-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PxRTrcyqUY2RWxkrLD32O7niAOvPbvPNBGplUHeybny7aCHTzsDg3h/AtahJ/cQ6 SHe7mH5hHmGFCY+ubAxe+g== /in/edgar/work/20000814/0000739944-00-000010/0000739944-00-000010.txt : 20000921 0000739944-00-000010.hdr.sgml : 20000921 ACCESSION NUMBER: 0000739944-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDTOX SCIENTIFIC INC CENTRAL INDEX KEY: 0000739944 STANDARD INDUSTRIAL CLASSIFICATION: [2835 ] IRS NUMBER: 953863205 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11394 FILM NUMBER: 700376 BUSINESS ADDRESS: STREET 1: 402 WEST COUNTY ROAD D CITY: ST PAUL STATE: MN ZIP: 55112 BUSINESS PHONE: 6126367466 MAIL ADDRESS: STREET 1: 402 WEST COUNTY ROAD D CITY: ST PAUL STATE: MN ZIP: 55112 FORMER COMPANY: FORMER CONFORMED NAME: EDITEK INC DATE OF NAME CHANGE: 19940902 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL DIAGNOSTICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt FORM 10-Q FOR PERIOD ENDING JUNE 30, 2000 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 August 4, 2000, was 3,404,346. MEDTOX SCIENTIFIC, INC. INDEX Page Part I Financial Information: Item 1: Financial Statements Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 ................................ 3 Consolidated Statements of Operations - Three And Six Months Ended June 30, 2000 and 1999.......... 5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 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..................................... 17 Part II Other Information ............ ........................ 18 Item 2: Changes in Securities................................. 18 Item 4: Submission of Matters to a Vote of Securities Holders.... 19 Signatures ....................................... 20 Item 1: FINANCIAL STATEMENTS MEDTOX SCIENTIFIC, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, 2000 December 31, 1999 ------------------------------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ 576 Accounts receivable: Trade, less allowance for doubtful accounts ($326 in 2000 and $274 in 1999) 9,207 6,982 Other 87 125 ----------------------------- 9,294 7,683 Inventories: Raw materials 645 462 Work in process 320 230 Finished goods 190 126 Supplies 1,061 978 ----------------------------- 2,216 1,796 Prepaid expenses and other 777 815 ----------------------------- Total current assets 12,287 10,294 EQUIPMENT AND IMPROVEMENTS: Furniture and equipment 14,865 12,820 Leasehold improvements 1,649 1,354 ----------------------------- 16,514 14,174 Less accumulated depreciation and amortization (12,073) (11,358) ----------------------------- 4,441 2,816 GOODWILL, net of accumulated amortization of $3,994 in 2000 and $3,568 in 1999 12,735 13,161 ----------------------------- Total assets $ 29,463 $ 26,271 =============================
MEDTOX SCIENTIFIC, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, 2000 December 31, 1999 ------------------------------------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Checks written in excess of bank balances $ 352 $ - Line of credit 4,829 4,208 Accounts payable 3,293 3,682 Accrued expenses 1,586 1,554 Current portion of restructuring accrual 235 384 Current portion of long-term debt 1,427 1,236 Current portion of capital leases 186 186 ------------------------------- Total current liabilities 11,908 11,250 LONG TERM PORTION OF RESTRUCTURING ACCRUAL - 85 LONG-TERM DEBT 3,385 1,737 LONG-TERM PORTION OF CAPITAL LEASES 572 409 STOCKHOLDERS' EQUITY: Preferred Stock, $1.00 par value: Authorized - 50,000 shares; Issued and outstanding - none in 2000 and none in 1999 - - Common Stock, $ .15 par value: Authorized - 7,400,000 shares in 2000 and 1999; Issued and outstanding - 2,937,073 shares in 2000 and 2,904,410 shares in 1999 441 436 Additional paid-in capital 59,884 59,859 Accumulated deficit (46,551) (47,329) Treasury stock (176) (176) ------------------------------ Total stockholders' equity 13,598 12,790 ------------------------------ Total liabilities and stockholders' equity $ 29,463 $ 26,271 ==============================
MEDTOX SCIENTIFIC, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 ------------------------------------------------------------------ Revenues Laboratory service revenues $ 9,460 $ 8,210 $ 17,745 $ 15,260 Product sales 1,856 942 3,247 1,727 ------------------------------------------------------------------ 11,316 9,152 20,992 16,987 Cost of services 6,093 5,386 11,634 10,225 Cost of sales 809 549 1,372 956 ----------------------------------------------------------------- 6,902 5,935 13,006 11,181 ------------------------------------------------------------------ Gross profit 4,414 3,217 7,986 5,806 Operating expenses Selling, general and administrative 3,349 2,254 6,147 4,274 Research and development 306 187 555 420 Interest and financing costs 278 199 506 375 Other non-recurring - (164) - (164) ---------------------------------------------------------------- 3,933 2,476 7,208 4,905 ---------------------------------------------------------------- Net income 481 741 778 901 ================================================================ Basic earnings per common share $ 0.17 $ 0.26 $ 0.27 $ 0.31 ================================================================== Diluted earnings per common share $ 0.16 $ 0.25 $ 0.26 $ 0.31 ==================================================================
MEDTOX SCIENTIFIC, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Six Months Ended June 30, 2000 June 30, 1999 ---------------------------------------------- Operating activities Net income $ 778 $ 901 Adjustments to reconcile net income to net cash (used in)provided by operating activities: Depreciation and amortization 1,141 1,113 Changes in operating assets and liabilities: Accounts receivable (2,187) (1,470) Inventories (420) (115) Prepaid expenses and other 38 (204) Accounts payable, accrued expenses and other (357) (827) Restructuring accruals (234) (421) ---------------------------------------------- Net cash (used in) provided by operating activities (1,241) (1,023) Investing activities Purchases of equipment and improvements (2,042) (529) ---------------------------------------------- Financing activities Checks in excess of bank balance 352 (84) Net proceeds from sale of common stock 30 2 Net proceeds from line of credit, term loans and notes payable 31,954 19,061 Principal payments on capital lease obligations (135) (112) Principal payments on line of credit, term loans and notes payable (29,494) (17,315) ---------------------------------------------- Net cash provided by financing activities 2,707 1,552 ---------------------------------------------- Increase in cash and cash equivalents (576) - Cash and cash equivalents at beginning of period 576 - ---------------------------------------------- Cash and cash equivalents at end of period $ - $ - ============================================= Supplemental non cash activities: During the six months ended June 30, 2000 and June 30, 1999, the Company entered into capital lease agreements totaling $297,600 and $58,300, respectively.
MEDTOX SCIENTIFIC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 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 six-month period ended June 30, 2000 are not necessarily indicative of the results that may be attained for the entire year. These interim 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 Six months ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 ------------- ------------- ------------ ------------ Net Income (A) $481 $741 $778 $901 Weighted average number of shares 2,915,610 2,903,502 2,910,044 2,902,414 of common stock outstanding (B) Dilutive effect of stock options 134,484 30,386 137,105 23,193 ---------- --------- --------- --------- Common stock and common 3,050,094 2,933,888 3,047,149 2,925,607 stock equivalents (C) ========= ========= ========= ========= Net income per share: Basic (A/B) $ .17 $ .26 $ .27 $ .31 ===== ===== ===== ===== Diluted (A/C) $ .16 $ .25 $ .26 $ .31 ===== ===== ===== =====
Earnings Per Share: Options to purchase 438,959 shares of common stock were outstanding at June 30, 2000. Of these, 248,500 and 303,001 were dilutive for the three and six months, respectively, and included in the computation above while the remaining options were not included in the computation of diluted earnings per share as their exercise prices were greater than the average market price of the common shares. Options to purchase 371,416 shares of common stock were outstanding at June 30, 1999. Of these, 62,500 were dilutive for the three and six months, and included in the computation above while the remaining options were not included in the computation of diluted earnings per share as their exercise prices were greater than the average market prices of the common shares. Reclassification: Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentations. 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. Revenue Recognition: In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements". SAB No. 101 summarizes certain of the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues. SAB No. 101 is to be implemented by the Company no later than the fourth quarter of fiscal 2000. The Company is currently reviewing SAB No. 101 and its effects on the financial statements, but does not expect it to have a significant effect on its financial position or results of its operations. 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, 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 dates 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. 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 Six Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 Laboratory Services: Net Sales 9,460 8,210 17,745 15,260 Segment Income 419 710 704 943 Segment Assets 26,488 24,189 26,488 24,189 Product Sales: Net Sales 1,856 942 3,247 1,727 Segment Income (Loss) 62 31 74 (42) Segment Assets 2,975 1,616 2,975 1,616 Total: Net Sales 11,316 9,152 20,992 16,987 Income 481 741 778 901 Segment Assets 29,463 25,805 29,463 25,805
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 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 16(b) 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. The parties are currently engaged in pre-trial discovery on additional claims and counterclaims between the parties regarding the same basic transactions. A February 2001 trial date has been set by the court to resolve these remaining matters. It is likely that one or both parties may appeal the results of the trial court depending on the final result. 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. NOTE E - SUBSEQUENT EVENTS On July 31, 2000 the Company completed a private equity financing through the sale, exclusively to accredited investors, of 450,000 units at a gross aggregate price of $4,500,000, or $10.00 per unit, resulting in net proceeds of approximately $4,040,000 after deducting agents' commissions of $440,000 and other estimated expenses. Each unit consisted of one share of common stock and one five-year warrant to purchase one additional share of common stock at an exercise price of $12.50. In connection with the private placement, the Company also issued five-year warrants to the placement agent to purchase 45,000 shares of common stock at an exercise price of $12.50 per share. On August 4, 2000 the Company closed on the purchase of certain assets from NMRO, Inc. in exchange for $75,000 in cash plus 15,152 shares of common stock of the Company. 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 provides forensic toxicology, clinical toxicology, heavy metals analyses, courier delivery and medical surveillance. 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 courier services, medical 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 June 30, 2000 Compared to Three Months Ended June 30, 1999 Laboratory Services Revenues from Laboratory Services for the three months ended June 30, 2000 were $9,460,000 as compared to $8,210,000 for the three months ended June 30, 1999. The increase of $1,250,000 or 15.2% was primarily attributable to a 7.9% increase in net revenue per laboratory test and a 9.8% increase in the number of tests. The gross margin from the revenues generated from the laboratory services was 35.6% for the three months ended June 30, 2000 as compared to a gross margin of 34.4% 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 June 30, 2000 were $2,598,000 compared to $2,009,000 for the three months ended June 30, 1999. The increase of $589,000 or 29.3% in 2000 was primarily the result of increased wages and sales expenses as the Company continues to upgrade the management team and sales force. The Laboratory Services segment for the three months ended June 30, 2000 incurred interest and financing costs of $259,000, compared to costs of $183,000 incurred during the three months ended June 30, 1999 primarily as a result of higher debt levels and increasing interest rates. As a result of the above, net income for the Laboratory Services segment of the Company for the three months ended June 30, 2000 was $419,000, compared to the net income of $546,000, net of a one time gain of $164,000 resulting from a favorable legal settlement, for the three months ended June 30, 1999. Product Sales Revenues from Product Sales for the three months ended June 30, 2000 increased 97.0% to $1,856,000 as compared to $942,000 for the three months ended June 30, 1999. The increase was primarily attributable to continued growth of the VERDICT(R) and PROFILE(R) product lines. 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 136.9% to 1,329,000 for the three months-ended June 30, 2000 compared to sales of $561,000 for the same period in 1999. The increase in product sales is primarily due to the sales and marketing efforts for 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 increased 109.9% to $149,000 for the three months ended June 30, 2000 compared to $71,000 in 1999. The primary reason for the increase of $78,000 was the result of increased 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 21.9% to $378,000 for the three months ended June 30, 2000 compared to $310,000 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 June 30, 2000 were 56.4% compared to 41.8% for the three months ended June 30, 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 June 30, 2000 were $751,000 compared to $245,000 for the three months ended June 30, 1999. The increase of $506,000 or 206.5% was primarily the result of increased expenses as the Company continues to upgrade the management team and sales force. Research and development expenses incurred for Product Sales during the three months ended June 30, 2000 were $216,000 as compared to $103,000 for the same period in 1999. The increase of $113,000 or 109.7% was primarily the result of the costs associated with new product development efforts for on-site and other ancillary products. As a result of the above, net income for the Product Sales segment of the Company for the three months ended June 30, 2000 was $62,000, compared to $31,000 for the three months ended June 30, 1999. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Laboratory Services Revenues from Laboratory Services for the six months ended June 30, 2000 were $17,745,000 as compared to $15,260,000 for the six months ended June 30, 1999. The increase of $2,485,000 or 16.3% was primarily attributable to an 8.0% increase in laboratory tests and a 10.0% increase in average revenue per test from value added services. The gross margin from the revenues generated from the laboratory services was 34.4% for the six months ended June 30, 2000 as compared to a gross margin of 33.0% for the same period in 1999. Selling, general and administrative expenses for the six months ended June 30, 2000 were $4,772,000 compared to $3,748,000 for the six months ended June 30, 1999. The increase of $1,024,000 or 27.3% was primarily the result of increased expenses as the Company continues to upgrade the management team and sales force. The Laboratory Services segment for the six months ended June 30, 2000 incurred interest and financing costs of $468,000, compared to costs of $342,000 incurred during the six months ended June 30, 1999. The increase was primarily a result of higher debt levels and increasing interest rates. As a result of the above, net income for the Laboratory Services segment of the Company for the six months ended June 30, 2000 was $704,000, compared to the net income of $779,000 net of a one time gain of $164,000 resulting from a favorable legal settlement, for the six months ended June 30, 1999. Product Sales Revenues from Product Sales for the six months ended June 30, 2000 increased 88.0% to $3,247,000 as compared to $1,727,000 for the six months ended June 30, 1999. The increase was primarily attributable to continued growth of the VERDICT(R) and PROFILE(R) product lines. 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 129.4% to $2,312,000 for the six months ended June 30, 2000 compared to sales of $1,008,000 in 1999. The increase in product sales is primarily due to the sales and marketing efforts for the Company's second-generation test kits, PROFILE(R)-II and VERDICT(R)-II. Product sales from agricultural diagnostic products increased 15.9% to $262,000 for the six months ended June 30, 2000 compared to $226,000 in 1999. The primary reason for the increase of $36,000 was the result of increased purchases by the USDA for 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 36.8% to $673,000 for the six months ended June 30, 2000 compared to $492,000 in 1999. This increase was due to increased revenues from both historical customers and new customers added in 2000. Gross margins from Product Sales for the six months ended June 30, 2000 were 57.7% compared to 44.6% for the six months ended June 30, 1999. The increase in gross margin from product sales was due to higher overall sales of products. Selling, general and administration expenses for Products Sales during the six months ended June 30, 2000 were $1,375,000, compared to $526,000 for the six months ended June 30, 1999. The increase of $849,000 or 161.4% was primarily the result of increased expenses as the Company continues to upgrade the management team and sales force. Research and development expenses incurred for Product Sales during the six months ended June 30, 2000 were $388,000 as compared to $256,000 for the same period in 1999. The increase of $132,000 or 51.6% was primarily the result of the costs associated with new product development for on-site and other ancillary products. For the six months ended June 30, 2000, the Product Sales segment incurred interest and financing costs of $38,000 as compared to $33,000 for the same period in 1999. The increase of $5,000 or 15.2% was primarily the result of higher debt levels and increasing interest rates. As a result of the above, net income for the Product Sales segment of the Company for the six months ended June 30, 2000 was $74,000 compared to the net loss of ($42,000) for the six months ended June 30, 1999. Material Changes in Financial Condition Laboratory Services As of June 30, 2000 net accounts and notes receivable for Laboratory Services were $7,995,000 compared to $6,318,000 at December 31, 1999. This increase of $1,677,000 or 26.5% was primarily the result of higher sales for the quarter ended June 30, 2000 as compared to quarter ended December 31, 1999. At June 30, 2000, Laboratory Services had total debt obligations of $8,889,000 compared to a total balance of $6,489,000 at December 31, 1999. The increase of $2,400,000 or 37.0% was primarily the result of increased borrowing, from which the proceeds were used to finance investing activities such as capital expenditures, primarily laboratory equipment, in the second quarter of 2000. Product Sales At June 30, 2000, net accounts receivable for Product Sales were $1,299,000, compared to $789,000 at December 31, 1999. This increase of $510,000 or 64.6% was primarily due to higher sales in the quarter ended June 30, 2000 as compared to the quarter ended December 31, 1999. Inventories were $1,155,000 at June 30, 2000 compared to $818,000 at December 31, 1999. The increase of $337,000, or 41.1% is primarily attributable to the increase in forecasted sales for the third quarter of 2000. At June 30, 2000, the Product Sales segment had total debt obligations of $753,000, compared to a total balance of $692,000 owed at December 31, 1999. The increase of $61,000, or 8.8%, was the result of higher debt levels and increasing interest rates. 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 June 30, 2000, the Company had total availability of $6,243,000 on its line of credit of which $4,829,000 was borrowed, leaving a net availability of $1,414,000. In addition to the Company's present financing sources, in July 2000, the Company obtained gross proceeds of $4,500,000 of equity financing through private placement of 450,000 shares and warrants. See Note E. 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. However, 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 June 30, 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. The Company had $575,000 of subordinated notes outstanding as of June 30, 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 $8.9 million and $6.6 million outstanding on its line of credit and long-term debt issued under the Wells Fargo Credit Agreement as of June 30, 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 June 30, 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. On July 31, 2000 the Company completed a private equity financing through the sale of 450,000 units at a gross aggregate price of $4,500,000, or $10.00 per unit, resulting in net proceeds of approximately $4,040,000 after deducting agents' commissions of $440,000 and other estimated expenses. Each unit consisted of one share of common stock and one five-year warrant to purchase one additional share of common stock at an exercise price of $12.50. The sale of securities was made to "accredited investors" as defined in Rule 501(a) of Regulation D and in reliance on Regulation D and Section 4(2) under the Securities Act of 1933, as amended. Miller Johnson & Kuehn, Inc. of Minneapolis, MN acted as the Company's agent in the private placement. In connection with the private placement, the Company also issued five-year warrants to the placement agent to purchase 45,000 shares of common stock at an exercise price of $12.50 per share. As part of the financing, the Company also entered into a Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement on Form S-3 within 30 days covering the resale of shares of the Company's common stock issued on July 31, 2000 and the shares to be issued pursuant to the warrants. The Company intends to use the net proceeds from this offering for general working capital purposes, including product and capacity expansion to support the Company's increasing sales and to take advantage of new expansion opportunities that have been presented to the Company. Until such time, the proceeds were used to repay $4,040,000 on its outstanding revolving line of credit with Wells Fargo Business Credit on August 1, 2000. On August 4, 2000 the Company closed on the purchase of certain assets from NMRO, Inc. in exchange for $75,000 in cash plus 15,152 shares of common stock of the Company. The sale of securities was made pursuant to an exemption from registration under Regulation D and Section 4(2) under the Securities Act of 1933, as amended. ITEM 3 DEFAULTS ON SENIOR SECURITIES. Inapplicable - ------ ----------------------------- ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. - ------ ----------------------------------------------------- The Annual Meeting (The "2000 Annual Meeting") of stockholders of the Company was held on May 10, 2000. At that meeting, Samuel C. Powell and Miles E. Efron were elected to serve on the Board of Directors of the Company until their respective successors are duly elected. By a vote of 988,932 shares in favor, 143,780 shares against, with 4,461 shares abstaining, the stockholders of the Company approved an amendment to the Equity Compensation Plan to increase the number of shares authorized to be issued under the Plan to 16% of the outstanding shares of the Company as set forth in the Proxy Statement. During the second quarter of 2000, no other matters were submitted to a vote of the securities holders of the Company. 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 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2000 MEDTOX SCIENTIFIC, INC. By: /s/ Richard J. Braun ---------------------------------------- Richard J. Braun, Chief Executive Officer By: /s/ James B. Lockhart ----------------------------------------- James B. Lockhart, Chief Financial Officer EX-27 2 0002.txt EXHIBIT 27 (FDS)
5 1,000 6-MOS DEC-31-2000 JUN-30-2000 0 0 9,620 326 2,216 12,287 16,514 12,073 29,463 11,908 0 0 0 441 13,157 29,463 20,992 20,992 13,006 20,214 0 0 506 778 0 778 0 0 0 778 0.27 0.26
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