Still testing the waters.

• Author: Donsky, Martin
• Position: Environmental Diagnostics - Company profile

STILL TESTING THE WATERS

Readers who picked up the Jan. 9, 1989, issue of Barron's got a good dose of it. There, on page 42, was a paid advertisement in which the president of Environmental Diagnostics predicted a banner year.

"We are more confident than ever," James Skinner said, "that our recently released 1989 revenue projection of $8 [million] to $9 million and earnings projection of approximately $1 million will be achieved."

Three weeks later, in the same corporate advertising section of the same publication, the company was at it again. This time, Environmental Diagnostics announced a deal with a major consumer-products company - Tambrands - to develop an over-the-counter cholesterol test.

In that announcement, the Burlington-based company reported it had signed distribution agreements for its products that would produce "in excess of $25 million over the next 2-3 years."

Nice, big numbers - $8 million, $9 million, $25 million.

But Environmental Diagnostics didn't make a dime in 1989. On the contrary, it lost a bundle, as it did in 1988, 1987 and every year since it was formed in 1983. Last year alone, operating losses totaled $3.6 million on revenues of about $2.8 million. And revenues in 1989 were little more than in the previous year.

January saw a new round of positive announcements. And in April, the company made Inc. magazine's list of the fastest-growing publicly held companies - a list that is based on revenue figures. Still, 1990 is not likely to be much better than 1989. The company concedes it has yet to line up a major domestic distributor for the product it hoped would turn Environmental Diagnostics into a big winner - easy-to-use tests for marijuana, cocaine and other drug use.

The Tambrands deal is in limbo, and a $1 million line of credit offered by NCNB - also trumpeted as significant news by Environmental Diagnostics - was quietly cut in half after loan officers realized that reality and expectation were far apart.

"This is not a doom-and-gloom situation, although it's not rosy," says Chairman Samuel Powell, a member of a prominent Alamance County family whose patriarch founded Carolina Biological Supply, a major supplier of animals, skeletons and other biological specimens.

At best, Environmental Diagnostics is a well-meaning company that simply hasn't figured out how to sell a product that, at first glance, seems tailor-made for a nation whose president has made fighting drug abuse a top priority.

"They can't market their product worth a damn," says one stockbroker who regularly trades Environmental Diagnostics' shares.

Company executives say they are still searching to find the right markets. They say its small size has made marketing difficult. They don't have the firepower - money, people and sales contacts - to turn the EZ-SCREEN test into a household name.

"There are a lot of uses for our tests," says Powell...