Executive Summary

DELMED EXPECTS 1990 SALES OF DIALYSIS PRODUCTS TO FALL "SIGNIFICANTLY" below 1989 levels following the expected termination of Delmed's supply agreement with National Medical Care. The three-year exclusive supply agreement between the two firms expires in March 1990, and the companies have not been able to come to terms on prices and volume beyond that point, Delmed said Oct. 24. Delmed expects to continue supplying NMC after March 1990, but not at the minimum purchase levels stipulated under the current contract. NMC accounted for 87% of Delmed's 1988 revenues of $21.1 mil. NMC orders are down from last year, a Delmed spokesperson said. At the half, Delmed reported sales of $11.8 mil., up 13.7%, and a net loss of $2.6 mil. compared with a loss of $944,000 for the same period the year earlier. * The break with NMC throws a wrench into Delmed's plans for a merger with Fresenius USA. Delmed says that it "continues to explore the possibility of a combination," but on "substantially less favorable" terms than previously announced. In June, Delmed announced preliminary discussions for a merger with the U.S. subsidiary of West German firm Fresenius AG. At that point, the firms contemplated the issue of 123.5 mil. new shares of Delmed common for sale to Fresenius AG at 65 to 75 a share, as well as the purchase of additional Delmed shares by Fresenius. Valued at $80 mil., the transaction would have raised Fresenius' stake in Delmed from 45% to between 70% and 80%. Now, Delmed says that it is "not possible to provide the new terms of the combination since a proposal is presently being formulated by Fresenius AG. However, Delmed anticipates that the terms will call for Fresenius AG and Fresenius USA collectively to own at least 80% of the equity of Delmed, with the remainder continuing to be in the hands of the public." In addition, Delmed still expects some cash to be infused into the company, but less than the $10 mil. originally planned. * Another immediate ramification of the NMC termination is a Delmed management shakeup: Robert Ehrlich has stepped down as chairman, president and CEO, but will continue as a director and consultant. Leslie Shapiro resigned as chief operating officer and chief financial officer, Delmed said. Fresenius director Gerd Krick has become chairman of Delmed, and Fresenius USA President Ben Lipps has taken on the roles of Delmed president, chief executive and chief operating officer.