Disclosure Regarding Forward-Looking Statements

This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements in this Report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this Report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such 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 expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct. Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements. Our financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including, unanticipated consequences of Merit's recent or future acquisitions; challenges associated with Merit's efforts to pursue new market opportunities, including opportunities in the gastroenterology and pulmonary markets; infringement of Merit's technology or the assertion that Merit's technology infringes the rights of other parties; product recalls and product liability claims; downturn of the national economy and its effect on Merit's revenues, collections and supplier relations; termination of supplier relationships, or failure of suppliers to perform; inability to successfully manage growth through acquisitions; delays in obtaining regulatory approvals, or the failure to maintain such approvals; concentration of Merit's revenues among a few products and procedures; development of new products and technology that 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 and obsolescence of inventory; volatility of the market price of Merit's common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; modification or limitation of governmental or private insurance reimbursement procedures; changes in health care markets related to health care reform initiatives; and other factors referred to in our press releases and reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2008. All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are discussed in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

For the quarter ended 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, we completed the closing of the Alveolus and Biosearch transactions. We believe the technology and intellectual property acquired in these transactions will facilitate growth and opportunity in the gastroenterology and pulmonary markets.

Gross profit as a percentage of sales was up to 42.5% for the first quarter of 2009, compared to 40.3% for the first quarter of 2008. This improvement can be attributed primarily to lower average fixed overhead unit costs through increased productivity as fixed costs are shared over an increased number of units, reduction in material costs and a favorable Euro to U.S. dollar exchange rate which reduced our unit costs in our Irish operations. During 2009, we plan to implement new automation and manufacturing cost-saving improvements related to logistics and product labeling, and introduce new products through organic growth and acquisitions, which we believe will increase our average product margins.

Net income increased 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, net income for the quarter ended March 31, 2009 was primarily affected by higher sales and gross margins, and a lower effective income tax rate, all of which offset higher selling, general and administrative expenses.

Results of Operations



The following table sets forth certain operational data as a percentage of sales
for the three 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%, or approximately $4.8 million, compared to the same period of 2008. We report sales in five product categories. Listed below are the sales relating 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 growth of 9% for the first quarter of 2009, when compared to the comparable period of the prior year, was favorably affected by an increase in the sale custom kits and procedure trays, increased sales of catheters (particularly our PreludeŽ sheath product line, Mini access catheter product line, and ResolveŽ locking draining catheter line), an increase in stand-alone devices (maps, contrast transfer sets, and vaclok syringes) and stent sales related to the acquisition of Alveolus in March of 2009. These sales increases helped offset a decrease in sales of 1.8% related to the exchange rate between our foreign currencies (primarily the Euro) and the U.S. Dollar and a decrease in inflation device sales to an OEM customer of 1.2%.

Gross Profit. Gross profit as a percentage of sales increased to 42.5% for the first quarter of 2009, compared to 40.3% of sales for the comparable period of 2008. This improvement can be attributed primarily to lower average fixed overhead unit costs through increased productivity as fixed costs are shared over an increased number of units, reduction in material costs and a favorable Euro to U.S. Dollar exchange rate which reduced our unit costs in our Irish operations.

Operating Expenses. Selling, general and administrative expenses increased to 25.4% of sales for the three months ended March 31, 2009, compared with 24.4% of sales for the three months ended March 31, 2008. The increase in selling, general and administrative 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 to expenses of 1.3% related to acquiring the assets of Alveolus ($330,000 in legal and accounting expenses) and to operating the former Alveolus business during the 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 the quarter ended March 31, 2009 reflect approximately $58,000 in Alveolus costs incurred subsequent to the acquisition date.

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

foreign exchange transactions during the quarter ended March 31, 2009, when compared to the same period of 2008.

Income Taxes. Our overall effective tax rate for the three months 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 $2.4 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 the profitability of our Irish operations which are taxed at a income tax rate than our U.S. and other foreign operations.

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 in 2008. When compared to the prior year period, income from operations for the quarter ended March 31, 2009 was primarily affected by higher sales and gross margins, all of which offset higher selling, general and administrative expenses. These factors, along with a lower effective income tax rate, contributed to increased net income of $5.5 million, an increase of 28%, for the three months ended March 31, 2009, when compared to net income of $4.3 million for the corresponding period of 2008.

Liquidity and Capital Resources

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

On December 7, 2007, we entered into an unsecured loan agreement with Bank of America, whereby they 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, we entered 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 $1.0 million, expiring on December 1, 2009. We had $0 outstanding under our lines of credit at March 31, 2009. We generated cash from operations of $9.3 million for the three months ended March 31, 2009.

Historically, we have incurred significant expenses in connection with product development and introduction of new products. Substantial capital has also been required to finance the increase in our receivables and inventories associated with our increased sales. Our principal source of funding for these and other expenses has been cash generated from operations, sale of equity, cash from loans on equipment, and bank lines of credit. We currently believe that our present sources of liquidity and capital are adequate to fund our current operations and for the foreseeable future.

Critical Accounting Policies

The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a "critical accounting policy" is one which is both important to the representation of the registrant's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ, and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the audit committee of our Board of Directors. The following paragraphs identify our most critical accounting policies:

Inventory Obsolescence Reserve. Our management reviews on a regular basis inventory quantities on hand for unmarketable and/or slow-moving products that may expire prior to being sold. This review of inventory quantities for unmarketable and/or slow moving products is based on estimates of forecasted product demand prior to expiration lives. If market conditions become less favorable than those projected by our management, additional inventory write-downs may be required. We believe that the amount included in our obsolescence reserve has been a historically accurate estimate of the unmarketable and/or slow moving products that may expire prior to being sold.

Allowance for Doubtful Accounts. A majority of our receivables are with hospitals which, over our history, have demonstrated favorable collection rates. Therefore, we have experienced relatively minimal bad debts from hospital customers. In limited circumstances, we have written off bad debts as the result of the termination of our business relationships with foreign distributors. The most significant write-offs over our history have come from U.S. packers who bundle our products in surgical trays.

We maintain allowances for doubtful accounts relating to estimated losses resulting from the inability of our customers to make required payments. The allowance is based upon historical experience and a review of individual customer balances. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Stock-Based Compensation. We account for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ("SFAS 123(R)"). Under the fair value recognition provisions of SFAS 123 (R), we measure share-based compensation cost at the grant date based on the value of the award and recognize the cost as an expense over the term of the vesting period. Judgment is required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

Income Taxes. We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), effective January 1, 2007. Under FIN 48, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities assuming full knowledge of the position and all relevant facts. Although we believe our provisions for FIN 48 unrecognized tax positions are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our income tax provisions and accruals. The tax law is subject to varied interpretations, and we have taken positions related to certain matters where the law is subject to interpretation. Such differences could have a material impact on our income tax provisions and operating results in the period(s) in which we make such determination.

Goodwill and Intangible Assets Impairment. We test our goodwill balances as of July 1, during the third quarter of each year for impairment, or whenever impairment indicators arise. We utilize several reporting units in evaluating goodwill for impairment. We assess the estimated fair value of reporting units based on discounted future cash flows. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized in an amount equal to the excess of the carrying amount of the reporting 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 will occur, which is based on internal forecasts, and a determination of a discount rate based on our weighted average cost of capital.

We evaluate the recoverability of intangible assets whenever events or changes in circumstances indicate that it's carrying amount may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. This analysis requires similar significant judgments as those discussed above regarding goodwill, except for cash flows are based on an undiscounted cash flow to determine the fair value of the intangible. All of our intangible assets are subject to amortization.