FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| (X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period | to |
Commission file number 1-11394
MEDTOX SCIENTIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware | 95-3863205 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
402 West County Road D, St. Paul, Minnesota | 55112 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number including area code: (651) 636-7466
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes [ X ] | No [ | ] |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| Yes [ | ] | No [ | ] |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ | ] | Accelerated filer [ X ] | Non-accelerated filer o | Smaller reporting company [ | ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes [ | ] | No [ X ] |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
| Outstanding at April 17, 2009 |
Common Stock, $0.15 par value per share |
| 8,537,460 |
MEDTOX SCIENTIFIC, INC.
INDEX
| Page |
Part I | Financial Information: |
| Item 1: | Financial Statements (Unaudited) |
Consolidated Statements of Income – Three
Consolidated Balance Sheets – March 31, 2009
Consolidated Statements of Cash Flows – Three
| Item 2: |
Management's Discussion and Analysis of
Item 3:
Item 4:
Part II | 23 |
| Item 1: | 23 |
| Item 1A: | 23 |
| 23 |
| Item 3: | 23 |
| Item 5: | 24 |
| Item 6: | 24 |
PART IFINANCIAL INFORMATION
Item 1: | FINANCIAL STATEMENTS (UNAUDITED) |
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended | |||||
| March 31, 2009 |
| March 31, 2008 |
| ||
REVENUES: |
|
|
|
|
|
|
Laboratory services: |
|
|
|
|
|
|
Drugs-of-abuse testing services | $ | 8,446 |
| $ | 9,834 |
|
Clinical & other laboratory services |
| 7,712 |
|
| 5,685 |
|
Product sales |
| 4,500 |
|
| 5,186 |
|
|
| 20,658 |
|
| 20,705 |
|
|
|
|
|
|
|
|
COST OF REVENUES: |
|
|
|
|
|
|
Cost of services |
| 11,117 |
|
| 9,604 |
|
Cost of sales |
| 1,898 |
|
| 1,929 |
|
|
| 13,015 |
|
| 11,533 |
|
|
|
|
|
|
|
|
GROSS PROFIT |
| 7,643 |
|
| 9,172 |
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
Selling, general and administrative |
| 6,221 |
|
| 5,870 |
|
Research and development |
| 570 |
|
| 605 |
|
|
| 6,791 |
|
| 6,475 |
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
| 852 |
|
| 2,697 |
|
|
|
|
|
|
|
|
OTHER EXPENSE: |
|
|
|
|
|
|
Interest expense |
| (6 | ) |
| (30 | ) |
Other expense |
| (184 | ) |
| (167 | ) |
|
| (190 | ) |
| (197 | ) |
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
| 662 |
|
| 2,500 |
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE |
| (242 | ) |
| (913 | ) |
|
|
|
|
|
|
|
NET INCOME | $ | 420 |
| $ | 1,587 |
|
|
|
|
|
|
|
|
BASIC EARNINGS PER COMMON SHARE | $ | 0.05 |
| $ | 0.19 |
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER COMMON SHARE | $ | 0.05 |
| $ | 0.18 |
|
|
|
|
|
|
| |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: |
|
|
|
|
| |
Basic |
| 8,496,350 |
|
| 8,447,875 | |
Diluted |
| 8,693,042 |
|
| 8,968,547 |
See Notes to Consolidated Financial Statements (Unaudited).
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| March 31, 2009 |
| December 31, 2008 |
| ||
ASSETS |
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
Cash and cash equivalents | $ | 3,549 |
| $ | 4,069 |
|
Accounts receivable: |
|
|
|
|
|
|
Trade, less allowance for doubtful accounts ($358 in 2009 and |
| 14,636 |
|
| 13,304 |
|
Other |
| 762 |
|
| 778 |
|
Total accounts receivable |
| 15,398 |
|
| 14,082 |
|
Inventories |
| 3,947 |
|
| 3,900 |
|
Prepaid expenses and other |
| 1,491 |
|
| 1,353 |
|
Deferred income taxes |
| 3,370 |
|
| 3,612 |
|
Total current assets |
| 27,755 |
|
| 27,016 |
|
BUILDING, EQUIPMENT AND IMPROVEMENTS, net |
| 28,851 |
|
| 29,204 |
|
GOODWILL |
| 15,967 |
|
| 15,967 |
|
OTHER INTANGIBLE ASSETS, net |
| 368 |
|
| 400 |
|
OTHER ASSETS |
| 928 |
|
| 939 |
|
TOTAL ASSETS | $ | 73,869 |
| $ | 73,526 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
Accounts payable | $ | 3,961 |
| $ | 3,712 |
|
Accrued expenses |
| 5,043 |
|
| 5,235 |
|
Current portion of long-term debt |
| 677 |
|
| 677 |
|
Total current liabilities |
| 9,681 |
|
| 9,624 |
|
LONG-TERM DEBT, net of current portion |
| 133 |
|
| 302 |
|
OTHER LONG-TERM LIABILITIES |
| 2,258 |
|
| 2,057 |
|
DEFERRED INCOME TAXES, net |
| 1,078 |
|
| 1,078 |
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
Preferred stock, $1.00 par value; authorized shares, 50,000; none issued and |
| - |
|
| - |
|
Common stock, $0.15 par value; authorized shares, 28,000,000; issued shares, |
|
|
|
|
|
|
8,640,891 in 2009 and 8,563,087 in 2008 |
| 1,296 |
|
| 1,284 |
|
Additional paid-in capital |
| 88,231 |
|
| 88,017 |
|
Accumulated deficit |
| (23,802 | ) |
| (24,222 | ) |
Common stock held in trust, at cost, 365,321 shares in 2009 and 307,267 |
| (4,006 | ) |
| (3,614 | ) |
Treasury stock, at cost, 103,431 shares in 2009 and 2008 |
| (1,000 | ) |
| (1,000 | ) |
Total stockholders' equity |
| 60,719 |
|
| 60,465 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 73,869 |
| $ | 73,526 |
|
See Notes to Consolidated Financial Statements (Unaudited).
MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended |
| ||||
| March 31, 2009 |
| March 31, 2008 |
| ||
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net income | $ | 420 |
| $ | 1,587 |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
| 1,299 |
|
| 1,127 |
|
Provision for losses on accounts receivable |
| 158 |
|
| 111 |
|
Loss on sale of equipment |
| 9 |
|
| 5 |
|
Deferred and stock-based compensation |
| 203 |
|
| 113 |
|
Deferred income taxes |
| 242 |
|
| 913 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
| (1,474 | ) |
| (899 | ) |
Inventories |
| (47 | ) |
| (426 | ) |
Prepaid expenses and other current assets |
| (138 | ) |
| (2 | ) |
Other assets |
| 11 |
|
| (364 | ) |
Accounts payable and accrued expenses |
| (146 | ) |
| (41 | ) |
Net cash provided by operating activities |
| 537 |
|
| 2,124 |
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES: |
|
|
|
|
|
|
Purchase of building, equipment and improvements |
| (720 | ) |
| (2,493 | ) |
Net cash used in investing activities |
| (720 | ) |
| (2,493 | ) |
|
|
|
|
|
|
|
CASH FLOWS USED IN FINANCING ACTIVITIES: |
|
|
|
|
|
|
Net proceeds on revolving credit facility |
| - |
|
| 900 |
|
Principal payments on long-term debt |
| (169 | ) |
| (169 | ) |
Purchase of common stock for incentive plan |
| (392 | ) |
| (1,003 | ) |
Net proceeds from sale of common stock |
| 224 |
|
| - |
|
Payment of taxes from traded shares |
| - |
|
| (226 | ) |
Net cash used in financing activities |
| (337 | ) |
| (498 | ) |
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS |
| (520 | ) |
| (867 | ) |
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 4,069 |
|
| 2,220 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 3,549 |
| $ | 1,353 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW |
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
Interest | $ | 7 |
| $ | 27 |
|
Income taxes |
| 11 |
|
| 13 |
|
|
|
|
|
|
|
|
Supplemental noncash activities: |
|
|
|
|
|
|
Asset additions and related obligations in payables |
| 727 |
|
| 478 |
|
See Notes to Consolidated Financial Statements (Unaudited).
MEDTOX SCIENTIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2009
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MEDTOX Scientific, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of financial condition and results of operations have been included. Operating results for the three month period ended March 31, 2009 are not necessarily indicative of the results that may be attained for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.
New Accounting Standards: In November 2007, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 141R, “Business Combinations,” which changes how business acquisitions are accounted. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For the Company, SFAS No. 141R was effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring on or after January 1, 2009. The Company adopted SFAS No. 141R as of January 1, 2009. The adoption of this Statement did not have an impact on the Company’s financial position or results of operations.
In February 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2) which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. The Company adopted FSP 157-2 as of January 1, 2009. The adoption of FSP 157-2 did not have an impact on the Company’s financial position or results of operations.
2. SEGMENTS
The Company has two reportable segments: Laboratory Services and Product Sales. The Laboratory Services segment consists of MEDTOX Laboratories and the New Brighton Business Center (NBBC). Services provided include drugs-of-abuse testing services and clinical & other laboratory services, which include clinical toxicology, clinical testing for the pharmaceutical industry, clinical testing for occupational health clinics, clinical testing for physician offices, pediatric lead testing, heavy metals analyses, courier delivery, and medical surveillance. The Product Sales segment, which includes POCT (point-of-collection testing) disposable
diagnostic devices, consists of MEDTOX Diagnostics, Inc. Products manufactured include easy to use, inexpensive, on-site drug tests such as PROFILE®-II, PROFILE®-II A, PROFILE®-III, PROFILE®-III A, PROFILE-II ER®, PROFILE®-III ER, PROFILE®-IV, MEDTOXScan®, VERDICT®-II and SURE-SCREEN®, in addition to a variety of other diagnostic tests for the detection of alcohol. MEDTOX Diagnostics also provides contract manufacturing services in its Food and Drug Administration (FDA) registered/ISO 13845 certified facility.
The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately as each business requires different products, services and marketing strategies.
In evaluating financial performance, management focuses on income from operations as a segment’s measure of profit or loss.
(In thousands) | Three Months Ended | ||||
| March 31, 2009 |
| March 31, 2008 | ||
Laboratory Services: |
|
|
|
|
|
Revenues | $ | 16,158 |
| $ | 15,519 |
Depreciation and amortization |
| 1,151 |
|
| 974 |
Income from operations |
| 74 |
|
| 1,411 |
Capital expenditures for segment assets |
| 623 |
|
| 2,211 |
|
|
|
|
|
|
Product Sales: |
|
|
|
|
|
Revenues | $ | 4,500 |
| $ | 5,186 |
Depreciation and amortization |
| 148 |
|
| 153 |
Income from operations |
| 778 |
|
| 1,286 |
Capital expenditures for segment assets |
| 97 |
|
| 282 |
|
|
|
|
|
|
Corporate (unallocated): |
|
|
|
|
|
Other expense | $ | (190) |
| $ | (197) |
|
| ||||
Company: |
|
|
|
|
|
Revenues | $ | 20,658 |
| $ | 20,705 |
Depreciation and amortization |
| 1,299 |
|
| 1,127 |
Income from operations |
| 852 |
|
| 2,697 |
Other expense |
| (190) |
|
| (197) |
Income before income tax expense |
| 662 |
|
| 2,500 |
Capital expenditures for assets |
| 720 |
|
| 2,493 |
(In thousands) | March 31, 2009 |
| December 31, 2008 | ||
Assets: |
|
|
|
|
|
Laboratory Services | $ | 59,866 |
| $ | 59,812 |
Product Sales |
| 10,633 |
|
| 10,102 |
Corporate (unallocated) |
| 3,370 |
|
| 3,612 |
Company | $ | 73,869 |
| $ | 73,526 |
The following is a summary of revenues from external customers for each group of products and services provided within the Product Sales segment:
(In thousands) | Three Months Ended | ||||
| March 31, 2009 |
| March 31, 2008 | ||
|
|
|
|
|
|
POC on site testing products | $ | 4,025 |
| $ | 4,601 |
Contract manufacturing services |
| 378 |
|
| 479 |
Other diagnostic products |
| 97 |
|
| 106 |
| $ | 4,500 |
| $ | 5,186 |
3. INVENTORIES
Inventories consisted of the following:
(In thousands) | March 31, 2009 |
| December 31, 2008 | ||
|
|
|
|
|
|
Raw materials | $ | 807 |
| $ | 958 |
Work in process |
| 389 |
|
| 358 |
Finished goods |
| 377 |
|
| 418 |
Supplies, including off-site inventory |
| 2,374 |
|
| 2,166 |
| $ | 3,947 |
| $ | 3,900 |
4. | GOODWILL AND OTHER INTANGIBLE ASSETS |
The Company reviews goodwill and indefinite-lived intangible assets for impairment at least annually and between annual test dates in certain circumstances in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company typically performs its annual impairment test for goodwill and other intangible assets in the fourth quarter of each year. In the first quarter of 2009, the Company experienced a decline in its market capitalization, which is considered a possible impairment indicator. Accordingly, the Company performed an interim test of goodwill for impairment. Based upon the Company’s interim impairment analysis of goodwill during the first quarter of 2009, the Company determined that there was no goodwill impairment.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
(In thousands, except share and per share data) | Three Months Ended |
| ||||
| March 31, 2009 |
| March 31, 2008 |
| ||
|
|
|
|
|
|
|
Net income (A) | $ | 420 |
| $ | 1,587 |
|
Weighted average number of basic common shares outstanding (B) |
| 8,496,350 |
|
| 8,447,875 |
|
Dilutive effect of stock options computed based on the treasury stock method using average market price |
| 196,692 |
|
| 520,672 |
|
Weighted average number of diluted common shares outstanding (C) |
| 8,693,042 |
|
| 8,968,547 |
|
Basic earnings per common share (A/B) | $ | 0.05 |
| $ | 0.19 |
|
Diluted earnings per common share (A/C) | $ | 0.05 |
| $ | 0.18 |
|
6. INCOME TAXES
At December 31, 2008, the Company had federal net operating loss carryforwards (NOLs) of approximately $7.8 million, which are available to offset future taxable income. The Company's federal NOLs expire in varying amounts each year from 2009 through 2027 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred. Section 382 of the Internal Revenue Code restricts the annual utilization of certain NOLs incurred prior to a change in ownership. However, such limitation is not expected to impair the realization of these NOLs. In the future, subsequent revisions to the estimated net realizable value of these deferred tax assets could cause the provision for income taxes to vary significantly from period to period, although the Company’s cash payments would remain unaffected until the benefit of the NOLs is completely utilized or expires unused.
7. CONTINGENCIES
Leases - The Company leases offices and facilities and office equipment under certain operating leases, which expire on various dates through March 2016. Under the terms of the facility leases, a pro rata share of operating expenses and real estate taxes are charged as additional rent.
Legal - The Company is party to various legal proceedings arising in the normal course of business activities, none of which, in the opinion of management, are expected to have a material adverse impact on the Company's consolidated financial position or results of operations.
Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward looking statements, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our strategy, future operations, future expectations and future estimates, future financial position or results, and future plans and objectives of management. Those statements in this Form 10-Q containing the words “believes”, “anticipates”, “plans”, “expects”, and similar expressions constitute forward looking statements, although not all forward looking statements contain such identifying words. Examples of forward looking statements include, but are not limited to (i) projections of, or statements regarding, future revenues, income or loss, earnings or loss per share, capital expenditures, dividends, capital structure, margins and other financial items, (ii) statements regarding our plans and objectives and the impacts thereof, including planned introductions of new products and services, planned exiting of lines of business and planned regulatory filings, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) estimates of market sizes and market opportunities, (iv) statements regarding economic conditions, (v) statements regarding the sufficiency of our existing resources to fund our planned operations through 2009, and (vi) statements of assumptions underlying other statements and statements about our business.
The forward looking statements contained in this Form 10-Q are based on our current expectations, assumptions, estimates and projections about our Company and its businesses. All such forward looking statements involve significant risks and uncertainties, including those risks identified in the next paragraph, many of which are beyond our control. Although we believe that the assumptions underlying our forward looking statements are reasonable, any of the assumptions could prove inaccurate. Actual results may differ materially from those indicated by the forward looking statements included in this Form 10-Q. In light of the significant uncertainties inherent in the forward looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward looking statements to reflect actual results or changes in assumptions, expectations, or projections. In addition, our financial and performance outlook concerning future revenues, margins, earnings, earnings per share, and other operating or performance results does not include the impact of any future acquisitions, future acquisition-related expenses or accruals, or any future restructuring or other charges that may occur from time to time due to management decisions and changing business circumstances and conditions.
The following is a listing of some of the important factors that could cause actual results to differ materially from those indicated by the forward looking statements contained in this Form 10-Q:
| • | increased competition, including price competition |
| • | changes in demand for our services and products by our customers |
| • | changes in general economic and business conditions, both nationally and internationally, which can influence the level of job growth and, in turn, the level of pre-employment drug screening activity |
| • | technological or regulatory developments, evolving industry standards, that could affect or delay the sale of our products |
| • | our ability to attract and retain experienced and qualified personnel |
| • | risks and uncertainties with respect to our patents and proprietary rights, including: |
| o | other companies challenging our patents |
| o | patents issued to other companies that may harm our ability to do business |
| o | other companies designing around technologies we have developed |
| o | our inability to obtain appropriate licenses from third parties |
| o | our inability to protect our trade secrets |
| o | risk of infringement upon the proprietary rights of others |
| o | our inability to prevent others from infringing on our proprietary rights |
| • | our inability to control the costs in our business |
| • | our inability to obtain sufficient financing to continue to sustain or expand our operations |
| • | adverse results in litigation matters |
| • | our inability to continue to develop innovative products and services |
| • | our inability to provide our services in a timely manner |
| • | an unforeseen decrease in the acceptance of current new products and services, including in the market for clinical laboratory testing for physicians offices and patients |
| • | fluctuations in clinical trial activities |
| • | inaccurate information regarding market opportunities |
| • | failure to receive regulatory approvals and clearances |
| • | other factors, including those set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 |
The above listing should not be construed as exhaustive; we cannot predict all the factors that could cause results to differ materially from those indicated by the forward looking statements.
Executive Overview
| Our Business |
We are engaged primarily in distinct, but very much related businesses, which for financial reporting purposes are divided into two reportable segments: Laboratory Services and Product Sales. For financial information relating to our segments, see Note 2 of Notes to the Consolidated Financial Statements.
| Laboratory Services |
Our “Laboratory Services” business segment includes the activities of our wholly-owned subsidiary, MEDTOX Laboratories, Inc. MEDTOX Laboratories, Inc. engages in drugs-of-abuse testing services, providing these services to private and public companies, drug treatment counseling centers, criminal justice facilities, occupational health clinics and hospitals, as well as third party administrators. MEDTOX Laboratories, Inc. also provides clinical and other laboratory services which consist of clinical toxicology, clinical testing for the pharmaceutical industry (e.g., central laboratory services, bioanalytical, and pharmacokinetic testing), and analysis of heavy and trace metals. We provide these services to hospitals, clinics, HMOs and small to mid-sized biotech and pharmaceutical companies and other laboratories. Testing is conducted using methodologies that include various immunoassays, gas liquid chromatography, gas chromatography/mass spectrometry, and high performance liquid chromatography with tandem mass spectrometry.
We recently expanded our clinical & other laboratory services to include laboratory tests used by physicians and other healthcare providers for the purpose of diagnosing or treating disease or illness or the assessment of health in humans. Testing is performed on blood, body fluids or tissues. Our comprehensive clinical laboratory services includes clinical chemistry, hematology, coagulation, urinalysis, immunology/serology (viruses, infectious diseases, immune system) immunohematology (blood typing, antibody screens), microbiology (bacteria, parasites), anatomical pathology/cytology (tissue biopsies, cancer), molecular diagnostics (infectious diseases, genetic disorders) and sub-specialties of these categories.
We also provide services in the areas of logistics management, data management and program management. These services support our underlying business of laboratory analysis and provide added value to our clients.
The New Brighton Business Center, LLC (NBBC) is a wholly-owned limited liability company formed for the sole purpose of acquiring the facilities in St. Paul, Minnesota, where our Laboratory Services administrative offices and laboratory operations are located.
| Product Sales |
Our “Product Sales” business segment consists of our wholly-owned subsidiary, MEDTOX Diagnostics, Inc. MEDTOX Diagnostics, Inc. is engaged in the development, manufacturing, and distribution of a variety of POCT diagnostic drug screening devices, such as our PROFILE®-II, PROFILE®-II A, PROFILE®-III, PROFILE®-III A, PROFILE-II ER®, PROFILE®-III ER, PROFILE®-IV, MEDTOXScan® reader, VERDICT®-II, and
SURE-SCREEN® products, in addition to other diagnostic tests for the detection of alcohol. MEDTOX Diagnostics, Inc. also provides contract manufacturing services, such as coagulation market controls. The operations of the Product Sales segment are located in Burlington, North Carolina, where we maintain the offices, research and development laboratories, production operations, and warehouse/distribution facilities.
In January 2008, we announced that we were voluntarily recalling approximately 400 MEDTOXScan® electronic readers because of mis-branding. The PROFILE®-III ER devices sold for use with the readers and which are properly cleared for sale by the FDA, can be read visually without the reader. The readers were provided to customers at no cost, therefore the direct financial impact of the recall is limited to shipping fees which are estimated to be less than $10,000. It had been our original intention to replace these readers with a new generation of reader having over-the-counter (OTC) approval in 2008. As a result of the recall, we sought “prescription use” clearance for the new reader. We filed a 510(k) application in March 2008. The FDA requested additional data and studies as well as certain modifications to our product labeling and package insert which we completed. On February 13, 2009, we received 510(k) clearance from the FDA to market our MEDTOXScan® electronic readers to be used with nine drugs. We have distributed 40 readers to customers at this time. We are also in the process of preparing an additional filing with the FDA for three more drugs to be added to the reader menu. We expect that filing to take place in the second quarter of 2009. Until the additional three drugs are approved for the reader, we expect most of our clients to continue to use our visual read device. To date, we have not experienced significant attrition of clients for this product line.
| Key Trends Influencing Our Operating Results |
Our management believes that there are several notable trends that are currently influencing, and are expected in the foreseeable future to continue to influence, our operating results. These include:
Economic Uncertainties Causing Variability in Testing Volumes in the Laboratory Services, Drugs-of-Abuse Business
In the first quarter of 2009, testing volume from our existing workplace drugs-of-abuse clients was lower than in the prior year, which we primarily attributed to lower new job creation and reduced employment levels and corresponding drops in hiring caused by economic uncertainties. We feel economic uncertainties may continue to cause variability in our workplace drugs-of-abuse testing volume in the foreseeable future.
| Increased POCT Diagnostic Device Test Competition |
We have experienced increased competition with respect to our POCT diagnostic 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, we have experienced increased price competition for certain diagnostic testing devices, particularly in the probation, parole and rehabilitation market.
| Our Strategy |
Our strategy is to drive profitable growth by building market share, leveraging our existing infrastructure and technical expertise, and driving innovation. We maintain a disciplined culture, focused on the successful execution of our strategy and plans.
Building Market Share
We have solid niche positions in large markets, relative to our size, that allow us to build market share by offering high quality products and services that are delivered rapidly, priced competitively, and supported by excellent customer service and value-added services. Our value added services include data management, collection site management, training, technical support and expertise, as well as review of drug testing policies for clients.
Our success in penetrating new accounts has represented a significant component of our growth in market share. Over the past three years, we have expanded our number of sales representatives from 23 to 39. The increase in sales representatives has increased our business from new accounts and helps offset risks from uncertain economic conditions that may result in lower activity from existing workplace drugs-of-abuse clients.
Leveraging Existing Infrastructure and Technical Expertise
We leverage our existing infrastructure and technical expertise to facilitate top line growth and improve operating margins.
In 2008, we expanded our clinical laboratory capabilities to include clinical and anatomic pathology, microbiology, molecular diagnostics, and other specialized testing capabilities. This expansion leverages existing capabilities and opens up new revenue opportunities by offering full-service testing capabilities to the physician office market.
Our LEAN and Six-Sigma initiatives support our effort to leverage existing infrastructure by improving quality and productivity, cutting costs, and increasing throughput. LEAN is a highly disciplined process that helps us focus on reducing waste and eliminating unnecessary steps in our business processes. Our Six-Sigma initiatives address quality and variability within processes. While all key departments in the Laboratory Services and Product Sales segments have now been through initial LEAN processes, as an organization we recognize that LEAN is an ongoing philosophy, not a project to be “finished.”
Driving Innovation
We have introduced a number of innovative products and services.
In 2008, we introduced ToxAssure®, a comprehensive program for effective pain management testing.
In 2007, we continued improvement in our manufacturing processes in the diagnostic area, resulting in greater flexibility of product configurations for clients, increased efficiency in manufacturing and improved device performance. We can now offer a higher degree of customization to our clients, both in terms of specific assays on a particular device, and supplying a “private label” device to large clients. In 2007, we initiated a relationship with one private label client.
In 2006, we developed and introduced MEDTOXScan®, an electronic reader, which we provide to hospitals for use with our PROFILE-II ER® and PROFILE®-III ER POCT devices in hospital laboratories and emergency rooms.
In 2005, we developed and introduced eChain®, our web-based electronic chain-of-custody and donor tracking system. We currently have over 1,500 clinics and collection sites utilizing eChain® throughout the country.
In 2005, we also introduced SURE-SCREEN®, our lower detection level POCT device targeted for the government and rehabilitation markets and our PROFILE®-III device, an integrated cup and testing device for sale to the workplace drug testing market.
ClearCourse®, another innovative solution we offer, is a comprehensive drug testing program that combines four essential components: Drug Abuse Recognition System (DARS™) training, SURE-SCREEN® on-site drug screening devices, laboratory based confirmation testing and WEBTOX® online data management.
Critical Accounting Policies
There were no significant changes to our critical accounting policies during the quarter ended March 31, 2009 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.
Results of Operations
In evaluating our financial performance, our management has primarily focused on three objectives: maximizing operating income, increasing our cash flows and strengthening our balance sheet. The first of these objectives is discussed in this section. The other two are addressed under “Liquidity and Capital Resources.”
To maximize our operating income, we have sought revenue growth, improved gross margins and reduced selling, general and administrative (SG&A) expense as a percentage of revenues. As discussed below, during the first quarter of 2009, we were unable to achieve these goals due in part to challenging economic conditions.
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
Revenues
| Three Months Ended |
| Quarter-over-Quarter | ||||
| March 31, 2009 | % of Revenues | March 31, 2008 | % of Revenues |
| $ Change | % Change |
Revenues: |
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|
|
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|
|
|
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|
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|
|
|
|
Laboratory Services | $ 16,158 | 78.0% | $ 15,519 | 75.0% |
| $ 639 | 4% |
|
|
|
|
|
|
|
|
Product Sales | 4,500 | 22.0% | 5,186 | 25.0% |
| (686) | (13)% |
|
|
|
|
|
|
|
|
| $ 20,658 | 100.0% | $ 20,705 | 100.0% |
| $ (47) | *% |
* Less than 1%
Our Laboratory Services segment includes revenues from drugs-of-abuse testing services and revenues from clinical & other laboratory services. Our revenues from drugs-of-abuse testing decreased 14% to $8.4 million in the first quarter of 2009 primarily as a result of a 28% decline in revenues from our existing drugs-of-abuse clients due to challenging economic conditions affecting hiring decisions by those clients. This decrease was partially mitigated by a 14% increase in revenues from new drugs-of abuse clients. We expect a continuing negative impact on revenue from our drugs-of-abuse clients in 2009 caused by the negative economic conditions affecting hiring. Pricing for our workplace drugs-of-abuse testing services tends to be fairly stable overall; however, the average price per testing specimen can vary slightly from quarter-to-quarter. Test price can vary by client based on the percentage of samples that test positive for drugs-of-abuse and the average number of samples per shipment.
Revenues from our clinical and other laboratory services increased 36% to $7.7 million in the first quarter of 2009. The improvement was driven by strong growth in testing for clinical trial services and growth generated by our expanded clinical laboratory capabilities. Revenues from clinical trial services can fluctuate from quarter-to-quarter based on the project nature, size, and the actual timing of clinical trials.
Our Product Sales segment includes revenues from point-of-collection on site testing products (POCT), contract manufacturing services and other diagnostic products.
Sales of POCT products, which consist of the PROFILE®-II, PROFILE®-II A, PROFILE-II ER®, PROFILE®-III ER, PROFILE®-III, PROFILE®-III A, PROFILE®-IV, VERDICT®-II and SURE-SCREEN® on-site test kits and other ancillary products for the detection of abused substances, decreased 13% to $4.0 million in the first quarter of 2009. The decrease was due primarily to a 28% decline in revenues from device sales in the workplace market attributable to tough economic conditions affecting hiring decisions. Overall, pricing for our POCT devices was slightly lower than the prior year quarter.
Sales of contract manufacturing services decreased 21% to $0.4 million in the first quarter of 2009. After an analysis of this product category in 2007, we concluded that it had diminishing opportunities for us, and we plan to exit the contract manufacturing services business over the next 18 months. Based on the expected increased sales of higher-margin POCT products, we do not anticipate a significant impact on our results of operations from exiting this business.
Sales of other diagnostic products were flat at $0.1 million in the first quarter of 2009 compared to the same period in 2008.
Cost of Revenues and Gross Margin
| Three Months Ended |
| Quarter-over-Quarter | ||||
| March 31, 2009 | % of Revenues | March 31, 2008 | % of Revenues |
| $ Change | % Change |
Cost of Revenues: |
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|
|
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|
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|
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|
|
|
Cost of Services | $ 11,117 | 68.8%* | $ 9,604 | 61.9%* |
| $ 1,513 | 16% |
|
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|
|
|
|
|
Cost of Sales | 1,898 | 42.2%** | 1,929 | 37.2%** |
| (31) | (2)% |
|
|
|
|
|
|
|
|
| $ 13,015 | 63.0% | $ 11,533 | 55.7% |
| $ 1,482 | 13% |
* | Cost of services as a percentage of Laboratory Services revenues |
** | Cost of sales as a percentage of Product Sales revenues |
Consolidated gross margin decreased to 37.0% of revenues in the first quarter of 2009, compared to 44.3% of revenues for the same period in 2008.
Laboratory Services gross margin was 31.2% in the first quarter of 2009, down from 38.1% in the first quarter of 2008. The decrease in gross margin was due to a 14% drop in drugs-of-abuse testing revenue over a highly fixed cost structure and increased costs associated with our clinical laboratory expansion. Gross margin from Product Sales decreased to 57.8% in the first quarter of 2009, down from 62.8% in the same period of 2008 and primarily reflects a shift in sales mix of point-of-collection testing devices, with a decrease in higher margin PROFILE® devices sold in the workplace market and an increase in sales of lower margin SURE-SCREEN® devices in the government market.
Operating Expenses
| Three Months Ended |
| Quarter-over-Quarter | ||||
| March 31, 2009 | % of Revenues | March 31, 2008 | % of Revenues |
| $ Change | % Change |
Operating Expenses: |
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Selling, general and administrative | $ 6,221 | 30.1% | $ 5,870 | 28.4% |
| $ 351 | 6% |
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|
Research and development | 570 | 2.8% | 605 | 2.9% |
| (35) | (6)% |
|
|
|
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|
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|
|
| $ 6,791 | 32.9% | $ 6,475 | 31.3% |
| $ 316 | 5% |
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $6.2 million, or 30.1% of revenues in the first quarter of 2009, compared to $5.9 million, or 28.4% of revenues in the first quarter of 2008. Our increased spending was primarily associated with an increase in sales and marketing expense and information technology expense.
Research and Development Expenses. Research and development expenses decreased 6% to $570,000 in the first quarter of 2009, primarily due to decreased spending for on-going projects in our Product Sales segment.
Income Taxes
We recorded a tax provision for the three months ended March 31, 2009 and March 31, 2008 based upon an effective tax rate of 36.5% for both periods.
Liquidity and Capital Resources
Our working capital requirements have been funded primarily by various combinations of profitable operations and cash received from debt financing. Cash and cash equivalents at March 31, 2009 were $3.5 million, compared to $4.1 million at December 31, 2008.
Net cash provided by operating activities was $0.5 million for the three months ended March 31, 2009 compared to $2.1 million for the same period of 2008. The decrease was primarily due to reduced operating results.
In January 2008, we prepaid approximately $430,000 of the lease agreement for the office and research facilities leased from a director relating to leasehold improvements after determining that the prepayment would be financially beneficial to us. The prepayment was recorded as prepaid rent in other assets (long-term) in the consolidated balance sheet and will continue to be amortized over the remaining life of the lease as additional rent.
Net cash used in investing activities, consisting of capital expenditures, was $0.7 million for the three months ended March 31, 2009 compared to $2.5 million for the same period of 2008. The decrease in the first quarter of 2009 was primarily due to the absence of costs incurred in the first quarter of 2008 associated with the expansion of our regional clinical laboratory capabilities. In both periods, these expenditures included equipment purchased and costs incurred to continue to improve efficiencies and reduce operating costs within our Laboratory Services and Product Sales businesses.
Net cash used in financing activities was $0.3 million for the three months ended March 31, 2009, compared to $0.5 million in the prior year period. The slight decrease was primarily due to a decrease in the repurchase of shares of our common stock. This impact was partially offset by proceeds received on the revolving credit facility of $0.9 million in the first quarter of 2008. In the first quarter of 2009, we repurchased 58,054 shares of our common stock in the open market for a cost of $0.4 million. In the first quarter of 2008, we repurchased 63,140 shares of our common stock from officers of our Company for a cost of $1.0 million. The shares repurchased were placed in trust to fund our Long-Term Incentive Plan.
We are party to a credit security agreement (the "Wells Fargo Credit Agreement") with Wells Fargo Bank, National Association (the “Bank”) maturing on November 1, 2009. We are currently in the process of negotiating the renewal of the Wells Fargo Credit Agreement. The Wells Fargo Credit Agreement, as amended, consists of:
(i) a revolving line of credit ("Line of Credit"), payable on demand, of up to $8.0 million bearing interest at either a fluctuating rate of 0.5% below the Bank’s prime rate or at a fixed rate of 1.9% above LIBOR, as defined and calculated by the Bank, in effect on the first day of the applicable fixed rate term; and
(ii) a note or notes aggregating up to $4.9 million (loan limit) for the purchase of capital equipment bearing interest at either a rate of 0.25% below the Bank’s prime rate or at a fixed rate for a period of one, two, three, or four years at a rate of 2.25% in excess of the then current yield on U.S. Treasury Securities, adjusted to a constant maturity equal to such fixed rate period.
Subject to certain conditions, the Wells Fargo Credit Agreement also provides for the issuance of letters of credit which, if drawn upon, would be deemed advances under the Line of Credit. We are required to pay a fee equal to 0.125% per annum on the average daily unused amount of the Line of Credit. We have granted the Bank a first priority security interest in all of the Company’s accounts receivable, other rights to payment, general intangibles, inventory, and equipment to secure all indebtedness of the Company to the Bank.
Extensions of credit under the Wells Fargo Credit Agreement are subject to certain conditions. The Wells Fargo Credit Agreement also requires us to comply with certain financial covenants, including maintaining, on a consolidated basis:
• | Tangible Net Worth not less than $30,000,000 at any time, with “Tangible Net Worth” defined as the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets. |
• | Total Liabilities divided by Tangible Net Worth not greater than 1.75 to 1.0 at any time, with “Total Liabilities” defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with “Tangible Net Worth” as defined above. |
• | A Debt Service Coverage Ratio not less than 1.5 to 1.0 as of each fiscal quarter end, determined on a rolling four-quarter basis, with “Debt Service Coverage Ratio” defined as the aggregate of net income before non-cash tax expense plus depreciation expense and amortization expense, divided by the aggregate of the current maturity of long-term debt for the previous four fiscal quarters plus current capital lease obligations for the previous four fiscal quarters. |
We are relying on expected positive cash flows from operations and our Line of Credit to fund our future working capital and asset purchases. As of March 31, 2009, we had total borrowing capacity of $8.0 million on our line of credit. We did not have an outstanding balance on our Line of Credit at March 31, 2009.
In the short term, we believe that the aforementioned resources will be sufficient to fund our planned operations through 2009. While there can be no assurance that the available capital will be sufficient to fund our future operations beyond 2009, we believe that future profitable operations, as well as access to additional capital through debt or equity financings, will be the primary means for funding our operations for the long term.
We continue to follow a plan which includes (i) aggressively monitoring and controlling costs, (ii) increasing revenues from sales of our existing products and services (iii) developing new products and services, as well as (iv) selectively pursuing synergistic acquisitions to increase our critical mass. However, there can be no assurance that costs can be controlled, revenues can be increased, financing may be obtained, acquisitions successfully consummated, or that we will be profitable.
Disclosures about Contractual Obligations and Commercial Commitments
The following table aggregates all contractual commitments and commercial obligations that affect the Company’s financial condition and liquidity position as of March 31, 2009:
|
Payments Due by Period | ||||||||
(In thousands) |
Total |
| Less than 1 year |
|
1-3 years |
|
3-5 years |
| More than 5 years |
|
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|
|
|
|
|
|
|
Long-term debt (1) | $ 822 |
| $ 689 |
| $ 133 |
| $ - |
| $ - |
|
|
|
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|
|
|
|
|
|
Operating leases | 3,365 |
| 756 |
| 1,147 |
| 765 |
| 697 |
|
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|
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|
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|
|
Total contractual obligations | $ 4,187 |
| $ 1,445 |
| $ 1,280 |
| $ 765 |
| $ 697 |
(1) | Amounts include interest payments based upon contractual or prevailing interest rates. |
The table above excludes our obligation for future payments to participants under our Supplemental Executive Retirement Plan of approximately $0.4 million at March 31, 2009 as the specific payment dates and amounts are unknown.
Off-Balance Sheet Transactions
The Company does not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Impact of Inflation and Changing Prices
The impact of inflation and changing prices on the Company has been primarily limited to salary, laboratory and operating supplies and rent increases and has historically not been material to the Company’s operations. In the future, the Company may not be able to increase the prices of laboratory testing by an amount sufficient to cover the cost of inflation, although the Company is responding to these concerns by refocusing the laboratory operations towards higher margin testing (including clinical and pharmaceutical trials) as well as emphasizing the marketing, sales and operations of the Product Sales business.
Seasonality
The Company believes that the laboratory testing business is subject to seasonal fluctuations in pre-employment screening. These seasonal fluctuations include reduced volume in the year-end holiday periods and other major holidays. In addition, inclement weather may have a negative impact on volume thereby reducing net revenues and cash flows.
Impact of New Accounting Standards
In November 2007, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 141R, “Business Combinations,” which changes how business acquisitions are accounted. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS No. 141R was effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring on or after January 1, 2009. We adopted SFAS No. 141R as of January 1, 2009. The adoption of this Statement did not have an impact on our financial position or results of operations.
In February 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2) which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. We adopted FSP 157-2 as of January 1, 2009. The adoption of FSP 157-2 did not have an impact on our financial position or results of operations.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in our market risk during the quarter ended March 31, 2009. For additional information refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2008.
Item 4: CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls Procedures
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information that is required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1 | LEGAL PROCEEDINGS. | Inapplicable |
ITEM 1A RISK FACTORS. There have been no material changes to our risk factors during the quarter ended March 31, 2009. For additional information refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Issuer Purchases of Equity Securities
Period |
| Total Number of Shares Purchased (a) |
| Average Price Paid per Share |
| Total Number of Shares Purchased as part of Publicly Announced Plans or Programs |
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
|
|
|
|
|
|
|
|
|
January 1 - 31 |
| - |
| - |
| - |
| - |
February 1 - 28 |
| 24,134 |
| $ 6.90 |
| - |
| - |
March 1 - 31 |
| 33,920 |
| 6.65 |
| - |
| - |
Total |
| 58,054 |
| $ 6.71 |
| - |
| - |
|
|
|
|
|
|
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|
|
(a) Represents the number of shares of the Company’s common stock repurchased to fund the Company’s Long-Term Incentive Plan (LTIP). Repurchases of shares may be made through open market or privately negotiated transactions at times and in such amounts as management deems appropriate.
In addition to shares repurchased to fund the Company’s LTIP, shares of common stock were surrendered by employees to satisfy the exercise price on stock option exercises.
ITEM 3 | DEFAULTS UPON SENIOR SECURITIES. Inapplicable |
ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Inapplicable
ITEM 5 | OTHER INFORMATION. |
Target Financial Objectives for Fiscal Year 2009 under the Annual Incentive Plan and Long Term Incentive Plan
On February 11, 2009, the Compensation Committee of the Board of Directors of the Company (the “Committee) approved weighted target financial objectives for the Company’s 2009 Annual Incentive Plan and Long-Term Incentive Plan (LTIP). Awards will be based on the target payouts set forth below, which are expressed as a percentage of base salary. Specific payments to individuals could exceed the following targets if the Company achieves more than 100% of its target financial objectives, but in no event will the Annual Incentive Payment or LTIP individually exceed two times base salary.
Title
|
| Target Payout %
| |
Chief Executive Officer |
| 100 | % |
|
|
|
|
Chief Financial Officer and Chief Operating Officer of MEDTOX Laboratories, Inc. |
| 50 | % |
|
|
|
|
Vice President and Chief Marketing Officer |
| 50 | % |
|
|
|
|
Vice President and Chief Operating Officer of MEDTOX Diagnostics, Inc. |
| 50 | % |
|
|
|
|
Vice President Quality, Regulatory Affairs, and Human Resources |
| 50 | % |
Employees must be employed by the Company as of December 31, 2009, and at the time of the awards in order to participate in the Plans, and awards may be adjusted on a pro rata basis to the extent any employee is employed for only a portion of the year 2009. The Chief Executive Officer will recommend individual awards for all participating employees (except for the Chief Executive Officer) for approval by the Committee based on an assessment of each individual’s performance. The Committee may approve or disapprove any recommended awards in whole or in part in its sole discretion. The Committee shall determine the award for the Chief Executive Officer based on an assessment of his performance for 2009.
ITEM 6 | EXHIBITS. See Exhibit Index on page following signature page |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signature | Title | Date |
/s/ Richard J. Braun | President, Chief Executive Officer, and | May 1, 2009 |
Richard J. Braun | Chairman of the Board of Directors (Principal Executive Officer) |
|
|
|
|
/s/ Kevin J. Wiersma | Vice President and Chief Financial Officer | May 1, 2009 |
Kevin J. Wiersma | (Principal Financial Officer) |
|
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|
|
/s/ Steven J. Schmidt | Vice President, Finance | May 1, 2009 |
Steven J. Schmidt | (Principal Accounting Officer) |
|
|
|
|
EXHIBIT INDEX
MEDTOX SCIENTIFIC, INC.
FORM 10-Q FOR QUARTER ENDED MARCH 31, 2009
| Exhibit |
| Number | Description |
| Target Financial Objectives for Fiscal Year 2009 under the Annual Incentive Plan and Long Term Incentive Plan |
| Section 302 Certification of Chief Executive Officer pursuant to the Sarbanes-Oxley Act of 2002. |
| Section 302 Certification of Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002. |
| Section 906 Certification of Chief Executive Officer pursuant to the Sarbanes-Oxley Act of 2002. |
| Section 906 Certification of Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002. |