SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT UNDER 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.
(Name of small business issuer in its charter)
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DELAWARE 98-0134875
(State or other jurisdiction of (IRS Employer Identification No.)
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P.O. BOX 9288, SEATTLE, WASHINGTON 98109
(principle mailing address)
(206) 523-7065
(issuer's telephone number, including area code)
-----------------
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Warrants to purchase common stock.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 10, 1999, the
Registrant had 3,056,343 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes __ No X
1
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX PAGE NUMBER
PART I: FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets at March 31, 1999, and September 30, 1999. 3
(unaudited)
Consolidated Statements of Operations for each of the six and three-month
periods ended September 30, 1998, and September 30, 1999. 4
(unaudited)
Consolidated Statements of Cash Flows for the six and three-month
periods ended September 30, 1998, and September 30, 1999. 5
(unaudited)
Notes to Consolidated Financial Statements. 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II: OTHER INFORMATION 11
Item 1 Legal Proceedings.
Item 2 Changes in Securities.
Item 3 Defaults upon Senior Securities.
Item 4 Submission of Matters to a Vote of Security Holders.
Item 5 Other Information.
Item 6 Exhibits
2
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1999 1999
ASSETS (unaudited)
Current assets:
Cash $ 707,847 $ 766,271
Accounts receivable, less allowance for doubtful accounts
of $460,000 at March 31, and $416,381 at September 30 353,263 74,321
Inventories 560,338 266,927
Prepaid expenses 25,208 25,208
------ ------
Total current assets 1,646,656 1,132,727
Equipment, net 143,798 34,266
Intangible assets, net 173,580 164,462
Other assets 18,041 5,843
Total assets $ 1,982,075 $ 1,337,298
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 326,745 $ 153,063
Accrued liabilities 43,826 40,890
Customer deposits 244,575 60,594
------------ ------------
Total liabilities 615,146 254,547
Commitments, contingencies and subsequent events --
Stockholders' equity:
Preferred stock: no shares outstanding -- --
Common stock: 2,781,343 at March 31, 1999
3,056,343 at September 30, 1999 27,814 30,564
Additional paid-in capital 19,681,685 19,733,935
Accumulated deficit (18,342,570) (18,661,748)
------------ ------------
Total stockholders' equity $1,366,929 $1,082,751
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$1,982,075 $1,337,298
---------- ----------
See accompanying notes to consolidated financial statements.
3
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIODS AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
Six-month periods Three Month Periods
----------------- -------------------
Ended September 30 Ended September 30
------------------ ------------------
1998 1999 1998 1999
------------------- ------------------
Revenues $ 944,542 $ 284,116 $ 155,582 130,081
Cost of Sales 565,464 116,227 112,092 68,272
------- ------- ------- -------
Gross profit 379,078 167,889 43,490 61,809
Operating expenses:
Selling 1,212,292 117,187 623,292 49,567
General and administrative 640,631 476,264 344,979 115,370
Amortization and depreciation 33,131 33,123 16,565 9,428
------- ------- ------- -------
Total operating expenses 1,886,056 626,574 984,836 174,365
------- ------- ------- -------
Loss from operations (1,506,978) (458,685) (941,346) (112,556)
Other income (expense):
Other income 53,877 204,424 20,054 189,426
Interest expense (147) (741) -- --
Loss on sale of assets (84,176) -- --
Other, net (75,202) -- (76,174) --
------- ------- ------- -------
(21,472) 119,507 (56,120) 189,426
------- ------- ------- -------
Net Income/(loss) $(1,528,450) (339,178) $(997,466) $76,870
------------ --------- ---------- -------
Net Income/(loss) per common share $ (0.55) (.11) $ (0.36) .03
---------- ----- -------- ---
Weighted average common shares 2,781,343 3,056,343 2,781,343 3,056,343
------------ --------- ---------- -------
See accompanying notes to consolidated financial statements
4
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
1998 1999
---------------------
Cash flows from operating activities:
Net loss $(1,528,450) $(339,178)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Issuance of restricted common stock for services -- 55,000
Gain/loss on sale/disposal of equipment -- 84,176
Discounted accounts payable -- (37,630)
Amortization and depreciation 35,669 33,123
Change in operating assets and liabilities
Accounts receivable (478,639) 278,942
Inventories 381,260 293,411
Prepaid expenses 11,793 --
Other assets 12,198
Accounts payable (529,977) (136,052)
Accrued liabilities 9,114 (2,936)
Customer deposits -- (183,981)
----------- ---------
Net cash used in operating activities: (2,117,458) 57,073
Cash flows from investing activities:
Capital expenditures (14,808) --
Intangible expenditures (20,399) --
Proceeds from equipment sale -- 1,351
----------- ---------
Net cash provided by (used in) investing activities: (35,207) 1,351
Cash flows from financing activities:
Repayment of lease obligations (4,095) --
Deferred financing costs (4,430)
----------- ---------
Net cash used in financing activities: (8,525) --
Increase/(Decrease) in cash (2,161,190) 58,424
Cash at beginning of period 3,415,569 707,847
Cash at end of period $ 1,254,379 $ 766,271
See accompanying notes to consolidated financial statements.
5
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND 1999
(1) PRESENTATION OF INTERIM INFORMATION
The unaudited consolidated financial statements and related notes are
presented as permitted by Form 10-QSB, and do not contain certain
information included in the Company's audited consolidated financial
statements and notes for the fiscal year ended March 31, 1999. 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. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire fiscal year
ending March 31, 2000. The accompanying unaudited consolidated
financial statements and related notes should be read in conjunction
with the audited consolidated financial statements and the Form 10-KSB
of Caring Products International, Inc., and its subsidiaries (the
"Company") and notes thereto, for its fiscal year ended March 31, 1999.
(2) LOSS PER SHARE
SFAS 128 establishes standards for computing and presenting earnings
per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. In accordance with SFAS No. 128, the
computation of diluted EPS shall not assume conversion, exercise, or
contingent issuance of securities that would have an antidilutive
effect on earnings per share. SFAS No. 128 also states that although
including those potential common shares in the other diluted per-share
computations may be dilutive to their comparable basic per-share
amounts, no potential common shares shall be included in the
computation of any diluted per-share amount when a loss from continuing
operations exists, even if the entity reports net income.
Due to the net loss position of the Company, only the net loss per
common share is presented on the face of the unaudited consolidated
statements of operations for the six-month and three month periods
ended September 30, 1998 and 1999.
(3) YEAR 2000 COMPUTER SOFTWARE CONVERSION
The Company regularly updates its information systems capabilities, and
has evaluated all significant computer software applications for
compatibility with the year 2000. With the system changes implemented
to date and other planned changes, the Company anticipates that its
computer software applications will be compatible with the year 2000.
Expenditures specifically related to software modifications for
year-2000 compatibility are not expected to have a material effect on
the Company's operations or financial position. However, the Company is
dependent on numerous vendors and customers which may incur disruptions
as a result of year-2000 software issues. Accordingly, no assurance can
be given that the Company's results of operations will not be impacted
by this industry-wide issue.
(4) INTANGIBLE ASSETS
Intangible assets, representing technology purchased and cost of
patents, copyrights, trademarks and other intellectual property, are
stated at cost. On June 30, 1999 the Company transferred approximately
$170,000 of intellectual property associated with its children's
products to Creative Products International, Inc., a wholly-owned
subsidiary of the Company. See Note 8.
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(5) OFFICE CLOSURE
The Company wrote down $84,176 of furniture, fixtures and office and
computer equipment on June 30, 1999 pursuant to the closure of the
Company's headquarter marketing and administration office. The
Company's facility lease ended on June 30, 1999 without penalty to the
Company. The Company has not entered into any new facility lease.
(6) GOING CONCERN
The Company incurred a net loss of $339,178 during the first six months
of Fiscal 2000 and a net loss for the fiscal year ended March 31, 1999
of $4,258,727. The Company's ability to continue as a going concern is
contingent upon its ability to maintain positive cash flow from
operating and financing activities. The Company continues to review all
of its strategic options.
(7) RESTRICTED COMMON STOCK
On February 1, 1999 the Company approved the 1999 Restricted Stock Plan
which provides for the issuance of up to 275,000 shares of the
Company's common stock under certain conditions to the Company's
management. On June 30, 1999, the Company issued a total of 275,000
share certificates to several employees including 130,000 to an
executive and director of the Company. The Company recorded
compensation expense during the period ending June 30, 1999 of $55,000.
(8) OTHER
The Company has approved the spin-off of Creative Products
International, Inc. to shareholders of record on June 30, 1999.
Shareholders shall receive 1/2 share of Creative Products
International, Inc. for each share of Caring Products International,
Inc. common stock owned on the record date. On March 25, 1999 and
September 27, 1999, the Company transferred $50,000 and $300,000,
respectively, into Creative Products International, Inc. On October 4,
1999, an executive and director of the Company purchased 384,000 shares
of Creative Products common stock for $19,200.
(9) CONTINGENCIES
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following analysis of the results of operations and financial condition of
the Company should be read in conjunction with the consolidated financial
statements, including the notes thereto, of the Company contained elsewhere in
this Form 10-QSB.
OVERVIEW
Caring Products International, Inc. and its subsidiaries (collectively the
"Company" or "CPI") has designed a line of proprietary urinary incontinence pant
and liner products which have been sold under the REJOICE trade name. These
products provide a practical, convenient solution to the special needs of
incontinent adults. The Company has subcontracted the manufacture of its pant
and liner products on a non-contractual basis, as well as the conversion,
storage and delivery (fulfillment) services necessary to deliver products to
customers. Historically, the Company's customer base has been retail drug
stores, home healthcare companies, surgical supply stores and national drug
wholesale companies. To diversify the Company's revenue sources, the Company has
also dedicated resources to the development of a family of other products in
markets in which the Company's two-piece, pant and liner concept may be
applicable as well as other promotional service opportunities which may be
commercialized on the internet in the future. Both promotional service as well
as other two-piece pant and liner and other related children's products are in
the development stage.
RESULTS OF OPERATIONS
Revenues decreased from $155,582 for the three month period ended September 30,
1998 (the "1998 Period") to $130,081 for the three month period ended September
30, 1999 (the "1999 Period"), a 16 % decrease. Quarter to quarter, the Company's
sales have historically fluctuated based on the introduction of a new chain
store, whereby sales are higher in order to adequately stock a chain's shelf and
warehouse requirements. The Company also experienced a reduction in chain
re-orders due to significant cost-cutting reduction in advertising and promotion
activities.
Cost of sales decreased from $112,092 for the three month period to $68,272 for
the comparable 1999 Period, a 39% decrease. This decrease is primarily
attributable to reduction in sales and sale of certain inventory which had been
written down during the prior fiscal year.
Gross profit for the three month 1998 period was $43,490 and $61,809 in the 1999
Period, a 42% improvement. Gross profit margins on sales improved from 28% in
the 1998 Period to 48% in the 1999 Period. Gross profit margins may fluctuate in
the future depending on changes in mix of products sold, the mix of sales
distribution channels and other factors such as the sale of inventory with lower
gross profit margins or other reductions in inventory valuation which may be
required depending on the status of the Company's future operations.
Revenues decreased from $944,542 for the six month period ended September 30,
1998 (the "1998 Period") to $284,116 for the comparable six month period ended
September 30, 1999, a 70% decrease. Quarter to quarter, the Company's sales have
historically fluctuated based on the introduction of a new chain store, whereby
sales are higher in order to adequately stock a chain's shelf and warehouse
requirements. The Company also experienced a reduction in chain re-orders due to
significant cost-cutting reduction in advertising and promotion activities
during the 1999 Period. Revenues are expected to continue to decline for the
Company's adult incontinence product line reflecting continued reduction in
marketing activities and potential for per product backorder due to reduced
inventory available to fulfill customer orders.
Cost of sales decreased from $565,464 for the six month Period ended 1998 to
$116,227 for the 1999 Period, an 79% decrease. This decrease is primarily
attributable to reduction in sales and sale of certain inventory which had been
written down during the prior fiscal year.
8
Gross profit for the 1998 period was $379,078 and $167,889 in the 1999 Period, a
56% reduction. Gross profit margins on sales improved from 40% in the 1998
Period to 59% in the 1999 Period. Gross profit margins may fluctuate in the
future depending on changes in mix of products sold, the mix of sales
distribution channels and other factors such as the sale of inventory with lower
gross profit margins or other reductions in inventory valuation which may be
required depending on the status of the Company's future operations.
OPERATING EXPENSES
Total operating expenses decreased in the three month 1999 Period to $174,365
from $984,836 in the 1998 Period, an 82% decrease. Sales and marketing costs
decreased in the three month 1999 Period to $49,567 from $623,292 in the 1998
Period, a 92% decrease. The reduction in sales expenses was attributable to the
end of paid advertising and most in-store promotional activities in 1999. During
the 1998 Period the Company incurred certain costs associated with product
distribution to a new large chain drug store including one-time expenses for
merchandising trays, sales commissions and listing allowances or "slotting
fees." Total one-time expenses associated with the new distribution in the 1998
Period was $89,260. The Company did not gain any new large chain customers in
the 1999 Period nor incur similar per-store listing fees and set up costs.
During the three and six month 1998 Period, the Company implemented a
promotional program to urologists which included a free pant sample and store
coupons to help promote the Rejoice brand in large retail stores.
Depreciation and amortization expense decreased from $16,565 in the 1998 Period
to $9,428 in the 1999 Period, a 43% decrease reflecting reduction in fixed
assets. General and administrative costs decreased from $344,979 in the 1998
Period to $115,370 in the 1999 Period, a 67% decrease. During the quarter, the
Company reduced its administrative staffing as well as other expenses associated
with maintaining larger office facilities. On June 30, 1999, the Company closed
its headquarter administrative and marketing offices. The Company recorded a
loss on sale of assets of $84,176 associated with the sale or disposal of
certain office furniture, computers, office equipment and other equipment
associated with the closure of the Company's headquarter offices. The Company
also disposed of approximately $53,000 of inventory not packaged for standard
healthcare or retail distribution. The Company facility lease ended on June 30,
1999 without financial penalty. The Company also recorded $55,000 in
compensation expense associated with the issuance of 275,000 of restricted
shares to various employees of the Company on June 30, 1999.
The Company generated $20,054 in interest income during the three month 1998
Period and $4,117 in interest income during the three month 1999 Period, a 79%
reduction. This decrease is attributable to the Company's lower cash balances
held at various financial institutions. During the three month 1999 Period, the
company generated other income through the sale of goods and collection of
receivables written off in prior periods. The Company also negotiated discounts
to certain trade accounts payable.
As a result of the foregoing, the Company generated net income of $76,870 for
the three month 1999 Period as compared to a net loss of $997,466 for the 1998
Period. The Company's net income per share was $.03 in the 1999 Period as
compared to a net loss of $.36 in the 1998 Period. For the six month period
ended 1998, the Company reported a net loss of $1,528,450 as compared to a net
loss of $339,178. For the six month period ended 1998, the Company reported a
net loss per share of $.55 as compared to a net loss per share of $.11.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through public and private
placement of its equity securities, debt and product sales. Given the increasing
marketing and advertising costs associated with increasing or maintaining
distribution for its incontinence products at large retail drug chain stores,
increased competition and executive management changes, in early 1999 the
Company announced its intent to evaluate all of its strategic options including
seeking licenses for the Company's products, potential merger or acquisition
candidates or obtaining new sources or equity in addition to cost cutting
measures. There is no assurance that any of these measures will improve the
Company's cash flow, reduce the
9
Company's losses or increase the sales and/or distribution for the Company's
products without increased expense to the Company.
As of September 30, 1999, the Company's principal sources of liquidity included
cash of $766,271, net accounts receivable of $278,942 and inventories of
$293,411. The Company's operating activities generated cash of approximately
$58,424 during the 1999 Period. The Company anticipates that the levels of
inventories and accounts receivable will vary commensurate with the Company's
sales. The Company is currently not adding to its inventory through new
production.
The Company transferred $50,000 and $300,000 to Creative Products International,
Inc. on March 25, 1999 and September 27, 1999, respectively. Upon completion of
the proposed spin-off of Creative Products International, Inc. to shareholders
of record, the Company's cash will be reduced by approximately $350,000.
Additional assets transferred to Creative Products, including various
intellectual property will result in a significant reduction in intangible
assets and related depreciation expense to the Company.
On October 5, 1995, the Registrant issued an aggregate 10,000,000 Special
Warrants. On May 5, 1998, the Company reduced the exercise price of the Special
Warrants to $1.875 per share (representing the closing price per share of the
common stock on that date). In addition, the Company canceled and reissued all
options outstanding under the 1993 and 1996 Stock Incentive Plans and reduced
the exercise price to $1.875 per share (representing the closing price per share
of the common stock on that date).
In April 1997, Bradstone Equity Partners Inc. ("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
approximately $3 million. The loans were to be repaid by the Company out of the
net proceed of a proposed public offering. 31,667 warrants issued pursuant to
the guarantee of the bank line of credit were reduced to $1.875 and expired on
May 8, 1999.
On December 15 1997, the Company completed a public offering of 1,750,000 units
at $5 per unit. Each unit consisted of 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. Proceeds from this public offering were $6,823,972,
net of offering costs. Pursuant to the Underwriter's agreement, the exercise
price of the warrants was reduced at the end of Fiscal 1999 to $6.
On June 30, 1999 the Company issued 275,000 of restricted stock to certain
employees.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, the
"Filings") contain or may contain forward-looking statements and information
that are based upon beliefs of, and information currently available to, the
Company's management, as well as estimates and assumptions made by the Company's
management.
When used in the Filings, the words "anticipate," "believe," "estimate,"
"expect," "future," "intend," "plan," and similar expressions, as they relate to
the Company or the Company's management, identify forward-looking statements.
Such statements reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties and assumptions relating to the
Company's operations and results of operations, competitive factors and pricing
pressures, shifts in market demand, the performance and needs of the industries
which constitute the customers of the Company, the costs of product development
and other risks and uncertainties, in addition to any uncertainties with respect
to management of growth, increases in sales, the competitive environment, hiring
and retention of employees, pricing, new product introductions, product
productivity, distribution channels, enforcement of intellectual property
rights, possible volatility of stock price and general industry growth and
economic conditions. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
expected, intended or planned.
10
PART II
OTHER INFORMATION
Item 1 Legal Proceedings.
None.
Item 2 Changes in Securities.
On June 30, 1999 the Company issued 275,000 shares of
restricted common shares to certain employees of the Company.
On October 4, 1999, Creative Products International, Inc.
issued 384,000 shares of common stock to an executive and
director of the Company.
Item 3 Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information.
None.
Item 6 Exhibits
27.1 -- Financial Data Schedule
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: November 15, 1999 By:___/s/ Susan A. Schreter
President
11