FORM 10-Q/A-1
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 March 31, 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 May 1,
1996 was 25,245,076.
<PAGE>
EDITEK, INC.
INDEX
Page
Part I Financial Information:
Item 1:
Balance Sheets - March 31, 1996 (Unaudited)
and December 31, 1995 ................................... 3
Statements of Operations - Three Months
Ended March 31, 1996 and 1995 (Unaudited) . ............. 5
Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995 (Unaudited) ................6
Notes to Financial Statements ......................7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........11
Part II Other Information .........................................17
Signatures .............................................18
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
EDITEK, Inc.
BALANCE SHEETS
March 31 December 31
1996 1995
(Unaudited) (Restated)
-------------------------------
(In Thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 880 $ 258
Accounts receivable
Trade, less allowance for
doubtful accounts ($206,000 - 1996,
$130,000 - 1995) 4,635 977
Other - 52
Inventories:
Raw Materials 607 588
Work in process 126 169
Finished goods 624 180
-----------------------
1,357 937
Deposit on acquisition - 500
Prepaid expenses and other 531 368
-----------------------
Total current assets 7,403 3,092
Equipment and improvements
Furniture and equipment 9,532 5,857
Leasehold improvements 906 1,696
----------------------
10,438 7,553
Less accumulated depreciation
and amortization (7,483) (6,824)
----------------------
2,955 729
Goodwill 22,898 117
-----------------------
$ 33,256 $ 3,938
==========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDITEK, Inc.
BALANCE SHEETS
(Continued)
March 31 December 31
1996 1995
(Unaudited) (Restated)
-------------------------------
(In Thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,885 $ 1,184
Accrued expense 1,585 834
Accrued restructuring expenses 553 -
Deferred revenues 29 42
Current portion of notes payable 1,423 82
Note payable to director - 100
-----------------------------
Total current liabilities 5,475 2,242
Long term debt 2,444 -
Other liabilities 731 -
Stockholders' equity
Preferred Stock--authorized 1,000,000
shares; 407 shares issued or
outstanding - -
Common Stock, $.15 par value;
authorized - 30,000,000 shares;
issued and outstanding -
13,194,061 shares in 1996 and
10,439,775 shares in 1995 1,979 1,566
Additional paid-in capital 58,195 33,973
Accumulated deficit (35,392) (33,667)
-------------------------------
24,782 1,872
Less: Note receivable from officer (100) (100)
Treasury stock (76) (76)
-------------------------------
Total stockholders' equity 24,606 1,696
$ 33,256 $ 3,938
===============================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31 March 31
1996 1995
-------------------------------
(In Thousands)
Restated
<S> <C> <C>
Revenues
Laboratory service revenues $ 4,748 $ 863
Product sales 796 710
Royalties and fees 63 86
Interest and other income 16 68
-------------------------------
5,623 1,727
Cost of services 3,692 949
Cost of sales 656 607
-------------------------------
Gross profit 1,275 171
Operating expenses
Selling, general and administrative 1,704 858
Research and development 345 208
Interest and financing costs 93 18
Restructuring costs 858 -
-------------------------------
3,000 1,084
------------------------------
Net loss (1,725) (913)
Less preferred stock dividends 6,783 -
_______________________________
Net loss applicable to common stockholders $ (8,508) $ (913)
Net loss per share applicable to common
stockholders $ (0.69) $ (0.11)
===============================
Weighted average number of
common shares outstanding 12,331,721 8,208,752
===============================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31 March 31
1996 1995
-------------------------------
(In Thousands)
<S> <C> <C>
Operating activities
Net loss $(1,725) ($913)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 398 163
Restructuring costs 858 -
Changes in operating assets & liabilities
net of effects from purchase of Medtox:
Accounts receivable (703) (99)
Inventories (57) 72
Prepaid expenses & other (26) 59
Accounts payable and accrued liabilities (7) (394)
Deferred revenues (68) (15)
Restructuring Accruals (173) -
Leases payable - (16)
-------------------------------
Net cash used in operating activities (1,502) (1,143)
Investing activities
Purchases of equipment & improvements (837) (34)
Cash used for MEDTOX acquisition (18,500) -
-------------------------------
Net cash used in investing activities (19,337) (34)
Financing activities
Payments on Debt (2,531) -
Proceeds from borrowings 4,995 -
Costs associated with borrowings/acquisition (736) -
Proceeds from issuance of stock for:
Employee stock purchase plan 4 7
Exercise of stock options and warrants - 90
Private placements 600 1,527
Preferred stock 20,350 -
Costs related to stock issuances (1,221) (54)
Conversion of note payable to common stock - 61
Increase in notes payable - 55
-------------------------------
Net cash provided by financing activities 21,461 1,686
-------------------------------
(Decrease) in cash and cash equivalents $ 622 $ 509
Cash and cash equivalents at beginning of period $ 258 $ 1,105
-------------------------------
Cash and cash equivalents at end of period $ 880 $ 1,614
===============================
</TABLE>
<PAGE>
EDITEK, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 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 footnotes 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 three
month period ended March 31, 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 footnotes 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 three months ended March 31, 1996
include the results of the MEDTOX operations from January 26, 1996 to March 31,
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 20 years. The consolidated
results of operations for the three months ended March 31, 1996 included 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
In March 1997, the Securities and Exchange Commission Staff (the "Staff")
announced its position on accounting for preferred stock which is convertible
into common stock at a discount from the market rate at the date of issuance.
The Staff's position is that a preferred stock dividend should be recorded for
the difference between the conversion price and the quoted market price of
common stock at the date of issuance. To comply with this position, the Company
restated its loss for the three months ended March 31, 1996 applicable to
common stockholders to reflect a deemed dividend of $6,783,333 related to the
January 1996 sales of the Series A Preferred Stock. The restatement resulted
in an increase in the previously reported net loss applicable to common
stockholders to $.69 from the previously reported amount of $.14.
NOTE F -- 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 three months ended March 31, 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.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Total revenues for the three months ended March 31, 1996 were
$5,623,000 as compared to $1,727,000 for the three months ended March 31, 1995.
The increase was attributable to the increase in revenues from products and
services. These revenues totaled $5,544,000 for the three months ended March 31,
1996, as compared to $1,573,000 for the three months ended March 31, 1995.
Laboratory service revenues were $4,748,000 for the three months ended
March 31, 1996 as compared to $863,000 for the three months ended March 31,
1995. This increase was primarily the result of the revenues from MEDTOX of
$3,616,000 for the three months ended March 31, 1996. Net of the revenues from
MEDTOX, laboratory service revenues were $1,132,000 for the three months ended
March 31, 1996, an increase of 31% as compared to the same period in 1995. This
31% increase was primarily the result of the continued sales and marketing
effort for these services. Laboratory service revenues of MEDTOX were $4,816,000
for the full three months ended March 31, 1996 as compared to $ 4,833,000 for
MEDTOX for the three months ended March 31, 1995.
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 $325,000 for the three months ended March 31, 1996 compared
to sales of $336,000 recorded for the same period in 1995.
<PAGE>
Product sales also include sales of agricultural diagnostic products.
Sales of these products were $315,000 for the three months ended March 31 1996,
an increase of 25% compared to sales of $253,000 for the three months ended
March 31, 1995. The Company had sales of $146,000 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
$169,000 for the three months ended March 31, 1996 a decrease of 33% compared to
the same period in 1995. The Company believes that the primary reason for the
decrease 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 $81,000 for the three months ended March
31, 1996 compared to $107,000 for the same period in 1995. This decrease of 24%
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 during the second quarter of 1996. 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.
Revenues generated from the shipment of products to the U.S. Department
of Defense were $75,000 for the three months ended March 31, 1996 compared to
$14,000 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 three months ended March
31, 1996 were $63,000, compared to $86,000 for the three months ended March 31,
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 three months ended
March 31, 1996 were $16,000 compared to $68,000 for the three months ended March
31, 1995. The $68,000 in 1995 included the recovery of debts owed by a customer
of laboratory services which had been written off. For the same period in 1996,
there was no such recovery of debts.
The gross margin from the revenues generated from the laboratory services
was 22% for the three months ended March 31, 1996 an increase compared to the
same period in 1995, when the cost of providing laboratory services exceeded the
revenue realized from these services. The improvement in the gross margin was
primarily due to the operations of MEDTOX which realized a gross margin of 29%.
<PAGE>
Gross margins from the sales of both manufactured products and products
purchased for resale for the three months ended March 31, 1996 were 18% compared
to 15% of sales of these products during the three months ended March 31, 1995.
This increase in gross margin from product sales is primarily the result of the
sales of products to the Department of Defense, and sales of the agricultural
products sold through DIAGNOSTIX.
Selling, general and administration expenses for the three months ended
March 31, 1996 were $1,704,000, compared to $858,000 for the three months ended
March 31, 1995. Of the $846,000 increase, MEDTOX expenses totaled $470,000. Net
of MEDTOX, there was an increase of $376,000 compared to the same period in
1995. This increase is primarily due to $208,000 of amortization expense related
to the goodwill resulting from the MEDTOX acquisition.
Research and development expenses incurred during the three months
ended March 31, 1996 were $345,000 as compared to $208,000 for the same period
in 1995. This increase of $137,000 was primarily the result of $85,000 of
research and development expenses from MEDTOX as well as increases in personnel
costs.
For the three months ended March 31, 1996, EDITEK incurred interest expense
of $93,000, compared to interest expense of $18,000 incurred during the three
months ended March 31, 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 three months ended March 31, 1996
to cover certain costs of the restructuring, including $100,000 related to
certain severance payments (see Note F of the Financial Statements). The Company
had no such charge during the three months ended March 31, 1995.
As a result of the above, the net loss for the three months ended March 31,
1996 was $1,725,000, compared to the net loss of $913,000 for the three months
ended March 31, 1995.
In March 1997, the Securities and Exchange Commission Staff (the "Staff")
announced its position on accounting for preferred stock which is convertible
into common stock at a discount from the market rate at the date of issuance. To
comply with this position, the Company restated its loss for the three months
ended March 31, 1996 applicable to common stockholders to reflect a deemed
dividend of $6,783,000 related to the January 1996 sales of the Series A
Preferred Stock. The restatement resulted in an increase in the previously
reported net loss per share applicable to common stockholders from the
previously reported $1,725,000 to $8,598,000 for the three months ended March
31, 1996. The Company had no such charge for the three months ended March 31,
1995.
Management believes the acquisition of MEDTOX and the restructuring of the
laboratory operations will significantly 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(TM) Test Kit.
<PAGE>
Material Changes in Financial Condition
As of March 31, 1996, cash and cash equivalents were $880,000 compared
to $258,000 at December 31, 1995. This increase was the result of the proceeds
received from the sale of the 407 shares of Series A Preferred Stock, as well as
proceeds received from the issuance of debt during 1996.
As of March 31, 1996, accounts receivable were $4,635,000 compared to
$1,029,000 at December 31, 1995. Of the total increase of $3,606,000, $3,506,000
was attributable to Medtox. The $100,000 increase, net of the MEDTOX
receivables, was the result of higher sales in the quarter ended March 31, 1996
as compared to sales prior to December 31, 1995.
Inventories were $1,357,000 at March 31, 1996 as compared to $937,000
at December 31, 1995. Of the total increase of $420,000, MEDTOX inventory was
$430,000 at March 31, 1996, resulting in a decrease net of MEDTOX of $10,000.
Prepaid expenses and other assets were $531,000 at March 31, 1996 as
compared to $868,000 at December 31, 1995. This decrease of $337,000, or 39%,
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 March 31, 1996, the Company had a balance of accounts payable of
$1,885,000 compared to a balance of $1,184,000 at December 31, 1995. Of the
total increase of $701,000, the payables from MEDTOX were $1,004,000 at March
31, 1996. Net of the payables from MEDTOX, the decrease of $303,000 was
primarily the result of the payment of past due expenses resulting from the
Company's improved financial condition.
Accrued expenses were $1,585,000 at March 31, 1996, as compared to
$834,000 at December 31, 1995. Of the total increase of $751,000, the accrued
expenses from MEDTOX were $929,000 at March 31, 1996. Net of the MEDTOX balance,
the decrease of $178,000 was the result of payment of certain expenses
associated with the acquisition of MEDTOX.
At March 31, 1996, the Company had accrued $604,000 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 $680,000 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 $1,284,000 at March 31, 1996. At December 31, 1995 the
Company had no accrual for restructuring costs (see Note F of the Financial
Statements).
<PAGE>
During the three months ended March 31, 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 March 31,
1996, the Company had a balance of loan payable to the North Carolina
Biotechnology Center (NCBC) of $63,000. At March 31, 1996, the Company had a
total balance of $3,777,000 for its loans payable to Heller Financial, Inc.
Primarily as a result of these transactions, the total balance of notes payable
at March 31, 1996 was $3,867,000 as compared to $182,000 at December 31, 1995.
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 March 31, 1996, the Company had cash and cash equivalents of $880,000 and
borrowing capability of approximately $3,500,000 from its revolving line of
credit. The Company believes that the balance of cash and cash equivalents at
March 31, 1996 together with the revolving line of credit should be sufficient
to fund the planned operations through 1996.
As of March 31, 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 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 Company intends to seek shareholder
approval as soon as practicable to increase the authorized Common Stock from
30,000,000 to 60,000,000. 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
Effective January 30, 1996, the Company entered into
employment contracts with Mr. James D. Skinner, Chairman of the Board, President
and CEO, Mr. Peter J. Heath, Vice President-Finance and CFO and Mr. Michael A.
Terretti, Vice President. These agreements cover the period January 30, 1996
through January 30, 1998. Thereafter, the agreements are renewed in one-year
increments unless otherwise terminated as specified in the agreements. In the
event of a termination of employment of the named individuals by the Company
without cause or by reason of a "change in control" of the Company, the
individual is entitled to receive a severance pay equal to the balance of the
employee's then current base salary for the remaining term of the agreement
(without any renewal) and an additional sum equal to twelve (12) months of the
employee's then current base salary.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.40, Form of employment agreement between the Company and Mr.
James D. Skinner, Mr. Peter J. Heath and Mr. Michael A. Terretti.
(b) Exhibit 27, Financial Data Schedule.
(c) Report on Form 8-K dated January 30, 1996, reporting the completion of the
acquisition of MEDTOX Laboratories, Inc.
(d) Report on Form 8-K dated March 5, 1996, reporting the consolidation to the
laboratory operations of PDLA into the laboratory operations of MEDTOX
Laboratories, Inc.
<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: May 13, 1996
EDITEK, INC.
By:/s/ James D. Skinner
James D. Skinner, Chairman,
President and Chief Executive Officer
By:/s/ Peter J. Heath
Peter J. Heath, Vice President
of Finance and Chief Financial Officer
<PAGE>
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