.S.)
Capital Corporation (incorporation by reference herein from
Exhibit 3 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.18) First Amendment to Credit Agreement, dated as October 25,
1996, between Brunswick and Internationale Nederlanden (U.S.)
Capital Corporation (incorporation by reference herein from
Exhibit 4 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.18.1) Second Amendment to Credit Agreement, date September 2, 1997
between Meridian Medical Technologies, Inc. and Internationale
Nederlanden (U.S.) Capital Corporation. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended July 31, 1997 (File No. 0-5958).
(10.19) First Amendment to warrant Purchase Agreement, dated as of
October 25, 1996, between Brunswick and Internationale
Nederlanden (U.S.) Capital Corporation (incorporated by
reference herein from Exhibit 5 to Schedule 13D filed by ING
(U.S.) Investment Corporation dated December 2, 1996).
(10.20) Assumption Agreement to the Credit Agreement, dated as of
November 20, 1996, between Meridian Medical Technologies, Inc.
and Internationale Nederlanden (U.S.) Capital Corporation
(incorporated by reference herein from Exhibit 6 to Schedule
13D filed by ING (U.S.) Investment Corporation dated December
2, 1996).
(10.21) Assumption Agreement to the Warrant Purchase Agreement, dated
as of November 20, 1996, between Meridian Medical
Technologies, Inc. and Internationale Nederlanden (U.S.)
Capital Corporation (incorporated by reference herein from
Exhibit 7 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
<PAGE>
54
(10.22) $10,000,000 Term Note of Meridian Medical Technologies, Inc.
dated November 20, 1996 (incorporated by reference herein from
Exhibit 9 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.23) $15,000,000 Revolving Note of Meridian Medical Technologies,
Inc. dated November 20, 1996 (incorporated by reference herein
from Exhibit 10 to Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996).
(10.24) Warrant Certificate for 90,912 Warrants of Meridian Medical
Technologies, Inc. Certificate No. 1 (incorporated by
reference herein from Exhibit 10 to Schedule 13D filed by ING
(U.S.) Investment Corporation dated December 2, 1996).
(10.25) Warrant Certificate for 83,579 Warrants of Meridian Medical
Technologies, Inc. - Certificate No. 1 (incorporated by
reference herein from Exhibit 11 to Schedule 13D filed by ING
(U.S.) Investment Corporation dated December 2, 1996).
(10.26) Employment agreement with James H. Miller, dated November 20,
1996. Incorporated by reference to the Company's Form 10K for
the year ended July 31, 1996 (File No.
0-5958). *
(10.27) Form of Registration Rights Agreement with former Brunswick
stockholders (Incorporated by reference to the Company's Form
10K for the year ended July 31, 1996. (File No. 0-5958).
(10.29) Note and Warrant Purchase Agreement dated as of April 30,
1998. Incorporated by reference to the Company's Form 10-Q for
the quarter ended April 30, 1998.
(10.29) Registration Rights Agreement dated as of April 30, 1998.
Incorporated by reference to the Company's Form 10-Q for the
quarter ended April 30, 1998.
(10.30) Warrant Agreement dated as of April 30, 1998. Incorporated by
reference to the Company's Form 10-Q for the quarter ended
April 30, 1998.
(10.31) First Amendment to the Note and Warrant Purchase Agreement
dated October 15, 1998. Incorporated by reference to the
Company's Form 10-K for the year ended July 31, 1998.
(10.32) Fifth Amendment to the Credit Agreement dated October 15,
1998. Incorporated by reference to the Company's Form 10-K for
the year ended July 31, 1998.
(10.33) Contract SP0200-99-D-0007 dated July 30, 1999 between the U.S.
Government (Defense Personnel Support Center) and the Company.
Incorporated by reference to the Company's Form 10-K for the
year ended July 31, 1999.
(10.34) Form of Change of Control Agreement between the Company and
Dr. Gerald L. Wannarka and Mr. Peter A. Garbis dated October
26, 1998, and between the Company and Mr. Dennis P. O'Brien
dated March 8, 1999. Incorporated by reference to the
Company's Form 10-K for the year ended July 31, 1999. *
(10.35) Sixth Amendment to the Credit Agreement dated November 6, 1998
between the Company and Internationale Nederlanden (U.S.)
Capital Corporation. Incorporated by reference to the
Company's Form 10-K for the year ended July 31, 1999.
<PAGE>
55
(10.36) Waiver and Amendment Agreement dated June 14, 1999 between the
Company and Nomura Holding America Inc. Incorporated by
reference to the Company's Form 10-K for the year ended July
31, 1999.
(10.37) Agreement by and between Survival Technology, Inc. and EM
Industries, Inc., dated as of October 21, 1996. Incorporated
by reference to the Company's Form 10-Q for the quarter ended
October 31, 1999.
(10.38) Waiver and Amendment Agreement dated October 29, 1999 between
the Company and Nomura Holding America Inc. Incorporated by
reference to the Company's Form 10-Q for the quarter ended
October 31, 1999.
(10.39) Seventh Amendment to the Credit Agreement dated October 29,
1999 between the Company and ING (U.S.) Capital Corporation.
Incorporated by reference to the Company's Form 10-Q for the
quarter ended October 31, 1999.
(10.40) Form of Change of Control Agreement between the Company and
Mr. Robert J. Kilgore dated April 1, 2000. Filed herewith. *
(22) A list of the Company's subsidiaries is not provided because
they, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary as of the end of
the year covered by this report.
(23.1) Consent of Independent Auditors. Filed herewith.
(24.0) Power of Attorney of the Company's Directors. Filed herewith.
(27.0) Financial Data Schedule dated July 31, 2000. Filed herewith.
</TABLE>
*Management contract, compensatory plan or arrangement.
