-----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, NP09oxvmzpPWj1qQ89MpOTkcIGeotgH1c70RS35ixKdbRd9wnvPnRsy+sys9wAiU TTY7p7PWoSe06Afm6HoqsA== 0000950168-96-000778.txt : 19960513 0000950168-96-000778.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950168-96-000778 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960510 SROS: NONE 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11394 FILM NUMBER: 96560085 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-K/A 1 EDITEK, INC. 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A-1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 incorporation 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 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.15 per share (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None 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 __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Common Stock of the Registrant, $.15 par value ("Common Stock"), held by non-affiliates of the Registrant is approximately $22,068,566, as of March 26, 1996, based upon a price of $1.875 which price is equal to the closing price for the Common Stock on the American Stock Exchange. The number of shares of Common Stock outstanding as of March 26, 1996, was 13,193,838. PART I 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, earning 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. ITEM 1. BUSINESS. 1. General. EDITEK, Inc., a Delaware corporation, was organized in September, 1986 to succeed the operations of a predecessor California corporation. EDITEK, Inc. and its subsidiaries are referred to herein as "the Company". The Company currently operates two toxicology laboratories which provide testing services for identification of substances of abuse. The Company also 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 entered the laboratory business on February 11, 1994 when it completed the acquisition of Princeton Diagnostic Laboratories of America, Inc. ("PDLA") which is now a wholly owned subsidiary. PDLA was incorporated in Delaware in December, 1986. On December 22, 1986, it acquired from Stauffer Chemical Company, a subsidiary of Cheesebrough-Pond's Inc., all of the Common Stock of Psychiatric Diagnostic Laboratories of America, Inc., through which PDLA conducts most of its operations. On January 30, 1996, the Company acquired the assets and certain liabilities of another laboratory, MEDTOX Laboratories, Inc. ("MEDTOX"). The combination of laboratory services and the Company's other products and services allows the Company to offer a full line of products and services for the substance abuse testing marketplace, including (1) on-site tests for the detection of substance of abuse drugs (EZ-SCREEN(R) and VERDICT(R)); (2) on-site disposable qualitative determination of alcohol intoxication; (3) Substance Abuse and Mental Health Services Administration (SAMHSA), formerly NIDA, certified laboratory testing (screening and confirmation); (4) accessory items (gloves, specimen containers, permanent recording temperature strips); and (5) consultation. Sales of these substance abuse testing products and services accounted for approximately 73% of the revenues of the Company for the year ended December 31, 1995. In 1993 diAGnostix, inc. was incorporated by the Company in Delaware as a wholly-owned subsidiary to address the broadly defined environmental testing marketplace. On June 1, 1995 the Company, through diAGnostix, inc., acquired Bioman Products, Inc. In addition to selling the Company's diagnostic products for the environmental and agri/food industry, diAGnostix, inc. is currently sourcing additional products manufactured by other companies that could be sold through diAGnostix, inc. It is also anticipated that the first products having civilian applications resulting from the Company's research and product development efforts with the United States Department of Defense will be oriented towards the environmental testing marketplace and sold through diAGnostix, inc. Sales of the products sold through diAGnostix, inc. accounted for approximately 14% of the Company's revenues in the year ended December 31, 1995. The Company also sells prepared and dehydrated culture media, animal blood products, sera and plasma, custom antisera, and other biomedical products and supplies, which are either produced by the Company or purchased from other suppliers. The Company also markets contract manufacturing services which utilize the same manufacturing equipment and processes used to manufacture the on-site products. The Company expects sales of these products and services, which were first introduced in 1986, to account for a smaller portion of its future revenues due to management's decision to focus primarily on the marketing of its laboratory services and diagnostic tests. Sales of these products and services accounted for approximately 5% of the revenues of the Company for the year ended December 31, 1995. The balance of the Company's revenues are from work performed for the U.S. Department of Defense including product sales as well as royalties, fees and other income. This represented approximately 8% of the revenues of the Company for the year ended December 31, 1995. Recent Developments. On January 30, 1996, the Company acquired the assets and certain liabilities of MEDTOX. MEDTOX was formed in 1984 and is located in St. Paul, Minnesota. MEDTOX was founded in 1984 by Dr. Harry G. McCoy. Dr. McCoy saw the need for a state-of-the-art, full service, toxicology reference laboratory that would provide timely, accurate analysis for a wide range of drugs and toxins. From its inception, MEDTOX has fulfilled that goal by offering broad-based toxicology services, including 24 hour emergency service at no extra cost to the client, therapeutic drug monitoring, medico-legal investigations and other services. MEDTOX rapidly gained a reputation for high quality and superb customer service in the local Minnesota medical market through the provision of toxicology laboratory services for local hospitals, physicians and general medical laboratories. MEDTOX then began an expanded regional program as well as national marketing which increased revenues and expanded the customer base. In 1987, MEDTOX purchased its largest Minneapolis competitor, Metropolitan Medical Center ("MMC"), and gained the services of Dr. Gary Hemphill, one of the leading scientists and laboratory directors at MEDTOX today. Dr. Hemphill and MMC also gave MEDTOX a foothold in the emerging employment drug screening business. With the creation of National Institute for Drug Abuse ("NIDA") in 1988 to oversee mandated drug screening for safety sensitive employees, MEDTOX became one of the first ten laboratories in the country on the original list of NIDA certified laboratories. MEDTOX business then rapidly grew in two major toxicology market segments: 1. Forensic toxicology (substance abuse testing). 2. Medical toxicology - the provision of reference toxicology testing the areas of therapeutic drug monitoring, etc., for hospitals, physicians and general clinical laboratories lacking the sophisticated toxicology capabilities of MEDTOX. For the year ended December 31, 1995 MEDTOX had net revenues of $20,219,000 with net income of $2,879,000. See Unaudited Pro Forma Consolidated Financial Information contained herein. 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 of MEDTOX. Also, the Company decided to down size certain administrative positions at both PDLA and MEDTOX in order to eliminate duplicate functions. The consolidation plan, which was put in place prior to the closing of the acquisition of MEDTOX, will be complete by early in the second quarter of 1996. 2. Principal Services, Products, and Markets. General. The Company's principal sources of revenues come from the sale of drugs of abuse laboratory testing services and products including a variety of on-site screening products. A. Drug Abuse Laboratory Testing Services. The primary business focus of the Company is the provision of laboratory testing services for the identification of drugs of abuse. These tests are conducted using methodologies such as enzyme immunoassay, radio immunoassay, gas liquid chromatography, high pressure liquid chromatography and gas chromatography/mass spectrometry. The Company has pioneered security and chain of custody procedures, including sample bar coding, to help maintain the integrity of the specimens and the confidentiality of the test results. The Company's customers for abused substance testing include public and private corporations. Among this customer base are Fortune 500 companies. In addition to public and private corporations, abused substance testing is also conducted on behalf of service firms such as financial institutions, drug treatment counseling centers and hospitals. B. Products. The Company's test products, which were adapted from assay technologies previously developed in the 1970's for human medical diagnostics, are easy to use, inexpensive, on-site tests. The tests are capable of rapidly detecting the presence of a number of substances in human urine or blood samples, foodstuffs, animals, feed and the environment without the necessity of instruments or technical personnel. The Company's diagnostic tests and the disposable devices used in connection therewith are marketed under the names EZ-SCREEN(R), QUIK-CARD(R), VERDICT(R), RECON(R) and EZ-QUANT(R), which are registered trademarks of the Company. A QUIK-CARD together with the necessary reagents, comprise an EZ-SCREEN test. EZ-SCREEN tests were first introduced by the predecessor corporation of the Company in 1985. EZ-SCREEN and VERDICT tests are utilized in agricultural diagnostics (which includes mycotoxin detection, drug residue surveillance, feed analysis, and regulatory compliance) and clinical diagnostics (which includes drugs of abuse testing). VERDICT and RECON are "self-performing", one-step tests marketed, respectively, to the drugs of abuse and Department of Defense testing markets. The VERDICT and RECON tests were both introduced in 1993. EZ-QUANT tests, first introduced in 1994 are microtiter, ELISA-based, quantitative assays utilized in agricultural diagnostics. . Clinical Diagnostics. The EZ-SCREEN tests are also used in clinical diagnostics to detect the presence of certain drugs of abuse in humans. The Company now has received clearance from the Food and Drug Administration ("FDA") for EZ-SCREEN tests for six of the most commonly abused substances: cannabinoids, cocaine, opiates, barbiturates, amphetamines, and PCP. The Company markets this product line, both domestically and internationally, to law enforcement agencies, industrial companies for pre-employment screening, physicians' offices, hospitals, clinics and drug abuse counseling and treatment centers. VERDICT tests are used to detect the presence of certain drugs of abuse in humans. The Company is now marketing the VERDICT cocaine test, the VERDICT THC test, and the VERDICT opiates test. The Company has received clearance from the FDA for its VERDICT cocaine test and VERDICT opiates test. The VERDICT THC test is being marketed for forensic use only, pending 510(K) premarket clearance from the FDA. Alcohol Abuse Detection. The Company distributes on-site tests for the detection of alcohol with the EZ-SCREEN Breath Alcohol Test. The test consists of a small tube containing chemically treated crystals that change color in the presence of alcohol. The Company purchases these products through a distribution agreement with WNCK, Inc. Agridiagnostic Tests. The EZ-SCREEN and EZ-QUANT tests are used in agricultural diagnostics to detect, among other things, mycotoxins, which are hazardous substances produced by fungal growth. Mycotoxins frequently contaminate corn, wheat, rye, barley, peanuts, tree nuts, cottonseed, milk, rice, and livestock feeds. The EZ-SCREEN agridiagnostic tests are marketed to regulatory authorities and producers of foodstuffs and feeds. Conventional Biodiagnostic Products. The Company manufactures and/or distributes a variety of products used by researchers, clinical testing laboratories, government agencies and private industry for veterinary and agricultural testing purposes. These products include prepared and dehydrated culture media, animal blood products, sera and plasma, custom antisera (consisting of polyclonal antibodies to a variety of antigens), immunodiagnostic kits, species identification plates and other biomedical products and supplies. The Company produces laboratory diagnostic kits for detection of sulfa drugs and other antibiotics in livestock, and distributes a variety of other biomedical products and supplies produced by other manufacturers. 3. Marketing and Sales. The Company believes that the combined operations of the laboratory operations and the on-site test kits manufactured by the Company have created synergy in the marketing of comprehensive, on-site and laboratory testing programs to a common customer base. The Company is in a position to offer a full line of products and services for the substance abuse testing marketplace, including (1) on-site tests for the detection of substance of abuse drugs (EZ-SCREEN and VERDICT); (2) on-site qualitative and quantitative determination of alcohol intoxication (both disposable and electronic instrument detection devices); (3) SAMHSA certified laboratory testing (PDLA screening and confirmation); (4) accessory items (gloves, specimen containers, permanent recording temperature strips); and (5) consultation. diAGnostix, Inc. The Company currently markets its EZ-SCREEN, EZ-QUANT, and other tests through diAGnostix, Inc. with an internal sales and marketing department as well as through various distribution agreements with third party distributors. The Company has current distribution arrangements throughout Europe, Japan and other countries worldwide. Customers for products sold through diAGnostix include livestock producers, food processors, veterinarians, and government agencies. Other. The Company also provides Conventional Biodiagnostic Products. Customers for Conventional Biodiagnostic Products consist of government agencies, testing laboratories, manufacturers of medical diagnostic products, and researchers. Major Customers. Sales to the United States government and its agencies, primarily the United States Department of Agriculture ("USDA"), amounted to approximately 4% of the Company's total revenues during 1995. The majority of these sales are through two separate multi-year contracts with the United States Department of Agriculture. One contract expires September 30, 1996, and the other expires September 30, 1999. Both these contracts are subject to annual renewals by the USDA. Sales to foreign customers, primarily distributors, amounted to approximately 8% of the Company's total revenues during 1995. No one foreign customer represented more than 5% of the Company's total revenues. 4. New Products. During 1995 the primary research and development efforts of the Company focused on the development of tests to extend the product offerings in each of the immunoassay product lines produced by the Company. These product lines consist of the VERDICT/RECON "self-performing" immunochromatographic assays, the EZ-SCREEN membrane-based enzyme immunoassays, and the EZ-QUANT microtiter immunoassays. VERDICT Tests for Drugs of Abuse - During 1995 research and development efforts were directed to continued support and refinement of the currently marketed VERDICT one-step tests for the detection of cocaine, THC (marijuana), and opiate metabolites and to the development of additional VERDICT tests for the detection of phencyclidine (PCP), amphetamines and barbiturates. Clinical evaluation of the VERDICT PCP test was completed in December, 1995 and the product was released for sale for forensic use in February, 1996. Clinical evaluation of the VERDICT Amphetamines and VERDICT Barbiturates tests will be conducted in early 1996 with a planned product release for sale during the second quarter, 1996. Additional efforts in 1996 will be directed toward development of VERDICT tests for benzodiazepines and methadone and to the design of a test device which would permit simultaneous testing of a sample for five different drugs of abuse following the addition of a single sample. RECON Tests for Agents of Biological Origin - In 1991 the Company successfully completed a "proof of principle" study under contract with the U.S. Department of Defense (DOD) to develop rapid, on-site tests for the detection of certain biological materials. Since September 1991 the Company has had an ongoing contract to continue this development program. The initial phase of the ongoing contract led to development of EZ-SCREEN tests for 6 agents, Botulinum Toxins A and B, B. anthracis, Staphylococcal Enterotoxin B, Ricin Toxin, Spore Simulant and Botulinum Toxin E. Currently the contract calls for the development of RECON one-step tests for nine agents of biological origin using reagents supplied by the U.S. Government. The contract also calls for the supply of a limited number of each of these RECON tests to agencies within the DOD for evaluation purposes. In December 1995 production of the last of three trial production lots of tests for four of the agents began. Shipment of these four tests for Ricin Toxin, Plague F1, Staphylococcal Enterotoxin B and Spore Simulant were completed during the first quarter 1996 as was delivery of the first lot of tests for one additional agent. Additional efforts in 1996 will be directed toward completing development of tests for three additional agents and toward production of trial lots of the five remaining agents. As of December 31, 1995 the total value of the contract was $1,177,000 and a total of $941,000 had been billed under the contract to date. EZ-SCREEN Tests for Drugs of Abuse - During 1995 the primary EZ-SCREEN research and development effort was directed toward the development and clinical evaluation of the EZ-SCREEN PROFILE drugs of abuse test. This product, released for sale for forensic use in February, 1996 permits simultaneous testing of a single urine sample for THC, cocaine, opiates, amphetamines and PCP. During 1996, the EZ-SCREEN PROFILE product will be fully transitioned to manufacturing, development work on EZ-SCREEN Benzodiazepines will be completed and development of an EZ-SCREEN Methadone test will be initiated. EZ-QUANT Tests for Mycotoxins and Antibiotic Residues - In 1995, the Company's research and development group completed the development of an EZ-QUANT test for determining the concentration of deoxynavalenol (DON) in various food products. The EZ-QUANT DON test, which utilizes reagents provided to the Company under a sole distribution agreement with Agriculture Canada, was released for sale in September 1995. Also in 1995 work was initiated on two additional EZ-QUANT products. The EZ-QUANT Chloramphenicol test was released in February 1996 and the EZ-QUANT Ochratoxin test will be released in 1996. Additional effort in 1996 will be directed towards transitioning production of the EZ-QUANT products to manufacturing and pursuing Association of Official Analytical Chemists (AOAC) Research Institute certification of the EZ-QUANT Aflatoxin product. Biosensors - In March, 1995 the Company entered into a Research Collaboration Agreement with Battelle Memorial Institute to explore the commercial feasibility of utilizing the Company's immunoassay reagents with a novel, state-of-the-art biosensor instrument developed by Battelle under contract with the Department of Defense. It was anticipated that if the studies proved successful, the Company would continue working with Battelle toward the creation of products for commercial application of the biosensor system, initially for food safety testing purposes. At year end studies had been completed which demonstrated detection of low levels of labeled aflatoxin B1 conjugate with good signal to noise ratio. Studies are now underway to determine the performance and sensitivity of the biosensor system for the detection of aflatoxin in a corn matrix. Upon completion of these studies, data will be analyzed and a decision made relative to potential follow-on activity. Other Tests - The Company is assessing on a preliminary basis, the market opportunity for and feasibility of developing other EZ-SCREEN, EZ-QUANT and one-step tests for the detection of other mycotoxins, antibiotics, drugs of abuse and other conditions found in humans or animals. Opportunities for development of assays using other technologies are also assessed on an ongoing basis. 5. Research and Development. The markets for agridiagnostic and clinical diagnostic products are highly competitive, and innovations and technological changes occur frequently. For these reasons, the Company has devoted substantial funds to research and development of its immunoassay products. During the fiscal years ended December 31, 1995, 1994 and 1993, the Company incurred expenses of $920,000, $729,000, and $825,000 respectively, for research and development. In 1995, $201,000, of the expenses incurred for research and development were reimbursed by outside parties or involved charges for which outside parties had reimbursement commitments. As of December 31, 1995, the Company employed 14 people in research and development, 6 of whom hold Ph.D.'s. 6. Raw Materials. The raw materials required by the laboratory for urine drug testing consist primarily of two types: specimen collection supplies and reagents for laboratory analysis. The collection supplies include Drug Testing Custody and Control Forms that identify the specimen and the client, as well as document the chain-of-custody. Collection supplies also consist of specimen bottles and shipping boxes. Reagents for drug testing are primarily immunoassay screening products and various chemicals used for confirmation testing. The Company believes all of these materials are available at competitive prices from other suppliers. The primary raw materials required for the immunoassay-based test kits produced by the Company consist of antibodies, antigens and other reagents, plastic injection-molded devices, glass fiber, nitrocellulose filter materials, and packaging materials. The Company maintains an inventory of raw materials which, to date, has been acquired primarily from third parties. Currently, most raw materials are available from several sources. The Company possesses the technical capability to produce its own antibodies and has initiated production of antibodies for certain tests. However, if the Company were to change its source of supply for raw materials used in a specific test, additional development, and the accompanying costs, may be required to adapt the alternate material to the specific diagnostic test. 7. Patents, Trademarks, Licensing and Other Proprietary Information. The Company holds nine issued United States patents, eight of which generally form the basis for the EZ-SCREEN and one-step technologies. Additionally, the Company has one patent which relates to methods of utilizing whole blood as a sample medium on its immunoassay devices. The Company also holds various patents in several foreign countries. The Company also holds two United States patents which it acquired in the acquisition of Granite Technological Enterprises, Inc. in 1986. Of the eight U.S. patents mentioned above which generally form the basis for the EZ-SCREEN and one-step technologies, one expires in 2000, one expires in 2004, five expire in 2007, and one expires in 2010. The patent which relates to the methods of utilizing whole blood as a sample medium expires in 2012. There can be no guarantee that there will not be a challenge to the validity of the patents. In the event of such a challenge, the Company might be required to spend significant funds to defend its patents, and there can be no assurance that the Company would be successful in any such action. The Company holds twelve registered trade names and/or trademarks in reference to its products and corporate names. The trade names and/or trademarks of the Company range in duration from 10 years to 20 years with expiration dates ranging from 2001 to 2008. Applications have also been made for additional trade names. The Company believes that the basic technologies requisite to the production of antibodies are in the public domain and are not patentable. The Company intends to rely upon trade secret protection of certain proprietary information, rather than patents, where it believes disclosure could cause the Company to be vulnerable to competitors who could successfully replicate the Company's production and manufacturing techniques and processes. 8. Seasonality. The Company believes that the laboratory testing business is subject to seasonal fluctuations in pre-employment screening which has low points in August and December annually. The Company does not believe that seasonality is a significant factor in sales of its on-site immunoassay tests. However, the Company believes that sales of certain of its tests for the agricultural markets such as its EZ-SCREEN:AFLATOXIN test coincide with the harvesting of crops meant for human and animal consumption. 9. Backlog. At December 31, 1995, the Company did not have any significant backlog and normally does not have any significant backlog. The Company does not believe that recorded sales backlog is a significant factor in its business. 10. Competition. Laboratory Services. Competition in the area of drugs of abuse testing is intense. Competitors and potential competitors include forensic testing units of large clinical laboratories, such as Laboratory Corporation of America Holdings, Corning/Metpath Laboratories and SmithKline Laboratories, Inc. and other independent laboratories, other specialized laboratories, and in-house testing facilities maintained by hospitals. Competitive factors include reliability and accuracy of tests, price structure, service, transportation collection networks and the ability to establish relationships with hospitals, physicians, and users of drug abuse testing programs. It should be recognized, however, that many of the competitors and potential competitors have substantially greater financial and other resources than the Company. The industry in which the Company competes is characterized by service issues including turn-around time of reporting results, price, the quality and reliability of results, and an absence of patent or other proprietary protection. In addition, since tests performed by the Company are not protected by patents or other proprietary rights, any of these tests could be performed by competitors. However, there are proprietary assay protocols for the more specialized testing that are unique to the company. Some specific segments of the laboratory testing business are price competitive with low margins. Other segments, which place a premium on quality, constitute a large part of the business of MEDTOX, where, to date, quality service has been a more important competitive factor than price. This has allowed MEDTOX to generate positive gross margins and operating income. The Company's ability to successfully compete in the future and maintain it margins will be based on its ability to maintain its quality and customer service strength while maintaining efficiencies and low cost operations. There can be no assurance that price competitiveness will not increase in importance as a competitive factor in the business of MEDTOX. Immunoassay Tests. The diagnostics market has become highly competitive with respect to the price, quality and ease of use of various tests and is characterized by rapid technological and regulatory changes. The Company has designed its on-site tests as inexpensive, on-site tests for use by unskilled personnel, and has not endeavored to compete with laboratory-based systems. Numerous large companies with greater research and development, marketing, financial, and other capabilitied, as well as government-funded institutions and smaller research firms, are engaged in research, development and marketing of diagnostic assays for application in the areas for which the Company produces its products. The Company has experienced increased competition with respect to its immunoassay tests from systems and products developed by others, many of whom compete solely on price. As the number of firms marketing diagnostic tests has grown, the Company has experienced increased price competition. A further increase in competition may have a material adverse effect on the business and future financial prospects of the Company. 11. Government Regulations. The products and services of the Company are subject to the regulations of a number of governmental agencies as listed below. It is believed that the Company is currently in compliance with all regulatory authorities. The Company cannot predict whether future changes in governmental regulations might significantly increase compliance costs or adversely affect the time or cost required to develop and introduce new products. In addition, products of the Company are or may become subject to foreign regulations. 1. United States Food and Drug Administration (FDA). Certain tests for human diagnostic purposes must be cleared by the FDA prior to their marketing for in vitro diagnostic use in the United States. The FDA regulated products produced by the Company are in vitro diagnostic products subject to FDA clearance through the 510(k) process which requires the submission of information and data to the FDA that demonstrates that the device to be marketed is substantially equivalent to a currently marketed device. This data is generated by performing clinical studies comparing the results obtained using the Company's device to those obtained using an existing test product. Although no maximum statutory response time has been set for review of a 510(k) submission, as a matter of policy the FDA has attempted to complete review of 510(k) submissions within 90 days. To date, the Company has received 510(k) clearance for 10 different products and the average time for clearance was 58 days with a maximum of 141 days and a minimum of 20 days. Products subject to 510(k) regulations may not be marketed for in vitro diagnostic use until the FDA issues a letter stating that a finding of substantial equivalence has been made. As a registered manufacturer of FDA regulated products, the Company is subject to a variety of FDA regulations including the Good Manufacturing Practices (GMP) regulations which define the conditions under which FDA regulated products are to be produced. These regulations are enforced by FDA and failure to comply with GMP or other FDA regulations can result in the delay of premarket product reviews, fines, civil penalties, recall, seizures, injunctions and criminal prosecution. 2. Health Care Financing Administration (HCFA). The Clinical Laboratory Improvement Act (CLIA) introduced in 1992 requires that all in vitro diagnostic products be categorized as to level of complexity. A request for CLIA categorization of any new clinical laboratory test system must be made simultaneously with FDA 510(k) submission. The EZ-SCREEN and VERDICT drugs of abuse tests currently marketed by EDITEK have been categorized as moderately complex. The complexity category to which a clinical laboratory test system is assigned may limit the number of laboratories qualified to use the test system thus impacting product sales. 3. United States Department of Agriculture (USDA). The Company's animal facilities are subject to and comply with applicable regulations of the USDA. The livestock related products of the Company may become subject to state regulation but the Company does not anticipate any difficulties in complying with these regulations, if enacted. 4. United States Department of Defense (DOD). With reclassification of the Company's contract with the DOD from UNCLASSIFIED to SECRET, it has been necessary to establish the appropriate security procedures and facilities, including designation of a Facility Security Officer who is responsible for overseeing the security system, including conduct of periodic security audits by appropriate defense agencies. Additionally, the Company is now subject to periodic audits of its accounting systems and records by the Defense Audit Agency. 5. Drug Enforcement Administration (DEA). The primary business of the Company involves either testing for drugs of abuse or developing test kits for the detection of drugs/drug metabolites in urine. PDLA and MEDTOX laboratories are registered with the DEA to conduct chemical analyses with controlled substances. The EDITEK facility is registered by the DEA to manufacture and distribute controlled substances and to conduct research with controlled substances. Maintenance of these registrations requires that the Company comply with applicable DEA regulations. 6. Substance Abuse and Mental Health Services Administration (SAMHSA). Both PDLA and MEDTOX laboratories are certified by SAMHSA, PDLA since 1989 and MEDTOX since 1988. SAMHSA certifies laboratories meeting strict standards under Subpart C of Mandatory Guidelines for Federal Workplace Drug Testing Programs. Continued certification is accomplished through periodic inspection by SAMHSA to assure compliance with applicable regulations. 7. Additional Laboratory Regulations. The PDLA and MEDTOX laboratories and certain of the laboratory personnel are licensed or otherwise regulated by certain federal agencies, states, and localities in which PDLA and MEDTOX conduct business. Federal, state and local laws and regulations require PDLA and MEDTOX, among other things, to meet standards governing the qualifications of laboratory owners and personnel, as well as the maintenance of proper records, facilities, equipment, test materials, and quality control programs. In addition, both laboratories are subject to a number of other federal, state, and local requirements which provide for inspection of laboratory facilities and participation in proficiency testing, as well as govern the transportation, packaging, and labeling of specimens tested by either laboratory. The laboratories are also subject to laws and regulations prohibiting the unlawful rebate of fees and limiting the manner in which business may be solicited. Both laboratories receive and use small quantities of hazardous chemicals and radioactive materials in their operations and are licensed to handle and dispose of such chemicals and materials. Any business handling or disposing of hazardous and radioactive waste is subject to potential liabilities under certain of these laws. 12. Product Liability. Manufacturing and marketing of products by the Company entail a risk of product liability claims. The exposure to product liability claims in the past was mitigated to some extent by the fact that the Company's products were principally directed toward food processors (as contrasted with human diagnostics) and most of its Conventional Biodiagnostic Products were used as components in research, testing or manufacturing by the purchaser and conformed to the purchaser's specifications. However, a greater portion of the Company's current revenues result from sales of human diagnostic tests, thereby potentially increasing exposure to product liability claims. On August 13, 1993, the Company procured insurance coverage against the risk of product liability arising out of events after such date, but such insurance does not cover claims made after that date based on events that occurred prior to that date. Consequently, for uncovered claims, the Company could be required to pay any and all costs associated with any product liability claims brought against it, the cost of defense whatever the outcome of the action, and possible settlement or damages if a court rendered a judgment in favor of any plaintiff asserting such a claim against the Company. Damages may include punitive damages, which may substantially exceed actual damages. The obligation to pay such damages could have a material adverse effect on the Company and exceed its ability to pay such damages. No product liability claims are pending. The Company's laboratory testing services are primarily diagnostic and expose the Company to the risk of liability claims. The Company's laboratories have maintained continuous Professional and General Liability insurance since 1985. To date, the Company has not had any substantial product liability and no material professional service claims are currently pending. 13. Employees. As of December 31, 1995, the Company had 106 full-time employees compared to 100 full-time employees as of December 31, 1995. Of the 106 full-time employees, 39 were in laboratory operations and systems, 18 were involved in research, testing, and product development activities, 20 in production and distribution, 14 in sales and marketing, and 15 in administrative and clerical functions. Additionally, 8 of its personnel hold Ph.D. degrees. As of January 30, 1996, MEDTOX had 247 employees, of which 199 were involved in laboratory operations, 18 were involved in sales and marketing, 5 were involved in research and development and 25 were involved in administrative and clerical functions. Additionally, 6 of its personnel hold Ph.D. degrees. The consolidation of the laboratory operations from PDLA in New Jersey into the laboratory operations of MEDTOX will result in the elimination of 35 positions in New Jersey and the addition of certain of the some positions in Minnesota. The Company's employees are not covered by any collective bargaining agreements, and the Company has not experienced any work stoppages and the Company considers its relations with its employees to be good. 14. MEDTOX Acquisition and Capital Structure The Company has undergone a significant change as a result of the acquisition of MEDTOX and the associated financing. The following points represent certain potential risk factors associated with the acquisition and financing. 1. Dependence on Sales of Equity. As of December 31, 1995, the Company had not achieved a positive cash flow from operations. Accordingly, the Company relies on available credit arrangements, outside funding of research and development and continued sales of its equity securities to fund operations until a positive cash flow can be achieved. From January 1, 1991 through December 31, 1995, the Company raised approximately $12 million from equity financing and issued 6,058,699 shares of the Company's Common Stock for an average price of $1.98 per share, all of which were issued at a discount to the market value of the Company's Common Stock. In order to finance the acquisition of MEDTOX, pay applicable costs and expenses and to provide working capital, the Company raised approximately $20 million from the sale of the Preferred Stock and Common Stock. This amount and the amount borrowed, as described below, have allowed the Company to consummate the MEDTOX acquisition and the Company believes should provide enough working capital to help the Company achieve positive cash flow. If the Company is unable to achieve a positive cash flow, additional financing will be required. There can be no assurance that additional financing can be obtained or if obtained, that the terms will be favorable to the Company. 2. Debt Service; Debt Seniority; No Dividends. To finance the acquisition of MEDTOX and to provide working capital the Company borrowed $5 million in January, 1996. The debt financing consists of two term loans totaling $4 million and up to $7 million in the form of a revolving line of credit based on the receivables of the Company (the "Loan Agreement"). The amount of credit available to the Company varies with the accounts receivable and the inventory of the Company. On January 30, 1996, the receivables and inventory amounts made $2.9 million of the credit facility available, of which the total is still available at March 26, 1996. There can be no assurance that the Company will have sufficient revenues to service payments of principal and interest on this indebtedness. Failure to service this indebtedness would have a material adverse effect on the Company. The indebtedness of the Company will be senior to the Series A Preferred Stock and shares of Common Stock upon liquidation of the Company. Interest payments on the indebtedness may cause there to be insufficient cash to pay any dividends. In addition, the loan amount and the line of credit agreement contain covenants that restrict the Company's ability to pay dividends even if the Company has cash available from which to pay dividends. 3. Unexpected Effects of Merger(s). The Company completed the acquisition of the MEDTOX assets on January 30, 1996 (the "Closing Date"). The Company also acquired the assets and operations of Bioman Products, Inc. on June 1, 1995. In February 1994, the Company acquired Princeton Diagnostic Laboratories of America, Inc. ("PDLA"). The Company anticipates that certain synergism will arise between the Company and Bioman, PDLA and MEDTOX. However, there can be no assurance that any synergism will arise from the recent acquisitions. The efforts required to integrate the business of the Company with other operations may have a material adverse effect on the operations of either the Company or the acquired company(s). 4. Adverse Effect on Market Price of Sales of the Company Stock. A substantial number of shares of capital stock of the Company have been issued in transactions that are exempt from registration under the Securities Act of 1933, as amended, either in private placements or pursuant to Regulation S. On January 30, 1996 and February 2, 1996, the Company sold 303 shares of Series A Preferred Stock utilizing the exemption afforded by Regulation S of the Commission (the "Offshore Offering"), which shares are convertible into a minimum of 5,459,459 shares of Common Stock and may be convertible into more shares of Common Stock if the market price of the Common Stock of the Company is less than $3.70 per share on the conversion dates. As of March 26, 1996, the market price of the Common Stock was $1.875 per share at which price the 303 shares of Series A Preferred Stock would be convertible into 10,744,681 shares of Common Stock, based on a conversion price of $1.41 per share or a 25% discount to the market price on March 26, 1996. Regulation S provides generally that offers or sales that occur outside the United States and in compliance with the requirements thereof are not subject to the registration requirements of the Act. Subject to certain restrictions and conditions set forth therein, Regulation S is available for offers and sales to investors that are not U.S. persons. Such offshore investors who purchase the shares of Series A Preferred Stock in the Offshore Offering pursuant to Regulation S are not permitted to transfer such shares or Conversion Shares to a U.S. Person (defined generally as a resident of the U.S. or an entity organized under the laws of the U.S.) for a period of at least 40 days after February 2, 1996, the closing of the Offshore Offering (the "Restricted Period"). Resales to buyers who are not U.S. persons are permitted at any time. After the expiration of the Restricted Period, investors who purchased shares of Series A Preferred Stock in the Offshore Offering may sell such shares or Conversion Shares in the U.S., but only if such shares are registered or an exemption from registration is available. Accordingly, beginning on March 30, 1996 (the first day any investor will be able to convert shares of Series A Preferred Stock into shares of Common Stock), to the extent that any offshore investors have converted their shares of Series A Preferred Stock into Common Stock, such offshore investors will also be able to sell such Common Stock in the U.S. if the shares are registered or an exemption is available. Sales of Conversion Shares for such offshore investors must be made in compliance with an exemption from registration. The agreements between the Company and offshore investors provide that the stock certificates for the Conversion Shares will not contain restrictive securities legends. Consequently, if the Company complies with these agreements, the Company would not be able to prevent illegal resales of Series A Preferred Stock or Conversion Shares by offshore investors and each offshore investor will make its own determination whether such sales qualify for exemptions from registration. On March 27, 1996, the Company determined it would place legends on the certificates of shares of Common Stock to assure that all resales of securities are made in compliance with applicable securities laws. On March 27, 1996, the Company determined it would place legends on Common Stock Certificates to assure that all resales of securities are made in compliance with applicable securities laws. Since that date, the Company has been in discussions with Preferred shareholders about whether the Common Stock should be legended. In part to avoid protracted litigation from Preferred shareholders and in part in reliance on the cooperation of Preferred shareholders who have reaffirmed their intention to comply with securities laws on all resales, the Company has begun to issue Common Stock certificates without legends. The Company will seek to work with its Preferred shareholders to assure compliance with securities laws on resales. The Company intends to monitor trading in its stock closely, but notwithstanding that the Preferred shareholders sell only pursuant to an available exemption, there can be no assurance that the trading activities of their transferees will not result in decreases in the market price of the Company's Common Stock. The Company is continuing to discuss issues related to conversion with its Preferred shareholders and may offer registration rights and/or other rights to Preferred shareholders as an inducement to delay conversion. There can be no assurance the issues related to resale of the Common Stock of the Company issued pursuant to Regulation S will not have a material adverse effect on the Company, including the ability of the Company to raise additional capital in the future. In connection with the acquisition of MEDTOX, the Company issued 2,517,306 to the former shareholders of MEDTOX and sold 104 shares of Series A Preferred stock, all pursuant to Regulation D. The shares issued to the former shareholders of MEDTOX and the Common Stock issuable upon the conversion of the 104 shares of Series A Preferred Stock were included on a Registration Statement on Form S-3 which was filed on February 9, 1996. The 104 shares of Series A Preferred Stock would be convertible into 3,652,482 shares of Common Stock based on a conversion price of $1.41 per share or a 25% discount to the market price on March 26, 1996. If substantial sales of the Company's Common Stock occur, whether by the investors in the Offshore Offering or by U.S. investors pursuant to the Registration Statement or otherwise, such sales could have a material adverse effect on the market price of the Company's Common Stock. 5. Adverse Effect of Price Protection Provisions. The number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock will equal the number derived by dividing (i) the purchase price of the Series A Preferred Stock ($50,000 per share) by (ii) the lower of (x) $2.775 or (y) 75% of the Market Price of the Common Stock on the day the shares of Series A Preferred Stock are converted into Common Stock. "Market Price" is defined for this purpose as the daily average of the closing bid prices quoted on the American Stock Exchange or other exchange on which the Common Stock is traded for the five trading days immediately preceding the date the shares are converted. Accordingly, a minimum of 7,333,333 shares of Common Stock are issuable upon conversion of the 407 shares of Series A Preferred Stock sold in both the U.S. Offering and the Offshore Offering, but the actual number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock will not be known until the time of issuance of the shares of Common Stock upon conversion. As of March 26, 1996, the market price of the Common Stock was $1.875 per share at which price the 407 shares of Series A Preferred Stock would be convertible into 14,432,624 shares of Common Stock, based on a conversion price of $1.41 per share or a 25% discount to the market price on March 26, 1996. The MEDTOX Asset Purchase Agreement provides that, if after the Closing Date the market value of the Common Stock of the Company declines below $1.986 per share during four specified periods (the "Repricing Periods") following press releases by the Company, the Company will issue additional shares of Common Stock ("Additional Shares") to shareholders of MEDTOX who retain their shares of Common Stock through four specified dates (the "Repricing Dates") to compensate the MEDTOX shareholders for decreases after the closing of the MEDTOX acquisition in the market price of the Common Stock of the Company below $1.986 per share. The Repricing Dates are the fifth trading day following the date the Registrant issues press releases announcing its financial performance for the fiscal quarters ending on March 31, 1996, September 30, 1996 and September 30, 1997 and the fiscal year ending on December 31, 1996 and the Repricing Periods are the dates between the dates of the press releases and the Repricing Dates. Accordingly, the number of Additional Shares issuable in the future in connection with the MEDTOX acquisition cannot be determined at this time and will depend upon changes in the market price of the Common Stock, as well as the extent to which MEDTOX shareholders retain the MEDTOX shares on each of the Repricing Dates. The price protection provisions of the Series A Preferred Stock and the MEDTOX shareholders could result in the Company being required to issue more shares of Common Stock than the Company is authorized to issue. The Company's Certificate of Incorporation currently authorizes the issuance of 30,000,000 million shares of Common Stock, of which 13,193,838 shares are currently issued and outstanding. If all 407 outstanding shares of the Series A Preferred Stock were to be converted at a 25% discount from the $1.875 market price of the Company's Common Stock on March 26, 1996, 14,471,111 shares of Common Stock would be issuable upon conversion of the Series A Preferred Stock and only 2,335,051 shares of Common Stock would be available for future issuances. 1,736,133 shares of Common Stock are issuable pursuant to outstanding stock options, stock purchase plans and warrants. The Company's Certificate of Incorporation also authorizes the issuance of 1,000,000 shares of Preferred Stock for which the Board of Directors has the power to designate the rights and preferences, of which only 407 shares are issued and outstanding. The Company intends to hold a shareholders meeting to amend the Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock of the Company, which additional shares would be available to satisfy the price protection provisions of the Series A Preferred Stock and the MEDTOX shareholders and for other corporate purposes. The price protection provisions of the Series A Preferred Stock are transferred upon any transfer of the Series A Preferred Stock, but terminate upon conversion of the Series A Preferred Stock. The price protection afforded the MEDTOX shareholders terminates upon transfer of the Common Stock issued to MEDTOX shareholders. Other shareholders of the Company do not have the price protection afforded holders of Series A Preferred Stock and the MEDTOX shareholders. Accordingly, if the market price of the Common Stock of the Company declines, the interests in the Company's other shareholders will be diluted by the price protection provisions afforded holders of Series A Preferred Stock and the MEDTOX shareholders. Substantial sales of shares of Common Stock by the MEDTOX shareholders or purchasers of Series A Preferred Stock or other shareholders may have a material adverse effect on the market price of the Common Stock of the Company, which would increase the number of Additional Shares issuable to MEDTOX shareholders on the Repricing Dates and the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock. ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data are derived from financial statements of the Company and should be read in conjunction with the financial statements, related notes, and other financial information included herein. Years Ended December 31 1995 1994 1993 1992 1991 (in thousands, except per share amounts) Net revenues $7,526 $6,593 $2,633 $2,989 $2,731 Net loss (7,285) (3,546) (3,066) (1,292) ( 847) Net loss per share (.77) ( .49) ( .56) ( .35) ( .31) Total assets 3,806 7,378 4,005 3,188 1,254 Long term debt -0- 63 -0- 113 154 Cash dividends -0- -0- -0- -0- -0- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General 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 culture media, animal blood products, customer antisera, and other Conventional Biodiagnostic Products as a result of its acquisition of Granite Technological Enterprises, Inc. in June 1986. The Company began the manufacture and sale of its EZ-SCREEN diagnostic tests in 1985 and introduced its patented one-step assay, VERDICT and RECON, in 1993. On February 11, 1994 the Company completed the acquisition of PDLA, which is now a wholly-owned subsidiary of the Company. The results of operations for the year ended December 31, 1994 include the results from operations of PDLA for the period February 12, 1994 through December 31, 1994. Since inception, the Company has financed its working capital requirements primarily from the sale of equity securities. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Total revenues for year ended December 31, 1995 increased 14% to $7,526,000, compared to $6,593,000 for the prior year. This increase is primarily fully attributable to the increase in revenues from sales of products and services for 1995. These revenues totaled $7,037,000, an increase of 14% compared to $6,183,000 for the prior year. Laboratory Service Revenues for the year ended December 31, 1995 were $4,312,000, an 18% increase compared to $3,647,000 for the prior year. This increase was due primarily to the efforts of a full sales and marketing force for the laboratory services of PDLA. During the year ended December 31, 1994, the company realized sales of $566,000 from laboratory services that were transferred to American Medical Laboratories, Inc. ("AML") in January 1995 and, as such, are not included in the sales for the year ended December 31, 1995. Accordingly, the increase in Laboratory Service revenue excluding those sales transferred to AML was actually $1,231,000. Product sales include the sales generated from substance abuse testing products, which incorporates the EZ-SCREEN and VERDICT on site tests and other ancillary products for the detection of abused substances. Sales from these products were $1,180,000, down 9% compared to $1,293,000 for the prior year. The Company believes this decrease was primarily due to increased competition. This competition was caused by the introduction of several products by competitors which compete with the products of the Company. The decrease was also affected by the lack of a complete product line of the VERDICT products. Product sales also include sales of agricultural diagnostic products which are marketed through diAGnostix, inc. Sales of these products were $1,090,000 for the year ended December 31, 1995, an increase of 35% compared to sales of $805,000 for the prior year. The acquisition of Bioman Products Inc. on June 1, 1995 brought $404,000 in sales revenues to the Company for the year ended December 31, 1995. Excluding these revenues, sales of agricultural diagnostic products were $686,000 for 1995, a decrease of 15% compared to 1994. The Company believes this decrease is due to decreased testing by customers of the Company. Sales of Microbiological and associated product sales and contract manufacturing services were $393,000 for the year ended December 31, 1995, down 10% compared to $438,000 for these products and services in 1994. This decrease was due to a reduced marketing effort. In 1995, the Company completed research and development on certain tests developed for the U.S. Department of Defense. This enabled production to begin for the first time on products specifically manufactured for the U.S. Department of Defense. Revenues from shipment of these products were $62,000 for the year ended December 31, 1995. Revenues from royalties and fees during the year ended December 31, 1995 were $300,000, compared to $200,000 for 1994. This increase was primarily due to the royalties received from AML pursuant to the agreement the Company has with AML. Revenues from interest and other income for the year ended December 31, 1995 were $189,000, compared to $210,000 for the year ended December 31, 1994. The overall gross margin from sales for the year ended December 31, 1995 was 6%, compared to 2% of sales for the year ended December 31, 1994. Gross margins from the sales of both manufactured and products purchased for resale for the year ended December 31, 1995 were 18% compared to 16% of sales of these products for the year ended December 31, 1994. An increase in the number of samples being processed at PDLA resulted in improved gross margins for laboratory services for the year ended December 31, 1995. However, as in the year ended December 31, 1994, the cost of providing laboratory services exceeded revenue realized from these services. Since a large amount of the costs of providing laboratory services are fixed or near fixed costs, the margins from sales of laboratory services are volume dependent. Selling, general and administrative expenses for the year ended December 31, 1995 were $4,206,000, compared to $3,341,000 for the year ended December 31, 1994. This increase of 26% was primarily a result of increased sales and marketing expenses associated with the sale of the Substance Abuse Testing Products and Services marketed through PDLA, the sales and marketing costs associated with former operations of Bioman, as well as overall increases in the general expenditures resulting from the acquisition of PDLA. Research and development expenses incurred during the year ended December 31, 1995 were $920,000, as compared to $729,000 for the year ended December 31, 1994. This 26% increase was primarily due to increased personnel costs and expenses, as well as increases in work being performed pursuant to the DOD contract. For the year ended December 31, 1995, the Company incurred interest expense of $23,000, compared to interest expense of $25,000 incurred during the year ended December 31, 1994. The continued operating losses and negative cash flows in 1995 of the PDLA operations resulted in an evaluation at year end of the PDLA goodwill for possible impairment. The Company determined that the operations of PDLA did not have long-term future viability as a stand-alone laboratory operation and would not be supported by the Company on a stand-alone basis. The underlying factors contributing to the financial results for PDLA include competitive pricing pressures in the marketplace and the inability of the Company to generate sufficient PDLA business volume that would result in positive cash flows and profitable operations as a stand-alone laboratory operation. The Company performed an analysis of the PDLA undiscounted cash flows and projected that PDLA would have negative cash flows for the foreseeable future. The Company determined that the estimated shortfall of cash flows exceeded the carrying value of the remaining PDLA goodwill, and as a result, recorded a write-off of $3,073,000 at December 31, 1995. The noncash write-off of goodwill will reduce the future amortization expense of the Company by $173,000 per year. As a result of the above, the net loss for the year ended December 31, 1995 was $7,285,000 compared to the net loss of $3,546,000 for the year ended December 31, 1994. At December 31, 1995 and in connection with the acquisition of MEDTOX, the Company determined that it would 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 will record a charge of $858,000 in the first quarter of 1996 to cover certain costs of the restructuring. 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. Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 Total revenues for the year ended December 31, 1994 increased 150% to $6,593,000, compared to $2,633,000 for the year ended December 31, 1993. This increase is primarily attributable to an increase in revenues from sales of products and services. These revenues totaled $6,183,000, an increase of 169% compared to $2,295,000 for the prior year. The acquisition of PDLA in February of 1994 brought total revenues of $3,775,000 to the Company for year ended December 31, 1994 of which, $3,647,000 were laboratory service revenues. Excluding the PDLA revenues, total revenues for 1994 were up 7% to $2,818,000 compared to $2,633,000 for 1993, and total product and service revenues increased 11% to $2,536,000 compared to $2,295,000 for 1993. Laboratory Service Revenues for the year ended December 31, 1994 were $3,647,000. These revenues did not exist for the Company in 1993. By acquiring PDLA in February of 1994, the Company was able to offer laboratory services as a complementary product to the substance abuse testing products already marketed by the Company. As a result of the acquisition, the Company recognized almost eleven months of revenues generated through the laboratory services of PDLA. Product sales include the sales generated from substance abuse testing products. Sales from these products were $1,293,000 for the year end December 31, 1994, an 18% increase compared to $1,093,000 for the prior year. This increase is the result of increased sales of the on-site products, particularly VERDICT, in 1994. Product sales also include sales of agricultural diagnostic products consisting of EZ-SCREEN test kits (for mycotoxin detection, drug residue surveillance, etc.), species identification kits, other bioassay technology products and third party products. These products are marketed through diAGnostix, inc. Sales of these products were $805,000 for the year ended December 31, 1994, an increase of 7% compared to sales of $751,000 during the prior year. This increase was due to the increased purchases by the United States Department of Agriculture ("USDA") pursuant to two contracts the Company has with the USDA, as well as regaining the sulfa-on-site test kit business from an international customer which did not occur during the year ended December 31, 1993. Microbiological and associated product sales including contract manufacturing were $438,000 for the year ended December 31, 1994 compared to $445,000 for these products in 1993. This decrease was due to a reduced marketing effort. Revenues from royalties and fees during the year ended December 31, 1994 were $200,000, compared to $257,000 for 1993. These revenues decreased 22% as a result of the termination on October 12, 1993 of the contract the Company had with Farnam Companies, Inc. Revenues from interest and other income for the year ended December 31, 1994 were $210,000, compared to $81,000 for the year ended December 31, 1993. This 159% increase was due to the recovery of debts owed by a customer of laboratory services which had previously been written off. The gross margin from overall sales for the year ended December 31, 1994 was 2%, compared to 12% of sales for the year ended December 31, 1993. Excluding the effect of the PDLA acquisition for the year ended December 31, 1994, the gross margin would have been 16%. This increase in gross margin excluding the effect of the PDLA acquisition is overshadowed by the impact of the laboratory services provided through PDLA. As a large amount of the costs of providing laboratory services are fixed or near fixed costs, the margins from the sales of laboratory services are volume dependent. The volume of testing performed by PDLA for the period ended December 31, 1994 was adversely affected by the loss of contracts before the acquisition of PDLA by the Company. Selling, general and administrative expenses for the year ended December 31, 1994 were $3,341,000, compared to $2,152,000 for the year ended December 31, 1993. This 55% increase was primarily a result of increased personnel from the acquisition of PDLA, increased expenses for the sales and marketing of the substance abuse testing products, the amortization of goodwill arising from the acquisition of PDLA, and increases in other expenses due to the acquisition of PDLA. The acquisition of PDLA was accounted for under the purchase method of accounting and the Company recorded goodwill of $3,394,000. For 1994, the Company amortized goodwill on a straight line basis over 20 years. Research and development expenses incurred during the year ended December 31, 1994 were $729,000, as compared to $825,000 for the year ended December 31, 1993. This 12% decrease was primarily due to decreased expenses, including personnel costs associated with the movement of certain personnel from research and development to operations, and the lack of costs and expenses associated with the Farnam contract which was terminated on October 12, 1993. Research and development efforts are directed toward enhancements of existing products, as well as the development of new products which in some cases have been or are funded by outside parties. For the year ended December 31, 1994, the Company incurred interest expense of $25,000, compared to interest expense of $9,000 incurred during the year ended December 31, 1993. This increase was primarily a result of the Company borrowing funds against a line of credit. During the year ended December 31, 1993 the Company incurred expenses of $353,000 related to its legal disputes with DDI and Transia-Diffchamb S.A. On August 10, 1993 the arbitrator's decision in the DDI dispute awarded to DDI certain costs and legal fees. The actual costs and fees were later set at $336,000, bringing the total to $689,000. The Company had no such expenditures during the year ended December 31, 1994. As a result of the above, the net loss for the year ended December 31, 1994 was $3,546,000, compared to the net loss of $3,066,000 for the year ended December 31, 1993. Material Changes in Financial Condition At December 31, 1995, cash and cash equivalents were $258,000 compared to $1,105,000 as of December 31, 1994. The decrease of $847,000 was a result of several factors as discussed below. At December 31, 1995, accounts receivable were $1,029,000. This 22% increase compared to $843,000 at December 31, 1994 was primarily due to $113,000 in receivable generated through seven months of sales from the acquisition of Bioman Products. Excluding the Bioman receivables, accounts receivables for the year ended December 31, 1995 increased 9% over the prior year. The allowance for doubtful accounts at December 31, 1995 was $130,000, a decrease of 37% compared to $206,000 for the prior year end. This decrease was the result of the write-off for PDLA customers for $70,000. Also, in 1995, the Company had fewer customers with receivables due over 90 days, thus the allowance was not significantly adjusted to reflect the increase in accounts receivable. Inventories were $937,000 at December 31, 1995 compared to $853,000 at December 31, 1994. This increase of $84,000 or 10% was primarily due to an increase in work in process inventory related to the VERDICT product line. Prepaid expenses and other assets were $868,000 at December 31, 1995, as compared to $272,000 at December 31, 1994. This increase of $596,000 was primarily due to the costs associated with the acquisition of MEDTOX including a $500,000 deposit placed into an escrow account pending closing of the acquisition of MEDTOX. During the year ended December 31, 1995, the Company took a charge of $3,100,000 to write off the goodwill associated with the acquisition of PDLA. Accordingly, the amount of goodwill at December 31, 1995 was $117,000 as compared to $3,247,000 at December 31, 1994. The remaining goodwill relates to the acquisition of Bioman in June 1995. At December 31, 1994, the Company had an outstanding balance of $850,000 on a line of credit with a bank. The Company repaid the total outstanding balance during the year ended December 31, 1995. Accrued expenses were $834,000 at December 31, 1995 as compared to $347,000 at December 31, 1994. This increase of $487,000 was primarily due to expenses associated with the acquisition of MEDTOX. As described more fully in the notes to the financial statements, the Company entered into a $125,021 loan agreement with the North Carolina Biotechnology Center (NCBC). The loan, plus accrued interest, was due August 14, 1994. On December 15, 1994, the Company and NCBC negotiated a loan modification extending the due date to August 14, 1996. In addition, NCBC exercised their right to convert 50%, or approximately $62,000, of the loan amount into 16,100 shares of the Company's common stock. Accordingly, at September 30, 1995, the Company had a balance of loan payable of $63,000 to NCBC. In addition, during 1995 the Company borrowed $100,000 from Dr. Samuel C. Powell in the form of a 90 day promissory note. Primarily as a result of these transactions, the balance of notes payable at December 31, 1995 was $182,000 as compared to $158,000 at December 31, 1994. Liquidity and Capital Resources Since its inception, the working capital requirements of the Company have been funded by cash received from equity investments in the Company. At December 31, 1995, the Company had cash and cash equivalents of $258,000. The Company had also deposited $500,000 in an escrow account towards the acquisition of MEDTOX. On January 30, 1996, the Company completed the acquisition of MEDTOX. To finance the acquisition of MEDTOX and provide working capital, the Company raised $20,350,000 from the sale of 407 shares of Series A Preferred Stock and borrowed $5,000,000. The debt financing consists of two term loans totaling $4,000,000 and up to $7,000,000 in the form of a revolving line of credit based primarily on the receivables of the Company (the "Loan Agreement"). The amount of credit available to the Company varies with the accounts receivable and the inventory of the Company. The interest rates on the two term loans of $2,000,000 each are 2.5 points above the prime rate and 2.0 points above the prime rate. The revolving line of credit carries an interest rate equal to 1.5 points above the prime rate. The Company believes that the aforementioned capital will be sufficient to fund the Company's planned operations through 1996 and beyond, although there can be no assurance that the available capital will be sufficient to fund the future operations of the Company. As of December 31, 1995, the Company had not achieved a positive cash flow from operations. Accordingly, the Company relies on available credit arrangements, outside funding of research and development, and continued sales of its equity securities 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 consolidation of the laboratory operations from PDLA to MEDTOX, and other synergies 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) pursuing 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. During 1995, the Company sold a total of 2,140,963 shares of common stock in 13 separate private transactions. The sale of these 2,140,963 shares generated net proceeds of $3,884,109 to the Company. As mentioned above, the Company sold 407 shares of its Series A Preferred Stock for $20,350,000 in 1996. Also in 1996, the Company sold 235,295 shares of its common stock to a director in a private transaction. The sale of these 235,295 shares generated proceeds of $600,002 to the Company. Report of Independent Auditors The Board of Directors EDITEK, Inc. We have audited the accompanying consolidated balance sheets of EDITEK, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EDITEK, Inc. at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Raleigh, North Carolina February 23, 1996, except for Note 12, as to which the date is May 9, 1996 1 EDITEK, Inc. Consolidated Balance Sheets
DECEMBER 31 1995 1994 (IN THOUSANDS) (Restated) ASSETS Current assets: Cash and cash equivalents $ 258 $ 1,105 Accounts receivable: Trade, less allowance for doubtful accounts (1995-- $130,000; 1994--$206,000) 977 737 Other 52 106 1,029 843 Inventories: Raw materials 588 532 Work in process 169 64 Finished goods 180 257 937 853 Deposit on acquisition (NOTE 2) 500 -- Prepaid expenses and other 368 272 Total current assets 3,092 3,073 Equipment and improvements: Furniture and equipment 5,857 5,689 Leasehold improvements 1,696 1,692 7,553 7,381 Less accumulated depreciation and amortization (6,824) (6,326) 729 1,055 Goodwill, net of amortization of $7,000 in 1995 and $147,000 in 1994 (NOTES 2 AND 3) 117 3,247 Other assets -- 3 Total assets $ 3,938 $ 7,378
2
DECEMBER 31 1995 1994 (IN THOUSANDS) (Restated) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit (NOTE 4) $ -- $ 850 Accounts payable 1,184 1,105 Accrued expenses 834 347 Deferred revenues 42 39 Current portion of long-term debt (NOTE 4) 82 95 Note payable to director 100 -- Current portion of capital lease -- 23 Total current liabilities 2,242 2,459 Long-term debt (NOTE 4) -- 63 Stockholders' equity (NOTES 5 AND 6): Preferred Stock--authorized 1,000,000 shares; no shares issued or outstanding -- -- Common Stock, $.15 par value; authorized--30,000,000 shares; issued and outstanding--10,439,775 shares in 1995 and 8,075,339 shares in 1994 1,566 1,211 Additional paid-in capital 33,973 30,132 Accumulated deficit (33,667) (26,382) 1,872 4,961 Less: Note receivable from officer (100) (100) Treasury stock (76) (5) 1,696 4,856 Total liabilities and stockholders' equity $ 3,938 $ 7,378
SEE ACCOMPANYING NOTES. 3 EDITEK, Inc. Consolidated Statements of Operations
YEAR ENDED DECEMBER 31 1995 1994 1993 (IN THOUSANDS) (Restated) Revenues: Laboratory service revenues $ 4,312 $ 3,647 $ -- Product sales 2,725 2,536 2,295 Royalties and fees 300 200 257 Interest and other income 189 210 81 7,526 6,593 2,633 Costs and expenses: Cost of services 4,349 3,902 -- Cost of sales 2,240 2,142 2,024 Selling, general and administrative 4,206 3,341 2,152 Research and development 920 729 825 Interest and financing costs 23 25 9 Arbitration costs (NOTE 9) -- -- 689 Goodwill write-off (NOTE 3) 3,073 -- -- 14,811 10,139 5,699 Net loss $ (7,285) $ (3,546) $ (3,066) Loss per share of common stock $ (.77) $ (.49) $ (.56) Weighted average number of shares of common stock outstanding 9,445,707 7,204,244 5,429,128
SEE ACCOMPANYING NOTES. 4 EDITEK, Inc. Consolidated Statements of Stockholders' Equity
NOTE ADDITIONAL RECEIVABLE PAID-IN ACCUMULATED FROM TREASURY SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDER STOCK TOTAL Balances at December 31, 1992 4,885,629 $ 733 $21,467 $ (19,770) $ (100) $ (5) $ 2,325 Exercise of stock options and warrants 217,194 32 268 -- -- -- 300 Sale of stock 10,754 2 38 -- -- -- 40 Private placement of common stock 955,654 143 3,489 -- -- -- 3,632 Net loss -- -- -- (3,066) -- -- (3,066) Balances at December 31, 1993 6,069,231 910 25,262 (22,836) (100) (5) 3,231 Exercise of stock options and warrants 23,019 4 43 -- -- -- 47 Stock issued for PDLA acquisition 1,167,729 175 3,803 -- -- -- 3,978 Sale of stock 15,360 2 31 -- -- -- 33 Private placement of common stock 800,000 120 993 -- -- -- 1,113 Net loss -- -- -- (3,546) -- -- (3,546) Balances at December 31, 1994 8,075,339 1,211 30,132 (26,382) (100) (5) 4,856 Exercise of stock options and warrants 156,347 23 170 -- -- -- 193 Stock issued for Bioman acquisition 21,489 3 58 -- -- -- 61 Sale of stock 12,037 2 25 -- -- -- 27 Stock issued for conversion of debt 16,100 3 59 -- -- -- 62 Purchase of treasury stock -- -- -- -- -- (71) (71) Private placement of common stock 2,158,463 324 3,529 -- -- -- 3,853 Net loss -- -- -- (7,285) -- -- (7,285) Balances at December 31, 1995 (Restated) 10,439,775 $1,566 $33,973 $ (33,667) $ (100) $ (76) $ 1,696
SEE ACCOMPANYING NOTES. 5 EDITEK, Inc. Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1995 1994 1993 (IN THOUSANDS) (Restated) OPERATING ACTIVITIES Net loss $(7,285) $(3,546) $(3,066) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 644 633 318 Goodwill write-off 3,073 -- -- Provision for losses on accounts receivable (54) 58 (6) Provision for obsolete inventory (13) 5 5 Gain on sale or retirement of equipment -- -- (16) Changes in operating assets and liabilities, net of acquisition: Accounts receivable (22) 31 34 Inventories (58) (306) (84) Prepaid expenses and other (589) (19) (26) Accounts payable and accrued expenses 453 116 (121) Deferred revenues 3 (17) 19 Leases payable (23) (37) -- Net cash used in operating activities (3,871) (3,082) (2,943) INVESTING ACTIVITIES Purchase of equipment and improvements (177) (505) (339) Proceeds from sale of equipment -- -- 41 Purchase of PDLA, net of cash acquired -- 89 -- Cash used for Bioman acquisition (37) -- -- Net cash used in investing activities (214) (416) (298) FINANCING ACTIVITIES Proceeds from issuance of stock for: Private placement 4,115 1,159 3,656 Costs related to private placement (262) (46) (24) Sale of stock 27 33 40 Exercise of stock warrants and options 193 47 300 Purchase of treasury stock (71) -- -- Proceeds from line of credit, loan payable and note payable 119 850 13 Principal payments on line-of-credit and loan payable (883) -- -- Net cash provided by financing activities 3,238 2,043 3,985 (Decrease) increase in cash and cash equivalents (847) (1,455) 744 Cash and cash equivalents at beginning of year 1,105 2,560 1,816 Cash and cash equivalents at end of year $ 258 $ 1,105 $ 2,560
SUPPLEMENTAL NONCASH ACTIVITIES During 1995, the Company issued $62,000 of common stock related to the conversion of debt and issued $61,000 of common stock in connection with the acquisition of Bioman. 6 EDITEK, Inc. Notes to Consolidated Financial Statements December 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY The consolidated financial statements include the accounts of EDITEK, Inc. ("EDITEK") and its wholly-owned subsidiaries, Princeton Diagnostic Laboratories of America, Inc. ("PDLA") and diAGnostix, Inc. (collectively referred to as "the Company"). EDITEK is engaged in the research, development and sale of products based upon enzyme immunoassay technology for the detection of antibiotic residues, mycotoxins, drugs of abuse and other hazardous substances. PDLA provides clinical testing services for the detection of substances of abuse and diAGnostix, Inc. distributes agridiagnostic and food safety testing products. All significant intercompany transactions and balances have been eliminated. TRADE ACCOUNTS RECEIVABLE Sales are made to local, national and international customers including livestock producers, food processors, veterinarians, government agencies, medical professionals, corporations, law enforcement agencies and healthcare facilities. Concentration of credit risk is limited due to the large number of customers to which the Company sells its products and services. The Company extends credit based on an evaluation of the customer's financial condition and receivables are generally unsecured. The Company provides an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. At December 31, 1995 and 1994, the inventory included a reserve of $12,000 and $25,000, respectively, for lower of cost or market and for obsolescence. EQUIPMENT AND IMPROVEMENTS Equipment and improvements are stated at cost. Provisions for depreciation have been computed using the straight-line method to amortize the cost of depreciable assets over their estimated useful lives. Leasehold improvements are amortized over the lesser of the lease term or the economic useful lives of the improvements. 7 EDITEK, Inc. Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Sales are recognized in the statement of operations when products are shipped or services are rendered. ROYALTIES AND FEES The Company receives reimbursement for certain research and development costs. The reimbursement is recorded as royalties and fees. RESEARCH AND DEVELOPMENT Research and development expenditures are charged to expense as incurred. INCOME TAXES The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and highly liquid investments maturing within three months when purchased. LOSS PER SHARE OF COMMON STOCK Loss per share of common stock amounts are based on the weighted average number of shares of common stock outstanding. All other common stock equivalents, including convertible debt disclosed in Note 4, were anti-dilutive and therefore were not included in the computation of loss per share, for all periods presented. RELATED PARTY TRANSACTIONS The Company has transactions with related parties. The specific transactions are disclosed in the applicable notes to the financial statements. 8 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) GOODWILL Goodwill is amortized on a straight-line basis over 20 years. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill is reduced by the estimated shortfall of cash flows (see Note 3). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARD In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. RECLASSIFICATIONS Certain reclassifications have been made to the years 1994 and 1993 to conform with the 1995 presentation. Such reclassifications had no effect on previously reported net loss or accumulated deficit. 9 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS In January, 1996, the Company acquired MEDTOX Laboratories, Inc., ("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 of goodwill. The goodwill is being amortized over a period of 20 years. The Company financed the acquisition by issuing $19 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. At December 31, 1995, the Company had $500,000 in an escrow account as a required deposit toward the MEDTOX acquisition. The following unaudited proforma information presents the results of operations of the Company and MEDTOX for the year ended December 31, 1995, as if the acquisition had been consummated as of January 1, 1995. Revenues $27,745 Net loss $ 4,459 Net loss per share $ (.37) On June 1, 1995, the Company acquired Bioman Products, Inc., ("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 year ended December 31, 1995 included the results of the Bioman operations from June 1, 1995 to December 31, 1995. The Company acquired PDLA on February 11, 1994 by issuing 826,790 shares of its common stock in exchange for all of the outstanding shares of PDLA's stock. The total value of the exchange was $3,876,000. The acquisition was accounted for under the purchase method of accounting and the Company recorded goodwill of $3,394,000. Additional shares of common stock were subsequently issued to former major shareholders of PDLA through price protection agreements. The consolidated results of operations for the year ended December 31, 1994 include the results of the PDLA 10 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS (CONTINUED) operations from February 12, 1994 to December 31, 1994 (see Note 3). 3. GOODWILL WRITE-OFF The continued operating losses and negative cash flows of the PDLA operations resulted in an evaluation during the fourth quarter of 1995, of the PDLA goodwill for possible impairment. The Company determined that the operations of PDLA did not have long-term future viability as a stand-alone laboratory operation and would not be supported by the Company on a stand-alone basis. The underlying factors contributing to the financial results for PDLA include competitive pricing pressures in the market place, the loss of preacquisition customers and the inability of the Company to generate sufficient PDLA business volume that would result in positive cash flows and profitable operations. The Company performed an analysis of the PDLA undiscounted cash flows over the remaining amortization period and determined that the estimated shortfall of cash flows exceeded the carrying value of the remaining PDLA goodwill. As a result the Company recorded a write-off of goodwill of $3,073,000 at December 31, 1995. 4. DEBT On August 15, 1989, the Company entered into a long-term loan agreement with 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 as repayment for $62,000 of the loan. The remaining principal, $63,000, now bears interest at the 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. On March 1, 1994, the Company entered into a line of credit arrangement for up to $1,000,000 at an interest rate of 5.82%. The line-of-credit was repaid and terminated in 1995. On December 18, 1995, the Company borrowed $100,000 from a Director at an interest rate of 10.5%. The Company repaid the principal and interest in February, 1996. 11 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 4. DEBT (CONTINUED) Interest paid for all outstanding debt was $19,000, $19,000 and $9,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 5. STOCKHOLDERS' EQUITY The Company has sold its common stock in various private transactions as follows:
NUMBER OF SHARES PRICE NET PER SHARE PROCEEDS 1995 2,158,463 $1.63 to $2.25 $3,853,000 1994 800,000 $1.01 to $2.03 $1,113,000 1993 955,654 $3.01 to $5.20 $3,632,000
At December 31, 1995, shares of common stock reserved for future issuance are as follows: Common stock warrants: Series J 60,000 Series K 50,000 Series L 320,000 Series M 10,550 Series N 32,679 Common stock options: Incentive 449,406 Non-Employee Director 239,540 Nonqualified 41,093 Qualified Employee Stock Purchase Plan 76,241 Equity Compensation Plan 2,998,333 Convertible Debt 21,856 4,299,698 6. STOCK OPTION AND PURCHASE PLANS INCENTIVE STOCK OPTION PLAN The Company has an Incentive Stock Option Plan (the "Plan") under which options to purchase shares of common stock may be granted to officers, directors and employees at a price which is not less than fair market value at the date of grant. Options generally become exercisable in installments over a period of one to five years. Under the incentive plan, no additional options may be granted subsequent to June 23, 1993. 12 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 6. STOCK OPTION AND PURCHASE PLANS (CONTINUED) Following is a summary of transactions:
SHARES UNDER OPTION 1995 1994 1993 Outstanding, beginning of year 461,657 483,262 500,860 Granted during the year -- -- 13,414 Canceled during the year (12,251) (17,105) (5,965) Exercised during the year (1994--$1.41 per share; 1993--$.55 to $6.25 per share) -- (4,500) (25,047) Outstanding, end of year (1995--$.45 to $10.38 per share; 1994--$.45 to $10.38 per share; 1993--$.45 to $10.38 per share) 449,406 461,657 483,262 Exercisable, end of year (1995--$.45 to $10.38 per share; 1994--$.45 to $10.38 per share; 1993--$.45 to $10.38 per share) 448,536 442,182 374,867
EQUITY COMPENSATION PLAN Effective October 26, 1993 the Company adopted an equity compensation plan that includes incentive stock options, non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, performance shares, and other stock-based awards. A total of 3,000,000 shares have been authorized for the plan. As of December 31, 1995, 721,039 options are outstanding and 298,436 have vested. NON-EMPLOYEE DIRECTOR PLAN The Company maintains a stock option plan for non-employee directors under which options to purchase shares of common stock may be granted to directors of the Company who are not employees of the Company. At December 31, 1995, 47,864 options that have been granted are outstanding. NONQUALIFIED STOCK OPTIONS On July 1, 1987, the Company granted nonqualified options to purchase 66,667 shares of common stock to an officer at $14.70 per share. Subsequently, 26,667 of the options were canceled and reissued under the Incentive Stock Option Plan and the remaining 40,000 options were canceled and reissued at $7.50 per share. In September 1988 the officer exercised options to purchase 13,334 shares of common stock. Pursuant to the terms of the option agreement, the Company provided a loan to the officer for the amount of the funds necessary to exercise the options. The stock acquired is held by the Company as collateral for the loan and the officer is to pay interest on the borrowed funds 13 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 6. STOCK OPTION AND PURCHASE PLANS (CONTINUED) at a rate equal to the prime rate in effect from time to time with adjustments in the interest accrual rate to occur on the same date that the prime rate changes. In May 1990 the remaining 26,666 options were canceled and reissued at $3.75 per share. On August 10, 1988, the Company granted nonqualified options to purchase 6,667 shares of common stock to an officer at $3.75 per share. At December 31, 1995, 6,667 options are exercisable. On January 14, 1993, the Company granted nonqualified options to purchase 7,760 shares of common stock to a director at $8.19 per share. At December 31, 1995, the 7,760 options are exercisable. The shares of common stock covered by these nonqualified options are restricted as to transfer under applicable securities laws. QUALIFIED EMPLOYEE STOCK PURCHASE PLAN The Company has a Qualified Employee Stock Purchase Plan (the "Purchase Plan") under which all regular employees meeting certain criteria may subscribe to and purchase shares of common stock. The number of shares of common stock authorized to be issued under the Purchase Plan is 150,000, subject to adjustment for any future stock splits or dividends. The subscription price of the shares is 85% of the fair market value of the common stock on the day the executed subscription form is received by the Company. The purchase price for the shares is the lesser of the subscription price or 85% of the fair market value of the shares on the day the right to purchase is exercised. Payment for common stock is made through a payroll deduction plan. Following is a summary of transactions:
SHARES SUBSCRIBED 1995 1994 1993 Outstanding, beginning of year 13,725 7,943 18,829 Subscribed during the year 4,942 23,005 6,386 Canceled during the year (3,128) (1,863) (6,518) Purchased during the year (1995--$1.70 to $2.55 per share; 1994--$1.60 to $3.63 per share; 1993--$2.19 to $6.96 per share) (12,037) (15,360) (10,754) Outstanding, end of year (1995--$1.70 to $3.09 per share; 1994--$1.70 to $3.94 per share;1993--$2.17 to $6.96 per share) 3,502 13,725 7,943
14 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 6. STOCK OPTION AND PURCHASE PLANS (CONTINUED) The Company accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock issued to Employees," and intends to continue to do so. 7. LEASES The Company leases office and research facilities from a director under an operating lease. The lease is currently a month to month lease. Rental payments to this director were approximately $121,000, $119,000, and $109,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company leases farm facilities for production of certain of its products from a company of which a director owns a 12% interest. The lease is currently a month to month lease. Rental payments to this company were approximately $34,000 for the years ended December 31, 1995, 1994 and 1993. The Company leases certain office equipment and facilities under operating leases. As of December 31, 1995, the Company is obligated for minimum lease payments under noncancellable leases as follows: 1996 $178,000 1997 174,000 1998 171,000 1999 170,000 2000 and thereafter 57,000 $750,000 Rent expense (including amounts to the director for the leased facilities) amounted to $435,000, $410,000 and $151,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 8. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 15 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 8. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax liabilities and assets at December 31 are as follows: 1995 1994 Deferred tax liabilities: Capital leased assets $ (6,000) $ (7,000) Total deferred tax liabilities (6,000) (7,000) Deferred tax assets: Excess fixed asset basis 153,000 34,000 Allowance for bad debts 49,000 78,000 Accrued vacation pay 48,000 43,000 Net acquisition costs 241,000 241,000 Net operating loss carryforwards 11,271,000 9,805,000 Research and experimental credit carryforwards 456,000 426,000 Uniform capitalization reserve 22,000 -- Restructuring costs 157,000 -- Other 63,000 26,000 Total deferred tax assets 12,460,000 10,653,000 Valuation allowance for deferred assets (12,454,000) (10,646,000) Total deferred tax assets 6,000 7,000 Net deferred tax assets(liabilities) $ -- $ -- During 1995 and 1994, the valuation allowance increased by $1,808,000 and $2,644,000, respectively. At December 31, 1995, the Company has available to offset future taxable income for financial reporting and federal tax purposes, operating loss carryforwards of approximately $29,488,000 expiring in 1998 through 2009. Research and experimental credits of approximately $456,000, expiring in 1998 through 2009, are also available to offset future income tax liabilities. The Company acquired approximately $2,473,000 in net operating loss carryforwards when it purchased PDLA. This amount is included in total net operating loss carryforwards described in the preceding paragraph. Future use of this carryforward will be limited based on the Separate Return Limitation Year ("SRLY") Rules found in Proposed Treasury Regulation 1.1502-21(c). These rules limit the use of a net operating 16 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 8. INCOME TAXES (CONTINUED) loss carryforward into consolidated return years. The limitation, computed annually, limits the use of the SRLY net operating loss carryforward to the cumulative annual taxable income generated by the purchased company since its admittance into the consolidated group. The annual usage of the Company's net operating loss carryforwards has been limited by provisions of the Tax Reform Act of 1986 ("TRA"). Under TRA, if a company experiences a change in ownership of more than 50% (by value) of its outstanding stock over a three year period, the use of its pre-change in ownership net operating loss carryforwards will be limited each year until the loss is exhausted or the carryover period expires. Such a change in ownership occurred at the time of the Company's 1987 public stock offering. The amount of pre-change in ownership net operating loss carryforwards of $8,500,000 which can be utilized to offset future federal taxable income will be approximately $2,300,000 per year. TRA does not limit annual usage of post-change in ownership net operating loss carryforwards. 9. ARBITRATION COSTS During the latter part of 1992 and through 1993, the Company was involved in arbitration matters with Transia-Diffchamb and Disease Detection International ("DDI"). In the Transia-Diffchamb arbitration case, the arbitrator ruled on July 30, 1993 in favor of the Company; however, the Company was not able to recover any legal fees. In the DDI arbitration case, the arbitrator ruled against the Company. The arbitrator also ruled that DDI was entitled to recover costs and related legal fees. The Company has recognized an expense of $689,000 for these costs and fees. 10. MAJOR CUSTOMERS Sales to major customers and foreign sales amounted to the following percentages of total revenue: YEAR ENDED DECEMBER 31 1995 1994 1993 United States Government and agencies 4% 5% 11% Foreign sales 8% 7% 15% 17 EDITEK, Inc. Notes to Consolidated Financial Statements (continued) 11. SUBSEQUENT EVENTS On January 30, 1996, the Company completed the acquisition of MEDTOX and has approximately $6 million available on its revolving line of credit (see Note 2). On January 31, 1996, the Company sold 235,295 shares of common stock to a Director of the Company. Proceeds from the sale were $600,000. 12. RESTATEMENT The Company has restated its 1995 financial statements to eliminate $758,000 of restructuring costs associated with the acquisition of MEDTOX. The restatement resulted in reductions of the previously reported net loss, certain accrued liabilities and accumulated deficit by $758,000. Additionally, the 1995 net loss per share has been reduced from $.85 per share to $.77 per share. The Company will record the restructuring costs in the first quarter of 1996, to comply with EITF 95-14 as the consummation date of the acquisition of MEDTOX was determined to be January 30, 1996. 18 SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged Charged Balance at Beginning to Costs and to Other the End of Period Expenses Accounts Deductions of Period Year Ended December 31, 1995: Deducted from Asset Accounts Allowance for Doubtful Accounts $ 206,000 $ 89,000 $ - $ 165,000 (2) $ 130,000 Allowance for Excess and Obsolete Inventory $ 25,000 $ 2,000 $ - $ 15,000 $ 12,000 Year Ended December 31, 1994: Deducted from Asset Accounts Allowance for Doubtful Accounts $ 19,000 $ 58,000 $ 286,000 (1) $ 157,000 $ 206,000 Allowance for Excess and Obsolete Inventory $ 20,000 $ 5,000 $ - $ - $ 25,000 Year Ended December 31, 1993: Deducted from Asset Accounts Allowance for Doubtful Accounts $ 25,000 $ - $ - $ 6,000 $ 19,000 Allowance for Excess and Obsolete Inventory $ 15,000 $ 5,000 $ - $ - $ 20,000
(1) $286,000 charged to Other Expenses represents the amount acquired thru the PDLA aquisition (2) Includes $36,000 of Accounts Receivable determined to be uncollectible which were written off The following unaudited pro forma consolidated balance sheet as of December 31, 1995, and the unaudited pro forma consolidated statements of operations for the year ended December 31, 1995 gives effect to the acquisition of MEDTOX by EDITEK using the purchase method. The unaudited pro forma consolidated financial information is based on the historical financial information of EDITEK and MEDTOX as of December 31, 1995 and the pro forma adjustments described in the notes thereto. There are no pro forma adjustments to other amounts reflected in the historical financial statements of MEDTOX as management believes that the historical costs assigned to MEDTOX assets and liabilities approximate fair value. Information was prepared as if the acquisition was effected as of December 31, 1995 in the case of the unaudited pro forma consolidated balance sheet and as of January 1, 1995 in the case of the unaudited pro forma statements of operations. The unaudited pro forma financial statements may not be indicative of the results that actually would have occurred if the acquisition had been in effect on the dates indicated or which may be obtained in the future. The unaudited pro forma financial information should be read in conjunction with the financial statements and other financial data of EDITEK and MEDTOX included herein. EDITEK AND MEDTOX UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET December 31, 1995 (In Thousands except per share amounts)
Historical Proforma ------------------------------ --------------------------------------- EDITEK MEDTOX Adjustments Consolidated ------------- -------------- ---------------- ---------------- ASSETS: Cash and Cash Equivalents $ 258 $ 1,273 $ 3,095(a) $ 4,626 Accounts Receivable, net 1,029 3,054 - 4,083 Inventory and Supplies 937 395 - 1,332 Other Current Assets 868 72 (500)(a) 440 ------------------------------ ---------------- ---------------- Total Current Assets 3,092 4,794 2,595 10,481 Property and Equipment 7,553 6,374 - 13,927 Accumulated Depreciation (6,824) (4,618) - (11,442) ------------------------------ ---------------- ---------------- Property & Equipment, net 729 1,756 - 2,485 Other Assets - - - - Goodwill, net 117 23 22,237 (c) 22,377 ------------------------------ ---------------- ---------------- Total Non-Current Assets 846 1,779 22,237 24,862 ------------------------------ ---------------- ---------------- Total Assets $ 3,938 $ 6,573 $ 24,832 $ 35,343 ============= ============== ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY: Revolving line of credit $ - $ - $ 990 (a),(b) $ 990 Accounts Payable 1,184 408 - 1,592 Accrued Expenses 834 803 631 (g) 2,268 Current Maturities of Long Term Debt 182 499 834 (b) 1,515 Restructuring Accrual, Current Portion - 258 - 258 Other Current Liabilities 42 - - 42 ------------- -------------- ---------------- ---------------- Total Current Liabilities 2,242 1,968 2,455 6,665 Long Term Debt Obligations - 465 2,202 (b) 2,667 Restructuring Accrual, Long Term Portion - 473 - 473 Other Long Term Liabilities - - - - ------------- -------------- ---------------- ---------------- Total Liabilities 2,242 2,906 4,657 9,805 Common Stock 1,566 30 348 (e) 1,944 Addt. Paid-in Capital 33,973 600 2,514 (e) 37,087 Preferred Stock - - 20,350 (e) 20,350 Retained Earnings (Deficit) (33,667) 3,037 (3,037)(e) (33,667) ------------- -------------- ---------------- ---------------- 1,872 3,667 20,175 25,714 Less: Treasury Stock and Other Contra Equity (176) - - (176) ------------- -------------- ---------------- ---------------- Total Stockholders' Equity 1,696 3,667 20,175 25,538 ------------- -------------- ---------------- ---------------- Total Liabilities and Shareholders' Equity $ 3,938 $ 6,573 $ 24,832 $ 35,343 ============= ============== ================ ================
See notes to unaudited pro forma consolidated financial statements EDITEK AND MEDTOX UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 1995 (In Thousands except per share amounts)
Historical Proforma --------------------------------- ---------------------------------------- EDITEK MEDTOX Adjustments Consolidated --------------------------------- ----------------- ------------------ Revenues $ 7,526 $ 20,219 $ - 27,745 Cost of sales 6,589 9,500 - 16,089 --------------------------------- ----------------- ------------------ Gross margin 937 10,719 - 11,656 Operating expenses Research and development 920 - - 920 Selling, general and administrative 4,030 7,721 - 11,751 Amortization 176 - 936 (d) 1,112 Goodwill write-off 3,073 - - 3,073 --------------------------------- ----------------- ------------------ Total operating expenses 8,199 7,721 936 16,856 Income (loss) before interest and other income (7,262) 2,998 (936) (5,200) Other income - - - - Interest and other expense (23) (119) (358) (b) (500) --------------------------------- ----------------- ------------------ Net income (loss) (7,285) 2,879 (1,294) (5,700) Preferred stock dividend - - 1,832 (f) 1,832 --------------------------------- ----------------- ------------------ Net income (loss) applicable to common shareholders $ (7,285) $ 2,879 $ (3,126) $ (7,532) ================================= ================= ================== Income (Loss) per common share $ (0.77) $ 97.10 $ (0.63) ================================= ================== Weighted average number of common shares outstanding 9,445,707 29,650 11,963,013 ================================= ==================
See notes to unaudited pro forma consolidated financial statements EDITEK AND MEDTOX NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS a) EDITEK closed the $24 million acquisition of MEDTOX and raised additional working capital by raising approximately $20 million from the issuance of 407 shares of Preferred Stock, borrowing approximately $5 million in the form of two term loans and a revolving line of credit and issuing $5 million of Common Stock of the Company to the shareholders of MEDTOX in the form of 2,517,306 shares of Common Stock. The Company did not acquire the cash on hand of MEDTOX at December 31, 1995 and was required to pay off the existing loans of MEDTOX and approximately $1.3 million in financing costs. Cash and Cash Equivalents (dollar amounts in thousands) Proceeds from issuance of Series A Preferred Stock $20,350 Proceeds from debt: Term Loans 4,000 Credit Facility 990 Compensation to Investment Bankers ( 1,343) Compensation for Placement of Debt ( 165) Payment of MEDTOX Notes: Current Portion ( 499) Long Term Portion ( 465) Payment to MEDTOX Shareholders (18,500) MEDTOX distribution of cash on hand at MEDTOX ( 1,273) --------- $ 3,095 The reduction of $500 in Other Current Assets represents the deposit previously paid to MEDTOX which was held in escrow. b) Pro Forma adjustment to long term debt accounts are summarized as follows: Current Long Term Portion Portion Elimination of MEDTOX's long term debt $ (499) $ (465) Issuance of term loans 1,333 2,667 ----------------- $ 834 $ 2,202 The interest rates on the loans are as follows: Term Loan A 2.0% above Prime Rate Term Loan B 2.5% above Prime Rate Credit Facility 1.5% above Prime Rate c) Goodwill representing the excess of the purchase price of $24 million over the fair value of the identifiable net assets of MEDTOX has been reflected and is comprised of the following: (dollar amounts in thousands) Purchase price $24,000 Costs related to acquisition 770 Net assets acquired @ 12/31/95 (2,533) $22,237 The allocation of the total amount of excess purchase price over the fair value of the assets is a preliminary allocation absent an appraisal of certain intangible assets. d) Amortization is based on an effective date of the acquisition of MEDTOX of January 1, 1995 amortized over a twenty year period. e) Pro Forma adjustment to stockholder's equity accounts are summarized as follows:
(dollar amounts in thousands) Additional Common Preferred Paid In Retained Stock Stock Capital Earnings Elimination of MEDTOX's equity accounts $ (30) $ - $ (600) $ (3,037) Issuance of Preferred Stock - 20,350 (1,508) - Issuance of Common Stock 378 - 4,622 - ------------ ----------- ------------- ----------- $ 348 $ 20,350 $ 2,514 $ ( 3,037)
f) Dividend of 9% declared for $20,350,000 of Preferred Stock issued and outstanding. g) Adjustment to reflect acquisition costs which are expected to approximate $400,000, certain severance payments of $370,000, less the accrued payroll of MEDTOX of $139,000, which was not purchased by the Company. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 6th day of May 1996. EDITEK, Inc. Registrant By: /s/ James D. Skinner James D. Skinner President, Principal Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Act of 1934, this Registration Statement has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ James D. Skinner President, May 6, 1996 James D. Skinner Principal Executive Officer, and Chairman of the Board /s/ Samuel C. Powell Director May 6, 1996 Samuel C. Powell, Ph.D. /s/ Peter J. Heath Vice President of May 6, 1996 Peter J. Heath Finance and Chief Financial Officer /s/ Gene E. Lewis Director May 6, 1996 Gene E. Lewis /s/ Robert J. Beckman Director May 6, 1996 Robert J. Beckman /s/ Harry G. McCoy, Pharm.D. Director May 6, 1996 Harry G. McCoy, Pharm.D. /s/ George W. Masters Director May 6, 1996 George W. Masters -----END PRIVACY-ENHANCED MESSAGE-----