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 March 31, 2000
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
MEDTOX SCIENTIFIC, 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.)
402 West County Road D, St.Paul, Minnesota 55112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (651) 636-7466
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 3,
2000, was 2,905,411.
<PAGE>
MEDTOX SCIENTIFIC, INC.
INDEX
Page
Part I Financial Information:
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 ........................... 3
Consolidated Statements of Operations - Three
Months Ended March 31, 2000 and 1999............ 5
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2000 and 1999............ 6
Notes to Consolidated Financial Statements...... 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations . 11
Item 3:
Quantitative and Qualitative Disclosure
About Market Risk............................ 15
Part II Other Information ...................................... 16
Signatures .................................... 17
<PAGE>
Item 1: FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
March 31, 2000 December 31, 1999
------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,530 $ 576
Accounts receivable:
Trade, less allowance for doubtful
accounts ($317 in 2000 and $274 in 1999) 8,293 6,982
Other 100 125
-------------------------------
9,923 7,683
Inventories:
Raw materials 590 462
Work in process 401 230
Finished goods 160 126
Supplies 862 978
-------------------------------
2,013 1,796
Prepaid expenses and other 945 815
-------------------------------
Total current assets 12,881 10,294
EQUIPMENT AND IMPROVEMENTS:
Furniture and equipment 13,470 12,820
Leasehold improvements 1,526 1,354
-------------------------------
14,996 14,174
Less accumulated depreciation
and amortization (11,704) (11,358)
-------------------------------
3,292 2,816
GOODWILL, net of accumulated amortization of
$3,780 in 2000 and $3,568 in 1999 12,949 13,161
-------------------------------
Total assets $ 29,122 $ 26,271
==============================
</TABLE>
<PAGE>
<TABLE>
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
March 31, 2000 December 31, 1999
------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 5,114 $ 4,208
Accounts payable 3,977 3,682
Accrued expenses 1,544 1,554
Current portion of restructuring accrual 405 384
Current portion of long-term debt 1,354 1,236
Current portion of capital leases 186 186
------------------------------------------
Total current liabilities 12,580 11,250
LONG TERM PORTION OF RESTRUCTURING ACCRUAL - 85
LONG-TERM DEBT 3,060 1,737
LONG-TERM PORTION OF CAPITAL LEASES 393 409
STOCKHOLDERS' EQUITY:
Common stock, $ .15 par value:
Authorized - 7,400,000 shares in 2000 and 1999;
Issued and outstanding -
2,904,969 shares in 2000
and 2,904,410 shares in 1999 436 436
Additional paid-in capital 59,861 59,859
Accumulated deficit (47,032) (47,329)
Treasury stock (176) (176)
------------------------------------------
Total stockholders' equity 13,089 12,790
------------------------------------------
Total liabilities and stockholders' equity $ 29,122 $ 26,271
==========================================
</TABLE>
<PAGE>
<TABLE>
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
Three Months Ended
March 31, 2000 March 31, 1999
---------------------------------------------------
<S> <C> <C>
Revenues
Laboratory service revenues $ 8,285 $ 7,050
Product sales 1,391 785
--------------------------------------------
9,676 7,835
Cost of services 5,541 4,839
Cost of sales 563 407
--------------------------------------------
6,104 5,246
--------------------------------------------
Gross profit 3,572 2,589
Operating expenses
Selling, general and administrative 2,798 2,020
Research and development 249 233
Interest and financing costs 228 176
--------------------------------------------
3,275 2,429
--------------------------------------------
Net income 297 160
============================================
Basic earnings per common share .10 .06
============================================
Diluted earnings per common share .10 .06
============================================
</TABLE>
<PAGE>
<TABLE>
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31, 2000 March 31, 1999
----------------------------------------------
<S> <C> <C>
Operating activities
Net income
Adjustments to reconcile net income to net cash $ 297 $ 160
(used in) provided by operating activities:
Depreciation and amortization 558 553
Changes in operating assets and liabilities:
Accounts receivable (1,286) (1,204)
Inventories (217) (90)
Prepaid expenses and other (130) (165)
Accounts payable, accrued expenses and other 285 854
Restructuring accruals (64) (42)
-----------------------------------------
Net cash (used in) provided by operating activities (557) 66
Investing activities
Purchases of equipment and improvements (775) (77)
Financing activities
Checks in excess of bank balance - (142)
Net proceeds from sale of common stock 2 2
Net proceeds from line of credit, term loans
and notes payable 15,287 7,727
Principal payments on capital lease obligations (60) (29)
Principal payments on line of credit, term loans
and notes payable (12,943) (6,848)
-----------------------------------------
Net cash provided by financing activities 2,286 710
-----------------------------------------
Increase in cash and cash equivalents 954 699
Cash and cash equivalents at beginning of period 576 -
-----------------------------------------
Cash and cash equivalents at end of period $ 1,530 $ 699
=========================================
Supplemental noncash activities
During the three months ended March 31, 2000 and March 31, 1999, the Company
entered into capital lease agreements totaling $44,000 and $58,300,
respectively.
</TABLE>
<PAGE>
MEDTOX SCIENTIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MEDTOX
Scientific, 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
only of normal recurring adjustments) 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, 2000 are
not necessarily indicative of the results that may be attained for the entire
year. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Basic earnings per share is computed on the basis of the weighted average number
of common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common shares outstanding plus the
effect of outstanding stock options using the "treasury stock" method.
In thousands, except share and per share amounts
Three months ended
March 31, 2000 March 31, 1999
Net Income (A) $297 $160
Weighted average number of shares 2,904,478 2,875,288
of common stock outstanding (B)
Dilutive effect of stock options 139,621 16,000
---------- ----------
Common stock and common 3,044,099 2,891,288
stock equivalents (C)
Net income per share:
Basic (A/B) $ .10 $ .06
===== =====
Diluted (A/C) $ .10 $ .06
===== =====
<PAGE>
Reclassification: Certain reclassifications have been made to the 1999 financial
statements to conform with the 2000 presentations.
Comprehensive Income: Comprehensive income is a measure of all nonowner changes
in stockholders' equity and includes such items as net income, certain foreign
currency translation items, minimum pension liability adjustments, and changes
in the value of available-for-sales securities. For the three months ended March
31, 2000 and 1999, comprehensive income for the Company was equivalent to net
income as reported.
Accounting for Derivatives: In June 1997, the Financial Accounting Standards
Board released SFAS No. 133 "Accounting for Derivatives Instruments and Hedging
Activities", which will be effective for the Company beginning January 1, 2001.
SFAS No. 133 establishes new accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company has not yet completed its
analysis of the effect, if any, this standard will have on future operating
results.
NOTE B - DEBT
On January 14, 1998, the Company entered into a Credit Security Agreement (the
"Wells Fargo Credit Agreement") with Wells Fargo Business Credit (Wells Fargo).
The Wells Fargo Credit Agreement as amended as of March 31, 2000 consists of (i)
a term loan of $3,185,000, bearing interest at prime + 1.25%: (ii) an
overadvance term loan of up to $1,350,000, bearing interest at prime + 4%; (iii)
a revolving line of credit equal to the lesser of $6,000,000 or 85% of the
Company's eligible trade accounts receivable, bearing interest at prime + 1%,
and (iv) a note of up to $1,800,000, for the purchase of capital equipment
bearing interest at prime + 1.25%.
The Company has received $575,000 from private placements of subordinated debt.
The notes require payment of the principal amounts on December 31, 2001.
Interest at 12% per annum is paid semi-annually on June 30 and December 31. In
connection with the issuance of the subordinated notes, the Company issued
warrants to purchase a number of shares of common stock equal to 25% of the face
amount of the subordinated notes divided by an exercise price of $3.25 per
share.
The Company has determined the value of the warrants at the date of the grants
to be $56,000. The value of the warrants has been accounted for as additional
paid-in capital and deducted from the principal of the subordinated notes as
discount on debt issued.
The funds received from the Wells Fargo Credit Agreement and the private
placements of subordinated debt were used to fund the working capital needs of
the Company.
<PAGE>
NOTE C - SEGMENTS
The Company has two reportable segments: Product Sales and Lab Services.
The Product Sales segment is made up entirely of MEDTOX Diagnostics, Inc.
Products manufactured include easy to use, inexpensive, on-site drug tests such
as PROFILE(R)-II, EZ-SCREEN(R), and VERDICT(R). The Lab Services segment
includes MEDTOX Laboratories, Inc. Services provided include forensic
toxicology, clinical toxicology, heavy metals analyses, courier delivery, and
medical surveillance.
In evaluating financial performance, management focuses on income as a segment's
measure of profit or loss.
Segment Information
(Dollars in thousands)
Three months ended
March 31, 2000 March 31, 1999
Laboratory Services:
Net Sales 8,285 7,050
Segment Income 285 233
Segment Assets 26,430 24,598
Product Sales:
Net Sales 1,391 785
Segment Income (Loss) 12 (73)
Segment Assets 2,692 1,685
Total:
Net Sales 9,676 7,835
Income 297 160
Segment Assets 29,122 26,283
NOTE D - CONTINGENCIES
In February 1999, the Company settled a claim of patent infringement brought
against the Company by United States Drug Testing Laboratories on August 20,
1996. The Company, while denying any infringement, settled the case by paying
United States Drug Testing Laboratories $17,500 and issuing United States Drug
Testing Laboratories 2,500 shares of common stock. The Company had previously
accrued for this contingency. Under the MEDTOX Laboratories acquisition
agreement, pursuant to which the Company originally acquired MEDTOX
Laboratories, Inc., the sellers of MEDTOX Laboratories, Inc. agreed to remain
liable for any and all damages for any patent infringement which was alleged to
have occurred prior to the closing of the Company's purchase of MEDTOX
Laboratories, Inc. The acquisition agreement also provided for the sellers to
<PAGE>
indemnify and hold the Company harmless from and against any damages, loss,
liability or expense, including reasonable attorneys' fees and court costs in
connection with any infringement which was alleged to have occurred before the
closing date. It is the Company's opinion that it is entitled to recover $79,000
in damages from the sellers in accordance with the above referenced provisions
of the acquisition agreement as a result of the settlement with United States
Drug Testing Laboratories in 1999. The Company has made a formal demand on the
sellers and plans to commence an arbitration proceeding against the sellers if
payment is not made.
On January 31, 1997, the Company filed suit in Federal District Court
in Minnesota against a majority stockholder and two former outside directors
alleging violation of Section 16b of the Securities and Exchange Act of 1934 and
seeking recovery of more than $500,000 in short-swing profits. On August 4,
1997, the U.S. District Court dismissed the Company's complaint and on October
29, 1997, the Company filed an appeal of that decision to the United States
Court of Appeals for the Eighth Circuit. On July 21, 1998, the Eighth Circuit
reversed the District Court dismissal and remanded the case to the District
Court. On June 3, 1999 the U.S. District Court found the defendants had violated
Section 16(b) and ordered the defendants to pay the Company damages of $551,000
plus interest. It is likely that the defendants will appeal the decision to the
Court of Appeals. The Company has not recorded a receivable for this amount due
to the uncertainty of the matter.
On March 10, 2000, the Company was served with a copy of a complaint
filed against the Company in the Circuit Court of Cook County, Illinois, by the
Plaintiff, The Methodist Medical Center of Illinois. The Plaintiff is alleging
that the Company interfered with various contractual relationships of the
Plaintiff in connection with the referral of certain customers to the Company by
other defendants previously sued by the Plaintiff in the same action. There is
currently pending before the court, a motion to dismiss the complaint against
the Company on the basis that the Plaintiff has failed to state a cause of
action against the Company, since, among other things, the contractual
relationship in question appears to have been terminated prior to the time that
the Company became involved with the customers in question. In addition, the
other defendants in the action are contractually obligated to indemnify the
Company against any damages arising out of any claim of contractual interference
by the Company in connection with the referral of the customers to the Company
by such defendants. For these reasons, management does not expect the ultimate
resolution of this matter to have a material impact on the Company's financial
condition or results of operations.
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 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.
Introduction
MEDTOX Scientific, Inc. and its subsidiaries, MEDTOX Laboratories, Inc. and
MEDTOX Diagnostics, Inc., are referred to herein as "the Company". MEDTOX
Laboratories, Inc. is a toxicology laboratory which was founded in 1984 and
<PAGE>
provides forensic toxicology, clinical toxicology, and heavy metals analyses.
MEDTOX Diagnostics, Inc. develops, manufactures and markets on-site diagnostic
and screening tests which are used to detect substances in humans, foodstuffs,
animals, feed and the environment. The Company is transitioning these operating
units into a broader service organization by coupling the underlying laboratory
analysis and point-of-care devices with logistics management, data management
and overall program management services.
The Company has two reportable segments: Laboratory Services and Product Sales.
Laboratory Services include forensic toxicology, clinical toxicology, and heavy
metal analyses as well as logistics, data, and overall program management
services. Product Sales include a variety of on-site screening products.
The Company commenced operations as Environmental Diagnostics, Inc. 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
entered the laboratory testing market when it completed the acquisition of
Princeton Diagnostic Laboratories of America, Inc., (PDLA) in 1994. On January
30, 1996 the Company, then known as EDITEK, Inc., completed the acquisition of
MEDTOX. In 1997, the Company changed its name to MEDTOX Scientific, Inc.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
- -------------------------------------------------------------------------------
Laboratory Services
Revenues from Laboratory Services for the three months ended March 31, 2000 were
$8,285,000 as compared to $7,050,000 for the three months ended March 31, 1999.
The increase of $1,235,000 or 17.5% was primarily attributable to a 12.4%
increase in net revenue per laboratory test and a 6.0% increase in the number of
tests.
The gross margin from the revenues generated from the laboratory services was
33.1% for the three months ended March 31, 2000 as compared to a gross margin of
31.4% for the same period in 1999. The increase in gross margin is primarily
attributable to increased net revenue per test.
Selling, general and administrative expenses for the three months ended March
31, 2000 were $2,174,000 compared to $1,739,000 for the three months ended March
31, 1999. The increase of $435,000 or 25.0% in 2000 was primarily the result of
increased wages and sales expenses. As a percentage of sales, selling, general
and administrative expenses were 26.2% for the three months ended March 31, 2000
compared to 24.7% for the same period in 1999.
The Laboratory Services segment for the three months ended March 31, 2000
incurred interest and financing costs of $209,000, compared to costs of $159,000
incurred during the three months ended March 31, 1999 primarily as a result of
higher debt levels.
<PAGE>
As a result of the above, the net income for the Laboratory Services segment of
the Company for the three months ended March 31, 2000 was $285,000, compared to
the net income of $233,000 for the three months ended March 31, 1999.
Product Sales
Revenues from Product Sales for the three months ended March 31, 2000 increased
77.2% to $1,391,000 as compared to $785,000 for the three months ended March 31,
1999. The increase was primarily attributable to increased sales of substance
abuse testing products.
Product sales from substance abuse testing products, which incorporates the
EZ-SCREEN PROFILE(R)-II and VERDICT(R)-II on-site test kits and other ancillary
products for the detection of abused substances, increased 119.9% to $983,000
for the three months-ended March 31, 2000 compared to sales of $447,000 for the
same period in 1999. The increase in product sales is primarily due to a strong
response to the introduction of the Company's second-generation test kits,
PROFILE(R)-II and VERDICT(R)-II. The Company is continuing to develop new
products in this area and plans to introduce its Emergency Room (ER) panel in
the latter part of 2000.
Product sales from agricultural diagnostic products decreased 27.1% to $113,000
for the three months ended March 31, 2000 compared to $155,000 in 1999. The
primary reason for the decrease of $42,000 was the result of decreased purchases
by the USDA of the Company's products. The USDA's needs for the Company's
products vary from quarter to quarter and sales to the USDA are expected to
fluctuate accordingly.
Sales of contract manufacturing services, microbiological and associated
products increased 63.0% to $295,000 for the three months ended March 31, 2000
compared to $181,000 in 1999. This increase was due to increased revenue from
both historical and new customers.
Gross margins from Product Sales for the three months ended March 31, 2000 were
59.5% compared to 48.2% for the three months ended March 31, 1999. The increase
in gross margin from product sales was due to higher marginal profit at the
increased sales volumes.
Selling, general and administrative expenses for Products Sales during the three
months ended March 31, 2000 were $624,000 compared to $281,000 for the three
months ended March 31, 1999. The increase of $343,000 or 122.1% was primarily
the result of increased sales expense associated with higher sales volume.
Research and development expenses incurred for Product Sales during the three
months ended March 31, 2000 were $172,000 as compared to $153,000 for the same
<PAGE>
period in 1999. The increase of $19,000 or 12.4% was primarily the result of the
costs associated with new product development efforts.
As a result of the above, the Product Sales segment net income for the three
months ended March 31, 2000 was $12,000, compared to the net loss of ($73,000)
for the three months ended March 31, 1999.
Material Changes in Financial Condition
- ---------------------------------------
Laboratory Services
As of March 31, 2000 the cash balance for Laboratory Services was $1,485,000
compared to $513,000 as of December, 31, 1999. This increase of $972,000 or
189.5% was due to the deposit of the proceeds from the Company's refinancing of
its term debt with Wells Fargo Business Credit on March 31, 2000.
As of March 31, 2000 net accounts and notes receivable for Laboratory Services
were $7,272,000 compared to $6,318,000 at December 31, 1999. This increase of
$954,000 or 15.1% was primarily the result of higher sales for the quarter ended
March 31, 2000 as compared to quarter ended December 31, 1999.
Inventories were $862,000 at March 31, 2000 compared to $978,000 at December 31,
1999. The decrease of $116,000, or 11.9% is largely attributable to a
stockpiling of additional inventory at December 31, 1999 in order to protect
against potential delivery problems from key suppliers due to "Year 2000" issues
that did not materialize.
Prepaid expenses and other assets were $746,000 at March 31, 2000 as compared to
$669,000 at December 31, 1999. This increase of $77,000 or 11.5% is attributable
to annual insurance and maintenance contract fees paid during the quarter.
At March 31, 2000, Laboratory Services had total debt obligations of $8,722,000
compared to a total balance of $6,489,000 at December 31, 1999. The increase of
$2,233,000 or 34.4% was primarily the result of increased borrowing on March 31,
2000 in connection with the Company's refinancing. The proceeds from the
refinancing were used to fund the Company's operations during the first quarter
of 2000 and pay down the line of credit, which occurred in the second quarter of
2000.
Product Sales
At March 31, 2000, net accounts receivable for Product Sales were $1,121,000,
compared to $789,000 at December 31, 1999. This increase of $332,000 or 42.1%
was primarily due to higher sales in the quarter ended March 31, 2000 as
compared to the quarter ended December 31, 1999.
<PAGE>
Inventories were $1,151,000 at March 31, 2000 compared to $818,000 at December
31, 1999. The increase of $333,000, or 40.7% is primarily attributable to the
anticipation of increases in product sales in the second quarter of 2000.
Prepaid expenses and other assets were $199,000 at March 31, 2000 as compared to
$146,000 at December 31, 1999. The increase of $53,000 or 36.3% is primarily the
result of partial payments on inventory not yet received as of March 31, 2000.
At March 31, 2000, the Product Sales segment had total debt obligations of
$806,000, compared to a total balance of $692,000 owed at December 31, 1999. The
increase of $114,000, or 16.5%, was the result of increased borrowing on March
31, 2000 in connection with the Company's refinancing of its term debt with
Wells Fargo Business Credit, Inc. The proceeds from this refinancing will be
used to fund operations.
Liquidity and Capital Resources
Cash received from operations and debt financing have been the primary sources
of funding for the working capital requirements of the Company. At March 31,
2000, the Company had total availability of $5,251,000 on its line of credit of
which $5,114,000 was borrowed, leaving a net availability of $137,000. The
Company also has the proceeds from the renegotiation of its term debt, which
were deposited in the Company's account on March 31, 2000. The Company believes
that the aforementioned capital will be sufficient to fund the Company's planned
operations through the remainder of 2000. While there can be no assurance that
the available capital will be sufficient to fund the future operations of the
Company beyond 2000, the Company believes that consistent profitable earnings,
as well as access to debt and equity, will be the primary basis for funding the
operations of the Company for the long term.
The Company continues to follow a plan which includes (i) continuing to
aggressively monitor and control costs and (ii) increasing revenue from sales of
the Company's products, services, and research and development contracts. There
can be no assurance that costs can be controlled, revenues can be increased,
financing may be obtained, or that the Company will continue to be profitable.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
- ------ ----------------------------------------------------------
Market risk is the risk that the Company will incur losses due
to adverse changes in interest rates or currency exchange rates and prices. The
Company's primary market risk exposures are to changes in interest rates. During
1999 and through March 31, 2000, the Company did not have sales denominated in
foreign currencies nor did it have any subsidiaries located in foreign
countries. As such, the Company is not exposed to market risk associated with
currency exchange rates and prices.
<PAGE>
The Company had $575,000 of subordinated notes outstanding as
of March 31, 2000 and December 31, 1999, at a fixed interest rate of 12% per
annum. The Company also had capital leases at various fixed rates. These
financial instruments are subject to interest rate risk and will increase or
decrease in value if market interest rates change.
The Company had approximately $8.8 million and $6.6 million
outstanding on its line of credit and long-term debt issued under the Wells
Fargo Credit Agreement as of March 31, 2000 and December 31, 1999, respectively.
The debt under the Wells Fargo Credit Agreement is held at variable interest
rates. The Company has cash flow exposure on its committed and uncommitted line
of credit and long-term debt due to its variable prime rate pricing. At March
31, 2000 and December 31, 1999, a 1% change in the prime rate would not
materially increase or decrease interest expense or cash flows.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS. See Part I, Note D
- ------ ------------------
ITEM 2 CHANGES IN SECURITIES. Inapplicable
- ------ ----------------------
ITEM 3 DEFAULTS ON SENIOR SECURITIES. Inapplicable
- ------ -----------------------------
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. Inapplicable
- ------ -----------------------------------------------------
ITEM 5 OTHER INFORMATION. Inapplicable
- ------ ------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
a. Exhibits: Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: Inapplicable
<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 12, 2000
MEDTOX SCIENTIFIC, INC.
By: /s/ Harry G. McCoy
Harry G. McCoy, Chairman and President
By: /s/ Richard J. Braun
Richard J. Braun, Chief Executive Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,530
<SECURITIES> 0
<RECEIVABLES> 8,610
<ALLOWANCES> 317
<INVENTORY> 2,013
<CURRENT-ASSETS> 12,881
<PP&E> 14,996
<DEPRECIATION> 11,704
<TOTAL-ASSETS> 29,122
<CURRENT-LIABILITIES> 12,580
<BONDS> 0
0
0
<COMMON> 436
<OTHER-SE> 12,653
<TOTAL-LIABILITY-AND-EQUITY> 29,122
<SALES> 9,676
<TOTAL-REVENUES> 9,676
<CGS> 6,104
<TOTAL-COSTS> 9,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> 297
<INCOME-TAX> 0
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
