- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark one
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 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.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 98-0134875
- -------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
200 First Avenue West, Suite 200, Seattle, Washington 98119
- ----------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(206) 282-6040
- --------------
Issuer's telephone number, including area code
None
- ----
(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 October 20, 1997, the
Registrant had 1,031,343 shares of Common Stock outstanding.
Traditional Small Business Disclosure Format (check one):
Yes / / No /X/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CARING PRODUCTS INTERNATIONAL, INC.
FORM 10-QSB
For The Quarter Ended September 30, 1997
PAGE
INDEX NUMBER
PART I FINANCIAL INFORMATION 3
Item 1 Financial Statements. 3
Consolidated Balance Sheet as of September 30, 1997 3
Consolidated Statements of Operations
For each of the three and six month periods ended
September 30, 1996 and 1997 4
Consolidated Statement of Stockholders' Equity
For the six month period ended September 30, 1997 5
Consolidated Statements of Cash Flows
For each of the six month periods ended
September 30, 1996 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings. 16
Item 2 Changes in Securities 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
UNAUDITED
September 30,
ASSETS 1997
----
Current assets:
Cash $ 218,929
Accounts receivable, less allowance for doubtful
accounts of $93,176 at September 30, 1997 373,825
Inventories 2,879,747
Prepaid expenses 9,614
-----------
Total current assets 3,482,115
Equipment, net 231,753
Intangible assets, net 219,089
Deferred financing costs 401,591
Other assets 23,796
-----------
Total assets $ 4,358,344
-----------
-----------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 887,904
Accrued liabilities 101,003
Line of credit 1,171,345
Note payable to related party 1,250,000
Current portion of lease obligations 8,770
Current portion of long-term debt 10,862
-----------
Total current liabilities 3,429,884
Lease obligations, less current portion 13,511
-----------
Total liabilities 3,443,395
Stockholders' equity:
Preferred stock, no shares outstanding -
Common stock, 1,031,343 shares outstanding
at September 30, 1997 10,314
Additional paid-in capital 12,879,643
Accumulated deficit (11,975,008)
-----------
Total stockholders' equity 914,949
-----------
Total liabilities and stockholders' equity $ 4,358,344
-----------
-----------
See accompanying notes to consolidated financial statements.
3
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
UNAUDITED
Six-month periods Three-month periods
ended September 30, ended September 30,
------------------- -------------------
1996 1997 1996 1997
---- ---- ---- ----
Revenues $ 894,643 $ 1,196,953 $ 466,175 $ 378,550
Cost of sales 1,049,072 652,162 601,835 266,691
----------- ----------- --------- ---------
Gross profit/(loss) (154,429) 544,791 (135,660) 111,859
Operating expenses:
Selling 752,063 1,111,884 423,255 562,934
General and administrative 621,357 499,371 395,690 209,904
Amortization and depreciation 47,176 31,742 25,290 17,464
----------- ----------- --------- ---------
Total operating expense 1,420,596 1,642,997 844,235 790,302
----------- ----------- --------- ---------
Loss from operations (1,575,025) (1,098,206) (979,895) (678,443)
Other income (expense):
Interest income 89,304 46,648 85,968 24,149
Interest expense (90,307) (221,376) (44,907) (69,221)
Other, net (18,877) (70,911) 31,579 3,179
----------- ----------- --------- ---------
(19,880) (245,639) 72,640 (41,893)
----------- ----------- --------- ---------
Net loss $(1,594,905) $(1,343,845) $(907,255) $(720,336)
----------- ----------- --------- ---------
Net loss per share $ (1.69) $ (1.30) $ (0.96) $ (0.70)
Weighted average common shares and common
equivalent shares outstanding 943,245 1,031,343 944,105 1,031,343
See accompanying notes to consolidated financial statements
4
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1997
UNAUDITED
Common Stock Additional Total
------------ paid-in Accumulated Stockholders'
Shares Amount capital Deficit Equity
------ ------ ------- ------- ------
Balance at March 31, 1997 1,031,343 $ 10,314 $12,716,051 $(10,631,163) $2,095,202
Fair value of warrants issued with line
of credit guarantee 163,592 163,592
Net loss (1,343,845) (1,343,845)
- --------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 1,031,343 $10,314 $12,879,643 $(11,975,008) $914,949
- --------------------------------------------------------------------------------------------------------------------
September 30, 1997
------------------
Preferred Common
stock stock
----- -----
Par value $ 0.01 $ 0.01
Authorized 1,000,000 75,000,000
Issued - 1,031,343
Outstanding - 1,031,343
See accompanying notes to consolidated financial statements
5
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
UNAUDITED
Six-month periods
ended September 30,
-------------------
Cash flows from operating activities: 1996 1997
---- ----
Net loss $(1,594,905) $(1,343,845)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 53,738 55,209
Deemed interest 0 74,980
Gain on sale of fixed asset 0 (1,311)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (98,488) 251,260
Decrease (increase) in inventories 612,425 (447,164)
Decrease in prepaid expenses 87,090 9,427
Increase in other assets 0 (14,861)
Decrease in accounts payable (114,728) (318,569)
Decrease in accrued liabilities 0 (36,089)
----------- -----------
Net cash used in operating activities (1,054,868) (1,770,963)
----------- -----------
Cash flows from investing activities:
Purchase of capital assets (34,573) (16,402)
Proceeds from sale of fixed asset 0 1,311
-----------------------------
Net cash used in investing activities (34,573) (15,091)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock and capital
contributions 1,390,333 0
Decrease (increase) in restricted cash, net (722,313) 2,694,671
Repayment of lines of credit, net 0 (1,240,043)
Repayment of long term debt (32,310) (6,749)
Proceeds from long term debt 25,998 0
Proceeds from notes payable to related parties 0 1,420,400
Repayment of notes payable to related parties 0 (741,700)
Repayment of lease obligations (6,913) (15,633)
Increase in deferred financing costs 0 (224,536)
----------- -----------
Net cash provided by financing activities 654,795 1,886,410
----------- -----------
Increase (decrease) in cash (434,646) 100,356
Cash at beginning of period 1,082,419 118,573
----------- -----------
Cash at end of period $ 647,773 $ 218,929
-----------------------------
-----------------------------
Supplemental disclosure of cash flow
information - cash paid during the period for interest $ 61,146 $ 147,468
Supplemental schedule of noncash investing and financing
activities:
Capital expenditures included in accounts payable at end
of period 68,849 0
Deferred offering costs included in accounts payable at
end of period 0 177,055
Fair market value of warrants issued recorded as deemed
interest 0 88,612
See accompanying notes to consolidated financial statements
6
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(1) PRESENTATION OF INTERIM INFORMATION
The 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, 1997. 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 its subsidiaries (the "Company") and notes thereto,
for its fiscal year ended March 31, 1997.
(2) FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company.
All significant intercompany balances and transactions have been
eliminated. 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.
(3) LIQUIDITY
The Company has experienced net losses since its inception and has an
accumulated deficit of $11,975,008 at September 30, 1997. Management is
presently taking actions to improve operations and obtain additional 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.
In April 1997, the Company obtained a line of credit with Toronto Dominion
Bank, which expires in May 1998, in the amount of Cdn. $1,750,000.
Borrowings under the line of credit at September 30, 1997, net of deemed
interest of $88,612, were $1,171,345. Borrowings bear interest at the
Canadian prime rate plus .25% (5% at September 30, 1997) and are due on
demand.
In April 1997, Bradstone Equity Partners Inc., f/k/a H.J. Forest Products
Inc. ("Bradstone"), guaranteed the aforementioned 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. The Company issued to the
guarantor warrants to purchase 31,667 shares of the Company's Common Stock
exercisable at $7.44 per share at any time until May 8, 1998 and thereafter
at $8.64 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 is being amortized to interest expense over the term of the
line of credit.
7
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED:
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(3) LIQUIDITY, CONTINUED:
In May 1997, the Company borrowed $780,000 out of a total possible draw
down of $1,250,000 under a note payable to Bradstone. Interest on the note
is payable monthly at the Canadian prime rate plus 3% (7.75% at September
30, 1997). Principal is due in May 1998. The note is secured by a lien on
substantially all of the Company's assets and by a pledge of all of the
Company's common stock owned by William H.W. Atkinson and Susan A.
Schreter, the Company's Chief Executive Offer and President, respectively.
In July 1997, the remaining $470,000 under the note payable to Bradstone
was received by the Company.
In September 1997, Bradstone agreed that if the Offering was not completed
and the Company required capital for its operations, Bradstone would loan
the Company up to an additional $1.25 million on the same terms and
conditions as the May 1997 note, provided that if drawn down, a
representative of Bradstone would be appointed to the Company's Board of
Directors, among other conditions.
In September 1997, the Company obtained from Toronto Dominion Bank an
increase in its credit facility of Cdn. $1.75 million, bringing the total
facility to Cdn. $3.5 million, under terms and conditions similar to the
original loan, which aggregate credit facility is secured by the guarantee
from Bradstone in the aggregate amount of Cdn. $3.5 million.
In October 1997, Paulson Investment Company, Inc. ("Paulson"), one of the
representatives of the underwriters of the Offering, loaned the Company
$200,000. The loan is non-interest bearing and is to be repaid by the
Company out of the net proceeds of the Offering; provided, however, if the
Offering has not occurred on or before January 30, 1998, the Company must
repay the loan within 30 days following Paulson's demand. In November
1997, Paulson loaned the Company an additional $350,000 under the same
terms and conditions as the October 1997 loan.
Substantially all of the Company's assets are pledged as collateral for its
various indebtedness.
As of September 30, 1997, the Company's principal sources of liquidity
included cash of $218,929, net accounts receivable of $373,825, inventories
of $2,879,747, and Cdn. $1,750,000 of available borrowing capacity under
the lines of credit. The Company's operating activities used cash of
$1,770,963 during the six month period ended September 30, 1997. The
Company anticipates that the levels of inventories and accounts receivable
will vary commensurate with the Company's sales and, if sales increase, may
negatively impact cash resources.
8
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED:
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(4) CONCENTRATION OF RISK
The Company maintains cash equivalents with various financial institutions
located in the United States ("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 customer's
financial condition, and generally requires no collateral as security
against accounts receivables. Revenues from Canadian customers represented
approximately 45% for the six month period ended September 30, 1996 and 36%
for the three month period ended September 30, 1996. Revenues from
Canadian customers for the six and three month periods ended September 30,
1997 were 5% and less than 1% of total sales, respectively .
Approximately 61% of revenues were from one customer for the six month
period ended September 30, 1997, and approximately 28% of revenues were
from one customer for the six month period ended September 30, 1996.
During the three month period ended September 30, 1997, approximately 34%
of revenues were from two customers and approximately 85% of revenues were
from two customers for the three month period ended September 30, 1996.
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 those of the Company, 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.
(5) DEFERRED FINANCING COSTS
Costs relating to the Offering have been deferred until the proceeds are
received by the Company, at which time they will be charged against the
proceeds of the Offering, or, if the Offering is not completed, against
operations.
(6) INVENTORIES
As of September 30, 1997, inventories consisted of the following:
Finished goods $ 2,515,186
Raw materials 357,719
Packaging 6,842
------------
$ 2,879,747
------------
9
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED:
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(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.
In September 1997, the Company agreed with certain plaintiffs to settle
their litigation in consideration of the payment by the Company of $25,000
on the earlier of the completion of the Offering or December 1, 1997, and
the issuance to the plaintiffs of warrants to purchase an aggregate of
8,000 shares of the Company's common stock at an exercise price of Cdn.
$5.04 per share, subject to Vancouver Stock Exchange ("VSE") approval. In
October 1997, the VSE approved the settlement and the warrants were issued
on October 22, 1997. The warrants expire on October 21, 1999.
(8) REVERSE STOCK SPLITS
In June 1997, the Company completed a one-for-six reverse stock split of
its issued and outstanding common stock. In October 1997, the Company
completed an additional one-for-four reverse stock split of its issued and
outstanding common stock. These consolidated financial statements have
been restated to reflect the reverse stock splits.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Caring Products International, Inc. (the "Company") has designed and
markets a line of proprietary urinary incontinence products that are sold
under the Rejoice brand name in the United States and Canada.
Historically, the Company's customer base has favored drug store chains and
retail stores. The Company is now beginning to enter certain healthcare
markets through hospital supply companies and other distributor
relationships. The Company's product line has grown to include other
Rejoice products which have been packaged for exclusive use in selected
healthcare markets.
Quarter to quarter, the Company's sales can fluctuate with the introduction
of a large retail or drugstore chain, with higher initial product
requirements to stock store shelves. Additionally, gross margins can
fluctuate based on the mix of sales to healthcare and retail products, as
well as the type of products sold. Gross profit margins are also affected
by the type of product sold as the Company sells down higher costed
inventory produced in Canada. An increasing percentage of the Company's
pant production is now being produced in Mexico, where Rejoice pants can be
produced at a significant savings compared to Rejoice pants produced in
Canada. Management anticipates that no additional pants will be produced
in Canada once its current Canadian manufacturing contract expires.
RESULTS OF OPERATIONS
Revenues decreased from $466,175 in the three month period ended September
30, 1996 (the "1996 Period") to $378,550 in the three month period ended
September 30, 1997 (the "1997 Period"), a decrease of 19%. The
decrease in revenues was primarily the result of a spike in sales during
the 1996 Period from an initial order from a large 900-store chain. The
Company did not ship any initial orders to large chains during the 1997
Period. Revenues increased from $894,643 for the six month period ended
September 30, 1996 to $1,196,953 for the six month period ended September
30, 1997, an increase of 34%. The increase in revenues was attributable
to the maintenance of pricing and increased volume levels achieved through
securing re-orders with existing drug and retail chain customers, expanding
into the healthcare market through hospital supply companies and other
distributor relationships, and increasing the overall customer base.
Cost of sales decreased from $601,835 in the 1996 Period to $266,691 in the
1997 Period, a decrease of 56%. Cost of sales decreased from $1,049,072
for the six month period ended September 30, 1996 to $652,162 for the six
month period ended September 30, 1997, a decrease of 38%. The decrease for
both periods was primarily a result of the introduction of retail pants
produced by the Company's lower unit priced pant subcontractor in Mexico
during the latter part of the Company's fiscal year ended March 31, 1997,
the realization of a significant reduction in Canadian-based production
staff and facility costs during the six months ended September 30, 1997,
and a lower cost per liner obtained from the Company's liner subcontractor
in the United States during the six month period ended September 30, 1997.
The cost of sales for the 1997 Period was also impacted by the net sales
decrease for this period compared with the 1996 Period.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED:
RESULTS OF OPERATIONS, CONTINUED:
Gross profit on sales increased from a loss of $(135,660) for the 1996
Period to $111,859 for the 1997 Period, an increase of 182%. Gross profit
on sales increased from a loss of $(154,429) for the six months ended
September 30, 1996 to $544,791 for the six months ended September 30, 1997,
an increase of 453%. The improvement of gross profit margins in the 1997
Period and the six month period ended September 30, 1997 primarily
reflected the lower unit priced pant produced 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. 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.
OPERATING EXPENSES
Total operating expenses decreased 6% from $844,235 in the 1996 Period to
$790,302 in the 1997 Period. The decrease was primarily attributable to an
increase in selling expenses offset by a decrease in general and
administrative expenses. Total operating expenses increased 16% from
$1,420,596 for the six month period ended September 30, 1996 to $1,642,997
for the six month period ended September 30, 1997. Total selling expenses
increased 33% from $423,255 in the 1996 Period to $562,934 in the 1997
Period. Total selling expenses increased 48% from $752,063 for the six
month period ended September 30, 1996 to $1,111,884 for the six month
period ended September 30, 1997. The increase was primarily attributable
to increased promotional expenses to support a larger retail customer base,
absorption of certain set-up costs for new customers, as well as expenses
associated with the Company's commencement of sales training and marketing
activities with the Company's primary healthcare market distributor.
General and administrative expenses decreased 47% from $395,690 for the
1996 Period to $209,904 for the 1997 Period. General and administrative
expenses decreased 20% from $621,357 for the six month period ended
September 30, 1996 to $499,371 for the six month period ended September 30,
1997. These decreases are primarily attributable to the consolidation of
duplicate administrative functions in the Company's offices in Canada and
the United States, resulting in a related reduction in administrative
salaries, wages, and employee benefits, as well as in various expenses
required to support the Canadian office including rent, telephone and office
supplies. In addition, the Company utilized outside consulting and contract
personnel during the 1996 Period, which were also eliminated with the
consolidation of the Canadian and U.S. offices. Higher legal costs were also
incurred during the 1996 Period in relation to various legal proceedings.
OTHER INCOME (EXPENSE), NET
The Company generated $85,968 in interest income during the 1996 Period as
compared to $24,149 in the 1997 Period. The Company generated $89,304 in
interest income during the six month period ended September 30, 1996 as
compared to $46,648 during the six month period ended September 30, 1997.
The decrease in interest income is attributable to lower average deposit
balances. Interest income was offset by interest expense of $44,907 during
the 1996 Period as compared to $69,221 for the 1997 Period, and $90,307 for
the six month period ended September 30, 1996 as compared to $221,376 the
six month period ended September 30, 1997. The increase in interest
expense related to the increase in short-term and long-term borrowings.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED:
REVERSE STOCK SPLITS
In June 1997, the Company completed a one-for-six reverse stock split of
its issued and outstanding common stock, and in October, 1997 the Company
completed an additional one-for-four reverse stock split of its issued and
outstanding common stock. These consolidated financial statements have
been restated to reflect the reverse stock splits.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through private
placements of its equity securities as well as various debt financing
transactions.
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.
In April 1997, the Company obtained a line of credit with Toronto Dominion
Bank, which expires in May 1998, in the amount of Cdn. $1,750,000.
Borrowings under the line of credit at September 30, 1997, net of deemed
interest of $88,612, were $1,171,345. Borrowings bear interest at the
Canadian prime rate plus .25% (5% at September 30, 1997) and are due on
demand.
In April 1997, Bradstone Equity Partners Inc., f/k/a H.J. Forest Products
Inc. ("Bradstone"), guaranteed the aforementioned 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. The Company issued to the
guarantor warrants to purchase 31,667 shares of the Company's Common Stock
exercisable at $7.44 per share at any time until May 8, 1998 and thereafter
at $8.64 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 is being 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 $1,250,000 under a note payable to Bradstone. Interest on the note
is payable monthly at the Canadian prime rate plus 3% (7.75% at September
30, 1997). Principal is due in May 1998. The note is secured by a lien on
substantially all of the Company's assets and by a pledge of all of the
Company's common stock owned by William H.W. Atkinson and Susan A.
Schreter, the Company's Chief Executive Offer and President, respectively.
In July 1997, the remaining $470,000 under the note payable to Bradstone
was received by the Company.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED:
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
In September 1997, Bradstone agreed that if the Offering was not completed
and the Company required capital for its operations, Bradstone would loan
the Company up to an additional $1.25 million on the same terms and
conditions as the May 1997 note, provided that if drawn down, a
representative of Bradstone would be appointed to the Company's Board of
Directors, among other conditions.
In September 1997, the Company obtained from Toronto Dominion Bank an
increase in its credit facility of Cdn. $1.75 million, bringing the total
facility to Cdn. $3.5 million, under terms and conditions similar to the
original loan, which aggregate credit facility is secured by the guarantee
from Bradstone in the aggregate amount of Cdn. $3.5 million.
In October 1997, Paulson Investment Company, Inc. ("Paulson"), one of the
representatives of the underwriters of the Offering, loaned the Company
$200,000. The loan is non-interest bearing and is to be repaid by the
Company out of the net proceeds of the Offering; provided, however, if the
Offering has not occurred on or before January 30, 1998, the Company must
repay the loan within 30 days following Paulson's demand. In November
1997, Paulson loaned the Company an additional $350,000 under the same
terms and conditions of the October 1997 loan.
Substantially all of the Company's assets are pledged as collateral for its
various indebtedness.
As of September 30, 1997, the Company's principal sources of liquidity
included cash of $218,929, net accounts receivable of $373,825, inventories
of $2,879,747, and Cdn. $1,750,000 of available borrowing capacity under
the lines of credit. The Company's operating activities used cash of
$1,770,963 during the six month period ended September 30, 1997. The
Company anticipates that the levels of inventories and accounts receivable
will vary commensurate with the Company's sales and, if sales increase, may
negatively impact cash resources.
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.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED:
FORWARD LOOKING STATEMENTS, CONTINUED:
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, including, 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.
15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
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.
In September 1997, the Company agreed with certain plaintiffs to settle
their litigation in consideration of the payment by the Company of
$25,000 on the earlier of the completion of the Offering or December 1,
1997, and the issuance to the plaintiffs of warrants to purchase an
aggregate of 8,000 shares of the Company's common stock at an exercise
price of Cdn. $5.04 per share, subject to Vancouver Stock Exchange
("VSE") approval. In October 1997, the VSE approved the settlement and
the warrants were issued on October 22, 1997. The warrants expire on
October 21, 1999.
Item 2. Changes in Securities.
During the quarter ended September 30, 1997, the Company completed a
one-for-four reverse stock split of its issued and outstanding common
stock which was effected on October 20, 1997.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's 1997 Annual Meeting of Stockholders was held on
August 25, 1997.
The directors elected at the Meeting and the number of votes cast
were as follows:
For Against Withheld
--- ------- --------
William H.W. Atkinson 2,187,436 - 167
Susan A. Schreter 2,187,436 - 167
Michael M. Fleming 2,187,436 - 167
Anthony A. Cetrone 2,187,436 - 167
Paul Stanton 2,186,603 - 1,000
Herbert Sohn 2,187,603 - -
All of the directors elected at the Meeting had previously served
as directors of the Company.
Other matters voted upon at the Meeting and the number of votes
cast were as follows:
For Against Withheld
--- ------- --------
Appointment of KPMG Peat Marwick as Auditors of the Company 2,187,103 - 500
Authorization of Directors to fix Auditor's remuneration 2,171,353 16,250 -
Approval and ratification of incentive stock options 2,166,602 21,001 -
Approval of 1996 Stock Option Plan 2,164,268 23,335 -
The foregoing matters are described in detail in the Company's
proxy statement dated June 20, 1997 for the 1997 Annual Meeting of
Stockholders.
(b) During the quarter ended September 30, 1997, the stockholders
approved a one-for-four reverse stock split of the Company's
issued and outstanding common stock, which was effected on
October 20, 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:
On October 23, 1997, the Company filed a Form 8-K relating to the
one-for-four reverse stock split of the issued and outstanding
shares of the Company's common stock.
16
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 19, 1997 BY: /s/ William H.W. Atkinson
--------------------------------------
WILLIAM H.W. ATKINSON
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
17