Filed On 3/24/97 · SEC File 0-26144 · Accession Number 950120-97-67
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
3/24/97 Int'l Murex Technologies Corp 10-K 12/31/96 15:270 950120
Document/Exhibit Description Pages Size
1: 10-K Annual Report 44 234K
2: EX-10 Exhibit 10.5.1 15± 70K
3: EX-10 Exhibit 10.12 6 28K
4: EX-10 Exhibit 10.13 6 28K
5: EX-10 Exhibit 10.14 108± 436K
6: EX-10 Exhibit 10.15 4 21K
7: EX-10 Exhibit 10.16 3 17K
8: EX-10 Exhibit 10.17 16± 58K
9: EX-10 Exhibit 10.18 20± 88K
10: EX-10 Exhibit 10.19 19± 87K
11: EX-10 Exhibit 10.20 16± 69K
12: EX-11 Statement re: Computation of Earnings Per Share 2± 9K
13: EX-21 Subsidiaries of the Registrant 1 8K
14: EX-11 Exhibit 24 9 22K
15: EX-27 Art 5 FDS for Form 10-K 1 9K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition period from ____ to ____
Commission File Number 0-26144
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
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(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA NOT APPLICABLE
------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2255 B. QUEEN STREET EAST, SUITE 828
TORONTO, ONTARIO M4E 1G3
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(Address, including zip code, of principal executive officers)
(519) 836-8016
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, NO PAR VALUE
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,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
---- ----
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 the Registrant's
knowledge, in the definitive proxy statement incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's outstanding Common
Shares held by non-affiliates of the Registrant as of March 14,
1997 was U.S. $128,244,462. There were 16,285,011 Common Shares
outstanding as of March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
------------------------------------
Portions of the Registrant's Proxy Statement for the Annual
General Meeting of Shareholders to be held on May 13, 1997 are
incorporated by reference in Part III hereof.
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1996
Table of Contents
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Item Page
Number Number
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PART I
1. Business...............................................3
2. Properties.............................................9
3. Legal Proceedings......................................9
4. Submission of Matters to a Vote of Security Holders...10
PART II
5. Market for the Registrant's Common Shares
and Related Shareholder Matters.......................11
6. Selected Financial Data...............................12
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................13
8. Financial Statements and Supplementary Data...........17
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................35
PART III
10. Directors and Executive Officers of the Registrant....35
11. Executive Compensation................................35
12. Security Ownership of Certain Beneficial Owners
and Management........................................35
13. Certain Relationships and Related Transactions........35
PART IV
14. Exhibits, Financial Statements, and Reports
on Form 8-K...........................................36
Signatures............................................40
Index of Exhibits.....................................46
2
PART I
ITEM 1. BUSINESS
GENERAL
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International Murex Technologies Corporation ("IMTC"), has
many separately incorporated subsidiaries operating throughout
the world generally under the Murex 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.
In February 1992, the Murex Group acquired all the operating
assets and assumed certain related liabilities of the diagnostics
division of The Wellcome Foundation Limited ("Wellcome"). This
acquisition significantly altered the scope of the Murex Group's
business. Employees increased by 620, and over 600 new products
were added resulting in a corresponding increase in annual
revenues from $2.5 million in 1991 to $72 million in 1992. As a
result of this acquisition, IMTC was converted from a research
and development company with a blood banking operation selling
products through an international distributor network to a
holding company which conducts business in a dozen major world
currencies via its subsidiaries with manufacturing capabilities
and an international direct sales force.
The Murex Group performs research, develops and manufactures
in vitro diagnostic products mainly in the United Kingdom and
markets them throughout the world, using 15 distribution centers
supporting a direct sales force in 35 countries and a distributor
network in more than 100 countries. The Murex Group also
distributes products manufactured by third parties. Currently,
the Murex Group markets diagnostic tests, reagent components, and
systems for use in clinical laboratories and blood banks. The
Murex Group sells approximately 110 products in the United States
which meet the U.S. Food and Drug Administration ("FDA")
requirements. The Murex Group does not presently intend to
market its remaining products in the United States.
The majority of the Murex Group's products and technologies
relate to two primary product groups: virology and bacteriology
assays for screening, diagnosis and monitoring of infectious
diseases. Worldwide sales of blood viral tests for HIV, Human T-
Cell Lymphotropic Virus ("HTLV") and hepatitis constituted
approximately 42% and 51% of the Company's revenue during 1996
and 1995, respectively. There had been patent infringement
claims against several subsidiaries of the Murex Group related to
their Hepatitis C ("HCV") tests, which constitutes a significant
portion of hepatitis test sales. On August 28, 1996, IMTC
reached a worldwide agreement with Chiron Corporation ("Chiron")
and Ortho Diagnostic Systems Inc. ("Ortho") concerning tests for
HCV under which all litigation among the parties permanently
ceased and Murex received a worldwide license for its HCV
Serotyping product and licenses for other HCV products in
selected countries excluding North America, European Union
members and Japan. See "Business--Patents, Trademarks, and
Licenses".
In August 1995, Murex Corporation ("Murex"), a majority-
owned subsidiary, was merged into Murex Diagnostics Inc. ("MDI").
Murex developed an in vitro rapid format, Single Use Diagnostic
System ("SUDS(R)") test cartridge in which the patient's specimen
and reagents are mixed to diagnose a given disease or condition.
The Murex Group's direct sales force continues to sell the
SUDS(R) HIV-1 test in the United States and the SUDS(R) HIV 1+2
test in Europe and other countries.
RECENT DEVELOPMENTS
Return to Profitability
During the third quarter the Company returned to
profitability following six quarters of losses. The Company was
also profitable for the year.
Digene Corporation
Effective February 1997, the Murex Group and Digene
Corporation ("Digene") entered into a five year agreement to work
together to create a direct European sales operation for Digene's
sexually transmitted disease diagnostics business. Digene, a
leading developer of DNA probe technology, will sell its Hybrid
Capture(R) human papillomavirus ("HPV") DNA test directly in
selected European markets using the Company's existing
distribution infrastructure in exchange for selling service fees.
Additionally, Digene will make fixed payments over the next two
years for the European HPV sales.
3
The Murex Group's relationship with Digene began in 1994
when the Company subsidiary, Murex Diagnostics Corporation
("MDC") invested in Digene's equity securities. The MDC owned
approximately 6.5% of Digene's equity at December 31, 1996.
Eurogenetics N.V.
During January, MDC entered into a 10 year, worldwide
Original Equipment Manufacturer ("OEM") distribution agreement
with Eurogenetics N.V. ("Eurogenetics"). Pursuant to the terms
of the agreement, the Murex Group will distribute Eurogenetics'
mircotitre plate EIA kits for rubella, toxoplasmosis,
cytomegalovirus ("CMV"), chlamydia, herpes and beta-2
microglobulin.
Chiron License Agreement
Several subsidiaries of the Murex Group were involved in
patent infringement litigation in several countries against
Chiron and Ortho related to Chiron's HCV patent. On August 28,
1996, IMTC reached a worldwide agreement with Chiron and Ortho
concerning tests for HCV under which all litigation among the
parties permanently ceased. This significant event put an end to
depleting legal expenses and obtained for the Murex Group a
worldwide license for its HCV Serotyping products and licenses
for other HCV tests in selected countries excluding North
America, European Union members and Japan. See "Business-
Patents, Trademarks and Licenses".
The Monitoring Market
In February 1996, the Murex Group announced its expansion
into the emerging diagnostics monitoring market, which management
expects to exceed $1 billion by the year 2000. The monitoring
market directly complements the Company's existing markets of
screening and diagnosis and also leverages its worldwide
marketing and distribution network. The diagnostic monitoring
market includes tests that among other applications, assess a
patient through the course of a disease or infection, monitor
various forms of anti-viral therapies and monitor conditions
associated with transplants. In contrast, screening and
diagnosis tests are used to indicate whether a patient is, or is
not, carrying a disease or infection. In patient use, screening
and diagnosis tests are usually only required to be administered
once while monitoring tests are usually administered numerous
times.
Patient monitoring has become an important and critical
element of patient care and treatment. The Murex Group believes
it can capture a significant portion of this emerging market by
strategically positioning itself in key segments of the market
including AIDS patients, transplant recipients and other immune
compromised patients.
Abbott Litigation
On July 2, 1996, MDC filed a patent infringement suit
against Abbott Laboratories ("Abbott") in the Northern District
Court of Georgia, seeking injunctive relief against Abbott and
damages for infringement of a patent held by MDC for a particle
bound binding component immunoassay. The suit alleges that two
Abbott systems, the Abbott IMx Immunoassay and the Abbott AxSYM
System, infringe one or more claims of the MDC's patent. Abbott
has answered the complaint and the parties are now actively
engaged in discovery.
Innogenetics N.V. Agreements
During February 1996, MDC entered into an exclusive
distribution, development and license agreement with Innogenetics
N.V. ("Innogenetics") to develop and market gene probe products
for the monitoring of patients and the classification of viral
diseases. Under the terms of the agreement, MDC paid
Innogenetics approximately $5.9 million during 1996 and will pay
$1.6 million during 1997 to Innogenetics for the exclusive rights
to distribute Innogenetics' LiPA products, excluding HCV, for 15
years. MDC will also pay Innogenetics a royalty of 10% of the
Murex Group's net sales of Innogenetics' products. This
strategic alliance with Innogenetics has provided the Murex Group
with exclusive rights to the Murex/Innogenetics LiPA HIV-1
Reverse Transcriptase ("HIV-1 RT") monitoring test. This test
simultaneously detects wild-type and HIV mutations associated
with the reverse transcriptase drugs AZT, ddI, ddC and 3TC.
These reverse transcriptase drugs are currently being
utilized, separately and in combination, to treat HIV patients.
Resistance to the drugs occurs as virus mutations develop that
may eventually cause the drug, or combination of drugs, to become
4
ineffective against the virus. The Murex/Innogenetics LiPA HIV-1
RT test is the first rapid assay to measure mutant strains.
Resistant mutations occur with all the approved HIV
therapies. Therefore, it is critical to monitor the development
of mutations so therapies can be appropriately combined and
adjusted. The new HIV-1 RT test provides crucial information
relating to the development of resistance to individual and
combination therapy. By obtaining resistance information,
physicians can avoid using drugs that may not be effective,
thereby increasing patient care and eliminating the expense of
unnecessary and ineffective therapy. In addition, a physician
may utilize resistance information prior to starting or changing
therapy by screening a patient for the presence of existing drug
resistant mutations. The Company anticipates launching the test
into selected European markets during the second quarter of 1997.
In the U.S., MDI has had discussions with the FDA but has not yet
filed an application for the approval of the test.
Also under the Innogenetics agreement, MDC will fund agreed-
upon research and development programs, beginning in 1998 and for
each of the following 13 years in an amount equal to 20% of the
Murex Group's net sales, subject to a cap, of Innogenetics'
products. See "Business - Research and Development".
Restructuring, Renaming, and Voluntary Liquidation of Murex
Diagnostics Limited
During the first quarter of 1996, one UK subsidiary of the
Murex Group, Murex Diagnostics Limited ("MDL"), was restructured
to maximize operational efficiencies. MDL retained the Company's
HCV business in the UK and the manufacturing of the HCV
Serotyping test. All other MDL business was sold to another of
the Murex Group's UK subsidiaries, Murex Biotech Limited ("MBL").
Subsequent to the restructuring, MDL was renamed Specialist
Diagnostics Limited ("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 then
ongoing patent litigation with Chiron and Ortho. Co-liquidators
have been appointed. As of December 31, 1996, IMTC and its
subsidiaries represented predominately all creditors; therefore,
in the consolidated financial statements this subsidiary is
assumed to be fully liquidated.
Stock Repurchase
In January 1995, IMTC instituted a program to acquire up to
5% of its outstanding common shares. Pursuant to the repurchase
program, IMTC purchased shares from time-to-time until January
1996. Purchases were made in the open market, subject to share
availability, at prices IMTC deemed appropriate. IMTC purchased
a total of 431,200 shares which were all retired during the first
quarter of 1996.
Management
In December 1996, IMTC announced the appointment of C.
Robert Cusick as President and Chief Executive Officer ("CEO").
Mr. Cusick is also IMTC's Vice Chairman. Mr. Cusick has always
played an active role in the management of IMTC and previously
served as CEO from 1990 to 1993.
IMMUNODIAGNOSTIC PRODUCTS
The health care industry is comprised of four main sectors:
diagnostics, therapeutics, preventive medicine, and health
services. The diagnostics sector involves the diagnosis or
detection of specific diseases or medical conditions. Proper
therapy or treatment can only be provided following an accurate
diagnosis of these underlying diseases or conditions.
Diagnostics cover a wide range of products and services,
including items such as X-ray equipment, blood pressure
measurement equipment, analytical chemistry equipment and
immunodiagnostics.
Immunodiagnostics is the field of diagnostics that employs
the reactions between antibodies and antigens as the basis of
tests for the detection of specific diseases and other medical
conditions. Antibodies are proteins in human or animal blood
that are produced by the immune system in response to exposure to
foreign substances or antigens such as bacteria and viruses.
Antibodies and antigens are complementary with each antibody
being directed against, and reacting with, one specific type of
antigen. Antibodies will react with antigens at very low
concentrations, and it is these unique characteristics that give
immunodiagnostic tests their high degree of sensitivity and
specificity.
5
Early immunodiagnostic tests used antibodies extracted from
human or animal blood. Such polyclonal antibodies recognize more
than one epitope (antigenic site) on the antigen concerned and
the number of epitopes recognized may vary from animal to animal.
This variation can result in minor test quality differences among
production lot batches. Other problems associated with the
production and use of animal and human based polyclonal
antibodies include the risk of infected blood contaminating the
end product or infecting those working with it.
In 1975, the first practical method for creating laboratory
produced versions of natural antibodies in significant quantities
was developed. They are known as monoclonal antibodies because
they are produced by obtaining antibody producing cells from mice
immunized against a selected antigen and fusing these cells with
a type of cell that reproduces indefinitely (a cancer or myeloma
cell). The product of the fusion of these cells is called a
hybridoma. Hybridomas secrete the desired antibody and multiply
to generate vast numbers of identical hybridomas. This hybridoma
technology, which allows mass production of monoclonal
antibodies, has led to dramatic growth in immunodiagnostic tests
or immunoassays.
Products and Technology
The Murex Group's immunodiagnostic product line includes
over 600 diagnostic tests, reagent components and systems.
Approximately 42% and 51% of IMTC subsidiaries' revenue for 1996
and 1995, respectively, was generated from the sale of virology
diagnostics to detect HIV-1 and HIV-2 (the viruses causing AIDS),
HTLV-I and II, and hepatitis A, B and C infections. The Murex
Group also markets bacteriology products worldwide to detect such
bacterial infections as strep throat and salmonella poisoning.
United States sales of bacteriology products account for
approximately 25% of the Murex Group's sales. Trade names of
these products include Wellcogen TM, Wellcolex TM, Staphaurex TM,
REVEAL TM, and Streptex TM. Murex developed an in vitro,
immunodiagnostic rapid test system, the Single Use Diagnostic
System, or SUDS(R), that can be used to diagnose numerous
specific diseases or medical conditions. The SUDS(R) HIV-1 test
was approved by the FDA in 1992. In late 1993, the SUDS(R) HIV
1+2 test was introduced by affiliated companies for sale in
Europe. The HIV 1+2 test is not currently available, nor
planned, for sale in the United States or certain other countries
because of regulatory and other restrictions. The Murex Group's
product introductions during 1994, 1995 and 1996 include HTLV I
and II antibody detection assay, syphilis antibody test,
hepatitis C western blot, therapeutic drug monitoring-quality
assessment program, mycoplasma pneumonia antibody detection kit,
HIV 1+2 type O antibody test, Hepatitis A Total Ab, Hepatitis
AIgM, Digene Sharps probe assays, E-coli, Cryptococcus,
Staphaurex Plus assays and SAM . See "Business--Patents,
Trademarks and Licenses".
MARKETING AND COMPETITION
The immunodiagnostic systems industry is fragmented and
highly competitive. It consists of large multinationals with
highly entrenched market positions and many small to medium size
companies competing within specific market segments. The
industry is experiencing some concentration as some of the larger
companies merge or acquire smaller companies. Within the
infectious disease market, segmentation exists both by product
group and the type of testing to be performed: mass screening
tests, confirmatory tests and rapid diagnostic tests. The Murex
Group's products compete in all these market segments.
Principal customer types in the infectious disease market include
blood banks, hospitals, clinical diagnostic laboratories and
physicians' offices. Principal competitors in the high volume
mass screening market are Abbott Laboratories, Ortho Diagnostic
Systems, Genetic Systems and Organon Teknika. Principal
competitors in the rapid assay market are Hybritech, Becton-
Dickinson and Abbott Laboratories.
The Murex Group possesses a significant portfolio of proven
products and technologies. Approximately 74% of product sales
are concentrated in Europe and the United States. Murex Group
sales are supported by regional distribution centers serving
direct sales forces in the United States, the United Kingdom,
Germany, Italy, Spain, France, Switzerland, the Czech Republic,
the Netherlands, Canada, Argentina, Columbia, Brazil, Australia
and South Africa. The Murex Group is represented in the rest of
the world by a network of direct sales representatives,
distributors and agents.
No single customer represented more than 5% of total sales
in 1996. For further information concerning IMTC's or the Murex
Group's domestic and foreign operations, see Note 20 to the
Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
The principal focus of the Murex Group's research and
development efforts has been and will continue to be the
development of high-volume assays for the detection of infectious
agents such as HTLV, HIV and hepatitis using advanced enzyme
6
immunoassay technologies. Also, under the terms of the 1992
acquisition of the diagnostics division of Wellcome, Wellcome
agreed to collaborate with the Murex Group and grant first right
of access to future technological discoveries applicable to
medical diagnostics through February 1997. Pursuant to this
agreement, MDC has entered into a semi-exclusive patent licensing
agreement with Glaxo-Wellcome relating to resistance to AZT.
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 paid $5.9 million during 1996 and
will pay $1.6 million during 1997 to Innogenetics for the
exclusive rights to distribute Innogenetics' LiPA products,
excluding HCV, for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics'
products. Also under this agreement, MDC shall fund agreed-upon
research and development programs, beginning in 1998 and for each
of the following 13 years in an amount equal to 20% of the Murex
Group's net sales of Innogenetics' products, subject to a cap.
This strategic alliance with Innogenetics has provided the
Murex Group exclusive rights to the Murex/Innogenetics LiPA HIV-1
Reverse Transcriptase ("HIV-1 RT") monitoring test. The Murex
Group anticipates launching the test into selected European
markets during the second quarter of 1997. In the U.S., MDI has
had discussions with the FDA but has not yet filed an application
for the approval of the test. This test simultaneously detects
wild-type and HIV mutations associated with the drugs AZT, ddI,
ddC and 3TC. These reverse transcriptase drugs are currently
being utilized, separately and in combination, to treat HIV
patients. Resistance to the drugs occurs as virus mutations
develop that may eventually cause the drug, or combination of
drugs, to become ineffective against the virus. The
Murex/Innogenetics LiPA HIV-1 RT test is the first rapid assay to
measure mutant strains.
Resistant mutations occur with all the approved HIV
therapies. Therefore, it is critical to monitor the development
of mutations so therapies can be appropriately combined and
adjusted. The new HIV-1 RT test provides crucial information
relating to the development of resistance to individual and
combination therapy. By obtaining resistance information,
physicians can avoid using drugs that may not be effective
therapy. In addition, a physician may utilize resistance
information prior to starting or changing therapy by screening a
patient for the presence of existing drug resistant mutations.
The Murex Group's internal research and development remains
strong as evidenced by its HTLV, syphilis and other new product
introductions. The Murex Group incurred in-house and third party
research and development expenses aggregating $6,369,000,
$7,426,000 and $6,372,000 for the years ended December 31, 1996,
1995, and 1994, respectively.
MANUFACTURING OPERATIONS
Worldwide distribution and sales of the majority of the
Murex Group's products originate from MBL's manufacturing
facility. Several products sold by the Murex Group are produced
by third party manufacturers located throughout the world. Raw
materials are produced or acquired from independent suppliers and
assembled into finished products. MBL is fully compliant with
the European Economic Community ISO 9001 manufacturing and design
standards. See "Business--Government Regulation".
MDI operates under Good Manufacturing Practices ("GMP")
guidelines which outline the manufacturing, quality control,
quality assurance and documentation standards mandated by the FDA
for a medical products company. The components of the SUDS(R)
test cartridge and reagent raw materials are purchased by MDI
from suppliers and contract manufacturers and are assembled by
MDI. Currently there are no material adverse effects on capital
expenditures, earnings or Murex Group's competitive position due
to compliance with federal, state and local environmental
regulations. See "Business--Government Regulation".
PATENTS, TRADEMARKS, AND LICENSES
Patents and other proprietary technology are important to
biotechnology companies. Extensive research on a worldwide scale
by many companies has led to competitive claims of technology and
patents ownerships. The Murex Group's assets include a
comprehensive patent and license portfolio. Patented latex
agglutination technologies owned by the Murex Group serve as the
base technologies for the REVEAL and Wellcolex bacterial product
lines. License agreements with the Murex Group as licensee
include technologies and patents covering areas such as HIV-2 and
hepatitis B core.
7
The Murex Group's business utilizes newly developed
technologies that include patents on processes and devices.
These types of technologies are the focal point for the
biotechnology industry. The ownership and patentability of such
processes or devices have become increasingly complex, resulting
in competitive claims of ownership within the industry.
Several subsidiaries of the Murex Group were involved in
patent infringement litigation in several countries against
Chiron and Ortho related to Chiron's HCV patent. On August 28,
1996, IMTC reached a worldwide agreement with Chiron and Ortho
concerning tests for HCV under which all litigation between the
parties permanently ceased.
The settlement agreement grants the Murex Group, as well as
its affiliates, a license to sell its HCV Serotyping tests
worldwide and licenses other HCV tests in selected countries
excluding North America, European Union members and Japan. The
license under this agreement carries a guaranteed minimum royalty
for seven years. The agreement also grants to the Chiron-Ortho
joint business rights to the Murex Group's Sample Addition
Monitor ("SAM TM") technology and an option to sell the Murex
Group's HCV Serotyping test. The agreement also provides Chiron
the opportunity to acquire the Murex Group's HCV immunoassay
business at its then fair value in the event IMTC receives an
offer to purchase 50% or more of the combined voting power of
IMTC's then outstanding securities, or if IMTC's Board of
Directors approves a merger, or the sale of all, or substantially
all, of the Murex Group's assets. If Chiron does not exercise
this option, IMTC is entitled to transfer its rights and licenses
under the agreement described above.
"Wellcogen", "Wellcolex", "Staphaurex", "Staphaurex Plus",
"Streptex", "REVEAL", "Murex", "SUDS" and "SAM" are among the
registered or licensed trademarks of the Murex Group. MDC has
also applied for a trademark for "Information for Life". Under
the terms of the acquisition of the diagnostics division of
Wellcome, the Murex Group has the right to continue to use the
name "Well" in connection with acquired products until August,
2000.
The Murex Group holds various patents on current and
potentially valuable technologies in multiple countries. The
exploitation of potential value is anticipated through a
combination of product development and/or licensing of technology
for use by others.
MDC has licensed certain of its patented technologies to
third parties. MDC completed a non-exclusive, out-licensing
transaction during the second quarter of 1994 by licensing
technology acquired as part of the 1992 acquisition of the
diagnostics division of Wellcome to Abbott. This transaction
provided MDC with a $10 million minimum license fee to be paid
over four years. MDC received $4, million, $2 million and $2
million in 1994, 1995 and 1996, respectively. MDC received the
final $2 million of the guaranteed $10 million minimum license
fee in January 1997. Furthermore, MDC earned an additional
$100,000 and $878,000 in 1995 and 1996, respectively, as a result
of minimum royalty levels being exceeded. The underlying revenue
stream associated with this licensing agreement has been growing
at approximately 40% per year. It continues to remain strong and
growing and the Company expects the minimum royalty levels to
continue to be exceeded until the expiration of the patent in the
year 2004. Therefore, as of 1998, the Company anticipates
receiving at least $3 million per year from this licensing
arrangement.
The Murex Group also relies on unpatented technology and
know-how. There can be no assurance that others will not obtain
access to, or independently develop, such know-how. The Murex
Group also protects their proprietary information through
confidentiality agreements executed by all management employees.
GOVERNMENT REGULATION
The manufacture and marketing of in vitro diagnostic
products are governed by a variety of statutes and regulations in
the United States and by comparable laws and regulations in other
countries. Some countries do not have any such statutes and
regulations. The process mandated by the FDA for approval of a
diagnostic product differs depending on whether the product is
classified as a medical device or a biological product.
FDA approval may be obtained to market medical device
products in the United States through a pre-market notification
filing, or 510(k) submission, for a device that is substantially
equivalent to devices on the market. The review period can be in
excess of 200 days, depending on the device's complexity, from
the date of filing the application. Affirmative FDA action is
required before marketing may proceed. Medical devices not
substantially equivalent to devices already on the market must
undergo a more elaborate approval process requiring the
submission to the FDA of an application for pre-market approval
("PMA") containing substantial technical, manufacturing and
clinical data.
8
Approval by the FDA of a biological product (rather than a
medical device product ) for human use, such as the SUDS(R) HIV-1
test, which was approved by the FDA in 1992, is a multi-step
process. The process includes: (a) pre-clinical laboratory and
animal tests, (b) submission to the FDA of an application for an
Investigational New Drug exemption ("IND"), which must become
effective before human clinical trials may commence, (c) human
clinical trials to establish the safety and effectiveness of the
product, (d) submission to the FDA of a Product License
Application ("PLA"), which summarizes the results of clinical
studies, and a related Establishment License Application ("ELA")
for the licensing of the product's manufacturing processes and
facilities, (e) FDA approval of the PLA and ELA, and, (f) FDA
evaluation and release of each manufactured lot prior to
distribution. An ELA provides information on the results of the
clinical tests as well as the details of the manufacturing
process, such as raw material suppliers, manufacturing equipment,
quality control and assurance procedures, and product labeling.
Additionally, an ELA discloses the qualifications of the
personnel involved in product development, manufacturing and
testing. FDA's review of an ELA entails examination of such data
and information as well as inspection of the facilities that will
be used for the manufacture of the product. MBL's UK
manufacturing facility is certified to ISO 9001, an international
quality management system standard for design, manufacture and
distribution of in vitro diagnostic kits and systems.
Although the Murex Group anticipates additional FDA and
foreign approvals, it is not possible to estimate when the
application and review processes will be completed with respect
to a given product or facility. There can be no assurance that
additional approvals from the FDA or other foreign regulators
will be granted.
The Murex Group is also subject to various federal, state
and local laws and regulations relating to working conditions,
laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially
hazardous substances, includined in connection with research work
and preclinical and clinical trials and testing. The extent of
government regulation which might result from future legislation
or administrative action cannot be accurately predicted.
EMPLOYEES
As of February 28, 1997, IMTC through its subsidiaries, had
641 full time employees located world wide, 60 of whom were
involved in research and development, 218 in manufacturing and
278 in sales and marketing. All other employees perform
executive and administrative functions. Certain Murex Group
employees are represented by seven separate unions which include
approximately 105 employees, primarily in manufacturing and sales
in the United Kingdom, Italy and France. Management considers
all of its relations with its employees, both union and non-
union, to be good.
ITEM 2. PROPERTIES
MBL researches, develops, manufactures and ships its
products from a 100,000 square foot facility located in Dartford,
England, leased from Glaxo-Wellcome Limited through 2000, subject
to a five year extension. MDI manufactures in a 41,000 square
foot facility located in Norcross, Georgia, leased through
December 1999. Subsidiary sales office leases in various
countries generally expire at various times through 1999.
The Murex Group believes its facilities are adequate and
suitable for its current and anticipated manufacturing, research,
development, marketing and administrative operations for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
(a) United Kingdom Tax Dispute:
During 1995, the UK Inland Revenue questioned the tax
basis of inventory, accounts receivable and property,
plant and equipment related to the 1992 purchase of
assets from Wellcome. If 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.
9
(b) Class Actions:
Four class action lawsuits were instituted on behalf of
all persons who had purchased IMTC's securities between
May 21, 1992 and August 19, 1992 against IMTC, two
executive officers of IMTC, and Messrs. Edward J.
DeBartolo, Sr. (now deceased) and Edward J. DeBartolo,
Jr., in the Southern District of Texas, Houston Division.
In January 1993, the class actions were voluntarily
transferred to the United States District Court, Eastern
District of New York. The complaints alleged that the
defendants omitted and/or misrepresented material facts
about IMTC which resulted in artificially inflating the
market price of IMTC's securities permitting, in part,
Messrs. DeBartolo, Sr. and DeBartolo, Jr. to sell their
IMTC securities in violation of the federal and Texas
securities laws. One further action alleged violations
of insider trading rules under the federal securities
laws. The defendants answered denying the allegations in
the complaints. During 1996, the parties agreed to
settle all outstanding claims for $5.4 million, a portion
of which has been paid by IMTC into escrow held by the
claims administrator. In accordance with the Stipulation
Settlement Agreement, Edward J. DeBartolo, Jr. and the
Estate of Edward J. DeBartolo, Sr. each transferred
92,943 common shares of the Company's stock to the
Company to be used as their portion of the settlement.
The claims administrator is currently qualifying
claimants and management expects this matter to be
finalized during the first half of 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
IMTC's Common Shares have been listed and traded on the
Nasdaq National Market System ("Nasdaq")
under the symbol "MURXF" since June 1, 1995. From December 11,
1990 to May 31, 1995, IMTC's Common Shares were listed and traded
on The Toronto Stock Exchange and the American Stock Exchange
under the symbol "MXX".
The following tables set forth the quarterly high and low
closing sale prices of the Common Shares on the American and
Toronto Stock Exchanges from January 1, 1995 to May 31, 1995,
and for Nasdaq from June 1, 1995 to December 31, 1996. As of
March 14, 1997, the noon buying rate as reported by the Federal
Reserve Bank of New York for the conversion of Canadian dollars
into United States dollars was Cdn. $1.3636 = U.S. $1.00.
Calendar Year
1996
---------------------------------------------------------
NASDAQ Stock Exchange
(Expressed in U.S. Dollars) High Low
---------------------------------------------------------
First Quarter $3.63 $2.38
Second Quarter 4.63 2.63
Third Quarter 6.38 3.00
Fourth Quarter 7.63 5.25
----------------------------------------------------------
American Stock Exchange
(Expressed in U.S. Dollars) High Low
----------------------------------------------------------
First Quarter $ -- $ --
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
----------------------------------------------------------
Toronto Stock Exchange
(Expressed in Canadian Dollars) High Low
First Quarter $ -- $ --
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
Calendar Year
1995
----------------------------------------------------------
NASDAQ Stock Exchange
(Expressed in U.S. Dollars) Low High
----------------------------------------------------------
First Quarter -- --
Second Quarter -- --
Third Quarter $5.48 $2.81
Fourth Quarter 4.75 2.75
----------------------------------------------------------
American Stock Exchange
(Expressed in U.S. Dollars) High Low
----------------------------------------------------------
First Quarter $4.13 $3.38
Second Quarter 4.13 3.38
Third Quarter -- --
Fourth Quarter -- --
----------------------------------------------------------
Toronto Stock Exchange
(Expressed in Canadian Dollars) High Low
----------------------------------------------------------
First Quarter $6.13 $4.80
Second Quarter 5.63 4.25
Third Quarter -- --
Fourth Quarter -- --
SHAREHOLDERS
As of March 14, 1997, IMTC had 16,285,011 Common Shares held
by approximately 702 holders of record. The number of holders do
not include all individuals with a beneficial interest in IMTC's
Common Shares.
DIVIDEND POLICY
IMTC has never paid a cash dividend on its Common Shares and
has no plans to pay cash dividends in the foreseeable future.
The policy of IMTC's Board of Directors is to retain any earnings
for use in the operation and expansion of business and the Bank
of America line of credit facility prohibits the payment of any
IMTC dividends except those paid in common stock.
11
ITEM 6. SELECTED FINANCIAL DATA
-----------------------------------------------------------------
Year Ended December 31,
----------------------------
1996 1995 1994
-----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF (In thousands of U.S. Dollars,
OPERATIONS DATA except per share data)
Product sales $ 99,881 $92,394 $93,192
License fees 970 9,250
---------------------------------
Total revenues 100,851 92,394 102,442
Cost and expenses:
Cost of products sold 34,887 30,181 24,353
Research & development 6,369 7,426 6,372
General & administrative 25,803 24,418 22,399
Sales & marketing 29,523 26,898 23,586
Royalty expense (2,799) 8,365 9,599
Restructuring costs 2,100
All other expenses 1,542 (1,016) 547
---------------------------------
Total costs & expenses 97,425 96,272 86,856
Operating income (loss) 3,426 (3,878) 15,586
Interest expense, net (643) (167) (632)
Settlement of litigation (3,123)
All other income (expense), net (934) 558 (730)
---------------------------------
Net income (loss) $1,849 $(6,610) $14,224
=================================
Net income (loss) per
common share $0.11 $(0.40) $0.85
Weighted average common
shares outstanding 16,511 16,381 16,739
Cash dividends 0 0 0
Year Ended December 31,
-----------------------
1993 1992
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF (In thousands of U.S. Dollars,
OPERATIONS DATA except per share data)
Product sales $79,689 $72,097
License fees 36 92
---------------------
Total revenues 79,725 72,189
Cost and expenses:
Cost of products sold 24,368 24,149
Research & development 5,967 8,237
General & administrative 15,746 18,607
Sales & marketing 22,357 27,551
Royalty expense 6,430 2,737
Restructuring costs 8,574
All other expenses 1,091 131
---------------------
Total costs & expenses 75,959 89,986
Operating income (loss) 3,766 (17,797)
Interest expense, net (917) (545)
Settlement of litigation
All other income (expense), net (175) 745
---------------------
Net income (loss) $ 2,674 $(17,597)
=====================
Net income (loss) per
common share $0.16 $(1.17)
Weighted average common
shares outstanding 16,340 15,007
Cash dividends 0 0
At December 31,
----------------------------------
1996 1995 1994
-----------------------------------------------------------------
CONSOLIDATED (In thousands of U.S. Dollars)
BALANCE SHEET DATA
Total assets $95,113 $85,748 $85,643
Long term debt and redeemable
preference shares 9,638 0 0
At December 31,
---------------------
1993 1992
--------------------------------------------------------
CONSOLIDATED (In thousands of U.S. Dollars)
BALANCE SHEET DATA
Total assets $58,966 $59,844
Long term debt and redeemable
preference shares 0 1,754
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report contains or refers to forward-looking
information including future revenues, products, and income and
is based upon current expectations that involve a number of
business risks and uncertainties. Among the factors that could
cause actual results to differ materially from any forward-
looking statement include, but are not limited to, technological
innovations of competitors, changes in health care regulations
and reimbursements, litigation claims, changes in foreign
economic conditions or currency translation, product acceptance,
government approvals or changes in government regulation of the
Company's products, as well as other factors discussed in other
Securities and Exchange Commission filings for the Company.
FINANCIAL CONDITION
During the year ended December 31, 1996, IMTC and the Murex
Group (collectively referred to herein for consolidated financial
purposes only as the "Company"), returned to profitability,
maintained positive working capital and secured a $15 million
line of credit to meet its capital needs.
Litigation and Technology Disputes
The Murex Group's business utilizes newly developed
technologies that include patents on processes and devices.
These types of technologies are the focal point for the
biotechnology industry. The ownership and patentability of such
processes or devices have become increasingly complex, resulting
in competitive claims of ownership within the industry.
IMTC and several subsidiaries of the Murex Group were
involved in several lawsuits, including technology patent issues,
which were settled during 1996. The Company is not presently the
defendant in any material judicial proceeding. The Company has
remaining obligations related to these matters, which have been
accrued in the consolidated financial statements. The Company is
vigorously pursuing its patent infringement suit in which the
Company is the plaintiff against Abbott, and continues to defend
one UK Inland Revenue Claim, both of which are discussed below.
On July 2, 1996, MDC filed a patent infringement suit
against Abbott Laboratories seeking injunctive relief against
Abbott and damages for infringement of a patent held by MDC for a
particle bound binding component immunoassay. The suit alleges
that two Abbott systems, the Abbott IMx Immunoassay and the
Abbott AxSYM System, infringe one or more claims of the patent.
During 1995, the UK Inland Revenue questioned the tax basis
of inventory, accounts receivable and property, plant and
equipment related to the 1992 purchase of assets from Wellcome.
If the Inland Revenue is successful in its argument, a tax charge
of up to $4.2 million could arise. Management believes it has
meritorious defenses against the claims of the Inland Revenue
and, therefore, has not recorded a provision for losses related
to this matter.
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 believed this assessment was
incorrect and lodged an appeal. In July 1996, the UK Tribunal
ruled in the Company's favor and this assessment was withdrawn.
In addition to receiving a refund of the $900,000 assessment, the
Company received compound interest and expenses related to
defending its position.
Liquidity and Capital Resources
The Company has sufficient cash resources and adequate
working capital to carry on its current business and meet
existing capital requirements. Cash and working capital totaled
$9.7 million and $41.5 million, respectively at December 31,
1996. The Company used $4.9 million cash from operating
activities, mainly to fulfill its obligations under the Chiron
and class action settlements obtained during 1996. On November
12, 1996, the Company entered into a three year, $15 million
asset-based line of credit facility with Bank of America, which
is collateralized by the accounts receivable and inventory of its
U.S., U.K. and Barbados subsidiaries. As of December 31, 1996,
there was $3.0 million of availability remaining under this
facility, net of a letter of credit outstanding of $856. The
credit facility was drawn upon for, among other things, payments
associated with the Innogenetics alliance, working capital and
ongoing business activities. On December 11, 1996, management
13
entered into an interest rate swap agreement with the lender that
fixed the interest rate at 8.9% for a notional principal amount
of $8.0 million.
The Company's working capital and capital requirements will
depend upon numerous factors: 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.
MDC completed a non-exclusive, out-licensing transaction
during the second quarter of 1994 by licensing technology
acquired as part of the 1992 acquisition of the diagnostics
division of Wellcome to Abbott. This transaction provided MDC
with a $10 million minimum license fee to be paid over four
years. MDC received $4, million, $2 million and $2 million in
1994, 1995 and 1996, respectively. MDC received the final $2
million of the guaranteed $10 million minimum license fee in
January 1997. Furthermore, MDC earned an additional $100,000 and
$878,000 in 1995 and 1996, respectively, as a result of minimum
royalty levels being exceeded. The underlying revenue stream
associated with this licensing agreement has been growing at
approximately 40% per year. It continues to remain strong and
growing and the Company expects the minimum royalty levels to
continue to be exceeded until the expiration of the patent in the
year 2004. Therefore, as of 1998, the Company anticipates
receiving at least $3 million per year from this licensing
arrangement.
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 paid $5.9 million during 1996 and
will pay $1.6 million during 1997 to Innogenetics for the
exclusive rights to distribute Innogenetics' LiPA products,
excluding HCV, for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics'
products. Also under this agreement, MDC shall fund agreed-upon
research and development programs, beginning in 1998 and for each
of the following 13 years in an amount equal to 20% of the Murex
Group's net sales of Innogenetics' products, subject to a cap.
The Company anticipates that its current capital resources,
availability under its line of credit facility, and anticipated
profitability will enable it to maintain planned operations for
the foreseeable future.
Management Outlook
The key to the Company's growth is the ability to identify
new needs in the marketplace, and to expeditiously meet these
needs through access to appropriate innovations and technologies,
and to rapidly incorporate them into the Murex Group's product
line. However, there can be no assurance that Murex Group will
successfully add a significant number of new products to its
product line.
The broadening of the Company's focus into the emerging
diagnostics monitoring market should support revenue growth in
the coming years. The Innogenetics distribution, developing and
licensing agreement gives the Murex Group access to the rapidly
growing gene probe market for monitoring patients and the
classification of viral diseases. Patient monitoring has become
an important and critical element of patient care and treatment.
As a result, demand for superior and unique monitoring tests is
rapidly growing. The Company believes it can capture a
significant portion of this emerging market by strategically
positioning Murex in key segments of the market including AIDS
patient treatment, transplant recipients and other immune
compromised patients.
As the Company's relationship with Innogenetics
demonstrates, management believes strategic ventures and
licensing arrangements position the Company for the future and
play an important role in the achievement of management's
corporate objectives. The Company's worldwide marketing and
distribution capabilities motivate companies like Innogenetics,
Digene and Eurogenetics to partner with the Company in licensing
agreements and product development and, thereby, contribute to
the flow of new and creative products. The Company's alliances
provide the Murex Group with access to technology, strengthand
allow the Company to further penetrate its existing markets in
blood screening and clinical diagnostics. Throughout 1997 and in
the years to come, the Company will actively seek out
acquisitions, strategic business alliances and other
opportunities that will support the Company's future.
14
Recent Murex Group product innovations, such as SAM TM, and
tests for HTLV, syphilis and E-Coli, should contribute to future
sales growth. In addition, new and enhanced products, created
through the Company's in-house research and development
endeavors, strengthened the Company's broad line of well-
established virology and bacteriology products and allowed the
Company to enter new markets in targeted areas around the world.
In addition to relying on research and development and
licensing of core technologies, management's operation strategy
will also focus on quality, customer service, reducing costs and
improving cash flows.
---------------------------------------------------------------------
RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to year ended December 31, 1995
Revenues for the year ended December 31, 1996 increased to
$100,851,000 over the previous year's revenues of $92,394,000.
This increase is mainly due to a $7,487,000 net increase in
product sales as a result of the newly-acquired Innogenetics'
product line, growth of sales in eastern Europe, South America
and southeastern Asia as well as the acquisition of the Company's
Canadian distributor. The net increase in product sales
represents an actual increase using a constant currency basis of
$8,836,000 which was partially offset by a negative foreign
exchange impact of $1,349,000. License fees and royalties
revenues increased to $970,000 from $0 in the previous year,
primarily as a result of Abbott exceeding the minimum royalty
level as defined in the 1994 agreement.
Gross profit on product sales was 65.1% and 67.3% for the
years ended December 31, 1996 and 1995, respectively. Cost of
products grew $4,706,000 as a result of increased sales,
increased use of direct distributors, especially for the newly-
acquired Innogenetics' products, and increased sales of
purchased-in products which have lower gross profit margins.
Furthermore, the strengthening of the British Pound relative to
the U.S. Dollar throughout 1996 caused the translated dollar
equivalent cost of manufacturing in the UK to increase.
Total operating costs and expenses, excluding cost of
products sold, of $62,538,000 for the year ended December 31,
1996 reflect a net decrease of $3,553,000 over the year ended
December 31, 1995. Research and development costs for 1996 were
reduced by $1,057,000 due to added efficiencies in internal costs
and the Company shifting its focus to forming strategic business
alliances such as Innogenetics. General and administrative
expenses increased $1,385,000 to $25,803,000 for 1996 as compared
to $24,418,000 for 1995. This increase is due to the legal,
employee compensation and other expenses associated with settling
the Company's HCV patent litigation during the third quarter of
1996. Sales and marketing expenses were $29,523,000 and
$26,898,000 for the years ended December 31, 1996 and 1995,
respectively. The increase of $2,625,000 was driven by new
product introductions, including the Innogenetics' LiPA product
line, expansion into the monitoring market and further
strengthening of the Company's overall distribution network. The
foreign exchange loss for the year ended December 31, 1996 was
$1,542,000 versus a gain of $1,016,000 for 1995. The loss is
primarily attributable to the strengthening of the British pound
to its four year high, as MBL (the Dartford, England
manufacturing facility) carries intercompany receivables in the
local currencies of the various Murex Group territories. This
foreign exchange loss was further exacerbated by the weakening of
the South African rand. As a result of the settlement with
Chiron and Ortho, a reversal was made to royalty accruals made in
prior years, which resulted in a net credit to royalty expense of
$2,799,000 for the year ended December 31, 1996. During
September 1996, the Company recorded a rebefore tax. The
restructuring was driven by a need to reposition the Company for
its movement into the patient monitoring business. The world-
wide plan will result in personnel reductions of approximately 50
people from various functions. The restructuring charge consists
predominantly of costs for employee severance and other benefits,
of which $1,402,000 remained accrued at December 31, 1996.
Management expects the restructuring to be completed by the end
of the first quarter of 1997.
Net interest expense for the year ended December 31, 1996
was $643,000 compared to net interest income of $1,054,000 for
the year ended December 31, 1995 due to the increase in long term
debt from the new line of credit arrangement and the factoring of
Italian receivables. The loss on liquidation of investee of
$394,000 represents SDL's net loss for the year ended December
31, 1996, net of the estimated gain upon ultimate liquidation.
As of December 31, 1996, IMTC and its subsidiaries represented
predominantly all creditors of SDL; therefore, in the financial
statements, the subsidiary is assumed to be fully liquidated.
15
Year ended December 31, 1995 compared to year ended December 31, 1994
Product sales for the year ended December 31, 1995 were
$92,394,000 versus $93,192,000 for the comparable prior year.
1995 product sales were $798,000 behind 1994's product sales
primarily due to the reduction of HCV sales in Europe and changes
in the worldwide diagnostics market. The actual sales decrease
using a constant currency basis was $4,986,000, largely offset by
the positive foreign exchange impact of $4,188,000. Revenues for
the year ended December 31, 1994 included $3,000,000 of a "sell-
in" of HCV tests in anticipation of UK and German injunctions.
The changes in the worldwide diagnostics market have also
adversely affected sales including a healthcare workers' strike
in Spain, declines in overall healthcare spending in several
Western European countries due to changes in reimbursement
programs that resulted in fewer diagnostic test kit orders and
buying group consolidations in the United States. The Murex
Group is combating these issues by expanding its business into
growth markets which include Africa, the Middle East and Central
and South America and by entering strategic alliances which
enhance the Murex Group's product lines and add innovative
technology. License fee revenues of $9,250,000 for 1994
represent the present value of the Abbott license agreement
earned in the second quarter.
Gross profit on product sales for the year ended December
31, 1995 was 67.3%, as compared with 73.9% for 1994. In 1995,
cost of products sold increased, particularly in the third and
fourth quarters, because of higher costs associated with
producing HCV screening tests which caused an erosion of the
Murex Group's gross profit margin. Pricing pressures due to
healthcare policies in Europe and the necessity of licensing some
products with lower margins also contributed to the decline in
gross profit.
Total operating expenses, excluding cost of products sold,
of $66,091,000 for the year ended December 31, 1995 reflect a net
increase of $3,588,000 over the year ended December 31, 1994. The
weakness of the US dollar in 1995 increased total expenses by
approximately $2,386,000 over 1994. General and administrative
expenses, excluding bad debt expense, increased $1,118,000 to
$22,736,000 for the year ended December 31, 1995. The Murex
Group's legal and professional fees associated with its HCV
litigation increased $2,257,000 over the prior year. The total
1995 increase in general and administrative expense was less than
the HCV legal expense increase because general and administrative
expenses in 1994 also included expenses associated with the
Abbott licensing in May and employee incentive, retirement and
termination payments. Bad debt expense increased $1,001,000 to
$1,682,000 for 1995 primarily as a result of credit losses on
Eastern European sales. Sales and marketing of $26,898,000 for
the year reflects a $3,312,000 increase over the 1994 amounts.
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 gain for the year
ended December 31, 1995 of $1,016,000 reflects a $1,563,000
increase from the 1994 foreign exchange loss of $547,000. The
increase is primarily attributable to the strengthening of values
in German Mark, French Franc, Spanish Peseta, and Italian Lira
currency based amounts due to MDL. The decrease in royalties
expense from $9,599,000 for the year ended December 31, 1994 to
$8,365,000 for the year ended December 31, 1995 is due to lower
sales of products with high royalty rates.
The increase in interest income versus the prior year is a
result of interest related to the Abbott license and higher
overall cash in the Company during 1995. Interest expense for
the year ended December 31, 1995 of $167,000 represented a
decrease of $465,000 from 1994. This net decrease is due to
management's decision to voluntarily reduce factoring of Italian
receivables during 1994.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
International Murex Technologies Corporation
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
(In Thousands of U. S. Dollars) 1996 1995
-----------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,723 $15,771
Accounts receivable, net of allowance
for doubtful accounts of $3,174
and $3,410, respectively 33,718 34,836
Inventories 21,534 16,941
Amounts due from affiliates 4,415
Prepaid and other 1,207 2,851
---------------------
Total current assets 70,597 70,399
-----------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT-
at cost less accumulated depreciation
and amortization 10,091 9,231
PATENTS, TRADEMARKS AND LICENSES-
at cost less accumulated amortization 5,738 229
OTHER ASSETS 8,687 5,889
--------------------
TOTAL $95,113 $85,748
=================================================================
See notes to consolidated financial statements.
17
December 31,
--------------------
1996 1995
----------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $9,757 $7,586
Borrowings under line of credit 44
Accrued expenses:
Professional fees 2,222 2,502
Royalty payments 1,978 13,397
Employee related 5,985 3,963
Income taxes payable 1,508 1,709
Litigation settlements 3,310 2,910
Restructuring 1,402
Other 2,809 3,551
Current portion of capitalized
lease obligations 151 229
-------------------
Total current liabilities 29,122 35,891
----------------------------------------------------------------
DEFERRED RENT 77 80
LINE OF CREDIT 9,638
CAPITALIZED LEASE OBLIGATIONS,
less current portion 93 246
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common shares, without par value,
200,000,000 shares authorized;
16,578,853 and 16,688,931 shares
issued, respectively 84,460 84,136
Additional paid-in capital 13,906 13,906
Accumulated deficit (41,655) (43,504)
Less cost of 286,929 and 532,243
common shares held in treasury,
respectively (1,085) (1,514)
Unrealized gain on marketable securities 4,405
Accumulated currency translation adjustment (3,848) (3,493)
-------------------
Shareholders' equity 56,183 49,531
----------------------------------------------------------------
TOTAL $95,113 $85,748
================================================================
See notes to consolidated financial statements.
18
International Murex Technologies Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
--------------------------------
(In Thousands of U.S. Dollars,
except per share data) 1996 1995 1994
-----------------------------------------------------------------------
REVENUES:
Product sales $99,881 $92,394 $93,192
License fees and other (See 970 9,250
Note 6) ---------------------------------------
Total revenues 100,851 92,394 102,442
COSTS AND EXPENSES:
Cost of products sold 34,887 30,181 24,353
Research and development 6,369 7,426 6,372
General and administrative 25,803 24,418 22,399
Sales and marketing 29,523 26,898 23,586
Foreign exchange loss (gain) 1,542 (1,016) 547
Royalty (credit) expense (2,799) 8,365 9,599
Restructuring expense 2,100
----------------------------------
Total costs and expenses 97,425 96,272 86,856
-----------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 3,426 (3,878) 15,586
Interest income 663 1,221 802
Interest (expense) (1,306) (167) (632)
Gain on asset disposals 90 108 33
Settlement of litigation (3,123)
Loss on liquidation of investee (394)
Other income (expense) 386 (289) 99
-----------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,865 (6,128) 15,888
Income tax expense (1,016) (482) (1,664)
------------------------------------
NET INCOME (LOSS) $1,849 (6,610) 14,224
=======================================================================
Net Income (Loss) per common share $0.11 $(0.40) $0.85
===== ====== =====
Weighted Average Common
Shares Outstanding (in thousands) 16,511 16,381 16,739
====== ====== ======
See notes to consolidated financial statements.
19
International Murex Technologies Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands of U.S. Dollars, except share data)
--------------------------------------------------------------------------
Common Stock Additional
--------------------- Paid-In
Shares Amount Capital
--------------------------------------------------------------------------
January 1, 1994 16,746,217 $83,952 $13,906
Registration costs (19)
Issued for additional
shares of Murex Corporation 23,294 108
Issued pursuant to employee
stock purchase plan 9,114 41
Effect of 1990 one for seven
share consolidation 21
Net income
Foreign currency translation
----------------------------------------
December 31, 1994 16,778,646 84,082 13,906
Issued pursuant to employee
stock purchase plan 17,375 54
Shares repurchased for treasury
Retirement of escrowed shares (107,144)
Issued in exchange for subsidiary
shares 54
Net loss
Foreign currency translation
-----------------------------------------
December 31, 1995 16,688,931 84,136 13,906
Issued pursuant to employee stock
purchase plan 23,297 91
Exercise of employee stock options 15,900 50
Issued as stock compensation 281,925 1,695
Shares tendered to treasury
Retirement of treasury shares (431,200) (1,509)
Unrealized gain on marketable
securities
Net income
Foreign currency translation
---------- ------ ------
December 31, 1996 16,578,853 $84,460 $13,906
========== ====== ======
------------------------------------------------------------------------
Unrealized
Gain on
Accumulated Treasury Marketable
Deficit Shares Securities
------------------------------------------------------------------------
January 1, 1994 $(51,118) $ (5) $ 0
Registration costs
Issued for additional
shares of Murex Corporation
Issued pursuant to employee
stock purchase plan
Effect of 1990 one for seven
share consolidation
Net income 14,224
Foreign currency translation
-------------------------------------
December 31, 1994 (36,894) (5) 0
Issued pursuant to employee
stock purchase plan
Shares repurchased for treasury (1,509)
Retirement of escrowed shares
Issued in exchange for
subsidiary shares
Net loss (6,610)
Foreign currency translation
-------------------------------------
December 31, 1995 (43,504) (1,514) 0
Issued pursuant to employee
stock purchase plan
Exercise of employee stock
options
Issued as stock compensation
Shares tendered to treasury (1,080)
Retirement of treasury shares 1,509
Unrealized gain on marketable
securities 4,405
Net income 1,849
Foreign currency translation
------ ----- -----
December 31, 1996 $(41,655) $(1,085) $4,405
====== ===== =====
---------------------------------------------------------------------
Accumulated
Currency Total
Translation Shareholders'
Adjustment Equity
---------------------------------------------------------------------
January 1, 1994 $(6,859) $39,876
Registration costs (19)
Issued for additional shares
of Murex Corporation 108
Issued pursuant to employee
stock purchase plan 41
Effect of 1990 one for seven
share consolidation
Net income 14,224
Foreign currency translation 2,274 2,274
-------------------------------
December 31, 1994 (4,585) 56,504
Issued pursuant to employee
stock purchase plan 54
Shares repurchased for
treasury (1,509)
Retirement of escrowed
shares
Issued in exchange for
subsidiary shares
Net loss (6,610)
Foreign currency translation 1,092 1,092
-------------------------------
December 31, 1995 (3,493) 49,531
Issued pursuant to employee
stock purchase plan 91
Exercise of employee stock
options 50
Issued as stock compensation 1,692
Shares tendered to treasury (1,080)
Retirement of treasury
shares
Unrealized gain on
marketable securities 4,405
Net income 1,849
Foreign currency translation (355) (355)
------ ------
December 31, 1996 $(3,848) $56,183
====== ======
See notes to consolidated financial statements.
20
International Murex Technologies Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------
(In Thousands of U.S. Dollars) 1996 1995 1994
-------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $1,849 $(6,610) $14,224
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation 3,519 4,199 4,030
Amortization 459 85 140
Write-off of goodwill 108
Gain on sale of property
and equipment (90) (108) (33)
Non-cash compensation 1,692
Changes in assets and liabilities:
Accounts receivable 1,118 (3,074) (9,850)
Inventories (4,593) (1,154) (1,925)
Prepaid and other assets (1,088) 1,388 (4,909)
Trade accounts payable 2,171 1,999 106
Accrued expenses (9,963) 5,444 9,926
-------------------------------------------------------------------------
Net cash (used in) provided by (4,926) 2,169 11,817
operating activities
-------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of property and 269 265 74
equipment
Additions to property and equipment (4,558) (4,994) (5,392)
Additions to patents and licenses (5,968) (101) (87)
Investment in Digene Corporation (3,092)
-------------------------------------------------------------------------
Net cash used in investing (10,257) (4,830) (8,497)
activities
-------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase (decrease) in borrowings under 9,638 40 (3)
line of credit
Reduction of other long-term liabilities (289) (458) (145)
Proceeds from issuance of common shares 141 54 41
Repurchase of shares for treasury (1,509)
-------------------------------------------------------------------------
Net cash provided by (used in) 9,490 (1,873) (107)
financing activities
-------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (355) 1,092 2,274
Net (Decrease) Increase in Cash and Cash (6,048) (3,442) 5,487
Equivalents
Cash and Cash Equivalents at Beginning 15,771 19,213 13,726
of Period
-------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF $9,723 $15,771 $19,213
PERIOD
-------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $1,306 $ 148 $ 632
Cash paid for income taxes $1,140 $1,348 $1,217
21
International Murex Technologies Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In Thousands of U.S. Dollars)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unpaid acquisition costs totaled $0, $750 and $750 at
December 31, 1996, 1995, and 1994, respectively.
During the years ended December 31, 1996, 1995 and 1994, the
Company entered into capital lease obligations of approximately
$63, $53 and $155, respectively.
During the year ended December 31, 1994, IMTC recorded $19
of previously recorded deferred warrant registration costs as a
reduction to common stock.
During the year ended December 31, 1994, IMTC issued 23,294
common shares to minority shareholders of Murex Corporation in
exchange for their shares of Murex Corporation.
See notes to consolidated financial statements.
22
International Murex Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of U.S. Dollars, except share amounts)
------------------------------------------------------------
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 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; and MHC's majority owned subsidiary;
Murex Corporation ("Murex"), a Delaware corporation; and
Murex's wholly owned subsidiaries. In August 1995, Murex, a
majority-owned subsidiary was merged with MHC and
subsequently into Murex Diagnostics, Inc. ("MDI"). 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. At December 31, 1996, the U.S. subsidiaries
were further consolidated by merging the U.S. holding
company, IMTC Holdings, Inc. into MDI.
Effective January 1, 1996, IMTC's United Kingdom ("UK")
operating business was restructured into two companies,
Murex Diagnostics Limited ("MDL") and Murex Biotech Limited
("MBL"). MDL subsequently changed its name to Specialist
Diagnostics Limited ("SDL") and entered voluntary
liquidation. MDL retained the business encompassing the
sale in the UK of all of the Company's HCV products and the
manufacturing of the HCV serotyping test. All other MDL
business was sold to another of IMTC's UK subsidiaries, MBL.
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 then ongoing patent
litigation with Chiron and Ortho. Co-liquidators have been
appointed. As of December 31, 1996, IMTC and its
subsidiaries represented predominantly all creditors of SDL.
In the consolidated financial statements, the subsidiary is
assumed to be fully liquidated, and management expects to
ultimately receive net proceeds of $4,415 after settlement
of all liquidation costs which is reflected as of December
31, 1996 as amounts due from affiliates..
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's financial statements have been prepared in
accordance with United States generally accepted accounting
principles and reflect the following policies:
(A) CASH EQUIVALENTS: The Company considers all highly
liquid investments with original maturities of three
months or less to be cash equivalents.
(B) ACCOUNTS RECEIVABLE: Accounts receivable include
amounts due from customers in Italy and Spain which, if
not factored, may take approximately one year to
collect. An allowance for estimated doubtful accounts
is provided, as considered appropriate, based on
identification of specific uncollectible receivables.
(C) INVENTORIES: Stated at the lower of cost (first-in,
first-out method) or market.
(D) PROPERTY, PLANT AND EQUIPMENT: Stated at cost less
accumulated depreciation. Depreciation is provided by
the straight-line method over the useful lives of the
assets, forty years for buildings, three to ten years
for equipment and furniture, and the lesser of the
useful life or the term of the lease for leasehold
improvements.
(E) PATENTS, TRADEMARKS AND LICENSES: Costs incurred for
legal expenses in connection with obtaining patent
protection, trademark rights and licenses for certain
technology have been deferred. Amortization of such
costs is provided by the straight-line method over five
years for patents and trademarks and over the life of
the agreement, not to exceed seven years, for license
agreements.
23
(F) INVESTMENTS: The Company accounts for its long-term
investment in the marketable securities of Digene
Corporation in accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity Securities."
(G) INCOME TAXES: Deferred income taxes are determined in
accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109") and reflect the net
tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax
credit carry forwards.
(H) REVENUE: Revenue is recognized at the time product is
shipped or when contract services are rendered .
(I) RESEARCH AND DEVELOPMENT: Research and development
costs include primarily salaries and benefits, rent,
laboratory materials and supplies, consulting fees, and
subcontract costs, and are expensed in the period
incurred.
(J) FOREIGN EXCHANGE: The reporting currency for the
Company is the U.S. dollar. The functional currency
for all operations is the respective local currency.
The translation of all foreign currencies into U.S.
dollars is performed for asset and liability accounts
using exchange rates in effect at the balance sheet
date, for equity accounts at historical rates, and for
revenue and expense accounts using a weighted average
exchange rate during the period. Gains and losses
resulting from the translation of subsidiary financial
statements and intercompany foreign currency
transactions that are of a long-term investment nature
are classified as accumulated currency translation
adjustments within shareholders' equity. The gains and
losses relating to all other transactions have been
included in the consolidated statements of operations.
(K) STOCK BASED COMPENSATION: Accounting for stock options
issued to employees and non-employees directors is
based upon the "intrinsic value" method set forth in
Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Accounting
for stock options issued to non-employees prior to
December 16, 1995 is also based upon APB 25. Accounting
for stock options issued to non-employees (excluding
non-employee directors) after December 15, 1995 is
based upon the "fair value" method set forth in
Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based
Compensation." See footnote 12 for further discussion
of SFAS 123.
(L) NET INCOME (LOSS) PER COMMON SHARE: Common share
equivalents are considered in the computation of
weighted average number of shares and earnings per
share for a profitable period, by dividing net income
by the average number of common shares and common share
equivalents outstanding. Common share equivalents
represent the dilutive effect of the assumed exercise
of outstanding stock options and warrants using the
treasury stock method. The calculation of loss per
common share excludes the effect of common share
equivalents as such effect is antidilutive.
(M) PERVASIVENESS 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.
(N) RECLASSIFICATIONS: Certain reclassifications of prior
year amounts have been made to conform to the current
year financial statement reporting format.
3. EQUITY INVESTMENT IN DIGENE CORPORATION:
IMTC's subsidiary, Murex Diagnostics Corporation ("MDC"),
owns approximately 6.5% of the common shares outstanding of
Digene Corporation. In accordance with the provisions of
SFAS 115, the Company has classified the investment as
"available for sale" and reported it at fair value in the
Other Assets section of the balance sheet, with the
unrealized gain credited to a separate component of
shareholders' equity. At December 31, 1996, the fair market
value of the investment was $7,497 with unrealized holding
gains of $4,405.
24
4. INVENTORIES:
December 31, December 31,
1996 1995
------------- ------------
Raw materials and supplies $ 5,911 $ 4,842
Work in process 10,734 8,246
Finished goods 10,379 7,807
------- -------
Total inventories 27,024 20,895
Less inventory reserves (5,490) (3,954)
------- -------
Total inventories, net $21,534 $16,941
======= =======
5. PROPERTY, PLANT AND EQUIPMENT:
December 31, December 31,
1996 1995
------------- ------------
Furniture and office
equipment $ 8,585 $ 7,101
Equipment 16,524 13,460
Leasehold improvements 2,316 2,121
------- --------
Total 27,425 22,682
Less accumulated depreciation
and amortization (17,334) (13,451)
------- --------
Property, plant and
equipment, net $ 10,091 $ 9,231
======== ========
6. TECHNOLOGY LICENSING AGREEMENTS:
MDC completed a non-exclusive, out-licensing transaction
during the second quarter of 1994 by licensing technology
acquired as part of the 1992 acquisition of the diagnostics
division of Wellcome to Abbott. This transaction provided
MDC with a $10 million minimum license fee to be paid over
four years. MDC received $4 million, $2 million and $2
million in 1994, 1995 and 1996, respectively. MDC received
the final $2 million of the guaranteed $10 million minimum
license fee in January 1997. Furthermore, MDC earned an
additional $100,000 and $878,000 in 1995 and 1996,
respectively, as a result of minimum royalty levels being
exceeded. Licenses have also been granted for SAM
technology to Chiron Corporation. The Murex Group also
licenses technology and products from other diagnostics
manufacturers. Generally, the Murex Group pays a royalty to
these companies based on its sales of the products. See Note
16.
7. PATENTS, TRADEMARKS AND LICENSES
December 31, December 31,
1996 1995
------------ ------------
Patents $ 663 $ 645
Trademarks 159 90
Licenses 6,240 359
------ -----
Total 7,062 1,094
Less accumulated amortization (1,324) (865)
------ -----
Total, net $5,738 $ 229
====== =====
25
8. BORROWINGS UNDER LINES OF CREDIT:
On November 12, 1996, the Company entered into a three year,
$15 million asset-based line of credit facility which is
collateralized by the accounts receivable and inventory of
its U.S., UK and Barbados subsidiaries. As of December 31,
1996, there was $9,638 outstanding and $2,993 of
availability under this facility, net of a letter of credit
outstanding of $856. The credit facility was drawn upon for,
among other things, payments associated with the
Innogenetics alliance, working capital and ongoing business
activities. Interest is payable monthly at either LIBOR
(5.5% at December 31, 1996) plus 2.5% or prime (8.25% at
December 31, 1996).
On December 11, 1996, the Company entered into a five year,
interest rate swap agreement to reduce the impact of changes
in interest rates on its LIBOR-based line of credit. The
five year agreement effectively fixed the total interest
rate at 8.9%, on a notional principal amount of $8 million.
The Company specifically designated this interest rate swap
agreement as a hedge of the line of credit, and therefore
recognizes the differential paid or received as an
adjustment to interest expense in the period in which it
occurs. As of December 31, 1996, the fair value of the
interest rate swap agreement approximated the recorded
value.
The Company's Italian subsidiary has bank credit facilities
of $165 for use as working capital, discounting of certain
accounts receivable and issuing performance bonds in
connection with government contract bids. The facility
bears interest 11.75% and is due upon demand.
The weighted average interest rate on average outstanding
debt was 8.89%, 9.66% and 9.88% for each of the years ended
December 31, 1996, 1995 and 1994, respectively.
9. CAPITAL LEASES:
Capitalized lease obligations for property and equipment
bear interest at an imputed average rate of 22%. The leases
are collateralized by equipment with an original cost of
$689 and a net book value of $81 at December 31, 1996.
Future minimum lease payments under capital leases with
terms in excess of one year at December 31, 1996, together
with the present value of minimum lease payments, are shown
in the table below.
1997 $ 188
1998 114
1999 20
2000 12
-----
Total 334
Less interest (90)
-----
Present value 244
Current portion (151)
-----
Long term $ 93
=====
10. OPERATING LEASES:
The Company leases office space and certain office equipment
under operating lease agreements. Future minimum lease
payments under noncancellable operating lease agreements
with terms in excess of one year are as follows:
1997 $1,851
1998 1,418
1999 1,108
2000 695
2001 648
Thereafter 580
------
Total $6,300
======
Rent expense under all operating leases amounted to
approximately $1,776, $1,711, and $1,677 for each of the
years ended December 31, 1996, 1995 and 1994, respectively.
26
11. INCOME TAXES:
The taxation of a company that has operations in several
countries involves many complex variables, such as differing
tax structures from country to country and the effect on
U.S. taxation of international earnings. These complexities
do not permit meaningful comparisons between the domestic
and international components of income before taxes and the
provision for income taxes, and disclosures of these
components do not provide indicators of relationships in
future periods.
The Company's deferred tax assets are subject to a valuation
allowance that reduces the deferred tax assets at December
31, 1996 and 1995 to $0 and $1,810, respectively. The long-
term portions of the deferred tax assets were $0 and $363 at
December 31, 1996 and 1995, respectively. The tax effects
of significant items comprising the Company's deferred
taxes are as follows:
December 31,
1996 1995
----------------------
Deferred tax liabilities:
Asset basis differences $ 22 $ 95
-------- --------
Deferred tax assets:
Book reserves 2,574 1,513
Operating loss carryforwards 12,378 13,041
All other 3,040 2,824
-------- --------
17,992 17,378
Less: Valuation allowance (17,970) (15,473)
-------- --------
22 1,905
-------- --------
Deferred income taxes $ 0 $ 1,810
======== ========
During 1996, the Company increased the beginning balance of
the valuation allowance by $1,810 to reflect the liquidation
of SDL. During 1995, the valuation allowance changed
primarily to reflect utilization of operating loss
carryforwards.
The components of income tax expense (benefit) are as
follows:
1996 1995 1994
------ ------ ------
Current $ 901 $ 479 $3,147
Deferred 115 3 (1,483)
------ ----- ------
Total $1,016 $ 482 $1,664
====== ===== ======
A reconciliation of differences between the statutory U.S.
federal income tax rate and the Company's effective rate is
as follows:
1996 1995 1994
------ ------ ------
U.S. statutory rate $ 974 $(2,084) $ 5,402
State taxes 58 (125) 324
Increase (decrease) in
valuation allowance 234 (252) (470)
Effect of unused
operating losses 4,349
Effect of foreign rates
differing from
U.S. statutory rate (250) (1,406) (3,592)
------ ------- ------
Total $ 1,016 $ 482 $ 1,664
======= ======= =======
27
At December 31, 1996 the Company had, for tax reporting
purposes, net operating loss carryforwards of approximately
$34,860, generated as follows:
Other
US Canada Foreign Total
---- ------ ------- -----
1996 $ 674 $ 1,156 $ 1,830
1995 136 1,868 2,004
1994 $ 724 724
1993 1,076 1,076
1992 3,220 1,561 851 5,632
Prior periods 18,160 3,504 1,930 23,594
------- ------ ------ -------
Total $23,180 $5,875 $5,805 $34,860
======= ====== ====== =======
The carryforwards expire for U.S. reporting purposes through
2008 and through 2002 for Canadian purposes. Other foreign
jurisdiction tax loss carryforwards include European
countries which generally expire in 1998 or have indefinite
carryforwards. The 1996, 1995 and 1994 income tax provisions
primarily represent current amounts due to various U.S.
state taxing authorities and various foreign taxing
authorities.
The net operating losses include the United States net
operating losses of Murex prior to the merger of Murex into
MDI. Net operating loss carryforwards for income tax
purposes of $9,850 are subject to an annual limitation of
approximately $390 on utilization due to a change in
ownership in June 1988. As of December 31, 1996, $3,315 is
available to offset future taxable income.
12. COMMON SHARES:
(A) ISSUANCE OF COMMON SHARES: On July 15, 1993, IMTC
closed an "off-shore" placement of 710,800 units at a
price of $5.25 per unit. The net proceeds were
approximately $3,500. Each unit consisted of one
common share of IMTC and one-half of a share purchase
warrant. One full warrant entitled the holder to
purchase one common share at $5.775 until July 17,
1995. The offering was made to persons resident
outside of the United States pursuant to an exemption
from the registration requirements of the Securities
Act of 1933, as amended, by reason of Regulation S
thereunder. As compensation, the underwriter received
a 4% fee and options to purchase up to 56,864 units at
an exercise price of $5.25 per unit until January 16,
1995. These options and warrants expired unexercised.
(B) ISSUANCE OF COMMON SHARE PURCHASE WARRANTS: In
February 1996, IMTC entered into an agreement with an
investment banking firm. As compensation for its
services the investment banker received common share
purchase warrants to purchase an aggregate of 100,000
common shares exercisable for a period of two years
from February 12, 1996. These warrants were issued in
two lots of 50,000 with exercise prices of $4.50 and
$5.50 per share, respectively, and the Company recorded
an expense of $64 related to these warrants. As of
December 31, 1996 all of these warrants remained
outstanding.
(C) STOCK OPTIONS: On May 11, 1993, IMTC adopted the
International Murex Technologies Corporation Employee
Equity Incentive Plan (the "1993 Plan"), which was
approved by shareholders in June 1993. The plan was
amended and restated in June 1994. The number of
options issued under this plan may not exceed 2
million. The option price per share shall be
determined by the Compensation Committee at the time
any option is granted and shall not be less than the
closing trading price of the stock on the date of
grant.
In February 1996, the Compensation Committee of IMTC
determined that certain of the outstanding options no
longer provided the incentives intended by the original
grants and authorized replacement of 946,100 of the
options outstanding. This constituted all of the
outstanding options except those held by outside
directors, terminated employees and consultants.
Replacement options totaling 946,100 were reissued on
March 4, 1996 at an exercise price of $3.13 each
expiring in March 2001. Also on March 4, 1996, the
Compensation Committee granted 352,400 stock options
pursuant to an Annualized Grant Policy which was
established during 1995. These stock options were
issued with an exercise price of $3.13, expire in March
2001 and vest at 50% a year over a two year period.
The following table summarizes the stock option
activity for the three years ended December 31, 1996.
28
Weighted
Average
Range of Number Exercise
Exercise Prices of Options Price
--------------- ---------- ---------
Balance, January 1, 1994 $4.20 - 10.58 1,768,400 $6.51
Granted 5.00 - 7.00 112,000 5.54
Canceled 4.20 - 10.58 (186,300) 9.32
---------
Balance, December 31, 1994 5.00 - 7.00 1,694,100 6.14
---------
Granted 3.38 80,000 3.38
Canceled 4.20 - 7.00 (123,500) 6.09
---------
Balance, December 31, 1995 3.38 - 7.00 1,650,600 6.01
---------
Granted 3.13 - 6.00 1,390,500 3.24
Canceled 3.13 - 7.00 (1,382,100) 6.03
Exercised 3.13 (15,900) 3.13
---------
Balance, December 31, 1996 3.13 - 6.00 1,643,100 3.68
=========
The weighted average fair value of the options granted was
$1.67 and $2.69 for 1996 and 1995, respectively.
The following table summarizes information about stock
options outstanding and exercisable at December 31, 1996.
Options Outstanding
-------------------------------------------------
Weighted
Number average
Range of outstanding remaining Weighted
Exercise December 31, contractual average exercise
Prices 1996 life price
----------------------------------------------------------------
$3.13 - 4.56 1,350,600 4.6 years $3.21
5.00 - 6.00 292,500 4.1 years 5.82
---------
1,643,100 3.68
=========
Options Exercisable
-------------------------------------
Number Weighted
Range of exercisable average
Exercise at December exercise
Prices 31, 1996 price
---------------------------------------------------------------
$3.13 - 4.56 1,046,400 $3.22
5.00 - 6.00 292,500 5.82
---------
1,338,900 3.79
==========
The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option plans.
Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for
awards in 1996 and 1995, consistent with the provisions of SFAS
No. 123, the Company's earnings would have been reduced to the
pro forma amounts indicated below:
1996 1995
------ ------
Net income (loss) - as reported $1,849 $(6,610)
Net Income (loss) - pro forma (254) (6,825)
Earnings per share - as reported 0.11 (0.40)
Earnings per share - pro forma (0.02) (0.42)
The fair value of each option grant is estimated on the
date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions
used for grants in 1995 and 1996: dividend yield of 0%;
expected volatility of 74%; risk free interest rate
ranging from 5.3% to 6.6%; and expected lives ranging
from three to ten years.
(D) EMPLOYEE STOCK PURCHASE PLAN: On April 14, 1993, IMTC
adopted the International Murex Technologies
Corporation Employee Stock Purchase Plan (the "Purchase
Plan"), which was approved by shareholders in June
1993. Under the Purchase Plan, all eligible employees
can purchase common shares of IMTC's stock at 90% of
29
the closing market price on the last day of each month.
Management considers this plan non-compensatory under
the provisions of SFAS No. 123. The number of common
shares which may be purchased under the Purchase Plan
shall be set from time to time by the Compensation
Committee and was initially 100,000.
(E) TREASURY SHARES: In November 1996, pursuant to the
Stipulation Settlement Agreement, Edward J. DeBartolo,
Jr. and the Estate of Edward J. DeBartolo, Sr. each
transferred 92,943 common shares of the Company's stock
to the Company to be used as their portion of the
settlement of the class action lawsuits initiated in
1992.
(F) ESCROWED SHARES: Pursuant to agreements dated February
10, 1984 and November 7, 1985 among IMTC, a trust
company and certain shareholders (who are not
directors, officers or employees), 107,143 outstanding
common shares were held on deposit with a trustee. The
shares were not to be traded, dealt with in any manner
whatsoever, or released without the consent of the
Superintendent of Brokers for the Province of British
Columbia. These shares expired in escrow and were
canceled in 1995.
As a condition of a 1990 securities offering, 389,828
previously issued common shares were placed in escrow.
These shares could not be assigned, sold, or otherwise
transferred or encumbered or released from escrow
without the approval of the Ontario Securities
Commission. At December 31, 1996, 71,087 of these
shares remained in escrow.
(G) POOLED SHARES: Pursuant to a December 16, 1985 pooling
agreement, 357,152 of IMTC's common shares were placed
in trust with a trustee to be released when sales of
commercialized products reach $13,859. While in trust,
these shares could not be traded, dealt with in any
manner whatsoever, or released without the consent of
the Superintendent of Brokers for the Province of
British Columbia. In May 1995, these shares were
released from pool pursuant to the terms of a Release
Agreement.
(H) SHARES RESERVED FOR FUTURE ISSUE: At December 31,
1996, IMTC has reserved common shares for issuance as
shown in the table below.
Options 1,959,200
Employee stock purchase plan 34,752
Warrant conversion 100,000
---------
Total 2,093,952
=========
13. MUREX SUBSIDIARY SHAREHOLDERS' COMMON STOCK PROVISION AND
WARRANTS:
Certain minority shareholders of Murex were participants in
a Shareholders' Agreement that, among other provisions,
granted Murex a right of first refusal to acquire shares.
Murex was also party to a stock purchase agreement with one
minority shareholder that provided, among other things, that
in the event Murex had an offering of common stock at less
than $12.00 per share, the shareholder was entitled to
receive additional shares. The rights under this agreement
were assigned to IMTC as a part of the July 22, 1993
purchase of additional Murex stock from one minority
shareholder. In July 1995, 331,332 Murex common stock
warrants exercisable at $5.00 per share and 2,000 Murex
common shares were exchanged for a total of 9,946 IMTC
common share purchase warrants and 54 common shares. These
warrants expired unexercised on December 31, 1996.
14. EMPLOYEE RETIREMENT PLANS:
The Murex Group has contributory and non-contributory
defined contribution plans covering substantially all
employees. The plan funding arrangements are consistent
with the United States or other applicable governmental laws
and regulations. The plans provide for employer match up to
twice the employee contribution percentage to a maximum
employer matching contribution of 10%. The Murex Group's
contributions to these plans amounted to approximately
$1,637, $1,587, and $1,353 in the years 1996, 1995, and
1994, respectively.
Certain of the Murex Group also have defined benefit pension
plans covering selected employees in certain European
locations. Pension costs and actuarial data are not
significant to the consolidated financial statements. The
Company currently provides no post-retirement benefit plans
other than pensions, nor any significant post-employment
benefits, therefore, the financial statements have no such
provisions.
30
15. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK:
The Company places its cash and cash equivalents with high
credit quality financial institutions. As of December 31,
1996, the Company had no significant concentrations of
credit risk. The Company has estimated the fair value of its
financial instruments, using available market information
and appropriate valuation methodologies. Considerable
judgment is required in developing the estimated fair value
and therefore the values are not necessarily indicative of
the amounts that the Company could realize in a current
market exchange.
16. COMMITMENTS:
Certain of the Murex Group also incur royalty obligations on
certain product sales for the use of patent and license
rights. Royalty rates may vary depending on particular
product sales levels. Agreed royalties are payable on
defined sales ranging from 2% to a combined maximum royalty
of 35% for a particular product's sales. In addition, the
Company also has future minimum royalty payments as follows:
1997 $1,507
1998 1,432
1999 1,432
2000 1,432
2001 1,282
Thereafter 1,800
-------
Total $ 8,885
=======
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 paid $5.9
million during 1996 and will pay $1.6 million during 1997 to
Innogenetics for the exclusive rights to distribute
Innogenetics' LiPA products, excluding HCV, for 15 years.
MDC will also pay Innogenetics a royalty of 10% of the Murex
Group's net sales of Innogenetics' products. Also under this
agreement, MDC shall fund agreed-upon research and
development programs, beginning in 1998 and for each of the
following 13 years in an amount equal to 20% of the Murex
Group's net sales of Innogenetics' products, subject to a
cap.
17. CONTINGENCIES:
Several Subsidiaries of the Murex Group were involved in
patent infringement litigation in several countries against
Chiron and Ortho related to Chiron's HCV patent. On August
28, 1996, IMTC reached a worldwide agreement with Chiron and
Ortho concerning tests for HCV under which all litigation
among the parties permanently ceased. As a result of the
settlement with Chiron and Ortho, a reversal was made to
royalty accruals made in prior years, which resulted in a
net credit to royalty expense of $2,799 for the year ended
December 31, 1996.
Four class action lawsuits were instituted on behalf of all
persons who had purchased IMTC's securities between May 21,
1992 and August 19, 1992 against IMTC, two executive
officers of IMTC, and Messrs. Edward J. DeBartolo, Sr. (now
deceased) and Edward J. DeBartolo, Jr., in the Southern
District of Texas, Houston Division. In January 1993, the
class actions were voluntarily transferred to the United
States District Court, Eastern District of New York. The
complaints alleged that the defendants omitted and/or
misrepresented material facts about IMTC which resulted in
artificially inflating the market price of IMTC's securities
permitting, in part, Messrs. DeBartolo, Sr. and DeBartolo,
Jr. to sell their IMTC securities in violation of the
federal and Texas securities laws. One further action
alleged violations of insider trading rules under the
federal securities laws. The defendants answered denying
the allegations in the complaints. During 1996, the parties
agreed to settle all outstanding claims for $5.4 million, a
portion of which has been paid by IMTC into escrow held by
the claims administrator. In accordance with the
Stipulation Settlement Agreement, Edward J. DeBartolo, Jr.
and the Estate of Edward J. DeBartolo, Sr. each transferred
92,943 common shares of the Company's stock to the Company
to be used as their portion of the settlement. The claims
administrator is currently qualifying claimants and
management expects this matter to be finalized during the
first half of 1997.
31
During 1995, the UK Inland Revenue questioned the tax basis
of inventory, accounts receivable and property, plant and
equipment related to the 1992 purchase of assets from
Wellcome. If 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.
18. RESTRUCTURING:
During September 1996, the Company recorded a restructuring
charge of $2.1 million before tax. The restructuring was
driven by the need to reposition the Company for its
movement into the patient monitoring business. The
worldwide plan will result in personnel reductions of
approximately 50 people from various functions. The
restructuring provision consists predominantly of estimated
costs for employee severance and other benefits. As of
December 31, 1996, 35 employees left the Company related to
the restructuring plan, resulting in actual payments of
$698. As such, the remaining accrual at December 31, 1996
was $1,402. Management expects the restructuring to be
substantially completed during the first quarter of 1997.
19. SHAREHOLDER RIGHTS PLAN:
In August 1995, IMTC adopted a Shareholder Rights Plan
authorizing the distribution of one Right for each common
share outstanding. The Rights are attached to the common
shares and are not initially exercisable. Rights become
exercisable in the circumstances described in the Rights
Plan, including ten days following the announcement that a
person or group without prior approval from the Board of
Directors has acquired, or obtained the right to acquire,
beneficial ownership of 20 percent or more of the
outstanding common shares of IMTC or ten days following the
announcement of a takeover bid, tender offer or exchange
offer. In certain circumstances, the Rights may be redeemed
by IMTC at a price of $.001 per Right. If not redeemed, the
Rights expire in ten years.
20. DOMESTIC AND FOREIGN OPERATIONS:
Information concerning the Company's domestic and foreign
operations for the years ended December 31, 1996, 1995 and
1994 is summarized below. Murex Group product sales to
affiliates are priced at market prices less an allowance for
marketing, advertising and other sales costs.
----------------------------------------------------------------------
United
Canada States Europe
----------------------------------------------------------------------
December 31, 1996
-----------------
Net Revenues:
Unaffiliated Customers $ 1,995 $24,228 $59,461
Affiliates 363 28,529
------- ------- ------
Total 1,995 24,591 87,990
Net Income (Loss) $(4,789) 1,568 (2,860)
Identifiable Assets 2,955 10,787 53,818
December 31, 1995
-----------------
Net Revenues:
Unaffiliated Customers $21,698 $61,165
Affiliates 1,578 33,076
------- -------
Total 23,276 94,241
Net Income (Loss) $(4,088) 966 (6,761)
Identifiable Assets 4,808 10,305 55,925
December 31, 1994
-----------------
Net Revenues:
Unaffiliated Customers $19,954 $66,840
Affiliates 1,113 36,849
------- -------
Total 21,067 103,689
Net Income (Loss) $(1,000) (1,464) 6,844
Identifiable Assets 4,895 9,231 57,223
----------------------------------------------------------------------
Far East
and Other Elimiantions Consolidated
----------------------------------------------------------------------
December 31, 1996
-----------------
Net Revenues:
Unaffiliated Customers $15,167 $100,851
Affiliates 6,704 $(35,596)
------- -------- --------
Total 21,871 (35,596) 100,851
Net Income (Loss) 7,930 1,849
Identifiable Assets 27,553 95,113
December 31, 1995
-----------------
Net Revenues:
Unaffiliated Customers $9,531 $92,394
Affiliates 3,430 $(38,084)
------ -------- -------
Total 12,961 (38,084) 92,394
Net Income (Loss) 3,273 (6,610)
Identifiable Assets 14,710 85,748
December 31, 1994
-----------------
Net Revenues:
Unaffiliated Customers $15,648 $102,442
Affiliates $(37,962)
------- -------- -------
Total 15,648 (37,962) 102,442
Net Income (Loss) 9,844 14,224
Identifiable Assets 14,294 85,643
32
EXPORT SALES BY DESTINATION
Export sales of $339, $834, and $768 for the years ended December
31, 1996, 1995 and 1994, respectively, originated in the United
States. Export sales of $9,838, $8,794, and $10,609 for the
years ended December 31, 1996, 1995 and 1994, respectively,
originated in the United Kingdom. Additional export sales of
$6,967, $12,694, and $4,815 for the years ended December 31,
1996, 1995 and 1994, respectively, originated in other European
countries and $5,181 originated in Barbados for the year ended
December 31, 1996. The table below summarizes export sales by
destination.
Far East
Canada Europe and Other Total
-----------------------------------------------------------------
December 31:
1996 $ 7,388 $14,937 $22,325
1995 $561 13,447 8,314 22,322
1994 347 7,012 8,833 16,192
-----------------------------------------------------------------
21. 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 years ended December 31, 1996, 1995 and
1994.
33
International Murex Technologies Corporation
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
International Murex Technologies Corporation:
We have audited the accompanying consolidated balance sheets
of International Murex Technologies Corporation and subsidiaries
as of December 31, 1996 and 1995 and the related consolidated
statements of operations, changes in shareholders' equity, and
cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements 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 International Murex Technologies Corporation and its
subsidiaries at December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 21, 1997
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information is hereby incorporated by reference
to the sections entitled "Election of Directors" and "Shares Held
by Nominees for Election of Directors" in IMTC's Proxy Statement
for the 1997 Annual Meeting of Shareholders to be held May 13,
1997. IMTC will file with the Securities and Exchange Commission
pursuant to Regulation 14A a definitive Proxy Statement involving
the election of directors not later than 120 days after December
31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The required information is hereby incorporated by reference
to the section entitled "Compensation of Executive Officers" in
IMTC's Proxy Statement for the 1997 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The required information is hereby incorporated by reference
to the sections entitled "Voting Shares," "Shares Held by
Nominees for Election of Directors," and "Beneficial Owners of
More Than 5% of Voting Stock" in IMTC's Proxy Statement for the
1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is hereby incorporated by reference
to the section entitled "Interest of Certain Persons in Matters
to be Acted Upon" in IMTC's Proxy Statement for the 1997 Annual
Meeting of Shareholders.
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of This Report:
(1) Financial Statements
Included in Part II, Item 8 of this Report:
Consolidated Balance Sheets as of December 31,
1996 and 1995.
Consolidated Statements of Operations for each of
the three years in the period ended December 31,
1996.
Consolidated Statements of Changes in
Shareholders' Equity for each of the three years
in the period ended December 31, 1996.
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31,
1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report
(2) Financial Statement Schedule:
Included in Part IV of this Report:
Schedule Page
-------- ----
Independent Auditors' Consent and
Report on Schedule -- 42
Valuation and Qualifying Accounts II 43
All financial statement schedules other than those
listed above have been omitted as exhibits because
they are not applicable or required under
Regulation S-X.
Items 10 through 13 of this Report incorporate
only the indicated portions of IMTC's Proxy
Statement for the 1997 Annual Meeting of
Shareholders. No other portion of such Proxy
Statement shall be deemed to be incorporated
herein or filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K
Current Report on Form 8-K dated February 22, 1996
announcing the voluntary liquidation of a subsidiary of
IMTC.
(c) Exhibits.
The following exhibits are filed with or incorporated
by reference in this Report. If such filing is made by
incorporation by reference to a previously filed
report, such report is identified in parentheses. See
the Index of Exhibits included with the exhibits filed
as part of this Report.
36
Exhibit
Number Document
------ --------
3.1 Memorandum of Association of IMTC dated October 31,
1983, as amended on June 16, 1986, December 5, 1988,
February 20, 1989, December 11, 1990 and December 11,
1990 (Exhibit 3.1 to Registration Statement on Form S-
1, No. 33-35422 ("Registration Statement") and Exhibit
3.3 to Post-Effective Amendment No. 3 to Registration
Statement)
3.2 Articles of Association of IMTC dated October 31, 1983,
as amended November 29, 1985 (Exhibit 3.2 to
Registration Statement)
3.3 Amendments to Memorandum of Association (Exhibit 3.3 to
the Company's Post-Effective Amendment No. 3 to
Registration Statements and Schedule A to the Company's
Proxy Statement dated June 7, 1994)
3.4 Amendments to Articles of Association of IMTC passed by
Special Resolution on June 7, 1994 as filed on May 2,
1995 (Exhibit 3.4 to the Company's Annual Report on
Form 10K for the fiscal year ended December 31, 1995)
4.1 IMTC Stock Option Plan (Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991)
4.2 IMTC Employee Equity Incentive Plan, as amended
(Schedule A to the Company's Proxy Statement dated June
7, 1994)
4.3 IMTC Employee Stock Purchase Plan, (Schedule B to the
Company's Proxy Statement dated May 14, 1993)
4.3.1 IMTC Amended and Restated Employee Stock Purchase Plan
(Schedule A to the Company's Proxy Statement dated
April 3, 1997)
4.4 Warrant Indenture dated July 15, 1993 between IMTC and
Montreal Trust of Canada. (Exhibit 4 to the Company's
Current Report on Form 8-K dated July 27, 1993)
4.5 Shareholder Protection Rights Agreement between IMTC
and The Bank of New York, as Rights Agent, dated August
31, 1996 (Exhibit 4.1 to the Company's Current Report
on Form 8-K dated August 31, 1995)
10.1 Pooling Agreement dated December 16, 1985 among IMTC,
Central Guaranty Trust Company and Axon Limited, Murex
Medical Research Limited, Semiotic Research Limited
Partnership and Coral Sociedade Brasileira de Pesquisas
e Desenvolvimento (Exhibit 10.9 to Registration
Statement)
10.2 Escrow Agreement among Edward J. DeBartolo, Jr.,
Central Guaranty Trust Company and Murex Clinical
Technologies Corporation (Exhibit 10.33 to Current
Report on Form 8-K dated October 26, 1990)
10.3 Employment Agreement dated as of January 1, 1992
between IMTC and F. Michael P. Warren (Exhibit 10.10
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "1995 Form 10-
K"))
10.3.1 Employment Agreement dated as of January 1, 1992
between MDC (formerly International Murex Technologies
Limited which was formerly Sishui Funds Limited) and F.
Michael P. Warren (Exhibit 10.10.1 to the 1995 Form
10-K)
10.3.2 Employment Agreement dated as of January 1, 1992
between MDL and F. Michael P. Warren (as assigned to
MBL effective January 31, 1996) (Exhibit 10.10.2 to
the 1995 Form 10-K)
37
10.4 Employment Agreement dated as of January 1, 1995
between IMTC and C. Robert Cusick (Exhibit 10.11.1 to
the 1995 Form 10-K)
10.5 Employment Agreement dated as of January 1, 1995
between IMTC and J. David Tholen (Exhibit 10.13.1 to
the 1995 Form 10-K)
10.5.1* Separation Agreement dated as of January 20, 1997
between IMTC and J. David Tholen
10.6 Redemption Agreement dated December 30, 1994 among
NuBio Technologies Corporation, IMTC, IMTC Holdings,
Inc. Dominion Biologicals Limited, Blaine MacNeil,
Patrick Waddy and Samuel A. Brushett (Exhibit 10.18.1
to the 1995 Form 10-K)
10.7 License Agreement dated May 3, 1994 between IMTC and
Abbott Laboratories (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q dated May 13, 1994)
10.8 Stock Purchase Agreement dated May 31, 1994 between
Digene Diagnostics, Inc. ("Digene") and International
Murex Technologies Limited ("IMTL") for the purchase of
1994 Series Preferred Stock (Exhibit 10.20 to the 1995
Form 10-K)
10.8.1 Escrow Agreement dated May 31, 1994 among IMTL, Digene
and Reid & Priest LLP (Exhibit 10.20.1 to the 1995 Form
10-K)
10.8.2 Shareholders Agreement dated May 31, 1994 among IMTL,
Armonk Partners and Digene (Exhibit 10.20.2 to the 1995
Form 10-K )
10.9 Employment Agreement dated as of July 1, 1995 between
IMTC and Steven C. Ramsey (Exhibit 10.19 to the 1995
Form 10-K)
10.10 Distribution, Development and License Agreement between
MDC and Innogenetics dated January 31, 1996 (Exhibit
10.20 to the 1995 Form 10-K)
10.11 Agreement among Chiron Corporation, Johnson &
Johnson/Ortho Diagnostics Systems, Inc. and
International Murex Technologies Corporation dated
August 27, 1996, without exhibits (Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1996)
10.12* Letter Agreement dated January 12, 1996 between Guido
Guidetti and MDL (as assigned to MBL effective January
31, 1996)
10.13* Letter Agreement dated January 12, 1996 between P.
Silveston and MDL (as assigned to MBL effective January
31, 1996)
10.14* Credit Agreement (without schedules or exhibits) dated
as of November 12, 1996 among IMTC, Murex Diagnostics
International, Inc. ("MDII"), IMTC Holdings, Inc.
("Holdings US"), MDC, IMTC Holdings (UK) Limited
("Holdings UK"), MDI and MBL, as the borrowers; Bank of
America Illinois and Bank of America National Trust and
Savings Association, as issuing banks ("BOA"); Bank of
America, F.S.B., as agent and lender ("BAFSB"), et
al.,as the lenders, in the original principal amount of
$15,000,000
10.15* Promissory Note dated November 12, 1996 executed by
IMTC, MDII, Holdings US, MDC, Holdings UK, MDI an MBL
to the order of BAFSB in the original principal amount
of $8,000,000
10.16* Offshore Currency Promissory Note dated November 12,
1996 executed by Holdings UK and MBL to the order of
BOA
10.17* Security Agreement (without schedules) executed by
Holdings US, MDI and IMTC in favor of BASFB
10.18* Deed of Charge executed by Holdings UK in favor of BOA
38
10.19* Deed of Charge executed by MBL in favor of BOA
10.20* Debenture executed by MDII and MDC in favor of BASFB
11* Statement re: computation of earnings per common share
21* Subsidiaries
24* Powers of Attorney
* Filed with this Report
(b) Exhibits required by Item 601 of Regulation S-K.
See Item 14(a)(3) above.
(c) Financial Statement Schedule.
See Item 14(a)(2) above.
39
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:
INTERNATIONAL MUREX TECHNOLOGIES
CORPORATION
By: /s/ C. Robert Cusick
----------------------------------------
C. Robert Cusick, Vice Chairman, Chief
Executive Officer, President and Director
DATE: March 20, 1997
------------------------
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
indicated on March 20, 1997.
----------------
Signature Title
--------- -----
Vice Chairman, CEO/President
/s/ C. Robert Cusick and Director
------------------------------
C. Robert Cusick
/s/ F. Michael P. Warren, Q.C. Chairman of the Board of Directors
------------------------------
F. Michael P. Warren, Q.C.
/s/ J. Trevor Eyton, O.C. Director
------------------------------
J. Trevor Eyton, O.C.
*Thomas L. Gavan, M.D. Director
------------------------------
Thomas L. Gavan, M.D.
/s/ Norbert J. Gilmore, M.D. Director
------------------------------
Norbert J. Gilmore, M.D.
* Hartland M. MacDougall, O.C. Director
------------------------------
Hartland M. MacDougall, O.C.
*Jay A. Lefton, Esq. Director
------------------------------
Jay A. Lefton, Esq.
/s/ Stanley E. Read, M.D. Director
------------------------------
Stanley E. Read, M.D.
*Victor A. Rice Director
------------------------------
Victor A. Rice
Vice President, Chief Financial
Officer and Authorized
/s/ Steven C. Ramsey Representative in the United States
------------------------------
Steven C. Ramsey
*By: /s/ Steven C. Ramsey
--------------------------
Steven C. Ramsey, as
Attorney-in-Fact
40
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Page
-----
-- Independent Auditors' Consent and Report on Schedules.......42
II. Valuation and Qualifying Accounts...........................43
41
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors and Shareholders
International Murex Technologies Corporation:
We consent to the incorporation by reference in Registration Statement
No. 33-40726 of International Murex Technologies Corporation on Form
S-8 of our report dated February 21, 1997 incorporated by reference in
the Annual Report on Form 10-K of International Murex Technologies
Corporation for the year ended December 31, 1996, which is part of
this Registration Statement.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule
of International Murex Technologies Corporation, listed in Item 14.
This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 21, 1997
42
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1996, 1995, and 1994
(Expressed in U.S. Dollars)
-----------------------------------------------------------------
Additions
-----------------------------------------------
BALANCE AT CHARGED TO
BEGINNING COSTS AND TRANSLATION
DESCRIPTION OF PERIOD EXPENSES ADJUSTMENT
----------- ---------- ------------ ------------
Year ended
December 31, 1996:
Allowance for
Doubtful Accounts $3,410,000 $257,000 $282,000
Inventory Reserve 3,954,000 3,669,000 297,000
Year ended
December 31, 1995:
Allowances for
Doubtful Accounts 2,097,000 1,682,000 124,000
Inventory Reserve 2,581,000 1,424,000 124,000
Year ended
December 31, 1994:
Allowance for
Doubtful Accounts 1,492,000 681,000
Inventory Reserve 786,000 1,687,000 108,000
DEDUCTIONS
----------------------------------------------
BALANCE
TRANSLATION AT END OF
DESCRIPTION ADJUSTMENT WRITE-OFF PERIOD
----------- ---------- ----------- -----------
Year ended
December 31, 1996:
Allowance for
Doubtful Accounts $(775,000) $3,174,000
Inventory Reserve (2,430,000) 5,490,000
Year ended
December 31, 1995:
Allowances for
Doubtful Accounts (493,000) 3,410,000
Inventory Reserve (175,000) 3,954,000
Year ended
December 31, 1994:
Allowance for
Doubtful Accounts $(18,000) (58,000) 2,097,000
Inventory Reserve 2,581,000
43
INDEX OF EXHIBITS
The exhibits listed below are filed with this Report.
Exhibit Number Document
-------------- --------
10.5.1 Separation Agreement dated as of January 20, 1997
between IMTC and J. David Tholen
10.12 Letter Agreement dated January 12, 1996 between Guido Guidetti
and MDL (as assigned to MBL effective January 31, 1996)
10.13 Letter Agreement dated January 12, 1996 between
P. Silveston and MDL (as assigned to MBL effective
January 31, 1996)
10.14 Credit Agreement (without schedules or exhibits)
dated as of November 12, 1996 among IMTC, Murex
Diagnostics International, Inc. ("MDII"),
IMTC Holdings, Inc. ("Holdings US"), MDC,
IMTC Holdings (UK) Limited ("Holdings UK"), MDI
and MBL, as the borrowers; Bank of America Illinois
and Bank of America National Trust and Savings
Association, as issuing banks ("BOA"); Bank
of America, F.S.B., as agent and lender ("BAFSB"),
et al.,as the lenders, in the original principal
amount of $15,000,000
10.15 Promissory Note dated November 12, 1996 executed by
IMTC, MDII, Holdings US, MDC, Holdings UK, MDI an
MBL to the order of BAFSB in the original principal
amount of $8,000,000
10.16 Offshore Currency Promissory Note dated
November 12, 1996 executed by Holdings UK
and MBL to the order of BOA
10.17 Security Agreement (without schedules) executed
by Holdings US, MDI and IMTC in favor of BASFB
10.18 Deed of Charge executed by Holdings UK in
favor of BOA
10.19 Deed of Charge executed by MBL in favor of BOA
10.20 Debenture executed by MDII and MDC in favor of BASFB
11 Statement re: computation of earnings per common share
21 Subsidiaries
24 Powers of Attorney
44
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