FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ___________ to _______________
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
incorporated 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
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
The number of shares of Common Stock, $.15 par value, outstanding as of August
1, 1996 was 25,494,782.
<PAGE>
EDITEK, INC.
INDEX
Page
Part I Financial Information:
Item 1:
Balance Sheets - June 30, 1996 (Unaudited)
and December 31, 1995 ........................................ 3
Statements of Operations - Six Months
Ended June 30, 1996 and 1995 and Three
Months Ended June 30, 1996 and 1995 (Unaudited).... .......... 5
Statements of Cash Flows - Six Months
Ended June 30, 1996 and 1995 (Unaudited) ..................... 6
Notes to Financial Statements .......................... 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................10
Part II Other Information ................................................18
Signatures ...................................................19
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
EDITEK, Inc.
BALANCE SHEETS
June 30 December 31
1996 1995
(Unaudited)
------------------------------
(In Thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 146 $ 258
Accounts receivable
Trade, less allowance for
doubtful accounts ($298,000 - 1996,
$130,000 - 1995) 5,367 977
Other 88 52
Inventories:
Raw Materials 593 588
Work in process 104 169
Finished goods 637 180
------------------------------
1,334 937
Deposit on acquisition - 500
Prepaid expenses and other 344 368
------------------------------
Total current assets 7,279 3,092
Equipment and improvements
Furniture and equipment 9,713 5,857
Leasehold improvements 936 1,696
------------------------------
10,649 7,553
Less accumulated depreciation
and amortization (7,818) (6,824)
------------------------------
2,831 729
Goodwill 22,587 117
------------------------------
$ 32,697 $ 3,938
==============================
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
BALANCE SHEETS
(Continued)
June 30 December 31
1996 1995
(Unaudited)
----------------------------------
(In Thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Line of credit $ 691 $ -
Accounts payable 2,029 1,184
Accrued expense 1,189 834
Accrued restructuring expenses 376 -
Deferred revenues 14 42
Current portion of notes payable 1,422 82
Note payable to director - 100
----------------------------------
Total current liabilities 5,721 2,242
Long term debt 2,111 -
Other Liabilities 575 -
Stockholders' equity
Preferred Stock--authorized 1,000,000
shares; 53 shares issued
and outstanding - -
Common Stock, $.15 par value;
authorized - 30,000,000 shares;
issued and outstanding -
25,409,449 shares in 1996 and
10,439,775 shares in 1995 3,812 1,566
Additional paid-in capital 56,310 33,973
Accumulated deficit (35,656) (33,667)
----------------------------------
24,466 1,872
Less: Note receivable from officer (100) (100)
Treasury stock (76) (76)
----------------------------------
Total stockholders' equity 24,290 1,696
$ 32,697 $ 3,938
==================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Three Months
Ended Ended
June 30 June 30
1996 1995 1996 1995
-------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Revenues
Laboratory service revenues $ 11,483 $ 2,063 $ 6,735 $ 1,200
Product sales 1,688 1,347 892 637
Royalties and fees 85 160 22 74
Interest and other income 24 181 8 113
---------------------------------------------
13,280 3,751 7,657 2,024
Cost of services 8,415 2,058 4,723 1,109
Cost of sales 1,227 1,123 571 516
---------------------------------------------
Gross profit 3,638 570 2,363 399
Operating expenses
Selling, general and
administrative 3,832 1,939 2,128 1,081
Research and development 710 427 365 219
Interest and financing costs 227 20 134 2
Restructuring costs 858 - - -
---------------------------------------------
5,627 2,386 2,627 1,302
---------------------------------------------
Net loss $ (1,989) $ (1,816) $ (264) $ (903)
=============================================
Loss per common share $ (0.09) $ (0.20) $(0.01) $(0.10)
=============================================
Weighted average number of
common shares outstanding 21,282,842 9,239,159 22,006,646 9,321,610
==============================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months
Ended
June 30
1996 1995
------------------------
(In Thousands)
<S> <C> <C>
Operating activities
Net loss $ (1,989) $ (1,816)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,054 328
Restructuring costs 858 -
Changes in operating assets & liabilities
net of effects from purchase of MEDTOX
and BIOMAN
Accounts receivable (1,523) (114)
Inventories (34) 65
Prepaid expenses & other 161 (404)
Accounts payable and accrued liabilities (259) (208)
Deferred revenues (83) (19)
Restructuring accruals (506) (23)
------------------------
Net cash used in operating activities (2,320) (2,191)
Investing activities
Purchases of equipment & improvements (1,048) (61)
Cash acquired from BIOMAN acquisition - 12
Cash used for MEDTOX acquisition (18,500) -
------------------------
Net cash used in investing activities (19,548) (49)
Financing activities
Payments on Debt (2,865) (944)
Proceeds from borrowings 5,686 -
Costs associated with borrowings/acquisition (787) -
Proceeds from issuance of stock for:
Employee stock purchase plan 29 14
Exercise of stock options and warrants - 118
Private placements 600 2,776
Preferred stock 20,350 -
Costs related to stock issuances (1,257) (98)
-------------------------
Net cash provided by financing activities 21,756 1,866
------------------------
Decrease in cash and cash equivalents $ (112) $ (374)
Cash and cash equivalents at beginning of period $ 258 $ 1,105
------------------------
Cash and cash equivalents at end of period $ 146 $ 731
========================
</TABLE>
<PAGE>
EDITEK, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of EDITEK, Inc. (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial condition
and results of operations have been included. Operating results for the six
month period ended June 30, 1996 are not necessarily indicative of the results
that may be attained for the entire year. For further information, refer to the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K, (as amended), for the year ended December 31, 1995.
Loss Per Share: Loss per share amounts are based on the weighted average number
of shares of common stock outstanding. Common stock equivalents have not been
included in the computation as the effect would be anti-dilutive.
NOTE B -- ACQUISITION OF MEDTOX LABORATORIES, INC. ("MEDTOX")
On January 30, 1996, the Company acquired 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 in goodwill. The
goodwill is being amortized over a period of 20 years. The Company financed the
acquisition by issuing $20 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. The
consolidated results of operations for the six months ended June 30, 1996
include the results of the MEDTOX operations from January 26, 1996 to June 30,
1996.
NOTE C -- ACQUISITION OF BIOMAN PRODUCTS, INC. ("BIOMAN")
On June 1, 1995, the Company acquired 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 10 years. The consolidated
results of operations for the six months ended June 30, 1996 include the results
of the BIOMAN operations.
<PAGE>
NOTE D -- DEBT
On August 15, 1989 the Company entered into a long-term loan agreement with
North Carolina Biotechnology Center ("NCBC"), 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 for $62,000 of the loan. The remaining principal, $63,000, now bears
interest at a 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.
To help finance the acquisition of MEDTOX, the Company entered into revolving
and term loan facilities with Heller Financial, Inc. The debt financing is for a
total of $11,000,000 and consists of two term loans totaling $4,000,000 and up
to $7,000,000 in the form of a revolving line of credit based primarily on the
receivables of the Company. The amount of credit available to the Company varies
with the accounts receivable and the inventory of the Company. The interest
rates on the two term loans of $2,000,000 are 2.5 points above the prime rate
and 2.0 points above the prime rate, respectively. The revolving line of credit
carries an interest rate equal to 1.5 points above the prime rate.
NOTE E -- RESTATEMENT OF 1995 FINANCIAL STATEMENTS
During 1995, the Company recorded a restructuring charge in the amount of
$758,000 associated with the consolidation of the laboratory operations at
Princeton Diagnostic Laboratories of America, Inc. ("PDLA") into the laboratory
operations at MEDTOX. Subsequent to the filing of the 1995 Audited Financial
Statements, it was determined that the restructuring charge should be recorded
during the first quarter of 1996, consistent with the consummation of the MEDTOX
acquisition on January 30, 1996. Accordingly, the Company has restated the 1995
Audited Financial Statements.
<PAGE>
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by the forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products and services, the
possible effects of the MEDTOX acquisition and its related financings and other
factors which are described herein and/or in documents incorporated by reference
herein.
The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in June 1983 and until 1986 was a
development stage company. The Company became engaged in the manufacture and
sale of Conventional Biodiagnostic Products as a result of its acquisition of
Granite Technological Enterprises, Inc. in 1986. The Company began the
manufacture and sale of its EZ-SCREEN(R) diagnostic tests in 1985 and introduced
its patented one-step assays, VERDICT(R) and RECON(R), in 1993. Also in 1993,
the Company formed DIAGNOSTIX, Inc. to market its agricultural diagnostic
products. In addition, DIAGNOSTIX now markets the Company's on-site substance
abuse products to certain segments of the substance abuse marketplace. The
Company entered the laboratory testing market when it completed the acquisition
of Princeton Diagnostic Laboratories of America, Inc., (PDLA) in 1994. In 1995,
the Company acquired the former operations of Bioman through its DIAGNOSTIX,
Inc. subsidiary. On January 30, 1996 the Company completed the acquisition of
MEDTOX. The results of operations for the six months ended June 30, 1996 include
the operations of MEDTOX from January 26, 1996 through the end of the period.
Since inception, the Company has financed its working capital requirements
primarily from the sale of equity securities.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total revenues for the six months ended June 30, 1996 were $13,280,000
as compared to $3,751,000 for the six months ended June 30, 1995. The increase
was attributable to the increase in revenues from products and services. These
revenues totaled $13,171,000 for the six months ended June 30, 1996, as compared
to $3,410,000 for the six months ended June 30, 1995.
Laboratory service revenues were $11,483,000 for the six months ended
June 30, 1996, compared to $2,063,000 for the six months ended June 30, 1995.
This increase was primarily the result of the revenues contributed by the MEDTOX
customer base. The MEDTOX revenues for the period February 1 through June 30,
1995 were $8,739,000, providing for proforma laboratory service revenues in 1995
of $10,802,000. The 6% proforma increase in 1996 is the result of the continued
sales and marketing effort for these services.
Product sales include the sales generated from substance abuse testing
products, which incorporates the EZ-SCREEN and VERDICT on site test kits and
other ancillary products for the detection of abused substances. Sales from
these products were $765,000 for the six months ended June 30, 1996 compared to
sales of $616,000 recorded for the same period in 1995. This increase of 24% was
primarily the result of sales of the EZ-SCREEN PROFILE(TM) test kits which were
introduced during the six months ended June 30, 1996.
<PAGE>
Product sales also include sales of agricultural diagnostic products.
Sales of these products were $687,000 for the six months ended June 30 1996, an
increase of 43% compared to sales of $481,000 for the six months ended June 30,
1995. The Company had sales of $279,000 which were generated through the former
operations of Bioman, which was acquired by the Company on June 1, 1995.
Excluding these revenues, sales of agricultural diagnostic products were
$408,000 for the six months ended June 30, 1996 as compared to $403,000 for the
same period in 1995.
Sales of Microbiological and associated product sales combined with
contract manufacturing services were $161,000 for the six months ended June 30,
1996 compared to $213,000 for the same period in 1995. This decrease of 22% was
primarily the result of the Company's decision not to market these products.
Accordingly, the Company has decided to close down the operations of the Farm
Facility. While this closure will decrease the amount of revenues generated from
these sales, the elimination of the costs of the Farm Facility are expected to
improve the overall gross margin from the sale of the Company's products. The
Company expects the closure to be complete by the end of August.
Revenues generated from the shipment of products to the U.S. Department
of Defense were $75,000 for the six months ended June 30, 1996 compared to
$37,000 for the same period in 1995. This increase was the result of modest
sales of finished products following the completion of research and development
on certain tests in late 1995 and early 1996.
Revenues from royalties and fees during the six months ended June 30,
1996 were $85,000, compared to $160,000 for the six months ended June 30, 1995.
This decrease was primarily due to lower royalties from AML, as AML lost
accounts that require payment of royalties to the Company.
Revenues from interest and other income for the six months ended June
30, 1996 were $24,000 compared to $181,000 for the six months ended June 30,
1995. The $181,000 in 1995 included the recovery of debts owed by a customer of
laboratory services which had been written off, as well as a payment made to the
Company by the landlord of the facility in New Jersey for renewing the lease for
that facility. For the same period in 1996, there was no such payment or
recovery of such debts.
The gross margin from the revenues generated from the laboratory
services was 27% for the six months ended June 30, 1996 an increase compared to
the same period in 1995, when the cost of providing laboratory services was
approximately the same as the revenue realized from these services. The
improvement in the gross margin was primarily due to the operations of MEDTOX
and the consolidation of the laboratory operations in New Jersey of PDLA into
the laboratory operations of MEDTOX.
<PAGE>
Gross margins from the sales of both manufactured products and products
purchased for resale for the six months ended June 30, 1996 were 27% compared to
17% of sales of these products during the six months ended June 30, 1995. This
increase in gross margin from product sales is primarily the result of the
increased sales of contract manufacturing services, sales of the EZ-SCREEN
PROFILE test kits, as well as sales of the agricultural products sold through
DIAGNOSTIX.
Selling, general and administration expenses for the six months ended
June 30, 1996 were $3,832,000, compared to $1,939,000 for the six months ended
June 30, 1995. Of the $1,893,000 increase, MEDTOX related expenses totaled
$1,374,000. Net of MEDTOX, there was an increase of $519,000 compared to the
same period in 1995. This increase is primarily due to $527,000 of amortization
expense related to goodwill resulting from the MEDTOX acquisition.
Research and development expenses incurred during the six months ended
June 30, 1996 were $710,000 as compared to $427,000 for the same period in 1995.
This increase of $283,000 was primarily the result of $193,000 of research and
development expenses from MEDTOX as well as increases in personnel costs.
For the six months ended June 30, 1996, EDITEK incurred interest expense of
$227,000, compared to interest expense of $20,000 incurred during the six months
ended June 30, 1995. This increase was the result of the funds borrowed by the
Company to complete the financing for the acquisition of MEDTOX.
In connection with the acquisition of MEDTOX, the Company determined
that it would be beneficial to consolidate the laboratory operations of PDLA
into the laboratory operations at MEDTOX. In addition the Company decided to
down size certain administrative positions at both PDLA and MEDTOX in order to
eliminate duplicative functions. As a result of this restructuring plan, the
Company has taken a one time charge of $858,000 during the six months ended June
30, 1996 to cover certain costs of the restructuring, including $100,000 related
to certain severance payments (see Note E of the Financial Statements). The
Company had no such charge during the six months ended June 30, 1995.
As a result of the above, the net loss for the six months ended June 30,
1996 was $1,989,000, compared to the net loss of $1,816,000 for the six months
ended June 30, 1995.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Total revenues for the three months ended June 30, 1996 were $7,657,000
as compared to $2,024,000 for the three months ended June 30, 1995. The increase
was attributable to the increase in revenues from products and services. These
revenues totaled $7,627,000 for the three months ended June 30, 1996, as
compared to $1,837,000 for the three months ended June 30, 1995.
<PAGE>
Laboratory service revenues were $6,735,000 for the three months ended
June 30, 1996, compared to $1,200,000 for the three months ended June 30, 1995.
This increase was primarily the result of the revenues contributed by the MEDTOX
customer base. The MEDTOX revenues for the same period in 1995 were $5,378,000,
providing for proforma laboratory service revenues of $6,578,000.
Product sales include the sales generated from substance abuse testing
products, which incorporates the EZ-SCREEN and VERDICT on site test kits and
other ancillary products for the detection of abused substances. Sales from
these products were $441,000 for the three months ended June 30, 1996 compared
to sales of $280,000 recorded for the same period in 1995. This increase of 58%
was primarily due to sales of the EZ-SCREEN PROFILE test kits.
Product sales also include sales of agricultural diagnostic products.
Sales of these products were $372,000 for the three months ended June 30 1996,
an increase of 63% compared to sales of $228,000 for the three months ended June
30, 1995. The Company had sales of $133,000 which were generated through the
former operations of Bioman, which was acquired by the Company on June 1, 1995.
Excluding these revenues, sales of agricultural diagnostic products were
$239,000 for the three months ended June 30, 1996 a increase of 59% compared to
the same period in 1995. The Company believes that the primary reason for the
increase was due to timing differences in orders from the USDA for the Company's
products.
Sales of Microbiological and associated product sales combined with
contract manufacturing services were $79,000 for the three months ended June 30,
1996 compared to $106,000 for the same period in 1995. This decrease of 30% was
primarily the result of the Company's decision not to market these products.
Accordingly, the Company has decided to close down the operations of the Farm
Facility. While this closure will decrease the amount of revenues generated from
these sales, the elimination of the costs of the Farm Facility are expected to
improve the overall gross margin from the sale of the Company's products.
There were no revenues generated from the shipment of products to the
U.S. Department of Defense for the three months ended June 30, 1996. This
decrease from $23,000 for the same period in 1995 is the result of a delay in
receipt of reagents for use in test development, as well as a delay in receipt
of funding to support this development.
Revenues from royalties and fees during the three months ended June 30,
1996 were $22,000, compared to $74,000 for the three months ended June 30, 1995.
This decrease was primarily due to lower royalties from AML, as AML lost
accounts that require payment of royalties to the Company.
<PAGE>
Revenues from interest and other income for the three months ended June
30, 1996 were $8,000 compared to $113,000 for the three months ended June 30,
1995. The $113,000 in 1995 included a payment made to the Company by the
landlord of the facility in New Jersey for renewing the lease for that facility.
For the same period in 1996, there was no such payment.
The gross margin from the revenues generated from the laboratory
services was 30% for the three months ended June 30, 1996 an increase compared
to the same period in 1995, when the gross margin was 8%. The improvement in the
gross margin was primarily due to the operations of MEDTOX and the consolidation
of the laboratory operations in New Jersey of PDLA into the laboratory
operations of MEDTOX.
Gross margins from the sales of both manufactured products and products
purchased for resale for the three months ended June 30, 1996 were 36% compared
to 19% of sales of these products during the three months ended June 30, 1995.
This increase in gross margin from product sales is primarily the result of
sales of the agricultural products sold through DIAGNOSTIX.
Selling, general and administration expenses for the three months ended
June 30, 1996 were $2,128,000, compared to $1,081,000 for the three months ended
June 30, 1995. Of the $1,047,000 increase, MEDTOX expenses totaled $903,000. Net
of MEDTOX, there was an increase of $144,000 compared to the same period in
1995. This increase is primarily due to $319,000 of amortization expense related
to goodwill resulting from the MEDTOX acquisition.
Research and development expenses incurred during the three months
ended June 30, 1996 were $365,000 as compared to $219,000 for the same period in
1995. This increase of $146,000 was primarily the result of $107,000 of research
and development expenses from MEDTOX, as well as increases in personnel costs.
For the three months ended June 30, 1996, EDITEK incurred interest expense
of $134,000, compared to interest expense of $2,000 incurred during the three
months ended June 30, 1995. This increase was the result of the funds borrowed
by the Company to complete the financing for the acquisition of MEDTOX.
As a result of the above, the net loss for the three months ended June 30,
1996 was $264,000, compared to the net loss of $903,000 for the three months
ended June 30, 1995.
Management believes the acquisition of MEDTOX and the restructuring of the
laboratory operations will improve the operating results of the Company,
although there can be no assurance of the success of the consolidation of the
laboratory operations in reducing costs and improving efficiencies. Management
expects net sales to grow through both additional strategic acquisitions and the
addition of new accounts, as well as the introduction of new products, including
the recently launched EZ-SCREEN PROFILE test kit.
<PAGE>
Material Changes in Financial Condition
As of June 30, 1996, accounts receivable were $5,455,000 compared to
$1,029,000 at December 31, 1995. This $4,426,000 increase is primarily
attributable to the MEDTOX accounts receivable balance at June 30, 1996.
Inventories were $1,334,000 at June 30, 1996 as compared to $937,000 at
December 31, 1995. Of the total increase of $397,000, MEDTOX inventory was
$420,000 at June 30, 1996, resulting in a decrease net of MEDTOX of $23,000.
Prepaid expenses and other assets were $344,000 at June 30, 1996 as
compared to $868,000 at December 31, 1995. This decrease of $524,000, or 60%,
was primarily the result of the January application of the $500,000 deposit the
Company had previously made towards the purchase price for the acquisition of
MEDTOX.
As of June 30, 1996, the Company had a balance of accounts payable of
$2,029,000 compared to a balance of $1,184,000 at December 31, 1995. Of the
total increase of $845,000, the payables from MEDTOX were $1,305,000 at June 30,
1996. Net of the payables from MEDTOX, the decrease of $460,000 was primarily
the result of the payment of past due expenses resulting from the Company's
improved financial condition.
Accrued expenses were $1,189,000 at June 30, 1996, as compared to
$834,000 at December 31, 1995. Of the total increase of $355,000, the accrued
expenses from MEDTOX were $827,000 at June 30, 1996. Net of the MEDTOX balance,
the decrease of $472,000 was the result of payment of certain expenses
associated with the acquisition of MEDTOX.
At June 30, 1996, the Company had accrued $336,000 for the payment of
certain restructuring costs associated with the consolidation of the laboratory
operations of PDLA with the laboratory operations of MEDTOX. In addition MEDTOX
has accrued $615,000 for the payment of a lease obligation for a facility no
longer used by MEDTOX. As a result, the Company has a total balance of accrued
restructuring costs of $951,000 at June 30, 1996. At December 31, 1995 the
Company had no accrual for restructuring costs (see Note E of the Financial
Statements).
During the six months ended June 30, 1996, the Company repaid the
$100,000 it had borrowed from Dr. Samuel C. Powell, a director of the Company As
described more fully in the footnotes to the financial statements, at June 30,
1996, the Company had a balance of loan payable to the North Carolina
Biotechnology Center (NCBC) of $63,000. At June 30, 1996, the Company had a
total balance of $4,135,000 for its loans payable to Heller Financial, Inc.
Primarily as a result of these transactions, the total balance of notes payable
at June 30, 1996 was $4,224,000 as compared to $182,000 at December 31, 1995.
<PAGE>
Liquidity and Capital Resources
Since its inception, the working capital requirements of the Company
have been funded primarily by cash received from equity investments in the
Company. At June 30, 1996, the Company had cash and cash equivalents of $146,000
and borrowing capability of approximately $3,100,000 from its revolving line of
credit. The Company believes that the balance of cash and cash equivalents at
June 30, 1996 together with the revolving line of credit should be sufficient to
fund the planned operations through 1996.
As of June 30, 1996, the Company had not achieved a positive cash flow
from operations. Accordingly, the Company relies on available credit
arrangements to fund operations until a positive cash flow can be achieved.
Management believes that it has taken, and is prepared to continue to take, the
actions required to yield a positive cash flow from operations in the future.
The Company believes that the acquisition of MEDTOX, the subsequent
consolidation of the laboratory operations from PDLA into MEDTOX, and other
synergy that will be realized from the acquisition of MEDTOX will enable the
Company to generate positive cash flow. The Company continues to follow a plan
which includes (i) continuing to aggressively monitor and control costs, (ii)
increasing revenue from sales of the Company's products, services, and research
and development contracts, as well as (iii) continue to selectively pursue
synergistic acquisitions to increase the Company's critical mass. There can be
no assurance that costs can be controlled, revenues can be increased, financing
may be obtained, acquisitions successfully consummated, or that the Company will
be profitable. The Company expects to incur additional restructuring expenses in
the third quarter in connection with the previous closing of its facility in
Illinois and the elimination of certain operations at its facility in New Jersey
and cost reduction efforts at its other facilities. The amounts of these
restructuring expenses have not yet been determined.
The Company lacks sufficient shares of Common Stock to satisfy the
conversion rights of the outstanding Preferred Stock of the Company, including
conversion notices received by the Company. Consequently, the Company would lack
shares of Common Stock to sell in a future financing should it need to raise
capital or for future acquisitions, until and unless the Company's shareholders
approve an amendment to its Certificate of Incorporation increasing the number
of shares of authorized Common Stock. The Board of Directors of the Company
canceled a special meeting of shareholders scheduled for June 25,1996 at which
an amendment to the Company's Certificate of Incorporation to increase the
number of shares of authorized common stock was to have been voted upon. After
proxy solicitation for the special meeting had begun, the American Stock
Exchange stated that the vote to amend the charter required brokers and nominees
holding shares of common stock to obtain written instructions from beneficial
owners regarding the voting of their shares. The Company had received numerous
proxies from brokers and nominees which did not indicate how many of the votes
were cast based on the beneficial owners' instructions. The meeting was canceled
because it was not possible to determine which votes could be counted.
<PAGE>
In August, lawsuits were filed against the Company by purchasers of its
Preferred Stock. The suits allege breach of contract with respect to conversion
of the Preferred Stock and one of the suits also alleges misrepresentation in
connection with the Company's sale of the Stock. Other holders of Preferred
Stock have threatened to institute similar legal proceedings. The Company is
evaluating the complaints and has not yet formally responded to the allegations.
The Company intends to seek shareholder approval to increase the
authorized Common Stock. There can be no assurance the shareholders will approve
such amendment. If the Company lacks shares of Common Stock for future
financings or acquisitions, the Company will have to rely on debt financings or
sales of its Preferred Stock. There can be no assurance that the Company will be
able to obtain adequate capital or implement acquisitions through debt or
Preferred Stock financings.
<PAGE>
ITEM 2 CHANGES IN SECURITIES. Inapplicable
ITEM 3 DEFAULTS ON SENIOR SECURITIES. Inapplicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None
ITEM 5 OTHER INFORMATION
On July 3, 1996, five new members joined the Board of Directors of the
Company, as four members resigned. The new members are James Arrington,
Alex Bistricer, David Bistricer, Richard Braun and Louis Perlman. The
members who resigned were Robert Beckman, Gene Lewis, George Masters and
James Skinner. Mr. Skinner also resigned as President and CEO. On July 24,
1996, a special meeting of the Board of Directors was held at which Richard
Braun was named Chief Executive Officer of the Company.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Report on Form 8-K dated April 30, 1996, reporting on the conversion
of Preferred Stock.
b) Report on Form 8-K dated June 5, 1996 reporting on the formation of an
Executive Committee of the Board of Directors.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1996
EDITEK, INC.
By: /s/ Richard J. Braun
Richard J. Braun,
Chief Executive Officer
By: /s/ Peter J. Heath
Peter J. Heath,
Vice President of Finance
and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 146
<SECURITIES> 0
<RECEIVABLES> 5753
<ALLOWANCES> 298
<INVENTORY> 1334
<CURRENT-ASSETS> 7279
<PP&E> 10649
<DEPRECIATION> 7818
<TOTAL-ASSETS> 32697
<CURRENT-LIABILITIES> 5721
<BONDS> 0
0
0
<COMMON> 3812
<OTHER-SE> 20478
<TOTAL-LIABILITY-AND-EQUITY> 32697
<SALES> 13171
<TOTAL-REVENUES> 13280
<CGS> 3638
<TOTAL-COSTS> 9265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> (1989)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1989)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
