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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-11647
HYCOR BIOMEDICAL INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-1437178
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18800 Von Karman Avenue, Irvine, California 92612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 440-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
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(Title of class)
Transferable Warrants to Purchase Shares of Common Stock
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(Title of class)
Indicate by 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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 19, 1998, the aggregate market value of the voting stock
held by non-affiliates of the registrant (based on the closing sale price of
such stock on such date) was approximately $10,790,084.
The number of shares of common stock of the registrant outstanding at
March 19, 1998 was 7,200,003.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's definitive Proxy Statement to be filed
not later than 120 days after December 31, 1997 in connection with the Annual
Meeting of Stockholders to be held in 1998 are incorporated by reference into
Part III in this report on Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Hycor Biomedical Inc. ("Hycor" or the "Company") was incorporated as a
Delaware corporation on April 7, 1981. Hycor is engaged in the research,
development, manufacturing and marketing of medical diagnostic products
throughout the United States and many foreign countries.
On September 30, 1996, the Company formed Hycor Biomedical SAS ("Hycor
SAS") as a wholly owned subsidiary. Located in Paris, France, Hycor SAS markets
allergy diagnostic products in France. Business activity commenced during the
third quarter of 1997.
On July 21, 1997, the Company acquired from unrelated third parties all
of the outstanding stock of Cogent Diagnostics Limited ("Cogent") for
approximately $1,453,000 in cash and $1,574,000 in three year notes to the
seller group which are secured by individual Shares Pledge agreements wherein an
aggregate of 85,499 shares of Cogent stock are pledged as security for the debt.
The shares pledged as security against the three year notes represent
approximately 95% of the total outstanding shares of Cogent. The cash portion of
the Cogent acquisition was partially financed through bank borrowings of
$1,000,000. The Company also incurred direct costs of approximately $244,000
related to the acquisition.
RESTRUCTURING PLAN
During fiscal 1995, the Company determined that the business strategies
that had successfully brought the Company from a start-up research organization
to a profitable $25 million sales entity would no longer bring desired results
in the changing diagnostic marketplace. To address these changes in the market
place, the Company adopted a plan designed to focus on sales growth and
divestitures of certain product lines (the "Restructuring Plan"). On July 27,
1995 the Company announced the Restructuring Plan as part of a strategic
redirection in which the Company focuses on high potential clinical immunology
sectors of the market, as well as urinalysis and hematology. Associated with the
implementation of the Restructuring Plan were costs of $1,734,000 recorded in
the fourth quarter. These costs arose from the divestiture and discontinuance of
several product lines outside the new strategic direction (see note 12 to the
consolidated financial statements). Consistent with implementation of the Plan,
while some product lines have been sold or discontinued, new product development
efforts have been accelerated. Additionally, marketing resources and sales
programs are expanding with the goal of becoming a major competitive force in
the markets the Company intends to focus on.
As of December 31, 1996, the restructuring plan was essentially complete
and the actual aggregate costs incurred were materially consistent with those
anticipated.
The total revenues related to the divested or discontinued product lines
accounted for approximately 14% and 31% of the Company's total revenues in 1996
and 1995, respectively.
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PRODUCTS
As part of the strategic redirection taken in 1995, the Company focused
a great deal of effort on the development of its HY-TEC(TM) automated
immunoassay system. The system includes an instrument, software and test
reagents. The "reagent rental" business, common to the diagnostic market,
requires the placement of an instrument in users' laboratories that pay for the
system over an agreed contract period by the purchase of test reagents. The
Company's HY-TEC reagent rental program is similar in that instruments are
placed in use with direct customers and paid for over an agreed contract period
by the purchase of test reagents, but also includes the sale of instruments to
distributors. The instruments which are sold to distributors are sold with a
minimal gross profit to assist them with their instrument placements. A
successful launch of the HY-TEC 288 instrument, which is expected in the second
quarter of 1998, will increase the Company's capital requirements in the future
as the HY-TEC business continues to grow. Working capital, operating results,
and the available line of credit are expected to be sufficient to satisfy these
commitments and the needs of operations for the foreseeable future.
The Company's allergy diagnostic product line, which accounted for
approximately 29% (1996 and 1997) and 25% (1995) of total sales, includes tests
for general screening for the diagnosis of allergy as well as a complete line of
RIA ("radioimmunoassay") and EIA ("enzymatic immunoassays") procedures to test
for specific allergies to more than 500 different allergens such as grasses,
weeds, trees, epidermals (i.e. animal hair), dust, dust mites, molds and foods.
Unlike the traditional prick puncture and intradermal testing methods of
diagnosing allergies, the Company's products permit a physician to diagnose
allergies by testing a sample of the patient's blood for the presence of the
specific IgE or IgG antibody which reacts with the corresponding allergen. This
method has many advantages over the traditional methods of allergy diagnosis,
not the least of which is patient comfort. Additionally, the Company markets the
HY-TEC 480 automated diagnostic system. The HY-TEC 480 instrument provides
clinical laboratories with significant productivity capabilities. Initial
marketing efforts were focused on Europe, which is the largest market for
in-vitro allergy tests. Over the last two years the Company has been working
with Vital Scientific NV of Dierin, Netherlands to develop a second HY-TEC
instrument in order to address a larger segment of the allergy marketplace. This
instrument, the HY-TEC 288 is expected to be launched in the second quarter of
1998.
The KOVA(TM) Microscopic Urinalysis System is its largest product line
accounting for approximately 46% (1996 and 1997) and 35% (1995) of its total
sales. The KOVA System provides laboratories with the capability to perform
reliable, uniform microscopic analyses of urine specimens. It is composed of
plastic collection containers, tubes and pipettes, patented microscopic slides,
and human urine-based control materials.
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Hematology controls are a group of chemistry controls which are part of
the quality control system required to be in place in all clinical laboratories
to insure that the methodology being used is correct and the results are
accurate, precise and reproducible. In August 1993 the Company introduced a new
line of hematology controls and calibrators. These products are usable on all
hematology analyzers and have a shelf life twice as long as most competitive
products. In March, 1995 the Company received clearance from the Food and Drug
Administration to market the first commercially produced Erythrocyte
Sedimentation Rate (ESR) Control. This ESR Control can be used with most manual
and automated ESR methods in the market today.
SALES AND MARKETING
The Company's products, which are used primarily by two markets, the
clinical laboratory and certain specialty physicians, are sold through several
channels. In the United States, the Company's product lines are generally sold
through both independent and clinical laboratory distributors. The majority of
sales in the United States are to three major U.S. distributors, Allegiance
Healthcare Corporation, Fisher Scientific and Polymedco Inc. The allergy product
line is sold directly to the end user through a direct sales force.
In foreign countries the Company's products are sold primarily through a
network of independent distributors. The Company sells its allergy products to
the German market through a direct sales force. With the formation of Hycor SAS
in 1996, the Company commenced direct sales of its allergy products in France
during 1997.
Export sales (all to unaffiliated customers) accounted for $2,782,000 or
14% of product sales in 1997; $3,319,000 or 17% of product sales in 1996 and
$4,231,000 or 17% of product sales in 1995. The primary geographical area was
Europe, which, including sales by the Company and its foreign subsidiaries,
accounted for sales of $5,843,000 in 1997, $5,660,000 in 1996 and $6,909,000 in
1995.
The Company's two largest distributors, Allegiance Healthcare
Corporation and Fisher Scientific, accounted for 18% and 12% of net product
sales in 1997; 19% and 15% in 1996 and 18% and 12% in 1995, respectively. A loss
of one or more of these distributors could significantly affect sales. However,
there are other national, regional and foreign clinical laboratory products
distributors, as well as the Company's sales force, that could market the
Company's products.
The Company did not have a significant backlog of orders at December 31,
1997 and December 31, 1996. Because of the short time between order receipt and
expected delivery, the Company, consistent with industry practice, carries a
large inventory to meet the expected flow of orders. Backlog is not a
significant factor in the Company's business.
The Company's business is not considered seasonal in nature but is
slightly affected in the third quarter by the general slowdown in Europe during
the traditional vacation months.
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RAW MATERIALS
Although a substantial amount of the Company's total purchases for raw
materials and finished products were from a limited number of suppliers during
the last fiscal year, a number of alternative sources are available to the
Company should they be required.
RESEARCH AND DEVELOPMENT
The Company maintains an ongoing research and development effort. The
purpose of this effort is to evaluate new technologies, improve the Company's
current product line, and develop new products. Current projects in progress are
focused on programs to support and enhance the HY-TEC system, develop new
urinalysis and allergy diagnostic products and to develop a line of products to
diagnose autoimmune disease.
Total research and development expenditures were $2,889,000 $2,729,000,
and $2,594,000 for 1997, 1996 and 1995, respectively.
GOVERNMENT REGULATIONS
The Company is registered as a manufacturer of medical devices and a
licensed biological manufacturer with the Food and Drug Administration ("FDA").
To comply with FDA requirements, the Company must manufacture its products in
conformance with the FDA's medical device Good Manufacturing Practice
regulations. The Company's existing products are also subject to certain
pre-market notification requirements of the FDA.
The receipt, use and disposal of radioactive materials is subject to
licensing requirements of the Nuclear Regulatory Commission ("NRC"). The Company
holds a radioactive materials license from the NRC for its radioactive labeling
activities and its facilities are inspected periodically by the NRC.
The Company would be adversely affected if it were unable to maintain
its governmental licenses or continue to comply with applicable federal and
state regulations, but the Company does not expect this to occur. The Company
cannot predict whether future changes in government regulations might
substantially increase compliance costs, adversely affect the time required to
develop and introduce products, or limit or preclude the sale of its new
products.
In September 1992, regulations implementing the Clinical Laboratories
Improvement Amendments of 1988 (CLIA), providing for certification procedures
and requirements for laboratories, became fully effective. The impact of CLIA
has reduced the sales of the Company's allergy diagnostic products to physician
office laboratories, as the testing has shifted toward the larger clinical
laboratory. The HY-TEC automated diagnostic system was designed to meet the
needs of these larger laboratories.
Compliance with federal, state and local regulations relating to
environmental matters is not expected to have a material effect upon capital
expenditures, earnings or the competitive position of the Company.
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COMPETITION
The Company competes in several segments of the diagnostic market. The
KOVA Microscopic Urinalysis System has significant competition from at least two
national diagnostic product manufacturing and distribution companies that market
supplies that perform similar functions. Management believes that the Company is
the leading supplier of standardized microscopic urinalysis systems. The
hematology line of controls and calibrators has four primary competitors. A
substantial number of the Company's competitors are larger and have greater
resources than the Company.
Pharmacia, Inc. and Sanofi Pasteur, whose products compete with the
Company's allergy diagnostic products, have substantially greater resources as
well as established positions in the allergy testing market.
The Company competes on the basis of price, promotion, quality of
products, design of product, strength of the Company's relationship with dealers
and other methods relevant to the business.
PATENTS
The Company has maintained an aggressive patent policy and currently
holds a number of domestic and foreign patents. While these patents offer some
protection to its product lines and related technology, management believes that
continued improvements to the product lines are more important for the
protection of its market position.
EMPLOYEES
As of February 28, 1998, the Company had approximately 196 employees.
None of the employees are covered by collective bargaining agreements and
management believes that the Company's relations with its employees are
satisfactory.
ITEM 2. PROPERTIES
At December 31, 1997, the Company had four separate facilities.
1) The Company's corporate headquarters, principal administrative and
marketing facility is located in a leased 18,000 square foot building at 18800
Von Karman Avenue, Irvine, California. The lease has a seven and one-half year
term ending on December 31, 2000. The Company has the option to renew the lease
for an additional five year period. The Company plans to consolidate the Irvine
operations into the Garden Grove facility during 1998. In executing this plan,
the Company expects to sub-lease the Irvine facility with no significant impact
to operating results.
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2) The Company leases a two-story freestanding facility at 7272 Chapman
Avenue, Garden Grove, California. The lease has a ten-year term ending December
31, 2002. The Company has the option to extend the lease term for an additional
five-year period. The Company uses this facility, which contains approximately
76,000 square feet, for laboratory, manufacturing and storage purposes.
3) The Company leases a free standing building located at Otto-Hahn
Stra(beta)e 16, 34123 Kassel, Germany. The lease has a ten year term ending
March 31, 2005. The Company has the option to extend the term of the lease for
an additional five years. The Company uses this facility for the laboratory,
manufacturing, warehousing, distribution and administrative functions of Hycor
GmbH.
4) The Company owns a facility located on approximately one acre of land
at 217 Read Street, Portland, Maine. The facility consists of three connected
brick buildings which were built approximately 36 years ago. The buildings have
an aggregate space of approximately 70,000 square feet which can be used for
office, laboratory, manufacturing and storage purposes. The Company is currently
leasing the facility to a third party. The lease has a five year term ending on
October 31, 1998. The Company intends to sell the facility when market
conditions for real estate in this area improve.
In management's opinion, in general, its plant and equipment are
adequately maintained, in good operating condition and adequate for the
Company's present needs. The Company regularly upgrades and modernizes its
facilities and equipment and expands its facilities as necessary to meet
customer requirements.
ITEM 3. LEGAL PROCEEDINGS
To the best of management's knowledge, there are no material pending
legal proceedings to which the Company is a party or to which the Company's
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1997,
there were no matters submitted to a vote of security holders.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICE OF COMMON STOCK
Hycor Biomedical Inc.'s common stock trades on The Nasdaq Market System
under the symbol HYBD. The following table sets forth the range of high and low
trading prices for the common stock for the periods indicated as reported. The
prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Year Ended High Low
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<S> <C> <C>
December 31, 1996
1st Quarter 5-1/4 4-3/8
2nd Quarter 5-3/8 4-1/4
3rd Quarter 4-3/4 3-3/4
4th Quarter 4 2-1/2
December 31, 1997
1st Quarter 3-1/2 2-1/4
2nd Quarter 2-3/4 1-3/8
3rd Quarter 2-1/2 1-7/8
4th Quarter 2-1/2 1-3/8
</TABLE>
There were 1,110 shareholders of record as of March 20, 1998. No dividends have
been paid to stockholders since the Company was founded, the Company has no
current intentions of paying cash dividends in the foreseeable future, and the
Company's new bank line of credit precludes payment of any dividends.
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ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997(a) 1996 1995(b) 1994 1993
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<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 19,289 $ 20,084 $ 25,185 $ 25,897 $ 24,213
Net income (loss) $ (4,254) $ 17 $ 131 $ 2,833 $ 2,275
Basic and diluted
earnings per share $ (.60) $ .00 $ .02 $ .34 $ .27
FINANCIAL POSITION
Working capital $ 8,433 $ 11,458 $ 13,615 $ 13,322 $ 15,736
Net property and
equipment $ 5,243 $ 4,908 $ 4,727 $ 6,419 $ 6,094
Total assets $ 11,301 $ 24,278 $ 27,575 $ 29,000 $ 27,061
Long-term debt $ 2,240 $ -- $ -- $ -- $ --
Total
Stockholders' equity $ 16,814 $ 21,918 $ 24,339 $ 26,169 $ 24,316
</TABLE>
(a) 1997 results included the acquired in-process research and development
write-off of $3,300 related to the acquisition of Cogent. See Management's
Discussion and Analysis of Financial Condition and Results of Operations
and Note 3 to the Consolidated Financial Statements.
(b) 1995 results include net costs of implementing the Company's Restructuring
Plan amounting to $1,734. See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 12 to the
Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This Section and this entire Report on Form 10-K contain forward-looking
statements and include assumptions concerning the Company's operations, future
results and prospects. These forward-looking statements are based on current
expectations and are subject to a number of risks, uncertainties and other
factors. In connection with the Private Securities Litigation Reform Act of
1995, the Company provides the following cautionary statements identifying
important factors which, among other things, could cause the actual results and
events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions contained in this Section and
in this entire Report.
Such factors include, but are not limited to: product demand and market
acceptance risks; the effect of economic conditions; the impact of competitive
products and pricing; product development; commercialization and technological
difficulties; capacity and supply constraints or difficulties; availability of
capital resources; general business and economic conditions; and changes in
government laws and regulations, including taxes.
RESTRUCTURING PLAN
On July 27, 1995, the Company announced plans for a major restructuring
designed to focus operations on clinical immunology segments which management
believes to have the greatest potential for future growth. The Restructuring
Plan (the "Plan"), which was finalized in the fourth quarter of 1995, included
the discontinuation of several product lines, the closure of the Company's New
Jersey facility, and the disposition or relocation of certain fixed assets.
The aggregate costs of the Plan included $2,371,000 of disposal costs
and write-offs of inventories, the value of which had been impaired by the
Company's decision to discontinue the related product lines and liquidate all
remaining inventories, $514,000 of costs related to the write down of fixed
assets impaired by downsizing and discontinuance of related product lines, and
$335,000 related to facility closure and other costs. These costs were offset by
estimated gains on the sale of certain product lines amounting to $1,486,000.
The net $1,734,000 cost of implementing the Plan was allocated to cost of sales
($473,000), selling, general and administrative expenses ($192,000), and
restructuring charges ($1,069,000) in the accompanying consolidated statements
of income for the year ended December 31, 1995. As of December 31, 1996, the
Plan was essentially complete, and the actual aggregate costs incurred were
materially consistent with those anticipated.
As part of the Plan, the Company has divested and discontinued several
product lines. The total revenues related to the divested or discontinued
product lines accounted for approximately 14% and 31% of the Company's total
revenues in 1996 and 1995, respectively.
ACQUISITION
On July 21, 1997, the Company acquired from unrelated third parties all
of the outstanding stock of Cogent Diagnostics Limited ("Cogent") for
approximately $1,453,000 in cash and $1,574,000 in three year notes to the
seller group which are secured by individual Shares Pledge agreements wherein an
aggregate of 85,499 shares of Cogent stock are pledged as security for the debt.
The
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shares pledged as security against the three year notes represent approximately
95% of the total outstanding shares of Cogent. The cash portion of the Cogent
acquisition was partially financed through bank borrowings of $1,000,000. The
Company also incurred direct costs of approximately $244,000 related to the
acquisition.
The acquisition was accounted for using the purchase method of
accounting, and Cogent's operating results have been included in the
accompanying consolidated statements of operations from the date of acquisition.
Cogent is based in Edinburgh, Scotland and develops, manufactures and markets a
broad line of test kits for diagnosis of autoimmune disease.
The pro-forma results of operations computed as if Cogent had been
purchased January 1, 1996 would not be materially different from actual reported
results of operations.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996 Overall, 1997 sales decreased 4% compared to 1996.
Revenue declines were due to loss of sales resulting from the Plan and the
related discontinued product lines. 1997 sales of these products were $300,000
compared to $2,500,000 in 1996. These revenue losses were partially offset by
$768,000 of revenues generated by Cogent since the date of acquisition and
growth in the other continuing product lines. Additionally, our revenue is
affected by continued pressures in the health care industry for cost controls
and a decline in domestic allergy product sales as the market continues to shift
from the doctor's office to larger laboratories. These pricing pressures are
expected to continue in the future.
Gross profit as a percentage of sales decreased from 54.5% in 1996 to
51.9% in 1997 due primarily to the lower margins of our German operation and
continued pricing pressures from our customers.
Selling, general and administration expenses increased in 1997 over 1996
$257,000 due primarily to the inclusion of approximately $433,000 of these costs
at Cogent since its acquisition in July 1997, and at the Company's new
subsidiary in France.
Research and development costs increased $161,000 (14% of sales in 1996
versus 15% in 1997) primarily due to the direct costs incurred for the HY-TEC
288 instrument development program. As part of the acquisition of Cogent, the
Company allocated a significant portion of the purchase price to acquired
in-process research and development which it charged against current operations
(see note 3 to the consolidated financial statements).
Interest income decreased $167,000 over prior year due to lower average
monthly balances in cash and investments during the year as compared to 1996.
Interest expense was $86,000 in 1997 as the Company incurred debt for the
purchase of Cogent.
The benefit from income taxes increased substantially from $6,000 to
$685,000 due to higher losses in 1997. The acquired in process R & D expense
write-off of $3,300,000 was not tax deductible.
The Company has made considerable investments over the last three years
in completing
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the Plan, developing new products and building an international selling
organization in order to position for greater future growth than we could have
expected otherwise. 1998 should show the results of these efforts with increased
sales growth and a return to profitability.
1996 COMPARED TO 1995 1996 sales decreased 20% compared to 1995. Revenue
declines were due to loss of sales resulting from the Plan and the related
discontinued product lines. This decline can also be attributed to continued
pressures in the health care industry for cost controls and a decline in
domestic allergy product sales as the market continues to shift from the doctors
office to larger laboratories.
Gross profit as a percentage of sales improved from 52.6% in 1995 to
54.5% in 1996 due primarily to the $473,000 cost from the Plan included in cost
of goods sold in 1995.
Selling, general and administration expenses decreased $1,183,000 due to
the effects of implementing the Plan in 1995 partially offset by increased
marketing expenses (17% of sales in 1995 versus 23% in 1996) also as
contemplated in the Plan.
Research and development costs increased $134,000 (10% of sales in 1995
versus 14% in 1996) primarily due to the direct cost incurred as a result of the
Plan which included expanding R&D programs.
Interest income increased $81,000 over prior year due to higher average
monthly balances in cash and investments during the year as compared to 1995.
Funds generated in December of 1995 from the disposition of certain assets as
part of the plan were invested and increased average balances for most of 1996.
The gain on foreign currency transaction of $27,000 for the year ended
December 31, 1996, a decrease of $161,000 over prior year, relates principally
to reductions in the underlying transactions and balances.
The provision (benefit) for income taxes decreased substantially from
51% to (57)% of income due to utilization of tax credits (see note 8 to the
consolidated financial statements).
FINANCIAL CONDITION
In April 1993, January 1994, September 1995 and September 1996 the Board
of Directors authorized the repurchase of up to an aggregate of 2,440,000 shares
of the Company's outstanding common stock. As of December 31, 1997, 2,019,000
shares had been purchased at a cost of $8,314,000. The Company's working capital
decreased $3,025,000 from December 31, 1996 to December 31, 1997. The decrease
was primarily a result of the increased investment in property, plant &
equipment, predominately related to purchases of HY-TEC instruments
($1,540,000), the Company's stock repurchase program ($468,000), and the
acquisition of Cogent.
The Company's principal capital commitments are for lease payments under
non-cancelable operating leases and note payments related to the acquisition of
Cogent. Additionally, the HY-TEC business requires the purchase of instruments
which in many cases are placed in use in
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laboratories of the Company's direct customers and paid for over an agreed
contract period by the purchase of test reagents. This "reagent rental" sales
program, common to the diagnostic market, creates negative cash flows in the
initial years. Working capital, operating results, and the available line of
credit are expected to be sufficient to satisfy these commitments and the needs
of operations for the foreseeable future.
The Company has a line of credit which provides for borrowings of up to
$2,000,000 and expires in July, 1999. The loan is collateralized by the
Company's accounts receivable, inventories, and property, plant and equipment.
At December 31, 1997, $1,000,000 was outstanding. Advances under the line bear
interest at the prime rate or at LIBOR plus 2%, payable monthly, with the
principal due at maturity. At December 31, 1997 the Company's interest rate was
8.25%.
The line of credit contains restrictive covenants, the most significant
of which relate to the maintenance of minimum tangible net worth,
debt-to-tangible net worth requirements and liquid assets plus accounts
receivable-to-current liabilities requirements. At December 31, 1997, the
Company was not in compliance with the minimum tangible net worth required but
obtained a waiver from the bank. Subsequent to December 31, 1997, the bank
modified the restrictive covenants, bringing the Company into full compliance.
The Company believes it will be able to meet the modified requirements in or
obtain an applicable waiver through the remainder of the credit term.
In addition, the Company has outstanding notes in the amount of
$1,574,000. These notes were issued to the seller group in executing the
acquisition of Cogent. The notes are secured by individual Share Pledge
agreements wherein an aggregate of 85,499 shares of Cogent stock are pledged as
security for the debt. Interest on the notes accrues at a rate of 6.85% and is
payable quarterly. Principal payments are due in three equal annual installments
commencing in July, 1998 (see note 3 to consolidated financial statements).
YEAR 2000 ISSUES
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company is
currently engaged in a comprehensive project to upgrade its information,
technology, and manufacturing computer software to programs that will
consistently and properly recognize the year 2000. Many of the Company's systems
include new hardware and packaged software recently purchased from vendors who
have represented that these systems are already Year 2000 compliant. The Company
is in the process of obtaining assurances from vendors that timely updates will
be made available to make all remaining purchased software Year 2000 compliant,
and the Company expects to complete the project in early 1999. Management
believes that the year 2000 issue will not pose significant operational problems
or have a material adverse impact on the Company's financial position or results
of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, Reporting Comprehensive Income, ("SFAS No. 130"). This statement
establishes standards for
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the reporting of comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. Examples of items to be
included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gain/loss on
available-for-sale securities. The disclosures prescribed by SFAS No. 130 are
effective beginning with the first quarter of calendar 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information, ("SFAS No. 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosure about products and services, geographical areas and major
customers. The Company has not yet determined the impact, if any, of adopting
this new standard. The disclosures prescribed by SFAS No. 131 are effective for
fiscal years beginning after December 15, 1997.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Independent Auditors' Report 16
Consolidated Balance Sheets as of 17-18
December 31, 1997 and 1996
Consolidated Statements of Operations 19
for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' 20
Equity for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash 21-22
Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements 23-32
</TABLE>
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Hycor Biomedical Inc.
Irvine, California
We have audited the accompanying consolidated balance sheets of Hycor Biomedical
Inc. and subsidiaries (the Company) as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. Our
audit also included the financial statement schedule listed in the index at Item
14 (a)1. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hycor Biomedical Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Costa Mesa, California
February 13, 1998
16
<PAGE> 17
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------------ ------------
<S> <S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 814,908 $ 631,404
Investments (Note 4) 1,490,192 4,732,585
Accounts receivable, net of allowance for
doubtful accounts of $120,684 and
$101,191 in 1997 and 1996, respectively 3,312,857 3,028,689
Income tax receivable (Note 8) 808,792 409,242
Inventories (Note 5) 3,772,777 3,922,543
Prepaid expenses and other current assets 562,879 602,533
Deferred income tax asset (Note 8) 917,000 491,000
------------ ------------
Total current assets (Note 6) 11,679,405 13,817,996
------------ ------------
PROPERTY AND EQUIPMENT, at cost (Note 6) :
Land and buildings 1,432,639 1,432,639
Leasehold improvements 1,706,625 1,664,580
Machinery and equipment 7,128,263 5,937,881
Furniture, fixtures and office equipment 2,334,628 2,402,512
------------ ------------
12,602,155 11,437,612
Accumulated depreciation and amortization (7,358,809) (6,529,718)
------------ ------------
Property and equipment, net 5,243,346 4,907,894
------------ ------------
GOODWILL AND OTHER INTANGIBLE ASSETS, net of
accumulated amortization of $1,101,528 and
$870,110 in 1997 and 1996, respectively (Notes 3 and 8) 4,363,971 4,368,658
DEFERRED INCOME TAX ASSET (Note 8) 854,000 854,000
OTHER ASSETS 160,174 329,373
------------ ------------
Total assets $ 22,300,896 $ 24,277,921
============ ============
</TABLE>
See notes to consolidated financial statements
17
<PAGE> 18
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,247,642 $ 1,053,400
Accrued liabilities 774,177 726,474
Accrued payroll expenses 613,698 580,089
Current Portion - Debt 611,159 --
------------ ------------
Total current liabilities 3,246,676 2,359,963
------------ ------------
Long -Term Debt (Note 6) 2,240,240 --
------------ ------------
Total Liabilities 5,486,916 2,359,963
------------ ------------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY (Notes 7 and 9):
Preferred stock, $.01 par value;
authorized - 3,000,000 shares;
none outstanding -- --
Common stock, $.01 par value;
authorized - 20,000,000 shares;
issued and outstanding: 7,156,954
shares in 1997 and 7,218,063 shares in 1996 71,570 72,181
Paid-in capital 12,271,207 12,605,636
Retained earnings 4,978,890 9,232,541
Accumulated foreign currency translation adjustments (507,804) 31,275
Unrealized gains (losses) on investments, net of tax benefit 117 (23,675)
------------ ------------
Total stockholders' equity 16,813,980 21,917,958
------------ ------------
Total liabilities and stockholders' equity $ 22,300,896 $ 24,277,921
============ ============
</TABLE>
See notes to consolidated financial statements
18
<PAGE> 19
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES (Note 11) $ 19,288,537 $ 20,083,610 $ 25,184,742
COST OF SALES (Note 12) 9,286,564 9,145,300 11,947,276
------------ ------------ ------------
Gross profit 10,001,973 10,938,310 13,237,466
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and
administrative (Note 12) 8,885,984 8,628,939 9,812,090
Research and development 2,889,393 2,728,796 2,594,468
Restructure charge (Note 12) -- -- 1,069,301
Acquired In-process R&D (Note 3) 3,300,000 -- --
------------ ------------ ------------
15,075,377 11,357,735 13,475,859
------------ ------------ ------------
OPERATING LOSS (5,073,404) (419,425) (238,393)
INTEREST EXPENSE (85,796) -- --
INTEREST INCOME 236,000 403,314 321,765
GAIN (LOSS) ON FOREIGN CURRENCY TRANSACTIONS (15,451) 26,663 187,878
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (4,938,651) 10,552 271,250
PROVISION (BENEFIT) FOR INCOME TAXES (Note 8) (685,000) (6,000) 140,000
------------ ------------ ------------
NET INCOME (LOSS) $ (4,253,651) $ 16,552 $ 131,250
============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE (Note 2) $ (.60) $ .00 $ .02
============ ============ ============
</TABLE>
See notes to consolidated financial statements
19
<PAGE> 20
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Accumulated
------------ Foreign Currency Unrealized
Number of Par Paid-in Retained Translation Investment
Shares Value Capital Earnings Adjustments Gains (Losses) Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 8,226,895 $82,269 $16,971,456 $9,084,739 $ 144,138 $(113,284) $26,169,318
ISSUANCE OF COMMON STOCK,
PRINCIPALLY UNDER EMPLOYEE
BENEFIT PLANS, including
related income tax benefits
(Note 9) 92,174 922 293,836 -- -- -- 294,758
COMMON STOCK PURCHASED (588,778) (5,888) (2,508,216) -- -- -- (2,514,104)
TAX BENEFITS FROM EXERCISE OF
COMMON STOCK OPTIONS -- -- 49,610 -- -- -- 49,610
NET INCOME -- -- -- 131,250 -- -- 131,250
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (Note 2) -- -- -- -- 110,307 -- 110,307
NET UNREALIZED INVESTMENT
GAINS, net of tax (Note 2) -- -- -- -- -- 98,327 98,327
----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 7,730,291 77,303 14,806,686 9,215,989 254,445 (14,957) 24,339,466
ISSUANCE OF COMMON STOCK,
PRINCIPALLY UNDER EMPLOYEE
BENEFIT PLANS, including
related income tax benefits
(Note 9) 76,672 767 178,452 -- -- -- 179,219
COMMON STOCK PURCHASED (588,900) (5,889) (2,379,502) -- -- -- (2,385,391)
NET INCOME -- -- -- 16,552 -- -- 16,552
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (Note 2) -- -- -- -- (223,170) -- (223,170)
NET UNREALIZED INVESTMENT
LOSSES, net of tax (Note 2) -- -- -- -- -- (8,718) (8,718)
-------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 7,218,063 72,181 12,605,636 9,232,541 31,275 (23,675) 21,917,958
ISSUANCE OF COMMON STOCK,
PRINCIPALLY UNDER EMPLOYEE
BENEFIT PLANS, including
related income tax benefits
(Note 9) 95,291 953 131,587 -- -- -- 132,540
COMMON STOCK PURCHASED (156,400) (1,564) (466,016) -- -- -- (467,580)
NET LOSS -- -- -- (4,253,651) -- -- (4,253,651)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (Note 2) -- -- -- -- (539,079) -- (539,079)
NET UNREALIZED INVESTMENT
LOSSES, net of tax (Note 2) -- -- -- -- -- 23,792 23,792
==============================================================================================
BALANCE AT DECEMBER 31, 1997 7,156,954 $71,570 $12,271,207 $4,978,890 $(507,804) $ 117 $16,813,980
==============================================================================================
</TABLE>
See notes to consolidated financial statements
20
<PAGE> 21
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(4,253,651) $ 16,552 $ 131,250
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 1,626,731 1,765,099 2,168,151
Deferred income tax provision (318,000) 676,000 (569,000)
Loss on disposition of property,
equipment, and other intangibles -- -- 522,092
Gain on sale of subsidiary -- -- (1,286,427)
Gain on foreign currency transactions -- (26,663) (187,878)
Acquired in-process R & D write-off 3,300,000 -- --
Change in assets and liabilities, net
of effects of acquisitions, dispositions
and foreign currency adjustments
Accounts receivable 136,990 606,034 350,152
Income tax receivable (409,317) (352,792) 287,385
Inventories 264,986 (4,128) 1,634,932
Prepaid expenses and other current assets (177,356) 82,697 7,763
Other assets 169,199 11,050 376
Accounts payable (427,346) 89,246 (27,676)
Accrued liabilities (546,274) (512,684) 379,355
Accrued payroll expenses 29,755 (418,744) 198,279
----------- ----------- -----------
Total adjustments 3,649,368 1,915,115 3,477,504
----------- ----------- -----------
Net cash provided by (used in) operating
activities (604,283) 1,931,667 3,608,754
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments -- -- (4,119,291)
Proceeds from sales of investments 3,200,842 1,543,046 313,279
Purchases of property, plant and equipment (1,540,242) (1,623,192) (1,496,707)
Purchases of intangible assets (118,167) (33,344) (35,611)
Direct costs of acquisition (244,066) (38,666) (35,939)
Proceeds from collection of notes receivable 207,839 27,308 25,992
Business acquisitions, net of cash acquired (1,391,515) -- --
Proceeds from sale of business -- -- 3,325,275
----------- ----------- -----------
Net cash provided by (used in) investing activities 114,691 (124,848) (2,023,002)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,000,000 -- --
Principal payments on long-term debt (23,168) -- --
Proceeds from issuance of common stock 132,540 179,219 344,368
Purchases of Hycor common stock (467,580) (2,385,391) (2,514,104)
----------- ----------- -----------
Net cash provided by (used in) financing activities 641,792 (2,206,172) (2,169,736)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 31,304 (2,702) 212,906
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 183,504 (402,055) (371,078)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 631,404 1,033,459 1,404,537
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 814,908 $ 631,404 $ 1,033,459
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
21
<PAGE> 22
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest $ 64,908 -- --
- income taxes $ 63,832 $ 330,650 $1,811,199
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
During 1997, the Company acquired certain businesses in
transactions summarized as follows (Note 2):
Fair value of assets acquired $ 1,214,776 $ -- $ --
--
Acquired in-process research and development 3,300,000 -- --
Issuance of notes payable to previous owners (1,573,779) -- --
Cash paid net of cash acquired (1,391,515) -- --
----------- --------- ----------
Liabilities assumed, including costs of acquisition $ 1,549,482 $ -- $ --
=========== ========= ==========
Reduction of goodwill and accrued income taxes payable
due to utilization of Ventrex acquired net operating
losses, credit carry-forwards and other timing differences $ -- $ 57,000 $ 287,385
=========== ========= ==========
Reduction of goodwill and increase in deferred income tax
benefit due to
change in valuation allowance $ -- $ -- $ 269,843
=========== ========= ==========
</TABLE>
See notes to consolidated financial statements
22
<PAGE> 23
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 1: DESCRIPTION OF BUSINESS
Hycor Biomedical Inc. ("Hycor" or the "Company") is engaged in developing,
manufacturing and marketing medical and diagnostic products. The Company's
products are primarily used in the clinical laboratory and specialty physician
markets in the United States and Europe. The majority of sales are through
independent and clinical laboratory distributors.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION The consolidated financial statements include the accounts of
Hycor Biomedical Inc. and its wholly-owned subsidiaries. All material
intercompany amounts and transactions have been eliminated.
FOREIGN CURRENCY The financial position and results of operations of the
Company's foreign subsidiaries are measured using the local currency as the
functional currency. Assets and liabilities of the subsidiaries are translated
at the exchange rate in effect at each year end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the accumulated foreign currency translation
adjustments account in stockholders' equity. Realized gains or losses from
foreign currency transactions are included in operations as incurred.
CASH EQUIVALENTS Cash equivalents are deemed to be highly liquid investments
with an original maturity of three months or less.
INVESTMENTS The Company accounts for investments pursuant to Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 1997 and 1996,
marketable equity and debt securities have been categorized as available for
sale and, as a result, are stated at fair value. Marketable equity and debt
securities available for current operations are classified in the balance sheet
as current assets. Unrealized holding gains and losses are included as a
component of stockholders' equity, net of tax, until realized.
CREDIT RISK Most of the Company's business activity is with distributors of
medical products which are primarily located in the United States and Europe.
The Company grants normal trade credit to customers without requiring collateral
or other security. The Company maintains reserves for potential credit losses
and those losses have been within management's expectations.
INVENTORIES Inventories are valued at the lower of cost (first-in, first-out
method) or market. Cost includes material, direct labor and manufacturing
overhead.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets which range from three to twenty years. Leasehold improvements are
amortized over the life of the lease. Maintenance, repairs and minor renewals
are charged to expense as incurred. Additions and improvements are capitalized.
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of purchase
price over the fair market value of tangible assets resulting from business
acquisitions. Other intangible
23
<PAGE> 24
assets include patents, trademarks and license fees which are recorded at cost.
Goodwill is amortized over 10 to 20 years on a straight-line basis. Other
intangible assets are amortized on a straight-line basis over the estimated
useful lives of the assets, which range from 5 to 15 years. The Company assesses
the recoverability of goodwill and other intangible assets at each balance sheet
date by determining whether the amortization of the balance over its remaining
useful life can be recovered through projected undiscounted future operating
cash flows.
OTHER ASSETS Other assets consist primarily of notes receivable and long-term
deposits.
STOCK BASED COMPENSATION The Company accounts for stock based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for stock issued to employees."
INCOME TAXES The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Accordingly, income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the bases of assets and
liabilities for financial and tax reporting purposes. The deferred tax assets
and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future income taxes.
REVENUE RECOGNITION Revenue on product sales is recognized when products are
shipped.
EARNINGS PER SHARE As of December 31. 1997, the Company adopted the Statement of
Financial Accounting Standards No. 128, Earnings per Share (EPS), ("SFAS No.
128"). SFAS No. 128 requires the Company to report Basic EPS, as defined
therein, which excludes all common share equivalents from the earnings per share
computation, and Diluted EPS, as defined therein, which is calculated similar to
the Company's historical earnings per share computation. Earnings per share
amounts for all periods presented have been restated to conform to the
requirements of SFAS No. 128. Common stock equivalents have been excluded from
the calculation of diluted EPS in loss years as the impact is anti-dilutive.
Basic earnings per share approximates diluted earnings per share for each period
represented. The numbers of shares used in computing earnings per share are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number
of shares outstanding 7,134,077 7,598,969 8,208,218
Common stock equivalents N/A 124,386 49,805
- ---------------------------------------------------------------------------------
7,134,077 7,723,355 8,258,023
=================================================================================
</TABLE>
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform with the 1997 presentation.
24
<PAGE> 25
NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income, ("SFAS No.
130"). This statement establishes standards for the reporting of comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income, which are
excluded from net income, include foreign currency translation adjustments and
unrealized gain/loss on available-for-sale securities. The disclosures
prescribed by SFAS No. 130 are effective beginning with the first quarter of
calendar 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, ("SFAS No. 131"). This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosure about products and services, geographical areas and major customers.
The Company has not yet determined the impact, if any, of adopting this new
standard. The disclosures prescribed by SFAS No. 131 are effective for fiscal
years beginning after December 15, 1997.
NOTE 3: ACQUISITION
On July 21, 1997, the Company acquired from unrelated third parties all of the
outstanding stock of Cogent Diagnostics Limited ("Cogent") for approximately
$1,453,000 in cash and $1,574,000 in three year notes to the seller group which
are secured by individual Shares Pledge agreements wherein an aggregate of
85,499 shares of Cogent stock are pledged as security for the debt. The shares
pledged as security against the three year notes represent approximately 95% of
the total outstanding shares of Cogent. The cash portion of the Cogent
acquisition was partially financed through bank borrowings of $1,000,000. The
Company also incurred direct costs of approximately $244,000 related to the
acquisition.
The Company obtained an independent valuation of the net assets acquired in the
purchase transaction which resulted in the allocation of the purchase price less
net book value acquired to $254,000 of identified intangible assets, $3,300,000
of acquired in-process research and development, and $138,000 of goodwill. As
the technological feasibility of the in-process research and development had not
been established and such technology had no alternative future use, the acquired
in-process research and development was expensed in accordance with
Interpretation 4 of Accounting Principles Board (APB) Opinion 16.
The acquisition was accounted for using the purchase method of accounting, and
Cogent's operating results have been included in the accompanying consolidated
statements of operations from the date of acquisition. Cogent is based in
Edinburgh, Scotland and develops, manufactures and markets a broad line of test
kits for diagnosis of autoimmune disease.
The pro-forma results of operations computed as if Cogent had been purchased
January 1, 1996 would not be materially different from actual reported results
of operations.
25
<PAGE> 26
NOTE 4: INVESTMENTS
Investments consist principally of corporate debt securities, categorized as
available for sale, with scheduled maturities all within two to five years. As
of December 31, 1997, such investments cost and fair value were $1,490,192 and
$1,489,999, respectively. As of December 31, 1996, the cost and fair value were
$4,771,397 and $4,732,585, respectively.
Gross unrealized holding gains at December 31, 1997 and 1996 were $1,974 and
$3,406, offset by unrealized holding losses of $1,781 and $42,218, respectively.
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification. During 1997, the Company
sold investments with an aggregate book value of $3,241,033 for total cash
proceeds of $3,200,842, resulting in a net realized loss of $40,191. During
1996, the Company sold investments with an aggregate book value of $1,558,911
for total cash proceeds of $1,543,046, resulting in a net realized loss of
$15,865.
NOTE 5: INVENTORIES
Inventories at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Raw materials $1,141,205 $ 870,887
Work in process 1,280,960 1,216,066
Finished goods 1,350,612 1,835,590
- ----------------------------------------------------------------------
$3,722,777 $3,922,543
======================================================================
</TABLE>
NOTE 6: LONG TERM DEBT
The Company has a line of credit which provides for borrowings up to $2,000,000
and expires in July, 1999. The loan is collateralized by the Company's accounts
receivable, inventories, and property, plant and equipment. At December 31,
1997, $1,000,000 was outstanding. Advances under the line bear interest at the
prime rate or at LIBOR plus 2%, payable monthly, with the principal due at
maturity. At December 31, 1997 the Company's interest rate was 8.25%.
The line of credit contains restrictive covenants, the most significant of which
relate to the maintenance of minimum tangible net worth, debt-to-tangible net
worth requirements and liquid assets plus accounts receivable-to-current
liabilities requirements. At December 31, 1997, the Company was either in
compliance with such covenants or had obtained applicable waivers.
The Company has outstanding notes in the amount of $1,574,000. These notes were
issued to the seller group in executing the acquisition of Cogent Diagnostics
LTD (Cogent). The notes are secured by individual Shares Pledge agreements
wherein an aggregate of 85,499 shares of Cogent stock are pledged as security
for the debt. Interest on the notes accrues at a rate of 6.85% and is payable
quarterly. Principal payments are due in three equal annual installments
commencing in July, 1998 (see note 3 to consolidated financial statements). In
addition, one of the Company's foreign subsidiaries has long term debt, payable
to financial institutions, aggregating $277,000 with weighted average interest
rate of approximately 9%.
26
<PAGE> 27
NOTE 7: STOCKHOLDERS' EQUITY
In 1991 the Company had issued 728,000 warrants to purchase shares of common
stock. At December 31, 1997, 496,232 warrants were outstanding, all of which are
exercisable. Each warrant represents the right to purchase one share of the
Company's common stock at $12.21 per share and expires in August 1998.
NOTE 8: INCOME TAXES
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 70,000 $(351,000) $ 307,000
State (54,000) 4,000 181,000
Foreign (383,000) (335,000) 221,000
- ------------------------------------------------------------------------------------------------
Total (367,000) (682,000) 709,000
- ------------------------------------------------------------------------------------------------
Deferred:
Federal (276,000) 648,000 (395,000)
State (42,000) (44,000) (174,000)
Foreign -- 72,000 --
- -------------------------------------------------------------------------------------------------
Total (318,000) 676,000 (569,000)
- -------------------------------------------------------------------------------------------------
$(685,000) $ (6,000) $ 140,000
=================================================================================================
</TABLE>
27
<PAGE> 28
A reconciliation of the Company's effective tax rate compared to the federal
statutory tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision computed at federal
statutory rate $(1,728,000) $ 4,000 $ 95,000
Increase (decrease) resulting from:
State taxes, net (63,000) (26,000) 5,000
In-Process R & D 1,155,000 -- --
Foreign tax rate differential (52,000) (2,000) 54,000
Research and development credits (110,000) (75,000) (58,000)
Foreign sales corporation (12,000) (35,000) (26,000)
Amort.of goodwill and trademarks 49,000 46,000 57,000
Meals and entertainment 17,000 15,000 15,000
Other 59,000 67,000 (2,000)
- ------------------------------------------------------------------------------------------------
$ (685,000) $ (6,000) $140,000
================================================================================================
</TABLE>
The components of the Company's deferred income tax benefit as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 21,000 $ 39,000
Inventory reserves 104,000 363,000
Depreciation (264,000) (223,000)
Currently non-deductible accruals 53,000 75,000
Tax credits 507,000 348,000
Net operating loss carry-forwards 2,798,000 1,961,000
Deferred state taxes (122,000) (110,000)
Restructuring reserve -- 246,000
Capital loss carry-forwards 17,000 7,000
Unrealized foreign exchange gain (65,000) (65,000)
Bond market valuation 9,000
Other 27,000 --
- ------------------------------------------------------------------------------------------------
Subtotal 3,076,000 2,650,000
Valuation allowance (1,305,000) (1,305,000)
- ------------------------------------------------------------------------------------------------
Total $ 1,771,000 $1,345,000
================================================================================================
</TABLE>
The financial statement benefit from the utilization of acquired net operating
losses is being accounted for as a reduction of goodwill in the year utilized
until the corresponding goodwill is reduced to zero, at which point any
additional benefit will be accounted for as a reduction of
28
<PAGE> 29
income tax expense. In 1996, goodwill was reduced by approximately $57,000 as a
result of utilization of net operating losses. During 1996, it was determined
that due to statutory limitations on the ability to utilize acquired net
operating losses, approximately $10 million and $1.6 million of federal and
state net operating loss carry-forwards, respectively, would expire prior to
being utilized. Accordingly, deferred taxes and the corresponding valuation
allowance were reduced by approximately $5 million.
As of December 31, 1997, the Company has net operating loss carry-forwards of
approximately $7.6 million and $1.2 million in federal and state, respectively,
currently expiring on an annual basis. Utilization of the net operating losses
has been limited to approximately $892,000 per year by Internal Revenue Code
Section 382.
NOTE 9: EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS At December 31, 1997, the Company had reserved 1,559,316
shares of common stock for issuance to employees and directors under five stock
option plans. Options are generally granted at fair market value and become
exercisable over periods of up to ten years. These options generally expire 10
years from the date of grant.
Option activity under the plans is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 1, 1995 1,035,373 $3.84
Granted (Weighted average fair value of $1.88) 218,500 3.36
Exercised 55,557 1.42
Canceled 99,500 4.97
------------
Outstanding, December 31, 1995 (729,317 1,098,816 3.77
exercisable at a weighted average price
of $4.00)
Granted (Weighted average fair value 635,500 4.63
of $1.88)
Exercised 49,000 1.56
Canceled 211,500 2.69
------------
Outstanding, December 31, 1996 (728,607 1,473,816 4.37
exercisable at a weighted average price
of $4.13)
Granted (weighted average fair value 125,000 2.66
of $1.06)
Exercised 62,000 1.57
Canceled 188,500 4.34
------------
Outstanding, December 31, 1997 1,348,316 4.34
============
</TABLE>
29
<PAGE> 30
Additional information regarding options outstanding as of December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Remaining Avg. Avg.
Range of Number Contractual Life Exercise Number Exercise
Exercise Prices Outstanding (yrs) Price Exercisable Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.13 - 3.00 217,549 3.9 $2.01 138,549 $1.75
3.41 - 4.50 213,934 7.1 4.23 171,601 4.22
4.63 - 4.89 777,833 8.2 4.68 227,916 4.79
5.75 - 6.63 139,000 4.8 6.26 139,000 6.26
- ---------------------------------------------------------------------------------------------------
$1.13 - 6.63 1,348,316 6.1 4.34 677,066 4.33
</TABLE>
At December 31, 1997, 211,000 shares were available for grant.
STOCK PURCHASE PLAN The Company has reserved 191,380 shares of its common stock
for issuance to employees under an employee stock purchase plan. The plan allows
eligible employees to have salary withholdings to purchase shares of common
stock at a price equal to 85% of the lower of the market value of the stock at
the beginning or end of each six-month offer period, subject to an annual
limitation. Stock issued under the plan was 46,384, 22,724 and 20,894 shares in
1997, 1996 and 1995 at weighted average prices of $1.50, $3.57 and $4.42,
respectively.
ADDITIONAL STOCK PLAN INFORMATION As discussed in Note 1, the Company continues
to account for its stock-based awards using the intrinsic value method in
accordance with Accounting Principles Board No. 25, "Accounting for stock issued
to employees" and its related interpretations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) requires the disclosure of pro forma net income (loss)
and net income (loss) per share had the Company adopted the fair value method as
of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 72 months following
vesting; stock volatility, 32% in 1997, 28% in 1996 and 30% in 1995; risk free
interest rates, 5.8% in 1997, 6.1% in 1996 and 6.5% in 1995; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1995, 1996, and 1997 awards had been amortized to
expense over the vesting period of the awards, pro forma net income (loss) would
have been as follows:
30
<PAGE> 31
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income (loss) $(4,181,000) $(161,000) $82,000
Basic and diluted EPS $(0.62) $(0.02) $0.01
</TABLE>
The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the 1995, 1996, and
1997 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
401(K) PLAN The Company has established a profit sharing plan under Internal
Revenue Code section 401(k). The 401(k) plan allows employees to contribute up
to fifteen percent of their salary to the plan. The Company matches 50 percent
of the first two percent of an employee's contribution and 100 percent of the
next one percent of contribution. A portion of the Company's contribution is
made in the Company's common stock. The Company issued 7,512, 4,948 and 15,723
shares of its common stock under this plan in 1997, 1996 and 1995, respectively.
Compensation expense related to these plans was $130,750, $188,525 and $249,324
in 1997, 1996 and 1995, respectively.
NOTE 10: COMMITMENTS
The Company leases office, laboratory and warehouse space and laboratory
equipment under non-cancelable operating leases. In addition, the Company leases
one of its owned facilities to a third party. Lease income for the years ended
December 31, 1997, 1996 and 1996 was approximately $188,000, $155,000 and
$138,000, respectively. Rental expense under operating leases for the years
ended December 31, 1997, 1996 and 1995 was approximately $961,000, $895,000 and
$1,069,000, respectively. Future annual minimum lease payments under the
non-cancelable operating leases as of December 31, 1997 are:
<TABLE>
<CAPTION>
Year Amount
- -------------------------------------------------------------------------------
<S> <C>
1998 $1,105,000
1999 1,085,000
2000 1,084,000
2001 682,000
2002 593,000
Thereafter 263,000
- -------------------------------------------------------------------------------
$4,812,000
===============================================================================
</TABLE>
NOTE 11: MAJOR CUSTOMERS AND INTERNATIONAL SALES
The Company sells its products primarily through distributors. Sales to the
Company's two largest distributors accounted for 18% and 12% of net product
sales in 1997; 19% and 15% in 1996; and 18% and 12% in 1995, respectively. A
decision by a significant customer to substantially decrease or delay purchases
from the Company or the Company's inability to collect receivables from these
customers could have a material adverse effect on the Company's financial
condition and results of operations. Export sales accounted for $2,782,000 or
14% of product sales in 1997; $3,319,000 or 17% in 1996; and $4,231,000 or 17%
in 1995. The primary
31
<PAGE> 32
geographical area was Europe, which, including sales by the Company and its
foreign subsidiaries, accounted for sales of $5,843,000 in 1997, $5,660,000 in
1996 and $6,909,000 in 1995.
NOTE 12: RESTRUCTURING CHARGE
On July 27, 1995, the Company announced plans for a major restructuring designed
to focus operations on high potential clinical immunology segments which
management believes to have the greatest potential for future growth. The
Restructuring Plan (the "Plan"), which was finalized in the fourth quarter of
1995, included the discontinuation of several product lines, the closure of the
Company's New Jersey facility, and the disposition or relocation of certain
fixed assets.
The aggregate costs of the Plan included $2,371,000 of disposal costs and
write-offs of inventories, the value of which have been impaired by the
Company's decision to discontinue the related product lines and liquidate all
remaining inventories, $514,000 of costs related to the write down of fixed
assets impaired by downsizing and discontinuance of related product lines, and
$335,000 related to facility closure and other costs. These costs were offset by
estimated gains on the sale of certain product lines amounting to $1,486,000.
The net $1,734,000 cost of implementing the restructure plan was allocated to
cost of sales ($473,000), selling, general and administrative expenses
($192,000), and restructuring charges ($1,069,000) in the accompanying
consolidated statements of income.
As of December 31, 1996, the restructuring plan was essentially complete and
actual aggregate costs incurred were materially consistent with those
anticipated.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included under the captions
"Election of Directors," "Executive Officers," and "Executive Compensation -
Compliance with Section 16(a) of the Exchange Act" of the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the caption
"Executive Compensation" of the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders and is incorporated herein by reference; provided,
however, that the Compensation Committee Report on Executive Compensation and
the Performance Graph (i) shall not be deemed incorporated by reference in this
Annual Report on Form 10-K and (ii) shall not otherwise be deemed "filed" as
part of this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Stock Ownership of
32
<PAGE> 33
Management and Certain Beneficial Owners" of the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENT SCHEDULES
The following financial schedule is filed as part of this Report:
Schedule Page
Number Description Number
-------- ----------- ------
II Valuation and Qualifying S-1
Accounts
Schedules other than those listed above have been omitted because
they are not applicable or the required information is included
in the financial statements or notes thereto.
2. EXHIBITS
3(1). Restated Certificate of Incorporation of
Hycor Biomedical Inc., previously filed with
the Secretary of State of Delaware on
December 29, 1993, previously filed as
Exhibit 3(1). to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein
by reference.
3(2). By-Laws of Hycor Biomedical Inc. as amended,
previously filed as Exhibit 3(2). to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, and incorporated herein
by reference.
4(1) Warrant Agreement, previously filed as Exhibit 4.1
to the Company's Registration Statement on Form
S-4, File no. 33-40475, and incorporated herein by
reference.
33
<PAGE> 34
MATERIAL CONTRACTS - RELATING TO MANAGEMENT COMPENSATION PLANS OR ARRANGEMENTS
10(1). Employment Agreement of Richard D. Hamill, dated
June 20, 1997, previously filed as Exhibit 10(1).
to the Company's 10-Q for September 1997, and
incorporated herein by reference.
10(2). Employment Agreement of Mary Jo Deal, dated
September 1, 1997, previously filed as Exhibit
10(2). to the Company's 10-Q for September 1997,
and incorporated herein by reference.
10(3). Employment Agreement of Reginald P. Jones, dated
June 20, 1997, previously filed as Exhibit 10(3).
to the Company's 10-Q for September 1997, and
incorporated herein by reference.
10(4). Employment Agreement of Thomas M. Li, dated June
20, 1997, previously filed as Exhibit 10(4). to the
Company's 10-Q for September 1997, and incorporated
herein by reference.
10(5). Employment Agreement of Nelson F. Thune, dated June
20, 1997, previously filed as Exhibit 10(5). to the
Company's 10-Q for September 1997, and incorporated
herein by reference.
10(10). 1981 Incentive Stock Option Plan, as amended,
previously filed as Exhibit 4(1). to the Company's
Registration Statements on Form S-8 (No. 33-25429
and No. 33-32767), and incorporated herein by
reference.
10(12). 1984 Nonqualified Stock Option Plan, as amended,
previously filed as Exhibit 4(1). to the Company's
Registration Statement on Form S-8 (No. 33-25428),
and incorporated herein by reference.
10(13). 1988 Employee Stock Purchase Plan, previously filed
as Exhibit 4(1). to the Company's Registration
Statement on Form S-8 (No. 33-25427), and
incorporated herein by reference.
10(14). Hycor Biomedical Incentive Profit Sharing Plan,
previously filed as Exhibit 4(1). to the Company's
Registration Statement on Form S-8 (No. 33-25430),
and incorporated herein by reference.
10(15). Long Term Executive Incentive Plan - 1988,
previously filed as Exhibit 4(1). to the Company's
Registration Statement on Form S-8 (No. 33-43280)
and incorporated herein by reference.
34
<PAGE> 35
10(17). 1992 Incentive Stock Plan, previously filed as
Exhibit 10(17). to the Company's 10-Q for June 30,
1992, and incorporated herein by reference.
10(18). Nonqualified Stock Option Plan for Non-Employee
Directors, previously filed as Exhibit 10(18). to
the Company's 10-Q for June 30, 1992, and
incorporated herein by reference.
OTHER MATERIAL CONTRACTS
10(21). Lease Agreement for the Company's Garden Grove,
California facility dated December 1, 1990,
previously filed as Exhibit 10(8). to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, and incorporated herein by
reference.
10(22). Lease Agreement for the Company's Irvine,
California facility, dated November 11, 1992,
previously filed as Exhibit 10(22). to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, and incorporated
herein by reference.
10(23). Share Purchase Agreement between the Vendors (as
defined therein) and Hycor Biomedical Inc., dated
July 21, 1997, previously filed as Exhibit 10(01).
to the Company's Current Report on Form 8-K dated
July 21, 1997, and incorporated herein by
reference.
10(24). Form of Secured Loan Notes issued by Hycor
Biomedical Inc., dated July 21, 1997, previously
filed as Exhibit 10(02). to the Company's Current
Report on Form 8-K dated July 21, 1997, and
incorporated herein by reference.
10(25). Form of Shares Pledged by Hycor Biomedical Inc. in
favor of the selling shareholders, dated July 21,
1997, previously filed as Exhibit 10(03). to the
Company's Current Report on Form 8-K dated July 21,
1997, and incorporated herein by reference.
10(26). Lease agreement for the Company's Kassel, Germany
facility, dated January 13, 1994, previously filed
as Exhibit 10(26). to the Company's Annual Report
on 10-K for fiscal year ended December 31, 1994,
and incorporated herein by reference.
10(27). Stock Purchase Agreement dated November 30, 1995,
by and between ALK Laboratories, Inc. and Hycor
Biomedical Inc., previously filed as Exhibit 10.01
to the Company's Current Report on Form 8-K dated
December 1, 1995 and incorporated herein by
reference.
35
<PAGE> 36
10(28). Business Loan Agreement between Hycor Biomedical
Inc. and Tokai Bank of California, dated July 11,
1997, previously filed as Exhibit 10.01 to the
Company's 10-Q for June 30, 1997, and incorporated
herein by reference.
21. Subsidiaries of Hycor Biomedical Inc.
23. Consent of Deloitte & Touche LLP, dated March 25,
1998.
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Hycor Biomedical Inc. (Registrant)
Date: 3/25/98 By: /s/ Richard D. Hamill
----------------------------------------
Richard D. Hamill
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: 3/25/98 By: /s/ Richard D. Hamill
----------------------------------------
Richard D. Hamill
Chairman of the Board, President,
Chief Executive Officer and Director
Date: 3/25/98 By: /s/ Samuel D. Anderson
----------------------------------------
Samuel D. Anderson
Director
Date: 3/25/98 By: /s/ David S. Gordon
----------------------------------------
David S. Gordon
Director
Date: 3/25/98 By: /s/ Reginald P. Jones
----------------------------------------
Reginald P. Jones
Senior Vice President,
Chief Financial Officer,
Date: 3/25/98 By: /s/ James R. Phelps
----------------------------------------
James R. Phelps
Director
Date: 3/25/98 By: /s/ Richard E. Schmidt
----------------------------------------
Richard E. Schmidt
Director
Date: 3/25/98 By: /s/ David A. Thompson
----------------------------------------
David A. Thompson
Director
Date: 3/25/98 By: /s/ Armando Correa
----------------------------------------
Armando Correa
Director, Finance and
Principal Accounting Officer
</TABLE>
37
<PAGE> 38
Schedule II
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (1)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(1)
Acquired
Balance at and or Charged to
Beginning Divested Costs and Balance at
of Year Allowance Expenses Deductions End of Year
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable
1995 170,841 --- 50,512 84,749 136,604
1996 136,604 --- (20,815) 14,598 101,191
1997 101,191 53,721 (15,641) 18,587 120,684
Allowance for excess, obsolete,
and short-dated inventory
balance sheet
1995 770,087 (76,121) 1,755,001 509,465 1,939,502
1996 1,939,502 --- 400,774 974,465 1,365,811
1997 1,365,811 58,343 254,966 1,297,694 381,426
</TABLE>
(1) Meridian Biomedical Inc. sold on December 1, 1995. Cogent Diagnostics
Limited acquired on July 21, 1997.
S-1
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit List Page
Exhibit No. Name of Exhibit Number
- ------------ --------------- ------
<S> <C> <C>
21. Subsidiaries of Hycor Biomedical Inc. 40
23. Consent of Deloitte & Touche LLP,
dated March 25, 1998. 41
27. Financial Data Schedule 42
</TABLE>
39
<PAGE> 1
EXHIBIT 21.
Subsidiaries of Hycor Biomedical Inc.
State of
Name Incorporation
---- -------------
Hycor Biomedical GmbH Germany
Medical Specialties International Inc. New Jersey
Hycor Biomedical SAS France
Cogent Diagnostic Limited Scotland
Hycor International Inc. US Virgin Islands
40
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Hycor Biomedical Inc. and subsidiaries on Form S-8 Nos. 33-25427, 33-25428,
33-25429, 33-25430, 33-32767, 33-43280, 33-63798 and 33-63800 of our report
dated February 13, 1998, appearing in this Annual Report on Form 10-K of Hycor
Biomedical Inc. and subsidiaries for the year ended December 31, 1997.
/s/ Deloitte & Touche LLP
Costa Mesa, California
March 25, 1998
41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 814,908
<SECURITIES> 1,490,192
<RECEIVABLES> 3,433,541
<ALLOWANCES> 120,684
<INVENTORY> 3,772,777
<CURRENT-ASSETS> 11,679,405
<PP&E> 12,602,155
<DEPRECIATION> 7,358,809
<TOTAL-ASSETS> 22,300,896
<CURRENT-LIABILITIES> 3,246,676
<BONDS> 0
0
0
<COMMON> 71,570
<OTHER-SE> 16,742,410
<TOTAL-LIABILITY-AND-EQUITY> 22,300,896
<SALES> 19,288,537
<TOTAL-REVENUES> 19,288,537
<CGS> 9,286,564
<TOTAL-COSTS> 9,286,564
<OTHER-EXPENSES> 15,075,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,796
<INCOME-PRETAX> (4,938,651)
<INCOME-TAX> (685,000)
<INCOME-CONTINUING> (4,253,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,253,651)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
