-----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, OSk+SMMV6bxon2U0uWCE/o4aiTqp4b3Jv5L5YetDkKLp3iYYX+elUx5NSGZ8VU2+ oyER/EzP22WMpPiroFGIJA== 0000739944-96-000008.txt : 19960517 0000739944-96-000008.hdr.sgml : 19960517 ACCESSION NUMBER: 0000739944-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDITEK INC CENTRAL INDEX KEY: 0000739944 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 953863205 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11394 FILM NUMBER: 96567572 BUSINESS ADDRESS: STREET 1: 1238 ANTHONY RD CITY: BURLINGTON STATE: NC ZIP: 27215 BUSINESS PHONE: 9102266311 MAIL ADDRESS: STREET 1: 1238 ANOTHNY ROAD CITY: BURLINGTON STATE: NC ZIP: 27215 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL DIAGNOSTICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 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, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ______________ to ________________________ Commission file number 1-11394 EDITEK, INC. (Exact name of registrant as specified in its charter) Delaware 95-3863205 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 1238 Anthony Road, Burlington, North Carolina 27215 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (910) 226-6311 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of Common Stock, $.15 par value, outstanding as of May 1, 1996 was 25,245,076. EDITEK, INC. INDEX Page Part I Financial Information: Item 1: Balance Sheets - March 31, 1996 (Unaudited) and December 31, 1995 ................................... 3 Statements of Operations - Three Months Ended March 31, 1996 and 1995 (Unaudited) . ............. 5 Statements of Cash Flows - Three Months Ended March 31, 1996 and 1995 (Unaudited) ................6 Notes to Financial Statements ......................7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations ..........10 Part II Other Information .........................................16 Signatures .............................................17 PART I. FINANCIAL INFORMATION
EDITEK, Inc. BALANCE SHEETS March 31 December 31 1996 1995 (Unaudited) (Restated) ------------------------------- (In Thousands) Assets Current assets Cash and cash equivalents $ 880 $ 258 Accounts receivable Trade, less allowance for doubtful accounts ($206,000 - 1996, $130,000 - 1995) 4,635 977 Other - 52 Inventories: Raw Materials 607 588 Work in process 126 169 Finished goods 624 180 ----------------------- 1,357 937 Deposit on acquisition - 500 Prepaid expenses and other 531 368 ----------------------- Total current assets 7,403 3,092 Equipment and improvements Furniture and equipment 9,532 5,857 Leasehold improvements 906 1,696 ---------------------- 10,438 7,553 Less accumulated depreciation and amortization (7,483) (6,824) ---------------------- 2,955 729 Goodwill 22,898 117 ----------------------- $ 33,256 $ 3,938 ==========================
EDITEK, Inc. BALANCE SHEETS (Continued) March 31 December 31 1996 1995 (Unaudited) (Restated) ------------------------------- (In Thousands) Liabilities and stockholders' equity Current liabilities Accounts payable $ 1,885 $ 1,184 Accrued expense 1,585 834 Accrued restructuring expenses 553 - Deferred revenues 29 42 Current portion of notes payable 1,423 82 Note payable to director - 100 ----------------------------- Total current liabilities 5,475 2,242 Long term debt 2,444 - Other liabilities 731 - Stockholders' equity Preferred Stock--authorized 1,000,000 shares; 407 shares issued or outstanding - - Common Stock, $.15 par value; authorized - 30,000,000 shares; issued and outstanding - 13,194,061 shares in 1996 and 10,439,775 shares in 1995 1,979 1,566 Additional paid-in capital 58,195 33,973 Accumulated deficit (35,392) (33,667) ------------------------------- 24,782 1,872 Less: Note receivable from officer (100) (100) Treasury stock (76) (76) ------------------------------- Total stockholders' equity 24,606 1,696 $ 33,256 $ 3,938 =============================== See notes to financial statements.
STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31 March 31 1996 1995 ------------------------------- (In Thousands) Revenues Laboratory service revenues $ 4,748 $ 863 Product sales 796 710 Royalties and fees 63 86 Interest and other income 16 68 ------------------------------- 5,623 1,727 Cost of services 3,692 949 Cost of sales 656 607 ------------------------------- Gross profit 1,275 171 Operating expenses Selling, general and administrative 1,704 858 Research and development 345 208 Interest and financing costs 93 18 Restructuring costs 858 - ------------------------------- 3,000 1,084 ------------------------------- Net loss $ (1,725) $ (913) =============================== Loss per common share $ (0.14) $ (0.11) =============================== Weighted average number of common shares outstanding 12,331,721 8,208,752 =============================== See notes to financial statements.
EDITEK, Inc. STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 March 31 1996 1995 ------------------------------- (In Thousands) Operating activities Net loss $(1,725) ($913) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 398 163 Restructuring costs 858 - Changes in operating assets & liabilities net of effects from purchase of Medtox: Accounts receivable (703) (99) Inventories (57) 72 Prepaid expenses & other (26) 59 Accounts payable and accrued liabilities (7) (394) Deferred revenues (68) (15) Restructuring Accruals (173) - Leases payable - (16) ------------------------------- Net cash used in operating activities (1,502) (1,143) Investing activities Purchases of equipment & improvements (837) (34) Cash used for MEDTOX acquisition (18,500) - ------------------------------- Net cash used in investing activities (19,337) (34) Financing activities Payments on Debt (2,531) - Proceeds from borrowings 4,995 - Costs associated with borrowings/acquisition (736) - Proceeds from issuance of stock for: Employee stock purchase plan 4 7 Exercise of stock options and warrants - 90 Private placements 600 1,527 Preferred stock 20,350 - Costs related to stock issuances (1,221) (54) Conversion of note payable to common stock - 61 Increase in notes payable - 55 ------------------------------- Net cash provided by financing activities 21,461 1,686 ------------------------------- (Decrease) in cash and cash equivalents $ 622 $ 509 Cash and cash equivalents at beginning of period $ 258 $ 1,105 ------------------------------- Cash and cash equivalents at end of period $ 880 $ 1,614 ===============================
EDITEK, INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of EDITEK, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial condition and results of operations have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be attained for the entire year. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K, (as amended), for the year ended December 31, 1995. Loss Per Share: Loss per share amounts are based on the weighted average number of shares of common stock outstanding. Common stock equivalents have not been included in the computation as the effect would be anti-dilutive. NOTE B -- ACQUISITION OF MEDTOX LABORATORIES, INC. ("MEDTOX") On January 30, 1996, the Company acquired MEDTOX, a toxicology laboratory located in St. Paul, Minnesota. The purchase price was $24 million, which included $19 million cash and the issuance of 2,517,306 shares of common stock. The acquisition was accounted for under the purchase method of accounting wherein the Company recognized approximately $22 million in goodwill. The goodwill is being amortized over a period of 20 years. The Company financed the acquisition by issuing $20 million of convertible preferred stock and borrowing $4 million under two $2 million term loans. The Company also entered into a revolving line of credit of up to $7 million for working capital purposes. The consolidated results of operations for the three months ended March 31, 1996 include the results of the MEDTOX operations from January 26, 1996 to March 31, 1996. NOTE C -- ACQUISITION OF BIOMAN PRODUCTS, INC. ("BIOMAN") On June 1, 1995, the Company acquired Bioman, an environmental diagnostics company. The purchase price was $140,000, which included cash and the issuance of 21,489 shares of common stock. The acquisition was accounted for under the purchase method of accounting wherein the Company recognized $117,000 of goodwill, which is being amortized over a period of 20 years. The consolidated results of operations for the three months ended March 31, 1996 included the results of the Bioman operations. NOTE D -- DEBT On August 15, 1989 the Company entered into a long-term loan agreement with North Carolina Biotechnology Center ("NCBC"), a state funded, non-profit organization whereby the Company borrowed an aggregate of $125,000 to fund the development cost of a test for Chlamydia, a sexually transmitted disease. The loan originally had an interest rate of seven and one half percent (7.5%) per annum with all principal and interest due on August 15, 1994. The Company amended the loan agreement on the due date and issued 16,100 shares of common stock for $62,000 of the loan. The remaining principal, $63,000, now bears interest at a rate of nine percent (9%) per annum; this principal and interest, which are due on August 15, 1996, are convertible into shares of common stock. To help finance the acquisition of MEDTOX, the Company entered into revolving and term loan facilities with Heller Financial, Inc. The debt financing is for a total of $11,000,000 and consists of two term loans totaling $4,000,000 and up to $7,000,000 in the form of a revolving line of credit based primarily on the receivables of the Company. The amount of credit available to the Company varies with the accounts receivable and the inventory of the Company. The interest rates on the two term loans of $2,000,000 are 2.5 points above the prime rate and 2.0 points above the prime rate, respectively. The revolving line of credit carries an interest rate equal to 1.5 points above the prime rate. NOTE E -- RESTATEMENT OF 1995 FINANCIAL STATEMENTS During 1995, the Company recorded a restructuring charge in the amount of $758,000 associated with the consolidation of the laboratory operations at Princeton Diagnostic Laboratories of America, Inc. ("PDLA") into the laboratory operations at MEDTOX. Subsequent to the filing of the 1995 Audited Financial Statements, it was determined that the restructuring charge should be recorded during the first quarter of 1996, consistent with the consummation of the MEDTOX acquisition on January 30, 1996. Accordingly, the Company has restated the 1995 Audited Financial Statements. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company commenced operations in June 1983 and until 1986 was a development stage company. The Company became engaged in the manufacture and sale of Conventional Biodiagnostic Products as a result of its acquisition of Granite Technological Enterprises, Inc. in 1986. The Company began the manufacture and sale of its EZ-SCREEN(R) diagnostic tests in 1985 and introduced its patented one-step assays, VERDICT(R) and RECON(R), in 1993. Also in 1993, the Company formed DIAGNOSTIX, Inc. to market its agricultural diagnostic products. In addition, DIAGNOSTIX now markets the Company's on-site substance abuse products to certain segments of the substance abuse marketplace. The Company entered the laboratory testing market when it completed the acquisition of Princeton Diagnostic Laboratories of America, Inc., (PDLA) in 1994. In 1995, the Company acquired the former operations of Bioman through its DIAGNOSTIX, Inc. subsidiary. On January 30, 1996 the Company completed the acquisition of MEDTOX. The results of operations for the three months ended March 31, 1996 include the operations of MEDTOX from January 26, 1996 through the end of the period. Since inception, the Company has financed its working capital requirements primarily from the sale of equity securities. Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995 Total revenues for the three months ended March 31, 1996 were $5,623,000 as compared to $1,727,000 for the three months ended March 31, 1995. The increase was attributable to the increase in revenues from products and services. These revenues totaled $5,544,000 for the three months ended March 31, 1996, as compared to $1,573,000 for the three months ended March 31, 1995. Laboratory service revenues were $4,748,000 for the three months ended March 31, 1996 as compared to $863,000 for the three months ended March 31, 1995. This increase was primarily the result of the revenues from MEDTOX of $3,616,000 for the three months ended March 31, 1996. Net of the revenues from MEDTOX, laboratory service revenues were $1,132,000 for the three months ended March 31, 1996, an increase of 31% as compared to the same period in 1995. This 31% increase was primarily the result of the continued sales and marketing effort for these services. Laboratory service revenues of MEDTOX were $4,816,000 for the full three months ended March 31, 1996 as compared to $ 4,833,000 for MEDTOX for the three months ended March 31, 1995. Product sales include the sales generated from substance abuse testing products, which incorporates the EZ-SCREEN and VERDICT on site test kits and other ancillary products for the detection of abused substances. Sales from these products were $325,000 for the three months ended March 31, 1996 compared to sales of $336,000 recorded for the same period in 1995. Product sales also include sales of agricultural diagnostic products. Sales of these products were $315,000 for the three months ended March 31 1996, an increase of 25% compared to sales of $253,000 for the three months ended March 31, 1995. The Company had sales of $146,000 which were generated through the former operations of Bioman, which was acquired by the Company on June 1, 1995. Excluding these revenues, sales of agricultural diagnostic products were $169,000 for the three months ended March 31, 1996 a decrease of 33% compared to the same period in 1995. The Company believes that the primary reason for the decrease was due to timing differences in orders from the USDA for the Company's products. Sales of Microbiological and associated product sales combined with contract manufacturing services were $81,000 for the three months ended March 31, 1996 compared to $107,000 for the same period in 1995. This decrease of 24% was primarily the result of the Company's decision not to market these products. Accordingly, the Company has decided to close down the operations of the Farm Facility during the second quarter of 1996. While this closure will decrease the amount of revenues generated from these sales, the elimination of the costs of the Farm Facility are expected to improve the overall gross margin from the sale of the Company's products. Revenues generated from the shipment of products to the U.S. Department of Defense were $75,000 for the three months ended March 31, 1996 compared to $14,000 for the same period in 1995. This increase was the result of modest sales of finished products following the completion of research and development on certain tests in late 1995 and early 1996. Revenues from royalties and fees during the three months ended March 31, 1996 were $63,000, compared to $86,000 for the three months ended March 31, 1995. This decrease was primarily due to lower royalties from AML, as AML lost accounts that require payment of royalties to the Company. Revenues from interest and other income for the three months ended March 31, 1996 were $16,000 compared to $68,000 for the three months ended March 31, 1995. The $68,000 in 1995 included the recovery of debts owed by a customer of laboratory services which had been written off. For the same period in 1996, there was no such recovery of debts. The gross margin from the revenues generated from the laboratory services was 22% for the three months ended March 31, 1996 an increase compared to the same period in 1995, when the cost of providing laboratory services exceeded the revenue realized from these services. The improvement in the gross margin was primarily due to the operations of MEDTOX which realized a gross margin of 29%. Gross margins from the sales of both manufactured products and products purchased for resale for the three months ended March 31, 1996 were 18% compared to 15% of sales of these products during the three months ended March 31, 1995. This increase in gross margin from product sales is primarily the result of the sales of products to the Department of Defense, and sales of the agricultural products sold through DIAGNOSTIX. Selling, general and administration expenses for the three months ended March 31, 1996 were $1,704,000, compared to $858,000 for the three months ended March 31, 1995. Of the $846,000 increase, MEDTOX expenses totaled $470,000. Net of MEDTOX, there was an increase of $376,000 compared to the same period in 1995. This increase is primarily due to $208,000 of amortization expense related to the goodwill resulting from the MEDTOX acquisition. Research and development expenses incurred during the three months ended March 31, 1996 were $345,000 as compared to $208,000 for the same period in 1995. This increase of $137,000 was primarily the result of $85,000 of research and development expenses from MEDTOX as well as increases in personnel costs. For the three months ended March 31, 1996, EDITEK incurred interest expense of $93,000, compared to interest expense of $18,000 incurred during the three months ended March 31, 1995. This increase was the result of the funds borrowed by the Company to complete the financing for the acquisition of MEDTOX. In connection with the acquisition of MEDTOX, the Company determined that it would be beneficial to consolidate the laboratory operations of PDLA into the laboratory operations at MEDTOX. In addition the Company decided to down size certain administrative positions at both PDLA and MEDTOX in order to eliminate duplicative functions. As a result of this restructuring plan, the Company has taken a one time charge of $858,000 during the three months ended March 31, 1996 to cover certain costs of the restructuring, including $100,000 related to certain severance payments (see Note E of the Financial Statements). The Company had no such charge during the three months ended March 31, 1995. As a result of the above, the net loss for the three months ended March 31, 1996 was $1,725,000, compared to the net loss of $913,000 for the three months ended March 31, 1995. Management believes the acquisition of MEDTOX and the restructuring of the laboratory operations will significantly improve the operating results of the Company, although there can be no assurance of the success of the consolidation of the laboratory operations in reducing costs and improving efficiencies. Management expects net sales to grow through both additional strategic acquisitions and the addition of new accounts, as well as the introduction of new products, including the recently launched EZ-SCREEN PROFILE(TM) Test Kit. Material Changes in Financial Condition As of March 31, 1996, cash and cash equivalents were $880,000 compared to $258,000 at December 31, 1995. This increase was the result of the proceeds received from the sale of the 407 shares of Series A Preferred Stock, as well as proceeds received from the issuance of debt during 1996. As of March 31, 1996, accounts receivable were $4,635,000 compared to $1,029,000 at December 31, 1995. Of the total increase of $3,606,000, $3,506,000 was attributable to Medtox. The $100,000 increase, net of the MEDTOX receivables, was the result of higher sales in the quarter ended March 31, 1996 as compared to sales prior to December 31, 1995. Inventories were $1,357,000 at March 31, 1996 as compared to $937,000 at December 31, 1995. Of the total increase of $420,000, MEDTOX inventory was $430,000 at March 31, 1996, resulting in a decrease net of MEDTOX of $10,000. Prepaid expenses and other assets were $531,000 at March 31, 1996 as compared to $868,000 at December 31, 1995. This decrease of $337,000, or 39%, was primarily the result of the January application of the $500,000 deposit the Company had previously made towards the purchase price for the acquisition of MEDTOX. As of March 31, 1996, the Company had a balance of accounts payable of $1,885,000 compared to a balance of $1,184,000 at December 31, 1995. Of the total increase of $701,000, the payables from MEDTOX were $1,004,000 at March 31, 1996. Net of the payables from MEDTOX, the decrease of $303,000 was primarily the result of the payment of past due expenses resulting from the Company's improved financial condition. Accrued expenses were $1,585,000 at March 31, 1996, as compared to $834,000 at December 31, 1995. Of the total increase of $751,000, the accrued expenses from MEDTOX were $929,000 at March 31, 1996. Net of the MEDTOX balance, the decrease of $178,000 was the result of payment of certain expenses associated with the acquisition of MEDTOX. At March 31, 1996, the Company had accrued $604,000 for the payment of certain restructuring costs associated with the consolidation of the laboratory operations of PDLA with the laboratory operations of MEDTOX. In addition MEDTOX has accrued $680,000 for the payment of a lease obligation for a facility no longer used by MEDTOX. As a result, the Company has a total balance of accrued restructuring costs of $1,284,000 at March 31, 1996. At December 31, 1995 the Company had no accrual for restructuring costs (see Note E of the Financial Statements). During the three months ended March 31, 1996, the Company repaid the $100,000 it had borrowed from Dr. Samuel C. Powell, a director of the Company As described more fully in the footnotes to the financial statements, at March 31, 1996, the Company had a balance of loan payable to the North Carolina Biotechnology Center (NCBC) of $63,000. At March 31, 1996, the Company had a total balance of $3,777,000 for its loans payable to Heller Financial, Inc. Primarily as a result of these transactions, the total balance of notes payable at March 31, 1996 was $3,867,000 as compared to $182,000 at December 31, 1995. Liquidity and Capital Resources Since its inception, the working capital requirements of the Company have been funded primarily by cash received from equity investments in the Company. At March 31, 1996, the Company had cash and cash equivalents of $880,000 and borrowing capability of approximately $3,500,000 from its revolving line of credit. The Company believes that the balance of cash and cash equivalents at March 31, 1996 together with the revolving line of credit should be sufficient to fund the planned operations through 1996. As of March 31, 1996, the Company had not achieved a positive cash flow from operations. Accordingly, the Company relies on available credit arrangements to fund operations until a positive cash flow can be achieved. Management believes that it has taken, and is prepared to continue to take, the actions required to yield a positive cash flow from operations in the future. The Company believes that the acquisition of MEDTOX, the subsequent consolidation of the laboratory operations from PDLA into MEDTOX, and other synergy that will be realized from the acquisition of MEDTOX will enable the Company to generate positive cash flow. The Company continues to follow a plan which includes (i) continuing to aggressively monitor and control costs, (ii) increasing revenue from sales of the Company's products, services, and research and development contracts, as well as (iii) continue to selectively pursue synergistic acquisitions to increase the Company's critical mass. There can be no assurance that costs can be controlled, revenues can be increased, financing may be obtained, acquisitions successfully consummated, or that the Company will be profitable. The Company lacks sufficient shares of Common Stock to satisfy the conversion rights of the outstanding Preferred Stock of the Company, including conversion notices received by the Company. Consequently, the Company would lack shares of Common Stock to sell in a future financing should it need to raise capital or for future acquisitions, until and unless the Company's shareholders approve an amendment to its Certificate of Incorporation increasing the number of shares of authorized Common Stock. The Company intends to seek shareholder approval as soon as practicable to increase the authorized Common Stock from 30,000,000 to 60,000,000. There can be no assurance the shareholders will approve such amendment. If the Company lacks shares of Common Stock for future financings or acquisitions, the Company will have to rely on debt financings or sales of its Preferred Stock. There can be no assurance that the Company will be able to obtain adequate capital or implement acquisitions through debt or Preferred Stock financings. ITEM 2 CHANGES IN SECURITIES. Inapplicable ITEM 3 DEFAULTS ON SENIOR SECURITIES. Inapplicable ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None ITEM 5 OTHER INFORMATION Effective January 30, 1996, the Company entered into employment contracts with Mr. James D. Skinner, Chairman of the Board, President and CEO, Mr. Peter J. Heath, Vice President-Finance and CFO and Mr. Michael A. Terretti, Vice President. These agreements cover the period January 30, 1996 through January 30, 1998. Thereafter, the agreements are renewed in one-year increments unless otherwise terminated as specified in the agreements. In the event of a termination of employment of the named individuals by the Company without cause or by reason of a "change in control" of the Company, the individual is entitled to receive a severance pay equal to the balance of the employee's then current base salary for the remaining term of the agreement (without any renewal) and an additional sum equal to twelve (12) months of the employee's then current base salary. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10.40, Form of employment agreement between the Company and Mr. James D. Skinner, Mr. Peter J. Heath and Mr. Michael A. Terretti. (b) Exhibit 27, Financial Data Schedule. (c) Report on Form 8-K dated January 30, 1996, reporting the completion of the acquisition of MEDTOX Laboratories, Inc. (d) Report on Form 8-K dated March 5, 1996, reporting the consolidation to the laboratory operations of PDLA into the laboratory operations of MEDTOX Laboratories, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 13, 1996 EDITEK, INC. By:/s/ James D. Skinner James D. Skinner, Chairman, President and Chief Executive Officer By:/s/ Peter J. Heath Peter J. Heath, Vice President of Finance and Chief Financial Officer EX-10 2 EMPLOYMENT CONTRACTS EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as specified herein, between Editek, Inc. ("Editek") and ______________ ("Employee"). NOW, THEREFORE, in consideration of the terms and mutual undertakings herein contained, it is agreed by and between Editek and Employee as follows: 1. Effective Date and Term of Employment: This Agreement shall become effective on January 30, 1996, and shall remain in effect until the close of business on January 30, 1998 (the "Agreement Expiration Date"). Effective February 1, 1998 (the "Renewal Date") and on each anniversary of the Renewal Date, this Agreement shall renew automatically for a period of one additional consecutive year unless either Editek or Employee provides written notice to the other party at least ninety (90) days prior to the Renewal Date or anniversary of the Renewal Date, as applicable, that the Agreement shall terminate without renewal as of the Agreement Expiration Date or anniversary of the Agreement Expiration Date, as applicable. Upon each Renewal Date, when the Agreement extends for a period of one additional consecutive year, the Agreement Expiration Date shall also extend by one year. 2. Duties and Responsibilities:Employee shall be the _____of Editek and shall be responsible for all the duties normally ascribed to such offices under laws of the State of Delaware. Employee hereby agrees to faithfully and competently render services on a substantially full-time basis to Editek, subject to the provisions Section 14, and to devote his best efforts, skill and attention (except during vacations and leaves conforming with Editek policies) to Editek. 3. Compensation: Editek agrees to employ Employee for the term and in the capacities described in Sections 1 and 2 above and to compensate Employee for such services as follows: 3.1 Employee shall be paid a base salary of $_______ per annum ("Base Salary"). Employee shall be eligible for annual increases in such Base Salary, as determined by the Compensation Committee of the Board of Directors of Editek (the "Compensation Committee") in its discretion. The first such increase, if any, shall become effective on or before the first anniversary of the above effective date of this Agreement. Said Base Salary (including any increases as determined by the Compensation Committee in its discretion) shall be paid in equal installments in accordance with Editek's customary pay schedule and shall be subject to applicable withholding for federal and state income taxes and social security and related deductions. 3.2 Employee shall be entitled to participate in any Editek employee benefit plans, fringe benefit programs including a car allowance (and the payment by Editek of all insurance, repairs, maintenance, licenses, gasoline, oil and other operating expenses of the automobile), and bonus or other incentive programs that may be adopted by the Board of Directors for the benefit of Editek senior officers or are adopted for the benefit of Editek employees (which shall include a medical insurance plan comparable to that which is currently in effect) unless Employee shall elect in writing not to participate. 3.3 Employee shall be entitled to participate in any stock option or other long-term incentive compensation program providing for awards payable in the form of cash and/or stock as may be adopted by the Compensation Committee for the benefit of Editek senior officers. 3.4 Employee shall be entitled to fifteen (15) work days of vacation with pay during each year. Vacation days shall be deemed to be earned pro rata during each year. Absences from work because of sickness, disability or legal holidays shall not be considered as vacation time. Vacation days may be accumulated and carried over from one year to the next; provided, that the maximum number of days which may be carried over shall not exceed ten (10). 4. Expense Reimbursement: Editek shall pay or reimburse Employee for all ordinary and necessary expenses reasonably incurred in the performance of his duties hereunder. Such reimbursement shall be made against the submission by Employee of properly signed and supported itemized expense reports in accordance with the travel and business reimbursement policies of Editek in effect from time-to-time. 5. Termination of Employment: 5.1 Employee Resignation: Employee may terminate his employment prior to the termination of this Agreement by submitting a written notice of resignation to the Chief Executive Officer of Editek (the "C.E.O."), specifying a termination date which shall be no sooner than ninety (90) days after the submission of said notice. During this ninety (90) day period, Employee shall be paid current Base Salary installments and benefits but his duties and the capacity in which he serves shall be subject to such conditions and limitations as may be imposed by the C.E.O. Employee's resignation may constitute the initiation of a voluntary termination of employment, as defined in Section 5.2(b). 5.2 Termination Without Cause and Eligibility for Severance Award: The severance payments described in Section 6 (the "Severance Award") shall be payable to Employee if Employee's employment with Editek terminates within the term of this Agreement (hereinafter referred to as Employee's "Termination Date") for any of the following reasons: (a) involuntarily, other than an involuntary termination on account of Misconduct (b) if within ninety (90) days after the effective date of a Change in Control, Employee voluntarily terminates. 6. Severance Award: The Severance Award, which shall be in lieu of any other payments under this Agreement or any other payments by Editek on account of severance, shall consist of a lump sum payment equal to the balance of Employee's Base Salary for the remaining term of the Agreement (without any renewal) and an additional sum equal to twelve (12) months of Employee's Base Salary, payable as soon as administratively possible after Employee's Termination Date, but in no event later than thirty (30) days after Employee's Termination Date. 7. Limitations of Agreement: 7.1 Except as expressly provided by the terms of the Severance Award, Employee shall not be entitled, solely by reason of a Severance Award, to continue to participate in any employee benefit plans or fringe benefit programs maintained by Editek, and the rights of Employee to continue to participate in such other plans and programs shall be governed solely by their terms and applicable law. 7.2 A Severance Award shall in no way be construed to extend the period of a Employee's employment, and Employee's Termination Date shall not be extended beyond the last official work day for which a Employee is paid for active service. 8. Termination on Account of Death: Upon the death of Employee during the term hereof, this Agreement shall terminate immediately and, except as expressly set forth herein, Editek shall have no further liability hereunder to Employee or his estate, except that Editek shall pay to the beneficiary designated in writing by Employee, or if none, to Employee's estate, his salary through the end of the second month following the month is which such death occurs. 9. Termination for Disability: If Employee for any reason whatsoever becomes disabled so that he is unable to perform his duties hereunder, Editek agrees to pay Employee his Base Salary hereunder for the first ninety (90) days of such disability. In the event that Employee becomes totally disabled during the term of this Agreement and such total disability continues for a period in excess of ninety (90) consecutive calendar days, at the end of such period Employee shall be considered as permanently disabled and this Agreement shall terminate immediately and, except as expressly set forth herein, Editek shall have no further liability hereunder to Employee. For purposes of this Agreement, Employee shall be considered totally disabled if, and when, because of injury, illness or physical or mental disability, he is prevented from efficiently or effectively performing the duties of his employment. The determination of total disability shall be made by the Board of Directors of Editek, but said decision shall not be unreasonable or arbitrary and shall be supported by the opinion (at Editek's expense) of two (2) licensed physicians unless Employee shall without justification fail to submit to the necessary physical or mental examinations. It is understood that Employee's occasional sickness of short duration shall not result in Employee being considered totally disabled, and Employee shall continue to be compensated hereunder during such periods of occasional sickness so long as they shall not exceed ninety (90) days in a calendar year. 10. Misconduct: For purposes of this Agreement, "Misconduct" shall mean (i) the conviction of, or the entering of a plea of, nolo contendere by Employee for any felony arising out of acts of fraud or dishonesty reasonably determined to result in harm to Editek; or (ii) the intentional or willful breach of duties by Employee in a material respect and failure to cure same within thirty (30) days after receiving written notice of such breach from the C.E.O. The determination as to whether Employee's employment has been terminated for Misconduct shall be made by the C.E.O. Advance written notice of a tentative determination of Misconduct shall be provided to Employee and Employee shall have a reasonable opportunity to cure. Such written notice shall set forth in reasonable detail the facts and circumstances that are claimed to constitute Misconduct. If the C.E.O. shall determine that Employee cannot cure the Misconduct or that the cure is not acceptable to the C.E.O., then the termination shall be final. 11. Change in Control: For purposes of this Agreement, "Change in Control" shall be deemed to have occurred if: i) Any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Act"), including a "group" (as that term is used in Sections 13(d)(3) and 14(d)(2) of the Act), but excluding Editek and any employee benefit plan sponsored or maintained by Editek, including any trustee of such plan acting as trustee, who: (A) makes a tender or exchange offer, pursuant to which any shares of Editek stock are purchased, for a number of shares of Editek stock representing more than fifty percent (50%) of the voting power of all outstanding Editek stock at the time of such offer; or (B) together with its "affiliates" and "associates" (as those terms are defined in Rule 12b-2 under the Act) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Act) of at least fifty percent (50%) of the voting rights of Editek's stock; (ii) The shareholders of Editek approve a definitive agreement or plan to merge or consolidate Editek with or into another corporation whereby Editek is not the surviving entity; (iii) Editek enters into a definitive agreement or plan to sell or otherwise dispose of all or substantially all of its assets to a third party, unless (x) such corporation is controlled by Editek, and (y) Employee serves as the Vice President of Finance, Chief Financial Officer and Secretary of the third party; (iv) The approval by the stockholders of Editek of a plan of liquidation of Editek; or (v) The election of directors constituting more than one-half (1/2) of the Board of Directors who, prior to their election, were not elected or nominated for election by at least a majority of the Board of Directors. 12. Termination - Records: In the event of the termination or resignation of Employee pursuant to this Agreement, whether the termination is voluntary or without cause or for Misconduct, Employee will transfer all books, records, documents, and other memoranda of Editek, including all materials which have come into his custody, possession and control as a result of employment with Editek, to whomsoever Editek shall designate. Employee shall not, any time after the resignation or termination of his employment hereunder, divulge to any person any information or fact relating to the conduct and management of Editek, which shall have come to his knowledge in the course of his employment and the disclosure of which would cause damage or loss to Editek or result in the disclosure of confidential or proprietary information regarding Editek or any of its members. 13. Restrictive Covenant and Exceptions: So long as this Agreement remains in effect, Employee shall not take part in any other employment or enterprise which (1) is in competition with Editek; or (2) otherwise conflicts or interferes with the full performance of his duties hereunder, without the prior written consent of the C.E.O. The C.E.O. shall determine the propriety and acceptability of such additional employment or enterprise at its sole discretion. 14. Disclosure of Information: Employee recognizes and acknowledges that Editek's trade secrets and proprietary processes as they may exist from time to time are valuable, special and unique assets of Editek's business, access to and knowledge of which are essential to the performance of Employee's duties hereunder. Employee will not, during or after the term of his employment, disclose such secrets or processes to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall Employee make use of any such secrets or processes for his own purposes or for the benefit of any person, firm, corporation, or other entity (except Editek) under any circumstances during or after the term of his employment, provided that after the term of his employment these restrictions shall not apply to such secrets and processes which are then, or from time to time thereafter, in the public domain (provided that he was not responsible, directly or indirectly, for permitting such secrets or processes to enter the public domain without Editek's consent) or which are obtained from a third party which is not obliged under an agreement of confidentiality with Editek. 15. Covenants not to Compete or Interfere: Employee agrees that during the term of this Agreement and for a period of one (1) year after the date of termination of this Agreement, but in no event less than the period for which a Severance Award is payable pursuant to Section 6, Employee will not intentionally interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between Editek and any customer, or supplier of Editek or any of its subsidiaries. 16. Inventions: Employee hereby sells, transfers and assigns to Editek or to any person or entity designated by Editek, all of the entire right, title and interest of Employee in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material made or conceived by Employee, solely or jointly during the term hereof which relate to methods, apparatus, designs, products, process or devices, sold, leased, used or under consideration or development by Editek, or which otherwise relate to or pertain to the business, functions or operations of Editek. Employee agrees to communicate promptly and to disclose to Editek in such form as Employee may be required to do so, all information, details, and data pertaining to the aforementioned inventions, ideas, disclosures, and improvements and to execute and deliver to Editek such formal transfers and assignments and such other papers and documents as may be required of Employee to permit Editek or any person or entity designated by Editek to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. For the purposes of this Agreement, an invention shall be deemed to have been made during the term of Employee's employment if, during such period, the invention was conceived or first actually reduced to practice by Editek, and Employee agrees that any patent application filed within one (1) year after termination of employment shall be presumed to relate to an invention which was made during the term of Employee's employment, unless Employee can provide conclusive evidence to the contrary. 17. Indemnification: Editek agrees to indemnify and hold harmless Employee for any liability, including reasonable attorneys fees, or court expenses he may incur while acting within the proper scope of his employment, which right of indemnification and agreement to hold harmless shall continue in effect subsequent to any termination under this Agreement, other than termination on account of Misconduct, so long as any claim or expense relates to services provided by Employee during his employment. 18. Binding Effect: This Agreement shall be binding upon the successors and assigns of Editek, including those that may result from merger or reorganization. 19. Non-Assignability: Employee's rights and benefits under this Agreement are personal to him and such right and benefits shall not be subject to voluntary or involuntary assignment, alienation or transfer, except to the extent such rights and benefits are lawfully available to Employee's spouse, estate or beneficiary upon his death. 20. Governing Law: This Agreement shall be governed by the laws of the State of North Carolina without regard to its conflicts of law principles, provided that the duties of Employee as described in Section 2 hereof shall be interpreted in accordance with the laws of the State of Delaware. 21. Binding Arbitration: Any dispute involving this Agreement, other than an action by Editek to enforce its rights pursuant to Section 16 hereof, or to enforce the payment of a Severance Award, shall be resolved through binding arbitration. Any such resolution shall include a determination as to the portion of the costs of arbitration that shall be borne by Editek and by Employee. Except if Employee is terminated for Misconduct, if Editek contests the payment of a Severance Award or the calculation of the Severance Award, Editek shall continue to pay Employee a periodic amount equal to what otherwise would have been his Base Salary until such dispute is resolved. To the extent Employee shall be entitled to additional payments following a resolution of the dispute, Employee shall be entitled to interest on such payments at one hundred twenty percent (120%) of the applicable Federal rate as of Employee's Termination Date, determined under Section 1274(d) of the Code, compounded semi-annually, determined as of Employee's Termination Date, which interest shall be payable from the date beginning thirty (30) days after Employee's Termination Date. 22. Notices: All notices, requests, demands or other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or deposited in the United States mail, postage prepaid, by registered or certified mail, return receipt requested, to the party to whom such notice is given, as follows: As to Editek: Post Office Box 908 Burlington, North Carolina 27215 Attention: James D. Skinner As to Employee: ______________ Either party may change his or its address or the name of the person to whose attention the notice or other communication shall be directed from time to time by serving notice thereof upon the other party as provided herein. 23. Severability: In the event any of the provisions of this Agreement are held to be unenforceable, it is understood that the provision(s) affected thereby shall not be terminated, but shall be deemed amended to the extent required to render them valid and enforceable, and the validity and enforceability of the other provisions of this Agreement shall not be affected thereby. 24. Waiver: Either party's failure to demand strict performance and compliance with any part of this Agreement shall not be deemed to be a waiver of any of such party's rights under this Agreement or by operation of law. The waiver by either party of any breach of any provisions of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach of this Agreement by such other party. 25. Entire Agreement: Employee and Editek acknowledge that this Agreement contains the full and complete agreement between them with respect to the subject matter hereof and that there are no oral or implied agreements or other modifications not specifically set forth herein. Employee and Editek further agree that no modification of this Agreement may be made except by means of a written agreement or memorandum signed by both of them. IN WITNESS WHEREOF, Editek and Employee have each dated, executed and delivered this Agreement on the day and year indicated by their signatures. EDITEK: Date: By:_________________ Authorized Officer EMPLOYEE: ____________________ Date: EX-27 3 EXHIBIT 27
5 1,000 3-MOS DEC-31-1996 MAR-31-1996 880 0 4841 206 1357 7403 10438 7483 33256 5475 0 0 0 1979 22627 33256 4748 5623 4348 7348 0 0 93 (1725) 0 (1725) 0 0 0 (1725) (.14) (.14)
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