U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Mark one
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 33-96882-LA
CARING PRODUCTS INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 98-0134875
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
200 First Avenue West, Suite 200, Seattle, Washington 98119
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(Address of principal executive offices) (Zip Code)
(206-282-6040)
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(Issuer's telephone number, including area code)
None
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Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 19, 1997, the
Registrant had 4,125,375 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
CARING PRODUCTS INTERNATIONAL, INC.
FORM 10-QSB/A
For the Quarter Ended June 30, 1997
INDEX
PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. 3
Consolidated Balance Sheet as of June 30, 1997 3
Consolidated Statements of Operations 4
For each of the three month periods ended
June 30, 1996 and 1997
Consolidated Statement of Stockholders' Equity 5
For the three month period ended June 30, 1997
Consolidated Statements of Cash Flows 6
For each of the three month periods ended
June 30, 1996 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 12
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
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June 30,
1997
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ASSETS
Current assets:
Cash $ 132,880
Restricted cash 2,537,591
Accounts receivable, less allowance for doubtful
accounts of $88,274 at June 30, 1997 951,875
Inventories 3,110,444
Prepaid expenses 9,054
-----------
Total current assets 6,741,844
Equipment, net 234,602
Intangible assets, net 228,706
Other assets 17,782
-----------
$7,222,934
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,016,150
Accrued liabilities 102,570
Line of credit 3,644,928
Notes payable to related parties 780,000
Current portion of lease obligations 5,013
Current portion of long-term debt 8,635
-----------
Total current liabilities 5,557,296
Lease obligations, less current portion 24,868
Long-term debt, less current portion 5,485
-----------
Total liabilities 5,587,649
Stockholders' equity:
Preferred stock, no shares outstanding
Common stock, 4,125,375 shares outstanding
at June 30, 1997 41,254
Additional paid-in capital 12,848,703
Accumulated deficit (11,254,672)
-----------
Total stockholders' equity 1,635,285
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$7,222,934
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See accompanying notes to consolidated financial statements.
3
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND 1997
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Three-month periods
ended June 30,
-------------------
1996 1997
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Revenues $ 428,468 818,403
Cost of sales 447,237 385,471
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Gross profit (loss) (18,769) 432,932
----------------------------
Operating expenses:
Selling 328,808 548,950
General and administrative 225,667 289,467
Amortization and depreciation 21,886 14,278
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Total operating expenses 576,361 852,695
----------------------------
Loss from operations (595,130) (419,763)
----------------------------
Other income (expense):
Interest income 3,336 22,499
Interest expense (45,400) (152,155)
Other, net (50,456) (74,090)
----------------------------
(92,520) (203,746)
----------------------------
Net loss $ (687,650) (623,509)
----------------------------
----------------------------
Net loss per share $ (0.18) (0.15)
----------------------------
----------------------------
Weighted average common shares and common
equivalent shares outstanding 3,723,708 4,125,375
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See accompanying notes to consolidated financial statements.
4
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE-MONTH PERIOD ENDED JUNE 30, 1997
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Total
Common Stock Additional stock-
----------------- paid-in Accumulated holders'
Shares Amount capital deficit equity
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Balance at March 31, 1997 4,125,375 $ 41,254 12,685,111 (10,631,163) 2,095,202
Fair value of warrants issued with line
of credit guarantee -- -- 163,592 -- 163,592
Net loss -- -- -- (623,509) (623,509)
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Balance at June 30, 1997 4,125,375 $ 41,254 12,848,703 (11,254,672) 1,635,285
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June 30, 1997
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Preferred Common
stock stock
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Par value $ 0.01 $ 0.01
Authorized 1,000,000 75,000,000
Issued -- 4,125,375
Outstanding -- 4,125,375
See accompanying notes to consolidated financial statements.
5
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND 1997
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Three-month periods
ended June 30,
-------------------------------
1996 1997
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Cash flows from operating activities:
Net loss $ (687,650) (623,509)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 31,174 26,341
Deemed interest -- 34,081
Change in operating assets and liabilities:
Increase in accounts receivable (135,733) (326,790)
Decrease (increase) in inventories 261,784 (677,861)
Decrease (increase) in prepaid expenses (6,892) 9,987
Increase in other assets -- (8,847)
Decrease in accounts payable (124) (13,268)
Decrease in accrued liabilities (12,632) (34,522)
----------------------------
Net cash used in operating activities (550,073) (1,614,388)
----------------------------
Cash flows from investing activities:
Capital expenditures (4,236) --
----------------------------
Net cash used in investing activities (4,236) --
----------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock and capital
contributions 112,000 --
Decrease (increase) in restricted cash, net (467,893) 157,080
Proceeds from lines of credit, net -- 1,274,439
Repayment of long-term debt (3,460) (3,491)
Proceeds from notes payable to related parties -- 950,400
Repayment of notes payable to related parties -- (741,700)
Repayment of lease obligations (4,694) (8,033)
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Net cash provided by (used in) financing activities (364,047) 1,628,695
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Increase (decrease) in cash (918,356) 14,307
Cash at beginning of period 1,082,419 118,573
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Cash at end of period $ 164,063 132,880
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----------------------------
Supplemental disclosure of cash flow
information - cash paid during the period for interest $ 30,573 147,468
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----------------------------
Supplemental schedule of noncash financing activities:
Estimated fair market value of warrants issued
recorded as deemed interest $ -- 163,592
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See accompanying notes to consolidated financial statements.
6
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND 1997
(1) CONSOLIDATION
The consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The
accompanying consolidated financial statements and related notes should
be read in conjunction with the audited consolidated financial
statements of Caring Products International, Inc. and Subsidiaries (the
"Company"), and notes thereto, for its fiscal year ended March 31, 1997.
Intercompany transactions and balances have been eliminated in
consolidation. The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim periods
presented.
(2) LIQUIDITY
The Company has experienced net losses since its inception and has an
accumulated deficit of $11,254,672 at June 30, 1997. Management is
presently taking actions to improve operations and obtain additional
debt and equity financing.
On April 7, 1997, the Company signed a letter of intent to proceed with
a public offering ("Offering"). The Offering is presently contemplated
to consist of units which are exercisable for one share of the Company's
common stock and a five-year warrant to purchase one additional share at
a price equivalent to 150% of the unit price. There can be no assurance
that the Offering will be successful.
(3) CONCENTRATION OF RISK
The Company maintains cash equivalents with various financial
institutions located in the U.S. and Canada. The Company's policy is to
limit the exposure at any one financial institution and to invest solely
in highly liquid investments that are readily convertible to cash.
The Company sells its products to various customers located in the U.S.
and Canada. The Company performs ongoing credit evaluations of its
customers' financial condition, and generally requires no collateral as
security against accounts receivable. Total sales to Canadian customers
represented approximately 52% for the three-month period ended June 30,
1996. Sales to Canadian customers for the three month period ended June
30, 1997 were less than 1% of total sales.
Approximately 57% of the Company's revenues were from one customer
during the three-month period ended June 30, 1997. During the
three-month period ended June 30, 1996, three customers accounted for
approximately 31% of revenues.
At June 30, 1997, two customers accounted for approximately 88% of the
net accounts receivable balance.
The Company currently purchases its products from a limited number of
suppliers, some of which are located in Canada or Mexico. As there are
other manufacturers of products similar to the Company's products,
management believes that other suppliers could provide the Company's
products on comparable terms. Management does not believe a change in
suppliers would cause a significant delay in obtaining sufficient
product quantities or result in a significant loss of sales.
7
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND 1997
(4) INVENTORIES
Inventories consist of the following:
June 30,
1997
----------
Finished goods $2,577,256
Raw materials 473,975
Packaging 59,213
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$3,110,444
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----------
(5) LINE OF CREDIT
At June 30, 1997, the Company had a $2,500,000 line of credit with a
bank expiring August 1997. Borrowings under the line of credit bore
interest at a fixed rate of 6.91%. The line of credit was secured by a
$2,500,000 certificate of deposit. In July 1997, the $2,500,000
certificate of deposit was used as payment for the line of credit.
In April 1997, the Company obtained an additional line of credit with a
bank in the amount of Cdn. $1,750,000. Borrowings under the line of
credit at June 30, 1997, net of deemed interest of $129,511, were
$1,144,928 and are due on demand. Borrowings bear interest at the
Canadian prime rate plus .25% (5% at June 30, 1997). The line of credit
is secured by a guarantee from a related party of the Company through
April 1, 1998 in an aggregate amount of $2.5 million. The guarantor
received 126,667 warrants, each for one share of the Company's common
stock. The warrants are exercisable at $1.86 per share through May 8,
1998 and at $2.16 through May 8, 1999. The warrants were recorded on
issuance at their estimated fair market value of $163,592 with a
corresponding reduction in the recorded value of the line of credit. The
debt discount will be amortized to interest expense over the term of the
line of credit.
(6) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties, at June 30, 1997, represent borrowings
by the Company under a $1.25 million note payable to Bradstone Equity
Partners Inc., f/k/a H. J. Forest Products Inc. ("Bradstone"). Interest
is payable thereunder at the Canadian prime rate plus 3% (7.75% at June
30, 1997) and the principal is due in May 1998. Repayment of the note is
secured by substantially all of the Company's assets and by the common
stock of the Company's Chief Executive Officer and President. In July
1997, the remaining $470,000 under the agreement with the related party
was received by the Company.
(7) LITIGATION
The Company is subject to various claims and contingencies related to
lawsuits, taxes and other matters arising in the normal course of
business. Management believes the ultimate liability, if any, arising
from such claims or contingencies is not likely to have a material
adverse effect on the Company's results of operations or financial
condition.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Revenues increased from $428,468 in the first quarter ended June 30,
1996 (the "1996 Period") to $818,403 in the first quarter ended June 30, 1997
(the "1997 Period"), an increase of 91%. This increase was primarily as a
result of the increase in the number of retail drug store chains that sell
the Company's Rejoice incontinence products.
Cost of goods sold decreased from $447,237 in the 1996 period to
$385,471 in the 1997 Period, a decrease of 14%. The decrease in cost of
goods sold was attributable to a significant reduction in costs associated
with pant production, including fewer Canadian production staff compared to
the comparable prior period. Gross profit on sales increased from a loss of
$18,769 in the 1996 Period to a profit of $432,932 in the 1997 Period. The
improvement in gross profit margin in the 1997 Period primarily reflected the
first introduction of retail pants produced at a lower unit priced pant
subcontractor in Mexico and the significant reduction in Canadian-based staff
and facility costs. In addition, the Company paid a lower cost per liner
from its liner subcontractor in the United States during the 1997 Period.
Gross profit margins may fluctuate in the future depending on changes in the
mix of products sold, the mix of sales by distribution channels and other
factors such as the sale of inventory with lower gross profit margins.
Total operating expenses increased 48% from $576,361 in the 1996 Period
to $852,695 in the 1997 Period. The increase was primarily attributable to
increased advertising and sales expenses associated with supporting an
increased number of drug stores that sell the Company's products, as well as
employee travel and new salary expenses associated with the Company's
commencement of sales training and marketing activities. Total selling
expenses increased 67% from $328,808 in the 1996 Period to $548,950 in the
1997 Period. General and administrative expenses increased 28% from $225,667
to $289,467 in the 1997 Period. The increase represented increased operating
costs associated with the growth in the Company's corporate and marketing
offices.
The Company also generated $22,499 in interest income during the 1997
Period as compared to $3,336 in interest income generated during the 1996
Period. Interest income was offset by interest expense of $152,155 in the
1997 Period and $45,400 in the 1996 Period. The increase in interest expense
related to the increase in short-term and long-term borrowings in the 1997
Period from the 1996 Period.
The net loss for the 1997 Period was $623,509 as compared to $687,650
for the 1996 Period, a 10% improvement. The net loss per share was $0.15 in
the 1997 Period as compared to $0.18 per share in the 1996 Period.
LIQUIDITY AND CAPITAL RESOURCES
In April 1997, Bradstone guaranteed a Cdn. $1.75 million credit facility
for the Company from the Toronto Dominion Bank. In July 1997, the guarantee
was increased by $1.25 million to an aggregate of $2.5 million. The
guarantee is through April 1, 1998. Borrowings under the line of credit bear
interest at
9
the Canadian prime rate plus .25% (5% at June 30, 1997) and are due on
demand. The Company issued to the guarantor warrants to purchase 126,667
shares of Common Stock exercisable at $1.86 per share at any time until May
8, 1998 and thereafter at $2.16 per share until May 8, 1999. The warrants
were recorded on issuance at their estimated fair market value of $163,592
with a corresponding reduction in the recorded value of the line of credit.
The debt discount will be amortized to interest expense over the term of the
line of credit. In May 1997, the Company borrowed $780,000 out of a total
possible draw down of $1.25 million under a note payable to Bradstone.
Interest is payable thereunder at the Canadian prime rate plus 3% (7.75% at
June 30, 1997) and the principal is due in May 1998. Repayment of the note
is secured by substantially all of the Company's assets and by the common
stock owned by William H.W. Atkinson and Susan A. Schreter, the Company's
Chief Executive Officer and President, respectively.
As of June 30, 1997, the Company's principal sources of liquidity
included cash (including amounts restricted as security for loans) of
$2,670,471, net accounts receivable of $951,875, inventories of $3,110,444,
and available borrowing capacity under the note payable to Bradstone of
approximately $470,000. The Company's operating activities used cash of
$1,614,388 for the 1997 Period. Increases in accounts receivable of $326,790
reflect the increased sales volume of the Company. Increased inventories of
$677,861 primarily reflect the Company's growing sales volume with larger
chain stores which require greater inventory availability and the longer lead
times associated with liner production. During the 1997 Period, the Company
financed its net loss and growth in accounts receivable and inventories
primarily from increased borrowings under its lines of credit.
The Company believes that the estimated net proceeds of the Offering,
together with its various present and future financing arrangements, will be
sufficient to meet its capital requirements for at least the next 12 months.
The Company is subject to various claims and contingencies related to
lawsuits and other matters arising in the normal course of business.
Management believes the ultimate liability, if any, arising from such claims
or contingencies is not likely to have a material adverse effect on the
Company's results of operations or financial condition.
OTHER MATTERS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS
128"). SFAS 128 requires companies with complex capital structures that have
publicly held common stock or common stock equivalents to present both basic
and diluted earnings per share ("EPS") on the face of the income statement.
The presentation of basic EPS replaces the presentation of primary EPS
currently required by Accounting Principles Board Opinion No. 15 ("APB No.
15"). Basic EPS is calculated as income available to common stockholders
divided by the weighted average number of common shares outstanding during
the period. Diluted EPS is calculated using the "if converted" method for
10
convertible securities and the treasury stock method for options and warrants
as prescribed by APB No. 15. This statement is effective for financial
statements issued for interim and annual periods ending after December 15,
1997. The Company does not believe the adoption of SFAS 128 in fiscal year
1998 will have a significant impact on the Company's reported EPS.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, DISCLOSURES OF
INFORMATION ABOUT CAPITAL STRUCTURE ("SFAS 129") which establishes standards
for disclosing information about an entity's capital structure. The
disclosures are not expected to have a significant impact on the consolidated
financial statements of the Company. SFAS 129 is effective for financial
statements ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME
("SFAS 130") which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 is effective for years beginning after December 15,
1997 and is not expected to have a significant impact on the consolidated
financial statements of the Company.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("SFAS 131") which establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes the
related disclosures about products and services, geographic areas, and major
customers. SFAS 131 replaces the "industry segment" concept of Financial
Accounting Standard No. 14 with a "management approach" concept as the basis
for identifying reportable segments. SFAS is effective for financial
statements for periods beginning after December 15, 1997 and is not expected
to have a significant impact on the consolidated financial statements of the
Company.
11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Legal proceedings were previously reported in the Company's Form 10-KSB
for the fiscal year ended March 31, 1997, as amended by the Company's
Form 10-KSB/A for the fiscal year ended March 31, 1997.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended June 30, 1997, the stockholders approved a
one-for-six reverse stock split of the Company's Common Stock, which
was effected on June 16, 1997.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
12
SIGNATURES
In accordance with 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, hereunto duly authorized.
CARING PRODUCTS INTERNATIONAL, INC.
(Registrant)
Date: September 8, 1997 By: /s/ William H.W. Atkinson
-----------------------------------
William H.W. Atkinson,
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
13