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, 1996
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.)
3075 Northwoods Circle, Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 770-662-0660
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 May 8, 1996
was 16,164,647, excluding treasury shares.
Page 1 of 20
Exhibits begin on Page ____
<PAGE>
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 1996
Table of Contents
Item Page
Number PART I -- FINANCIAL INFORMATION Number
1 Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 1996 and 1995 5
Consolidated Statements of Changes in
Shareholders' Equity for the
Period January 1, 1995 to March 31, 1996 6
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II -- OTHER INFORMATION
1 Legal Proceedings 19
6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
<PAGE>
International Murex Technologies Corporation
Consolidated Balance Sheets
(In Thousands of U. S. Dollars)
March 31, December 31,
1996 1995
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,621 $15,771
Accounts receivable, net of allowance
for doubtful accounts of $3,363
and $3,410, respectively 33,362 34,836
Inventories 17,836 16,941
Amounts due from affiliate 17,416
Prepaid and other 2,645 2,851
Total current assets 78,880 70,399
PROPERTY, PLANT AND EQUIPMENT-
at cost less accumulated depreciation
and amortization 9,413 9,231
PATENTS, TRADEMARKS AND LICENSES-
at cost less accumulated amortization 3,676 229
OTHER ASSETS 5,593 5,889
TOTAL $97,562 $85,748
See notes to consolidated financial statements.
March 31 December 31,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $ 30 $ 44
Trade accounts payable 8,195 7,586
Accrued expenses:
Professional fees 2,449 2,502
Royalty payments 9,380 13,397
Employee related compensation 3,386 3,963
Income taxes payable 1,193 1,709
Litigation settlements 2,819 2,910
Amounts due to affiliate 17,126
Other 3,424 3,551
Current portion of capitalized lease obliga 212 229
Total current liabilities 48,214 35,891
DEFERRED RENT 62 80
CAPITALIZED LEASE OBLIGATIONS 222 246
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common shares, without par value,
200,000,000 shares authorized; 16,404,677 and
16,688,931 shares issued, respectively 83,084 84,136
Additional paid-in capital 13,906 13,906
Accumulated deficit (44,613) (43,504)
Less cost of 244,143 and 532,243 common shares
held in treasury, respectively (451) (1,514)
Accumulated currency translation adjustment (2,862) (3,493)
Shareholders' equity 49,064 49,531
TOTAL $ 97,562 $ 85,748
See notes to consolidated financial statements.
</TABLE>
<PAGE>
International Murex Technologies Corporation
Consolidated Statements of Operations
(In Thousands of U.S. Dollars, except per share data)
Three Months Ended March 31,
1996 1995
<TABLE>
<CAPTION>
<S><C> <C> <C>
REVENUES:
Product sales $26,023 $23,478
Total revenues 26,023 23,478
COSTS AND EXPENSES:
Cost of products sold 9,853 6,773
Research and development 1,840 2,056
General and administrative 5,304 5,442
Sales and marketing 7,004 6,368
Foreign exchange loss (gain) 9 (365)
Royalty expense 1,967 1,972
Total costs and expenses 25,977 22,246
Income From Operations 46 1,232
Interest income 64 267
Interest (expense) (748) (26)
Gain (loss) on asset disposals 18
Settlement of litigation (3,123)
Equity in (loss) of investee (408)
Other income (expense) 95 (34)
Income (loss) before income taxes (951) (1,666)
Income taxes 158 508
NET INCOME (LOSS) $ (1,109) $ (2,174)
Net income (loss) per common share $ (0.07) $ (0.13)
Weighted average shares outstanding
(in thousands 16,160 16,569
</TABLE>
See notes to consolidated financial statements.
<PAGE>
International Murex Technologies Corporation
Consolidated Statements of Changes in Shareholders' Equity
(In Thousands of U.S. Dollars, except share data)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
<C> <C> <C> <C> <C>
January 1, 1995 16,778,646 $84,082 $13,906 ($36,894)
Issued pursuant to employee
stock purchase plan 17,375 54
Shares repurchased for treasury
Retirement of escrowed share (107,144)
Issued in exchange for
subsidiary shares 54
Net (loss) (6,610)
Foreign currency translation
December 31, 1995 16,688,931 $84,136 $13,906 ($43,504)
Issued pursuant to employee
stock purchase plan 3,846 11
Retirement of treasury share (288,100) (1,063)
Net (loss) (1,109)
Foreign currency translation
March 31, 1996 16,404,677 $83,084 $13,906 ($44,613)
Accumulated
Currency Total
Treasury TranslatiShareholders'
Shares Adjustmen Equity
(5) ($4,585) $56,504
54
(1,509) (1,509)
(6,610)
1,092 1,092
(1,514) ($3,493) $49,531
11
1,063 0
(1,109)
631 631
(451) ($2,862) $49,064
See notes to consolidated financial statements.
</TABLE>
<PAGE>
International Murex Technologies Corporation
Consolidated Statements of Cash Flows
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Operating Activities:
Net income (loss) $(1,109) $(2,174)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,437 503
(Gain) loss on sale of property and equipment (18)
Changes in working capital:
Accounts receivable 1,487 (1,558)
Inventories (895) (1,725)
Prepaid expenses and other assets 199 1,357
Trade accounts payable 609 2,671
Accrued expenses (5,370) 2,057
Net cash (used in) operating activities (3,642) 1,113
Investing Activities:
Additions to property and equipment (1,814) (725)
Additions to patents and licenses (3,499)
Proceeds from sale of property and equipment 247 18
Net cash (used in) investing activities (5,066) (707)
Financing Activities:
Increase (decrease) in borrowings under line of credit (14)
Reduction of other long-term liabilities (70) (98)
Proceeds from issuance of common shares 11 17
Repurchase of shares for treasury (788)
Net cash (used in) financing activities (73) (869)
Effect of Exchange Rate Changes on Cash 631 1,088
Net Increase (Decrease) in Cash and Cash Equivalent (8,150) (7,693)
Cash and Cash Equivalents at Beginning of Period 15,771 19,213
Cash and Cash Equivalents at End of Period $ 7,621 $ 11,520
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $748 $26
Cash paid for income taxes $674 $593
</TABLE>
<PAGE>
<PAGE>
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 quarter ended March 31, 1996, IMTC retired $1,063 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.
Unpaid acquisition costs totalled $750 and $750 at March 31, 1996 and 1995,
respectively.
During the quarter ended March 31, 1995, the Company entered into capital
lease obligations of approximately $53.
<PAGE>
<PAGE>
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 separately
incorporated subsidiaries operating throughout the world under the Murex
Diagnostics' name (the "Murex Group"). The Murex Group develops,
manufactures and markets medical diagnostic products 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,
separately incorporated subsidiaries doing business in various territories
generally under the name Murex Diagnostics; Murex Holdings Corporation
("MHC"), a Delaware corporation; MHC's majority owned subsidiary Murex
Corporation ("Murex"), a Delaware corporation; and Murex's wholly owned
subsidiaries. Subsequent to December 31, 1995, IMTC's United Kingdom
("UK") operating business was restructured into two companies, Murex
Diagnostics Limited ("MDL") and Murex Biotech Limited ("MBL"). MDL
subsequently changed its name to Specialist Diagnostics Limited ("SDL")
(see Note 5) and entered voluntary liquidation. Co-liquidators have been
appointed. IMTC, through its subsidiary MHC, purchased additional shares
of Murex from Murex's minority shareholders from July 1993 through August
1995, bringing its total ownership percentage to greater than 95%. During
August 1995, Murex was merged with MHC and MHC was merged with Murex
Diagnostics, Inc. The previous minority interest's portion of Murex's
continued losses in excess of their basis has not been recorded because
management considers that it is not currently realizable.
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, 1995, 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, 1996 are not necessarily indicative of results expected for an
entire year.
<PAGE>
2. Inventories:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Raw materials and supplies . . $5,074 $4,842
Work in process. . . . . . . . 3,712 4,292
Finished goods . . . . . . . . 9,050 7,807
Total inventories. . . . . . . $17,836 $16,941
</TABLE>
3. Contingencies:
(a) Class Actions: Four class action lawsuits have been 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. DeBartolo, Sr. (now deceased) and 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 allege
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 alleges
violations of insider trading rules under the federal securities laws.
The amounts of alleged damages are not specified. The defendants
answered denying the allegations in the complaints. Discovery has
been undertaken and the plaintiffs have moved for class
certification, which move has been opposed by the defendants and
the motion is pending. On May 2, 1995, IMTC announced an agreement
among the parties to settle all outstanding claims for $5.4 million, a
portion of which is to be paid by IMTC. The settlement agreement is
subject to court approval, which IMTC anticipates will occur during
1996. Accordingly, IMTC has accrued costs related to this settlement,
including its portion of the settlement payment, during the first
quarter of 1995.
(b) HCV Patent Infringement: 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 has become increasingly complex, resulting in competitive
claims of ownership within the industry.
Several subsidiaries of the Murex Group are involved against Chiron
Corporation ("Chiron") and Ortho Diagnostics, Inc. ("Ortho") in patent
infringement litigation related to their hepatitis C (HCV) test in
several countries. The UK action is against MDL. The UK High Court
ruled against MDL and upheld the validity of Chiron's patent.
However, the Chiron/Ortho license agreement violated a UK law
prohibiting restricted supply arrangements in patent licenses and
provided MDL a complete defense for patent infringement through
October 1993. Chiron appealed this decision and a ruling upholding
the defense related to the restricted supply arrangement was announced
on November 2, 1995. However, the license between Chiron and Ortho's
UK affiliate was found not to be a restricted supply arrangement. The
Chiron/Ortho agreement was amended effective October 1993 to eliminate
the restricted supply arrangement. The UK High Court has also ruled
that MDL is responsible for a portion of Chiron/Ortho's legal cost,
net of certain adjustments. In November 1994, the UK High Court issued
an injunction against MDL terminating its right to manufacture and
sell its HCV test in the UK. An appeal of the UK High Court ruling
upholding the validity of the Chiron patent was held during October
1995, with a ruling announced on November 2, 1995. Chiron's HCV
patent was found to be only partially valid. Chiron had sought to
patent products that had "no relevance to the existence or
otherwise of HCV" and had no industrial usefulness. For this reason
the Appeal Court invalidated certain claims. Chiron subsequently
re-amended their patent to remove the irrelevant items. On
February 16, 1996 the UK High Court ruled that an interim cash
security of $9.3 million be posted by MDL for its infringement of
Chiron's patent. The interim cash security is not a final judgment of
the infringement damages. The final damages amount may exceed or fall
below the interim cash security and will be determined at a full
damage inquiry scheduled for November 1996. During the first quarter
of 1996, MDL was restructured, changed its name to SDL and entered
voluntary liquidation. Co-liquidators have been appointed.
Chiron has also brought suit against several other Murex Group
subsidiaries. In Germany hearings were held and an injunction was
granted in December 1994. Chiron also initiated an action that
prevents the Belgium subsidiary from selling HCV tests effective from
November 1994. Chiron sought an injunction against the Italian
subsidiary prohibiting it from selling the HCV test. In April 1995,
the Italian court denied Chiron's request for an injunction. In March
1994, the Australian subsidiary filed an action in an Australian
Federal District Court to seek revocation of Chiron's Australian
patent. Chiron has filed a countersuit and has been granted leave to
file a Motion to join IMTC in these proceedings. IMTC is disputing
Chiron's ability to join them in the matter. The main trial is
currently scheduled to commence during June 1996.
In February 1995, Chiron initiated a proceeding with The District
Court of The Hague, in The Netherlands. During April 1995, the Court
held a preliminary injunction hearing regarding the Murex Group's
European subsidiaries' alleged infringement of Chiron's European
patent based on their involvement in the production, marketing and
distribution of the HCV test kits. The judgement was given on May 8,
1995 and imposed an injunction against the Murex Group in Holland,
France and Spain which becomes effective if Chiron posts a bond. Sale
of the Murex Serotyping HCV product is excluded from the injunction.
Management has addressed the financial aspects of the HCV disputes,
and has recorded provisions for estimates of possible future payments
based on the best currently available information. There is a
possibility that the ultimate resolution of this matter, which is
expected to occur within one year, could result in a loss
significantly in excess of the amount accrued.
(c) United Kingdom Tax Disputes: During October 1995, Her Majesty's
Customs and Excise Tax required MDL to pay approximately $900,000 in
Value Added Tax ("VAT") related to its central cost allocation
agreements with its subsidiaries. Management believes that this
assessment is incorrect, has lodged an appeal and believes it has
meritorious defenses against the assessment. Therefore, no provision
for losses related to this matter have been recorded. During February
1996, a preliminary hearing was held and the judge ruled that this
case must be heard by a UK Tribunal.
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,
therefore, has not recorded a provision for losses related to this
matter.
(d) Other Matters: In August 1992, Allen F. Campbell, as trustee for two
trusts, instituted an action against IMTC, Murex, an executive officer
of IMTC, Edward J. DeBartolo, Jr., and others in the District Court
for Montgomery County, Texas. In January 1993, the Court transferred
the action to the U.S. District Court, Northern District of Texas, and
dismissed the other defendants from the proceedings. The plaintiffs
sought substantial damages, and other relief, including rescission of
certain transactions, based upon, among other charges, alleged
subrogation rights to receive payments due under certain promissory
notes payable by Murex to Edward J. DeBartolo, Jr., and alleged
violations of state securities and corporation laws and common law
fraud. A similar suit was filed in Gwinnett County, Georgia in June
1994. On March 24, 1995, the parties entered into a settlement
agreement whereby Allen F. Campbell, et al, dismissed both actions
with prejudice, released all parties and relinquished all shares of
stock held in Murex in return for payments over four years. Reserves
have been recorded for such payments.
In November 1992, Deacon Barclays de Zoete Wedd Limited ("DBZW")filed
a lawsuit in Ontario, Canada against IMTC alleging that IMTC has
refused or neglected to pay a contractual fee to DBZW for its
assistance in the 1992 purchase of the diagnostics division of
Wellcome. The plaintiff sought payment of approximately $1 million
plus expenses. IMTC has filed a statement of Defense and Counterclaim
and discovery was completed. The matter was scheduled for trial during
April 1996. On April 12, 1996 the parties agreed to settle all
outstanding claims against one another in return for payment by IMTC
of approximately $750,000 during 1996. This amount was accrued as a
cost of the acquisition during 1992.
4. Innogenetics Agreement
During February 1996, Murex Diagnostics Corporation ("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 will pay $5.9 million during 1996 and $1.6
million during 1997 to Innogenetics for the rights to distribute
Innogenetics' products for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics' products. Also
under this agreement, MDC shall fund agreed-upon research and development
programs, beginning in 1998 and for each of the following 13 years under this
Agreement, in an amount equal to 20% of the Murex Group's projected net sales
of Innogenetics' products. MDC has begun negotiations with current
Innogenetics' distributors to expedite the transfer of business.
5. Restructuring, Renaming, and Voluntary Liquidation of Murex Diagnostics
Limited
During the first quarter of 1996, one of IMTC's UK subsidiaries, MDL was
restructured to maximize tax and operational efficiencies. MDL retained the
business encompassing the sale in the UK of all HCV products and the
manufacturing of the HCV serotyping test. All other MDL business was sold to
another of IMTC's UK subsidiaries, MBL. Subsequent to the restructuring, MDL
was renamed SDL. SDL 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 ongoing patent litigation with Chiron and Ortho (see Note
3 (b)). Co-liquidators have been appointed.
6. 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, 1995 and the quarter ended March 31, 1996.
<PAGE>
International Murex Technologies Corporation
Form 10-Q for the Three Months Ended March 31, 1996
Part I - Financial Information
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts expressed in U.S. Dollars)
FINANCIAL CONDITION
During the three months ended March 31, 1996, IMTC and the Murex Group
(collectively referred to herein for consolidated financial purposes only as the
"Company"), earned income from operations and maintained positive working
capital.
Litigation and Technology Disputes
As discussed in the notes to the financial statements, IMTC and several of
the Murex Group are currently involved in several lawsuits and technology patent
issues, which are either being vigorously defended or are presently being
settled.
For more complete information on each of the actions described below refer
to Note 3 of the Consolidated Financial Statements.
Several subsidiaries of the Murex Group are involved against Chiron in
patent infringement litigation related to their HCV test in several countries.
On February 16, 1996 the UK High Court ruled that an interim cash security of
$9.3 million be posted by MDL for its infringement of Chiron's patent. The
interim cash security deposit is not a final judgment of the infringement
damages. The final damages amount may exceed or fall below the interim cash
security and and will be determined at a full damage enquiry scheduled for
November 1996. During the first quarter of 1996, MDL was restructured, changed
its name to SDL and entered voluntary liquidation. Co-liquidators have been
appointed.
Chiron has also brought suit agains several of the other Murex Group
subsidiaries. In Germany, hearings were held and an injunction was granted in
December 1994. Chiron also initiated an action that prevents the Belgium
subsidiary from selling HCV tests effective from November 1994. Chiron sought
an injunction against the Italian subsidiary prohibiting it from selling the
HCV test. In April 1995, the Italian court denied Chiron's request for an
injunction. In March 1994, the Australian subsidiary filed an action in an
Australian Federal District Court to seek revocation of Chiron's Australian
patent. Chiron has filed a countersuit and has been granted leave to file a
Motion to join IMTC in these proceedings. IMTC is disputing Chiron's ability to
join them in the matter. The main trial is currently scheduled to commence
during June 1996.
In February 1995, Chiron initiated a proceeding with The District Court of
The Hague, in The Netherlands. During April 1995, the Court held a preliminary
injunction hearing regarding the Murex Group's European subsidiaries' alleged
infringement of Chiron's European patent based on their involvement in the
production, marketing and distribution of the HCV test kits. The judgement was
given on May 8, 1995 and imposed an injunction against the Murex Group
subsidiaries in Holland, France and Spain which becomes effective if Chiron
posts a bond. Sale of the Murex Serotyping HCV product is excluded from the
injunction.
A lawsuit involves class actions filed on behalf of IMTC shareholders. On
May 2, 1995, IMTC announced an agreement among the parties to settle all
outstanding claims for $5.4 million, a portion of which is to be paid by IMTC.
This settlement agreement is subject to court approval, which IMTC anticipates
will occur during 1996. Accordingly, IMTC has accrued costs related to this
settlement, including its portion of the settlement payment, during the first
quarter of 1995.
One lawsuit involved Allen F. Campbell and related parties. On March 24,
1995, the parties entered into a settlement agreement whereby Allen F. Campbell,
et al, dismissed both actions with prejudice and relinquished all shares of
stock held in Murex in return for payments over four years.
Another lawsuit involves a dispute between DBZW and IMTC alleging IMTC
neglected to pay a contractual fee to DBZW. On April 12, 1996 the parties
agreed to settle all outstanding claims against one another in return for
payment by IMTC of approximately $750,000 during 1996. This amount was accrued
as a cost of the acquisition during 1992.
During October 1995, Her Majesty's Customs and Excise Tax required MDL to
pay approximately $900,000 in Value Added Tax ("VAT") related to its central
cost allocation agreements with its subsidiaries. Management believes that this
assessment is incorrect, has lodged an appeal and believes it has meritorious
defenses against the assessment. Therefore, no provision for losses related to
this matter have been recorded. During February 1996, a preliminary hearing was
held and the judge ruled that the case must be heard by a UK Tribunal.
During 1995, 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 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, therefore,
has not recorded a provision for losses related to this matter.
Management has addressed the financial aspects of all of these items, and
has recorded provisions for estimates of possible future payments based on the
best currently available information. However, it is possible that significant
adjustments could be required upon the ultimate resolution of this matter. The
extent of these adjustments, if any, cannot be determined at this time.
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. The
Company earned income from operations of $46,000 during the quarter ended March
31, 1996. Working capital totalled $30,666,000 at March 31, 1996.
The Company's working capital and capital requirements will depend upon
numerous factors, including future costs of the Murex Group for defending and/or
settling the HCV related litigation, 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.
As discussed above, a subsidiary of IMTC, SDL, formerly MDL, entered
voluntary liquidation in the first quarter of 1996 following a British High
Court ruling that an interim cash security of $9.3 million be posted by MDL for
infringement of Chiron Corporation's U.K. Hepatitis C (HCV) patent. The interim
cash security, payable to Chiron Corporation and Ortho Diagnostics Systems is
not a final judgment of the infringement damages. The final damage amount may
exceed or fall below the interim cash security and will be determined at a full
Damages Enquiry scheduled for November, 1996. As a result of the liquidation,
SDL is no longer consolidated in the financial statements of IMTC. Therefore
IMTC's interest in SDL is accounted for as an "equity investment" on the
consolidated balance sheet and, accordingly, SDL's operating loss, primarily due
to litigation costs, is reported as "equity in loss of investee" in the
consolidated statements of operations.
As discussed above, IMTC has agreed to settle the class action and Campbell
litigations during the first quarter of 1995. These settlements will result in
future payments of approximately $2,800,000.
In November 1992, Deacon Barclays de Zoete Wedd Limited filed a lawsuit in
Ontario, Canada against IMTC alleging that IMTC has refused or neglected to pay
a contractual fee to Deacon Barclays de Zoete Wedd Limited for its assistance in
the 1992 purchase of the diagnostics division of Wellcome. The plaintiff sought
payment of approximately $1 million plus expenses. IMTC has filed a statement
of Defense and Counterclaim and discovery was completed. The matter was
scheduled for trial during April 1996. On April 12, 1996 the parties agreed to
settle all outstanding claims against one another in return for payment by IMTC
of approximately $750,000 during 1996. This amount was accrued for as a cost of
the acquisition during 1992.
During the first quarter of 1995, IMTC commenced a stock repurchase program
to acquire up to 5% of its outstanding common shares. Pursuant to the program,
IMTC purchased shares until January 1996 in the open market and through other
transactions, subject to share availability at prices deemed appropriate. IMTC
purchased 431,200 shares prior to the termination of this program.
During February 1996, MDC entered into an exclusive distribution,
development and license agreement with 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 will pay $5.9 million during
1996 and $1.6 million during 1997 to Innogenetics for the rights to distribute
Innogenetics' products for 15 years. MDC will also pay Innogenetics a royalty of
10% of the Murex Group's net sales of Innogenetics' products. Also under this
agreement, MDC shall fund agreed-upon research and development programs,
beginning in 1998 and for each of the following 13 years under this agreement,
in an amount equal to 20% of the Murex Group's projected net sales of
Innogenetics' products.
The Company anticipates that its current capital resources will enable it
to maintain planned operations for the foreseeable future subject to
management's ability to acquire new technologies and continue innovations to
reduce the impact of the loss of certain HCV sales. The various subsidiaries in
the Murex Group plan to continue to utilize their assets, the anticipated
profitable financial results of operations and the proceeds from the MDC
licensing agreement to provide access to additional working capital financing
and to obtain equipment lease financing, as and when required. The United
States and United Kingdom operating subsidiaries established working capital
lines of credit in early 1995 for an aggregate $2.2 million borrowing capacity.
The establishment of the local currency credit facilities in countries where
IMTC subsidiaries operate will provide a natural foreign exchange rate
fluctuation hedge by reducing the net asset investment in Pounds Sterling.
Management Outlook
The Murex Group's litigation set-backs described above regarding HCV are
significant to the Company's future. The key to 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.
The Innogenetics distribution, developing and licensing agreement discussed
above gives the Murex Group access to the rapidly growing gene probe market for
monitoring patients and the classification of viral diseases. The DNA probe
technology provided by Digene Diagnostics under the 1993 and 1994 agreements is
beginning to yield new products which may contribute to future growth as the
Murex Group have certain distribution rights for these products. Recent Murex
Group product innovations, such as SAM and ICE technologies should also
contribute to future sales growth.
In addition to relying on research and development and licensing of core
technologies, management's operation strategy will focus on quality, customer
service, reducing costs and improving cash flows to help offset reductions in
HCV test sales.
Results of Operations
Product sales for the quarter ended March 31, 1996 were $26,023,000 versus
$23,478,000 for the comparable prior year quarter. The increase in product sales
during the first quarter of 1996 was a result of the newly-acquired
Innogenetics' product line, dramatic growth of sales in Eastern Europe and the
acquisition of the Company's Canadian distributor.
Gross profit on product sales for the quarter ended March 31, 1996 was
62.1%, as compared with 71.2% for 1995. Cost of products sold grew $3,080,000
because of increased use of direct distributors, especially for the
newly-acquired Innogenetics' products, which caused an erosion of the Company's
gross profit margin and increased product sales of purchased-in products which
have lower gross profit margins. Margins will improve as the Innogenetics sales
by direct distributors are replaced with direct Company sales which produce and
support stronger margins.
Total costs and expenses, excluding cost of products sold, of $16,124,000
for the quarter ended March 31, 1996 reflect a net increase of $651,000 over the
quarter ended March 31, 1995. Sales and marketing expenses of $7,004,000
reflects a $636,000 increase over the first quarter of 1995. This increase was a
result of increased presence by the Murex Group in the German, Eastern European,
African, Middle Eastern and South American markets. Foreign exchange loss was
$9,000 for the quarter ended March 31, 1996 versus a gain of $365,000 reported
for the first quarter of 1995. The 1995 foreign exchange gain was a result of
the weakening of the Italian Lira versus other European currencies. The
Company's Italian subsidiary billed other European customers in their local
currencies. As the Lira weakened against these currencies, the Italian
subsidiary recognized a gain on its receivables from its European customers.
The increase in interest expense from $26,000 for the quarter ended March
31, 1995 to $748,000 for the quarter ended March 31, 1996 was due to the
factoring of 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.
<PAGE>
<PAGE>
International Murex Technologies Corporation
Form 10-Q for the Three Months Ended March 31, 1996
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
Current Report on Form 8-K dated February 22, 1996 announcing the voluntary
liquidation of a subsidiary of IMTC.
<PAGE>
<PAGE>
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 9, 1996 By: /s/ C. Robert Cusick
Vice Chairman
and Chief Financial Officer
Date: May 9, 1996 By: /s/ Jill A. Gilmer
Secretary<PAGE>
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
PRIMARY
Weighted average shares outstanding
during the period 16,160 16,569
Shares issuable upon assumed exercise
of stock options and warrants, less
amounts assumed repurchased under
treasury stock method(1)
Total common shares and common
share equivalents 16,160 16,569
Net income (loss) ($1,109) ($2,174)
Primary per share amount ($ 0.07) ($ 0.13)
FULLY DILUTED(2)
Total common shares and common
share equivalents 16,160 16,569
Additional shares issuable upon
assumed exercise of stock options
and warrants, less amounts assumed
repurchased under treasury stock method(1)
Total $16,160 $16,569
Net income (loss) ($1,109) ($2,174)
Fully diluted per share amount ($ 0.07) ($ 0.13)
</TABLE>
(1) 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 1995 and 1996 and are not included
in the calculation.
(2) This calculation is submitted in accordance with 17 CFR 229.601(b)(11)
although not required by APB Opinion No. 15 because it results in dilution
of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 7621
<SECURITIES> 0
<RECEIVABLES> 33362
<ALLOWANCES> 0
<INVENTORY> 17836
<CURRENT-ASSETS> 78880
<PP&E> 23568
<DEPRECIATION> 14155
<TOTAL-ASSETS> 97562
<CURRENT-LIABILITIES> 48214
<BONDS> 0
0
0
<COMMON> 83084
<OTHER-SE> (34020)
<TOTAL-LIABILITY-AND-EQUITY> 97562
<SALES> 26023
<TOTAL-REVENUES> 26023
<CGS> 9853
<TOTAL-COSTS> 25977
<OTHER-EXPENSES> 203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> (951)
<INCOME-TAX> 158
<INCOME-CONTINUING> (1109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1109)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
