Back to GetFilings.com



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 September 30, 2003

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
incorporated 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes            No       X     

The number of shares of Common Stock, $.15 par value, outstanding as of October 31, 2003, was 4,983,970.


MEDTOX SCIENTIFIC, INC.

INDEX


Page
Part I        Financial Information:  
 
                  Item 1: Financial Statements (Unaudited)
 
                           Consolidated Statements of Operations - Three and Nine
                           Months Ended September 30, 2003 and 2002 3 
 
                           Consolidated Balance Sheets - September 30, 2003
                           and December 31, 2002 4 
 
                           Consolidated Statements of Cash Flows - Nine
                           Months Ended September 30, 2003 and 2002 5 
 
                           Notes to Consolidated Financial Statements 6 
 
                  Item 2:
 
                           Management's Discussion and Analysis of
                           Financial Condition and Results of Operations 12 
 
                  Item 3:
 
                           Quantitative and Qualitative Disclosure
                           About Market Risk 24 
 
                  Item 4:
 
                           Controls and Procedures 24 
 
Part II       Other Information 25 
 
                  Item 1: Legal Proceedings 25 
                  Item 2: Changes in Securities 25 
                  Item 3: Defaults Upon Senior Securities 25 
                  Item 4: Submission of Matters to a Vote of Securities Holders 25 
                  Item 5: Other Information 25 
                  Item 6: Exhibits and Reports on Form 8-K 25 
 
                           Signatures 26 
                           Exhibit Index 27 

2


PART I     FINANCIAL INFORMATION
Item 1:      FINANCIAL STATEMENTS (UNAUDITED)

MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2003
 2002
 2003
 2002
REVENUES:                    
   Laboratory services   $ 10,391   $ 10,562   $ 30,010   $ 30,439  
   Product sales    3,177    3,070    9,186    9,462  
     13,568    13,632    39,196    39,901  
COST OF REVENUES:  
  Cost of services    6,804    7,104    20,006    20,184  
  Cost of sales    1,304    1,178    3,925    3,539  
     8,108    8,282    23,931    23,723  
   
GROSS PROFIT    5,460    5,350    15,265    16,178  
   
OPERATING EXPENSES:  
   Selling, general and administrative    4,157    4,137    12,878    12,152  
   Research and development    401    327    1,233    905  
     4,558    4,464    14,111    13,057  
   
INCOME FROM OPERATIONS    902    886    1,154    3,121  
   
OTHER INCOME (EXPENSE):  
   Interest expense, net    (281 )  (332 )  (876 )  (1,025 )
   Other expense, net    (129 )  (17 )  (363 )  (66 )
     (410 )  (349 )  (1,239 )  (1,091 )
INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT    492    537    (85 )  2,030  
   
INCOME TAX (EXPENSE) BENEFIT    (109 )  10,783    15    10,783  
NET INCOME (LOSS)   $ 383   $ 11,320   $ (70 ) $ 12,813  
BASIC EARNINGS (LOSS) PER COMMON SHARE   $ 0.08   $ 2.36   $ (0.01 ) $ 2.67  
DILUTED EARNINGS (LOSS) PER COMMON SHARE   $ 0.08   $ 2.27   $ (0.01 ) $ 2.55  
WEIGHTED AVERAGE NUMBER OF SHARES  
   OUTSTANDING:  
          Basic    4,949,336    4,804,106    4,937,937    4,793,793  
          Diluted    5,057,238    4,988,958    4,937,937    5,029,818  

See Notes to Consolidated Financial Statements (Unaudited).

3

MEDTOX SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)


September 30,
2003
 December 31,
2002
ASSETS            
CURRENT ASSETS:  
   Cash and cash equivalents   $ 568   $ 439  
   Accounts receivable:  
        Trade, less allowance for doubtful accounts ($571 in 2003 and $1,125 in 2002)    8,881    9,155  
        Other    214    243  
             Total accounts receivable    9,095    9,398  
   Inventories    3,535    4,395  
   Deferred income taxes    964    849  
   Prepaid expenses and other    956    1,169  
             Total current assets    15,118    16,250  
BUILDING, EQUIPMENT AND IMPROVEMENTS, net    15,270    14,769  
GOODWILL    15,967    15,967  
OTHER INTANGIBLE ASSETS, net    1,892    2,218  
DEFERRED INCOME TAXES, net    8,373    8,488  
OTHER ASSETS    216    363  
TOTAL ASSETS   $ 56,836   $ 58,055  
LIABILITIES AND STOCKHOLDERS' EQUITY   
CURRENT LIABILITIES:  
   Line of credit   $ 5,096   $ 4,345  
   Accounts payable    2,109    3,966  
   Accrued expenses    3,308    3,485  
   Current portion of long-term debt    2,063    2,285  
   Current portion of capital leases    66    83  
             Total current liabilities    12,642    14,164  
LONG-TERM DEBT, net of current portion    8,805    8,822  
LONG-TERM PORTION OF CAPITAL LEASES, net of current portion    136    185  
STOCKHOLDERS' EQUITY:  
   Preferred stock, $1.00 par value; authorized shares, 50,000; none issued and    --    --  
         outstanding
   Common stock, $0.15 par value; authorized shares, 14,400,000; issued and  
         outstanding shares, 4,985,502 in 2003 and 4,814,001 in 2002    748    722  
   Additional paid-in capital    81,729    80,699  
   Deferred stock-based compensation    (1,114 )  (498 )
   Accumulated deficit    (45,934 )  (45,863 )
   Treasury stock    (176 )  (176 )
             Total stockholders' equity    35,253    34,884  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 56,836   $ 58,055  

See Notes to Consolidated Financial Statements (Unaudited).

4


MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


Nine Months Ended
September 30,
2003
 2002
CASH FLOWS FROM OPERATING ACTIVITIES:            
   Net income (loss)   $ (70 ) $ 12,813  
   Adjustments to reconcile net income (loss) to net cash provided by  
         operating activities:  
      Depreciation and amortization    2,124    1,858  
      Provision for losses on accounts receivable    566    313  
      Deferred compensation    396    254  
      Deferred income taxes    --    (10,783 )
      Changes in operating assets and liabilities:  
         Accounts receivable    (263 )  (2,422 )
         Inventories    860    25  
         Prepaid expenses and other current assets    213    280  
         Other assets    97    (2 )
         Accounts payable and accrued expenses    (2,034 )  179  
                Net cash provided by operating activities    1,889    2,515  
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
    Capital expenditures    (2,136 )  (3,163 )
    
CASH FLOWS FROM FINANCING ACTIVITIES:   
    Net proceeds from sale of common stock    44    136  
    Net proceeds on revolving credit facility    751    2,152  
    Proceeds from long-term debt    1,641    1,128  
    Principal payments on long-term debt    (1,994 )  (1,867 )
    Principal payments on capital leases    (66 )  (182 )
    Proceeds from note receivable from related party    --    103  
              Net cash provided by financing activities    376    1,470  
INCREASE IN CASH AND CASH EQUIVALENTS    129    822  
    
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD    439    67  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 568   $ 889  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  
   Cash paid for:  
          Interest   $ 846   $ 971  

See Notes to Consolidated Financial Statements (Unaudited).

5


MEDTOX SCIENTIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2003

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 nine-month period ended September 30, 2003 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, 2002.

Stock-Based Compensation — Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” requires companies to measure employee stock compensation plans and non-employee stock-based compensation based on the fair value method of accounting. However, for stock compensation granted to employees, SFAS No. 123 allows the alternative of continued use of Accounting Principles Board Opinion (APBO) No. 25, “Accounting for Stock Issued to Employees,” with pro forma disclosure of net income and earnings per share determined as if the fair value method had been applied in measuring compensation cost. The Company elected the continued use of APBO No. 25.

Had the Company determined compensation expense based on the fair value at the grant date for its stock options under SFAS No. 123, (as amended by SFAS No.148), the Company’s net income (loss) and earnings (loss) per share would have been changed to the pro forma amounts indicated below:

(In thousands, except per share data)


Three Months Ended
September 30,		 Nine Months Ended
September 30,
2003
 2002
 2003
 2002
Net income (loss)......................................     As reported     $ 383   $ 11,320   $ (70 ) $ 12,813  
    Less: Total stock-based compensation  
     expense, net of related tax effect        (154 )  (144 )  (462 )  (445 )
    Pro forma    229    11,176    (532 )  12,368  
   
Basic earnings (loss) per share..............   As reported   $0.08   $2.36