SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ý ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) |
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For the fiscal year ended December 31, 2002 |
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o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE |
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Commission file number 1-11394 |
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MEDTOX SCIENTIFIC, INC. |
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(Exact name of Registrant as specified in its charter) |
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Delaware |
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95-3863205 |
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(State or other
jurisdiction of |
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(I.R.S. Employer |
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402 West County Road D, St. Paul, Minnesota |
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55112 |
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: (651) 636-7466 |
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Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $.15 per share |
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(Title of Class) |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes o No ý
The aggregate market value of Common Stock of the Registrant, $.15 par value (“Common Stock”), held by non-affiliates of the Registrant was approximately $41,426,000 as of June 28, 2002 (the last business day of the Registrant’s most recently completed second quarter), based upon a price of $10.31 which price was equal to the closing price for the Common Stock on the American Stock Exchange.
The number of shares of Common Stock outstanding as of March 24, 2003, was 4,921,212.
MEDTOX SCIENTIFIC, INC.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2002
Table of Contents
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CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER
FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, readers of this document and any document incorporated by reference herein, are advised that this document and documents incorporated by reference into this document contain both statements of historical facts and forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the forward- looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of the plans and objectives of the Company or its management or Board of Directors, including the introduction of new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about the Company or its business.
This document and any documents incorporated by reference herein also identify important factors which could cause actual results to differ materially from those indicated by the forward-looking statements. These risks and uncertainties include price competition, the decisions of customers, the actions of competitors, the effects of government regulation, possible delays in the introduction of new products, customer acceptance of products and services, and other factors which are described herein and/or in documents incorporated by reference herein.
The cautionary statements made pursuant to the Private Litigation Securities Reform Act of 1995 above and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of such Act. Forward- looking statements are beyond the ability of the Company to control, and in many cases the Company cannot predict what factors would cause results to differ materially from those indicated by the forward- looking statements.
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ITEM 1. BUSINESS.
1. General.
MEDTOX Scientific, Inc. (formerly EDITEK, Inc.), a Delaware corporation, was organized in September 1986 to succeed the operations of a predecessor California corporation. MEDTOX Scientific, Inc. and its subsidiaries, MEDTOX Laboratories, Inc., MEDTOX Diagnostics, Inc., and New Brighton Business Center, LLC are referred to herein as “the Company.” The Company is engaged primarily in two distinct, but very much related businesses. The business of forensic and clinical laboratory services is conducted by MEDTOX Laboratories, Inc. at its facility in St. Paul, Minnesota, and the business of manufacturing and distribution of diagnostic devices is executed by MEDTOX Diagnostics, Inc. from its facility in Burlington, North Carolina. For the year ended December 31, 2002, sales from the forensic and clinical laboratory services conducted by MEDTOX Laboratories, Inc. accounted for 76% of the Company’s revenues. Revenue from the manufacture and distribution of diagnostic devices and other similar products, including some contract manufacturing conducted by MEDTOX Diagnostics, Inc., accounted for 24% of the total revenues of the Company for the year ended December 31, 2002.
2. Principal Services, Products, and Markets.
General. The Company has two reportable segments: “Laboratory Services” conducted by the Company’s wholly owned subsidiaries, MEDTOX Laboratories, Inc. and New Brighton Business Center, LLC and “Products Sales” conducted by the Company’s wholly owned subsidiary MEDTOX Diagnostics, Inc. Laboratory Services include forensic toxicology, clinical toxicology, clinical testing for the pharmaceutical industry (central laboratory services, bioanalytical and pharmacokinetic testing), and analysis of heavy and trace metals. In addition, the Laboratory Services segment provides logistical support, data management and overall program management services. Product Sales include sales of a variety of on-site screening products and contract manufacturing. For financial information relating to the Company’s segments, see Note 2 of Notes to the Consolidated Financial Statements.
Laboratory Services
A. Employment Drug Testing Laboratory Services. The primary source of revenue for the Company is derived from the provision of laboratory testing services for the identification of drugs of abuse. These tests are conducted using methodologies that include various immunoassays, gas liquid chromatography, gas chromatography/mass spectrometry and high performance liquid chromatography with tandem mass spectrometry (LC/MS/MS). MEDTOX Laboratories, Inc. was one of the charter laboratories to be certified by the federal government to perform drug testing of employees covered by the Federal Workplace Drug Testing Guidelines. The Company pioneered security and chain of custody procedures, including sample bar coding and automated sample handling as well as specific confirmation methods that assist in maintaining specimen integrity and the accuracy and confidentiality of test results.
The Company’s customers for substance abuse testing include public and private corporations. In addition to public and private corporations, substance abuse testing is also conducted on behalf of service firms such as drug treatment counseling centers, occupational health clinics, third party administrators and hospitals.
B. Clinical Toxicology. The Company has a fully certified clinical toxicology reference laboratory specializing in esoteric therapeutic drug monitoring and emergency toxicology. The tests performed in the clinical laboratory are conducted using methodologies such as various immunoassays, gas liquid chromatography, high performance liquid chromatography, gas chromatography/mass spectrometry and tandem mass spectrometry. The Company performs analytical testing for a wide variety of drug classes including: analgesic, antianxiety, anticholinergic, anticoagulant, anticonvulsant, antidepressant, antidiabetic, antiemetic, antihistamine, antiinflammatory, antimicrobial,
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antipsychotic, bronchodilator, cardiovascular, stimulant, decongestant, immunosuppressant, local anesthetic, muscle relaxant, narcotic analgesic, and sedative medications.
The Company’s clients for this market consist of hospitals, clinics and other laboratories. Laboratory specimens are delivered to the Company from clients throughout the country by the Company’s own couriers, contracted delivery services and commercial overnight couriers.
C. Clinical Testing for the Pharmaceutical Industry. The Company provides laboratory testing for Phase I-IV clinical trials, including general laboratory services, assay development, bio-analytical and pharmacokinetic testing. These tests are performed in the Company’s clinical and GLP- bioanalytical laboratories and are conducted using methodologies such as immunoassay, gas chromatography, high performance liquid chromatography, gas chromatography/mass spectrometry and tandem mass spectrometry.
The Company’s clients for this market are clinical trial sponsors (Pharmaceutical and Biotech Companies), Clinical Research Organizations (CRO’s), Site Management Organizations, and Clinical Trials sites.
D. Heavy Metal, Trace Element, and Solvent Analyses. The Company operates a laboratory in which blood and urine are tested for heavy metals, trace elements, and solvents. The tests are performed using methodologies such as inductively coupled plasma-mass spectrometry, and head space-gas chromatography.
The Company’s clients for this market are other laboratories, occupational health clinics, companies that are required to comply with OSHA guidelines for monitoring occupational exposure to hazardous materials, and pediatricians who test children for exposure to lead.
E. Logistics, Data, and Program Management Services. The Company also provides services in the areas of logistics management, data management, and program management. These services support the Company’s underlying business of laboratory analysis and provide added value to its clients. Value-added services include courier services for medical specimen transportation, management programs for laboratory-based and on-site drug testing, coordination of specimen collection sites, and data collection/reporting services including the use of our WEBTOX internet-based reporting system.
Product Sales
The Company has taken a leadership role in the development and distribution of diagnostic drug screening devices. The demand for fast, inexpensive screening technology that detects the presence of a number of substances in human urine, blood samples and other biological specimens continues to increase.
In 2001, the Company brought to market the seven-panel PROFILE®-II and the PROFILE®-II LFAS, a five-panel device with an “on-board” lateral flow adulteration strip. The adulteration strip tests for pH, specific gravity, gluteraldehyde, nitrites and a variety of oxidants.
In July 2000, the Company filed a 510(k) with the FDA for an additional test strip that includes benzodiazepines, barbiturates, methadone and TCA (tricyclic antidepressants). The Company received pre-marketing approval for this strip in early 2001, incorporated this test strip with the PROFILE®-II test strip, and created the PROFILE®-II ER, a dual-window device that can test for nine substances in a single device. The PROFILE®-II ER is marketed primarily to hospital laboratories.
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In 1998, the Company received FDA 510(k) clearance on the first of its second-generation on-site test products, PROFILE®-II. PROFILE®-II is a five-drug, lateral flow device that detects drugs-of-abuse in human urine. This single-step, immunoassay device has been combined with the Company’s data delivery system and laboratory confirmation capability to produce the PROFILE®-II Test System. This integrated, on-site testing system is currently marketed to occupational health clinics, corporate clients, third party administrators, and drug abuse counseling and treatment centers.
The Company also manufactures and distributes the VERDICT®-II line of diagnostic drug screening products within the criminal justice, temporary service and drug rehabilitation markets. These devices are sold in multiple assay configurations, providing clients with flexibility in terms of drug panel options and potential cost savings.
The Company continues to market the EZ-SCREEN® tests. These tests are qualitative assays utilized in agricultural diagnostics to detect mycotoxins and antibiotic residues. Mycotoxins are hazardous substances produced by fungal growth and frequently contaminate corn, wheat, rye, barley, peanuts, tree nuts, cottonseed, milk, rice, and livestock feeds. The EZ-SCREEN® agridiagnostic tests are marketed to regulatory authorities and producers of foodstuffs and feeds.
The Company distributes diagnostic tests for the detection of alcohol with the EZ-SCREEN® Breath Alcohol Test. The test consists of a small tube containing chemically treated crystals that change color in the presence of alcohol. The Company purchases the EZ-SCREEN® Breath Alcohol Test through a distribution agreement.
3. Marketing and Sales.
The Company believes that the combined operations of the Laboratory Services business and the on-site test kits manufactured by the Product Sales segment have created synergy in the marketing of comprehensive, on-site and laboratory testing programs to a common customer base. The Company is in a position to offer a full line of products and services for the substance abuse testing and occupational medicine marketplace, including (1) on-site tests for the detection of substance of abuse drugs; (2) SAMHSA (Substance Abuse Mental Health Services Administration) certified laboratory testing (screening and confirmation); (3) biological monitoring of occupational toxins; (4) consultation; and (5) logistic, data management and program management services.
The Company has expanded its sales effort in the pharmaceutical market by offering testing services for Phase I-IV clinical trials and working with sponsors and Contract Research Organizations (CROs) on assay development and bio-analytical and pharmacokinetic studies. In addition, the Company has begun to market clinical chemistry testing services to clinics, hospitals and physician offices on a regional basis. With the acquisition of Leadtech in October 2001, the Company expanded its presence in the pediatric lead testing market.
Major Customers. The Company had no single customer whose sales amounted to more than 10% of consolidated revenues during the year ended December 31, 2002.
4. New Products, Research and Development.
Laboratory Services. The research and development group for Laboratory Services develops assays for new drugs and compounds, develops new assays for existing drugs and other toxins, and improves existing assays with the goal of improving assay robustness, sensitivity, accuracy, precision, specificity, and efficiency. This group also investigates and develops assays for commonly tested compounds in alternative matrices and novel formats. Numerous new laboratory-based assays were developed during 2002 using immunochemistry, liquid chromatography (LC), gas chromatography (GC), gas chromatography with mass spectrometry (GC/MS), inductively coupled plasma mass spectrometry (ICP/MS), and LC with tandem mass spectrometry (LC/MS/MS). These activities continue to enhance the
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Company’s test menu and realize efficiencies of new technologies. A significant effort in 2002 was invested in the development of new tests and markers for the pharmaceutical industry and clinical trials.
The clinical toxicology laboratory menu was further expanded in 2002 to encompass additional diagnostic testing focused in specific areas such as bone metabolism and renal disease. These new tests are offered both as a part of the routine test menu and as an adjunct to clinical trials testing. Significant effort was also expended on the continued transfer of current technology to state of the art LC/MS/MS methodology. Development of multi-component assays with enhanced sensitivity and specificity continues to improve the efficiency and strengthen the market position of this core business unit.
Product Sales.
The Company continues to develop new and innovative products and services while expanding its test menu to meet the demands of both the drug testing and clinical markets. In 2002, the Company expanded the number of diagnostic product configurations to a total of 47, and added new device configurations to the ER, corporate and government markets.
Research and Development Expenses. The Company incurred costs of $1.2 million, $1.3 million, and $1.1 million for research and development activities in 2002, 2001, and 2000, respectively.
5. Raw Materials.
Laboratory Services. The raw materials required by the laboratory for urine drug testing consist primarily of two types: specimen collection supplies and reagents for laboratory analysis. The collection supplies include drug testing custody and control forms that identify the specimen and the client, as well as document the chain-of-custody. Collection supplies also consist of specimen bottles and shipping supplies. Reagents for drug testing are primarily immunoassay screening products and various chemicals used for confirmation testing. The Company believes all of these materials are available at competitive prices from numerous suppliers.
Product Sales. The primary raw materials required for the immunoassay-based test kits produced by the Company consist of antibodies, antigens and other reagents, plastic molded devices, wicking materials, filter materials, absorbent materials, and packaging materials. The Company maintains an inventory of raw materials which, to date, has been acquired primarily from third parties. Currently, most raw materials are available from several sources. The Company possesses the technical capability to produce its own antibodies and antigens. It has initiated production of antibodies and antigens for certain tests. If the Company were to change certain raw materials used in a specific test, additional development, validation, and accompanying costs, may be required to adapt the alternate material to the specific diagnostic test.
6. Patents, Trademarks, Licensing and Other Proprietary Information.
Laboratory Services. The Company believes that the basic technologies requisite to the production of antibodies are in the public domain and are not patentable. The Company intends to rely upon trade secret protection of certain proprietary information, rather than patents, where it believes disclosure could cause the Company to be vulnerable to competitors that could successfully replicate the Company’s production and manufacturing techniques and processes.
Product Sales. The Company was issued a patent on the system that it developed which integrates on-site scientific analysis with state-of-the-art data collection and delivery. The system is currently being utilized with the Company’s PROFILE®-II and VERDICT®-II products.
The Company holds nine issued United States patents, with eight relating to on-site testing technology. Seven of these patents generally form the basis for the EZ-SCREEN® and one-step
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technologies, which include PROFILE®-II and VERDICT®-II products. The other patent relates to methods of utilizing whole blood as a sample medium on its immunoassay devices. Applications have also been made for additional patents.
Of the seven U.S. patents mentioned above which generally form the basis for the EZ-SCREEN® and one-step technologies, one expires in 2004, two expire in 2007, one expires in 2009, two expire in 2010 and one expires in 2013. The patent relating to the methods of utilizing whole blood as a sample medium expires in 2012.
There can be no guarantee that there will not be a challenge to the validity of one or more of the patents. In the event of such a challenge, the Company might be required to spend significant funds to defend its patents, and there can be no assurance that the Company would be successful in any such action.
General. As of December 31, 2002, the Company held 12 registered trade names and/or trademarks in reference to its products and corporate names. The trade names and/or trademarks of the Company range in duration from 10 years to 20 years with expiration dates ranging from 2003 to 2009. Applications have also been made for additional trade names.
7. Seasonality.
Laboratory Services. 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 summer months, 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 flow.
Product Sales. The Company does not believe that seasonality is a significant factor in the sale of its on-site immunoassay testing devices.
8. Backlog.
Laboratory Services. There exists a delay in recognition of revenues when setting up new accounts for Laboratory Services. The time from when an account becomes a client of the Company to the time the laboratory starts receiving specimens may be up to four months. The delay in receiving samples is primarily due to the necessity of establishing communication capabilities between the client and the Company, the requirement to ship out collection kits and forms, and the establishment of a collection site network. At December 31, 2002, the Company had several accounts which were in the process of being set up where revenues are not expected to be realized until 2003.
Product Sales. At December 31, 2002, MEDTOX Diagnostics, Inc. did not have any significant backlog. The Company does not believe that sales backlog is a significant factor in the Product Sales segment of its business.
9. Competition.
Laboratory Services. As of December 31, 2002, 56 labs, including MEDTOX Laboratories, Inc., were certified by the Department of Health and Human Services as having met the standards for Subpart C of Mandatory Guidelines for Federal Workplace Drug Testing Programs (59 FR 29916, 29925). Competitors and potential competitors include forensic testing units of large clinical laboratories and other independent laboratories, specialized laboratories, and in-house testing facilities maintained by hospitals.
Competitive factors include reliability and accuracy of tests, price structure, service, transportation and collection networks and the ability to establish relationships with hospitals, physicians,
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and users of drug abuse testing programs. It should be recognized, however, that many of the competitors and potential competitors have substantially greater financial and other resources than the Company.
The industry in which the Company competes is characterized by service issues including: turn-around time of reporting results, price, the quality and reliability of results, and an absence of patents or other proprietary protection. In addition, since tests performed by the Company are not protected by patents or other proprietary rights, any of these tests could be performed by competitors. However, there are proprietary assay protocols for the more specialized testing that are unique to the Company.
The Company’s ability to successfully compete in the future and maintain its margins will be based on its ability to maintain its quality and customer service strength while maintaining efficiencies and low operating costs. There can be no assurance that price competitiveness will not increase in importance as a competitive factor in the laboratory testing business.
Product Sales. The diagnostics market has become highly competitive with respect to the price, quality and ease of use of various tests, and is characterized by rapid technological and regulatory changes. The Company has designed its on-site tests as inexpensive and for use by unskilled personnel, and has not endeavored to compete with laboratory-based systems. Numerous large companies with greater research and development, marketing, financial, and other capabilities, as well as smaller research firms, are engaged in research, development and marketing of diagnostic assays for application in the areas for which the Company produces its products.
The Company has experienced increased competition with respect to its immunoassay tests from systems and products developed by others, many of whom compete solely on price. As the number of firms marketing diagnostic tests has grown, the Company has experienced increased price competition. A further increase in competition may have a material adverse effect on the business and future financial prospects of the Company.
10. Government Regulations.
The products and services of the Company are subject to the regulations of a number of governmental agencies as listed below. It is believed that the Company is currently in compliance with all regulatory authorities. The Company cannot predict whether future changes in governmental regulations might significantly increase compliance costs or adversely affect the time or cost required to develop and introduce new products.
1. Substance Abuse and Mental Health Services Administration (SAMHSA). MEDTOX Laboratories, Inc. has been certified by SAMHSA since 1988. SAMHSA certifies laboratories meeting strict standards under Subpart C of Mandatory Guidelines for Federal Workplace Drug Testing Programs. Continued certification is accomplished through periodic inspection by SAMHSA to assure compliance with applicable regulations.
2. Food and Drug Administration (FDA). Certain tests for human diagnostic purposes must be cleared by the FDA prior to their marketing for in vitro diagnostic use in the United States. The FDA regulated products produced by the Company are in vitro diagnostic products subject to FDA clearance through the 510(k) process which requires the submission of information and data to the FDA that demonstrates that the device to be marketed is substantially equivalent to a currently marketed device. This data is generated by performing clinical studies comparing the results obtained using the Company’s device to those obtained using an existing test product. Although no maximum statutory response time has been set for review of a 510(k) submission, as a matter of policy the FDA has attempted to complete review of 510(k) submissions within 90 days. To date, the Company has received 510(k) clearance for 1816 different products. Products subject to 510(k) regulations may not be marketed for in vitro diagnostic use until the FDA issues a letter stating that a finding of substantial equivalence has been made.
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As a registered manufacturer of FDA regulated products, the Company is subject to a variety of FDA regulations including the Good Manufacturing Practices (GMP) regulations which define the conditions under which FDA regulated products are to be produced. These regulations are enforced by FDA and failure to comply with GMP or other FDA regulations can result in the delay of pre-market product reviews, fines, civil penalties, recalls, seizures, injunctions and criminal prosecution.
As an accredited laboratory performing testing for clinical trials, the laboratory is subject to FDA regulations including Good Laboratory Practices (GLP) and related requirements.
3. Centers for Medicare and Medicaid Services (CMS) formerly Health Care Financing Administration (HCFA). The Clinical Laboratory Improvement Act (CLIA) introduced in 1992 requires that all in vitro diagnostic products be categorized as to level of complexity. A request for CLIA categorization of any new clinical laboratory test system must be made simultaneously with FDA 510(k) submission. The EZ-SCREEN®, PROFILE®, PROFILE® II, VERDICT® and VERDICT® II drugs of abuse tests currently marketed by MEDTOX Diagnostics, Inc. have been categorized as moderately complex. The complexity category to which a clinical laboratory test system is assigned may limit the number of laboratories qualified to use the test system thus impacting product sales. MEDTOX Laboratories, Inc. is a CLIA licensed high complexity laboratory and is accredited by the College of American Pathologists (CAP).
4. Drug Enforcement Administration (DEA). The primary business of the Company involves either testing for drugs of abuse or developing test kits for the detection of drugs/drug metabolites in urine. MEDTOX Laboratories, Inc. is registered with the DEA to conduct chemical analyses with controlled substances. The MEDTOX Diagnostics, Inc. facility in Burlington, N.C. is registered by the DEA to manufacture and distribute controlled substances and to conduct research with controlled substances. Maintenance of these registrations requires that the Company comply with applicable DEA regulations.
5. Additional Laboratory Regulations. The laboratories of MEDTOX Laboratories, Inc. and certain of its laboratory personnel are licensed or otherwise regulated by certain federal agencies, states, and localities in which it conducts business. Federal, state and local laws and regulations require MEDTOX Laboratories, Inc., among other things, to meet standards governing the qualifications of laboratory owners and personnel, as well as the maintenance of proper records, facilities, equipment, test materials, and quality control programs. In addition, the laboratories are subject to a number of other federal, state, and local requirements that provide for inspection of laboratory facilities and participation in proficiency testing, as well as govern the transportation, packaging, and labeling of specimens tested by either laboratory. The laboratories are also subject to laws and regulations prohibiting the unlawful rebate of fees and limiting the manner in which business may be solicited. As applicable federal and state regulations become final and effective it is the Company’s policy to be in compliance with these laws, such as the HIPAA Final Privacy Rule safeguarding the privacy and confidentiality of patient’s protected health information.
The laboratory receives and uses small quantities of hazardous chemicals and radioactive materials in its operations and is licensed to handle and dispose of such chemicals and materials. Any business handling or disposing of hazardous and radioactive waste is subject to potential liabilities under certain of these laws.
11. Product and Professional Liability.
Laboratory Services. The Company’s laboratory testing services are primarily diagnostic and expose the Company to the risk of liability claims. The Company’s laboratories have maintained continuous professional and general liability insurance since 1984. The insurance policy covers those amounts the Company is legally obligated to pay for damages resulting from a medical incident, which arises out of a failure to render professional services. To date, the Company has not paid any
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material dollar amounts for claims of this type and no material professional service claims are currently pending.
Product Sales. Manufacturing and marketing of products by the Company entail a risk of product liability claims. Since 1993, the Company has maintained insurance coverage against the risk of product liability arising out of events after such date, but such insurance does not cover claims made after that date based on events that occurred prior to that date. The insurance policy covers damages that the Company is legally obligated to pay as a result from bodily injury and property damage. Consequently, for uncovered claims, the Company could be required to pay any and all costs associated with any product liability claims brought against it, the cost of defense whatever the outcome of the action, and possible settlement or damages if a court rendered a judgment in favor of any plaintiff asserting such a claim against the Company. Damages may include punitive damages, which may substantially exceed actual damages. The obligation to pay such damages could have a material adverse effect on the Company and exceed its ability to pay such damages. No product liability claims are pending.
12. Employees.
As of December 31, 2002, the Company had a total of 473 full-time employee equivalents as compared to 455 full-time employee equivalents at December 31, 2001. Of the 473 employees, 414 work for MEDTOX Laboratories, Inc., while the remaining 59 work for MEDTOX Diagnostics, Inc.
The Company’s employees are not covered by any collective bargaining agreements and the Company has not experienced any work stoppages. The Company believes that it maintains good relations with its employees.
ITEM 2. PROPERTIES.
The administrative offices and laboratory operations for the Laboratory Services segment of the Company’s business are located primarily in a 53,576 square foot facility in St. Paul, Minnesota. Until March 16, 2001, the Company leased this space. On March 16, 2001 the Company purchased the entire three building complex with a total of 129,039 square feet, which included the 53,576 square feet utilized by the Company’s Laboratory Services segment. The purchasing entity was New Brighton Business Center LLC, a wholly owned limited liability company, established by the Company for the sole purpose of purchasing the entire three building complex. The facility includes other commercial tenants that have individual leases that range from three years to less than one year in duration. In 2002, the annual rent paid by such third-party tenants, excluding their pro-rata share of operating expenses, was approximately $669,000. In addition, effective September 1, 2001, the Laboratory Services segment entered into a seven-year lease for 30,000 square feet to be used in connection with its courier business and also as additional warehouse and shipping space. This building is a special purpose facility and enables the Company to store its vehicles indoors, when appropriate, and to perform routine maintenance of the vehicles. The annual base rent on this second facility, exclusive of operating expenses is currently $132,000 per year.
The operations for the Product Sales segment of the Company’s business are located in Burlington, North Carolina where the Company maintains the offices, research and development laboratories, production operations, and warehouse for MEDTOX Diagnostics, Inc. In March 2001, the Company entered into a 10-year lease of the entire building (approximately 39,500 square feet) for an annual base rent of $197,000, exclusive of operating expenses. Effective February 1, 2003, the Company entered a month-to-month lease for an additional 30,000 square feet of space located in an adjacent building. The additional space will be used for warehousing and distribution and has monthly base rent of $9,400 exclusive of operating expenses. The Company intends to convert the month-to-month lease to a long-term lease within the next several months.
The Burlington facilities have always been owned and leased to the Company by Dr. Samuel C. Powell, a member of the Board of Directors of the Company.
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The Company believes it is renting these facilities in Burlington on terms as favorable as those available from third parties for equivalent premises.
The Company believes that its existing facilities are adequate for the purposes being used to accommodate its product development, and manufacturing and laboratory testing requirements.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report.
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ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Common Stock
Since September 27, 1993, the Company’s common stock has been listed on the American Stock Exchange and is currently trading under the symbol “TOX”. As of March 24, 2003, the number of holders of record of the Common Stock was 2,207. The following tables set forth, for the calendar quarters indicated, the high, low, and closing prices per share for the common stock, as reported by the American Stock Exchange. The quotations shown represent inter dealer prices without adjustment for retail markups, markdowns or commissions, do not necessarily reflect actual transactions, and have been adjusted for the 10% stock dividends paid on July 5, 2002 and November 9, 2001.
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High |
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Low |
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Close* |
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2002: |
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First Quarter |
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$ |
11.36 |
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$ |
8.64 |
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$ |
9.45 |
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Second Quarter |
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12.10 |
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9.45 |
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10.31 |
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Third Quarter |
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10.45 |
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6.70 |
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7.25 |
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Fourth Quarter |
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8.40 |
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5.06 |
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6.61 |
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2001: |
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First Quarter |
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$ |
7.44 |
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$ |
4.85 |
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