-----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, PDzy52quba2h+M1HbN5qLVZse5NP58HQofZt0/W4kqn4+6WTw7LxO2Y6+LjVy4k1 T0sCool23w2Zcp2ljJLD6g== 0000950120-97-000125.txt : 19970509 0000950120-97-000125.hdr.sgml : 19970509 ACCESSION NUMBER: 0000950120-97-000125 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MUREX TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000864964 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26144 FILM NUMBER: 97598206 BUSINESS ADDRESS: STREET 1: 3075 NORTHWOODS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 4046620660 MAIL ADDRESS: STREET 1: 3075 NORTHWOODS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30071 FORMER COMPANY: FORMER CONFORMED NAME: MUREX CLINICAL TECHNOLOGIES CORP DATE OF NAME CHANGE: 19600201 10-Q 1 1ST QTR 10-Q OF INT'L MUREX TECHNOLOGIES CORP. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 12(g) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1997 OR [ ] Transition Report Pursuant to Section 13 or 12(g) of the Securities Exchange Act of 1934 For the Transition Period from to ------ ------ Commission File Number 0-26144 International Murex Technologies Corporation ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Province of British Columbia, Canada N/A --------------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2255 B. Queen Street, East, Suite 828, Toronto, ON M4E 1G3 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (519) 836-8016 ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 12(g) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ The number of common shares outstanding as of April 30, 1997 was 16,187,720, excluding treasury shares. INTERNATIONAL MUREX TECHNOLOGIES CORPORATION Quarterly Report on Form 10-Q For the Three Months Ended March 31, 1997 Table of Contents ----------------- Item Page Number Number ------ ------ PART I -- FINANCIAL INFORMATION 1 Financial Statements Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 3 Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996 5 Consolidated Statements of Changes in Shareholders' Equity for the Period January 1, 1996 to March 31, 1997 6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 7 Notes to Consolidated Financial Statements 9 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II -- OTHER INFORMATION 1 Legal Proceedings 17 6 Exhibits and Reports on Form 8-K 17 SIGNATURES 18 -2- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands of U.S. Dollars) March 31, December 31, ---------------------------- 1997 1996 ------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,319 $ 9,723 Accounts receivable, net of allowance for doubtful accounts of $2,995 and $3,174, respectively 31,683 33,718 Inventories 21,492 21,534 Amounts due from affiliate 4,227 4,415 Prepaid and other 1,735 1,207 ----------------------- Total current assets 69,456 70,597 ------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT- at cost less accumulated depreciation and amortization 10,111 10,091 PATENTS, TRADEMARKS AND LICENSES- at cost less accumulated amortization 6,005 5,738 OTHER ASSETS 8,123 8,687 ----------------------- TOTAL $ 93,695 $ 95,113 ========================================================================== See notes to consolidated financial statements. -3- March 31, December 31, ------------------------ 1997 1996 --------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 10,737 $ 9,757 Accrued expenses: Professional fees 1,045 2,222 Royalty payments 2,096 1,978 Employee related 5,902 5,985 Income taxes payable 1,613 1,508 Litigation settlements 1,955 3,310 Restructuring 392 1,402 Other 3,526 2,809 Current portion of capitalized 136 151 lease obligations ------------------- Total current liabilities 27,402 29,122 -------------------------------------------------------------- DEFERRED RENT 74 77 LINE OF CREDIT 11,058 9,638 CAPITALIZED LEASE OBLIGATIONS 76 93 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common shares, without par value, 200,000,000 shares authorized; 16,566,936 and 16,578,853 shares issued, respectively 84,397 84,460 Additional paid-in capital 13,906 13,906 Accumulated deficit (39,996) (41,655) Less cost of 101,043 and 286,929 common shares held in treasury, respectively (5) (1,085) Unrealized gain on marketable securities 5,030 4,405 Accumulated currency translation (8,247) (3,848) adjustment ------------------- Shareholders' equity 55,085 56,183 -------------------------------------------------------------- TOTAL $ 93,695 $ 95,113 ============================================================== See notes to consolidated financial statements. -4- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of U.S. Dollars, except per share data) Three Months Ended March 31, ---------------------------- 1997 1996 ------------------------------------------------------------------ REVENUES: Product sales $ 24,718 $ 26,023 License fees and other 1,124 ---------------------- Total revenues 25,842 26,023 COSTS AND EXPENSES: Cost of products sold 8,289 9,853 Research and development 1,607 1,840 General and administrative 5,618 5,304 Sales and marketing 6,817 7,004 Foreign exchange loss 44 9 Royalty expense 1,500 1,967 ---------------------- Total costs and expenses 23,875 25,977 ----------------------------------------------------------------- Income From Operations 1,967 46 Interest income 49 64 Interest expense (285) (748) Loss on asset disposals (26) Equity in loss of investee (408) Other income 52 95 ---------------------- Income (loss) before income taxes 1,757 (951) Income taxes 98 158 ---------------------- NET INCOME (LOSS) $ 1,659 $ (1,109) ================================================================= Net income (loss) per common share $ 0.10 $ (0.07) ========= ========== Weighted average common shares outstanding (in thousands) 17,331 16,160 ========= ========== See notes to consolidated financial statements. -5- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands of U.S. Dollars, except share data) ------------------------------------------------------------------------- Common Stock Additional ---------------------- Paid-In Accumulated Shares Amount Capital Deficit ------------------------------------------------------------------------- December 31, 1995 16,688,931 $84,136 $13,906 ($43,504) Issued pursuant to employee stock purchase plan 23,297 91 Exercise of 15,900 50 employee stock options Issued as stock 281,925 1,692 compensation Shares tendered to treasury Retirement of (431,200) (1,509) treasury shares Unrealized gain on marketable securities Net income 1,849 Foreign currency translation ----------------------------------------------------- December 31, 1996 16,578,853 84,460 13,906 (41,655) Issued pursuant to employee stock purchase plan 7,847 64 Exercise of 119,650 683 employee stock options Retirement of (185,886) (1,080) treasury shares Issued pursuant to class action settlement 46,472 270 Unrealized gain on marketable securities Net income 1,659 Foreign currency translation ----------------------------------------------------- March 31, 1997 16,566,936 $84,397 $13,906 ($39,996) ===================================================== -------------------------------------------------------------------------- Unrealized Accumulated Gain on Currency Total Treasury Marketable Translation Shareholders' Shares Securities Adjustment Equity -------------------------------------------------------------------------- December 31, 1995 ($1,514) ($3,493) $49,531 Issued pursuant to employee stock purchase plan 91 Exercise of employee 50 stock options Issued as stock 1,692 compensation Shares tendered to treasury (1,080) (1,080) Retirement of treasury 1,509 shares Unrealized gain on marketable securities $4,405 4,405 Net income 1,849 Foreign currency (355) (355) translation ----------------------------------------------- December 31, 1996 (1,085) 4,405 (3,848) 56,183 Issued pursuant to employee stock purchase plan 64 Exercise of employee 683 stock options Retirement of treasury 1,080 shares Issued pursuant to class action settlement 270 Unrealized gain on marketable 625 625 securities Net income 1,659 Foreign currency (4,399) (4,399) translation ----------------------------------------------- March 31, 1997 ($5) $5,030 ($8,247) $55,085 =============================================== See notes to consolidated financial statements. -6- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of U.S. Dollars) Three Months Ended March 31, ------------------------------ 1997 1996 ----------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $ 1,659 $ (1,109) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 1,251 1,385 Amortization 183 52 Loss on sale of property and 26 equipment Changes in working capital: Accounts receivable 2,035 1,487 Inventories 42 (895) Prepaid expenses and other assets 691 199 Trade accounts payable 980 609 Accrued expenses (2,445) (5,370) ---------------------------- Net cash provided by (used in) operating activities 4,422 (3,642) ----------------------------------------------------------------------- INVESTING ACTIVITIES: Additions to property and equipment (1,348) (1,814) Additions to patents and licenses (450) (3,499) Proceeds from sale of property and 51 247 equipment ---------------------------- Net cash (used in) investing activities (1,747) (5,066) ----------------------------------------------------------------------- FINANCING ACTIVITIES: Increase (decrease) in borrowings 1,420 (14) under line of credit Reduction of other long-term (35) (70) liabilities Proceeds from issuance of common 747 11 shares ---------------------------- Net cash provided by (used in) financing activities 2,132 (73) ----------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON (4,211) 631 CASH Net Increase (Decrease) in Cash and 596 (8,150) Cash Equivalents Cash and Cash Equivalents at Beginning 9,723 15,771 of Period ---------------------------- CASH AND CASH EQUIVALENTS AT END OF $ 10,319 $ 7,621 PERIOD ----------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 285 $ 748 Cash paid for income taxes $ 293 $ 674 -7- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION Consolidated Statements of Cash Flows (Continued) (In Thousands of U.S. Dollars) ------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES During the quarters ending March 31, 1997 and 1996, IMTC retired $1,080 and $1,063, respectively, of shares held in treasury. During the quarter ended March 31, 1996, a subsidiary of the Company, Specialist Diagnostics Limited ("SDL"), entered voluntary liquidation. Therefore, its financial statements were deconsolidated. This resulted in the recognition of a $17,416 amount due from affiliate, a $17,126 amount due to affiliate and a reduction of other assets of $290. As of March 31, 1997, the Company has an amount due from SDL of $4,227. Unpaid acquisition costs totalled $0 and $750 at March 31, 1997 and 1996, respectively. See notes to consolidated financial statements. -8- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION Notes to Consolidated Financial Statements (In Thousands of U.S. Dollars) -------------------------------------------------------------------------- 1. NATURE OF THE COMPANY AND BASIS OF PRESENTATION: International Murex Technologies Corporation ("IMTC"), has many incorporated subsidiaries operating throughout the world under the Murex name (the "Murex Group"). The Murex Group develops, manufactures and markets medical diagnostic products, licenses its technology and provides medical services for the screening, diagnosis and monitoring of infectious diseases and other medical conditions. (IMTC and the Murex Group are collectively referred to herein for consolidated financial purposes only as the "Company"). The accompanying financial statements include IMTC and its wholly-owned, incorporated subsidiaries doing business in various territories generally under the name Murex Diagnostics. Effective January 1, 1996, IMTC's United Kingdom ("UK") operating business was restructured into two companies, Murex Diagnostics Limited ("MDL") and Murex Biotech Limited ( MBL ). MDL retained the business encompassing the sale in the UK of all of the Company's Hepatitis C ("HCV") products and manufacturing of the HCV Serotyping test. All other MDL business was sold to another of IMTC's UK subsidiaries, MBL. MDL subsequently changed its name to Specialist Diagnostics Limited ("SDL") and entered voluntary liquidation following the British High Court ruling that an interim cash security of $9.3 million be posted by SDL relating to its then ongoing patent litigation. Co-liquidators have been appointed. As of March 31, 1997 and December 31, 1996, IMTC and its subsidiaries represented predominantly all creditors of SDL. In the consolidated financial statements, the subsidiary is assumed to be fully liquidated. Management expects to ultimately receive net proceeds of $4,227 after settlement of all liquidation costs, which is reflected as of March 31, 1997 as amounts due from affiliates. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Such financial statements do not include all disclosures required by generally accepted accounting principles for annual financial statement reporting purposes. However, there has been no material change in the information disclosed in the Company's annual consolidated financial statements dated December 31, 1996, except as disclosed herein. Accordingly, the information contained herein should be read in conjunction with such annual consolidated financial statements and related disclosures. The accompanying financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. Results of operations for the quarter ended March 31, 1997 are not necessarily indicative of results expected for an entire year. -9- 2. INVENTORIES: March 31, December 31, 1997 1996 ------------------------------------------------------------ Raw materials and supplies . . . . $ 5,896 $ 5,911 Work in process . . . . . . . . . 5,461 5,244 Finished goods . . . . . . . . . . 10,135 10,379 ------- ------- Total inventories . . . . . . . . $21,492 $21,534 ======= ======= ------------------------------------------------------------ 3. CONTINGENCIES: Four class action lawsuits were instituted on behalf of all persons who had purchased IMTC's securities between May 21, 1992 and August 19, 1992 against IMTC, two executive officers of IMTC, and Messrs. Edward J. DeBartolo, Sr. (now deceased) and Edward J. DeBartolo, Jr., in the Southern District of Texas, Houston Division. In January 1993, the class actions were voluntarily transferred to the United States District Court, Eastern District of New York. The complaints alleged that the defendants omitted and/or misrepresented material facts about IMTC which resulted in artificially inflating the market price of IMTC's securities permitting, in part, Messrs. DeBartolo, Sr. and DeBartolo, Jr. to sell their IMTC securities in violation of the federal and Texas securities laws. One further action alleged violations of insider trading rules under the federal securities laws. The defendants answered denying the allegations in the complaints. During 1996, the parties agreed to settle all outstanding claims for $5.4 million, a portion of which has been paid by IMTC into escrow held by the claims administrator. In accordance with the Stipulation Settlement Agreement, Edward J. DeBartolo, Jr. and the Estate of Edward J. DeBartolo, Sr. each transferred 92,943 common shares of the Company's stock to the Company to be used as their portion of the settlement. The claims administrator is currently qualifying claimants and management expects this matter to be finalized during the first half of 1997. During 1995, the UK Inland Revenue questioned the tax basis of inventory, accounts receivable and property, plant and equipment related to the 1992 purchase of assets from The Wellcome Foundation Limited ("Wellcome"). If Inland Revenue is successful in its argument, a tax charge of up to $4.2 million could arise. Management believes it has meritorious defenses against the claims of Inland Revenue and that the Company has sufficient tax loss carryforwards to offset any tax charges. Therefore, the Company has not recorded a provision for losses related to this matter. 4. RESTRUCTURING: During September 1996, the Company recorded a restructuring charge of $2,100. The restructuring was driven by the need to reposition the Company for its movement into the patient monitoring business. The worldwide plan will result in personnel reductions of approximately 50 people from various functions. The restructuring provision consists predominantly of estimated costs for employee severance and other benefits. As of December 31, 1996, 35 employees left the Company related to the restructuring plan, resulting in actual payments of $698. As such, the remaining accrual at December 31, 1996 was $1,402. The Company substantially completed the restructuring during the three months ended March 31, 1997, and $392 remained accrued at March 31, 1997 for payments to former employees. -10- 5. RECONCILIATION OF CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("CANADIAN GAAP" AND U.S. GAAP"): There were no differences between Canadian GAAP and U.S. GAAP during the year ended December 31, 1996 and the quarter ended March 31, 1997. -11- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION Form 10-Q for the Three Months Ended March 31, 1997 Part I - Financial Information -------------------------------------------------------------------------- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts expressed in U.S. Dollars) This report contains or refers to forward-looking information including future revenues, products, and income and is based upon current expectations that involve a number of business risks and uncertainties. Among the factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, technological innovations of competitors, delays in product introductions, changes in health care regulations and reimbursements, litigation claims, changes in foreign economic conditions or currency translation, product acceptance, government approvals or changes in government regulation of the Company s products, as well as other factors discussed in other Securities and Exchange Commission filings for the Company. FINANCIAL CONDITION During the three months ended March 31, 1997, the Company continued its profitability, generated cash from operations and maintained positive working capital. Litigation and Technology Disputes The Murex Group's business utilizes newly-developed technologies that include patents on processes and devices. These types of technologies are the focal point for the biotechnology industry. The ownership and patentability of such processes or devices have become increasingly complex, resulting in competitive claims of ownership within the industry. IMTC and several subsidiaries of the Murex Group were involved in several lawsuits, including technology patent issues, which were settled during 1996. The Company is not presently the defendant in any material judicial proceeding. The Company is vigorously pursuing its patent infringement suit in which the Company is the plaintiff against Abbott Laboratories ("Abbott"), and continues to defend one UK Inland Revenue Claim, both of which are discussed below. On July 2, 1996, a subsidiary of IMTC, Murex Diagnostics Corporation ("MDC"), filed a patent infringement suit against Abbott seeking injunctive relief against Abbott and damages for infringement of a patent held by MDC for a particle bound binding component immunoassay. The suit alleges that two Abbott systems, the Abbott IMx(TM) Immunoassay and the Abbott AxSYM(TM) System, infringe one or more claims of MDC's patent. Abbott has answered the complaint and the parties are now actively engaged in discovery. During 1995, the UK Inland Revenue questioned the tax basis of inventory, accounts receivable and property, plant and equipment related to the 1992 purchase of assets from Wellcome. If the Inland Revenue is successful in its argument, a tax charge of up to $4.2 million could arise. Management believes it has meritorious defenses against the claims of the Inland Revenue and that the Company has sufficient tax loss carryforwards to offset any tax charges. Therefore, the Company has not recorded a provision for losses related to this matter. Liquidity and Capital Resources The Company has sufficient cash resources and adequate working capital to carry on its current business and meet existing capital requirements. Cash and working capital totaled $10.3 million and $42.1 million, -12- respectively at March 31, 1997. For the quarter ended March 31, 1997, the Company generated cash from operations of $4.4 million. On November 12, 1996, the Company entered into a three year, $15 million asset-based line of credit facility with Bank of America, which is collateralized by the accounts receivable and inventory of its United States ("US"), UK and Barbados subsidiaries. As of March 31, 1997, there was $406,000 of availability remaining under this facility, net of a letter of credit outstanding of $856,000. The credit facility was drawn upon for, among other things, payments associated with the Innogenetics alliance, working capital and ongoing business activities. The Company has an interest rate swap agreement with the lender that fixed the interest rate at 8.9% for a notional principal amount of $8.0 million. The Company's working capital and capital requirements will depend upon numerous factors including: the results of research and development, the levels of resources devoted to the establishment and expansion of marketing and manufacturing, technological developments, and the timing and costs of obtaining approvals for new products. Depending on the outcome of these factors, the Company may need to raise additional funds in the future for use to fund acquisitions, complete products in development, and for general purposes. There are no assurances that such funds will be available on favorable terms, if at all. The Company anticipates that its current capital resources, availability under its line of credit facility, and anticipated profitability will enable it to maintain planned operations for the foreseeable future. Management Outlook The key to the Company s growth is the ability to identify new needs in the marketplace, and to expeditiously meet these needs through access to appropriate innovations and technologies, and to rapidly incorporate them into the Murex Group's product line. However, there can be no assurance that Murex Group will successfully add a significant number of new products to its product line. Management believes that strategic ventures and licensing arrangements position the Company for the future and play an important role in the achievement of management's corporate objectives. The strategic ventures, licensing transactions and Murex Group product innovations discussed below are examples of the Company s recent successes of capitalizing on the Company's world-wide distribution network and product technologies. During February 1996, MDC entered into an exclusive distribution, development and license agreement with Innogenetics N.V. ("Innogenetics") to develop and market gene probe products for the monitoring of patients and the classification of viral diseases. Under the terms of the agreement, MDC paid $5.9 million during 1996 and will pay $1.6 million during 1997 to Innogenetics for the exclusive rights to distribute Innogenetics' LiPA products, excluding HCV, for 15 years. MDC will also pay Innogenetics a royalty of 10% of the Murex Group's net sales of Innogenetics' products. This strategic alliance with Innogenetics has provided the Murex Group with exclusive rights to the Murex/Innogenetics LiPA HIV-1 Reverse Transcriptase ("HIV-1 RT") monitoring test. This test simultaneously detects wild-type and HIV mutations associated with the reverse transcriptase drugs AZT, ddI, ddC and 3TC. These reverse transcriptase drugs are currently being utilized, separately and in combination, to treat HIV patients. Resistance to the drugs occurs as virus mutations develop that may eventually cause the drug, or combination of drugs, to become ineffective against the virus. The Murex/Innogenetics LiPA HIV-1 RT test is the first rapid assay to identify mutant strains. Resistant mutations occur with all the approved HIV therapies. Therefore, it is critical to monitor the development of mutations so therapies can be appropriately combined and adjusted. The new HIV-1 RT -13- test provides crucial information relating to the development of resistance to individual and combination therapy. By obtaining resistance information, physicians can avoid using drugs that may not be effective, thereby increasing patient care and eliminating the expense of unnecessary and ineffective therapy. In addition, a physician may utilize resistance information prior to starting or changing therapy by screening a patient for the presence of existing drug resistant mutations. The Company anticipates launching the test into selected European markets during the second quarter of 1997. In the US, Murex Diagnostics, Inc. ("MDI") has had discussions with the Food and Drug Administration but has not yet filed an application for the approval of the test. Also under this agreement with Innogenetics, MDC shall fund agreed- upon research and development programs, beginning in 1998 and for each of the following 13 years in an amount equal to 20% of the Murex Group's net sales of Innogenetics' products, subject to a cap. The broadening of the Company's focus into the emerging diagnostics monitoring market, which management expects to exceed $1 billion by the year 2000, should support revenue growth in the coming years. The Innogenetics distribution, developing and licensing agreement gives the Murex Group access to the rapidly growing gene probe market for monitoring patients and the classification of viral diseases. The monitoring market directly complements the Company's existing markets of screening and diagnosis and also leverages its worldwide marketing and distribution network. The diagnostic monitoring market includes tests that among other applications, assess a patient through the course of a disease or infection, monitor various forms of anti-viral therapies and monitor conditions associated with transplants. In contrast, screening and diagnosis tests are used to indicate whether a patient is, or is not, carrying a disease or infection. In patient use, screening and diagnosis tests are usually only required to be administered once while monitoring tests are usually administered numerous times. Patient monitoring has become an important and critical element of patient care and treatment. The Murex Group believes it can capture a significant portion of this emerging market by strategically positioning itself in key segments of the market including AIDS therapy, organ transplantation and other immune compromised conditions. Effective February 1997, the Murex Group and Digene Corporation ("Digene") entered into a five year agreement to work together to create a direct European sales operation for Digene's sexually transmitted disease diagnostics business. Digene, will sell its Hybrid Capture human papilloma virus ("HPV") DNA test directly in selected European markets using the Company's existing distribution infrastructure in exchange for selling service fees and a percentage of Digene HPV sales. All other Digene products exclusively sold by Murex in Europe will not be affected by this transaction. Additionally, Digene will make fixed payments over the next two years. During January 1997, MDC entered into a 10 year, worldwide Original Equipment Manufacturer ("OEM") distribution agreement with Eurogenetics N.V. ("Eurogenetics"). Pursuant to the terms of the agreement, the Murex Group will distribute Eurogenetics mircotitre plate EIA kits for rubella, toxoplasmosis, cytomegalovirus ("CMV"), chlamydia, herpes and beta-2 microglobulin. The Company's worldwide marketing and distribution capabilities motivate companies like Innogenetics, Digene and Eurogenetics to partner with the Company in licensing agreements and product development and, thereby, contribute to the flow of new and creative products. The Company's alliances provide the Murex Group with access to technology, strengthen and extend the Company's monitoring market strategy and allow the Company to further penetrate its existing markets in blood screening and clinical diagnostics. Throughout 1997 and in the years to come, the Company will actively seek out acquisitions, strategic business alliances and other opportunities that will support the Company's future. -14- MDC completed a non-exclusive, out-licensing transaction during the second quarter of 1994 by licensing technology acquired as part of the 1992 acquisition of the diagnostics division of Wellcome to Abbott. This transaction provided MDC with a $10 million minimum license fee to be paid over four years. MDC received $4, million, $2 million and $2 million in 1994, 1995 and 1996, respectively. MDC received the final $2 million of the guaranteed $10 million minimum license fee in January 1997. Furthermore, MDC earned an additional $100,000 and $878,000 in 1995 and 1996, respectively, as a result of minimum royalty levels being exceeded. For the three months ended March 31, 1997, MDC accrued $460,000 of pro-rata excess minimum royalty revenue for 1997. The underlying revenue stream associated with this licensing agreement has been growing at approximately 40% per year. It continues to remain strong and growing and the Company expects the minimum royalty levels to continue to be exceeded until the expiration of the patent in the year 2004. Therefore, as of 1998, the Company anticipates receiving at least $3 million per year from this licensing arrangement. Recent Murex Group product innovations, such as SAM(TM), and tests for Human T-Cell Lymphotropic Virus ("HTLV") syphilis and E-Coli, should contribute to future sales growth. In addition, new and enhanced products, created through the Company's in-house research and development endeavors, strengthened the Company's broad line of well-established virology and bacteriology products and allowed the Company to enter new markets in targeted areas around the world. In addition to relying on research and development and licensing of core technologies, management's operation strategy also focuses on quality, customer service, reducing costs and improving cash flows. -15- ------------------------------------------------------------------------- RESULTS OF OPERATIONS Total revenues for the quarter ended March 31, 1997 were $25,842,000 compared to $26,023,000 for the quarter ended March 31, 1996. Product sales were $24,718,000 and $26,023,000 for the quarters ended March 31, 1997 and 1996, respectively. The net decrease in product sales represents an actual decrease using a constant currency basis of $139,000 and a negative foreign exchange impact of $1,166,000. The negative foreign exchange effect is due to the relative strength of the US Dollar, the reporting currency of the Company, during the first quarter of 1997 as compared to the first quarter of 1996. Translation from the various functional currencies to the US Dollar caused a decrease in the Dollar equivalent product sales revenue. License fees and other revenues increased to $1,124,000 from zero in the previous year, primarily as a result of Abbott exceeding the minimum royalty level as defined in the 1994 agreement with Abbott, and the fixed payments made by Digene in accordance with the February, 1997 agreement. The gross profit on total revenues increased to 67.9% from 62.1% for the quarters ended March 31, 1997 and 1996, respectively. Gross profit on product sales for the quarter ended March 31, 1997 increased to 66.5%, as compared with 62.1% for 1996. The increase in gross profit on product sales is due to the Company's trend of replacing sales of Innogenetics products to distributors with direct sales to customers as well as favorable factory variances. As such, cost of products sold declined to $8,289,000 for the three months ended March 31, 1997 from $9,853,000 in the comparable prior year period. Total costs and expenses, excluding cost of products sold, of $15,586,000 for the quarter ended March 31, 1997 reflect a net decrease of $538,000 over the quarter ended March 31, 1996. Research and development costs for the first quarter of 1997 decreased by $233,000 to $1,607,000 as a result of internal cost control measures and the Company shifting a portion of its product development focus to forming strategic business alliances such as with Innogenetics. General and administrative costs for the quarter ended March 31, 1997 were $5,618,000 as compared to $5,304,000 for the comparable prior year period. The increase of $314,000 mainly represents non-recurring professional fees for corporate structure and taxation studies. Sales and marketing expenses of $6,817,000 reflect a $187,000 decrease over the first quarter of 1996. The decrease is a result of the Company s cost control measures and restructuring efforts. The $463,000 decrease in interest expense from $748,000 for the quarter ended March 31, 1996 to $285,000 for the quarter ended March 31, 1997 was due to the Company's access to capital at favorable rates via the line of credit with Bank of America. In the prior year, the Company factored its Italian receivables to fund the agreement with Innogenetics. The equity in loss of investee represents SDL's net loss for the quarter ended March 31, 1996. -16- INTERNATIONAL MUREX TECHNOLOGIES CORPORATION Form 10-Q for the Three Months Ended March 31, 1997 Part II - Other Information ------------------------------------------------------------------------- ITEM 1 - LEGAL PROCEEDINGS See Note 3 to the financial statements for information regarding current legal proceedings. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 1. Exhibits Exhibit 11 Statement Regarding Computation of Per Share Earnings 2. Reports on Form 8-K None -17- 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, thereunto duly authorized. INTERNATIONAL MUREX TECHNOLOGIES CORPORATION (Registrant) Date: May 2, 1997 By: /s/ C. Robert Cusick ------------------- ---------------------------------- C. Robert Cusick, Vice Chairman President & CEO Date: May 2, 1997 By: /s/ Jill A. Gilmer ------------------- ---------------------------------- Jill A. Gilmer, Secretary -18- EXHIBIT INDEX Exhibit Description ------- ----------- 11 Statement Regarding Computation of Per Share Earnings 27 Financial Data Schedule EX-11 2 EXHIBIT 11 INTERNATIONAL MUREX TECHNOLOGIES CORPORATION COMPUTATIONS OF EARNINGS PER SHARE (1) THREE MONTHS ENDED MARCH 31, ------------------------------- 1997 1996 -------- -------- PRIMARY Weighted average shares outstanding during the period 16,385 16,160 Shares issuable upon assumed exercise of stock options and warrants, less amounts assumed repurchased under the treasury stock method(2) 946 ------- ------- Total common shares and common share equivalents 17,331 16,160 ======= ======= Net income (loss) $1,659 ($1,109) ======= ======= Primary per share amount $0.10 ($0.07) ======= ======= FULLY DILUTED(3) Total common shares and common share equivalents 17,331 16,160 Additional shares issuable upon assumed exercise of stock options and warrants, less amounts assumed repurchased under the treasury stock method(2) ------- ------- Total 17,331 16,160 ======= ======= Net income (loss) $1,659 ($1,109) ======= ======= Fully diluted per share amount $0.10 ($0.07) ======= ======= (1) Weighted average share and dollar amounts, except per share amounts, are stated in thousands. (2) Shares issued from assumed exercise of options and warrants include the number of incremental shares which result from applying the "treasury stock method" for options and warrants, APB Opinion No. 15, paragraph 36. The options and warrants are antidilutive in 1996 and are not included in the calculation. (3) This calculation is submitted in accordance with 17 CPR 229.601(b)(11) although not required by APB Opinion No. 15 because it results in dilution of less than 3%. EX-27 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF OPERATIONS, BALANCE SHEETS, STATEMENTS OF STOCKHOLDERS' EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1996 10,319 0 34,678 (2,995) 21,492 69,456 26,851 (16,740) 93,695 27,402 0 0 0 84,397 (29,312) 93,695 24,718 25,842 8,289 23,875 (26) 0 236 1,757 98 1,659 0 0 0 1,659 .10 .10
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