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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

| **x**                                                    | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|----------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                               |
| **FOR THE QUARTERLY PERIOD ENDED  MARCH 31, 2009.** |
| ** **                                               | ** **                                                                                               |
| **OR**                                                   |
| ** **                                               | ** **                                                                                               |
| **o**                                                    | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

** **

**FORTHE TRANSITION PERIOD FROM             TO            .**

** **

**Commission File Number   0-18592**

** **

**MERIT MEDICAL SYSTEMS, INC.**

(Exact name of Registrant as specified in its charter)

 

| **Utah**                                                        | ** ** | **87-0447695**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

**1600 West MeritParkway, South Jordan, UT, 84095**

(Address and Zip Code of Principal Executive Offices)

 

**(801) 253-1600**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the Registrant: (1) has filed all reports requiredto be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes x No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).  Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large Accelerated Filer o |   | Accelerated Filer x         |
|--------------------------------|--------|----------------------------------|
|                           |   |                             |
| Non-Accelerated Filer o   |   | Smaller Reporting Company o |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes  o No x

 

Indicatethe number of shares outstanding of each of the Registrant’s classes of commonstock, as of the latest practicable date.

 

| **Common Stock** |   | **27,921,230**                  |
|------------------|--------|---------------------------------|
| Title or class   |   | Number of Shares                |
|             |   | Outstanding at May 7, 2009 |

 

 

 

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**MERITMEDICAL SYSTEMS, INC.**

** **

**INDEX TO FORM 10-Q**

** **
| ** **                                                | ** **                                                                                  | **PAGE**                                                                                       |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|
| **PART I.**                                          | **FINANCIAL INFORMATION**                                                                   |                                                                                           |
| ** **                                                | ** **                                                                                  |                                                                                           |
| Item 1.                                                   | Financial Statements  (unaudited)                                                           |                                                                                           |
|                                                      |                                                                                        |                                                                                           |   |
|                                                      |                                                                                        | Consolidated  Balance Sheets as of March 31, 2009 and December 31, 2008              | 1 |
|                                                      |                                                                                        |                                                                                           |   |
|                                                      |                                                                                        | Consolidated Statements of Operations for the three  months ended March 31, 2009 and 2008 | 3 |
|                                                      |                                                                                        |                                                                                           |   |
|                                                      |                                                                                        | Consolidated Statements of Cash Flows for the three  months ended March 31, 2009 and 2008 | 4 |
|                                                      |                                                                                        |                                                                                           |   |
|                                                      |                                                                                        | Notes to Consolidated Financial Statements                                                     | 6 |
|                                                      |                                                                                        |                                                                                           |   |
| Item 2.                                                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 11                                                                                             |
|                                                      |                                                                                        |                                                                                           |   |
| Item 3.                                                   | Quantitative  and Qualitative Disclosures About Market Risk                                 | 14                                                                                             |
|                                                      |                                                                                        |                                                                                           |   |
| Item 4.                                                   | Controls and  Procedures                                                                    | 15                                                                                             |
|                                                      |                                                                                        |                                                                                           |   |
| **PART II.**                                         | **OTHER INFORMATION**                                                                       | ** **                                                                                     |
| ** **                                                | ** **                                                                                  | ** **                                                                                     | ** ** |
| Item 1. Legal Proceedings                                 | 15                                                                                          |
|                                                      |                                                                                        |                                                                                           |   |
| Item 1A. Risk Factors                                     | 15                                                                                          |
|                                                      |                                                                                        |                                                                                           |   |
| Item 2.  Unregistered Sales of Equity and Use of Proceeds | 16                                                                                          |
|                                                      |                                                                                        |                                                                                           |   |
| Item 6. Exhibits                                          | 17                                                                                          |
|                                                      |                                                                                        |                                                                                           |   |
| SIGNATURES                                                | 18                                                                                          |

 

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**Part I- FINANCIAL INFORMATION**

** **

**ITEM 1. FINANCIAL STATEMENTS**

** **

**MERITMEDICAL SYSTEMS, INC. AND SUBSIDIARIES**

CONSOLIDATED BALANCE SHEETS

MARCH 31,2009 AND DECEMBER 31, 2008

(In thousands -unaudited)

 
| ** **                                                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                               | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ASSETS                                                                                   |       |               |       |                  |       |
|                                                                                     |       |               |       |                  |       |
| CURRENT ASSETS:                                                                          |       |               |       |                  |       |
| Cash and cash  equivalents                                                               |       | $                  | 16,430     |                  | $          | 34,030 |   |
| Trade  receivables - net of allowances of $636 and $505, respectively                    |       | 29,794             |       | 27,749                |       |
| Employee  receivables                                                                    |       | 115                |       | 126                   |       |
| Other  receivables                                                                       |       | 711                |       | 818                   |       |
| Inventories                                                                              |       | 42,953             |       | 38,358                |       |
| Prepaid expenses  and other assets                                                       |       | 1,184              |       | 985                   |       |
| Deferred income  tax assets                                                              |       | 2,779              |       | 2,782                 |       |
| Income tax  refunds receivable                                                           |       | 626                |       | 607                   |       |
|                                                                                     |       |               |       |                  |       |
| Total current  assets                                                                    |       | 94,592             |       | 105,455               |       |
|                                                                                     |       |               |       |                  |       |
| PROPERTY AND  EQUIPMENT:                                                                 |       |               |       |                  |       |
| Land and land  improvements                                                              |       | 7,992              |       | 7,992                 |       |
| Building                                                                                 |       | 49,865             |       | 49,793                |       |
| Manufacturing  equipment                                                                 |       | 70,482             |       | 68,184                |       |
| Furniture and  fixtures                                                                  |       | 14,336             |       | 16,689                |       |
| Leasehold  improvements                                                                  |       | 9,881              |       | 9,868                 |       |
| Construction-in-progress                                                                 |       | 9,103              |       | 7,599                 |       |
|                                                                                     |       |               |       |                  |       |
| Total                                                                                    |       | 161,659            |       | 160,125               |       |
| Less accumulated  depreciation                                                           |       | (55,911            | )          | (56,186               | )          |
|                                                                                     |       |               |       |                  |       |
| Property and  equipment—net                                                         |       | 105,748            |       | 103,939               |       |
|                                                                                     |       |               |       |                  |       |
| OTHER ASSETS:                                                                            |       |               |       |                  |       |
| Other  intangibles - net of accumulated amortization of $3,421 and $3,122,  respectively |       | 17,344             |       | 6,913                 |       |
| Goodwill                                                                                 |       | 21,124             |       | 13,048                |       |
| Other assets                                                                             |       | 2,181              |       | 2,325                 |       |
| Deferred income  tax assets                                                              |       | 35                 |       | 23                    |       |
| Deposits                                                                                 |       | 126                |       | 73                    |       |
|                                                                                     |       |               |       |                  |       |
| Total other  assets                                                                      |       | 40,810             |       | 22,382                |       |
|                                                                                     |       |               |       |                  |       |
| TOTAL ASSETS                                                                             |       | $                  | 241,150    |                  | $          | 231,776 |   |

 

See notes toconsolidated financial statements.

 

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**MERITMEDICAL SYSTEMS, INC. AND SUBSIDIARIES**

CONSOLIDATEDBALANCE SHEETS

MARCH 31,2009 AND DECEMBER 31, 2008

(In thousands -unaudited) 

 
| ** **                                                                                                                                                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                   | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                   |       |               |       |                  |       |
|                                                                                                                                                         |       |               |       |                  |       |
| CURRENT  LIABILITIES:                                                                                                                                        |       |               |       |                  |       |
| Trade payables                                                                                                                                               |       | $                  | 13,191     |                  | $          | 10,622 |   |
| Accrued expenses                                                                                                                                             |       | 11,553             |       | 9,973                 |       |
| Advances from  employees                                                                                                                                     |       | 314                |       | 211                   |       |
| Income taxes  payable                                                                                                                                        |       | 2,109              |       | 366                   |       |
|                                                                                                                                                         |       |               |       |                  |       |
| Total current  liabilities                                                                                                                                   |       | 27,167             |       | 21,172                |       |
|                                                                                                                                                         |       |               |       |                  |       |
| DEFERRED INCOME  TAX LIABILITIES                                                                                                                             |       | 8,782              |       | 8,771                 |       |
|                                                                                                                                                         |       |               |       |                  |       |
| LIABILITIES  RELATED TO UNRECOGNIZED TAX POSITIONS                                                                                                           |       | 2,818              |       | 2,818                 |       |
|                                                                                                                                                         |       |               |       |                  |       |
| DEFERRED  COMPENSATION PAYABLE                                                                                                                               |       | 2,205              |       | 2,348                 |       |
|                                                                                                                                                         |       |               |       |                  |       |
| DEFERRED CREDITS                                                                                                                                             |       | 1,967              |       | 1,994                 |       |
|                                                                                                                                                         |       |               |       |                  |       |
| OTHER LONG-TERM  OBLIGATIONS                                                                                                                                 |       | 395                |       | 368                   |       |
|                                                                                                                                                         |       |               |       |                  |       |
| Total  liabilities                                                                                                                                           |       | 43,334             |       | 37,471                |       |
|                                                                                                                                                         |       |               |       |                  |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                  |       |               |       |                  |       |
| Preferred  stock—5,000 shares authorized as of  March 31, 2009 and December 31, 2008; no shares issued                                        |       |               |       |                  |       |
| Common stock—no  par value; 100,000 shares  authorized; 27,916 and 28,093 shares issued  at March 31, 2009 and December 31 2008, respectively |       | 59,732             |       | 61,689                |       |
| Retained  earnings                                                                                                                                           |       | 138,211            |       | 132,674               |       |
| Accumulated  other comprehensive loss                                                                                                                        |       | (127               | )          | (58                   | )          |
|                                                                                                                                                         |       |               |       |                  |       |
| Total  stockholders’ equity                                                                                                                             |       | 197,816            |       | 194,305               |       |
|                                                                                                                                                         |       |               |       |                  |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                             |       | $                  | 241,150    |                  | $          | 231,776 |   |

 

See notes toconsolidated financial statements.

 

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**MERITMEDICAL SYSTEMS, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREEMONTHS ENDED MARCH 31, 2009 AND 2008

(In thousands,except earnings per common share - unaudited)

 
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **March 31,**     | ** ** |
| ** **                            | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                  |       |                   |       |   |   |
| NET SALES                             |       | $                      | 58,371     |   | $ | 53,553 |   |
|                                  |       |                   |       |   |   |
| COST OF SALES                         |       | 33,563                 |       | 31,961 |   |
|                                  |       |                   |       |   |   |
| GROSS PROFIT                          |       | 24,808                 |       | 21,592 |   |
|                                  |       |                   |       |   |   |
| OPERATING  EXPENSES:                  |       |                   |       |   |   |
| Selling,  general, and administrative |       | 14,829                 |       | 13,072 |   |
| Research and  development             |       | 2,079                  |       | 1,916 |   |
|                                  |       |                   |       |   |   |
| Total operating  expenses             |       | 16,908                 |       | 14,988 |   |
|                                  |       |                   |       |   |   |
| INCOME FROM  OPERATIONS               |       | 7,900                  |       | 6,604 |   |
|                                  |       |                   |       |   |   |
| OTHER INCOME  (EXPENSE):              |       |                   |       |   |   |
| Interest income                       |       | 122                    |       | 150 |   |
| Other income  (expense)               |       | 52                     |       | (5 | ) |
|                                  |       |                   |       |   |   |
| Other income -  net                   |       | 174                    |       | 145 |   |
|                                  |       |                   |       |   |   |
| INCOME BEFORE  INCOME TAXES           |       | 8,074                  |       | 6,749 |   |
|                                  |       |                   |       |   |   |
| INCOME TAX  EXPENSE                   |       | 2,537                  |       | 2,432 |   |
|                                  |       |                   |       |   |   |
| NET INCOME                            |       | $                      | 5,537      |   | $ | 4,317 |   |
|                                  |       |                   |       |   |   |
| EARNINGS PER  COMMON SHARE:           |       |                   |       |   |   |
| Basic                                 |       | $                      | .20        |   | $ | .16 |   |
| Diluted                               |       | $                      | .19        |   | $ | .15 |   |
|                                  |       |                   |       |   |   |
| AVERAGE COMMON  SHARES:               |       |                   |       |   |   |
| Basic                                 |       | 28,057                 |       | 27,495 |   |
| Diluted                               |       | 28,547                 |       | 28,301 |   |

 

See notes toconsolidated financial statements.

 

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**MERITMEDICAL SYSTEMS, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREEMONTHS ENDED MARCH 31, 2009 AND 2008

(In thousands -unaudited)

** **
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**     | ** ** |
| ** **                                                                         | ** ** | **2009**               | ** ** | **2008** | ** ** |
| ** **                                                                         | ** ** | ** **             | ** ** | ** ** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |       |                   |       |   |   |
| Net income                                                                         |       | $                      | 5,537      |   | $ | 4,317 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                   |       |   |   |
| Depreciation and  amortization                                                     |       | 2,681                  |       | 2,565 |   |
| Losses on sales  and/or abandonment of property and equipment                      |       | 205                    |       | 4 |   |
| Write-off of  certain patents and trademarks                                       |       | 27                     |       | 40 |   |
| Amortization of  deferred credits                                                  |       | (28                    | )          | (27 | ) |
| Purchase of  trading investments                                                   |       | (93                    | )          | (72 | ) |
| Net unrealized  losses on trading investments                                      |       | 237                    |       | 124 |   |
| Deferred income  taxes                                                             |       | 2                      |       | (1,044 | ) |
| Excess tax  benefit attributable to appreciation of common stock options exercised |       | (372                   | )          | (263 | ) |
| Stock-based  compensation                                                          |       | 298                    |       | 98 |   |
| Changes in  operating assets and liabilities, net of effects from acquisitions:    |       |                   |       |   |   |
| Trade  receivables                                                                 |       | (1,277                 | )          | 1,505 |   |
| Employee  receivables                                                              |       | 8                      |       | (13 | ) |
| Other  receivables                                                                 |       | 78                     |       | 253 |   |
| Inventories                                                                        |       | (2,370                 | )          | (355 | ) |
| Prepaid expenses  and other assets                                                 |       | 42                     |       | 233 |   |
| Income tax  refunds receivable                                                     |       | (23                    | )          | (98 | ) |
| Deposits                                                                           |       | (54                    | )          |   |   |
| Trade payables                                                                     |       | 1,781                  |       | 1,392 |   |
| Accrued expenses                                                                   |       | 570                    |       | 209 |   |
| Advances from  employees                                                           |       | 105                    |       | (14 | ) |
| Income taxes  payable                                                              |       | 2,135                  |       | 1,855 |   |
| Current  liabilities related to unrecognized tax positions                         |       |                   |       | (1,023 | ) |
| Deferred  compensation payable                                                     |       | (143                   | )          | (15 | ) |
| Other long-term  obligations                                                       |       | 2                      |       | (31 | ) |
|                                                                               |       |                   |       |   |   |
| Total  adjustments                                                                 |       | 3,811                  |       | 5,323 |   |
|                                                                               |       |                   |       |   |   |
| Net cash  provided by operating activities                                         |       | 9,348                  |       | 9,640 |   |
|                                                                               |       |                   |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |       |                   |       |   |   |
| Capital  expenditures for:                                                         |       |                   |       |   |   |
| Property and  equipment                                                            |       | (3,323                 | )          | (4,060 | ) |
| Patents and  trademarks                                                            |       | (593                   | )          | (45 | ) |
| Proceeds from  the sales of property and equipment                                 |       | 5                      |       | 2 |   |
| Cash paid in  acquisitions                                                         |       | (20,658                | )          | (1,500 | ) |
|                                                                               |       |                   |       |   |   |
| Net cash used in  investing activities                                             |       | (24,569                | )          | (5,603 | ) |
|                                                                                    |            |                        |            |  |  |  |  |

 

See notes toconsolidated financial statements.

 

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**MERITMEDICAL SYSTEMS, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTSOF CASH FLOWS

FOR THE THREE MONTHSENDED MARCH 31, 2009 AND 2008

(In thousands -unaudited)

 
| ** **                                                                              | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                              | ** ** | **March 31,**     | ** ** |
| ** **                                                                              | ** ** | **2009**               | ** ** | **2008** | ** ** |
| ** **                                                                              | ** ** | ** **             | ** ** | ** ** | ** ** |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                  |       |                   |       |   |   |
| Proceeds from  issuance of common stock                                                 |       | $                      | 101        |   | $ | 1,725 |   |
| Payment of taxes  related to an exchange of common stock                                |       | (254                   | )          |   |   |
| Excess tax  benefits from stock-based compensation                                      |       | 372                    |       | 263 |   |
| Common stock  repurchased and retired                                                   |       | (2,474                 | )          |   |   |
|                                                                                    |       |                   |       |   |   |
| Net cash (used  in) provided by financing activities                                    |       | (2,255                 | )          | 1,988 |   |
|                                                                                    |       |                   |       |   |   |
| EFFECT OF EXCHANGE  RATES ON CASH                                                       |       | (124                   | )          | 158 |   |
|                                                                                    |       |                   |       |   |   |
| NET  (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                                   |       | (17,600                | )          | 6,183 |   |
|                                                                                    |       |                   |       |   |   |
| CASH AND CASH  EQUIVALENTS:                                                             |       |                   |       |   |   |
| Beginning of  period                                                                    |       | 34,030                 |       | 17,574 |   |
|                                                                                    |       |                   |       |   |   |
| End of period                                                                           |       | $                      | 16,430     |   | $ | 23,757 |   |
|                                                                                    |       |                   |       |   |   |
| SUPPLEMENTAL  DISCLOSURES OF CASHFLOW INFORMATION—Cash paid during the period for: |       |                   |       |   |   |
| Interest                                                                                |       | $                      | 2          |   | $ | 2 |   |
|                                                                                    |       |                   |       |   |   |
| Income taxes                                                                            |       | $                      | 463        |   | $ | 2,876 |   |
|                                                                                    |       |                   |       |   |   |
| SUPPLEMENTAL  DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES                |       |                   |       |   |   |
| Property and  equipment purchases in accounts payable                                   |       | $                      | 1,689      |   | $ | 1,208 |   |
|                                                                                    |       |                   |       |   |   |
| Accrued purchase  price                                                                 |       | $                      | 533        |   | $ | 1,500 |   |

 

During the three monthsended March 31, 2009, 23,829 of the Company’s common stock weresurrendered in exchange for the Company’s recording of payroll tax liabilitiesin the amount of approximately $254,000, related to the exercise of stockoptions.  The shares were valued basedupon the closing price of the Company’s common stock on the surrender date.

 

During the three monthsended March 31, 2009, 21,556 shares of the Company’s common stock, with avalue of approximately $230,000 were surrendered in exchange for the exerciseof stock options.

 

See notes to consolidatedfinancial statements.

 

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**MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

**1**. **Basisof Presentation**. The interim consolidated financial statements ofMerit Medical Systems, Inc. and Subsidiaries (“Merit,” “we” or “us”) forthe three months ended March 31, 2009 and 2008 are not audited. Ourconsolidated financial statements are prepared in accordance with therequirements for unaudited interim periods, and consequently, do not includeall disclosures required to be in conformity with accounting principlesgenerally accepted in the United States of America. In the opinion ofmanagement, the accompanying consolidated financial statements contain alladjustments, consisting of normal recurring accruals, necessary for a fairpresentation of our financial position as of March 31, 2009, and ourresults of operations and cash flows for the three months ended March 31,2009 and 2008. The results of operations for the three months ended March 31,2009 are not indicative of the results for a full-year period.  These interim consolidated financialstatements should be read in conjunction with the financial statements includedin our Annual Report on Form 10-K for the year ended December 31,2008 filed with the Securities and Exchange Commission (the “SEC”).

 

Reclassifications. Subsequent to the issuance of ourQuarterly Report on Form 10-Q for the quarter ended March 31, 2008,we determined that changes to our deferred compensation plan balances shouldmore properly be reflected as net cash provided by operating activities.  Accordingly, we have reclassified suchchanges from investing activities and financing activities to operatingactivities.  Our management has concludedthat the error was not material to our consolidated financial statements, andaccordingly the prior period presentation has been revised for 2008 byincreasing net cash provided by operating activities by approximately $37,000.

 

**2.   Inventories**.  Inventoriesare stated at the lower of cost or market. Inventories at March 31, 2009 and December 31, 2008 consistedof the following (in thousands):

 

| ** **      | ** ** | **March 31,** | ** **   | **December 31,** | ** ** |
|-----------------|------------|--------------------|--------------|-----------------------|------------|
| ** **      | ** ** | **2009**           | ** **   | **2008**              | ** ** |
|            |       |               |         |                  |       |
| Finished goods  |       | $                  |  18,342 |                  | $          |  17,818 |   |
| Work-in-process |       | 8,123              |         | 4,790                 |       |
| Raw materials   |       | 16,488             |         | 15,750                |       |
|            |       |               |         |                  |       |
|            |       | $                  |  42,953 |                  | $          |  38,358 |   |

 

**3.   Comprehensive Income. **Comprehensive income for the three months ended March 31,2009 and 2008 consisted of net income and foreign currency translation adjustments.  As of March 31, 2009 and December 31,2008, the cumulative effect of such adjustments decreased stockholders’ equityby $126,813 and $58,276, respectively. Comprehensive income for the three-month periods ended March 31,2009 and 2008 has been computed as follows (in thousands):

 

| ** **                    | ** ** | **Three Months Ended** | ** **  |
|-------------------------------|------------|------------------------|-------------|
| ** **                    | ** ** | **March 31,**     | ** **  |
| ** **                    | ** ** | **2009**               | ** **  | **2008** | ** ** |
|                          |       |                   |        |   |   |
| Net income                    |       | $                      |  5,537 |   | $ |  4,317 |   |
| Foreign currency  translation |       | (69                    | )           | 189 |   |
| Comprehensive  income         |       | $                      |  5,468 |   | $ |  4,506 |   |

 

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**4.****Stock-based Compensation.** We did not grant any stock awards during the three-month periods ended March 31,2009 and 2008.    Stock-based compensationexpense for the three-month periods ended March 31, 2009 and 2008consisted of the following (in thousands):

 

| ** **                                     | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **March 31,**     | ** ** |
| ** **                                     | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                           |       |                   |       |   |   |
| Cost of goods  sold                            |       | $                      |  50   |   | $ |  (38 | ) |
| Research and  development                      |       | 13                     |       | — |   |
| Selling, general  and administrative           |       | 235                    |       | 136 |   |
| Stock-based  compensation expense before taxes |       | $                      |  298  |   | $ |  98 |   |

 

The excess income taxbenefit created from the exercises of stock options was $372,000 and $263,000for the three-months ended March 31, 2009 and 2008, respectively. As of March 31,2009, the total remaining unrecognized compensation cost related to stockoptions, net of forfeitures, was approximately $3.8 million and is expected tobe recognized over a weighted average period of 3.67 years.

 

**5.Earnings Common Share.**The following table sets forth the computation of the number of sharesof our common stock used in calculating basic and diluted net income per share(in thousands):

 
| ** **                                                                                                                             | ** ** | **Net**    | ** **  | ** ** | ** ** | **Per Share** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-------------|------------|------------|---------------|------------|
| ** **                                                                                                                             | ** ** | **Income** | ** **  | **Shares** | ** ** | **Amount**    | ** ** |
| Three months  ended March 31, 2009:                                                                                               |       |       |        |       |       |          |       |
| Basic EPS                                                                                                                              |       | $          |  5,537 |       | 28,057     |          | $          |  0.20 |   |
| Effect of  dilutive stock options and warrants                                                                                         |       |       |        | 490        |       |          |       |
|                                                                                                                                   |       |       |        |       |       |          |       |
| Diluted EPS                                                                                                                            |       | $          |  5,537 |       | 28,547     |          | $          |  0.19 |   |
|                                                                                                                                   |       |       |        |       |       |          |       |
| Weighted-average  shares under stock options excluded from the calculation of common stock equivalents  as the impact was antidilutive |       |       |        | 2,025      |       |          |       |
|                                                                                                                                   |       |       |        |       |       |          |       |
| Three months  ended March 31, 2008:                                                                                               |       |       |        |       |       |          |       |
| Basic EPS                                                                                                                              |       | $          |  4,317 |       | 27,495     |          | $          |  0.16 |   |
| Effect of  dilutive stock options and warrants                                                                                         |       |       |        | 806        |       |          |       |
|                                                                                                                                   |       |       |        |       |       |          |       |
| Diluted EPS                                                                                                                            |       | $          |  4,317 |       | 28,301     |          | $          |  0.15 |   |
|                                                                                                                                   |       |       |        |       |       |          |       |
| Weighted-average  shares under stock options excluded from the calculation of common stock  equivalents as the impact was antidilutive |       |       |        | 859        |       |          |       |

 

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**6.  Acquisitions. **On March 9, 2009, we entered into an asset purchaseagreement with Alveolus, Inc., a North Carolina corporation (“Alveolus”),to purchase their non-vascular interventional stents used for esophageal,tracheobronchial, and biliary stenting procedures.  We paid Alveolus $19.1million in March 2009.  The gross amount of tradereceivables we acquired from Alveolus is approximately $1.0 million, of which$49,000 is expected to be uncollectible. Our consolidated financial statements for the three months ended March 31,2009 reflect sales subsequent to the acquisition date of approximately $486,000and a net loss of approximately $146,000 related to our Alveolusacquisition.  We are in the process offinalizing our valuation of certain tangible and intangible assets, andresidual goodwill.  The purchase priceallocation will be completed, no later than one year from the date ofacquisition, and may change as more detailed analyses are completed andadditional information about fair value of assets and liabilities becomesavailable.  The purchase price waspreliminarily allocated as follows (in thousands):

 

| **Assets  Acquired**                 |   |   |         |
|--------------------------------------|--------|--------|--------------|
| Inventories                          |   | $      |  2,010  |   |
| Trade receivable                     |   | 974    |         |
| Other assets                         |   | 253    |         |
| Property and equipment               |   | 565    |         |
| **Intangibles**                      |   |   |         |
| Developed  technology                |   | 5,700  |         |
| Trademarks                           |   | 1,400  |         |
| Customer lists                       |   | 1,100  |         |
| In-process  research and development |   | 400    |         |
| Goodwill                             |   | 7,786  |         |
| Total assets  acquired               |   | 20,188 |         |
|                                 |   |   |         |
| **Liabilities  Assumed**             |   |   |         |
| Accounts payable                     |   | 494    |         |
| Other  liabilities                   |   | 602    |         |
| Total  liabilities assumed           |   | 1,096  |         |
|                                 |   |   |         |
| Net assets  acquired                 |   | $      |  19,092 |   |

 

We intend to amortize developed technology and trademarks over 15 yearsand customer lists on an accelerated basis over 7 years.  We will amortize in-process research anddevelopment over 15 years, which will begin once the product is successfullylaunched in the market.  The acquiredtrademarks will renew in 4.27 years (based on a weighted-average).  While trademarks can be renewed indefinitely,management estimates that the cash flow will be generated from the acquiredtrademarks for 15 years.

 

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On February 19,2009, we entered into an asset purchase and supply agreement with BiosearchMedical Products, Inc., a New Jersey corporation (“Biosearch”), to purchase a bipolar coagulation probe andgrafted biliary stents.  We paid$1.1 million in February 2009 and have accrued an additional $500,000 inaccrued expenses, which is payable on June 30, 2009.  Our financial statements for the three monthsended March 31, 2009 reflect sales subsequent to the acquisition date ofapproximately $133,000 and  net income ofapproximately $30,000 related to the Biosearch acquisition.  We are in the process of finalizing ourvaluation of tangible and intangible assets, and residual goodwill.  The purchase price allocation will becompleted no later than one year from the date of acquisition, and may changeas more detailed analyses are completed and additional information about fairvalue of assets and liabilities becomes available.  The purchase price was preliminarilyallocated as follows (in thousands):

 
| **Assets Acquired**     |   |   |   |
|-------------------------|--------|--------|--------|
| Inventories             |   | $      | 214    |   |
| Propery  and equipment  |   | 31     |   |
| **Intangibles**         |   |   |   |
| Developed  technology   |   | 380    |   |
| Customer  lists         |   | 660    |   |
| Non-compete             |   | 25     |   |
| Goodwill                |   | 290    |   |
| Total  assets acquried  |   | 1,600  |   |
|                    |   |   |   |
| **Liabilities Assumed** |   | None   |   |
|                    |   |   |   |
| Net  assets acquired    |   | $      | 1,600  |   |

 

Weintend to amortize developed technology over 15 years, customer lists on anaccelerated basis over eight years, and a non-compete covenant over sevenyears.

 

Thegoodwill arising from the acquisitions discussed above consists largely of thesynergies and economies of scale we hope to achieve from combining the acquiredoperations with our historical operations. The goodwill recognized from these acquisitions is expected to bedeductible for income tax purposes.

 

Thefollowing table summarizes our unaudited consolidated result of operations forthe three-month periods ended March 31, 2009 and 2008, as well as the unauditedpro forma consolidated results of operations as though the Alveolus andBiosearch acquisitions had occurred on January 1, 2008:

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **March 31, 2009**     | ** ** | **March 31, 2008**     | ** ** |
| ** **                  | ** ** | **As Reported**        | ** ** | **Pro Forma**          | ** ** | **As Reported** | ** ** | **Pro Forma** | ** ** |
|                        |       |                   |       |                   |       |   |   |   |   |
| Sales                       |       | $                      | 58,371     |                   | $          | 60,202 |   | $ | 53,553 |   | $ | 56,128 |   |
| Net income                  |       | 5,537                  |       | 5,305                  |       | 4,317 |   | 3,906 |   |
| Earnings per  common share: |       |                   |       |                   |       |   |   |   |   |
| Basic                       |       | $                      | .20        |                   | $          | .19 |   | $ | .16 |   | $ | .14 |   |
| Diluted                     |       | $                      | .19        |                   | $          | .19 |   | $ | .15 |   | $ | .14 |   |

 

Theunaudited pro forma condensed consolidated income statements are forinformational purposes only and should not be considered indicative of actualresults that would been achieved if Alveolus and Bioserach had been acquiredthe beginning of 2008, or results that may be obtained in any future period.

 

OnJanuary 29, 2008, we entered into an asset purchase and supply agreement withMicrus Endovascular Corporation, a Delaware corporation, to purchase threecatheter platforms for $3.0 million dollars. We paid $1.5 million in January 2008 and an additional $1.5 million inDecember of 2008.   We also paid $12,300in acquisition costs.  The purchase pricewas allocated to inventories for $143,939, customer lists for $270,000,developed technology for $330,000, and goodwill for approximately $2.3million.  We are currently amortizingcustomer lists on an accelerated basis over fourteen years, and developedtechnology over fifteen years.  

 

**7. Recent AccountingPronouncements. **In April 2009, the FinancialAccounting Standards Board (“FASB”) staff issued Staff Position (“FSP”) No. FAS107-1 and Accounting Principles Board (“APB”) 28-1, *Interim Disclosures about Fair Value of Financial Instruments*(“FSPNo. FAS 107-1 and APB 28-1”). This FSP amends FASB Statement No. 107,*Disclosures about Fair Value of FinancialInstruments*, to require disclosures about fair value of financialinstruments in interim financial statements as well as in annual financialstatements. This FSP also amends Accounting Principles Board Opinion No. 28*, Interim Financial Reporting*, to requirethese disclosures in all interim financial statements. The provisions of FAS107-1 and APB 28-1 will be effective beginning with our June 30, 2009interim consolidated financial statements, and we do not expect it to have amaterial impact on our consolidated financial statements.

 

In February 2008,the FASB issued FSP No. FAS 157-2, *EffectiveDate of FASB Statement No. 157*(“FAS 157-2”)*,*whichdelayed the effective date of SFAS No. 157 for non-financial assetsand liabilities to fiscal years beginning after November 15, 2008.  We adopted the provisions of FSP No. FAS157-2 during the first quarter of 2009. The adoption of this pronouncement did not have a material impact on ourconsolidated financial statements during the quarter ended March 31, 2009.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 141(R), *Business Combinations* (“SFAS 141(R)”). SFAS 141(R) requiresall business combinations completed after the effective date to be accountedfor by applying the acquisition method (previously referred to as the purchasemethod).  Companies applying this methodwill have to identify the acquirer, determine the acquisition date and purchaseprice and recognize at their acquisition-date fair values of the identifiableassets acquired, liabilities assumed, and any noncontrolling interests in theacquiree.  In the case of a bargainpurchase, the acquirer is required to reevaluate the measurements of therecognized assets and liabilities at the acquisition date and recognize a gainon that date if an excess remains. We adopted the provisions of SFAS No. 141(R) onJanuary 1, 2009; however, the effect of adoption on our consolidatedfinancial statements will depend upon the nature of any acquisitions completedafter adoption.  We expensed costs relatedto the acquisitions of Alveolus and Biosearch of

 

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approximately$330,000 during the quarter ended March 31, 2009, which would have beencapitalized under SFAS No. 141.

 

**8.  Income Taxes.**  Our overall effective tax rate for the three months endedMarch 31, 2009 and 2008 was 31.4% and 36.0%, respectively, which resultedin a provision for income taxes of $2.5 million and $2.4 million, respectively.The decrease in the effective income tax rate for the first quarter of 2009,when compared to the prior year period, was primarily related to theprofitability of our Irish operations which are taxed at a lower tax rate thanour U.S. and other foreign operations.

 

**9.  Fair Value Measurements**.  The fair value of a financial instrument is the amountthat could be received upon the sale of an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date.  Financial assets aremarked to bid prices and financial liabilities are marked to offer prices.  Fair value measurements do not include transactioncosts. We adopted SFAS No. 157, *Fair Value Measurements*,on January 1, 2008.  Thisstatement defines fair value, establishes a framework to measure fair value,and expands disclosures about fair value measurements.  SFAS No. 157 establishes a fair valuehierarchy used to prioritize the quality and reliability of the informationused to determine fair values. Categorization within the fair value hierarchy is based on the lowestlevel of input that is significant to the fair value measurement.  The fair value hierarchy is defined into thefollowing three categories:

 

Level 1: Quoted marketprices in active markets for identical assets or liabilities.

Level 2: Observablemarket based inputs or unobservable inputs that are corroborated by marketdata.

Level 3: Unobservableinputs that are not corroborated by market

 

The following tableprovides our financial assets and liabilities carried at fair value measured ona recurring basis as of March 31, 2009 (in thousands):

 
| ** **                        | ** ** | ** **                   | ** ** | **Fair Value Measurements Using** | ** ** |
|-----------------------------------|------------|------------------------------|------------|--------------------------------------------------|------------|
| ** **                        | ** ** | **Total Fair**          | ** ** | **Quoted prices in**                   | ** ** | **Significant other** | ** ** | **Significant** | ** ** |
| ** **                        | ** ** | **Value at**            | ** ** | **active markets**                          | ** ** | **observable inputs** | ** ** | **Unobservable inputs** | ** ** |
| **Description**                   | ** ** | **March 31, 2009** | ** ** | **(Level 1)**                               | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
|                              |       |                         |       |                                             |       |   |   |   |   |
| Deferred  compensation assets (1) |       | $                            | 2,181      |                                             |       |   | $ | 2,181 |   |   |   |
|                                   |            |                              |            |                                                  |            |  |  |  |  |  |  |

 

----

(1)          The deferred compensation investments areheld in a Rabbi trust under an insurance-based deferred compensation plan.  The investments of the Rabbi trust are valuedbased upon unit values multiplied by the number of units held.  The unit value is based upon the investment’snet asset value adjusted for some administrative fees.

 

**10.  Goodwilland Intangible Assets.**

 

The changes in thecarrying amount of goodwill for the three months ended March 31, 2009 areas follows (in thousands):

 
| Goodwill balance  at December 31, 2008 |   | $     | 13,048 |   |
|---------------------------------------------|--------|-------|--------|--------|
| Additions as the  result of acquisitions    |   | 8,076 |   |
| Goodwill balance  at March 31, 2009    |   | $     | 21,124 |   |

 

Intangible assets at March 31, 2009 and December 31, 2008,consisted of the following (in thousands):

 
| ** **                             | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|----------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                             | ** ** | **Gross**               | ** ** | ** **                 | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                             | ** ** | **Carrying**            | ** ** | **Accumulated**            | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                             | ** ** | **Amount**              | ** ** | **Amortization**           | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                                   |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Covenant not to  compete               |       | $                       | 75         |                       | $          | (15 | ) | $ | 60 |   | $ | 50 |   | $ | (18 | ) | $ | 32 |   |
| Customer lists                         |       | 4,165                   |       | (1,211                     | )          | 2,954 |   | 2,465 |   | (1,073 | ) | 1,392 |   |
| Developed  technology                  |       | 7,870                   |       | (176                       | )          | 7,694 |   | 1,730 |   | (119 | ) | 1,611 |   |
| Distribution  agreement                |       | 2,401                   |       | (196                       | )          | 2,205 |   | 1,901 |   | (178 | ) | 1,723 |   |
| In-process  research and development * |       | 400                     |       |                       |       | 400 |   |   |   |   |   |   |   |
| License  agreements                    |       | 403                     |       | (253                       | )          | 150 |   | 403 |   | (242 | ) | 161 |   |
| Patents                                |       | 3,270                   |       | (1,068                     | )          | 2,202 |   | 2,704 |   | (1,019 | ) | 1,685 |   |
| Royalty  agreements                    |       | 267                     |       | (173                       | )          | 94 |   | 267 |   | (159 | ) | 108 |   |
| Trademark                              |       | 1,914                   |       | (329                       | )          | 1,585 |   | 515 |   | (314 | ) | 201 |   |
|                                   |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Total                                  |       | $                       | 20,765     |                       | $          | (3,421 | ) | $ | 17,344 |   | $ | 10,035 |   | $ | (3,122 | ) | $ | 6,913 |   |

 

----

*In-process research and development was capitalized as per theadoption of SFAS No. 141(R), in connection with our acquisition of Alveolus.Our in-process research and development intangible is currently not subject toamortization.

 

The aggregate amortization expense for the three months endedMarch 31, 2009 was approximately $300,000.

 

Estimated amortization expense for the intangible assets for the nextfive years consisted of the following (in thousands):

 
| **Year Ending  December 31** |   |   |   |
|------------------------------|--------|--------|--------|
| Remaining 2009               |   | $      | 1,483  |   |
| 2010                         |   | 1,739  |   |
| 2011                         |   | 1,375  |   |
| 2012                         |   | 1,179  |   |
| 2013                         |   | 1,126  |   |
|                              |        |        |        |  |

 

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

## ***Disclosure Regarding Forward-Looking Statements***

## *** ***

This Report includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended (the “Exchange Act”).  Allstatements in this Report, other than statements of historical fact, areforward-looking statements for purposes of these provisions, including anyprojections of earnings, revenues or other financial items, any statements ofthe plans and objectives of management for future operations, any statementsconcerning proposed new products or services, any statements regarding futureeconomic conditions or performance, and any statements of assumptions underlyingany of the foregoing.  Allforward-looking statements included in this Report are made as of the datehereof and are based on information available to us as of such date.  We assume no obligation to update anyforward-looking statement.   In somecases, forward-looking statements can be identified by the use of terminologysuch as “may,” “will,” “expects,” “plans,” “anticipates,”  “intends,” “believes,” “estimates,” “potential,”or “continue,” or the negative thereof or other comparable terminology.  Although we believe that the expectationsreflected in the forward-looking statements contained herein are reasonable,there can be no assurance that any such expectations or any forward-lookingstatement will prove to be correct.  Ouractual results will vary, and may vary materially, from those projected orassumed in the forward-looking statements. Our financial condition and results of operations, as well as anyforward-looking statements, are subject to inherent risks and uncertainties,including, unanticipated consequencesof Merit’s recent or future acquisitions; challenges associated with Merit’sefforts to pursue new market opportunities, including opportunities in thegastroenterology and pulmonary markets; infringementof Merit’s technology or the assertion that Merit’s technology infringes therights of other parties; product recalls and product liability claims; downturn of the national economy and its effect on Merit’srevenues, collections and supplier relations; termination of supplierrelationships, or failure of suppliers to perform; inability to successfullymanage growth through acquisitions; delays in obtaining regulatory approvals,or the failure to maintain such approvals; concentration of Merit’s revenuesamong a few products and procedures; development of new products and technologythat could render Merit’s products obsolete; market acceptance of new products;introduction of products in a timely fashion; price and product competition;availability of labor and materials; cost increases; and fluctuations in andobsolescence of inventory; volatility of the market price of Merit’s commonstock; foreign currency fluctuations; changes in key personnel; work stoppage ortransportation risks; modification or limitation of governmental or privateinsurance reimbursement procedures; changes in health care markets related tohealth care reform initiatives; and other factors referred to in our pressreleases and reports filed with the SEC, including our Annual Report on Form 10-Kfor the year ended December 31, 2008. All subsequent forward-lookingstatements attributable to us or persons acting on our behalf are expresslyqualified in their entirety by these cautionary statements.  Additional factors that may have a directbearing on our operating results are discussed in Part I, Item 1A “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2008.

 

**Overview**

 

For the quarterended March 31, 2009, we reported record revenues of $58.4 million, up 9%from the three months ended March 31, 2008.  During the first quarter of 2009, wecompleted the closing of the Alveolus and Biosearch transactions.  We believe the technology and intellectualproperty acquired in these transactions will facilitate growth and opportunityin the gastroenterology and pulmonary markets.

 

Gross profit as apercentage of sales was up to 42.5% for the first quarter of 2009, compared to40.3% for the first quarter of 2008. This improvement can be attributedprimarily to lower average fixed overhead unit costs through increasedproductivity as fixed costs are shared over an increased number of units,reduction in material costs and a favorable Euro to U.S. dollar exchange ratewhich reduced our unit costs in our Irish operations. During 2009, we plan toimplement new automation and manufacturing cost-saving improvements related tologistics and product labeling, and introduce new products through organicgrowth and acquisitions, which we believe will increase our average productmargins.

 

Net incomeincreased for the three months ended March 31, 2009 to $5.5 million,compared to $4.3 million for the prior year period, an increase of 28%.  When compared to the prior year period, netincome for the quarter ended March 31, 2009 was primarily affected byhigher sales and gross margins, and a lower effective income tax rate, all ofwhich offset  higher selling, general andadministrative expenses.

 

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**Resultsof Operations**

 

The followingtable sets forth certain operational data as a percentage of sales for thethree months ended March 31, 2009 and 2008:

 
| ** **                                    | ** ** | **March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **2009**           | ** ** | **2008** | ** ** |
| Sales                                         |       | 100.0              | %          | 100.0 | % |
| Gross profit                                  |       | 42.5               |       | 40.3 |   |
| Selling, general  and administrative expenses |       | 25.4               |       | 24.4 |   |
| Research and  development expenses            |       | 3.6                |       | 3.6 |   |
| Income from  operations                       |       | 13.5               |       | 12.3 |   |
| Other income                                  |       | 0.3                |       | 0.3 |   |
| Net income                                    |       | 9.5                |       | 8.1 |   |

 

**Sales.** Sales for the three months ended March 31, 2009 increased by 9%, orapproximately $4.8 million, compared to the same period of 2008.  We report sales in five productcategories.  Listed below are the salesrelating to these product categories for the three months ended March 31,2009 and 2008 (in thousands):

 
| ** **                       | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **March 31,**               | ** ** |
| ** **                       | ** ** | **% Change**                | ** ** | **2009** | ** ** | **2008** | ** ** |
| Stand-alone  devices             |       | 9%                               |       | $ | 17,434 |   | $ | 15,951 |   |
| Custom kits and  procedure trays |       | 10%                              |       | 17,397 |   | 15,766 |   |
| Inflation  devices               |       | (4)%                             |       | 14,287 |   | 14,921 |   |
| Catheters                        |       | 25%                              |       | 8,634 |   | 6,915 |   |
| Gastroenterology  devices        |       |                             |       | 619 |   |   |   |
| Total                            |       | 9%                               |       | $ | 58,371 |   | $ | 53,553 |   |

 

The sales growthof 9% for the first quarter of 2009, when compared to the comparable period ofthe prior year, was favorably affected by an increase in the sale custom kitsand procedure trays, increased sales of catheters (particularly our Prelude®sheath product line, Mini access catheter product line, and Resolve® lockingdraining catheter line), an increase in stand-alone devices  (maps, contrast transfer sets, and vacloksyringes) and stent sales related to the acquisition of Alveolus in March of2009.  These sales increases helpedoffset a decrease in sales of 1.8% related to the exchange rate between ourforeign currencies (primarily the Euro) and the U.S. Dollar and a decrease ininflation device sales to an OEM customer of 1.2%.

 

**Gross Profit.**** **Gross profit as a percentage of sales increased to42.5% for the first quarter of 2009, compared to 40.3% of sales for thecomparable period of 2008. This improvement can be attributed primarily tolower average fixed overhead unit costs through increased productivity as fixedcosts are shared over an increased number of units, reduction in material costsand a favorable Euro to U.S. Dollar exchange rate which reduced our unit costsin our Irish operations.

 

**Operating Expenses.**** **Selling, general and administrative expenses increasedto 25.4% of sales for the three months ended March 31, 2009, compared with24.4% of sales for the three months ended March 31, 2008.  The increase in selling, general andadministrative expenses as a percentage of sales during the three months ended March 31,2009, when compared to the first three months of 2008, was due primarily toexpenses of 1.3% related to acquiring the assets of Alveolus ($330,000 in legaland accounting expenses) and to operating the former Alveolus business duringthe last three weeks of the quarter ended March 31, 2009.   Research and development expenses were 3.6%of sales for each of the three-month periods ended March 31, 2009 and 2008.  Research and development expenses for thequarter ended March 31, 2009 reflect approximately $58,000 in Alveoluscosts incurred subsequent to the acquisition date.

 

**OtherIncome. **Other income for the first quarter of 2009 wasapproximately $174,000, compared to approximately $145,000 for the same periodin 2008.  This increase in other incomeduring the first quarter of 2009, when compared to the comparable period in2008, was primarily the result of an increase in gains related to

 

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foreign exchangetransactions during the quarter ended March 31, 2009, when compared to thesame period of 2008.

 

**IncomeTaxes.**  Our overall effective tax rate for the threemonths ended March 31, 2009 and 2008 was 31.4% and 36.0%, respectively,which resulted in a provision for income taxes of $2.5 million and $2.4million, respectively.  The decrease inthe effective income tax rate for the first quarter of 2009, when compared tothe prior, year period was primarily related to the profitability of our Irishoperations which are taxed at a income tax rate than our U.S. and other foreignoperations.

 

**Income****.** During the first quarter of 2009, we reported income from operations of$7.9 million, an increase of 20% from $6.6 million for the comparable period in2008.  When compared to the prior yearperiod, income from operations for the quarter ended March 31, 2009 wasprimarily affected by higher sales and gross margins, all of which offsethigher selling, general and administrative expenses.  These factors, along with a lower effectiveincome tax rate, contributed to increased net income of $5.5 million, anincrease of 28%, for the three months ended March 31, 2009, when comparedto net income of $4.3 million for the corresponding period of 2008.

 

**Liquidityand Capital Resources**

** **

Our workingcapital as of March 31, 2009 and December 31, 2008 was $67.4 millionand $84.3 million, respectively.  Thedecrease in working capital was primarily the result of a decrease in cashrelated to the acquisitions of Alveolus and Biosearch, for a total of $20.2million and the repurchase of common stock for $2.5 million.  As of March 31, 2009, we had a currentratio of 3.5 to 1.

 

On December 7,2007, we entered into an unsecured loan agreement with Bank of America, wherebythey agreed to provide us a line of credit in the amount of $30 million,expiring on December 7, 2010. In addition, on December 8, 2007, weentered into an unsecured loan agreement with Zion’s First National Bank,whereby they agreed to provide us with a line of credit in the amount of $1.0million, expiring on December 1, 2009. We had $0 outstanding under our lines of credit at March 31,2009.  We generated cash from operationsof $9.3 million for the three months ended March 31, 2009.

 

Historically, wehave incurred significant expenses in connection with product development andintroduction of new products. Substantial capital has also been required to finance the increase inour receivables and inventories associated with our increased sales. Ourprincipal source of funding for these and other expenses has been cashgenerated from operations, sale of equity, cash from loans on equipment, andbank lines of credit.  We currentlybelieve that our present sources of liquidity and capital are adequate to fundour current operations and for the foreseeable future.

 

**CriticalAccounting Policies**

** **

The SEC has requestedthat all registrants address their most critical accounting policies.  TheSEC has indicated that a “critical accounting policy” is one which is bothimportant to the representation of the registrant’s financial condition andresults and requires management’s most difficult, subjective or complexjudgments, often as a result of the need to make estimates about the effect ofmatters that are inherently uncertain.  We base our estimates on pastexperience and on various other assumptions our management believes to bereasonable under the circumstances, the results of which form the basis formaking judgments about carrying values of assets and liabilities that are notreadily apparent from other sources.  Actual results will differ, and maydiffer materially from these estimates under different assumptions orconditions.  Additionally, changes in accounting estimates could occur inthe future from period to period.  Our management has discussed thedevelopment and selection of our most critical financial estimates with theaudit committee of our Board of Directors.  The following paragraphsidentify our most critical accounting policies:

 

**InventoryObsolescence Reserve****. **Our management reviews on a regular basis inventory quantities on hand forunmarketable and/or slow-moving products that may expire prior to beingsold.  This review of inventory quantities for unmarketable and/or slowmoving products is based on estimates of forecasted product demand prior toexpiration lives.  If market conditions become less favorable than thoseprojected by our management, additional inventory write-downs may berequired.  We believe that the amount included in our obsolescence reservehas been a historically accurate estimate of the unmarketable and/or slowmoving products that may expire prior to being sold.

 

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**Allowancefor Doubtful Accounts****. ** Amajority of our receivables are with hospitals which, over our history, havedemonstrated favorable collection rates.  Therefore, we have experiencedrelatively minimal bad debts from hospital customers.  In limitedcircumstances, we have written off  baddebts as the result of the termination of our business relationships withforeign distributors.  The most significant write-offs over our historyhave come from U.S. packers who bundle our products in surgical trays.

 

We maintain allowancesfor doubtful accounts relating to estimated losses resulting from the inabilityof our customers to make required payments.  The allowance is based uponhistorical experience and a review of individual customer balances.  Ifthe financial condition of our customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired.

 

**Stock-BasedCompensation.** ****We account for stock-based compensation inaccordance with Statement of Financial Accounting Standards No. 123(R), *Share-Based Payment*(“SFAS 123(R)”). Under the fair value recognitionprovisions of SFAS 123 (R), we measure share-based compensation cost at thegrant date based on the value of the award and recognize the cost as anexpense over the term of the vesting period.  Judgment isrequired in estimating the amount of share-based awards that are expected to beforfeited.  If actual results differ significantly from these estimates,stock-based compensation expense and our results of operations could bematerially impacted.

 

**IncomeTaxes.**   We adopted the provisions of FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes*(“FIN 48”), effective January 1, 2007. UnderFIN 48, tax positions shall initially be recognized in the financial statementswhen it is more likely than not the position will be sustained upon examinationby the tax authorities.  Such taxpositions shall initially and subsequently be measured as the largest amount oftax benefit that has a greater than 50% likelihood of being realized uponultimate settlement with the tax authorities assuming full knowledge of theposition and all relevant facts.  Although we believe our provisions forFIN 48 unrecognized tax positions are reasonable, we can make no assurance thatthe final tax outcome of these matters will not be different from that which wehave reflected in our income tax provisions and accruals.  The tax law is subject to variedinterpretations, and we have taken positions related to certain matters wherethe law is subject to interpretation.  Such differences could have amaterial impact on our income tax provisions and operating results in theperiod(s) in which we make such determination.

 

**Goodwilland Intangible Assets Impairment. **We test our goodwill balances as of July 1,during the third quarter of each year for impairment, or whenever impairmentindicators arise.  We utilize severalreporting units in evaluating goodwill for impairment.  We assess the estimated fair value ofreporting units based on discounted future cash flows.  If the carrying amount of a reporting unitexceeds the fair value of the reporting unit, an impairment charge isrecognized in an amount equal to the excess of the carrying amount of thereporting unit goodwill over implied fair value of that goodwill.  This analysis requires significant judgments,including estimation of future cash flows and the length of time they willoccur, which is based on internal forecasts, and a determination of a discountrate based on our weighted average cost of capital.

 

We evaluate therecoverability of intangible assets whenever events or changes in circumstancesindicate that it’s carrying amount may not be recoverable in accordance withSFAS No. 144, *Accounting for theImpairment or Disposal of Long-lived Assets.*This analysis requiressimilar significant judgments as those discussed above regarding goodwill,except for cash flows are based on an undiscounted cash flow to determine thefair value of the intangible.  All of ourintangible assets are subject to amortization.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

** **

Our principal market riskrelates to changes in the value of the Euro and Great Britain Pound (“GBP”)relative to the value of the U.S. Dollar.  Our consolidated financialstatements are denominated in, and our principal currency is, the U.S.Dollar.  A portion of our revenues ($5.7 million, representingapproximately 9.8% of aggregate revenues), for the quarter ended March 31,2009 was attributable to sales that were denominated in Euros and GBPs.  All other international sales were denominatedin U.S. Dollars.  Certain expenses are also denominated in Euros and GBPs,which partially offsets risks associated with fluctuations of exchanges ratesbetween the Euro and GBP on the one hand, and the U.S. Dollar on the otherhand.  Because of our Euro and GBP-denominated revenues and expenses, in ayear in which our Euro and GBP-denominated revenues exceed our Euro andGBP-based expenses, the value of such Euro and GBP-denominated net incomeincreases if the value of the Euro and GBP increase relative to the value ofthe U.S. Dollar, and decreases if the value of the Euro and GBP decreaserelative to the value of the U. S. Dollar.  During the quarter ended March 31,2009, the exchange rate between the 

 

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Euro and GBP against theU.S. Dollar resulted in a decrease of our gross revenues of approximately $1.0million and an increase of  1.0% in grossprofit.

 

On February  27,2009, we forecasted a net exposure for March 31, 2009 representing thedifference between Euro and GBP denominated receivables and Euro and GBPdenominated payables of approximately 450,000 Euros and 298,000 GBPs,respectively.  In order to partially offset such risks, on February 27,2009, we entered into a 30-day forward contract for Euros and GBPs.  Wegenerally enter into similar economic transactions at various times during theyear to partially offset exchange rate risks we bear throughout the year. During the quarter ended March 31, 2009, we recorded a net gain ofapproximately $43,000 on these transactions executed during the quarter ended March 31,2009, in an effort to limit our exposure to exchange rate fluctuations betweenthe Euro and GBP against the U.S. Dollar. We do not purchase or hold derivative financial instruments forspeculative or trading purposes.  The fair value of our open positions at March 31,2009 was not material to our financial condition.

 

As of March 31, 2009, we had no variable rate debt. As long as we do not have variable rate debt, our interest expense would not be affected by changes in interest rates.

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

** **

**(a) Evaluationof disclosure controls and procedures**

 

An evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2009 was performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer.  Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by Merit in reports filed or submitted by Merit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

**(b) Changesin Internal Control Over Financial Reporting**

 

There was no change in our internal control over financial reporting during the quarter ended March 31, 2009 that materially affected, or that we believe is reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

** **

**ITEM 1.  LEGAL PROCEEDINGS**

** **

We are subject tocertain legal actions that we consider routine to our business activities.  As of March 31, 2009, our managementconcluded, after consultation with legal counsel, that the ultimate outcome ofsuch legal matters is not likely to have a material adverse effect on ourfinancial position, liquidity or results of operations.

 

**ITEM 1A.  RISK FACTORS**

** **

In addition toother information set forth in this Report, you should carefully consider thefactors discussed in Part I, “Item 1A. Risk Factors” in our Annual Reporton Form 10-K for the year ended December 31, 2008, which couldmaterially affect our business, financial condition or future results.  The risks described in our Annual Report on Form 10-Kare not the only risks we face. Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial also may materially and adversely affect ourbusiness, financial condition and/or operating results.  During the fiscal quarter covered by thisReport, there were no material changes in the risk factors described in ourAnnual Report on Form 10-K.

 

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**ITEM  2.  UNREGISTEREDSALES OF EQUITY AND USE OF PROCEEDS**

 

The following tablepresents our repurchases of common stock for each of the three months includedin the quarter ended March 31, 2009:

 
| ** **               | ** ** | ** **            | ** ** | ** **          | ** ** | **Total Number of Shares** | ** ** | **Maximum Number of**                | ** ** |
|--------------------------|------------|-----------------------|------------|---------------------|------------|-------------------------------------------|------------|------------------------------------------------|------------|
| ** **               | ** ** | **Total Number** | ** ** | **Average**         | ** ** | **Purchased as Part of**   | ** ** | **Shares that May Yet Be** | ** ** |
| ** **               | ** ** | **of Shares**    | ** ** | **Price Paid** | ** ** | **Publicly Announced**               | ** ** | **Purchased Under the**              | ** ** |
| **Period**               | ** ** | **Purchased**         | ** ** | **per Share**  | ** ** | **Plans or Programs (1)**  | ** ** | **Plans or Programs (1)**       | ** ** |
| March 1 -  31, 2009 |       | 250,158               |       | $                   | 9.89       |                                      | 370,058    |                                           | 1,029,942  |   |
|                          |            |                       |            |                     |            |                                           |            |                                                |            |  |

 

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(1)                                  On April 30, 2007 our Board ofDirectors authorized the repurchase of up to 1,400,000 shares of our commonstock.  The authorization of our Board of Directors, which was publiclyannounced on  April 3, 2007, doesnot have an expiration date.  We intendto make repurchases from time to time based on market conditions.

 

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**ITEM 6.  EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                           |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|                 |       |                                                                                                      |
| 31.2                 |       | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|                 |       |                                                                                                      |
| 32.1                 |       | Certification of Chief Executive  Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  |
|                 |       |                                                                                                      |
| 32.2                 |       | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |

 

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**SIGNATURES**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| MERIT  MEDICAL SYSTEMS, INC. |        |
|------------------------------|-------------|
| REGISTRANT                   |        |
|                         |        |
|                         |        |
| Date:                        | May 8, 2009 |   | /s/  FRED P. LAMPROPOULOS |
|                         |        | FRED  P. LAMPROPOULOS |
|                         |        | PRESIDENT  AND CHIEF EXECUTIVE |
|                         |        | OFFICER |
|                         |        |   |
|                         |        |   |
| Date:                        | May 8, 2009 |   | /s/  KENT W. STANGER |
|                         |        | KENT  W. STANGER |
|                         |        | SECRETARY  AND CHIEF FINANCIAL |
|                         |        | OFFICER |

 

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