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, 1997
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 April
30, 1997 was 49,557,471.
<PAGE>
EDITEK, INC.
INDEX
Page
Part I Financial Information:
Item 1:
Consolidated Balance Sheets - March 31, 1997 (Unaudited)
and December 31, 1996 ............................................ 3
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1996 (Unaudited) ........................ 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996 (Unaudited) ........................ 6
Notes to Consolidated Financial Statements........................ 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................11
Part II Other Information ................................................16
Signatures .................. ....................................17
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
EDITEK, Inc.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31 December 31
1997 1996
(Unaudited)
----------------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 88 $ 82
Accounts receivable:
Trade, less allowance for
doubtful accounts ($339-1997; $358-1996) 4,914 4,476
Other 77 77
----------------------------------
4,991 4,553
Inventories:
Raw materials 494 488
Work in process 146 146
Finished goods 707 656
----------------------------------
1,347 1,290
Prepaid expenses and other 373 140
----------------------------------
Total current assets 6,799 6,065
Equipment and improvements:
Furniture and equipment 9,567 9,200
Leasehold improvements 932 929
----------------------------------
10,499 10,129
Less accumulated depreciation
and amortization (8,184) (7,951)
----------------------------------
2,315 2,178
Goodwill, net 15,599 15,836
----------------------------------
Total assets $ 24,713 $ 24,079
==================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
CONSOLIDATED BALANCE SHEETS
(Continued)
<CAPTION>
March 31 December 31
1997 1996
(Unaudited)
----------------------------------
(In thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Line of credit $ 2,358 $ 1,437
Accounts payable 2,703 2,387
Accrued expenses 1,922 2,074
Current portion of restructuring accrual 816 899
Current portion of long-term debt 2,455 2,790
Current portion of capital lease obligation 22 -
Other current liabilities 25 40
----------------------------------
Total current liabilities 10,301 9,627
Long-term portion of restructuring accrual 775 904
Capital lease obligation 111 -
Stockholders' equity Preferred Stock, $1.00 par value:
Authorized - 1,000,000 shares;
Issued and outstanding -
9 shares in 1997 and 238 in 1996 - -
Common Stock, $.15 par value:
Authorized - 60,000,000 shares;
Issued and outstanding -
49,080,653 shares in 1997 and
25,555,796 shares in 1996 7,362 3,834
Additional paid-in capital 52,785 56,366
Accumulated deficit (46,445) (46,476)
------------------------------
13,702 13,724
Less: Treasury stock (176) (176)
------------------------------
Total stockholders' equity 13,526 13,548
------------------------------
Total liabilities and stockholders' equity $ 24,713 $ 24,079
==============================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
March 31 March 31
1997 1996
----------------------------------
(In thousands,except share and
per share data)
Restated
<S> <C> <C>
Revenues
Laboratory service revenues $ 6,143 $ 4,748
Product sales 660 796
Royalties and fees - 63
Interest and other income 3 16
----------------------------
6,806 5,623
Cost of services 3,852 2,989
Cost of sales 439 656
----------------------------
4,291 3,645
----------------------------
Gross profit 2,515 1,978
Operating expenses
Selling, general and administrative 2,159 2,407
Research and development 206 345
Interest and financing costs 119 93
Restructuring costs - 858
----------------------------
2,484 3,703
----------------------------
Net income (loss) 31 (1,725)
Less preferred stock dividends - 6,783
----------------------------
Net income (loss) applicable to common stockholders $ 31 $ (8,508)
Net income (loss) per share applicable to common
stockholders $ 0.00 $ (0.69)
============================
Weighted average number of
common shares outstanding 46,541,154 12,331,721
===============================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31 March 31
1997 1996
---------------------------------
<S> <C> <C>
(In thousands)
Operating activities
Net income (loss) $ 31 $ (1,725)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 470 398
Provision for losses on accounts receivables (19) (24)
Provision for obsolete inventory (69) -
Restructuring costs - 858
Changes in operating assets and liabilities,
net of acquisition:
Accounts receivable (419) (678)
Inventories 12 (57)
Prepaid expenses and other (233) (26)
Accounts payable, accrued expenses and other 149 (75)
Restructuring accruals (212) (173)
---------------------------------
Net cash used in operating activities (290) (1,502)
Investing activities
Purchases of equipment and improvements (237) (837)
Cash used for MEDTOX acquisition - (18,500)
---------------------------------
Net cash used in investing activities (237) (19,337)
Financing activities
Net proceeds from sale of preferred stock - 19,129
Net proceeds (costs) from sale of common stock (53) 604
Net proceeds from line of credit, term loans
and notes payable 921 4,259
Principal payments on line of credit, term loans
and notes payable (335) (2,531)
---------------------------------
Net cash provided by financing activities 533 21,461
---------------------------------
Increase in cash and cash equivalents 6 622
Cash and cash equivalents at beginning of period 82 258
---------------------------------
Cash and cash equivalents at end of period $ 88 $ 880
=================================
Supplemental noncash activities
In March 1997, the Company entered into a capital lease obligation of $133,000 to purchase equipment.
In January 1996, the Company acquired Medtox Laboratories, Inc. The purchase price was $24 million,
which included $19 million cash and the issuance of $5 million in common stock (2,517,306 shares).
During 1997, the Company converted 229 shares of preferred stock into 21,112,342 shares of common stock.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
EDITEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 1997 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, 1996.
Net Income (Loss) Per Share: Net income (loss) per share amounts are based on
the weighted average number of shares of common stock outstanding.
Reclassifications: Certain reclassifications have been made to the 1996
financial statements to conform with the 1997 presentation.
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. Utilizing an undiscounted
cash flow analysis, the Company concluded that the carrying value of the
remaining goodwill associated with the MEDTOX acquisition exceeded the estimated
future cash flows. Accordingly, the Company recorded a write-off of $6,016,000
at December 31, 1996.
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.
<PAGE>
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 was 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. In September 1996, the Company sold the former
Bioman operations to a company headed by certain of the former employees of the
Company and Bioman.
NOTE D -- DEBT
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% above the prime rate and 2.0%
above the prime rate, respectively. The revolving line of credit carries an
interest rate equal to 1.5% above the prime rate.
As of March 31, 1997, the Company was not in compliance with certain covenants
in its loan agreement with Heller. As a result of the existence and continuance
of the lack of compliance, Heller has established a reserve by reducing the
availability under the revolving line of credit. The amount of the reserve at
March 31, 1997 is $444,000. The Company and Heller are in the process of
establishing new covenants where appropriate.
NOTE E -- RESTATEMENT OF 1996 FINANCIAL STATEMENTS
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 1996 loss applicable to common stockholders for the three months
ended March 31, 1996 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 to $.69 from the previously reported amount of $.14.
NOTE F -- CONTINGENCIES
The Company was sued in Federal District Court for the Southern District of New
York in five separate lawsuits commenced by holders of Editek Series A
Convertible Preferred Stock. The lawsuits allege breach of contract with respect
<PAGE>
to conversion of the Preferred Stock in regards to the Company's inability to
issue common stock upon the conversion of shares of preferred stock, and certain
plaintiffs have also alleged misrepresentation and securities laws violations in
connection with the sale of the Preferred Stock. In December 1996, the Company's
shareholders approved an increase in the authorized common stock of the Company.
Each of the five lawsuits has been settled and dismissed with prejudice.
The Company is a defendant to claims of patent infringement asserted on August
20, 1996. It is alleged the Company infringes two patents allegedly owned by the
plaintiff relating to forensically acceptable determinations of gestational
fetal exposure to drugs and other chemical agents. The Company has answered the
complaint denying any infringement and has counterclaimed for a declatory
judgment that the patents are invalid, unenforceable, and not infringed. It also
has counterclaimed for unfair competition under federal and state law,
requesting money damages as well as injunctive relief. The Company intends to
vigorously pursue its defense of the claims and to vigorously prosecute its
counterclaims.
On March 18, 1997, a lawsuit was commenced in New York State Court by a former
holder of the Series A Preferred Stock claiming entitlement to additional shares
of Common Stock as a result of the Company's previous inability to issue the
conversion shares. The conversion shares have been issued to the former Series A
Preferred Shareholder. The Company has denied any liability and intends to
contest the lawsuit unless a reasonable settlement can be reached.
The Company believes that the probable resolution of the above contingencies
will not materially affect the financial position or results of operations of
the Company.
On January 31, 1997, the Company filed suit in Federal District Court in
Minnesota against a majority shareholder and two outside directors of the
Company alleging violation of Section 16b of the Securities Exchange Act of 1934
and seeking recovery of more than $500,000 in short-swing profits.
<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. 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, 1997 Compared to Three Months Ended March 31, 1996
Total revenues for the three months ended March 31, 1997 were
$6,806,000 as compared to $5,623,000 for the three months ended March 31, 1996.
The increase was attributable to the increase in revenues from products and
services. These revenues totaled $6,803,000 for the three months ended March 31,
1997, as compared to $5,544,000 for the three months ended March 31, 1996.
Laboratory service revenues were $6,143,000 for the three months ended
March 31, 1997 as compared to $4,748,000 for the three months ended March 31,
1996. This increase of 29% was primarily the result of the timing of the
acquisition of MEDTOX whereby the Company realized revenues from MEDTOX for
approximately two months during the quarter ended March 31, 1996, as compared to
the complete quarter ended March 31, 1997. Had the acquisition of MEDTOX been
effective January 1, 1996, the Company would have had revenues of $5,948,000
from laboratory services during the quarter ended March 31, 1996, as compared to
the $6,143,000 realized from the sale of laboratory services during the quarter
ended March 31, 1997, this would represent a pro forma increase of $195,000 or
3%.
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 $437,000 for the three months ended March 31, 1997 compared
to sales of $325,000 recorded for the same period in 1996. This increase of 34%
was primarily due to sales of the EZ-SCREEN PROFILE test kits which were first
introduced to the market in May, 1996.
<PAGE>
Product sales also include sales of agricultural diagnostic products.
Sales of these products were $143,000 for the three months ended March 31 1997,
compared to sales of $315,000 for the three months ended March 31, 1996. For the
three months ended March 31, 1996, the Company had sales of $146,000 which were
generated through the former operations of Bioman. Excluding these revenues,
sales of agricultural diagnostic products were $169,000 for the three months
ended March 31, 1996. As such, the sales of these products for the three months
ended March 31, 1997 were, on a pro forma basis, 15% lower than during the
comparable period in 1996. 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 contract manufacturing services, microbiological and
associated product sales were $80,000 for the three months ended March 31, 1997
compared to $81,000 for the same period in 1996.
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. The Company
had no such sales during the three months ended March 31, 1997. The contract the
Company had with the Department of Defense has expired. At this time, the
Company does not know if the U.S. Department of Defense intends to purchase any
more of the kits the Company has developed.
For the three months ended March 31, 1997, the Company had no revenues
from royalties and fees, compared to $63,000 for the three months ended March
31, 1996. This decrease was primarily due to the absence of royalties from AML
as the agreement with AML has expired.
Revenues from interest and other income for the three months ended
March 31, 1997 were $3,000 compared to $16,000 for the three months ended March
31, 1996.
The gross margin from the revenues generated from the laboratory
services was 37% for the three months ended March 31, 1997 as compared to a
gross margin of 37% for the same period in 1996. During the three months ended
March 31, 1997, the Company was able to offset declining average selling prices
by reducing costs through the consolidation of laboratory operations in 1996 as
well as continued improvements in efficiency of laboratory operations.
If the Company had been unable to reduce its cost of laboratory operations,
the declining average selling prices would have had a material impact on
the operating results for the three months ended March 31, 1997.
<PAGE>
Gross margins from the sales of both manufactured products and products
purchased for resale for the three months ended March 31, 1997 were 33% compared
to 18% of sales of these products during the three months ended March 31, 1996.
This increase in gross margin from product sales is primarily the result of
increased sales of the EZ-SCREEN PROFILE product as well as reduced costs as a
result of certain restructuring steps taken in 1996.
Selling, general and administration expenses for the three months ended
March 31, 1997 were $2,159,000, compared to $2,407,000 for the three months
ended March 31, 1996. The $248,000 reduction in these expenses in 1997 was
primarily the result of the consolidation of certain administrative functions
into the MEDTOX facility.
Research and development expenses incurred during the three months
ended March 31, 1997 were $206,000 as compared to $345,000 for the same period
in 1996. The reduction of $139,000 in research and development expenses is
primarily the result of a reduction of personnel and a refocus of efforts in the
research and development function associated with the Company's on-site
products.
For the three months ended March 31, 1997, EDITEK incurred interest expense
of $119,000, compared to interest expense of $93,000 incurred during the three
months ended March 31, 1996. This increase was the result of the funds borrowed
by the Company to complete the financing for the acquisition of MEDTOX.
During the three months ended March 31, 1996, 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 recorded a 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. The Company had no such charge during the three
months ended March 31, 1997.
As a result of the above, the net income for the three months ended
March 31, 1997 was $31,000, compared to the net loss of $1,725,000 for the
three months ended March 31, 1996.
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 applicable to common stockholders from the previously reported
$1,725,000 to $8,508,000 for the three months ended March 31, 1996. The Company
had no such charge for the three months ended March 31, 1997.
<PAGE>
Management believes the acquisition of MEDTOX and the restructuring of
the laboratory operations has and will continue to improve the operating results
of the Company, although there can be no assurance of the continued success of
the consolidation of the laboratory operations in reducing costs and improving
efficiencies. Management expects net sales to grow through both the addition of
new accounts and the introduction of new laboratory testing services and on-site
products. In addition, the Company believes that the laboratory business is
subject to seasonality consistent with hiring practices of its clients. This
seasonality results in higher sales in the second quarter with lower sales in
July and December.
Material Changes in Financial Condition
As of March 31, 1997, cash and cash equivalents were $88,000 compared
to $82,000 at December 31, 1996.
As of March 31, 1997, accounts receivable were $4,991,000 compared to
$4,553,000 at December 31, 1996. The increase of $438,000 is primarily the
result of higher sales in the quarter ended March 31, 1997 as compared to the
quarter ended December 31, 1996.
Inventories were $1,347,000 at March 31, 1997 as compared to $1,290,000
at December 31, 1996.
Prepaid expenses and other assets were $373,000 at March 31, 1997 as
compared to $140,000 at December 31, 1996. The increase of $233,000 is primarily
the result of the renewal of annual maintenance contracts, annual licenses and
fees and an increase in prepaid supplies.
As of March 31, 1997, accounts payable totaled $2,703,000 compared to
$2,387,000 at December 31, 1996. The increase of $316,000, or 13%, is primarily
the result of increased purchases of kits, forms and other supplies in
anticipation of increased business for the laboratory testing services
consistent with the seasonality of the business.
Accrued expenses were $1,922,000 at March 31, 1997, as compared to
$2,074,000 at December 31, 1996. The decrease of $152,000, or 7%, was the result
of payments made during the first three months of 1997 for expenses accrued at
December 31, 1996.
At March 31, 1997, the Company had a total balance of restructuring
accruals of $1,591,000 compared to a balance of $1,803,000 at December 31, 1996.
The decrease in the balance of the restructuring accruals of $212,000, or 12%,
was the result of payments made during the three months ended March 31, 1997.
<PAGE>
At March 31, 1997, the Company had a total loan balance owed to its
financial lender of $4,813,000, compared to a total balance of $4,227,000 owed
at December 31, 1996. The net increase of $586,000, or 14%, was the result of
increased borrowings by the Company from its line of credit to pay certain
accrued expenses and restructuring accruals as well as purchases of certain
assets to improve operating efficiencies.
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 and more recently debt financing. At March 31, 1997, the Company had
cash and cash equivalents of $88,000. To finance the acquisition of MEDTOX and
provide working capital, the Company raised $20,350,000 from the sale of 407
shares of Series A Preferred Stock and borrowed $5,000,000. The debt financing
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 "Loan Agreement"). 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 each are 2.5% above the prime rate and
2.0% above the prime rate. The revolving line of credit carries an interest rate
equal to 1.5% above the prime rate. In the short term, the Company believes that
the aforementioned capital will be sufficient to fund the Company's planned
operations through 1997, although there can be no assurance that the available
capital will be sufficient to fund the future operations of the Company beyond
1997. The Company believes that consistent profitable earnings, as well as
access to capital, will be the primary basis for funding the operations of the
Company for the long term.
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.
<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. Inapplicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
There were no reports filed on Form 8-K during the three months ended
March 31, 1997.
<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 9, 1997
EDITEK, INC.
By: /s/ Harry G. McCoy
Harry G. McCoy, Chairman and President
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
