SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 24, 2001
MEDTOX SCIENTIFIC, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
1-11394 95-3863205
(Commission File Number) (I.R.S. Employer Identification Number)
402 West County Road D
St. Paul, Minnesota 55112
(Address of Principal Executive Offices) (Zip Code)
(651) 636-7466
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
The registrant hereby amends its Current Report on Form 8-K filed with the
Securities and Exchange Commission (the "Commission") on November 8, 2001 to
include the financial information as set forth below:
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired:
-----------------------------------------
The audited balance sheet of Leadtech Corporation as of
September 30, 2001 and the related audited statements of
operations and cash flows for the nine months then ended, the
unaudited statements of operations and cash flows for the nine
months ended September 30, 2000, and the related independent
auditors' report are included on pages 3 through 10.
(b) Pro Forma Financial Information:
-------------------------------
The unaudited pro forma combined condensed statement of
operations of MEDTOX Scientific, Inc. for the nine months
ended September 30, 2001 is included on pages 11 and 12.
(c) Exhibits:
--------
Exhibit Description of Document
23 Consent of Deloitte & Touche LLP
INDEX TO FINANCIAL STATEMENTS
Balance sheet of Leadtech Corporation as of September 30, 2001 and the
statements of operations and cash flows for the nine months ended September 30,
2001 and 2000
Independent auditors' report 3
Balance sheet 4
Statements of operations 5
Statements of cash flows 6
Notes to financial statements 7
Pro forma combined condensed financial statements of MEDTOX Scientific,
Inc. and subsidiaries (unaudited)
Pro forma combined condensed statement of operations
for the nine months ended September 30, 2001 11
Notes to pro forma combined condensed financial information 12
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Leadtech Corporation
We have audited the accompanying balance sheet of Leadtech Corporation (the
Company) as of September 30, 2001 and the related statements of operations and
cash flows for the nine months ended September 30, 2001. 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.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Leadtech Corporation as of
September 30, 2001 and the results of its operations and its cash flows for the
nine months ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
April 26, 2002
LEADTECH CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2001
ASSETS
CURRENT ASSETS:
Cash $ 37,883
Certificate of deposit 57,833
Accounts receivable less allowance for doubtful
accounts and contractual adjustments of $40,293
and $181,942, respectively 451,236
Inventories 9,257
Prepaid expenses and other 1,266
-----------
Total current assets 557,475
EQUIPMENT, net 12,798
OTHER ASSETS 2,164
-----------
Total assets $ 572,437
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 26,859
Accounts payable 33,871
Accrued expenses 64,358
Accrued income taxes 14,663
Deferred income taxes 90,555
-----------
Total current liabilities 230,306
STOCKHOLDERS' EQUITY:
Common stock (no par value; authorized shares,
120; issued and outstanding shares, 120) 48,000
Retained earnings 294,131
-----------
Total stockholders' equity 342,131
-----------
Total liabilities and stockholders' equity $ 572,437
===========
See notes to financial statements.
LEADTECH CORPORATION
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
(unaudited)
REVENUES $ 1,700,442 $ 1,523,681
COST OF REVENUES 207,235 159,781
------------ -------------
GROSS PROFIT 1,493,207 1,363,900
OPERATING EXPENSES:
Officer salaries 798,077 613,445
Other selling, general, and administrative 553,314 506,413
------------- --------------
1,351,391 1,119,858
INCOME FROM OPERATIONS 141,816 244,042
OTHER INCOME (EXPENSE):
Interest income 1,184 2,731
Interest expense (2,325) (4,475)
------------- --------------
(1,141) (1,744)
------------- --------------
INCOME BEFORE INCOME TAXES 140,675 242,298
PROVISION FOR INCOME TAXES 43,418 46,408
------------- --------------
NET INCOME 97,257 195,890
RETAINED EARNINGS AT JANUARY 1 196,874 150,360
------------- --------------
RETAINED EARNINGS AT SEPTEMBER 30 $ 294,131 $ 346,250
============= ==============
See notes to financial statements.
LEADTECH CORPORATION
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,257 $ 195,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 441 3,500
Provision for losses on accounts receivable 69,920 77,695
Deferred income taxes 28,542 41,546
Changes in operating assets and liabilities:
Accounts receivable (207,935) (281,492)
Inventories (604) (3,760)
Prepaid expenses and other current assets (2,450) (4,265)
Accounts payable and accrued expenses 61,713 31,954
----------- -----------
Net cash provided by operating activities 46,884 61,068
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of equipment (13,239) (3,500)
CASH FLOWS FROM FINANCING ACTIVITIES -
Net payments on revolving credit facility (8,025) (6,377)
----------- -----------
INCREASE IN CASH 25,620 51,191
CASH AT JANUARY 1 12,263 4,872
----------- -----------
CASH AT SEPTEMBER 30 $ 37,883 $ 56,063
=========== ===========
See notes to financial statements.
LEADTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- -----------------------------------------------------------------------------
1. Summary of significant accounting policies
The Company - Leadtech Corporation is a private company that was
incorporated in New Jersey in 1991. The Company operates as an
independent clinical laboratory devoted primarily to the examination of
blood lead concentrations in pediatric patients. The Company is located
in North Bergen, New Jersey, but services a nationwide clientele of
pediatricians, various health care organizations, industrial clients,
and physician offices.
Use of Estimates - The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
Accounts Receivable - Laboratory services are provided to local and
national customers including pediatricians, various health care
organizations, industrial clients, and physician offices. 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.
Equipment - Equipment is 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 ranging from
five to seven years.
Impairment of Long-Lived Assets - The Company periodically evaluates the
carrying value of long-lived assets for potential impairment. The
Company considers projected future operating results, cash flows,
trends, and other circumstances in making such estimates and
evaluations. When the carrying value of any long-lived asset exceeds its
projected undiscounted cash flows, an impairment is recognized to reduce
the carrying value to its fair market value.
Revenue Recognition and Contractual Allowances - Revenues from
laboratory services are recognized as earned at such time as the Company
has completed services. The Company's services are considered to be
complete when it has performed the applicable laboratory testing
services and the results have been sent to the Company's customers.
Net revenues and accounts receivable are reported at estimated net
realizable value due from the Company's customers, including estimated
adjustments under reimbursement agreements with third-party payors.
Contractual allowances are accrued on an estimated basis in the period
the related services are provided and adjusted in future periods as
final settlements are determined.
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 the 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.
Fair Value of Financial Instruments - The carrying amounts
of cash and cash equivalents, accounts receivable, and accounts payable
are considered to be representative of their respective fair values due
to their short-term nature. The carrying amount of the line of credit
approximated fair value at September 30, 2001. The fair value of the
Company's line of credit was estimated using interest rates that are
representative of debt with similar terms and maturities.
Concentrations of Credit Risk - Concentrations of credit risk with
respect to accounts receivable are limited due to the diversity of the
Company's clients as well as their dispersion across many different
geographic regions. The Company had no customers that accounted for more
than 10% of revenues in the nine months ended September 30, 2001 or
2000.
Comprehensive Income - Comprehensive income is a measure of all nonowner
changes in stockholders' equity and includes such items as net income,
certain foreign currency translation items, minimum pension liability
adjustments, and changes in the value of available-for-sale securities.
For the nine months ended September 30, 2001 and 2000, comprehensive
income for the Company was equivalent to net income as reported.
Derivative Instruments and Hedging Activities - Effective January 1,
2001, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that all
derivatives, including those embedded in other contracts, be recognized
as either assets or liabilities and that those financial instruments be
measured at fair value. The accounting for changes in the fair value of
derivatives depends on their intended use and designation. Management
has reviewed the requirements of SFAS No. 133 and has determined they
have no freestanding or embedded derivatives. All contracts that contain
provisions meeting the definition of a derivative also meet the
requirements of, and have been designated as, normal purchases or sales.
The Company's policy is to not use freestanding derivatives and to not
enter into contracts with terms that cannot be designated as normal
purchases or sales.
New Accounting Standards - In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of long-lived
assets and the associated asset retirement costs. SFAS No. 143 is
effective for the Company on January 1, 2003. The Company is currently
in the process of evaluating the impact of the adoption of SFAS No. 143.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and addresses the financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 is effective for the Company on January 1, 2002.
The Company is currently in the process of evaluating the impact of the
adoption of SFAS No. 144.
2. INVENTORIES
Inventories consisted of supplies used in the laboratory testing process
of $9,257 at September 30, 2001.
3. EQUIPMENT
Equipment consisted of the following at
September 30, 2001:
Furniture and equipment $ 68,062
Software 2,517
----------
70,579
Less accumulated depreciation (57,781)
----------
$ 12,798
Depreciation expense was $441 and $3,500 for the nine months ended
September 2001 and 2000, respectively.
4. DEBT
The Company has a $50,000 revolving credit agreement with Fleet Blank
that is secured by a certificate of deposit of approximately equal
value. At September 30, 2001, $26,859 was outstanding under the
revolving line of credit, and $23,141 was available to be advanced. The
interest rate on the revolving line of credit is variable at prime +2%
and was 8.0% at September 30, 2001. The weighted average interest rate
on borrowings outstanding under the revolving line of credit was 9.5%
and 11.2% for the nine months ended September 30, 2001 and 2000,
respectively.
Cash paid for interest for outstanding debt was $2,325 and $4,475 for
the nine months ended September 30, 2001, and 2000, respectively.
5. LEASES
The Company leases an office and office equipment under certain
operating leases, which expire on various dates through December 2004.
Under the terms of the facility leases, a pro rata share of operating
expenses and real estate taxes are charged as additional rent.
As of September 30, 2001, the Company is obligated for future minimum
lease payments without regard for sublease payments under noncancelable
operating leases as follows:
October - December 2001 $ 11,295
2002 45,180
2003 19,073
2004 118
----------
$ 75,666
Rent expense amounted to $35,760 and $27,163 for the nine months ended
September 30, 2001 and 2000, respectively.
6. INCOME TAXES
The provision for income taxes for the nine months ended September 30,
2001 and 2000 consisted of the following:
2001 2000
Current $ 14,876 $ 4,862
Deferred 28,542 41,546
---------- ----------
$ 43,418 $ 46,408
========== ==========
The Company's income tax expense for the nine months ended September 31,
2000 differs from the amount computed by applying the statutory federal
income tax rate of 34% to income before income taxes due primarily to
the graduated tax rates and state income taxes (net of federal benefit).
The Company's income tax expense for the nine months ended September 30,
2000 differs from the amount computed by applying the statutory federal
income tax rate of 34% to income before income taxes. This difference is
due to the fact that the Company has provided for taxes for the nine
months ended September 30, 2001 using the Company's estimated annual
effective rate because of significant salary expense incurred in the
fourth quarter of 2000 and the resulting graduated rates.
Deferred income taxes reflect the 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.
Significant components of the Company's deferred tax assets and
liabilities at September 30, 2001 were as follows:
Deferred tax assets:
Accounts receivable allowances $ 55,359
Accrued expenses 16,032
Accounts payable 8,437
-------------
79,828
Deferred tax liabilities:
Accounts receivable (167,762)
Inventory (2,306)
Prepaid expenses (315)
-------------
(170,383)
Total net deferred tax liabilities $ (90,555)
=============
No cash was paid for income taxes during the nine months ended September
30, 2001 and 2000.
7. SUBSEQUENT EVENT
On October 24, 2001, MEDTOX Scientific, Inc. (MEDTOX) completed the
acquisition of the Company. Operations at the Company's facility in New
Jersey were merged into the MEDTOX laboratory facility in Saint Paul,
Minnesota in December 2001. The purchase price of $6.1 million consisted
of $2.5 million in cash, the issuance of 227,693 shares of MEDTOX common
stock valued at $2.7 million, and $0.9 million of seller financing
payable over 24 months.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statement
is presented to give effect to the purchase agreement and the
acquisition of Leadtech Corporation (Leadtech) under the purchase method
of accounting. The statement of operations for the nine months ended
September 30, 2001 assumes that the acquisition of Leadtech had been
consummated on January 1, 2001. The pro forma financial statements are
not necessarily indicative of the results of operations which would have
occurred had the Leadtech acquisition been consummated at such time, nor
are they necessarily indicative of the results of future operations. The
allocation of the purchase price of Leadtech reflects the fair value of
any adjustments to assets and liabilities. The unaudited pro forma
combined condensed financial statements should be read in conjunction
with the historical consolidated financial statements of MEDTOX
Scientific, Inc. and subsidiaries (MEDTOX), including notes thereto, and
the financial statements of Leadtech included herein, including the
notes thereto.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
(UNAUDITED)
Pro Forma Pro Forma
Historical Adjustments as Adjusted
-------------------------- for Leadtech for Leadtech
MEDTOX Leadtech (Note 2) Acquisition
Revenues $ 36,748 $ 1,700 $ 38,448
Cost of revenues 22,560 207 22,767
----------- --------- ---------
Gross profit 14,188 1,493 15,681
Selling, general, and administrative
expense 9,527 1,351 10,878
Research and development expense 956 956
Amortization expense 651 $ 328 (a) 979
----------- --------- --------- ---------
11,134 1,351 328 12,813
----------- --------- --------- ---------
Income from operations 3,054 142 (328) 2,868
Interest expense, net 791 1 62 (b) 854
Other expense, net 75 75
----------- --------- --------- ---------
Income before income taxes 2,188 141 (390) 1,939
Income tax provision (benefit) 44 (133) (c) (89)
----------- --------- --------- ---------
Net income $ 2,188 $ 97 $ (257) $ 2,028
=========== ========= ========= =========
Basic earnings per common share $ 0.56 $ 0.49
=========== =========
Diluted earnings per common share $ 0.53 $ 0.47
=========== =========
Weighted average shares outstanding:
Basic 3,899,810 4,127,503
Diluted 4,130,979 4,358,672
See notes to unaudited pro forma combined condensed financial
information.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (UNAUDITED)
1. ACQUISITION
On October 24, 2001, MEDTOX Scientific, Inc. (MEDTOX) acquired
Leadtech Corporation (Leadtech) in a business combination
accounted for as a purchase. Under the stock purchase agreement,
the stockholders of Leadtech received $6.1 million consisting of
$2.5 million in cash, the issuance of 227,693 shares of MEDTOX
common stock valued at $2.7 million, and $0.9 million of seller
financing payable over 24 months.
The following table summarizes the fair value of the Leadtech
assets acquired (in thousands):
Goodwill $ 3,727
Customer list 2,141
Non-compete agreement 250
---------
$ 6,118
The goodwill acquired in the acquisition of Leadtech will not be
amortized since the acquisition occurred subsequent to July 1,
2001, in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. Thus, no amortization expense is reflected in
the unaudited pro forma combined condensed statement of
operations for the nine months ended September 30, 2001.
2. PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
Details of the pro forma adjustments relating to the acquisition
and financing are set forth below:
(a) Adjustment to record the amortization expense related to the
amortizable intangible assets described in Note 1. The customer
list will be amortized over a ten-year period on an accelerated
basis based upon projected future cash flows. The non-compete
agreement will be amortized on a straight-line basis over a
two-year period.
(b) Adjustment to record the interest expense, due to the use of $0.9
million in seller financing described in Note 1.
(c) Adjustment to record an income tax provision (benefit) for pro
forma adjustments using a 34% tax rate.
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 hereunto duly authorized.
MEDTOX SCIENTIFIC, INC.
Date: May 3, 2002 By: /s/ Richard J. Braun
---------------------------------------
Richard J. Braun
President and Chief Executive Officer