<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 DECEMBER 31, 1997
Commission File Number: 0-23721
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)
10400 Trademark Street, Rancho Cucamonga, CA 91730
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(909) 466-8047
- --------------------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
As of January 30, 1998 - Common Stock, $.001 Par Value, 10,497,206 shares
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1997
----------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 1,121,136 $ --
Prepaid Expenses and Other Current Assets 25,000 49,996
------------ ----------
Total Current Assets 1,146,136 49,996
Property and Equipment, net 372,468 505,799
Patents and other assets, net 39,636 40,152
------------ ----------
Total Assets $ 1,558,240 $ 595,947
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft $ -- $ 118,514
Accounts Payable 182,135 216,687
Accrued Expenses 67,273 16,340
Current Portion of Capital Leases 12,139 25,494
Loan Payable - Parent -- 1,668,179
------------ ----------
Total Current Liabilities 261,547 2,046,214
Long-Term Portion of Capital Lease Obligations 59,266 123,419
------------ ----------
Total Liabilities 320,813 2,169,633
------------ ----------
Stockholders' Equity (Deficit):
Common Stock, $.001 Par Value; 50,000,000
Shares Authorized, 10,497,206 shares and
5,221,900 shares issued and outstanding
at December 31, 1997 and March 31, 1997,
respectively 10,497 5,222
Additional Paid-in Capital 12,398,933 7,542,401
Deficit Accumulated in the Development Stage (11,172,003) (9,121,309)
------------ ----------
Total Stockholders' Equity (Deficit) 1,237,427 (1,573,686)
------------ ----------
Total Liabilities and Stockholders'
Equity (Deficit) $ 1,558,240 $ 695,947
============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE FOR THE FROM
THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 8, 1992
DECEMBER 31 DECEMBER 31 (INCEPTION)
------------------------- ---------------------------- DECEMBER 31
1997 1996 1997 1996 1997
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
Costs and Expenses:
General and Administrative Expenses 236,488 19,792 407,022 148,386 2,220,101
Research and Development 150,702 494,372 851,376 1,198,784 5,816,715
Depreciation and Amortization 56,253 49,234 161,744 121,266 721,402
Interest Expense - Parent - 17,823 34,530 19,670 95,790
Management Fees - Parent - 105,000 409,838 315,000 2,089,838
Interest Expense 956 1,041 956 2,544 119,300
---------- ---------- ----------- ----------- ------------
Total Costs and Expenses 444,399 887,282 1,866,465 1,803,650 10,863,146
---------- ---------- ----------- ----------- ------------
Loss from Operations (444,399) (887,282) (1,865,466) (1,803,650) (10,863,146)
Other Income (Expense) (185,228) (33,905) (185,228) (28,378) (308,857)
---------- ---------- ----------- ----------- ------------
Net Loss $ (629,627) $ (721,167) $(2,050,694) $(1,832,028) $(11,172,003)
========== ========== =========== =========== ============
Earnings per Common Share:
Weighted Average Common Shares
Outstanding 8,255,902 5,221,900 7,225,512 5,221,900
========== ========== =========== ===========
Net Loss Per Common Share $ (0.08) $ (0.14) $ (0.28) $ (0.35)
========== ========== =========== ===========
Earnings per Common Share, Assuming
Dilution:
Weighted Average Common Shares
Outstanding 9,343,728 5,221,900 7,668,912 5,221,900
========== ========== =========== ===========
Net Loss per Common Share $ (0.07) $ (0.14) $ (0.27) $ (0.35)
========== ========== =========== ===========
</TABLE>
The accompanying note are an integral part of the financial statements.
3
<PAGE> 4
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
From
October 8, 1992
For the Nine Months Ended (Inception) to
December 31 December 31
1997 1996 1997
------------ ----------- -------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Loss $(2,050,694) $(1,832,028) $(11,172,003)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 161,744 121,266 721,402
Disposal of Property and Equipment 189,248 41,873 248,628
Realized Gain on Marketable Securities - - 627,512
Unrealized Loss on Marketable Securities - - (4,855)
Amortization of Bond Discount - - -
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Prepaid Expenses and
Other Current Assets (25,000) (34,795) (125,599)
(Increase) Decrease in Other Assets 133 - (3,686)
Decrease in Bank Overdraft (119,514) - -
Increase (Decrease) in Accounts Payable (99,739) 184,484 171,307
Increase (Decrease) in Accrued Expenses 50,933 (6,905) 67,273
----------- ----------- -----------
Net Cash Used by Operating Activities (1,892,889) (1,526,105) (9,470,021)
----------- ----------- -----------
Cash Flow From Investing Activities:
Sale of Marketable Securities - - 3,285,625
Purchases of Marketable Securities - - (3,908,281)
Purchases of Property and Equipment (55,625) (184,629) (593,022)
Proceeds from Sale of Property and Equipment 106,241 - 106,241
Patent Costs (1,402) (1,246) (39,238)
----------- ----------- -----------
Net Cash Used by Investing Activities 49,214 (185,875) (1,148,675)
----------- ----------- -----------
Cash Flow from Financing Activities:
Sales of Common Stock 1,600,000 - 10,221,226
Expenses of Stock Offering (100,000) - (1,610,663)
Advances on Note Receivable - Parent - - (1,917,057)
Collection on Note Receivable - Parent - 282,295 1,634,762
Proceeds of Loan Payable - Parent 1,464,811 1,200,823 4,715,067
Payment of Loan Payable - Parent - - (1,299,782)
Proceeds of Capital Leases - - 101,572
Payments of Capital Leases - (20,165) (105,293)
Proceeds of Brokerage Loan Payable - - 2,674,683
Payments of Brokerage Loan Payable - - (2,674,683)
----------- ----------- -----------
Net Cash Provided by Financing Activities 2,964,811 1,462,933 11,739,832
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
OCTOBER 8, 1992
FOR THE NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31 DECEMBER 31
1997 1998 1997
---------- --------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents 1,121,136 (249,047) 1,121,136
Cash and Cash Equivalents - Beginning of Period -- 249,047 --
---------- --------- ----------
Cash and Cash Equivalents - End of Period $1,121,136 $ -- $1,121,136
========== ========= ==========
Supplemental Disclosure of Cash Information:
Cash Paid for Interest $ 956 $ 2,544 $ 157,516
========== ========= ==========
Income Taxes Paid $ -- $ -- $ --
========== ========= ==========
Non-cash Financing Activities:
Value of Common Stock issued and Additional
Paid in Capital for the Transfer of Assets from
Parent $ 344,000 $ -- $ 781,060
========== ========= ==========
Value of Common Stock issued to Parent and
Additional Paid in Capital for the Forgiveness
of Debt $3,082,944 $ -- $3,082,944
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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 except as disclosed below) 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, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share (FASB No. 128), which is effective for
annual and interim periods ending after December 15, 1997. FASB No. 128 replaced
the previously required primary and fully diluted earnings per share (EPS) with
basic and diluted EPS. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
required fully diluted earnings per share. All earnings per share amounts for
all periods have been presented and, where necessary, restated to conform to
FASB No. 128. There were no adjustments necessary to net loss in calculating the
income available to common stockholders after assumed conversions of stock
options and warrants that are considered to be dilutive. The adjusted weighted
average shares to give effect for the assumed conversion of dilutive stock
options and warrants is presented on the Statements of Operations.
NOTE 2. - Continuing Operations and Liquidity
The Company has historically incurred recurring operating losses and
experienced an ongoing deficiency in working capital. To increase working
capital, in May 1997 and July 1997, the Company converted outstanding
indebtedness to Substance Abuse Technologies, Inc. ("SAT"), the Company's former
parent, into shares of the Company's common stock, $.001 par value (the "Common
Stock"), and additional paid in capital. However, the Company still required
additional capital to continue the research, development and ultimate
manufacture and marketing of its product and to fund its working capital
requirements for the next 12 months.
On September 10, 1997, SAT filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code and, on September 19, 1997, the Company
announced the temporary suspension of the development of the saliva based drugs
of abuse and alcohol testing device. Subsequently, on October 29, 1997 SAT sold
its majority shares of the Common Stock to an unaffiliated investor for
$250,000. The purchaser of the Common Stock also loaned money to the Company to
allow the Company to recommence product development. During the third quarter of
1997, the Company repaid the loans from the net proceeds of a private placement
6
<PAGE> 7
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
(CONTINUED)
NOTE 2 - Continuing Operations and Liquidity (Continued)
pursuant to Regulation D under the Securities Act, which sold 3,200,000 shares
of the Common Stock at $0.50 per share or an aggregate purchase price of
$1,600,000. The net proceeds of the private placement totaled approximately
$1,434,000 after the payment of capital formation costs of approximately
$166,000, including $160,000 in the form of a finder's fee to Jonathan J.
Pallin, who, on October 31, 1997, was elected Chairman of the Board and a
director of the Company. Capital formation costs of approximately $166,000 have
been reflected as a reduction in additional paid in capital at December 31,
1997, however, of this amount approximately $66,000 was paid subsequent to
quarter end.
The Company believes that, as the result of private placement described
above, it will have sufficient capital to keep the Company operating for a
period of up to 10 months while it seeks the long-term financing. Unless such
long-term financing is obtained, the Company will have to abandon the product
development program and, accordingly, have no product or service in order to
become an operating entity. There can be no assurance that such long-term
financing will be obtained or, if available, as to when or that management's
estimate as to the period of not requiring additional short-term financing will
be correct.
NOTE 3 - Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
-------- --------
<S> <C> <C>
Furniture and Fixtures $323,182 $363,229
Test Equipment 437,268 400,798
Leasehold Improvements 209,155 208,822
-------- --------
969,605 972,849
Less: Accumulated Depreciation 597,137 467,050
-------- --------
$372,468 $505,799
======== ========
</TABLE>
NOTE 4 - Loan Conversion and Fixed Asset Transactions
On May 26, 1997, the Board of Directors of the Company authorized the
issuance of additional shares of the Common Stock to SAT on the basis of a share
of Common Stock for each $1.25 of indebtedness of the Company to SAT. As a
result of SAT's inability to obtain its own financing, SAT ceased advances to
the Company in July 1997. Based on SAT's advice that the amount of the
indebtedness owed by the Company to SAT was $2,594,133, all of which SAT agreed
to treat as a capital contribution, the Company authorized the issuance to SAT
of 2,075,306 shares of the Common Stock, which were issued as of June 30, 1997
and prior to the sale of the
7
<PAGE> 8
U.S. DRUG TESTING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
(CONTINUED)
NOTE 4 - Loan Conversion and Fixed Asset Transactions (continued)
Common Stock held by SAT to an outside third party. Subsequent to the sale, SAT
advised the Company that the amount of the indebtedness was $3,426,994. As such,
the forgiveness of the remaining indebtedness to SAT of $832,861 was reflected
as additional paid in capital as of September 30, 1997.
Included in the indebtedness, which was converted to additional paid in
capital as noted above, was $344,000 related to the purchase of various fixed
assets from SAT at the Rancho Cucamonga, California premises. Certain of these
assets, as well as other assets already owned by the Company, were not required
for the ongoing operations of the Company and were subsequently sold for gross
proceeds of approximately $126,000. The resulting loss on sale of assets of
approximately $189,000, including sales expenses, is reflected in other income
(expense) on the statement of operations.
NOTE 5 - Commitments and Contingencies
In June 1995, the License Agreement with the Department of the Navy then
held by SAT 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. Through March 31, 1997, the Company sub-licensed this Agreement
from its parent and, accordingly, had obligations to its parent for the royalty
payments required by the License Agreement. This license was transferred from
SAT to the Company effective with the sale of SAT's majority ownership of the
Common Stock . The Navy settled all past liabilities for the transferred license
for $10,000.
NOTE 6 - Registration Statement
During May 1996, SAT filed a Registration Statement on Form S-4, File
No. 333-4790, under the Securities Act of 1993, as amended (the "Securities
Act"), in an attempt, through a consent solicitation, to acquire the Common
Stock owned by the minority stockholders and thereby own 100% of the Common
Stock. As discussed in Note 2, SAT sold its majority interest in the Company to
an unaffiliated investor; therefore, the consent solicitation will not occur.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
From its incorporation on October 8, 1992 until October 31, 1997, when a
sale of the controlling stock interest in the Company was consummated (see Note
2 to Financial Statements in this Report), the Company was a subsidiary of SAT,
a publicly-owned company which filed a petition under Chapter 11 of the Federal
Bankruptcy Code on September 10, 1997. Because SAT had ceased advances to the
Company in July 1997 as a result of its inability to secure financing for its
own programs, the Company temporarily suspended its product development
activities on September 19, 1997 and did not resume until October 27, 1997.
The Company is a development stage enterprise, currently seeking to
develop a product to detect drugs of abuse and alcohol using saliva as a test
specimen, and has no earnings history.
On May 6, 1996, SAT had filed Registration Statement on Form S-4, File No.
333-4790, under the Securities Act to make an offer of shares of SAT's Common
Stock, $.001 par value, to the holders of the 1,721,900 shares of the Common
Stock not owned by SAT, said shares to be issued as consideration if a proposed
merger of the Company with and into a wholly-owned subsidiary of SAT was
approved by such minority stockholders. As a result of SAT's bankruptcy and its
sale of the controlling interest as described in Note 2 to Financial Statements
in this Report, this proposed merger transaction to take the Company private has
been abandoned by SAT.
LIQUIDITY AND CAPITAL RESOURCES.
Until July 1997 when SAT's inability to secure its own financing caused
SAT to cease advances to the Company, SAT had been the sole source of financing
to the Company since the Company's public offering of 1,721,900 shares of the
Common Stock in October and November 1993. This initial public offering netted
the Company approximately $7,099,000.
As a result of two loans made to the Company in September and October 1997
totaling $310,000 ($10,000 from an officer and $300,000 from an unaffiliated
source), both loans secured by a lien on the assets of the Company, the Company
recommenced its product development on October 27, 1997. During the third
quarter of 1997, the Company repaid the loans from the net proceeds of a private
placement pursuant to Regulation D under the Securities Act, which sold
3,200,000 shares of the Common Stock at $0.50 per share or an aggregate purchase
price of $1,600,000. The net proceeds of the private placement totaled
approximately $1,434,000 after the payment of capital formation costs of
approximately $166,000, including $160,000 in the form of a finder's fee to
Jonathan J. Pallin, who, on October 31, 1997, was elected Chairman of the Board
and a director of the Company. Capital formation costs of $166,000 have been
reflected as a reduction in additional paid in capital at December 31, 1997,
however, of this amount approximately $66,000 was paid subsequent to quarter
end.
An independent technology and market assessment firm engaged by SAT
concluded in June 1997 that the Company's immunosensor technology will have the
capability to deliver performance with the analytical sensitivity for the
targeted products in drug and alcohol testing, but estimated that the product
launch date may be August 1999 at the earliest and the incremental cost may be
as high as $18,400,000. The report assumed that the Company's development
program would be adequately financed and brought to a successful conclusion, as
to neither of which assumptions can there be any assurance. Although management
believed that the product launch date could be earlier than the consulting firm
projected and the incremental cost could also be lower, management is currently
studying the effect of the suspension and reduction of the research and
development program during the period July to October 1997 and continuing at a
reduced rate until long-term funding is secured, on both the projected product
launch date and on the incremental costs. The Company believes that it is
premature for making a definitive conclusion as to whether the Company should
effect any change in either or both estimates.
Management continues to search for a venture capital investor to fund the
balance of the development program, believing that such an investor or investors
would be the most likely source of financing. Management has identified
companies which are likely candidates for such an investment based on an
analysis of their investment
9
<PAGE> 10
history and has conducted preliminary discussions with one or two of the
potential candidates, but this search remains in its preliminary stages.
Management recognizes that many prospective venture capital investors prefer to
invest in a privately-owned company with an initial public offering as the
investor's exist strategy, rather than in a publicly-owned company such as the
Company; however, the initial responses to the Company's solicitation,
preliminary as they are, have suggested to management that this potential
problem may be overcome.
Management also intends to explore the possibility of an underwritten
public offering or another private placement as a means of raising the capital
necessary to complete the development program; however, market conditions and
other considerations may make these methods of financing not feasible. These
efforts are being conducted simultaneous to discussions with venture capital
sources.
Lastly, the Company has not abandoned the possibility of obtaining a major
pharmaceutical or medical company to assist in the product development.
Management believes that the consultant's report may encourage such a company to
proceed where normally such a company would, in management's opinion, be waiting
for a working prototype to be developed, which working prototype, even on the
original estimate timetable, was not to be available until April 1998.
The Company believes that, as a result of the private placement described
above, it will have sufficient capital to keep the Company operating for a
period of up to 10 months while it seeks the long-term financing. Unless such
long-term financing is obtained, the Company will have to abandon the product
development program and, accordingly, have no product or service in order to
become an operating entity. There can be no assurance that such long-term
financing will be obtained or, if available, as to when or that management's
estimate as to the period of not requiring additional short-term financing will
be correct.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 VS. DECEMBER 31, 1996
During the quarter ended December 31, 1997, the Company spent $150,702 on
research and development and an additional $236,488 on general and
administrative expenses, as compared with $494,372 and $19,792, respectively,
during the three months ended December 31, 1996. The lower research and
development expenditures in the 1997 period were due to the fact that SAT
advanced no funds to the Company after July 1997 and, accordingly, the Company's
product development activities were suspended through October 27, 1997. There
was no management fee paid to SAT in the quarter ended December 31, 1997, while
the Company paid SAT $105,000 in management fees during the quarter ended
December 31, 1996. As a result of the sale by SAT of the shares (see Note 1 to
Financial Statements in this Report), no management fees will be paid to SAT in
the future. However, because these services are now performed internally, the
Company incurred higher general and administrative charges in 1997 than in 1996,
and will continue to do so on a go forward basis. The (net) other expense of
$185,228 for the three months ended December 31, 1997 consists primarily of a
loss on sale of fixed assets of approximately $189,000.
NINE MONTHS ENDED DECEMBER 31, 1997 VS. DECEMBER 31, 1996
During the nine months ended December 31, 1997, the Company spent $851,376
on research and development and an additional $407,022 on general and
administrative expenses, as compared with $1,196,784 and $148,386, respectively,
during the nine months ended December 31, 1996. Although the Company had been
incurring expenditures with the accelerated effort in the R & D program in early
fiscal 1997, the overall expenditures were significantly lower in the 1997
period due to the fact that SAT advanced no funds to the Company after July
1997. Accordingly, the Company's product development activities were suspended
through October 27, 1997. The management fees paid to SAT in the nine months
ended December 31, 1997 aggregated $409,838 as compared to $315,000 in the same
period in 1996 due to increased expenses for corporate overhead that were
previously covered in the management fees paid to the parent. The (net) other
expense of $185,228 for the nine months ended relates to the loss on sale of
fixed assets as noted above.
10
<PAGE> 11
From inception on October 8, 1992 to December 31, 1997, the Company has
spent $5,616,715 on research and development and $2,220,101 on general and
administrative expenses. Management fees paid to SAT aggregated $2,089,838
during such period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) Recent Sales of Unregistered Securities
(i) On November 21, 1997, the Company closed as to the sale of
1,690,000 shares of the Common Stock and, on December 10, 1997, the Company
closed as to the sale of 1,510,000 shares of the Common Stock, or an aggregate
of 3,200,000 shares of the Common Stock offered pursuant to a private placement.
(ii) There were no underwriters for this private placement. The
shares of the Common Stock were offered and sold to persons who were accredited
investors as such term is defined in Rule 501(a) under the Securities Act of
1933, as amended (the "Securities Act").
(iii) The shares of the Common Stock were sold for $0.50 per share
or an aggregate purchase price of $1,600,000. There were no underwriting
discounts or commissions related to the private placement, although a finder's
fee of $160,000 was paid to Jonathan J. Pallin who on October 31, 1997 was
elected Chairman of the Board and a director of the Company.
(iv) The Company claims that the sales were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereunder and Rule 506 of Regulation D thereunder, the sales constituting a
transaction by an issuer not involving any public offering. The purchasers were
all accredited investors, each of whom or which gave an investment
representation.
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K.
There were no Reports on Form 8-K filed during the quarter for which
this Report is filed.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned therein to be duly authorized.
U.S. DRUG TESTING, INC.
(Registrant)
Date: February 17, 1998 By /s/ Linda H. Masterson
--------------------------
Linda H. Masterson
President and Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,121,136
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,146,136
<PP&E> 372,468
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,558,240
<CURRENT-LIABILITIES> 261,547
<BONDS> 0
0
0
<COMMON> 10,497
<OTHER-SE> 12,398,933
<TOTAL-LIABILITY-AND-EQUITY> 1,558,240
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 444,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (629,627)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.08)
</TABLE>
