<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-11394
EDITEK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3863205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1238 Anthony Road, Burlington, North Carolina 27215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 226-6311
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.15 per share
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock of the Registrant, $.15 par value
("Common Stock"), held by non-affiliates of the Registrant is approximately
$22,068,566, as of March 26, 1996, based upon a price of $1.875 which price is
equal to the closing price for the Common Stock on the American Stock Exchange.
The number of shares of Common Stock outstanding as of March 26, 1996, was
13,193,838.
<PAGE>
Report of Independent Auditors
The Board of Directors
EDITEK, Inc.
We have audited the accompanying consolidated balance sheets of EDITEK, Inc. as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of EDITEK,
Inc. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Ernst & Young LLP
Raleigh, North Carolina
February 23, 1996,
except for Note 12, as to which
the date is May 9, 1996
1
<PAGE>
EDITEK, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
(IN THOUSANDS)
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 258 $ 1,105
Accounts receivable:
Trade, less allowance for doubtful accounts (1995--
$130,000; 1994--$206,000) 977 737
Other 52 106
1,029 843
Inventories:
Raw materials 588 532
Work in process 169 64
Finished goods 180 257
937 853
Deposit on acquisition (NOTE 2) 500 --
Prepaid expenses and other 368 272
Total current assets 3,092 3,073
Equipment and improvements:
Furniture and equipment 5,857 5,689
Leasehold improvements 1,696 1,692
7,553 7,381
Less accumulated depreciation and amortization (6,824) (6,326)
729 1,055
Goodwill, net of amortization of $7,000 in 1995 and $147,000
in 1994 (NOTES 2 AND 3) 117 3,247
Other assets -- 3
Total assets
$ 3,938 $ 7,378
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
(IN THOUSANDS)
(Restated)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (NOTE 4) $ -- $ 850
Accounts payable 1,184 1,105
Accrued expenses 834 347
Deferred revenues 42 39
Current portion of long-term debt (NOTE 4) 82 95
Note payable to director 100 --
Current portion of capital lease -- 23
Total current liabilities 2,242 2,459
Long-term debt (NOTE 4) -- 63
Stockholders' equity (NOTES 5 AND 6):
Preferred Stock--authorized 1,000,000 shares; no shares
issued or outstanding -- --
Common Stock, $.15 par value; authorized--30,000,000
shares; issued and outstanding--10,439,775 shares in
1995 and 8,075,339 shares in 1994
1,566 1,211
Additional paid-in capital 33,973 30,132
Accumulated deficit (33,667) (26,382)
1,872 4,961
Less: Note receivable from officer (100) (100)
Treasury stock (76) (5)
1,696 4,856
Total liabilities and stockholders' equity
$ 3,938 $ 7,378
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
EDITEK, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(IN THOUSANDS)
(Restated)
<S> <C> <C> <C>
Revenues:
Laboratory service revenues $ 4,312 $ 3,647 $ --
Product sales 2,725 2,536 2,295
Royalties and fees 300 200 257
Interest and other income 189 210 81
7,526 6,593 2,633
Costs and expenses:
Cost of services 4,349 3,902 --
Cost of sales 2,240 2,142 2,024
Selling, general and administrative 4,206 3,341 2,152
Research and development 920 729 825
Interest and financing costs 23 25 9
Arbitration costs (NOTE 9) -- -- 689
Goodwill write-off (NOTE 3) 3,073 -- --
14,811 10,139 5,699
Net loss $ (7,285) $ (3,546) $ (3,066)
Loss per share of common stock $ (.77) $ (.49) $ (.56)
Weighted average number of shares of common stock
outstanding 9,445,707 7,204,244 5,429,128
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
EDITEK, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE
PAID-IN ACCUMULATED FROM TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDER STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 4,885,629 $ 733 $21,467 $ (19,770) $ (100) $ (5) $ 2,325
Exercise of stock options and warrants 217,194 32 268 -- -- -- 300
Sale of stock 10,754 2 38 -- -- -- 40
Private placement of common stock 955,654 143 3,489 -- -- -- 3,632
Net loss -- -- -- (3,066) -- -- (3,066)
Balances at December 31, 1993 6,069,231 910 25,262 (22,836) (100) (5) 3,231
Exercise of stock options and warrants 23,019 4 43 -- -- -- 47
Stock issued for PDLA acquisition 1,167,729 175 3,803 -- -- -- 3,978
Sale of stock 15,360 2 31 -- -- -- 33
Private placement of common stock 800,000 120 993 -- -- -- 1,113
Net loss -- -- -- (3,546) -- -- (3,546)
Balances at December 31, 1994 8,075,339 1,211 30,132 (26,382) (100) (5) 4,856
Exercise of stock options and warrants 156,347 23 170 -- -- -- 193
Stock issued for Bioman acquisition 21,489 3 58 -- -- -- 61
Sale of stock 12,037 2 25 -- -- -- 27
Stock issued for conversion of debt 16,100 3 59 -- -- -- 62
Purchase of treasury stock -- -- -- -- -- (71) (71)
Private placement of common stock 2,158,463 324 3,529 -- -- -- 3,853
Net loss -- -- -- (7,285) -- -- (7,285)
Balances at December 31, 1995 (Restated) 10,439,775 $1,566 $33,973 $ (33,667) $ (100) $ (76) $ 1,696
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
EDITEK, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(IN THOUSANDS)
(Restated)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(7,285) $(3,546) $(3,066)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 644 633 318
Goodwill write-off 3,073 -- --
Provision for losses on accounts receivable (54) 58 (6)
Provision for obsolete inventory (13) 5 5
Gain on sale or retirement of equipment -- -- (16)
Changes in operating assets and liabilities, net of
acquisition:
Accounts receivable (22) 31 34
Inventories (58) (306) (84)
Prepaid expenses and other (589) (19) (26)
Accounts payable and accrued expenses 453 116 (121)
Deferred revenues 3 (17) 19
Leases payable (23) (37) --
Net cash used in operating activities (3,871) (3,082) (2,943)
INVESTING ACTIVITIES
Purchase of equipment and improvements (177) (505) (339)
Proceeds from sale of equipment -- -- 41
Purchase of PDLA, net of cash acquired -- 89 --
Cash used for Bioman acquisition (37) -- --
Net cash used in investing activities (214) (416) (298)
FINANCING ACTIVITIES
Proceeds from issuance of stock for:
Private placement 4,115 1,159 3,656
Costs related to private placement (262) (46) (24)
Sale of stock 27 33 40
Exercise of stock warrants and options 193 47 300
Purchase of treasury stock (71) -- --
Proceeds from line of credit, loan payable and note
payable 119 850 13
Principal payments on line-of-credit and loan payable (883) -- --
Net cash provided by financing activities 3,238 2,043 3,985
(Decrease) increase in cash and cash equivalents (847) (1,455) 744
Cash and cash equivalents at beginning of year 1,105 2,560 1,816
Cash and cash equivalents at end of year $ 258 $ 1,105 $ 2,560
</TABLE>
SUPPLEMENTAL NONCASH ACTIVITIES
During 1995, the Company issued $62,000 of common stock related to the
conversion of debt and issued $61,000 of common stock in connection with the
acquisition of Bioman.
6
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The consolidated financial statements include the accounts of EDITEK, Inc.
("EDITEK") and its wholly-owned subsidiaries, Princeton Diagnostic Laboratories
of America, Inc. ("PDLA") and diAGnostix, Inc. (collectively referred to as "the
Company"). EDITEK is engaged in the research, development and sale of products
based upon enzyme immunoassay technology for the detection of antibiotic
residues, mycotoxins, drugs of abuse and other hazardous substances. PDLA
provides clinical testing services for the detection of substances of abuse and
diAGnostix, Inc. distributes agridiagnostic and food safety testing products.
All significant intercompany transactions and balances have been eliminated.
TRADE ACCOUNTS RECEIVABLE
Sales are made to local, national and international customers including
livestock producers, food processors, veterinarians, government agencies,
medical professionals, corporations, law enforcement agencies and healthcare
facilities. Concentration of credit risk is limited due to the large number of
customers to which the Company sells its products and services. The Company
extends credit based on an evaluation of the customer's financial condition and
receivables are generally unsecured. The Company provides an allowance for
doubtful accounts equal to the estimated losses expected to be incurred in the
collection of accounts receivable.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. At December 31, 1995 and 1994, the inventory included a reserve of
$12,000 and $25,000, respectively, for lower of cost or market and for
obsolescence.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost. Provisions for depreciation have
been computed using the straight-line method to amortize the cost of depreciable
assets over their estimated useful lives. Leasehold improvements are amortized
over the lesser of the lease term or the economic useful lives of the
improvements.
7
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Sales are recognized in the statement of operations when products are shipped or
services are rendered.
ROYALTIES AND FEES
The Company receives reimbursement for certain research and development costs.
The reimbursement is recorded as royalties and fees.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments maturing
within three months when purchased.
LOSS PER SHARE OF COMMON STOCK
Loss per share of common stock amounts are based on the weighted average number
of shares of common stock outstanding. All other common stock equivalents,
including convertible debt disclosed in Note 4, were anti-dilutive and therefore
were not included in the computation of loss per share, for all periods
presented.
RELATED PARTY TRANSACTIONS
The Company has transactions with related parties. The specific transactions are
disclosed in the applicable notes to the financial statements.
8
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is amortized on a straight-line basis over 20 years. The carrying value
of goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying value of the goodwill is
reduced by the estimated shortfall of cash flows (see Note 3).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will be material.
RECLASSIFICATIONS
Certain reclassifications have been made to the years 1994 and 1993 to conform
with the 1995 presentation. Such reclassifications had no effect on previously
reported net loss or accumulated deficit.
9
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
In January, 1996, the Company acquired MEDTOX Laboratories, Inc., ("MEDTOX") a
toxicology laboratory located in St. Paul, Minnesota. The purchase price was $24
million, which included $19 million cash and the issuance of 2,517,306 shares of
common stock. The acquisition was accounted for under the purchase method of
accounting wherein the Company recognized approximately $22 million of goodwill.
The goodwill is being amortized over a period of 20 years.
The Company financed the acquisition by issuing $19 million of convertible
preferred stock and borrowing $4 million under two $2 million term loans. The
Company also entered into a revolving line of credit of up to $7 million for
working capital purposes.
At December 31, 1995, the Company had $500,000 in an escrow account as a
required deposit toward the MEDTOX acquisition.
The following unaudited proforma information presents the results of operations
of the Company and MEDTOX for the year ended December 31, 1995, as if the
acquisition had been consummated as of January 1, 1995.
Revenues $27,745
Net loss $(4,459)
Net loss per share $ (.37)
On June 1, 1995, the Company acquired Bioman Products, Inc., ("Bioman") an
environmental diagnostics company. The purchase price was $140,000, which
included cash and the issuance of 21,489 shares of common stock. The acquisition
was accounted for under the purchase method of accounting wherein the Company
recognized $117,000 of goodwill, which is being amortized over a period of 20
years. The consolidated results of operations for the year ended December 31,
1995 included the results of the Bioman operations from June 1, 1995 to December
31, 1995.
The Company acquired PDLA on February 11, 1994 by issuing 826,790 shares of its
common stock in exchange for all of the outstanding shares of PDLA's stock. The
total value of the exchange was $3,876,000. The acquisition was accounted for
under the purchase method of accounting and the Company recorded goodwill of
$3,394,000. Additional shares of common stock were subsequently issued to former
major shareholders of PDLA through price protection agreements. The consolidated
results of operations for the year ended December 31, 1994 include the results
of the PDLA
10
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
operations from February 12, 1994 to December 31, 1994 (see Note 3).
3. GOODWILL WRITE-OFF
The continued operating losses and negative cash flows of the PDLA operations
resulted in an evaluation during the fourth quarter of 1995, of the PDLA
goodwill for possible impairment. The Company determined that the operations
of PDLA did not have long-term future viability as a stand-alone laboratory
operation and would not be supported by the Company on a stand-alone basis.
The underlying factors contributing to the financial results for PDLA include
competitive pricing pressures in the market place, the loss of preacquisition
customers and the inability of the Company to generate sufficient PDLA
business volume that would result in positive cash flows and profitable
operations. The Company performed an analysis of the PDLA undiscounted cash
flows over the remaining amortization period and determined that the estimated
shortfall of cash flows exceeded the carrying value of the remaining PDLA
goodwill. As a result the Company recorded a write-off of goodwill of
$3,073,000 at December 31, 1995.
4. DEBT
On August 15, 1989, the Company entered into a long-term loan agreement with a
state funded, non-profit organization whereby the Company borrowed an aggregate
of $125,000 to fund the development cost of a test for Chlamydia, a sexually
transmitted disease. The loan originally had an interest rate of seven and one
half percent (7.5%) per annum with all principal and interest due on August 15,
1994. The Company amended the loan agreement on the due date and issued 16,100
shares of common stock as repayment for $62,000 of the loan. The remaining
principal, $63,000, now bears interest at the rate of nine percent (9%) per
annum; this principal and interest, which are due on August 15, 1996, are
convertible into shares of common stock.
On March 1, 1994, the Company entered into a line of credit arrangement for up
to $1,000,000 at an interest rate of 5.82%. The line-of-credit was repaid and
terminated in 1995.
On December 18, 1995, the Company borrowed $100,000 from a Director at an
interest rate of 10.5%. The Company repaid the principal and interest in
February, 1996.
11
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
4. DEBT (CONTINUED)
Interest paid for all outstanding debt was $19,000, $19,000 and $9,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
5. STOCKHOLDERS' EQUITY
The Company has sold its common stock in various private transactions as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE NET
PER SHARE PROCEEDS
<S> <C> <C> <C>
1995 2,158,463 $1.63 to $2.25 $3,853,000
1994 800,000 $1.01 to $2.03 $1,113,000
1993 955,654 $3.01 to $5.20 $3,632,000
</TABLE>
At December 31, 1995, shares of common stock reserved for future issuance are as
follows:
Common stock warrants:
Series J 60,000
Series K 50,000
Series L 320,000
Series M 10,550
Series N 32,679
Common stock options:
Incentive 449,406
Non-Employee Director 239,540
Nonqualified 41,093
Qualified Employee Stock Purchase Plan 76,241
Equity Compensation Plan 2,998,333
Convertible Debt 21,856
4,299,698
6. STOCK OPTION AND PURCHASE PLANS
INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan (the "Plan") under which options
to purchase shares of common stock may be granted to officers, directors and
employees at a price which is not less than fair market value at the date of
grant. Options generally become exercisable in installments over a period of one
to five years. Under the incentive plan, no additional options may be granted
subsequent to June 23, 1993.
12
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
Following is a summary of transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
1995 1994 1993
<S> <C> <C> <C>
Outstanding, beginning of year 461,657 483,262 500,860
Granted during the year -- -- 13,414
Canceled during the year (12,251) (17,105) (5,965)
Exercised during the year (1994--$1.41 per share;
1993--$.55 to $6.25 per share) -- (4,500) (25,047)
Outstanding, end of year (1995--$.45 to $10.38 per
share; 1994--$.45 to $10.38 per share; 1993--$.45 to
$10.38 per share) 449,406 461,657 483,262
Exercisable, end of year (1995--$.45 to $10.38 per
share; 1994--$.45 to $10.38 per share; 1993--$.45 to
$10.38 per share) 448,536 442,182 374,867
</TABLE>
EQUITY COMPENSATION PLAN
Effective October 26, 1993 the Company adopted an equity compensation plan that
includes incentive stock options, non-qualified stock options, stock
appreciation rights, restricted and unrestricted stock awards, performance
shares, and other stock-based awards. A total of 3,000,000 shares have been
authorized for the plan. As of December 31, 1995, 721,039 options are
outstanding and 298,436 have vested.
NON-EMPLOYEE DIRECTOR PLAN
The Company maintains a stock option plan for non-employee directors under which
options to purchase shares of common stock may be granted to directors of the
Company who are not employees of the Company. At December 31, 1995, 47,864
options that have been granted are outstanding.
NONQUALIFIED STOCK OPTIONS
On July 1, 1987, the Company granted nonqualified options to purchase 66,667
shares of common stock to an officer at $14.70 per share. Subsequently, 26,667
of the options were canceled and reissued under the Incentive Stock Option Plan
and the remaining 40,000 options were canceled and reissued at $7.50 per share.
In September 1988 the officer exercised options to purchase 13,334 shares of
common stock. Pursuant to the terms of the option agreement, the Company
provided a loan to the officer for the amount of the funds necessary to exercise
the options. The stock acquired is held by the Company as collateral for the
loan and the officer is to pay interest on the borrowed funds
13
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
at a rate equal to the prime rate in effect from time to time with adjustments
in the interest accrual rate to occur on the same date that the prime rate
changes. In May 1990 the remaining 26,666 options were canceled and reissued at
$3.75 per share.
On August 10, 1988, the Company granted nonqualified options to purchase 6,667
shares of common stock to an officer at $3.75 per share. At December 31, 1995,
6,667 options are exercisable.
On January 14, 1993, the Company granted nonqualified options to purchase 7,760
shares of common stock to a director at $8.19 per share. At December 31, 1995,
the 7,760 options are exercisable.
The shares of common stock covered by these nonqualified options are restricted
as to transfer under applicable securities laws.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Employee Stock Purchase Plan (the "Purchase Plan")
under which all regular employees meeting certain criteria may subscribe to and
purchase shares of common stock. The number of shares of common stock authorized
to be issued under the Purchase Plan is 150,000, subject to adjustment for any
future stock splits or dividends. The subscription price of the shares is 85% of
the fair market value of the common stock on the day the executed subscription
form is received by the Company. The purchase price for the shares is the lesser
of the subscription price or 85% of the fair market value of the shares on the
day the right to purchase is exercised. Payment for common stock is made through
a payroll deduction plan. Following is a summary of transactions:
<TABLE>
<CAPTION>
SHARES SUBSCRIBED
1995 1994 1993
<S> <C> <C> <C>
Outstanding, beginning of year 13,725 7,943 18,829
Subscribed during the year 4,942 23,005 6,386
Canceled during the year (3,128) (1,863) (6,518)
Purchased during the year (1995--$1.70 to $2.55 per
share; 1994--$1.60 to $3.63 per share; 1993--$2.19 to
$6.96 per share) (12,037) (15,360) (10,754)
Outstanding, end of year (1995--$1.70 to $3.09 per
share; 1994--$1.70 to $3.94 per share;1993--$2.17 to
$6.96 per share) 3,502 13,725 7,943
</TABLE>
14
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock issued to Employees," and intends to
continue to do so.
7. LEASES
The Company leases office and research facilities from a director under an
operating lease. The lease is currently a month to month lease. Rental payments
to this director were approximately $121,000, $119,000, and $109,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Company leases farm facilities for production of certain of its products
from a company of which a director owns a 12% interest. The lease is currently a
month to month lease. Rental payments to this company were approximately $34,000
for the years ended December 31, 1995, 1994 and 1993.
The Company leases certain office equipment and facilities under operating
leases. As of December 31, 1995, the Company is obligated for minimum lease
payments under noncancellable leases as follows:
1996 $178,000
1997 174,000
1998 171,000
1999 170,000
2000 and thereafter 57,000
$750,000
Rent expense (including amounts to the director for the leased facilities)
amounted to $435,000, $410,000 and $151,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
15
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets at
December 31 are as follows:
1995 1994
Deferred tax liabilities:
Capital leased assets $ (6,000) $ (7,000)
Total deferred tax liabilities (6,000) (7,000)
Deferred tax assets:
Excess fixed asset basis 153,000 34,000
Allowance for bad debts 49,000 78,000
Accrued vacation pay 48,000 43,000
Net acquisition costs 241,000 241,000
Net operating loss carryforwards 11,271,000 9,805,000
Research and experimental credit carryforwards 456,000 426,000
Uniform capitalization reserve 22,000 --
Restructuring costs 157,000 --
Other 63,000 26,000
Total deferred tax assets 12,460,000 10,653,000
Valuation allowance for deferred assets (12,454,000) (10,646,000)
Total deferred tax assets 6,000 7,000
Net deferred tax assets(liabilities) $ -- $ --
During 1995 and 1994, the valuation allowance increased by $1,808,000 and
$2,644,000, respectively.
At December 31, 1995, the Company has available to offset future taxable income
for financial reporting and federal tax purposes, operating loss carryforwards
of approximately $29,488,000 expiring in 1998 through 2009. Research and
experimental credits of approximately $456,000, expiring in 1998 through 2009,
are also available to offset future income tax liabilities.
The Company acquired approximately $2,473,000 in net operating loss
carryforwards when it purchased PDLA. This amount is included in total net
operating loss carryforwards described in the preceding paragraph. Future use of
this carryforward will be limited based on the Separate Return Limitation Year
("SRLY") Rules found in Proposed Treasury Regulation 1.1502-21(c). These rules
limit the use of a net operating
16
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
loss carryforward into consolidated return years. The limitation, computed
annually, limits the use of the SRLY net operating loss carryforward to the
cumulative annual taxable income generated by the purchased company since its
admittance into the consolidated group.
The annual usage of the Company's net operating loss carryforwards has been
limited by provisions of the Tax Reform Act of 1986 ("TRA"). Under TRA, if a
company experiences a change in ownership of more than 50% (by value) of its
outstanding stock over a three year period, the use of its pre-change in
ownership net operating loss carryforwards will be limited each year until the
loss is exhausted or the carryover period expires. Such a change in ownership
occurred at the time of the Company's 1987 public stock offering.
The amount of pre-change in ownership net operating loss carryforwards of
$8,500,000 which can be utilized to offset future federal taxable income will be
approximately $2,300,000 per year. TRA does not limit annual usage of
post-change in ownership net operating loss carryforwards.
9. ARBITRATION COSTS
During the latter part of 1992 and through 1993, the Company was involved in
arbitration matters with Transia-Diffchamb and Disease Detection International
("DDI"). In the Transia-Diffchamb arbitration case, the arbitrator ruled on July
30, 1993 in favor of the Company; however, the Company was not able to recover
any legal fees. In the DDI arbitration case, the arbitrator ruled against the
Company. The arbitrator also ruled that DDI was entitled to recover costs and
related legal fees. The Company has recognized an expense of $689,000 for these
costs and fees.
10. MAJOR CUSTOMERS
Sales to major customers and foreign sales amounted to the following percentages
of total revenue:
YEAR ENDED DECEMBER 31
1995 1994 1993
United States Government and agencies 4% 5% 11%
Foreign sales 8% 7% 15%
17
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
11. SUBSEQUENT EVENTS
On January 30, 1996, the Company completed the acquisition of MEDTOX and has
approximately $6 million available on its revolving line of credit (see Note 2).
On January 31, 1996, the Company sold 235,295 shares of common stock to a
Director of the Company. Proceeds from the sale were $600,000.
12. RESTATEMENT
The Company has restated its 1995 financial statements to eliminate $758,000 of
restructuring costs associated with the acquisition of MEDTOX. The restatement
resulted in reductions of the previously reported net loss, certain accrued
liabilities and accumulated deficit by $758,000. Additionally, the 1995 net loss
per share has been reduced from $.85 per share to $.77 per share. The Company
will record the restructuring costs in the first quarter of 1996, to comply
with EITF 95-14 as the consummation date of the acquisition of MEDTOX was
determined to be January 30, 1996.
18
<PAGE>
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged Charged Balance at
Beginning to Costs and to Other the End
of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Deducted from Asset Accounts
Allowance for Doubtful Accounts $ 206,000 $ 89,000 $ - $ 165,000 (2) $ 130,000
Allowance for Excess and
Obsolete Inventory $ 25,000 $ 2,000 $ - $ 15,000 $ 12,000
Year Ended December 31, 1994:
Deducted from Asset Accounts
Allowance for Doubtful Accounts $ 19,000 $ 58,000 $ 286,000 (1) $ 157,000 $ 206,000
Allowance for Excess and
Obsolete Inventory $ 20,000 $ 5,000 $ - $ - $ 25,000
Year Ended December 31, 1993:
Deducted from Asset Accounts
Allowance for Doubtful Accounts $ 25,000 $ - $ - $ 6,000 $ 19,000
Allowance for Excess and
Obsolete Inventory $ 15,000 $ 5,000 $ - $ - $ 20,000
</TABLE>
(1) $286,000 charged to Other Expenses represents
the amount acquired thru the PDLA aquisition
(2) Includes $36,000 of Accounts Receivable determined
to be uncollectible which were written off
<PAGE>
Financial Statements
Medtox Laboratories, Inc.
Years ended December 31, 1995, 1994 and 1993
Contents
Report of Independent Auditors.......................................1
Financial Statements
Balance Sheets.......................................................2
Statements of Operations.............................................4
Statement of Stockholders' Equity....................................5
Statements of Cash Flows.............................................6
Notes to Financial Statements........................................7
<PAGE>
ERNST & YOUNG LLP [ ] 1400 Pillsbury Center [ ] Phone: 612 343 1000
Minneapolis, Minnesota 55402
Report of Independent Auditors
Board of Directors and Stockholders
Medtox Laboratories, Inc.
We have audited the accompanying balance sheet of Medtox Laboratories, Inc. as
of December 31, 1995, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. 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 audit. The financial
statements of Medtox Laboratories, Inc. for each of the two years in the period
ended December 31, 1994 were audited by other auditors whose reported dated
January 31, 1995, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Medtox Laboratories, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
March 6, 1996
1
<PAGE>
Medtox Laboratories, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,272,928 $ 526,512
Accounts receivable, less allowance for doubtful accounts of
$100,000 in 1995 and $110,500 in 1994 3,053,698 2,966,466
Inventories 395,672 413,301
Prepaid expenses and other assets 71,816 107,622
------------------------------------
Total current assets 4,794,114 4,013,901
Property and equipment:
Laboratory equipment 5,137,105 4,435,080
Office furniture and fixtures 372,764 370,685
Leasehold improvements 543,270 426,017
Transportation equipment 320,434 304,891
------------------------------------
6,373,573 5,536,673
Less accumulated depreciation 4,617,568 3,942,521
------------------------------------
1,756,005 1,594,152
Other 22,729 28,618
====================================
Total assets $6,572,848 $5,636,671
====================================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 407,715 $ 98,428
Accrued payroll 139,161 335,120
Accrued expenses 464,108 568,130
Accrued collection site expenses 200,000 193,570
Current portion of restructuring accrual 258,070 258,070
Current portion of long-term debt 498,690 437,755
------------------------------------
Total current liabilities 1,967,744 1,891,073
Restructuring accrual 472,837 659,795
Long-term debt 465,452 518,563
Commitments
Stockholders' equity:
Common stock, $1.00 par value:
Authorized shares - 50,000
Issued and outstanding shares - 29,658 29,658 29,658
Additional paid-in capital 600,032 600,032
Retained earnings 3,037,125 1,937,550
------------------------------------
Total stockholders' equity 3,666,815 2,567,240
------------------------------------
Total liabilities and stockholders' equity $6,572,848 $5,636,671
====================================
</TABLE>
See accompanying notes.
3
<PAGE>
Medtox Laboratories, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
Net revenues $20,219,030 $19,650,830 $18,494,396
Cost of revenues 9,499,755 8,713,689 10,415,836
------------------------------------------------------
Gross profit 10,719,275 10,937,141 8,078,560
Operating expenses:
Sales, marketing and distribution 3,480,919 3,487,235 4,252,725
General and administrative 4,240,062 4,088,924 4,523,546
Restructuring costs - 567,700 1,162,033
------------------------------------------------------
7,720,981 8,143,859 9,938,304
------------------------------------------------------
Operating income (loss) 2,998,294 2,793,282 (1,859,744)
Other expenses:
Interest 91,186 181,178 204,668
Other 28,053 18,294 20,662
------------------------------------------------------
119,239 199,472 225,330
======================================================
Net income (loss) $ 2,879,055 $ 2,593,810 $ (2,085,074)
======================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Medtox Laboratories, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
---------------------------
Shares Amount Capital Earnings Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 27,958 $27,958 $545,532 $2,318,553 $2,892,043
Issuance of Common Stock at
$50 per share 500 500 24,500 - 25,000
Net loss - - - (2,085,074) (2,085,074)
-------------------------------------------------------------------
Balance at December 31, 1993 28,458 28,458 570,032 233,479 831,969
Exercise of stock options 1,200 1,200 30,000 - 31,200
Net income - - - 2,593,810 2,593,810
Distributions to stockholders - - - (889,739) (889,739)
-------------------------------------------------------------------
Balance at December 31, 1994 29,658 29,658 600,032 1,937,550 2,567,240
Net income - - - 2,879,055 2,879,055
Distributions to stockholders - - - (1,779,480) (1,779,480)
===================================================================
Balance at December 31, 1995 29,658 $29,658 $600,032 $3,037,125 $3,666,815
===================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Medtox Laboratories, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $2,879,055 $2,593,810 $(2,085,074)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 720,622 601,760 893,651
(Gain) loss on sale of assets (1,112) 11,269 18,210
Changes in operating assets and liabilities
net of assets sold and liabilities assumed
by buyer in sale of California Division:
Accounts receivable (87,232) 63,671 (725,433)
Inventories 17,629 (5,560) 515,630
Prepaid expenses and other assets 35,806 (14,292) (1,183)
Accounts payable 309,287 (1,011,943) 525,615
Accrued payroll and accrued expenses (299,981) 139,069 294,435
Accrued collection site expenses 6,430 193,570 -
Restructuring accrual (186,958) 388,865 1,162,033
-----------------------------------------------
Net cash provided by operating activities 3,393,546 2,960,219 597,884
Investing activities
Decrease in note receivable - 150,000 150,000
Purchases of property and equipment (433,463) (514,089) (398,914)
Proceeds from sale of property and equipment 30,100 20,563 -
Decrease in other assets 5,889 17,517 3,355
-----------------------------------------------
Net cash used in investing activities (397,474) (326,009) (245,559)
Financing activities
Proceeds from long-term debt - - 2,068,439
Payments on long-term debt (470,176) (777,136) (2,507,670)
Net increase (decrease) in line of credit - (500,000) 103
Proceeds from the issuance of Common Stock - 31,200 25,000
Distributions to stockholders (1,779,480) (889,739) -
-----------------------------------------------
Net cash used in financing activities (2,249,656) (2,135,675) (414,128)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents 746,416 498,535 (61,803)
Cash and cash equivalents at beginning of year 526,512 27,977 89,780
===============================================
Cash and cash equivalents at end of year $1,272,928 $ 526,512 $ 27,977
===============================================
Supplemental schedule of non-cash investing and
financing activities
Equipment acquired through notes payable $ 478,000 $ 70,268 $ 64,421
Note receivable from sale of California division - - 300,000
Note payable assumed by buyer in sale of California
division - - 10,520
</TABLE>
See accompanying notes.
6
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements
December 31, 1995
1. Business Activity
Medtox Laboratories, Inc. (the Company) is a toxicology reference laboratory
offering therapeutic drug monitoring, drugs of abuse screening, clinical
analyses, research analyses and emergency toxicology. The Company is certified
by the Substance Abuse and Mental Health Services Administration (SAMHSA) and
the College of American Pathologists (CAP). The Company operates a medical
laboratory in St. Paul, Minnesota with customers throughout the United States.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, which approximates the first-in,
first-out basis, or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
accelerated and straight-line methods based on estimated useful lives of five to
seven years. Leasehold improvements are amortized over the related lease term or
estimated useful life, whichever is shorter.
Net Revenues
Net revenues consist of gross billings less collection site and medical review
officer costs and send-outs, all of which are billed back to the customer.
Income Taxes
The Company elected to be taxed as an S corporation for income tax purposes
whereby all items of tax consequences are passed through to the stockholders.
7
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company reports its income or loss on the cash basis for tax purposes. If
the Company terminated its S corporation status and changed to a C corporation,
the Company will be required to use the accrual basis for tax purposes resulting
in the recognition of approximately $2,600,000 of taxable income that was
previously deferred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
3. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1995 1994
----------------------------
<S> <C> <C>
Note payable to bank, interest rate at prime (8.5% at December
31, 1995), monthly payments excluding interest of $29,045,
due March 1997 $435,459 $784,152
Notes payable to bank, interest rates ranging from
7.75% to 10%, monthly payments including interest of $3,424 to
$10,200, due at various dates through June 2000
528,683 172,166
----------------------------
964,142 956,318
Less current portion 498,690 437,755
============================
$465,452 $518,563
============================
</TABLE>
The above notes are secured by substantially all of the Company's assets. The
carrying amounts reported in the balance sheets for the Company's long-term debt
approximate their fair values.
8
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
3. Long-Term Debt (continued)
Maturities of long-term debt as of December 31, 1995 are as follows:
1996 $498,690
1997 196,732
1998 100,092
1999 110,573
2000 58,055
==========
$964,142
==========
In 1995, the Company entered into a $500,000 revolving line of credit with a
bank which accrues interest at the prime rate (8.5% at December 31, 1995) and is
secured by a portion of the Company's assets. The Company must repay all amounts
owed under the line of credit by June 30, 1996. Interest on the line of credit
is payable monthly. The Company had no borrowings against this facility at
December 31, 1995. Certain financing agreements contain various restrictions and
provisions including maintaining certain financial ratios.
Cash paid for interest was $177,391, $178,829 and $213,972 for the years ended
December 31, 1995, 1994 and 1993, respectively.
4. Commitments
The Company leases office and other facilities under certain operating leases
which expire on various dates through April 2000. Under the terms of the leases,
a pro rata share of operating expenses and real estate taxes are charged as
additional rent. The Company subleases one of its facilities to another party
(see Note 8). The amount of sublease payments to be received is $131,217 and
$124,608 for the years ended December 31, 1996 and 1997, respectively.
Future minimum lease commitments under all operating leases without
regard to sublease payments as of December 31, 1995 are as follows:
1996 $ 507,248
1997 266,591
1998 186,372
1999 186,372
2000 62,124
=============
$ 1,208,707
=============
9
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
4. Commitments (continued)
Rent expense charged to operations was $464,696, $463,299 and $771,796
for the years ended December 31, 1995, 1994 and 1993, respectively.
5. Stock Options
The Company issued stock options to certain key employees which allow for the
purchase of an aggregate of 1,200 shares of Common Stock. These options were
exercised at $26 per share during 1994. There were no options outstanding at
December 31, 1995 or 1994.
6. Benefit Plan
The Company has a defined contribution profit sharing Plan, with a 401(k)
provision, that covers substantially all employees who meet certain age and
length of service requirements. Contributions to the plan are at the discretion
of the Board of Directors. The 401(k) expense for the years ended December 31,
1995, 1994 and 1993 was $78,038 $68,857 and $70,700, respectively.
7. Related Party Transactions
The Company provided laboratory services to an entity owned by certain
stockholders and employees of the Company through December 31, 1994. These
laboratory services were bundled with other services which the Company did not
offer, and sold as a package to certain clients. Total sales to the entity for
1994 and 1993 were $372,741 and $431,955, respectively.
The Company also purchased services, including collection site and medical
review officer services, and customized specimen collection supplies from that
same entity through December 31, 1994. Purchases for 1994 and 1993 were $231,604
and $1,169,731, respectively.
10
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
8. Restructuring Accrual
Effective October 31, 1993, the Company sold substantially all of its California
operations to a third party for $300,000. In addition, the buyer assumed certain
liabilities of the operation and entered into an assignment of the related
lease. The sale of the assets resulted in a loss of approximately $457,000 which
was reflected in restructuring costs for the year ended December 31, 1993.
The Company closed its Illinois division on December 31, 1993. In connection
with this closing, the Company recorded restructuring expenses as of December
31, 1993 of approximately $705,000. The expenses included lease obligations,
severance and vacation costs and other miscellaneous expenses directly related
to the closing of the facility. During 1994, the Company was not successful in
subleasing the Illinois facility as a laboratory. Accordingly, the Company
revised the estimate of sublease payments based on reconfiguring the space for
general office use at a lower lease rate and expensed an additional $567,700 for
the year ended December 31, 1994. At December 31, 1995 and 1994, the
restructuring accrual of $730,907 and $917,865, respectively, represents the
present value of future lease obligations through the lease term of April 2000.
9. Subsequent Event
On January 30, 1996, the Company sold substantially all of its assets and
liabilities other than cash and cash equivalents to a publicly-held company (the
Purchaser) for $24 million, consisting of $19 million in cash and $5 million in
the form of 2,517,306 shares of common stock of the Purchaser.
11
<PAGE>
The following unaudited pro forma consolidated balance sheet
as of December 31, 1995, and the unaudited pro forma consolidated statements of
operations for the year ended December 31, 1995 gives effect to the acquisition
of MEDTOX by EDITEK using the purchase method. The unaudited pro forma
consolidated financial information is based on the historical financial
information of EDITEK and MEDTOX as of December 31, 1995 and the pro forma
adjustments described in the notes thereto. There are no pro forma adjustments
to other amounts reflected in the historical financial statements of MEDTOX as
management believes that the historical costs assigned to MEDTOX assets and
liabilities approximate fair value.
Information was prepared as if the acquisition was effected as
of December 31, 1995 in the case of the unaudited pro forma consolidated balance
sheet and as of January 1, 1995 in the case of the unaudited pro forma
statements of operations. The unaudited pro forma financial statements may not
be indicative of the results that actually would have occurred if the
acquisition had been in effect on the dates indicated or which may be obtained
in the future. The unaudited pro forma financial information should be read in
conjunction with the financial statements and other financial data of EDITEK and
MEDTOX included herein.
EDITEK AND MEDTOX
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1995
(In Thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Proforma
------------------------------ ---------------------------------------
EDITEK MEDTOX Adjustments Consolidated
------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 258 $ 1,273 $ 3,095(a) $ 4,626
Accounts Receivable, net 1,029 3,054 - 4,083
Inventory and Supplies 937 395 - 1,332
Other Current Assets 868 72 (500)(a) 440
------------------------------ ---------------- ----------------
Total Current Assets 3,092 4,794 2,595 10,481
Property and Equipment 7,553 6,374 - 13,927
Accumulated Depreciation (6,824) (4,618) - (11,442)
------------------------------ ---------------- ----------------
Property & Equipment, net 729 1,756 - 2,485
Other Assets
- - - -
Goodwill, net 117 23 22,237 (c) 22,377
------------------------------ ---------------- ----------------
Total Non-Current Assets 846 1,779 22,237 24,862
------------------------------ ---------------- ----------------
Total Assets $ 3,938 $ 6,573 $ 24,832 $ 35,343
============= ============== ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving line of credit $ - $ - $ 990 (a),(b) $ 990
Accounts Payable 1,184 408 - 1,592
Accrued Expenses 834 803 631 (g) 2,268
Current Maturities of Long Term Debt 182 499 834 (b) 1,515
Restructuring Accrual, Current Portion - 258 - 258
Other Current Liabilities 42 - - 42
------------- -------------- ---------------- ----------------
Total Current Liabilities 2,242 1,968 2,455 6,665
Long Term Debt Obligations - 465 2,202 (b) 2,667
Restructuring Accrual, Long Term Portion - 473 - 473
Other Long Term Liabilities - - - -
------------- -------------- ---------------- ----------------
Total Liabilities 2,242 2,906 4,657 9,805
Common Stock 1,566 30 348 (e) 1,944
Addt. Paid-in Capital 33,973 600 2,514 (e) 37,087
Preferred Stock - - 20,350 (e) 20,350
Retained Earnings (Deficit) (33,667) 3,037 (3,037)(e) (33,667)
------------- -------------- ---------------- ----------------
1,872 3,667 20,175 25,714
Less: Treasury Stock and Other Contra Equity
(176) - - (176)
------------- -------------- ---------------- ----------------
Total Stockholders' Equity 1,696 3,667 20,175 25,538
------------- -------------- ---------------- ----------------
Total Liabilities and Shareholders' Equity $ 3,938 $ 6,573 $ 24,832 $ 35,343
============= ============== ================ ================
</TABLE>
See notes to unaudited pro forma consolidated financial statements
<PAGE>
EDITEK AND MEDTOX
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(In Thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Proforma
--------------------------------- ----------------------------------------
EDITEK MEDTOX Adjustments Consolidated
--------------------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 7,526 $ 20,219 $ - 27,745
Cost of sales
6,589 9,500 - 16,089
--------------------------------- ----------------- ------------------
Gross margin 937 10,719 - 11,656
Operating expenses
Research and development 920 - - 920
Selling, general and administrative 4,030 7,721 - 11,751
Amortization 176 - 936 (d) 1,112
Goodwill write-off 3,073 - - 3,073
--------------------------------- ----------------- ------------------
Total operating expenses 8,199 7,721 936 16,856
Income (loss) before interest
and other income (7,262) 2,998 (936) (5,200)
Other income - - - -
Interest and other expense (23) (119) (358) (b) (500)
--------------------------------- ----------------- ------------------
Net income (loss) (7,285) 2,879 (1,294) (5,700)
Preferred stock dividend - - 1,832 (f) 1,832
--------------------------------- ----------------- ------------------
Net income (loss) applicable to common
shareholders $ (7,285) $ 2,879 $ (3,126) $ (7,532)
================================= ================= ==================
Income (Loss) per common share $ (0.77) $ 97.10 $ (0.63)
================================= ==================
Weighted average number of common
shares outstanding 9,445,707 29,650 11,963,013
================================= ==================
</TABLE>
See notes to unaudited pro forma consolidated financial statements
<PAGE>
EDITEK AND MEDTOX
NOTES TO UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
a) EDITEK closed the $24 million acquisition of MEDTOX and raised additional
working capital by raising approximately $20 million from the issuance of
407 shares of Preferred Stock, borrowing approximately $5 million in the
form of two term loans and a revolving line of credit and issuing $5
million of Common Stock of the Company to the shareholders of MEDTOX in the
form of 2,517,306 shares of Common Stock. The Company did not acquire the
cash on hand of MEDTOX at December 31, 1995 and was required to pay off the
existing loans of MEDTOX and approximately $1.3 million in financing costs.
Cash and Cash Equivalents
(dollar amounts in thousands)
Proceeds from issuance of
Series A Preferred Stock $20,350
Proceeds from debt:
Term Loans 4,000
Credit Facility 990
Compensation to Investment
Bankers ( 1,343)
Compensation for Placement
of Debt ( 165)
Payment of MEDTOX Notes:
Current Portion ( 499)
Long Term Portion ( 465)
Payment to MEDTOX
Shareholders (18,500)
MEDTOX distribution of cash
on hand at MEDTOX ( 1,273)
---------
$ 3,095
The reduction of $500 in Other Current Assets represents the deposit
previously paid to MEDTOX which was held in escrow.
<PAGE>
b) Pro Forma adjustment to long term debt accounts are summarized as follows:
Current Long Term
Portion Portion
Elimination of MEDTOX's
long term debt $ (499) $ (465)
Issuance of term loans 1,333 2,667
-----------------
$ 834 $ 2,202
The interest rates on the loans are as follows:
Term Loan A 2.0% above Prime Rate
Term Loan B 2.5% above Prime Rate
Credit Facility 1.5% above Prime Rate
c) Goodwill representing the excess of the purchase price of $24 million over
the fair value of the identifiable net assets of MEDTOX has been reflected
and is comprised of the following:
(dollar amounts in thousands)
Purchase price $24,000
Costs related to acquisition 770
Net assets acquired @ 12/31/95 (2,533)
$22,237
The allocation of the total amount of excess purchase price over the fair
value of the assets is a preliminary allocation absent an appraisal of
certain intangible assets.
d) Amortization is based on an effective date of the acquisition of MEDTOX of
January 1, 1995 amortized over a twenty year period.
e) Pro Forma adjustment to stockholder's equity accounts are summarized as
follows:
<TABLE>
<CAPTION>
(dollar amounts in thousands)
Additional
Common Preferred Paid In Retained
Stock Stock Capital Earnings
<S> <C> <C> <C> <C>
Elimination of MEDTOX's equity accounts $ (30) $ - $ (600) $ (3,037)
Issuance of Preferred Stock - 20,350 (1,508) -
Issuance of Common Stock 378 - 4,622 -
------------ ----------- ------------- -----------
$ 348 $ 20,350 $ 2,514 $ ( 3,037)
</TABLE>
<PAGE>
f) Dividend of 9% declared for $20,350,000 of Preferred Stock issued and
outstanding.
g) Adjustment to reflect acquisition costs which are expected to approximate
$400,000, certain severance payments of $370,000, less the accrued payroll
of MEDTOX of $139,000, which was not purchased by the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized on the 14th
day of May 1996.
EDITEK, Inc.
Registrant
By: /s/ James D. Skinner
James D. Skinner
President,
Principal Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1934, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ James D. Skinner President, May 14, 1996
James D. Skinner Principal Executive
Officer, and
Chairman of the Board
/s/ Samuel C. Powell Director May 14, 1996
Samuel C. Powell, Ph.D.
/s/ Peter J. Heath Vice President of May 14, 1996
Peter J. Heath Finance and Chief
Financial Officer
/s/ Gene E. Lewis Director May 14, 1996
Gene E. Lewis
/s/ Robert J. Beckman Director May 14, 1996
Robert J. Beckman
/s/ Harry G. McCoy, Pharm.D. Director May 14, 1996
Harry G. McCoy, Pharm.D.
/s/ George W. Masters Director May 14, 1996
George W. Masters
<PAGE>
