<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1996
------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 33-29718
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SUBSTANCE ABUSE TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE #22-2806310
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10410 TRADEMARK STREET, RANCHO CUCAMONGA, CALIFORNIA 91730
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(Address of Principal Executive Offices) (Zip Code)
(909) 466-8378
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Registrant's Telephone Number, Including Area Code
U.S. ALCOHOL TESTING OF AMERICA, INC.
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(Former name, former address and former fiscal year, if changed since last
report.)
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. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
As of August 1, 1996 - Common Stock, $.01 Par Value, - 35,353,092 shares
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SUBSTANCE ABUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,441,964 $ 1,204,646
Accounts Receivable (Net of Allowances For Bad Debts of
$113,903 at June 30, 1996 and $112,490 at March 31, 1996 480,717 278,874
Other Receivables 301,750 1,850
Inventories 823,663 681,839
Prepaid Expenses 877,385 253,787
Current Assets of Discontinued Operations, Net 113,327 256,654
------------ ------------
Total Current Assets 4,038,806 2,677,650
Property and Equipment (Net of Accumulated Depreciation
of $2,046,802 at June 30, 1996 and $1,845,015 at March 31, 1996) 2,561,836 2,691,979
Non Current Assets of Discontinued Operations 24,524 307,868
Intangible Assets 6,024,676 858,343
------------ ------------
Total Assets $ 12,649,842 $ 6,535,840
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 400,000 $ --
Accounts Payable 432,147 487,320
Accrued Expenses and Taxes 466,061 468,150
Current Portion of Long-Term Debt 48,792 29,395
Preferred Stock Dividend Payable 14,405 7,202
------------ ------------
Total Current Liabilities 1,361,405 992,067
Long -Term Debt - Net of Current Portion 17,367 32,935
------------ ------------
Total Liabilities 1,378,772 1,025,002
Minority Interest 1,361,038 1,478,508
Stockholders' Equity:
Preferred Stock Class "A", $.01 Par Value, 500,000 Shares Authorized, Issued
and Outstanding 41,157 Shares at June 30, 1996 and March 31, 1996
(Liquidation Preference of $205,785 at June 30, 1996 and March 31, 1996) 412 412
Preferred Stock Class "B", $.01 Par Value, 1,500,000 Shares Authorized,
Issued and Outstanding -0- Shares at June 30, 1996 and March 31, 1996
Common Stock, $.01 Par Value, 50,000,000 Shares Authorized, Issued and
Outstanding 35,353,092 Shares at June 30, 1996 and 32,480,000 at March 31, 1996 355,831 324,800
Additional Paid-In Capital 53,057,295 45,176,619
Accumulated Deficit (43,503,506) (41,469,501)
------------ ------------
Total Stockholders' Equity 9,910,032 4,032,330
------------ ------------
Total Liabilities and Stockholders' Equity $ 12,649,842 $ 6,535,840
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
SUBSTANCE ABUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1996 1995
---------- --------
<S> <C> <C>
Continuing Operations
Sales - Net $ 603,716 $ 406,595
Costs and Expenses:
Cost of Sales 219,650 272,449
Selling and Marketing Expenses 228,509 188,993
General and Administrative Expense 1,852,641 743,135
Research and Development 208,714 244,083
Interest -- 45,425
Depreciation and Amortization 245,677 238,085
------------ ------------
Loss From Operations (2,151,475) (1,325,575)
Other Income (Expense) -- 340,831
Loss Before Minority Interest
In Net Loss of Subsidiary (2,151,475) (984,744)
Minority Interest In Net Loss of Subsidiary 117,470 34,957
Loss From Continuing Operations (2,034,005) (949,787)
------------ ------------
Discontinued Operations
Loss From Operations before Minority Interest
In Net Loss -- (408,129)
Minority Interest -- 133,018
------------
Loss From Discontinued Operations -- (275,111)
------------ ------------
Net Loss $ (2,034,005) $ (1,224,898)
============ ============
Loss Applicable to Common Stock
Net Loss (2,034,005) $ (1,224,898)
Preferred Stock Dividend (7,202) (7,203)
------------ ------------
Loss Applicable to Common Stock $ (2,041,207) $ (1,232,101)
============ ============
Loss Per Common Share:
Loss From Continuing Operations $ (.06) $ (.03)
Loss From Discontinued Operations $ -- $ (.01)
Net Loss $ (.06) $ (.04)
Weighted Average Common Shares Outstanding 33,991,269 28,141,041
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
SUBSTANCE ABUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1996 1995
--------- --------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Loss $(2,034,005) $(1,224,898)
Adjustments to Reconcile Net Loss
to Net Cash Used by Operating Activities:
Provision For Bad Debts 3,511 (27,046)
Loss on Disposition of Fixed Assets 6,110 --
Depreciation and Amortization 245,677 308,566
Minority Interest in Net Loss of Subsidiary,
Net of Preferred Stock Dividends Paid (117,470) (167,975)
Value of Warrants issued for consulting services 571,000 --
Unrealized Loss(Gain) on Marketable Securities -- (276,072)
Amortization of Bond Discount -- (779)
Change in Operating Assets and Liabilities:
(Increase) Decrease in
Accounts Receivable (205,354) 27,682
Increase in Inventories (141,824) (39,456)
Decrease in Prepaid Expenses 43,402 42,971
Increase in Other Receivables (300,000) (14,681)
Decrease (55,173) (360,671)
Increase (Decrease) in Accrued Expenses
and Taxes 42,886 (39,460)
Increase in Other Current and Non Current Assets (65,658)
----------- -----------
Net Cash Used by Operating Activities (2,006,898) (1,771,819)
Cash Flow From Investing Activities:
Purchases of Property and Equipment (71,644) (146,799)
Purchase of Robert Stutman & Associates, Inc.,
net of cash acquired of $111,825 (1,988,175) --
Sale of U.S. Rubber Recycling Fixed Assets 426,771 --
Other-Net (5,111) (14,530)
----------- -----------
Net Cash Provided (Used) by Investing Activities (1,638,159) (161,329)
Cash Flow From Financing Activities:
Sale and Issuance of Common Stock 4,286,204 --
Expenses of Common Stock Issuance (400,000) --
Payments of Long-Term Debt (3,829) (17,357)
Payment of Dividend on Class "A"
Preferred Stock --
Proceeds of Brokerage Loans Payable -- 1,000,000
Payments of Brokerage Loans Payable -- (24,595)
----------- -----------
Net Cash Provided by Financing Activities 3,882,375 958,048
</TABLE>
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SUBSTANCE ABUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1996 1995
------- -------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents $ 237,318 $ (975,100)
Cash and Cash Equivalents - Beginning 1,204,646 1,633,098
----------- -----------
Cash and Cash Equivalents - Ending $ 1,441,964 $ 657,998
=========== ===========
Supplemental Disclosure of Cash Information:
Cash Paid for Interest $ $ 46,115
=========== ===========
Income Taxes Paid $ - $ -
=========== ===========
Non-Cash Financing Activities:
Preferred Stock Dividends Accrued $ 7,203 $ 7,202
=========== ===========
Issuance of Common Stock for Business Acquired $ 2,762,500 $ -
=========== ===========
Issuance of Note Payable for Business Acquired $ 400,000 $ -
Deferred Financing Costs Related to =========== ===========
Value of Warrants Issued for
Consulting Services $ 667,000 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
SUBSTANCE ABUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1 - Basis of Presentation
The consolidated financial statements include the accounts of Substance Abuse
Technologies, Inc. ("SAT") and its wholly and majority owned subsidiaries (SAT
and the subsidiaries being collectively referred to as the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation. In the opinion of the Company, the accompanying unaudited
consolidated financial statements reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for the periods presented.
Results of operations for interim periods are not necessarily indicative of the
results of operations for a full year due to external factors which are beyond
the control of the Company.
NOTE 2 - Cash and Cash Equivalents
Cash and cash equivalents are summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------- --------
<S> <C> <C>
Cash in Banks $1,183,486 $ 450,845
Money Market Funds 3,478 933
Commercial Paper 255,000 752,868
---------- ----------
$1,441,964 $1,204,646
========== ==========
</TABLE>
3 - Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------- --------
<S> <C> <C>
Finished Goods $ 63,360 64,437
Work in Process 462,349 334,699
Raw Materials 297,954 282,703
-------- --------
$823,663 $681,839
======== ========
</TABLE>
NOTE 4 - Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------- --------
<S> <C> <C>
Furniture and Equipment $ 552,835 $ 453,609
Equipment 837,658 811,333
Equipment - Network/Per Test 2,312,752 2,327,553
Test Equipment 498,629 476,765
Leasehold Improvements 343,691 343,692
Vehicles 63,073 124,042
---------- ----------
4,608,638 4,536,994
Less: Accumulated Depreciation 2,046,802 1,845,015
---------- ----------
$2,561,836 $2,691,979
========== ==========
</TABLE>
6
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SUBSTANCE ABUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 5 - Long-Term Debt
Long-Term Debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------- --------
<S> <C> <C>
Capitalized lease obligations secured
by certain equipment payable in
various monthly installments, and
due through January, 1999 $66,159 $62,330
Less: Current Portion 48,792 29,395
------- -------
$17,367 $32,935
======= =======
</TABLE>
NOTE 6 - Minority Interest
The Company's consolidated financial statements at June 30, 1996 include 100% of
the assets, liabilities and losses of U.S. Drug Testing, Inc. ("U.S. Drug"), a
67% owned publicly traded subsidiary, and 100% of the assets, liabilities and
losses of Good Ideas Enterprises, Inc. ("Good Ideas"), a 61% owned publicly
traded subsidiary. The $1,361,038 minority interest reported on the balance
sheet represents the minority shareholders' interest in the equity of these
subsidiaries.
NOTE 7 - Acquisition of Robert Stutman & Associates, Inc.
On May 21, 1996 USAT completed the acquisition of Robert Stutman & Associates,
Inc. ("RSA"), a provider of corporate "Drug Free Workplace" programs, in a
transaction accounted for as a purchase, of all of the Common Stock of RSA. The
purchase totaled approximately $5,400,000, including approximately $100,000 of
costs and was comprised of $2,100,000 in cash, $400,000 in notes, 500,000 shares
of the SAT Common Stock ( valued at $1,562,500) and Common Stock purchase
warrants to acquire 900,000 shares of the SAT's Common Stock at $3.125 per share
(valued at $1,200,000), which was the closing sales price of the SAT Common
Stock on April 17, 1996. The acquisition resulted in costs in excess of assets
acquired of approximately $5,300,000.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EFFECT OF MERGER - U.S. DRUG
During May 1996, SAT filed a Registration Statement to register shares
of the SAT Common Stock to be issued to the minority stockholders of U.S. Drug
upon consummation of a proposed merger of U.S. Drug with and into a wholly-owned
subsidiary of SAT. If the proposed merger is consummated, the Company will
record a non-recurring charge to income of approximately $8,500,000 as
Incomplete Research and Development cost representing the excess of the market
value of SAT Common Stock over the recorded value of the minority interest in
U.S. Drug. The effects of the merger are discussed in the SAT's Annual Report
for the fiscal year ended March 31, 1996. There can be no assurance that the
merger will be consummated.
EFFECTS OF MERGER - GOOD IDEAS
During April 1996, SAT filed a Registration Statement to register
shares of the SAT Common Stock to be issued to the minority shareholders of Good
Ideas upon consummation of a proposed merger of a wholly-owned subsidiary of
SAT with and into Good Ideas. If the proposed merger is consummated, the
Company will record a charge to Loss On Disposal of Discontinued Operations of
approximately $635,000 representing the excess of the market value of the SAT
Common Stock over the recorded value of the minority interest in Good Ideas. The
effects of the merger are discussed in the SAT's Annual Report for the fiscal
year ended March 31, 1996. There can be no assurance that the merger will be
consummated.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company has a history of operating losses through June 30,
1996, management believes that the Company will have the cash resources
available to it to meet all of its operating requirements for the ensuing twelve
months.
Management bases its belief on the following:
1) Operations discontinued in for the fiscal year ended Mach 31, 1996
("fiscal 1996") had been producing significant operating losses which have been
eliminated.
2) There is no indication that the Company will be affected by any
losses from litigation or claims such as it experienced in fiscal 1996, although
there can be no assurance that such claims will not arise.
3) Cash flow from operations will be increased through
* The addition of RSA revenues
* Developing the human resource provider business of
ProActive Synergies, Inc. ("ProActive")
* Emphasis on sales of Mobile Alcohol Collection
Systems and Alcohol Breath Tubes
* Implying the sales force to represent with
RSA/ProActive "products" and alcohol testing
products.
8
<PAGE> 9
Additionally, SAT has demonstrated its past ability to successfully generate
funds from the exercise of Common Stock purchase warrants and to privately place
SAT's equity securities.
For a more complete discussion of Liquidity and Capital Resources, see
SAT's "Management Discussion and Analysis of Financial Condition" in its Annual
Report on Form 10-K for fiscal 1996.
CHANGES IN FINANCIAL CONDITION
Cash used for operations was $2,007,000 for the quarter ended June 30,
1996. The net loss for the quarter was $2,034,,000. The adjustment necessary to
reconcile the net loss to the net cash used by operating activities was $27,000.
A major component of the adjustment is the valuation of Common Stock purchase
warrants, valued at $571,000, issued for consulting services. Other significant
components of this adjustment included an increase in other receivables of
$300,000 of proceeds from the sale of the assets of U.S. Rubber Recycling, Inc.
("USRR"), the minority interest in the loss of U.S. Drug of $117,000, an
increase in accounts receivable of $205,000, an increase in inventory of
$142,000 and a decrease in accrued expenses of $164,000 reduced by depreciation
of $246,000.
Cash used in investing activities was $1,638,000 consisting of the
purchase of RSA of net cash of $1,988,000 and purchase of property and equipment
of $72,000. The sale of fixed assets of USRR provided $427,000.
Cash flow from financing activities provided $3,882,00, primarily for
the exercise of common stock purchase warrants in the amount of $4,286,000 less
related expenses of $400,000.
RESULTS OF OPERATIONS
Three months ended June 30, 1996 ("1996") compared with three months ended June
30, 1995 ("1995").
Revenues from continuing operations increased by $197,000 or 48% from
$407,000 in 1995 to $604,000 in 1996. The increase was the result of higher cost
per test revenue increasing U.S. alcohol testing products sales from $329,000 in
1995 to $394,000 in 1996, together with sales from RSA/ProActive of $184,000. As
RSA/ProActive are new operations to the Company, no revenues from these
operations in included in the prior period. Alconet, Inc. sales declined from
$78,000 in 1995 to $26,000 in 1996.
Operating losses from continuing operations increased to $2,151,000 in
the quarter ending June 30, 1996 as compared with $985,000 in the same period of
fiscal 1995. SAT's operating loss increased as the result of increased general
and administrative cost primarily consisting of $571,000, which represents the
value of Common Stock purchase warrants issued for consulting services.
Additionally contributing to the increased expenses were duplicate
salaries during the period of management transition, legal costs associated with
the filing of two registrations statements in connection with the proposed
purchase of the minority shares of Good Ideas and U.S. Drug and the costs
associated with the acquisition of RSA. The loss from U.S. Drug increased from
$106,000 during the quarter ended June 30, 1995 to $365,000 in the same quarter
of the current year. The prior year results of U.S. Drug included other income
of approximately $336,000, primarily from unrealized gain in the value of
marketable securities.
U.S. Drug is currently conducting a feasibility study as to the drug
testing product which will require increased development costs until completed.
If, as hoped, the results are satisfactory, SAT anticipates that such expense
will continue to be high. If the results of the feasibility study are
unsuccessful, U.S. Drug will be able to reduce such development expenses, but
its opportunity to produce revenues in two years will be eliminated. Except for
these expenses and those related to the "taking private transactions," SAT's
management anticipates that other costs will be controlled during the balance of
the fiscal year ending March 31, 1997 ("fiscal 1997") and that revenues will
grow during the balance of fiscal 1997 from RSA/ProActive operations and the
alcohol testing operations. There can be no assurance that management's
expectations will be realized and, if realized, when.
9
<PAGE> 10
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is subject to legal proceedings and claims which
have arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when finally concluded and determined, will not, in
the opinion of management, have a material adverse effect upon the financial
position of the Company.
ITEM 2. Changes in Securities.
There have been no changes in securities of the Company.
ITEM 3. Defaults Upon Senior Securities.
There have been no defaults on senior securities.
ITEM 4. Submission of Matters for a Vote of Security Holders.
There was no matter submitted to a stockholders' vote.
ITEM 5. Other Information.
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are incorporated by reference to an exhibit
previously filed under the Securities Exchange Act of 1934, as amended:
Number Exhibit
(a) Copy of Stock Purchase Agreement dated as of May 21, 1996 by
and among SAT, Robert Stutman, Brian Stutman, Sandra DeBow,
Michael Rochelle and Kimberly Rochelle.(1)
(b) Form of Secured Promissory Note dated May 21, 1996 is Exhibit
A to Exhibit (a) hereto. (1)
(c) Form of Security Agreement dated May 21, 1996 by and among
SAT, Robert Stutman and Brian Stutman is Exhibit C to Exhibit
(a) hereto. (1)
(d) Form of SAT Warrant expiring May 20, 1999 is Exhibit B to
Exhibit (d) hereto.(1)
10
<PAGE> 11
Number Exhibit
(e) Form of Registration Rights Agreement dated as of May 21, 1996
by and between SAT, Robert Stutman, Brian Stutman, Michael
Rochelle, Kimberly Rochelle and Sandra DeBow is Exhibit D to
Exhibit (a) hereto.(1)
- ---------------------------
(1) Filed as an exhibit to SAT's Current Report on Form 8-K filed on June 5,
1996 and incorporated herein by this reference.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K for the quarter ended June 30, 1997.
11
<PAGE> 12
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 thereto duly authorized.
SUBSTANCE ABUSE TECHNOLOGIES, INC.
Registrant
August 19, 1997 BY: /s/ Robert M. Stutman
-----------------------------------------
Robert M. Stutman
Chief Executive Officer
August 19, 1997 BY: /s/ Robert Muccini
-----------------------------------------
Robert Muccini
Treasurer, Chief Financial Officer
and Chief Accounting Officer
12
