<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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
---------------- ----------------------------
Commission File Number: 33-67186
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U.S. DRUG TESTING, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE #33-0539168
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10410 TRADEMARK STREET, RANCHO CUCAMONGA, CALIFORNIA 91730
- - -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(909) 466-8378
- - -------------------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
- - -------------------------------------------------------------------------------
(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. [ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 OR 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] 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, $.001 Par Value 5,221,900
<PAGE> 2
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 32,703 $ 249,047
Prepaid Expenses and Other Current Assets 117,448 120,802
Notes Receivable - Parent 161,343 282,295
----------- -----------
Total Current Assets 311,494 652,144
----------- -----------
Property and Equipment (Net of Accumulated
Depreciation of $400,391 at June 30, 1996
and $380,874 at March 31, 1996) 498,079 483,039
----------- -----------
Patents and other assets, net of cumulative
Amortization 39,543 40,207
----------- -----------
Total Assets $ 849,116 $ 1,175,390
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 125,146 $ 71,285
Accrued Expenses 7,444 22,920
Current Portion of Long-Term Debt 12,371 21,059
----------- -----------
Total Current Liabilities 144,961 115,264
Long-Term Debt - Net of Current Portion 3,239 3,239
Commitments and Contingencies
----------- -----------
Total Liabilities 148,240 118,503
----------- -----------
Stockholders' Equity:
Common Stock, $.001 Par Value; 50,000,000 Shares
Authorized, Issued and Outstanding 5,221,900
Shares at June 30, 1996 and March 31, 1996 5,222 5,222
Additional Paid-In Capital 7,542,401 7,542,401
Deficit Accumulated in the Development Stage (6,846,707) (6,490,736)
----------- -----------
Total Stockholders' Equity 700,916 1,056,887
----------- -----------
Total Liabilities and Stockholders' Equity $ 849,116 $ 1,175,390
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
October 8,
1992
For The For The (Inception)
Three Months Ended Three Months Ended to
June 30, 1996 June 30, 1995 June 30, 1996
------------------ ------------------ -------------
<S> <C> <C> <C>
Revenues: $ - $ - $ -
Costs and Expenses:
General, and Administrative
Expenses 71,978 $ 75,366 2,089,860
Research and Development 162,778 187,469 2,719,197
Depreciation and Amortization 19,843 30,746 435,867
Interest Expense - Parent - - 38,165
Management Fees - Parent 105,000 105,000 1,365,000
Interest Expense 388 43,415 112,910
--------- --------- -----------
Total Costs and Expenses 359,987 441,996 6,760,999
--------- --------- -----------
Loss From Operations (359,987) (441,996) (6,760,999)
Other Income (Expense) 4,016 336,067 (85,708)
--------- --------- -----------
Net Loss $(355,971) $(105,929) $(6,846,707)
========= ========= ===========
Weighted Average
Common Shares Outstanding 5,221,900 5,221,900
Net Loss Per Common Share $ (.07) $ (.02)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative From
For the Three For the Three October 8, 1992
Months Ended Months Ended (Inception) to
June 30, 1996 June 30, 1995 June 30,1996
-------------- --------------- --------------
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net Loss $(355,971) $(105,929) $(6,846,707)
Adjustments to Reconcile
Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 19,843 30,746 435,867
Disposal of Property
and Equipment - - 25,475
Unrealized (Gain) Loss on
Marketable Securities - (249,035) 627,512
Amortization of Bond Discount - (779) (4,855)
Changes in Operating Assets
and Liabilities:
(Increase) Decrease in
Prepaid Expenses and Other
Current Assets 3,354 17,721 (117,448)
Increase (Decrease) in Other
Assets 338 - (4,655)
Increase (Decrease) in
Accounts Payable 53,861 1,908 125,146
Increase (Decrease) in
Accrued Expenses (15,476) (8,757) 7,444
--------- --------- -----------
Net Cash Used by
Operating Activities (294,051) (314,125) (5,752,221)
--------- --------- -----------
Cash Flow From Investing Activities:
Sale of Marketable Securities - - 3,285,625
Purchases of Marketable
Securities - - (3,908,281)
Purchases of Property
and Equipment (34,557) (17,185) (519,414)
Additional Patent Costs - - (37,836)
--------- --------- -----------
Net Cash Used By Investing
Activities (34,557) (17,185) (1,179,906)
Cash Flow From Financing
Activities:
Sales of Common Stock - - 8,621,226
Expenses of Stock Offering - - (1,510,663)
Payment of Loan to Parent - (625,833) (1,917,057)
Re-Payment of Loan by Parent 120,952 - (1,755,714)
Proceeds of Loan Payable - Parent - - 1,299,782
Payment of Loan Payable - Parent - - (1,299,782)
Proceeds of Long-Term Debt - - 101,572
Payments of Long-Term Debt (8,688) (6,218) (85,962)
Proceeds of Brokerage Loan Payable - 1,000,000 2,674,683
Payments of Brokerage Loan Payable - (24,595) (2,674,683)
--------- --------- -----------
Net Cash Provided (Used) By Financing
Activities $ 112,264 $ 343,354 $ 6,964,830
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements .
<PAGE> 5
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Cumulative From
For the Three For the Three October 8, 1992
Months Ended Months Ended (Inception) to
June 30, 1996 June 30, 1995 June 30, 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Cash
and Cash Equivalents $(216,344) $(12,044) $ 32,703
Cash and Cash Equivalents -
Beginning of Period 249,047 49,368 -
--------- -------- --------
Cash and Cash Equivalents -
End of Period $ 32,703 $ 61,412 $ 32,703
========= ======== ========
Supplemental Disclosure of
Cash Information:
Cash Paid For Interest $ - $ 43,415 $122,220
========= ======== ========
Income Taxes Paid $ - $ - $ -
========= ======== ========
Non-Cash Financing Activities:
Value of Common Stock Issued For
The Transfer of Assets at
Carrying Value From Parent $ - $ - $437,060
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1 - Basis of Presentation
In the opinion of U.S. Drug Testing, Inc. ("the Company"), the
accompanying unaudited 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.
This report should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1996.
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 $ 32,169 $ 248,457
Money Market Funds 534 590
---------- ----------
$ 32,703 $ 249,047
========== ==========
</TABLE>
NOTE 3 - Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---------- ----------
<S> <C> <C>
Furniture, Fixtures & Equipment $ 280,875 $ 268,182
Test Equipment 408,773 386,909
Leasehold Improvements 208,822 208,822
---------- ----------
898,470 863,913
Less: Accumulated Depreciation 400,391 380,874
---------- ----------
$ 498,079 $ 483,039
========== ==========
</TABLE>
<PAGE> 7
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
NOTE 4 - Notes Receivable - Parent
Notes receivable - Parent represents demand loans made to the
Parent due on or before December 31, 1996. The notes bear monthly interest at
the rate pf 8% per annum. The notes are secured by the Parent's shares in the
Company.
The Parent has agreed to repay this loan in full by August 31,
1996, and to advance the Company an additional $500,000 to fund continuing
research and development. The $500,000 loan will bear interest at 8% and have
a due date of December 31, 1996.
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
installments of $2,496 and $434 monthly,
and due from November 1996 to
November 1997 $ 15,610 $ 24,298
Less: Current Portion 12,371 21,059
--------- ----------
$ 3,239 $ 3,239
========= ==========
</TABLE>
<PAGE> 8
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 6 - Commitments and Contingencies
In June 1995, the License Agreement with the Department of the
Navy was renegotiated and amended to provide for minimum annual royalties of
$100,000 per year commencing October 1, 1995 and terminating September 30,
2005. Additional royalties will be paid pursuant to a schedule based upon
sales of products. The Company sub-licenses this agreement from its Parent
and, accordingly, has obligations to its Parent for the royalty payments
required by the License Agreement.
NOTE 7 - Registration Statement
During May 1996, U.S. Alcohol Testing of America, Inc.
("USAT"), the Company's Parent, filed a Registration Statement on Form S-4
under the Securities Act of 1993, as amended, in an attempt, through a consent
solicitation, to acquire the common stock of the Company owned by the minority
interest and thereby own 100% of the Company's common stock. There can be no
assurance that such solicitation will be successfully completed.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- - -------------------------------
The Company is a development stage enterprise with no earnings
history and initially derived its capital resources from unsecured advances
provided by its parent company, USAT a publicly traded company. During October
and November 1993, the Company sold 1,721,900 shares of its common stock to the
public at $5.00 per share and netted approximately $7,099,000. From the net
proceeds of the offering, the Company repaid the advances made by USAT. During
the period ended June 30, 1996, the Company had outstanding loans receivable
from its parent company for working capital purposes in the amount of $161,343.
These advances are evidenced by notes due December 31, 1996, bearing interest
at the rate of 8% per annum at June 30, 1996 and secured by USAT's shares in
the Company. USAT has agreed to repay these loans by August 31, 1996 and has
commited to advance $500,000 to the Company to fund continuing research and
development. The Company is dependent on continuing advances from its Parent
to continue the research, development and ultimate marketing of its products
and to fund its working capital requirements for the next (12) months. There
are presently no unfunded commitments for capital expenditures.
RESULTS OF OPERATIONS
- - ---------------------
During the quarter June 30, 1996, the Company spent $162,778 on
research and development and an additional $71,978 on general and
administrative expenses. Since inception the Company has spent $2,719,197 on
research and development and an additional $2,089,860 on general and
administrative expenses.
The Company is currently conducting a feasibility study as to the
saliva based drug testing products currently under development. Assuming the
study indicates that the Company should proceed, the Company estimates that it
will be at least two years before the drug testing products will be available
for marketing. There can be no assurance that the Company will sucessfully
complete its development program on a timely basis, that it will thereafter
obtain the necessary governmental approval or that marketing will start whem
comtemplated.
<PAGE> 10
PART II
ITEM 1 - Legal Proceedings
There are no known legal proceedings against the Company.
ITEM 2 - Changes in Securities
There have been no changes in securities of the Company.
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Increase in Amount of Outstanding Securities
There have been no changes in the amount of outstanding
securities of the Company.
ITEM 5 - Submission of Matters for a Vote of Stockholders
There was no matter submitted to shareholders' vote.
ITEM 5 - Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
No reports on Form 8-K were filed for the quarter ended
June 30, 1996.
<PAGE> 11
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.
U.S. DRUG TESTING, INC.
Registrant
BY: /s/ ROBERT M. STUTMAN
-------------------------------
Robert M. Stutman
Chief Executive Officer and
Chairman of the Board
BY: /s/ JOSEPH BRADLEY
-------------------------------
Joseph Bradley
Treasurer, Acting Chief
Financial Officer and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,703
<SECURITIES> 0
<RECEIVABLES> 161,343
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 311,494
<PP&E> 898,470
<DEPRECIATION> 400,391
<TOTAL-ASSETS> 849,116
<CURRENT-LIABILITIES> 144,961
<BONDS> 0
0
0
<COMMON> 5,222
<OTHER-SE> 695,694
<TOTAL-LIABILITY-AND-EQUITY> 849,116
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 359,987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (355,971)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,971)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
