-----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, Az5usNU1J1tesWdGvRfjdYdIN/gzAlZWk252pLEHmMc1pxMX8BJmy+YBAlLMY79f v2FKMTKLwRfA2/71BYCIxA== 0000950168-96-000836.txt : 19960517 0000950168-96-000836.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950168-96-000836 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960515 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: 96565011 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-2 [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. 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 Financial Statements Medtox Laboratories, Inc. Years ended December 31, 1995, 1994 and 1993 Contents Report of Independent Auditors.......................................1 Financial Statements Balance Sheets.......................................................2 Statements of Operations.............................................4 Statement of Stockholders' Equity....................................5 Statements of Cash Flows.............................................6 Notes to Financial Statements........................................7 ERNST & YOUNG LLP [ ] 1400 Pillsbury Center [ ] Phone: 612 343 1000 Minneapolis, Minnesota 55402 Report of Independent Auditors Board of Directors and Stockholders Medtox Laboratories, Inc. We have audited the accompanying balance sheet of Medtox Laboratories, Inc. as of December 31, 1995, and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Medtox Laboratories, Inc. for each of the two years in the period ended December 31, 1994 were audited by other auditors whose reported dated January 31, 1995, expressed an unqualified opinion on those statements. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1995 financial statements referred to above present fairly, in all material respects, the financial position of Medtox Laboratories, Inc. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Ernst & Young LLP March 6, 1996 1 Medtox Laboratories, Inc. Balance Sheets
December 31 1995 1994 ------------------------------------ Assets Current assets: Cash and cash equivalents $1,272,928 $ 526,512 Accounts receivable, less allowance for doubtful accounts of $100,000 in 1995 and $110,500 in 1994 3,053,698 2,966,466 Inventories 395,672 413,301 Prepaid expenses and other assets 71,816 107,622 ------------------------------------ Total current assets 4,794,114 4,013,901 Property and equipment: Laboratory equipment 5,137,105 4,435,080 Office furniture and fixtures 372,764 370,685 Leasehold improvements 543,270 426,017 Transportation equipment 320,434 304,891 ------------------------------------ 6,373,573 5,536,673 Less accumulated depreciation 4,617,568 3,942,521 ------------------------------------ 1,756,005 1,594,152 Other 22,729 28,618 ==================================== Total assets $6,572,848 $5,636,671 ====================================
See accompanying notes. 2
December 31 1995 1994 ------------------------------------ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 407,715 $ 98,428 Accrued payroll 139,161 335,120 Accrued expenses 464,108 568,130 Accrued collection site expenses 200,000 193,570 Current portion of restructuring accrual 258,070 258,070 Current portion of long-term debt 498,690 437,755 ------------------------------------ Total current liabilities 1,967,744 1,891,073 Restructuring accrual 472,837 659,795 Long-term debt 465,452 518,563 Commitments Stockholders' equity: Common stock, $1.00 par value: Authorized shares - 50,000 Issued and outstanding shares - 29,658 29,658 29,658 Additional paid-in capital 600,032 600,032 Retained earnings 3,037,125 1,937,550 ------------------------------------ Total stockholders' equity 3,666,815 2,567,240 ------------------------------------ Total liabilities and stockholders' equity $6,572,848 $5,636,671 ====================================
See accompanying notes. 3 Medtox Laboratories, Inc. Statements of Operations
Year ended December 31 1995 1994 1993 ------------------------------------------------------ Net revenues $20,219,030 $19,650,830 $18,494,396 Cost of revenues 9,499,755 8,713,689 10,415,836 ------------------------------------------------------ Gross profit 10,719,275 10,937,141 8,078,560 Operating expenses: Sales, marketing and distribution 3,480,919 3,487,235 4,252,725 General and administrative 4,240,062 4,088,924 4,523,546 Restructuring costs - 567,700 1,162,033 ------------------------------------------------------ 7,720,981 8,143,859 9,938,304 ------------------------------------------------------ Operating income (loss) 2,998,294 2,793,282 (1,859,744) Other expenses: Interest 91,186 181,178 204,668 Other 28,053 18,294 20,662 ------------------------------------------------------ 119,239 199,472 225,330 ====================================================== Net income (loss) $ 2,879,055 $ 2,593,810 $ (2,085,074) ======================================================
See accompanying notes. 4 Medtox Laboratories, Inc. Statement of Stockholders' Equity
Additional Common Stock Paid-in Retained --------------------------- Shares Amount Capital Earnings Total ------------------------------------------------------------------- Balance at December 31, 1992 27,958 $27,958 $545,532 $2,318,553 $2,892,043 Issuance of Common Stock at $50 per share 500 500 24,500 - 25,000 Net loss - - - (2,085,074) (2,085,074) ------------------------------------------------------------------- Balance at December 31, 1993 28,458 28,458 570,032 233,479 831,969 Exercise of stock options 1,200 1,200 30,000 - 31,200 Net income - - - 2,593,810 2,593,810 Distributions to stockholders - - - (889,739) (889,739) ------------------------------------------------------------------- Balance at December 31, 1994 29,658 29,658 600,032 1,937,550 2,567,240 Net income - - - 2,879,055 2,879,055 Distributions to stockholders - - - (1,779,480) (1,779,480) =================================================================== Balance at December 31, 1995 29,658 $29,658 $600,032 $3,037,125 $3,666,815 ===================================================================
See accompanying notes. 5 Medtox Laboratories, Inc. Statements of Cash Flows
Year ended December 31 1995 1994 1993 ----------------------------------------------- Operating activities Net income (loss) $2,879,055 $2,593,810 $(2,085,074) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 720,622 601,760 893,651 (Gain) loss on sale of assets (1,112) 11,269 18,210 Changes in operating assets and liabilities net of assets sold and liabilities assumed by buyer in sale of California Division: Accounts receivable (87,232) 63,671 (725,433) Inventories 17,629 (5,560) 515,630 Prepaid expenses and other assets 35,806 (14,292) (1,183) Accounts payable 309,287 (1,011,943) 525,615 Accrued payroll and accrued expenses (299,981) 139,069 294,435 Accrued collection site expenses 6,430 193,570 - Restructuring accrual (186,958) 388,865 1,162,033 ----------------------------------------------- Net cash provided by operating activities 3,393,546 2,960,219 597,884 Investing activities Decrease in note receivable - 150,000 150,000 Purchases of property and equipment (433,463) (514,089) (398,914) Proceeds from sale of property and equipment 30,100 20,563 - Decrease in other assets 5,889 17,517 3,355 ----------------------------------------------- Net cash used in investing activities (397,474) (326,009) (245,559) Financing activities Proceeds from long-term debt - - 2,068,439 Payments on long-term debt (470,176) (777,136) (2,507,670) Net increase (decrease) in line of credit - (500,000) 103 Proceeds from the issuance of Common Stock - 31,200 25,000 Distributions to stockholders (1,779,480) (889,739) - ----------------------------------------------- Net cash used in financing activities (2,249,656) (2,135,675) (414,128) ----------------------------------------------- Net increase (decrease) in cash and cash equivalents 746,416 498,535 (61,803) Cash and cash equivalents at beginning of year 526,512 27,977 89,780 =============================================== Cash and cash equivalents at end of year $1,272,928 $ 526,512 $ 27,977 =============================================== Supplemental schedule of non-cash investing and financing activities Equipment acquired through notes payable $ 478,000 $ 70,268 $ 64,421 Note receivable from sale of California division - - 300,000 Note payable assumed by buyer in sale of California division - - 10,520
See accompanying notes. 6 Medtox Laboratories, Inc. Notes to Financial Statements December 31, 1995 1. Business Activity Medtox Laboratories, Inc. (the Company) is a toxicology reference laboratory offering therapeutic drug monitoring, drugs of abuse screening, clinical analyses, research analyses and emergency toxicology. The Company is certified by the Substance Abuse and Mental Health Services Administration (SAMHSA) and the College of American Pathologists (CAP). The Company operates a medical laboratory in St. Paul, Minnesota with customers throughout the United States. 2. Summary of Significant Accounting Policies Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Inventories Inventories are stated at the lower of cost, which approximates the first-in, first-out basis, or market. Property and Equipment Property and equipment are stated at cost. Depreciation is provided using accelerated and straight-line methods based on estimated useful lives of five to seven years. Leasehold improvements are amortized over the related lease term or estimated useful life, whichever is shorter. Net Revenues Net revenues consist of gross billings less collection site and medical review officer costs and send-outs, all of which are billed back to the customer. Income Taxes The Company elected to be taxed as an S corporation for income tax purposes whereby all items of tax consequences are passed through to the stockholders. 7 Medtox Laboratories, Inc. Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) The Company reports its income or loss on the cash basis for tax purposes. If the Company terminated its S corporation status and changed to a C corporation, the Company will be required to use the accrual basis for tax purposes resulting in the recognition of approximately $2,600,000 of taxable income that was previously deferred. 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. Reclassifications Certain prior year amounts have been reclassified to conform to the 1995 presentation. 3. Long-Term Debt Long-term debt consists of the following:
December 31 1995 1994 ---------------------------- Note payable to bank, interest rate at prime (8.5% at December 31, 1995), monthly payments excluding interest of $29,045, due March 1997 $435,459 $784,152 Notes payable to bank, interest rates ranging from 7.75% to 10%, monthly payments including interest of $3,424 to $10,200, due at various dates through June 2000 528,683 172,166 ---------------------------- 964,142 956,318 Less current portion 498,690 437,755 ============================ $465,452 $518,563 ============================
The above notes are secured by substantially all of the Company's assets. The carrying amounts reported in the balance sheets for the Company's long-term debt approximate their fair values. 8 Medtox Laboratories, Inc. Notes to Financial Statements (continued) 3. Long-Term Debt (continued) Maturities of long-term debt as of December 31, 1995 are as follows: 1996 $498,690 1997 196,732 1998 100,092 1999 110,573 2000 58,055 ========== $964,142 ========== In 1995, the Company entered into a $500,000 revolving line of credit with a bank which accrues interest at the prime rate (8.5% at December 31, 1995) and is secured by a portion of the Company's assets. The Company must repay all amounts owed under the line of credit by June 30, 1996. Interest on the line of credit is payable monthly. The Company had no borrowings against this facility at December 31, 1995. Certain financing agreements contain various restrictions and provisions including maintaining certain financial ratios. Cash paid for interest was $177,391, $178,829 and $213,972 for the years ended December 31, 1995, 1994 and 1993, respectively. 4. Commitments The Company leases office and other facilities under certain operating leases which expire on various dates through April 2000. Under the terms of the leases, a pro rata share of operating expenses and real estate taxes are charged as additional rent. The Company subleases one of its facilities to another party (see Note 8). The amount of sublease payments to be received is $131,217 and $124,608 for the years ended December 31, 1996 and 1997, respectively. Future minimum lease commitments under all operating leases without regard to sublease payments as of December 31, 1995 are as follows: 1996 $ 507,248 1997 266,591 1998 186,372 1999 186,372 2000 62,124 ============= $ 1,208,707 ============= 9 Medtox Laboratories, Inc. Notes to Financial Statements (continued) 4. Commitments (continued) Rent expense charged to operations was $464,696, $463,299 and $771,796 for the years ended December 31, 1995, 1994 and 1993, respectively. 5. Stock Options The Company issued stock options to certain key employees which allow for the purchase of an aggregate of 1,200 shares of Common Stock. These options were exercised at $26 per share during 1994. There were no options outstanding at December 31, 1995 or 1994. 6. Benefit Plan The Company has a defined contribution profit sharing Plan, with a 401(k) provision, that covers substantially all employees who meet certain age and length of service requirements. Contributions to the plan are at the discretion of the Board of Directors. The 401(k) expense for the years ended December 31, 1995, 1994 and 1993 was $78,038 $68,857 and $70,700, respectively. 7. Related Party Transactions The Company provided laboratory services to an entity owned by certain stockholders and employees of the Company through December 31, 1994. These laboratory services were bundled with other services which the Company did not offer, and sold as a package to certain clients. Total sales to the entity for 1994 and 1993 were $372,741 and $431,955, respectively. The Company also purchased services, including collection site and medical review officer services, and customized specimen collection supplies from that same entity through December 31, 1994. Purchases for 1994 and 1993 were $231,604 and $1,169,731, respectively. 10 Medtox Laboratories, Inc. Notes to Financial Statements (continued) 8. Restructuring Accrual Effective October 31, 1993, the Company sold substantially all of its California operations to a third party for $300,000. In addition, the buyer assumed certain liabilities of the operation and entered into an assignment of the related lease. The sale of the assets resulted in a loss of approximately $457,000 which was reflected in restructuring costs for the year ended December 31, 1993. The Company closed its Illinois division on December 31, 1993. In connection with this closing, the Company recorded restructuring expenses as of December 31, 1993 of approximately $705,000. The expenses included lease obligations, severance and vacation costs and other miscellaneous expenses directly related to the closing of the facility. During 1994, the Company was not successful in subleasing the Illinois facility as a laboratory. Accordingly, the Company revised the estimate of sublease payments based on reconfiguring the space for general office use at a lower lease rate and expensed an additional $567,700 for the year ended December 31, 1994. At December 31, 1995 and 1994, the restructuring accrual of $730,907 and $917,865, respectively, represents the present value of future lease obligations through the lease term of April 2000. 9. Subsequent Event On January 30, 1996, the Company sold substantially all of its assets and liabilities other than cash and cash equivalents to a publicly-held company (the Purchaser) for $24 million, consisting of $19 million in cash and $5 million in the form of 2,517,306 shares of common stock of the Purchaser. 11 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 14th 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 14, 1996 James D. Skinner Principal Executive Officer, and Chairman of the Board /s/ Samuel C. Powell Director May 14, 1996 Samuel C. Powell, Ph.D. /s/ Peter J. Heath Vice President of May 14, 1996 Peter J. Heath Finance and Chief Financial Officer /s/ Gene E. Lewis Director May 14, 1996 Gene E. Lewis /s/ Robert J. Beckman Director May 14, 1996 Robert J. Beckman /s/ Harry G. McCoy, Pharm.D. Director May 14, 1996 Harry G. McCoy, Pharm.D. /s/ George W. Masters Director May 14, 1996 George W. Masters -----END PRIVACY-ENHANCED MESSAGE-----