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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE
OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-18938
SUBSTANCE ABUSE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2806310
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4517 N.W. 31ST AVE.
FT. LAUDERDALE, FLORIDA
954-739-9600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $.01, AND PREFERRED "A" STOCK, PAR VALUE $.01
(REGISTERED ON THE AMERICAN STOCK EXCHANGE);
PREFERRED "B" STOCK, PAR VALUE $.01
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of July 11, 1997, there were 36,030,591 shares of Common Stock
outstanding.
THE REGISTRANT HAS ONLY ONE CLASS OF VOTING STOCK OUTSTANDING, THE COMMON
STOCK, AND, AS OF JULY 11, 1997, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK
HELD BY NON-AFFILIATES WAS $34,496,036 BASED ON THE CLOSING SALE PRICE OF SUCH
STOCK ON THAT DATE.
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PART II
ITEM 5. MARKET DATA FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET DATA
Between January 2, 1992 and October 23, 1996, the SAT Common Stock traded
on the American Stock Exchange under the symbol "AAA." Effective October 26,
1996, the SAT Common Stock traded under the symbol "SAU." The following table
sets forth the high and low sales prices for the shares of the SAT Common Stock
during the periods indicated:
HIGH LOW
------- -------
Fiscal 1996
Quarter Ended
June 30, 1995.................................................. $2.1875 $1.625
September 30, 1995............................................. $2.9375 $1.875
December 31, 1995.............................................. $2.25 $1.875
March 31, 1996................................................. $3.375 $1.8125
Fiscal 1997
Quarter Ended
June 30, 1996.................................................. $3.625 $2.3125
September 30, 1996............................................. $3.00 $1.75
December 31, 1996.............................................. $2.3125 $1.375
March 31, 1997................................................. $1.4375 $1.375
On July 11, 1997, the closing sales price of the SAT Common Stock was $1.00
per share.
HOLDERS
The holders of record of the SAT Common Stock on June 30, 1997 were 982 and
SAT estimates, based on the number of proxies mailed in connection with the two
Annual Meetings of Stockholders held in February and October 1996, that it has
approximately 8,200 stockholders, including holders in street name.
EXCHANGE LISTING
SAT's stockholders' equity as of March 31, 1997 was a negative $596,484 and
it has sustained losses since its incorporation. Pursuant to Section 1003(a) of
the American Stock Exchange Company Guide, the American Stock Exchange will
consider delisting of a listed company's listed security if (a) the company has
stockholders' equity of less than $4,000,000 if such company has sustained
losses from continuing operations and/or net losses in three of its four most
recent fiscal years or (b) the company has sustained losses from continuing
operations in its five most recent years. SAT, accordingly, does not currently
comply with such guidelines and, as a result, the SAT Common Stock may after a
hearing, be delisted unless SAT can demonstrate to the American Stock Exchange
reasons why such action should not be taken. SAT is seeking equity financing to
meet the stockholders' equity requirement and will file a Current Report on Form
8-K with a pro-forma balance sheet showing compliance upon the consummation of
such financing. In addition, SAT's management will attempt to demonstrate to the
American Stock Exchange that it has a reasonable opportunity to have the Company
begin to operate on a profitable basis on an on-going basis in fiscal 1998.
There can be no assurance that SAT will succeed in these efforts to persuade the
American Stock Exchange not to apply these guidelines, in which event the SAT
Common Stock will thereafter be delisted.
If the SAT Common Stock is delisted, it will become subject to Rule 15g-9
promulgated under the Exchange Act, which Rule imposes additional sales
practices requirements on a broker-dealer which sells Rule 15g-9 securities to
persons other than the broker-dealer's established customers and institutional
accredited investors (as such term is defined in Rule 501(a) under the
Securities Act). For transactions covered under Rule 15g-9, the broker-dealer
must make a suitability determination of the purchaser and
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receive the purchaser's written agreement to the transaction prior to the sale.
In addition, broker-dealers, particularly if they are market makers in the SAT
Common Stock, have to comply with the disclosure requirements of Rules 15g-2,
15g-3, 15g-4, 15g-5 and 15g-6 under the Exchange Act unless the transaction is
exempt under Rule 15g-1. Consequently, Rule 15g-9 and these other Rules may
adversely affect the ability of broker-dealers to sell or to make markets in the
SAT Common Stock and the ability of SAT to secure financing.
DIVIDENDS
No dividends on the SAT Common Stock have been declared by SAT's Board of
Directors through March 31, 1997 and, in view of the Company's cash
requirements, its history of operational losses and restrictions in its
outstanding Convertible Notes, Convertible Debentures and shares of Preferred
Stock, SAT's Board of Directors has no current intention to declare or pay
dividends on the SAT Common Stock in the foreseeable future. Dividends on the
Class A Preferred Stock are payable semi-annually cumulative from December 17,
1990 and all dividends have been paid timely. Dividends on the Class B Preferred
Stock are also payable semi-annually, but they first began to accrue on 62,500
shares on May 8, 1997.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash compensation and certain other
components of the compensation of (1) James C. Witham who served as the Chairman
of the Board, the President and the Chief Executive Officer of SAT until April
18, 1996; (2) Robert M. Stutman who has been serving as the Chairman of the
Board and the Chief Executive Officer of SAT since April 18, 1996; and (3) the
three executive officers of SAT who were serving as of March 31, 1997 and who
received compensation in excess of $100,000 in fiscal 1997:
LONG TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION SECURITIES ALL
----------------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------- ---- -------- ------- --------- ------------
James C. Witham(1)................... 1997 $ -- -- -- --
Chairman, President and 1996 $412,500(2) $50,000 -- --
Chief Executive Officer 1995 $301,154 $50,000 150,000(3) --
Robert M. Stutman(4)................. 1997 $260,809 $ -- --(5) --
Chairman and Chief 1996 -- -- -- --
Executive Officer 1995 -- -- -- --
Linda H. Masterson(6)................ 1997 $152,827 $ -- 600,000(7) --
President 1996 -- -- 10,000(7) --
1995 -- -- -- --
Brian Stutman (8).................... 1997 $152,385 $ -- --(9) --
Vice President, Sales and 1996 -- -- -- --
Marketing 1995 -- -- -- --
Steven J. Kline(10).................. 1997 125,000 -- 50,000 --
Vice President, Research 1996 117,000 -- 10,000 --
and Development 1995 63,231 -- 5,000 --
- ---------------
(1) Mr. Witham served in these capacities until April 18, 1996 and as an
employee of SAT until May 31, 1996. For information as to his former
employment agreement with SAT, see the section "Employment and Severance
Agreements" under this caption "Executive Compensation."
(2) The amount in the table exceeds the salary amount shown below in the
section "Employment and Severance Agreements" as a result of March 1996
company-wide payments of several years of unused vacation accruals, of
which $95,192.25 was paid to Mr. Witham.
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(3) In August 1994, SAT granted non-qualified stock options expiring August 1,
2004 under the 1990 Restricted Stock, Non-Qualified Option and Incentive
Stock Option Plan to purchase an aggregate of 450,000 shares of the SAT
Common Stock at $2.375 per share, of which Mr. Witham received a stock
option to purchase 100,000 shares of the SAT Common Stock. The option
expired unexercised on November 3, 1996.
(4) Robert M. Stutman was elected as the Chairman of the Board and designated
as Chief Executive Officer of SAT on April 18, 1996. For information as to
his severance arrangement with SAT, see the section "Employment and
Severance Agreements" under this caption "Executive Compensation."
(5) Robert M. Stutman has received various Common Stock purchase warrants from
SAT as a result of his having been a consultant to SAT prior to his
officership, directorship and employment with SAT and as a result of the
acquisition by SAT of RSA. For information as to these
non-executive-compensation warrants, see "Business of the
Company -- Consulting Division" and "Security Ownership of Certain
Beneficial Owners and Management" elsewhere in this Report.
(6) Ms. Masterson became President of SAT effective May 13, 1996, having served
as a director since September 26, 1995. She resigned as the President
effective May 23, 1997 in order to become the Chief Executive Officer of
U.S. Drug (she was already its President) as part of the program to study
the feasibility of separating the interlocking relationships between SAT
and U.S. Drug.
(7) For information as to the Common Stock purchase warrant to purchase 600,000
shares of the SAT Common Stock received by Ms. Masterson as an inducement
to become the President and an employee of SAT, see the section "Employment
and Severance Agreements" under this caption "Executive Compensation" and
"Security Ownership of Certain Beneficial Owners and Management." For more
information as to her Common Stock purchase warrant to purchase 10,000
shares of the SAT Common Stock received as a director of SAT, see the
section "Directors' Compensation" under this caption "Executive
Compensation" and "Security Ownership of Certain Beneficial Owners and
Management."
(8) Brian Stutman was elected as Vice President, Sales and Marketing of SAT on
December 3, 1996. From May 21 until December 31, 1996, he served as Vice
President of Business Development for RSA.
(9) Brian Stutman has received various Common Stock purchase warrants from SAT
as a result of the acquisition by SAT of RSA. For information as to these
non-executive-compensation warrants, see "Business of the
Company -- Consulting Division" and "Security Ownership of Certain
Principal Owners and Management." He received his first executive
compensation Common Stock purchase warrant on June 24, 1997. For
information as to this warrant and his severance agreement, see the section
"Employment and Severance Agreements" under this caption "Executive
Compensation."
(10) Mr. Kline served as Vice President, Research and Development of SAT from
March 25, 1997 until May 23, 1997, when he resigned as part of the program
to study the feasibility of separating the interlocking relationships
between SAT and U.S. Drug. He has served as a Vice President of U.S. Drug
since July 1994.
OPTION/SAR GRANTS TABLE
During fiscal 1997, no stock options were granted by SAT, whether to the
individuals named in the Summary Compensation Table or otherwise, and none were
outstanding as of March 31, 1997. SAT has never granted any stock appreciation
rights.
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The following table sets forth certain information concerning Common Stock
purchase warrants granted during fiscal 1997 as executive compensation to the
individuals named in the Summary Compensation Table.
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED ALTERNATIVE TO
NUMBER OF OF TOTAL ANNUAL RATES OF (f) AND (g)
SECURITIES WARRANTS STOCK PRICE GRANT DATE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR VALUE
WARRANT EMPLOYEES OF BASE OPTION TERM ----------------
GRANTED IN FISCAL PRICE EXPIRATION ----------------------- GRANT DATE
NAME (#) YEAR ($/SH) DATE 5%($) 10%($) PRESENT VALUE($)
(a) (b) (c) (d) (e) (f) (g) (h)
- ------------------------ ---------- ---------- -------- ---------- ------- --------- ----------------
James C. Witham......... -0- N/A N/A N/A N/A N/A N/A
Robert M. Stutman....... -0- N/A N/A N/A N/A N/A N/A
Linda H. Masterson...... 600,000 57.7% $2.125(1) (3) 894,000 2,142,000 1,338,000
Steven J. Kline......... 50,000 4.8% $2.125(2) (4) 40,500 123,500 100,500
Brian Stutman........... -0- N/A N/A N/A N/A N/A N/A
- ---------------
(1) Initially $3.125, but lowered to $2.125 later by SAT's Board of Directors.
(2) Initially $3.50, but lowered to $2.125 later by SAT's Board of Directors.
(3) The last installment expires May 12, 2003.
(4) The last installment expires May 2, 2003.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997
AND OPTION VALUES AT MARCH 31, 1997
As of March 31, 1997, there were no stock options outstanding and none had
been exercised during fiscal 1997 by the individuals named in the Summary
Compensation Table. SAT has never granted any stock appreciation rights.
The following table sets forth certain information concerning Common Stock
purchase warrants issued as executive compensation to the individuals named in
the Summary Compensation Table. No such warrants were exercised in fiscal 1997.
The table includes the number of shares covered by such warrants as of March 31,
1997. Also reported are the values for "in-the-money" executive compensation
warrants which represent the positive spread between the exercise price of any
such existing warrants and the closing market price of the SAT Common Stock at
March 31, 1997.
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED WARRANTS WARRANTS AT
SHARES AT MARCH 31, 1997 MARCH 31, 1997
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- ----------- -------- -------------------------- --------------------------
James C. Witham................. -0- -0- -0- -0-
Robert M. Stutman............... -0- -0- -0- -0-
Linda H. Masterson.............. -0- -0- 50,000/550,000
Steven J. Kline................. -0- -0- 10,000/ 60,000
Brian Stutman................... -0- -0- -0- -0-
OTHER COMPENSATION
SAT currently has no pension plan in effect and has no stock option plan,
restricted stock plan, stock appreciation rights nor any other long-term
incentive plan under which grants or awards may be made in fiscal 1998 or
thereafter. The Board is, however, considering adoption of a stock option plan
for directors, officers and key employees of the Company and implemented in
fiscal 1997 a 401(k) plan for all employees managed by Automated Data
Processing, Inc.
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EMPLOYMENT AND SEVERANCE AGREEMENTS
SAT had entered into employment agreements (the "Employment Agreements")
with each of James C. Witham, Karen B. Laustsen and Gary S. Wolff providing for
a three-year term commencing January 1, 1994 and terminating December 31, 1996.
On April 18, 1996, Mr. Witham and Ms. Laustsen resigned their directorships and
officerships, but agreed to continue to serve SAT as employees until May 31,
1996. Mr. Wolff resigned as Treasurer, Chief Financial Officer and the Chief
Accounting Officer of SAT, Good Ideas and U.S. Drug and as a director of Good
Ideas and U.S. Drug on July 3, 1996. The Employment Agreements terminated on May
31, 1996 as to Mr. Witham and Ms. Laustsen and on July 3, 1996 as to Mr. Wolff,
except that SAT made a $25,000 severance payment to Mr. Wolff and continued
medical benefits for the three former executive officers until December 31,
1996, the original expiration date of the Employment Agreements. Mr. Wolff
continued for a few months after July 3, 1996 to assist SAT in its efforts to
sell the stock or assets of Good Ideas.
Pursuant to his Employment Agreement, Mr. Witham was employed as the
President and Chief Executive Officer of SAT at an annual base salary of
$330,000. Pursuant to her Employment Agreement, Ms. Laustsen was employed as an
Executive Vice President at an annual base salary of $132,000. Pursuant to his
Employment Agreement, Mr. Wolff was employed as the Treasurer and Chief
Financial Officer at an annual base salary of $176,000 per year. Each of such
salaries reflected a 10% increase effective July 1, 1995, which increase was the
first in 18 months. Mr. Witham and Ms. Laustsen were each required to devote
substantially all of his or her time to the business of SAT, while Mr. Wolff was
only required to devote a majority of his time.
The Employment Agreements contained standard provisions for participation
by the executive in SAT's benefit programs, whether relating to the SAT Common
Stock, bonuses or medical, life and disability insurance or otherwise. Mr.
Witham and Ms. Laustsen were each provided with a company car, which have been
returned to SAT. The Employment Agreements also provided for termination in the
event of disability for six or more consecutive months and termination "for
cause" which meant conviction for embezzlement, theft or other criminal act
constituting a felony or failure to comply with the terms and conditions of the
Agreement if such breach was not cured within seven days after written notice
was given to the executive by the Board of Directors.
Effective April 18, 1996, Robert M. Stutman, the President and a principal
shareholder of RSA, became the Chief Executive Officer of SAT (also its Chairman
of the Board). From April 18, 1996 to May 20, 1997, Mr. Stutman's annual base
salary was $225,000; effective May 21, 1997, it became $350,000. The annual base
salary increases to (1) $400,000 upon the Company being profitable for a fiscal
year during the term of the Amended and Restated Severance Agreement dated May
21, 1997 (the "Restated Severance Agreement") between Mr. Stutman and SAT, a
copy of which is filed as an exhibit to this Report and is incorporated herein
by this reference, or any renewal thereof with sales equal to, or greater than,
$20,000,000 and (2) $500,000 upon the Company being profitable for a fiscal year
during the term of the Restated Severance Agreement or any renewal thereof with
sales equal to, or greater than, $40,000,000; provided that, in calculating
profitability and sales, the operations of U.S. Drug are excluded. He was
eligible to receive a cash bonus of $100,000 if the Company broke even or was
profitable in fiscal 1997 and an additional $150,000 if the Company had net
earnings of $2,000,040 in fiscal 1997. However, because SAT did not achieve
profitability in fiscal 1997, this term of employment became moot. Mr. Stutman
received a one-time cash bonus of $50,000 upon ProActive satisfying certain
performance standards in fiscal 1996. In subsequent years, commencing with
fiscal 1998, Mr. Stutman will receive an aggregate year-end cash bonus (the
"Annual Bonus") equal to the bonus percentage (as set forth hereinafter)
multiplied by Mr. Stutman's annual base salary as follows: (a) if the Company
achieves its financial objectives in such fiscal year, based upon a
Board-approved budget, commencing with fiscal year 1998, the bonus percentage
shall be 75%; (b) if the Company achieves 100% of its financial objectives and
up to 150% of its financial objectives for a fiscal year, then the bonus
percentage shall equal the product of 75% and a fraction, the numerator of which
shall be the percentage of the financial objectives actually achieved (e.g.,
150%), except that any amount in excess of 150% shall be deemed to be 150% for
the purposes of this calculation, and the denominator of which shall be 75%; (c)
if the Company achieves 80% or more of its financial objectives for a fiscal
year up to 100%, Mr. Stutman shall receive an
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Annual Bonus based upon a pro rata amount of the bonus percentage (e.g., if 90%
of the financial objectives are achieved, the bonus percentage shall be 37.5%);
and (d) if the Company achieves less than 80% of its financial objectives for a
fiscal year, Mr. Stutman shall not receive any Annual Bonus. Pursuant to the
Restated Severance Agreement, a bonus payment in the amount of $50,000 shall be
paid to Mr. Stutman upon the renewal thereof. Mr. Stutman shall be granted a
stock option to purchase a minimum of 50,000 shares of SAT Common Stock per year
at the end of each year during the term of the Restated Severance Agreement or
renewal thereof at an exercise price equal to the closing sale price, as
reported on AMEX or such other exchange or national securities association on
which the SAT Common Stock may then be regularly quoted or, if not so quoted, as
reported in the over-the-counter market at the time of such grant and if such
day shall be a day on which the AMEX shall be closed, the preceding day on which
the SAT Common Stock is traded (the "Closing Sales Price") and expiring three
years from the date of grant. Mr. Stutman shall also be awarded 150,000 shares
of the SAT Common Stock for each $.75 increase in the Closing Sales Price of the
SAT Common Stock above $1.375, with such increase to be determined by the
average of the Closing Sales Prices of the SAT Common Stock during any 90-day
period commencing with the fiscal year ending March 31, 1998; provided, however,
once the average of the Closing Sales Prices of the SAT Common Stock reaches an
award level (e.g., $2.125), no awards will be made again until the average of
the Closing Sales Prices of the SAT Common Stock during a 90-day period reaches
the next award level (e.g., $2.875 after $2.125). In the event that Mr. Stutman
is terminated without cause (as defined in the Restated Severance Agreement)
during the first five years (originally three years (i.e., through May 20, 2001
(originally 1999) that he is employed by SAT, he shall receive severance pay in
a lump sum amount equal to his annual base salary that would have been paid to
him after the date of termination had Mr. Stutman not been terminated and he had
been employed by SAT for a period of five (originally three) years.
Effective May 13, 1996, Linda H. Masterson, a member of SAT's Board of
Directors, was employed as the President and Chief Operating Officer of SAT. On
November 19, 1996, Ms. Masterson relinquished her duties as Chief Operating
Officer in order to devote more time to supervising the development program of
U.S. Drug and the operations of the Alcohol Products and BioTox Divisions of
SAT. Effective May 23, 1997, she resigned as the President of SAT in order to
become Chief Executive Officer of U.S. Drug (she was already its President) as
part of the program to study the feasibility of separating the interlocking
relationships between SAT and U.S. Drug. Ms. Masterson's annual base salary is
$175,000. Ms. Masterson was granted a Common Stock purchase warrant to purchase
600,000 shares of the SAT Common Stock. If SAT adopts a stock option plan, then
the Common Stock purchase warrant will be converted to a stock option subject to
such plan. In either case, the option or warrant was to become exercisable over
a four-year period as follows: 50,000 shares upon commencement of the term of
employment (i.e., May 13, 1996), 100,000 shares at the end of the first year,
150,000 shares at the end of the second year, 150,000 shares at the end of the
third year and 150,000 shares at the end of the fourth year. The expiration
dates of the stock option will be in accordance with the terms of the stock
option plan and the expiration dates of the warrant were four years from the
respective dates on which the warrant becomes exercisable. The initial exercise
price was $3.125 share. On December 6, 1996, the SAT Board of Directors, while
reducing the exercise price of Common Stock purchase warrants granted to other
employees from $3.50 to $2.125 per share, made the following adjustments to Ms.
Masterson's warrant: (a) the exercise price was also reduced to $2.125 per share
for the first 150,000 shares as to which the warrant was currently or became
exercisable on May 13, 1997 and (b) the warrant became exercisable on May 13,
1997 at the reduced exercise price with respect to 50,000 of the 150,000 shares
as to which the warrant was first to become exercisable in the fourth year. In
consideration of her assuming responsibility for U.S. Drug, on May 23, 1997, the
SAT Board of Directors reduced the exercise price on the remaining 400,000
shares from $3.125 to $2.125 and agreed that, if, as result of U.S. Drug ceasing
to be owned 50% or more by SAT, the restrictions on exercise terminate. A
discretionary cash and/or stock bonus may be paid commencing with the fiscal
year after the fiscal year in which the Company first has positive earnings. A
bonus in the form of stock options pursuant to an employee stock option plan or
warrants, if no such plan is adopted, was to be granted in respect of fiscal
1997 as follows: 33,000 shares if the Company broke even in fiscal 1997 and an
additional 50,000 shares if the Company had net earnings of $2,000,040 for
fiscal 1997. However, as indicated above for Mr. Stutman, this bonus arrangement
for fiscal 1997 became moot. In the event that Ms. Masterson is terminated
without cause (as defined), she shall be paid, pursuant to a Severance
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Agreement dated June 27, 1996 (the "Masterson Severance Agreement") between Ms.
Masterson and SAT, a copy of which is filed as an exhibit to this Report and is
incorporated herein by this reference, severance equal to her annual base
salary. In view of her acceptance of the position in U.S. Drug, the Compensation
Committee is currently working out a new severance arrangement with Ms.
Masterson to take effect in U.S. Drug when it is no longer at least a 50%-owned
subsidiary of SAT as a result of financings. In the interim the Masterson
Severance Agreement remains in effect.
Effective May 23, 1997, David L. Dorff was employed as the President and
Chief Operating Officer of SAT with an annual base salary of $120,000. The
annual base salary increases to (1) $275,000 upon SAT being profitable for two
consecutive calendar months during the term of the Severance Agreement dated
June , 1997 (the "Dorff Severance Agreement") between Mr. Dorff and SAT, a
copy of which is filed as an exhibit to this Report and is incorporated herein
by this reference, or any renewal thereof, (2) $325,000 upon SAT being
profitable for a fiscal year during the term of the Dorff Severance Agreement or
any renewal thereof with sales equal to, or greater than, $20,000,000 and (3)
$375,000 upon SAT being profitable for a fiscal year during the term of the
Dorff Severance Agreement or any renewal thereof with sales equal to, or greater
than $40,000,000; provided that, in calculating profitability and sales, the
operations of U.S. Drug are excluded. Mr. Dorff shall receive an Annual Bonus
equal to the bonus percentage (as set forth hereinafter) multiplied by his
annual base salary as follows: (a) if the Company achieves 100% of its financial
objectives in such fiscal year, based upon a Board-approved budget excluding the
operations of U.S. Drug, commencing with fiscal 1998, the bonus percentage shall
be 75%; (b) if the Company achieves greater than 100% of its financial
objectives and up to 150% of its financial objectives for a fiscal year, then
the bonus percentage shall equal the product of 75% and a fraction, the
numerator of which shall be the percentage of the financial objectives actually
achieved (e.g., 150%), except that any amount in excess of 150% shall be deemed
to be 150% for the purposes of this calculation, and the denominator of which
shall be 75%; (c) if the Company achieves 80% or more of its financial
objectives for a fiscal year up to 100%, Mr. Dorff shall receive an Annual Bonus
based upon a pro rata amount of the bonus percentage (e.g., if 90% of the
financial objectives are achieved, the bonus percentage shall be 37.5%); and (d)
if the Company achieves less than 80% of its financial objectives for a fiscal
year, Mr. Dorff shall not receive any Annual Bonus. A bonus payment in the
amount of $50,000 shall be paid to Mr. Dorff upon each renewal of the Dorff
Severance Agreement. Mr. Dorff shall be granted, at the end of each fiscal year
during the term of the Dorff Severance Agreement or any renewal thereof, a stock
option to purchase a minimum of 50,000 shares of SAT Common Stock at an exercise
price equal to the Closing Sale Price on the date of grant and expiring three
years from the date of grant. Mr. Dorff shall be awarded 125,000 shares of SAT
Common Stock for each $.75 increase in the Closing Sales Price of the SAT Common
Stock above $1.375, with such increase to be determined by the average of the
Closing Sales Prices of the SAT Common Stock during any 90-day period commencing
with fiscal 1998; provided, however, once the average of the Closing Sales
Prices of the SAT Common Stock reach an award level (e.g., $2.125), no awards
will be made again until the average of the Closing Sales Prices of the SAT
Common Stock during a 90-day period reaches the next award level (e.g., $2.875
after $2.125). All shares of the SAT Common Stock awarded shall be vested over a
three-year period. In addition, Mr. Dorff was awarded Common Stock purchase
warrants upon the execution of the Dorff Severance Agreement to purchase (a)
700,000 shares of the SAT Common Stock at an exercise price of $1.8125 per
share, (b) 300,000 shares of the SAT Common Stock at an exercise price of
$2.3125 and (c) 300,000 shares of the SAT Common Stock at an exercise price of
$2.8125 per share. One-third of each warrant becomes exercisable on June 1998,
June 1999 and June 2000, provided that Mr. Dorff is employed by SAT on such
dates. The warrants expire five years from the date of the Dorff Severance
Agreement. In the event that Mr. Dorff is terminated without cause (as defined)
during the first three years of his employment by SAT, he shall receive
severance pay in a lump sum amount equal to his annual base salary at the time
of his termination for the period from the date of his termination through June
2000.
Effective May 21, 1996, when RSA became a subsidiary of SAT, Brian Stutman
continued to serve as Vice President of Business Development for RSA. On
December 3, 1996, he was elected as Vice President, Sales and Marketing of SAT.
Mr. Stutman's annual base salary is $130,000. He was eligible for a bonus of
$30,000 for fiscal 1997 if his business plan goals were met and received a
one-time bonus of $30,000 upon ProActive satisfying certain performance
standards in fiscal 1996. On June 24, 1997, the Compensation
7
9
Committee authorized an increase, effective with the next pay period, in Mr.
Stutman's base annual salary to $175,000 and that his bonus for fiscal 1998
would be an amount up to 30% of his annual base salary, one half of which would
be based on the financial results of the Company, as compared to a
Board-approved budget, and one half of which would be based on his performance
with respect to individual goals to be determined by the President of SAT. The
Board also granted him a Common Stock purchase warrant to purchase 15,000 shares
of the SAT Common Stock at $2.125 per share on the same terms as other employee
warrants (i.e., becoming exercisable over a four-year period and each
installment expiring three years from the date it becomes exercisable). In the
event Mr. Stutman is terminated without cause (as defined) during the first
three years (i.e., through May 20, 1999) that he is employed by SAT, then,
pursuant to a Severance Agreement dated May 21, 1996 between Mr. Stutman and
SAT, a copy of which is filed (by incorporation by reference) as an exhibit to
this Report and is incorporated herein by this reference, he shall receive
severance pay in an amount equal to the base salary that would have been paid to
him after the date of termination had Mr. Stutman not been terminated and had he
been employed by SAT for a period of three years.
DIRECTORS' COMPENSATION
On November 16, 1995, as modified on December 11, 1995 and December 3,
1996, the Board approved the following compensation arrangements for directors
who are not employees of the Company: (1) each year the director will receive a
SAT Common Stock purchase warrant to purchase 10,000 shares of the SAT Common
Stock excercisable at the closing sales price on November 16 or the preceding
business day if November 16 is a Saturday, Sunday or holiday (effective October
1, 1997, the date will become October 1) for a three-year period; (2) an annual
payment of $10,000 and (3) a quarterly payment of $2,500 provided that the
director attends at least 75% of the meetings during the year. The Board also
authorized an annual payment of $1,000 for a director serving as the Chairman of
a Board committee and $500 for serving as a member of a Board committee. All
annual cash payments are to be made as of October 1, commencing October 1, 1996.
Pursuant to the foregoing authority, Common Stock purchase warrants were granted
for 1995 to five directors (i.e., Alan I. Goldman, John C. Lawn, Peter M. Mark,
Linda H. Masterson and Lee S. Rosen) to purchase an aggregate of 50,000 shares
at $1.9375, the closing sales price on November 16, 1995 and for 1996 to five
directors (i.e., Alan I. Goldman, John C. Lawn, Peter M. Mark, Michael S. McCord
and Lee S. Rosen) at $1.8125, the closing sales price on November 15, 1996. The
Board approved the following compensation for all directors: the issuance of a
SAT Common Stock purchase warrant to purchase 10,000 shares of the SAT Common
Stock for each $1.00 rise over the closing sales price of the SAT Common Stock
on November 16th (October 1st commencing October 1, 1997) of each year (which
would be $1.9375 for November 16, 1995 and $1.8125 for November 15, 1996), the
rise to be calculated on the basis of the average of the closing sales prices
during the 90-day period preceding the 30th day after the date on which the
results of operations for the fiscal year are announced either through a press
release or the filing of the Annual Report on Form 10-K under Section 13 of the
Exchange Act. The exercise price will be the greater of the average of the
closing sales prices during the 90-day period or the closing sales price on
October 1 commencing October 1, 1997. Based on the fact that the results of
operations for fiscal 1996 were reported in a press release dated June 14, 1996,
each of the current directors did not receive a Common Stock purchase warrant in
1996 because the average sales price during the 90-calendar days prior to July
14, 1996 was $2.9308 per share or less than a $1.00 rise over $1.9375 per share.
It is also anticipated that the directors will not receive a Common
8
10
Stock purchase warrant in 1997 because there was no $1.00 rise over $2.9308 per
share of the SAT Common Stock.
PERFORMANCE GRAPH
[PLOT POINTS TO COME]
TOTAL SHAREHOLDER RETURNS
(DIVIDENDS REINVESTED)
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY NAME/INDEX MAR 93 MAR 94 MAR 95 MAR 96 MAR 97
- ----------------------------------------------------------------------------------------------------
SUBSTANCE ABUSE TECH............................ -62.07 63.64 -11.11 66.75 -67.42
S&P 500 INDEX................................... 15.23 1.47 15.57 32.10 19.82
NEW PEER GROUP.................................. -11.80 -0.16 31.90 -0.64 9.76
OLD PEER GROUP.................................. -2.14 22.03 0.76 50.70 -12.54
9
11
INDEXED RETURNS
BASE YEARS ENDING
PERIOD
COMPANY NAME/INDEX MAR 92 MAR 93 MAR 94 MAR 95 MAR 96 MAR 97
- ----------------------------------------------------------------------------------------------------
SUBSTANCE ABUSE TECH................. 100 37.93 62.07 55.17 93.10 39.84
S&P 500 INDEX........................ 100 115.23 116.93 135.13 176.51 213.89
NEW PEER GROUP....................... 100 86.20 88.06 116.15 115.41 126.87
OLD PEER GROUP....................... 100 97.68 119.42 118.51 214.15 123.06
NEW PEER GROUP COMPANIES OLD PEER GROUP COMPANIES
- --------------------------------------------------------------------------------------------
EPITOPE, INC................................ AHOROS INC.
EQUIFAX, INC................................ IMO INDUSTRIES INC.
GLOBAL MED TECHNOLOGIES INC................. INPUTOUTPUT INC.
LABORATORY CP OF AMER. HLDGS................ INSTRON CORP.
LIBERTY TECHNOLOGIES INC.
MEASUREMENT SPECIALTIES INC.
MEDIA LOGIC INC.
MODERN CONTROLS INC.
MTS SYSTEMS CORP.
MDC AUTOMATION INC.
RHEOMETRICS SCIENTIFIC INC.
SUBSTANCE ABUSE TECH.
10
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The Company's financial statements appear in a separate section of this
Report commencing on the pages referenced below:
PAGE
----
Report of the Independent Certified Public Accountants........................ F-1
Report of the Independent Certified Public Accountants........................ F-2
Consolidated Balance Sheets at March 31, 1997 and 1996........................ F-3
Consolidated Statements of Operations for the Years Ended March 31, 1997, 1996
and 1995.................................................................... F-4
Consolidated Statements of Stockholders Equity for the Years Ended
March 31, 1997, 1996 and 1995............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1997, 1996
and 1995.................................................................... F-7
Notes to Consolidated Financial Statements.................................... F-9
(a) 2. Financial Statement Schedules
The following financial statement schedule of Substance Abuse Technologies,
Inc. and subsidiaries are included herein.
Schedule II Valuation and qualifying accounts
All other schedules are omitted as they are not required, are inapplicable,
or the information is included in the financial statements or notes thereto.
(a) 3. Exhibits
All of the following exhibits designated with a footnote reference are
incorporated herein by reference to a prior registration statement filed under
the Securities Act of 1933, as amended (the "Securities Act"), or a periodic
report filed by SAT, Good Ideas or U.S. Drug pursuant to Section 13 of the
Exchange Act. An exhibit marked with an asterisk is filed with this Report.
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------
2(a) Copy of Exchange of Stock Agreement and Plan of Reorganization dated May 7,
1992 between Good Ideas Enterprises, Inc., a Texas corporation ("Good Ideas
Texas"), U.S. Alcohol & Drug Testing International N.V. and David Brooks.(1)
2(b) Copy of Agreement and Plan of Merger dated as of April 12, 1996 by and among
SAT, Good Ideas Acquisition Corp. and Good Ideas.(2)
2(b)(1)* Copy of Agreement and Plan of Merger dated as of February 17, 1997 by and
among SAT, Good Ideas Acquisition Corp. and Good Ideas.
2(c) Copy of Agreement and Plan of Merger dated as of April 23, 1996 by and among
SAT, U.S. Drug Acquisition Corp. and U.S. Drug.(3)
11
13
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------
2(c)(1)* Copy of Agreement and Plan of Merger dated as of February 17, 1997 by and
among SAT, U.S. Drug Acquisition Corp. and U.S. Drug.
2(d) Copy of the Certificate of Merger of Good Ideas Texas with and into Good Ideas
as filed on December 17, 1992.(1)
3(a) Copy of Certificate of Incorporation of SAT as filed in Delaware on April 15,
1987.(4)
3(a)(1) Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
July 10, 1989.(4)
3(a)(2) Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
September 25, 1989.(4)
3(a)(3) Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
October 5, 1990.(4)
3(a)(4) Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
December 26, 1990.(5)
3(a)(5) Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
November 1, 1991.(5)
3(a)(6) Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
May 20, 1992.(6)
3(a)(7)* Copy of Amendment to the Certificate of Incorporation as filed in Delaware on
October 28, 1996.
3(b) Copy of By-Laws of SAT.(4)
4(a) Specimen of Common Stock certificate of U.S. Alcohol Testing of America,
Inc.(4)
4(a)(1)* Specimen of Common Stock certificate of SAT.
4(b) Specimen of Class "A" Cumulative and Convertible Preferred Stock certificate
of U.S. Alcohol Testing of America, Inc.(4)
4(b)(1)* Specimen of Class "A" Cumulative and Convertible Preferred Stock certificate
of SAT.
4(c) Specimen of Class "B" Non-Voting Preferred Stock certificate of U.S. Alcohol
Testing of America, Inc.(7)
4(d) Copy of Convertible Loan and Warrant Agreement dated November 8, 1996 by and
between SAT, S.A.C. Capital Associates, LLC and Steven A. Cohen.(13)
4(d)(1) Form of Registration Rights Agreement is Exhibit A to Exhibit 4(d) hereto.(13)
4(d)(2) Form of Convertible Senior Promissory Note due November 8, 1999 is Exhibit B
to Exhibit 4(d) hereto.(13)
4(d)(3) Form of Common Stock Purchase Warrant expiring June 30, 2000 is Exhibit C to
Exhibit 4(d) hereto.(13)
4(e) Copy of Convertible Debenture and Preferred Stock Purchase Agreement dated as
of May 8, 1997 between SAT and Southbrook International Investments, Ltd.
("Southbrook").
4(e)(1) Registration Rights Agreement dated as of May 8, 1996 between SAT and
Southbrook.
4(e)(2) Class B Exchange Agreement dated as of May 8, 1997 between SAT and Southbrook.
4(e)(3) 14% Convertible Debenture of SAT due May 8, 2000.
4(e)(4) Form of Common Stock Purchase Warrant expiring May 8, 2000.
10(a) Form of the Company's Indemnification Agreement with Officers and
Directors.(4)
10(b) Copy of License Agreement dated January 24, 1992 by and between the United
States Department of the Navy and SAT. (Confidential Treatment Requested for
Exhibit.)(8)
12
14
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------
10(b)(1) Copy of Amendment dated March 15, 1994 to License Agreement filed as Exhibit
10(b) hereto.(3)
10(b)(2) Copy of Amendment dated June 16, 1995 to License Agreement filed as Exhibit
10(b) hereto.(3)
10(b)(3) Copy of Letter dated May 15, 1995 from the USN to SAT.(3)
10(c) Copy of Assignment dated as of January 1, 1993 between SAT and U.S. Drug of
the Licensing Agreement filed as Exhibit 10(b) hereto.(8)
10(c)(1) Copy of Amended Sublicense Agreement dated September 23, 1993 superseding the
Assignment filed as Exhibit 10(b) hereto.(3)
10(c)(2) Copy of Approval dated September 24, 1993 by the USN of Amended Sublicense
Agreement filed as Exhibit 10(b) hereto.(3)
10(d) Copy of Cooperative Research Agreement (the "CRDA Agreement") dated April 16,
1992 by and between Naval Research Laboratory Section, United States
Department of the Navy, and SAT.(8)
10(d)(1) Copy of Assignment of CRDA Agreement dated as of January 1, 1993 by and
between U.S. Drug and SAT.(8)
10(e) Copy of Management Agreement dated April 1, 1993 by and between U.S. Drug and
SAT.(8)
10(e)(1) Copy of Amendment dated July 20, 1993 to Management Services Agreement filed
as Exhibit 10(e) hereto.(8)
10(f) Copy of Management Services Agreement dated December 29, 1993 by and between
Good Ideas and SAT.(2)
10(g) Copy of Equipment, Licensing, Servicing and Maintenance Agreement dated as of
December 13, 1994 by and between SAT and METPATH, Inc.(7)
10(h) Copy of Equipment, Licensing, Servicing and Maintenance Agreement dated as of
December 22, 1994 by and between SAT and National Health Laboratories
Incorporated.(7)
10(i) Copy of Lease dated March 18, 1991 by and between Rancho Cucamonga Business
Park (now The Realty Trust) as landlord and SAT as tenant.(7)
10(j)(1) Copy of Lease Modification Agreement to Lease filed as Exhibit 10(o)
hereto.(7)
10(j)(2) Copy of Sub-Lease Agreement dated as of January 1, 1993 by and between SAT as
sublandlord and U.S. Drug as subtenant.(8)
10(j)(3)* Copy of Third Amendment dated January 2, 1997 to Lease filed as Exhibit 10(j)
hereto.
10(k) Copy of Lease dated December 9, 1992 by and between Melvin E. Evans as
landlord and Good Ideas as tenant.(1)
10(l) Copy of Lease expiring June 30, 1999 by and between Rancho Cucamonga Business
Park as landlord and U.S. Rubber Recycling, Inc. ("USRR") as tenant.(7)
10(m) Copy of Consulting and Royalty Agreement dated June 20, 1988 between Manley
Luckey and SAT.(4)
10(m)(1) Copy of Amendment dated August 1990 to Consulting and Royalty Agreement filed
as Exhibit 10(m) hereto.(4)
10(n) Form of Warrant Agreement dated December 17, 1990 between J. Gregory & Company
Inc. and SAT.(4)
10(n)(1) Form of Underwriter's Warrant expiring December 17, 1997 of SAT.(4)
10(o) Form of Common Stock purchase warrant expiring October 31, 1996 of SAT.(6)
13
15
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------
10(p) Form of Common Stock purchase warrant.(5)
SAT's Common Stock purchase warrants expiring August 28, 1996, September 1,
1996, September 16, 1996, September 30, 1996, October 31, 1996, May 17, 1997,
September 16, 1997, November 1, 1997, December 17, 1997, December 31, 1997,
February 28, 1998, April 15, 1998, July 17, 1998, August 27, 1998, September
1, 1998, November 1, 1998, November 15, 1998, December 13, 1998, December 20,
1998, December 27, 1998, January 2, 1999, January 31, 1999, February 26, 1999,
February 28, 1999, March 31, 1999, April 14, 1999, April 17, 1999, May 12,
1999, July 17, 1999, July 19, 1999, August 11, 1999, December 31, 1999,
January 29, 2000, October 19, 2000, December 31, 2000 and December 31, 2001
are substantially identical to the form of Common Stock purchase warrant filed
(by incorporation by reference) as Exhibit 10(p) hereto except as to the name
of the holder, the expiration date and the exercise price and, accordingly,
pursuant to Instruction 2 to Item 601 of Regulation S-K under the Securities
Act are not individually filed.
10(q) Restricted Stock, Non-Qualified Option and Incentive Stock Option Plan of
SAT.(4)
10(q)(1) Form of Stock Option expiring August 1, 2004 issued pursuant to Exhibit 10(q)
hereto.(7)
10(r) Form of Common Stock purchase warrant expiring December 17, 1999.(9)
10(s) Form of Warrant Agreement by and between Good Ideas and Baraban Securities,
Incorporated.(1)
10(s)(1) Form of Common Stock purchase warrant expiring February 16, 1999 of Good
Ideas.(1)
10(s)(2) Form of Common Stock purchase warrant expiring February 16, 1999 of SAT to be
issued in lieu of the Common Stock purchase warrant of Good Ideas filed as
Exhibit 10(s)(1) hereto.
10(t) Copy of Agreement made as of December 14, 1995 by and between SAT, ProActive
Synergies, Inc., Robert Stutman & Associates, Inc. and Robert Stutman.(10)
10(u) Copy of Asset Purchase Agreement dated April 30, 1996 by and among USRR, SAT
and Reclamation Resources Inc.(11)
10(v) 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.(11)
10(v)(1) Form of Secured Promissory Note dated May 21, 1996 is Exhibit A to Exhibit
10(v) hereto.
10(v)(2) Form of Security Agreement dated May 21, 1996 by and among SAT, Robert Stutman
and Brian Stutman is Exhibit C to Exhibit 10(v) hereto.
10(v)(3) Form of SAT Warrant expiring May 20, 1999 is Exhibit B to Exhibit 10(v)
hereto.
10(v)(4) 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 10(v) hereto.
10(w) Copy of Severance Agreement dated May 21, 1996 by and between SAT and Robert
Stutman.(11)
10(w)(1)* Copy of Amended and Restated Severance Agreement dated May 21, 1997 by and
between SAT and Robert Stutman.
10(x) Copy of Severance Agreement dated May 21, 1996 by and between SAT and Brian
Stutman.(11)
10(y)* Copy of Severance Agreement dated June 27, 1996 by and between SAT and Linda
H. Masterson.
14
16
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------
10(z)* Copy of Form of Severance Agreement dated June , 1997 by and between SAT and
David L. Dorff.
10(aa)* Copy of Sublease dated as of June 20, 1996 by and between Lifecare
Investments, Inc. ("Lifecare"), Sublessor, and SAT, Sublessee.
10(aa)(1)* Copy of Wingate Commons Business Park Net Lease dated September 27, 1991 by
and between Reynolds Metals Development Company, Landlord, and Lifecare,
Tenant.
10(aa)(2)* Copy of First Addendum to the Lease filed as Exhibit 10(aa)(1) hereto.
10(aa)(3)* Copy of Second Addendum to the Lease filed as Exhibit 10(aa)(1) hereto.
10(bb) Copy of Demand Promissory Note dated March 31, 1995 executed by SAT in favor
of Good Ideas.(12)
10(bb)(1) Copy of Demand Promissory Note dated March 31, 1995 executed by USRR in favor
of Good Ideas.(12)
10(cc) Form of Warrant Agreement by and between U.S. Drug and Baraban Securities,
Incorporated.(8)
10(cc)(1) Form of Common Stock purchase warrant expiring October 13, 1998 of U.S.
Drug.(8).
10(cc)(2) Form of Common Stock purchase warrant expiring October 13, 1998 of SAT to be
issued in lieu of the Common Stock purchase warrant of U.S. Drug filed as
Exhibit 10(cc)(1) hereto (to be prepared on consummation of the U.S. Drug
Merger with the same terms as Exhibit 10(cc)(1) except for the name of the
issuer, number of shares and exercise price).
10(dd)* Form of Common Stock purchase warrant expiring November 15, 1999. SAT's Common
Stock purchase warrants expiring November 15, 1999, December 2, 1999 and three
years from the effective date of a registration statement under the Securities
Act are substantially identical to the form of Common Stock purchase warrant
filed as Exhibit 10(dd) hereto except as to the name of the holder, the
expiration date and the exercise price and, accordingly, pursuant to
Instruction 2 to Item 601 of Regulation S-K under the Securities Act are not
individually filed.
10(ee)* Form of Common Stock purchase warrant with deferred exercise.
SAT's Common Stock purchase warrants expiring three years from the effective
date of a registration statement under the Securities Act and those issued or
to be issued to employees, of which the currently outstanding warrants expire
between September 11, 2000 and June 23, 2004, are substantially identical to
the form of Common Stock purchase warrant filed as Exhibit 10(ee) hereto
except as to the name of the holder, the expiration date and the exercise
price and, accordingly, pursuant to Instruction 2 to Item 601 of Regulation
S-K under the Securities Act are not individually filed.
10(ff) Copy of Employment Agreement dated December 31, 1993 between SAT and James C.
Witham.(7)
10(gg) Copy of Employment Agreement dated December 13, 1993 between SAT and Karen B.
Laustsen.(7)
10(hh) Copy of Employment Agreement dated December 13, 1993 between SAT and Gary S.
Wolff.(7)
10(ii) Copy of Employment Agreement dated December 13, 1993 between SAT and Michael
J. Witham.(7)
10(jj)* Copy of Letter of Agreement dated July 16, 1997 by and between SAT and
National Review Medical Offices, Inc. ("NMRO").
15
17
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------
10(jj)(1)* Assignment and Assumption of Interim Management Agreement dated July 15, 1997
by and between SAT and NMRO.
16 Copy of Letter dated November 16, 1995 from Wolinetz, Gottlieb & Lafazan, P.C.
to the Securities and Exchange Commission.(14)
21* Subsidiaries of SAT.
- ---------------
(1) Filed as an exhibit to Good Ideas' Registration Statement on Form S-1, File
No. 33-73494, and incorporated herein by this reference.
(2) Filed as an exhibit to Good Ideas' Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by this reference.
(3) Filed as an exhibit to U.S. Drug's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by this reference.
(4) Filed as an exhibit to SAT's Registration Statement on Form S-18, File No.
33-29718, and incorporated herein by this reference.
(5) Filed as an exhibit to SAT's Registration Statement on Form S-1, File No.
33-43337, and incorporated herein by this reference.
(6) Filed as an exhibit to SAT's Registration Statement on Form S-1, File No.
33-47855, and incorporated herein by this reference.
(7) Filed as an exhibit to SAT's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated herein by this reference.
(8) Filed as an exhibit to U.S. Drug's Registration Statement on Form SB-2,
File No. 33-61786, and incorporated herein by this reference.
(9) Filed as an exhibit to SAT's Current Report on Form 8-K filed on November
2, 1992 and incorporated herein by this reference.
(10) Filed as an exhibit to SAT's Registration Statement on Form S-8 filed on
March 5, 1996 and incorporated herein by this reference.
(11) Filed as an exhibit to SAT's Current Report on Form 8-K filed on June 5,
1996 and incorporated herein by this reference.
(12) Filed as an exhibit to Good Ideas' Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 and incorporated herein by this reference.
(13) Filed as an exhibit to Amendment 2 to Schedule 13D filed by Steven A. Cohen
on November 12, 1996 and incorporated herein by this reference.
(14) Filed as an Exhibit to SAT's Current Report on Form 8-K/A filed on November
22, 1995 and incorporated herein by this reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31,
1997.
16
18
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on July 23, 1997.
SUBSTANCE ABUSE TECHNOLOGIES, INC.
(Company)
By: /s/ ROBERT M. STUTMAN
------------------------------------
Robert M. Stutman
Chairman and Chief Executive
Officer
17
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Substance Abuse Technologies, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Substance
Abuse Technologies, Inc. (formerly U.S. Alcohol Testing of America, Inc.) and
subsidiaries (the Company) as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' (deficit) equity, and cash
flows for the years then ended. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Substance Abuse
Technologies, Inc. and subsidiaries at March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements as a whole, present fairly in all material
respects the information set forth therein.
The accompanying financial statements have been prepared assuming that
Substance Abuse Technologies, Inc. will continue as a going concern. As more
fully described in Note 2, the Company has incurred recurring operating losses
and, at March 31, 1997, has a working capital deficiency and a deficiency in
stockholders' equity. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Miami, Florida
July 3, 1997, except for Note 13,
as to which the date is July 7, 1997
F-1
20
SUBSTANCE ABUSE TECHNOLOGIES, INC.
EXHIBIT INDEX
SUBSTANCE ABUSE TECHNOLOGIES, INC.
EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K/A
FOR FISCAL YEAR ENDED MARCH 31, 1997
Page
Number Exhibit Number
- ------ ------- ------
2(b)(1) Copy of Agreement and Plan of Merger dated as of February 17, E-4
1997 by and among SAT, Good Ideas Acquisition Corp. and
Good Ideas.
2(c)(1) Copy of Agreement and Plan of Merger dated as of February 17, E-29
1997 by and among SAT, U.S. Drug Acquisition Corp. and U.S.
Drug.
3(a)(7) Copy of Amendment to the Certificate of Incorporation as filed E-58
in Delaware on October 28, 1996.
4(a)(1) Specimen of Common Stock certificate of SAT. E-59
4(b)(1) Specimen of Class "A" Cumulative and Convertible Preferred E-61
Stock certificate of SAT.
10(j)(3) Copy of Third Amendment dated January 2, 1997 to Lease E-63
filed as Exhibit 10(j)
10(w)(1) Copy of Amended and Restated Severance Agreement dated E-64
May 21, 1997 by and between SAT and Robert M. Stutman.
10(y) Copy of Severance Agreement dated June 27, 1996 by and between E-74
SAT and Linda H. Masterson.
E-1
21
Page
Number Exhibit Number
- ------ ------- ------
10(z) Copy of Form of Severance Agreement dated June __, 1997 by and E-80
between SAT and David L. Dorff.
10(aa) Copy of Sublease dated as of June 20, 1996 by and between E-91
Lifecare Investments, Inc. ("Lifecare"), Sublessor, and SAT,
Sublessee.
10(aa)(1) Copy of Wingate Commons Business Park Net Lease dated E-97
September 27, 1991 by and between Reynolds Metals
Development Company, Landlord, and Lifecare, Tenant.
10(aa)(2) Copy of First Addendum to the Lease filed as Exhibit 10(aa)(1) E-116
hereto.
10(aa)(3) Copy of Second Addendum to the Lease filed as Exhibit E-120
10(aa)(1) hereto.
10(cc)(2) Form of Common Stock purchase warrant expiring October E- 13,
1998 of SAT to be issued in lieu of the Common Stock purchase
warrant of U.S. Drug filed as Exhibit 10(cc)(1) hereto (to be
prepared on consummation of the U.S. Drug Merger with the same
terms as Exhibit 10(cc)(1) except for the name of the issuer,
number of shares and exercise price).
10(dd) Form of Common Stock purchase warrant expiring November 15, E-122
1999.
SAT's Common Stock purchase warrants expiring November 15,
1999, December 2, 1999 and three years from the effective date
of a registration Statement under the Securities Act are
substantially identical to the form of Common Stock purchase
warrant filed as Exhibit 10(dd) hereto except as to the name
of the holder, the expiration date and the exercise price and,
accordingly, pursuant to Instruction 2 to Item 601 of
Regulation S-K under the Securities Act are not individually
filed.
10(ee) Form of Common Stock purchase warrant with deferred exercise. E-130
SAT's Common stock purchase warrants expiring three years
From the Effective date of a registration statement under the
Securities Act and those Issued or to be issued to employees,
of which the currently outstanding Warrants expire between
E-2
22
Page
Number Exhibit Number
- ------ ------- ------
September 11, 2000 and June 23, 2004, are substantially
identical to the form of Common Stock purchase warrant filed
as Exhibit 10(ee) hereto except as to the name of the holder,
the expiration date and the exercise price and, accordingly,
pursuant to Instruction 2 to Item 601 of Regulation S-K under
the Securities Act are not individually filed.
10(jj) Copy of Letter of Agreement dated July 16, 1997 by and between E-138
SAT and National Review Medical Offices, Inc. ("NMRO").
10(jj)(1) Assignment and Assumption of Interim Management Agreement E-147
dated July 15, 1997 by and between SAT and NMRO.
21 Subsidiaries of SAT. E-154
E-3