-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VOEqhC0l8ENBlocu5I9YNuEpa0tcElUW/ujEVc/vhzmQ2DHEvSNezjeIf1VsMYkd 43imQzulT+GKg1s+GNTQcw== 0000892251-96-000099.txt : 19960730 0000892251-96-000099.hdr.sgml : 19960730 ACCESSION NUMBER: 0000892251-96-000099 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERIDIAN DIAGNOSTICS INC CENTRAL INDEX KEY: 0000794172 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 310888197 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14902 FILM NUMBER: 96600225 BUSINESS ADDRESS: STREET 1: 3471 RIVER HILLS DR CITY: CINCINNATI STATE: OH ZIP: 45244 BUSINESS PHONE: 5132713700 MAIL ADDRESS: STREET 1: 3471 RIVER HILLS DRIVE CITY: CINCINNATI STATE: OH ZIP: 45244 10-Q 1 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 June 30, 1996 OR ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to Commission file number 0-14902 Meridian Diagnostics, Inc. _________________________________________________________________ Incorporated under the laws of Ohio 31-0888197 _________________________________________________________________ (I.R.S. Employer Identification No.) 3471 River Hills Drive Cincinnati, Ohio 45244 (513) 271-3700 Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 19, 1996 ______________ __________________________________ Common stock, no par value 14,276,638 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q Page(s) _______ PART I. FINANCIAL INFORMATION Item 1. Financial Statements- Consolidated Balance Sheets - June 30, 1996 and September 30, 1995 3-4 Consolidated Statements of Earnings - Three Months Ended June 30, 1996 and 1995 Nine Months Ended June 30, 1996 and 1995 5 Consolidated Statements of Cash Flows - Nine Months Ended June 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 5. Other Information 14-15 Item 6. Exhibits and Reports on Form 8-K 16 Signature 16 Exhibit 11 Computation of Earnings per Common Share 17 Exhibit 27 Financial Data Schedule 18-20 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) ASSETS June 30, September 30, 1996 1995 ______________ _____________ CURRENT ASSETS: Cash and short-term investments $ 7,972,093 $ 8,918,637 Accounts receivable, less allowance of $125,792 and $164,136 for doubtful accounts 7,486,777 6,482,999 Inventories 4,195,724 3,032,655 Prepaid expenses and other 586,703 165,553 Deferred tax assets 390,062 324,910 ___________ ___________ Total current assets 20,631,359 18,924,754 ___________ ___________ PROPERTY, PLANT AND EQUIPMENT: Land 276,927 269,217 Building improvements 5,981,461 6,162,668 Machinery, equipment and furniture 6,069,077 5,525,455 Construction in progress 687,187 - ___________ ___________ 13,014,652 11,957,340 Less- Accumulated depreciation and amortization 5,230,769 4,816,905 ___________ ___________ Net property, plant and equipment 7,783,883 7,140,435 ___________ ___________ OTHER ASSETS: Long-term receivables, including cash surrender value of insurance policies 295,387 168,892 Deferred royalties 285,459 74,762 Deferred tax assets 222,879 87,879 Deferred debenture offering costs, net of accumulated amortization of $133,357 -0- 395,731 Covenants not to compete, net of accumulated amortization of $2,195,478 and $1,827,718 3,325,116 2,432,876 License agreements, net of accumulated amortization of $815,599 and $772,433 319,514 362,680 Patents, tradenames, customer lists and distributorships, net of accumulated amortization of $632,059 and $475,762 3,486,941 1,837,238 Other intangible assets, net of accumulated amortization of $117,119 and $85,570 2,123,881 545,430 Costs in excess of net assets acquired, net of accumulated amortization of $611,704 and $458,482 3,127,817 2,598,511 ___________ ___________ Total other assets 13,186,994 8,503,999 ___________ ___________ Total assets $41,602,236 $34,569,188 ___________ ___________ ___________ ___________ MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY June 30, September 30, 1996 1995 ___________ ___________ CURRENT LIABILITIES: Note Payable - Bank $ 6,218,000 - 0 - Current portion of long-term obligations 361,000 $ 381,932 Current portion of capital lease obligation 107,879 63,561 Accounts payable 692,447 689,869 Accrued payroll and payroll taxes 649,801 723,946 Other accrued expenses 2,187,176 937,348 Income taxes payable 841,106 458,707 ___________ ___________ Total current liabilities 11,057,409 3,255,363 ___________ ___________ LONG-TERM OBLIGATIONS 1,976,529 12,285,668 ___________ ___________ CAPITAL LEASE OBLIGATIONS 366,398 149,925 ___________ ___________ SHAREHOLDERS' EQUITY: Preferred stock, no par value, 1,000,000 shares authorized; none issued Common stock, no par value, 50,000,000 shares authorized; 14,276,638 and 12,924,814 shares issued and outstanding, respectively Ssated at 2,384,854 1,487,159 Additional paid-in capital 20,498,404 13,895,901 Retained earnings 5,500,542 3,747,930 Foreign currency translation adjustment (181,900) (252,758) ___________ ___________ Total shareholders' equity 28,201,900 18,878,232 ___________ ___________ Total liabilities and shareholders' equity $41,602,236 $34,569,188 ___________ ___________ ___________ ___________ MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, __________________________ ___________________________ 1996 1995 1996 1995 ____________ ___________ ____________ ____________ NET SALES $ 7,559,416 $6,782,312 $20,335,897 $18,356,729 COST OF SALES 2,197,321 2,257,382 6,196,415 6,079,338 ____________ ___________ ___________ ___________ Gross Profit 5,362,095 4,524,930 14,139,482 12,277,391 ____________ ___________ ___________ ___________ OPERATING EXPENSES: Research and development 409,036 370,062 1,105,675 1,083,284 Selling and marketing 1,564,120 1,402,647 4,378,907 3,823,591 General and administrative 1,068,388 903,057 3,064,568 2,850,369 ____________ ___________ ___________ ___________ Total operating expenses 3,041,544 2,675,766 8,549,150 7,757,244 ____________ ___________ ___________ ___________ Operating income 2,320,551 1,849,164 5,590,332 4,520,147 ____________ ___________ ___________ ___________ OTHER INCOME (EXPENSE): Licensing and commission fees 8,908 26,403 41,846 92,806 Investment income 97,016 110,964 339,648 306,904 Interest expense and amortization of debt expenses (71,774) (295,785) (307,792) (857,268) Other, net 161,825 (30,329) 197,532 (25,949) ____________ ___________ ___________ ___________ Total other income (expense) 195,975 (188,747) 271,234 (483,507) ____________ ___________ ___________ ___________ Earnings before income taxes 2,516,526 1,660,417 5,861,566 4,036,640 INCOME TAXES 1,017,483 675,136 2,378,393 1,676,023 ____________ ___________ ___________ ___________ Net earnings $ 1,499,043 $ 985,281 $ 3,483,173 $ 2,360,617 ____________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ PRIMARY WGHTD AVG NUMBER OF COMMON SHARES OUTSTANDING 14,266,736 12,338,865 14,136,623 12,312,687 ____________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ PRIMARY EARNINGS PER COMMON SHARE $ .11 $ .08 $ .25 $ .19 ____________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ FULLY DILUTED WGHTD AVG NUMBER OF COMMON SHARES 14,803,167 N/A 14,794,029 N/A ____________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ FULLY DILUTED EARNINGS PER COMMON SHARE $ .10 N/A $ .24 N/A ____________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended June 30, ________________________ 1996 1995 __________ __________ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $3,483,173 $ 2,360,617 Noncash items- Disposal of fixed asset 13,771 - Amortization of royalties 26,803 - Depreciation of property, plant and equipment 741,808 718,067 Amortization of intangible assets 767,879 705,079 Deferred interest expense 121,221 41,660 Deferred income taxes (200,152) (312,830) Long term receivables (126,495) (211,477) Changes in other current assets and current liabilities- Accounts receivable, net (1,003,778) (887,015) Inventories (333,069) (862) Prepaid expenses and other (421,150) (193,059) Accounts payable 2,578 (1,098,367) Accrued expenses 1,175,683 912,749 Income taxes payable 448,779 (150,015) ____________ ____________ Net cash provided by (used for) operating activities 4,697,051 1,884,547 ____________ ____________ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment acquired, net (1,198,829) (1,859,348) Royalty advanced (37,500) - Product line acquisition - Royalty advanced (200,000) - Inventory & equipment (1,030,000) - Covenant not to compete (1,260,000) - Patents, tradenames, customer list & other assets (3,416,000) - Cost in excess of net assets acquired (682,527) - ____________ ____________ Net cash used for investing activities (7,824,856) (1,859,348) ____________ ____________ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term obligations (2,834,533) (282,808) Proceeds from long-term obligations 511,032 1,407,334 Dividends paid (1,730,561) (895,289) Proceeds from issuance of common stock, net (53,535) 40,918 Effect of exchange rate changes on cash 70,858 (18,215) Proceeds from bank line of credit* 6,218,000 ____________ ____________ Net cash provided by (used for) financing activities 2,181,261 251,940 ____________ ____________ NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (946,544) 277,139 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 8,918,637 8,831,983 ____________ ____________ CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $7,972,093 $ 9,109,122 ____________ ____________ ____________ ____________ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for- Income taxes $1,883,196 $ 2,110,761 ____________ ____________ ____________ ____________ Interest $ 111,637 $ 538,145 ____________ ____________ ____________ ____________ Non-cash activities- Common stock issued from conversion of subordinated debentures, net of amortization of deferred debenture offering costs. $7,409,504 $ 160.000 Cashless exercise of stock option $ 66,380 * Line of credit repaid on July 5, 1996 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Presentation- ______________________ The consolidated financial statements included herein have not been examined by independent public accountants, but include all adjustments (consisting of normal recurring entries) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the requirements of the Securities and Exchange Commission, although the Company believes that the disclosures included in these financial statements are adequate to make the information not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year. (2) Inventories- ___________ Inventories are comprised of the following: June 30, September 30, 1996 1995 ______________ _______________ Raw materials $ 1,167,568 $ 1,165,319 Work-in-process 1,000,459 626,077 Finished goods 2,027,697 1,241,259 ______________ _______________ $ 4,195,724 $ 3,032,655 ______________ _______________ ______________ _______________ (3) Income Taxes- ____________ The provisions for income taxes were computed at the estimated annualized effective tax rates utilizing current tax law in effect, after giving effect to research and experimentation credits. (4) Earnings Per Common Share- _________________________ Net earnings per share has been computed based upon the weighted average number of shares outstanding during the periods which includes the effect of the conversion of the subordinated debentures into common stock. All share and per share information have been adjusted to reflect the 3 for 2 stock split in October 1995. Additionally all share and per share information have been adjusted for a 3% stock dividend in November 1994. (5) Translation of Foreign Currency- _______________________________ Assets and liabilities of foreign operations are translated using quarter end exchange rates, and revenues and expenses are translated using exchange rates prevailing during the year with gains or losses resulting from translation included in a separate component of shareholders' equity. Gains and losses resulting from transactions in foreign currencies were immaterial. (6) Reclassifications- _________________ Certain reclassifications have been made to the accompanying financial statements to conform to the June 30, 1996 presentation. (7) Acquisitions- ____________ On June 24, 1996 the Company acquired the enteric product line of Cambridge Biotech Corporation for approximately $6,588,000. The purchase price was allocated as follows: Inventory $ 830,000 Fixed Assets 200,000 Advanced Royalty 200,000 Covenant Not to Compete 1,260,000 Customer List 1,090,000 Supply Agreement 218,000 Patents Trademarks 498,000 Manufacturing Procedures 1,610,000 Cost in Excess of Net Assets Acquired 682,000 __________ Total $6,588,000 __________ __________ The total purchase price included cash paid to Cambridge Biotech Corporation, of $6,351,000, expenses of $125,000 and accrued royalties of $112,000. As additional consideration, Meridian agreed to pay Cambridge a royalty of 2% on product sales for a five year period beginning June 24, 1996. Included in the $6,351,000 is an advanced payment of $200,000 on such royalties. The remaining estimated royalty has been accrued at its present value. Also included in the $6,351,000 is an amount accrued as of June 30, 1996 for inventory of $651,000 which was paid on July 23, 1996. Intangible assets acquired will be amortized over periods ranging from 5 to 15 years. Item 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations Results of Operations _____________________ Net sales increased $777,000, or 11%, to $7,559,000 for the third fiscal quarter and $1,979,000, or 11%, to $20,336,000 for the nine months ended June 30, 1996. These increases stem primarily from strong unit volume growth in the Premier, Para-Pak and ImmunoCard lines. In the Premier and ImmunoCard formats, this growth continues to be attributable to those products used for identification of Toxin A, H pylori, EHEC, Mycoplasma and Rotavirus. In Para-Pak, the growth continues to be attributable to the core parasitology transport format, Para-Pak Ultra, introduced last fall and Para-Pak Plus. In addition, the Inova line of products, licensed for Italy last year, added over $169,000 and over $343,000 of sales volume for the third fiscal quarter and nine months results, respectively. The enteric products acquired from Cambridge Biotech Corporation on June 24, 1996 contributed $47,000. OEM sales were down for the quarter and for the nine months approximately $270,000 which is largely a result of timing of orders. Also, offsetting the above increases for the nine months period are sales of the mononucleosis line, down about 10%. This decline is attributable to the wind-down of production of the MonoSpot product, previously supplied by Ortho Diagnostics Systems, Inc. and the transition to the Meridian-produced new mononucleosis latex products. Following is a summary of the increase in sales for the two periods broken down by volume, price and currency: June 30, 1996 ____________________________________________ Quarter Ended Nine Months Ended $ Change % Change $ Change % Change _________ ________ _________ __________ Volume $747,000 11.0 $1,704,000 9.3 Price (87,000) (1.2) 99,000 0.5 Currency 117,000 1.7 176,000 1.0 _________ _____ _________ ______ Total $777,000 11.5 $1,979,000 10.8 _________ _____ _________ ______ _________ _____ _________ ______ European sales for the third fiscal quarter increased significantly from $1,361,000 to $1,842,000 or 35%, and increased from $3,829,000 to $4,811,000, or 26%, for the nine month period principally from volume growth in the Premier line, the new volume from the Inova line, ImmunoCard and Para-Pak formats. The increase in sales broken down by volume, price and currency for European sales are summarized below: Quarter Nine Months $ Change % Change $ Change % Change _________ ________ _________ __________ Volume $466,000 34.3 $ 855,000 22.3 Price (102,000) (7.5) (49,000) (1.3) Currency 117,000 8.6 176,000 4.6 __________ ______ _________ _______ Total $481,000 35.4 $ 982,000 25.6 __________ ______ _________ _______ __________ ______ _________ _______ Gross profit as a percentage of net sales improved to almost 71% for the third fiscal quarter and to 69.5% for the nine-month period, up about four percentage points in the quarter and up over two and one half points for the nine months compared to the prior year. Product mix, driven by growth in excess of 18% for Premier and 37% for ImmunoCard for the third fiscal quarter coupled with a decrease in lower margin OEM sales were the primary factors accounting for the improvement. In addition, the 11% increase in volume and reduced scrap and depreciation expenses were also contributing factors to the improved margin. Total operating expenses increased $366,000, or 14%, for the third fiscal quarter and $792,000 or 10% for the nine months ended June 30, 1996, compared to the prior year. Total operating expenses were 40.2% of net sales for the third quarter, up 0.8 percentage points from the prior year, and were 42.0% of net sales for the nine months, down 0.3 percentage points. Research and development expenses for the third fiscal quarter increased $39,000, or 10%, compared to the prior year and increased $22,000, or 2%, for the nine-month period. Increases in personnel costs associated with initial development work on the Premier EHEC in food and agricultural applications plus development of H. pylori antigen in stool were offset in part by lower clinical trial expense, accounting for the higher quarterly expenses. Selling and marketing expenses increased 12% for the third quarter and 15% for the nine months. The increases are attributable to personnel costs in the U.S. associated with the addition of a third sales region and in Europe from added personnel in the sales support and product management functions. Other significant increases in the quarter included expenses for an expanded international distributors' meeting in Cincinnati, depreciation expense associated with the new U.S. headquarters facility and the impact of exchange from the stronger Lira versus the dollar. General and administrative expenses increased approximately 18% for the third fiscal quarter and approximately 8% for the nine month period. Personnel costs in the U.S. and in Europe, outside services associated with computer information systems, facility expenses related to the new administrative headquarters, the impact of exchange from the stronger Lira and higher international travel are the primary reasons for the quarterly increase. In addition to these increases, the one time state filing fee for the increase in the number of the Company's authorized shares of common stock accounted for the nine months increase. Operating income, as a result of the above, increased $471,000, or 26%, compared to the sales increase of 11%, for the third fiscal quarter and $1,070,000, or 24% compared to the sales increase of 11% for the nine months compared to the same periods last year. As a percent of sales, operating income improved over 3% for the quarter and almost 3% for the nine months. Other income (net) increased $385,000 for the quarter and $755,000 for the nine month periods ended June 30, 1996. Interest income (net) improved $210,000 for the quarter and $582,000 for the nine month period primarily from the reduction in interest expense as a result of the conversion of the convertible debentures as of November 30, 1995. Included in the quarter was a gain of $150,000 from payment of a fully reserved note related to a March 1994 Agreement wherein the Company sold to VAI Diagnostics, Inc. tissue culture products acquired in January 1994 from an affiliate of Ortho Diagnostic Systems, Inc. Gains/losses in foreign exchange for the quarter were not material. The cumulative foreign currency translation adjustment increased by $36,000 during the quarter as a result of the Lira strengthening against the U.S. dollar. The Company's effective tax rate for the quarter is relatively flat at 40.4% and down approximately 1% for the nine month period compared to the prior year. Net earnings increased $514,000, or 52%, for the third fiscal quarter to $1,499,000 from $985,000 and increased $1,123,000, or 48% to $3,483,000 from $2,361,000 for the nine months ended June 30, 1996 compared to the prior year. The corresponding increases in primary earnings per share for the comparable periods were approximately 38% and 32% respectively. The lower growth rates in earnings per share results from the increase in outstanding shares associated with the conversion of the convertible debentures. Through the first nine months of fiscal 1996, primary earnings per share are $0.25, or 86% of the full 1995 fiscal year earnings of $0.29. Fully diluted earnings per share, applicable only to 1996, include the impact of outstanding stock options. Liquidity and Capital Resources _______________________________ Net cash flow provided by operating activities was $4,697,000 for the nine month period ended June 30, 1996, up $2,813,000 from the prior year period. This increase resulted from accounts payable reflecting the December 1994 payment for goods purchased from Ortho Diagnostic Systems, Inc. during fiscal 1994, the increase in net earnings and the timing of estimated income tax payments. On June 24, 1996 the Company acquired the enteric product line of Cambridge Biotech Corporation for $6,588,000 which includes an advance on royalties of $200,000, inventory valued at $830,000, fixed assets valued at $200,000 and intangibles valued at $5,358,000. This acquisition was funded by proceeds of a note under a line of credit with the Company's commercial bank while short-term investments were being liquidated. The note was paid- off July 5, 1996. On October 10, 1995, the Company called for the redemption of the outstanding balance of its 7 1/4% Convertible Subordinated Debentures due in 2001. At that time, approximately $7,400,000 of the principal amount of the Debentures was outstanding. Of the originally issued $11,500,000 principal amount, $113,000 was redeemed for cash on November 30, 1995. The balance was converted into common stock at $5.97 per share. Capital expenditures for the nine months ended June 30, 1996 were $1,236,000, a decrease of $623,000 from the prior year period. The lower expenditures reflect the completion of construction of additional manufacturing and administrative space in September 1995. In October 1995, renovation of the former administrative offices and laboratory manufacturing space commenced. This phase, which is projected to cost $1,600,000, is expected to be completed by September 1996. The Company's anticipated total capital expenditures for fiscal 1996 are $2,200,000. Net cash flow from operations is expected to continue to fund working capital requirements for the foreseeable future. Currently, the Company has an unused $10,000,000 line of credit with a commercial bank and cash and short-term investments of approximately $1,400,000. On April 16, 1996 the Company paid off the outstanding balance of its mortgage loans reducing long term debt by $2,418,000. Recently Issued Accounting Standards ____________________________________ In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121 (Statement 121) on accounting for the impairment of long-lived assets to be held and used. Statement 121 also established accounting standards for long-lived assets that are to be disposed. Statement 121 is required to be applied prospectively for assets to be held and used. The initial application of Statement 121 to assets held for disposal is required to be reported as the cumulative effect of a change in accounting principle. The Company is required to adopt Statement 121 no later than fiscal 1997. The Company has not yet determined when it will adopt Statement 121 and the impact, if any, that the adoption will have on its financial position or results of operations. In October 1995, the FASB issued Statement No 123 (Statement 123) establishing financial accounting and reporting standards for stock-based employee compensation plans. Statement 123 encourages the use of the fair value based method to measure compensation cost for stock-based employee compensation plans, however, it also continues to allow the intrinsic value based method of accounting as prescribed by APB Opinion NO. 25, which is currently used by the Company. If the intrinsic value based method continues to be used, Statement 123 requires pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting has been applied. The fair value based method requires that compensation cost be measured at the grant date based upon the value of the award and recognized over the service period, which is normally the vesting period. The Company is required to adopt Statement 123 no later than fiscal 1997. The Company has not yet determined when it will adopt Statement 123 or the valuation method it will use. PART II. OTHER INFORMATION Item 1. Legal Proceedings In June 1995, Meridian and Inova Diagnostics, Inc. were sued by Delta Biologicals srl ("Delta") in the 11th Judicial circuit for Dade County, Florida. The case was removed to the United States District Court for the Southern District of Florida and transferred on March 19, 1996 to the United States District Court for the Southern District of California. The action relates to a February 1995 agreement between Meridian's European subsidiary, Meridian Diagnostics Europe, srl ("MDE"), and Inova for the marketing and distribution of a line of autoimmune disease tests manufactured by Inova. The plaintiff alleges that the agreement violates its distribution agreement with Inova and seeks unspecified compensatory and punitive damages from Inova and Meridian. In the February 1995 agreement, Inova represented to Meridian that Inova had the right to enter into the agreement with Meridian without violating the rights of any other third party, and that Inova would indemnify and hold Meridian harmless for all costs, damages and expenses arising from any such claims. In May 1996 Meridian and Inova executed a new agreement which grants exclusive distribution rights to Meridian in return for limiting Inova's obligation on the indemnity to $300,000, plus all of Meridian's costs and expenses, including legal fees. In July 1996, Delta amended its complaint to include MDE as a defendant. In the amended complaint, Delta also alleges that both Meridian and MDE disclosed trade secrets of Delta. Management does not believe the ultimate outcome of this matter will have a material impact on the Company's financial position, results of operations or cash flows. Item 5. Other Information On April 18, 1996 the Company received FDA clearance to begin marketing the company's sixth internally developed ImmunoCard product, ImmunoCard C. difficile Toxin A. This product is used for the detection of C. difficile Toxin A directly from stool samples in a matter of minutes. C. difficile is a bacteria which produces a potent toxin capable of causing severe complications to the digestive system. The disease is generally caused by an adverse reaction to antibiotic therapy. Early detection of this disease is very important and can be life saving. C. difficile toxins can cause complications ranging from severe diarrhea to pseudomembranous colitis. ImmunoCard is a small credit card-sized device capable of performing rapid, individual enzyme immunoassays. This device detects C. difficile Toxin A directly from stool specimens in about ten minutes with a high degree of accuracy and requires no equipment. The current worldwide market for C. difficile testing is estimated to exceed $12 million dollars. Development of this test utilizing the ImmunoCard format will provide the opportunity to enhance the Company's leading position in this marketplace. The new ImmunoCard C. difficile Toxin A product represents the fourth product developed by Meridian in a line of products used to detect this severe pathogen. On April 30, 1996, the Company announced that it had applied with the Food and Drug Administration ("FDA") for permission to begin marketing the Company's ImmunoCard H. pylori product with a new whole-blood indication. H. pylori has been determined to be a cause of severe gastritis and ulcers. This new product will permit physicians to use a whole-blood specimen which can be obtained from a simple finger stick in an office setting. A physician will be able to run this assay on a patient to detect H. pylori antibodies and thereby avoid the need to do a costly endoscopy procedure which subjects the patient to a high level of discomfort. The physician will be able to test for the presence of antibody to H. pylori in minutes and promptly begin the appropriate therapy. The world-wide market for H. pylori testing is growing rapidly due to the recent FDA approval for certain drug therapies used to treat patients and eradicate the organism. Meridian currently produces products for H. pylori in two formats. The Premier, or microtiter format used in the hospital and reference laboratory markets and FDA cleared as well as ImmunoCard which is pending FDA clearance. On May 23, 1996, the Company received FDA clearance to begin marketing Premier HSV Plus, an improved microwell enzyme immunoassay for the detection of Herpes simplex virus (HSV), Type I and II, directly from patient specimens or from cell culture. HSV is a ubiquitous virus which causes infections ranging from cold sores to encephalitis and is a common cause of genital infections. The prevalence in the general population of HSV Type I, generally associated with cold sores, is 70-80%, whereas the prevalence of HSV Type II which causes genital infectious is 35- 40%. The total number of HSV tests performed each year approaches 3.5 million. Premier HSV Plus is the only assay of its kind which detects HSV with high sensitivity and specificity in only two and one-half hours. The assay is simple to perform requiring no instrumentation. The test may be performed directly from cell culture and all direct specimen types including asymptomatic patients and is proven to be compatible with most transport mediums for specimen collection. On June 24, 1996, the company acquired the enteric product line of Cambridge Biotech Corporation. The diagnostic products which identify Adenovirus, Rotavirus, C. difficile and Lyme disease were purchased for $6.6 million. The current sales volume of the acquired products is approximately $4 million dollars annually. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits- Exhibit No. Description Page(s) __________ ___________ _______ 11 Computation of earnings per common share 17 27 Financial Data Schedule 18-20 (b) Reports on Form 8-K - On July 2, 1996 the Company filed a report on Form 8-K to announce that the Company had purchased the enteric product line from Cambridge Biotech Corporation. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. MERIDIAN DIAGNOSTICS, INC. Date: July 26, 1996 /S/ GERARD BLAIN _____________________________ GERARD BLAIN, Vice President, Chief Financial Officer (Principal financial officer) EX-11 2 EXHIBIT 11 MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES Computation of Earnings Per Common Share Period Ended June 30, 1996 Weighted Avg. Earnings Number of Per Common Shares Net Common Outstanding Income Share Use _____________ ______ _______ ____ Quarter Ended June 30, 1996: Shares outstanding April 1, 1996 14,257,006 Weighted average shares issued during the period (19,632 shares) 9,730 Net Income 1,499,043 __________ __________ _______ ______ 14,266,736 1,499,043 .1051 .11 Effect of outstanding stock options which is less than 3% and not required to be disclosed in the financial statements (778,735 shares) 449,508 ___________ __________ _______ ______ 14,716,244 1,499,043 .1019 .10 Additional effect of stock options at quarter end stock price 86,923 ___________ __________ _______ ______ 14,803,167 1,499,043 .1013 .10 ___________ __________ _______ ______ ___________ __________ _______ ______ Nine Months ended June 30, 1996 Shares outstanding October 1, 1995 12,924,814 Weighted average shares issued during the period (1,351,824 shares) 1,211,809 Net Income 3,483,173 ___________ __________ _______ ______ 14,136,623 3,483,173 .2464 .25 Effect of outstanding stock options which is less than 3% and not required to be disclosed in the financial statements (778,735 shares) 449,508 ___________ __________ _______ ______ 14,586,131 3,483,173 .2388 .24 Effect of convertible debentures 120,975 Additional effect of stock options at quarter end stock price 86,923 ___________ __________ _______ ______ 14,794,029 3,483,173 .2354 .24 ___________ __________ _______ ______ ___________ __________ _______ ______ EX-27 3
5 9-MOS SEP-30-1996 OCT-01-1995 JUN-30-1996 1,134,948 6,837,145 7,612,569 125,792 4,195,724 20,631,359 13,014,652 5,230,769 41,602,236 11,057,409 2,342,927 0 0 2,384,854 25,817,046 41,602,236 20,335,897 20,335,897 6,196,415 6,196,415 8,549,150 (29,823) 307,792 5,861,566 2,378,393 0 0 0 0 3,483,173 .25 .24
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