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
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Commission File Number: 33-29718
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U.S. ALCOHOL TESTING OF AMERICA, 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
- - --------------------------------------------------------------------------------
(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
2
PART I
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1996 1996
----------- -----------
(Unaudited)
ASSETS
------
Current Assets:
Cash and Cash Equivalents $ 1,327,999 $ 1,286,520
Accounts Receivable (Net of Allowances
For Bad Debts of $189,116 at June 30, 1996
and $187,703 at March 31, 1996) 518,680 488,776
Other Receivables 301,850 1,850
Inventories 1,020,398 1,041,261
Prepaid Expenses 214,534 265,660
----------- -----------
Total Current Assets 3,383,461 3,084,067
Property and Equipment (Net of Accumulated
Depreciation of $2,173,501 at June 30, 1996
and $2,060,568 at March 31, 1996) 2,577,638 2,997,066
Intangible Assets and Other Assets 4,995,224 871,151
----------- -----------
Total Assets $10,956,323 $ 6,952,284
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
June 30, March 31,
1996 1996
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Note Payable $ 400,000
Accounts Payable 460,363 $ 649,835
Accrued Expenses and Taxes 536,691 708,620
Current Portion of Long-Term Debt 48,792 32,827
Preferred Stock Dividend Payable 14,405 7,202
------------ ------------
Total Current Liabilities 1,460,250 1,398,484
Long-Term Debt - Net of Current Portion 17,367 42,962
------------ ------------
Total Liabilities 4,245,224 1,441,446
Commitments and Contingencies
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 March 31, 1996 355,831 324,800
Additional Paid-In Capital 50,619,295 45,176,619
Accumulated Deficit (42,858,507) (41,469,501)
------------ ------------
Total Stockholders' Equity 8,117,032 4,032,330
------------ ------------
Total Liabilities and Stockholders' Equity $ 10,956,323 $ 6,952,284
============ ============
The accompanying notes are an integral part of the financial statements.
4
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
June 30,
1996 1995
------------ ------------
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 1,257,641 743,135
Research and Development 208,714 244,083
Interest 45,425
Depreciation and Amortization 195,677 238,085
------------ ------------
Loss From Operations (1,506,475) (1,325,575)
------------ ------------
Other Income (Expense) - 340,831
Loss Before Minority Interest
In Net Loss of Subsidiary (1,506,475) (984,744)
Minority Interest In Net Loss of Subsidiary 117,470 34,957
------------ ------------
Loss From Continuing Operations (1,389,005) ( 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 $ (1,389,005) $ (1,224,898)
============ ============
Loss Applicable to Common Stock
Net Loss (1,389,005) $ (1,224,898)
Preferred Stock Dividend (7,202) (7,203)
------------ ------------
Loss Applicable to Common Stock $ (1,396,207) $ (1,232,101)
============ ============
Loss Per Common Share:
Loss From Continuing Operations $ (.04) $ (.03)
Loss From Discontinued Operations $ (.01)
Net Loss $ (.04) $ (.04)
Weighted Average Common Shares Outstanding 33,991,269 28,141,041
The accompanying notes are an integral part of the financial statements.
5
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months
Ended
June 30,
1996 1995
----------- -----------
Cash Flow From Operating Activities:
Net Loss $(1,389,005) $(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 2,164 -
Depreciation and Amortization 203,843 308,566
Minority Interest in Net Loss of Subsidiary,
Net of Preferred Stock Dividends Paid (117,470) (167,975)
Unrealized Loss(Gain) on Marketable Securities - (276,072)
Amortization of Bond Discount - (779)
Change in Operating Assets and Liabilities:
Decrease (Increase) in
Accounts Receivable (29,903) 27,682
(Increase) Decrease in Inventories 20,863 (39,456)
Decrease in Prepaid Expenses 51,125 42,971
(Increase) Decrease in Other Receivables (300,000) (14,681)
Increase (Decrease) in Accounts Payable (189,472) (360,671)
Decrease in Accrued Expenses
and Taxes (164,092) (39,460)
----------- -----------
Net Cash (Used) by Operating Activities (1,910,600) (1,771,819)
Cash Flow From Investing Activities:
Purchases of Property and Equipment (112,942) (146,799)
Purchase of Robert Stutman & Associates, Inc. (4,062,500) -
Sale of U.S. Rubber Recycling Fixed Assets 289,286 -
Other-Net (45,099) (14,530)
----------- -----------
Net Cash Provided (Used) by Investing Activities (3,931,255) (161,329)
----------- -----------
Cash Flow From Financing Activities:
Sale and Issuance of Common Stock 5,848,704 -
Expenses of Common Stock Issuance (375,000) -
Payments of Long-Term Debt 9,630 (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)
Notes issued to RSA Acquisition 400,000 -
----------- -----------
Net Cash Provided by Financing Activities 5,883,334 958,048
6
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(UNAUDITED)
For the Three Months Ended
June 30,
1996 1995
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Increase (Decrease) in Cash and Cash Equivalents $ 41,479 $ (975,100)
Cash and Cash Equivalents - Beginning 1,286,520 1,633,098
---------- ----------
Cash and Cash Equivalents - Ending $1,327,999 $ 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
==========
Issuance of Common Stock as Payment
of Class Action Settlement $ -
==========
The accompanying notes are an integral part of the financial statements.
7
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
NOTE 1 - Basis of Presentation
The consolidated financial statements include the accounts of
U.S. Alcohol Testing of America, Inc.("USAT") and its wholly
and majority owned subsidiaries (collectively 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.
This Report should be read in conjunction with USAT'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:
June 30, March 31,
1996 1996
---------- ----------
Cash in Banks $1,069,514 $ 527,969
Money Market Funds 3,485 5,683
Commercial Paper 255,000 752,868
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$1,327,999 $1,286,520
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NOTE 3 - Inventories
Inventories are summarized as follows:
June 30, March 31,
1996 1996
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Finished Goods $ 63,360 $ 246,261
Work in Process 528,539 378,162
Raw Materials 428,499 416,838
---------- ----------
$1,020,398 $1,041,261
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8
U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
NOTE 4 - Property and Equipment
Property and equipment is summarized as follows:
June 30, March 31,
1996 1996
---------- ----------
Furniture and Fixtures $ 554,963 $ 464,010
Equipment 978,031 1,254,435
Equipment - Network/Per Test 2,312,752 2,327,553
Test Equipment 498,629 476,765
Leasehold Improvements 343,691 410,829
Vehicles 63,073 124,042
---------- ----------
4,751,139 5,057,634
Less: Accumulated Depreciation 2,173,501 2,060,568
---------- ----------
$2,577,638 $2,997,066
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U.S. ALCOHOL TESTING OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
NOTE 5 - Note Payable and Long Term Debt
Note Payable and Long-Term Debt is summarized as follows:
June 30, March 31,
1996 1996
-------- --------
Capitalized lease obligations secured
by certain equipment payable in
various monthly installments, and
due through January, 1999. $ 66,159 $ 75,789
Note Payable, bearing interest at 7.5%
per annum due May 21, 1997. USAT is
required to prepay the notes if
common stock purchase warrant exercises
after April 17, 1996 exceed $7,000,000 400,000
-------- --------
466,159 75,789
Less: Current Portion 448,792 32,827
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$ 17,367 $ 42,962
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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., a 67.0% owned publicly traded subsidiary and 100% of
the assets, liabilities and losses of Good Ideas Enterprises, Inc., a
60.8% owned publicly traded subsidiary. The $1,361,038 minority
interest reported on the balance sheet represents the minority
stockholders' interest in the equity of these subsidiaries.
NOTE 7 - Acquisition of Robert Stutman & Associates, Inc.
On May 21, 1996, the Company completed the acquisition of Robert
Stutman & Associates, Inc. ("RSA"), a provider of corporate "Drug
Free Workplace" programs. The purchase price was comprised of
$2,100,000 in cash, $400,000 in notes, 500,000 shares of the Company's
Common Stock and Common Stock purchase warrants to acquire 900,000
shares of the Company's Common Stock at $3.125 per share, which was
the closing sales price of the Common Stock on April 17, 1996.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Effect of Merger - U.S. Drug Testing, Inc.
During May 1996, USAT filed a Registration Statement to
register shares of the USAT Common Stock to be issued to the minority
stockholders of U.S. Drug Testing, Inc., ("U.S. Drug") upon consummation of a
proposed merger of U.S. Drug into and with a wholly-owned subsidiary of the
Company. If the proposed merger is successful, USAT 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 USAT Common
Stock over the recorded value of the minority interest in U.S. Drug. The effects
of the merger are discussed in the USAT'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, USAT filed the Registration Statement to register
shares of USAT Common Stock to be issued to the minority shareholders of Good
Ideas Enterprises, Inc., ("Good Ideas") upon consummation of a proposed merger
of a wholly-owned subsidiary of USAT with and into Good Ideas. If the proposed
merger is successful, USAT will record a charge to Loss On Disposal of
Discontinued Operations of approximately $635,000 representing the excess of
the market value of USAT Common Stock over the recorded value of the minority
interest in Good Ideas. The effects of the merger are discussed in the USAT'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 March 31,
1996 ("fiscal 1996") had been producing significant operating loss which have
been eliminated.
2) There is no indication that the Company will be effected 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
* Emphasis on sales of Mobile Alcohol Collection Systems
and Alcohol Breath Tubes
* Implying the sales force to represent both RSA/ProActive
"products" and alcohol testing products.
Additionally, USAT has demonstrated its past ability to successfully generate
funds from the exercise of Common Stock purchase warrants and to privately place
USAT's equity securities.
11
For a more complete discussion of Liquidity and Capital Resources, see the
Company's "Management Discussion and Analysis of Financial Condition" in its
Annual Report on Form 10-K for fiscal.
Changes in Financial Condition
Cash used for operations was $1,910,000 for the quarter ended June 30,
1996. The net loss for the quarter was $1,389,000. The adjustment necessary to
reconcile the net loss to the net cash used by operating activities was
$522,000. 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., the minority interest in the loss of U.S. Drug of
$117,000, a decrease in accounts payable of $189,000 and a decrease in accrued
expenses of $164,000 reduced by depreciation of $204,000
Cash used in investing activities was $3,900,000 consisting of the
purchase of Robert Stutman & Associates, Inc. of $4,062,500 and purchase of
property and equipment of $112,942. The sale of fixed assets of U.S. Rubber
Recycling provided $289,286.
Cash flow from financing activities provided $5,883,334, primarily for
the exercise of common stock purchase warrants in the amount of $4,286,000 and
the issuance of common stock in connection with the Robert Stutman &
Associates, for acquisition in the amount of $1,562,500. Notes issued in this
acquisition accounted for an additional 400,000 provided.
Results of Operations
Three months ended June 30, 1996 compared with three months ended June 30, 1995.
Revenues from continuing operations increased by $197,000 or 48% from
$407,000 in fiscal 1995 to $604,000 in fiscal 1996. The increase was the
result of higher cost per test revenue increasing U.S. Alcohol 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 sales declined from
$78,000 in fiscal 1995 to $26,000 in fiscal 1996.
Operating losses from Continuing Operations increased to $1,389,000 in
the quarter ending June 30, 1996 compared with $985,000 in the same period of
fiscal 1995. USAT operating, loss increased from $656,000 in fiscal 1995 to
$787,000 as the result of increased general and administrative costs consisting
of duplicate salaries during the period of management transition, legal costs
associates with the filing of two registrations statements in connection with
the proposed purchase of the minority share of Good Ideas Enterprises, Inc., and
U.S. Drug Testing, Inc., and the cost associates 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, USAT 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," USAT's
management anticipates that other costs will be controlled during the balance of
the fiscal year ended 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.
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.
U.S. ALCOHOL TESTING OF AMERICA, INC.
Registrant
BY: /s/ Robert M. Stutman
-----------------------------------------
Robert M. Stutman
Chief Executive Officer
BY: /s/ Joseph Bradley
-----------------------------------------
Joseph Bradley
Treasurer, Acting Chief Financial Officer
and Chief Accounting Officer
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PART II
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 Registrant.
ITEM 3 - Defaults Upon Senior Securities
There have been no defaults on senior securities.
ITEM 4 - Submission of Matters for a Vote of Shareholders
No matters were submitted to shareholders vote.
ITEM 5 - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
EXHIBIT
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27 Financial Data Schedule
A Form 8-K was filed during the quarter ended June 30, 1996 covering
the acquisition of Robert Stutman & Associates, Inc. on May 21, 1996.
Financial statements required to be filed with this report were filed in August
1996.