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 December 31, 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 February 10, 1998,
the Registrant had 2,781,343 shares of Common Stock outstanding.
Traditional Small Business Disclosure Format (check one):
Yes /X/ No / /
CARING PRODUCTS INTERNATIONAL, INC.
FORM 10-QSB
For The Quarter Ended December 31, 1997
PAGE
INDEX NUMBER
PART I FINANCIAL INFORMATION 3
Item 1 Financial Statements. 3
Consolidated Balance Sheet as of December 31, 1997 3
Consolidated Statements of Operations
For each of the three and nine month periods ended
December 31, 1996 and 1997 4
Consolidated Statement of Stockholders' Equity
For the nine month period ended December 31, 1997 5
Consolidated Statements of Cash Flows
For each of the nine month periods ended
December 31, 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
DECEMBER 31, 1997
UNAUDITED
December 31,
1997
ASSETS ------------
Current assets:
Cash $ 4,176,408
Accounts receivable, less allowance for doubtful
accounts of $49,499 at December 31, 1997 216,625
Inventories 2,806,453
Prepaid expenses 8,567
ASSETS ------------
Total current assets 7,208,053
Equipment, net 223,160
Intangible assets, net 209,812
Other assets 23,795
ASSETS ------------
Total assets $ 7,664,820
-------------
-------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 454,712
Accrued liabilities 82,506
Current portion of lease obligations 8,770
ASSETS ------------
Total current liabilities 545,988
Lease obligations, less current portion 12,116
ASSETS ------------
Total liabilities 558,104
Stockholders' equity:
Preferred stock, no shares outstanding -
Common stock, 2,781,343 shares outstanding
at December 31, 1997 27,814
Additional paid-in capital 19,703,089
Accumulated deficit (12,624,187)
ASSETS ------------
Total stockholders' equity 7,106,716
ASSETS ------------
Total liabilities and stockholders' equity $ 7,664,820
ASSETS ------------
ASSETS ------------
See accompanying notes to consolidated financial statements.
3
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
UNAUDITED
Nine-month periods Three-month periods
ended December 31 ended December 31
------------------ -------------------
1996 1997 1996 1997
---- ---- ---- ----
Revenues $ 1,403,822 $ 1,442,929 $ 509,179 $ 245,976
Cost of sales 1,386,383 804,083 337,311 151,921
------------ ------------ ---------- -----------
Gross profit/(loss) 17,439 638,846 171,868 94,055
Operating expenses:
Selling 1,130,515 1,546,564 378,452 434,680
General and administrative 1,085,630 868,416 464,273 369,045
Amortization and depreciation 68,969 47,556 21,793 15,814
------------ ------------ ---------- -----------
Total operating expenses 2,285,114 2,462,536 864,518 819,539
------------ ------------ ---------- -----------
Loss from operations (2,267,675) (1,823,690) (692,650) (725,484)
Other income (expense):
Interest income 190,561 54,569 101,257 7,921
Interest expense (134,644) (386,210) (44,337) (164,834)
Other, net 87,343 162,307 106,220 233,218
------------ ------------ ---------- -----------
143,260 (169,334) 163,140 76,305
------------ ------------ ---------- -----------
Net loss $ (2,124,415) $ (1,993,024) $ (529,510) $ (649,179)
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Net loss per common share $ (2.13) $ (1.49) $ (0.55) $ (0.49)
Weighted average common shares and common
equivalent shares outstanding 999,255 1,335,691 967,440 1,335,691
See accompanying notes to consolidated financial statements
4
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE-MONTH PERIOD ENDED DECEMBER 31, 1997
UNAUDITED
Additional Total
Common Stock 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 proceeds from Offering 1,750,000 17,500 6,823,446 6,840,946
Net loss (1,993,024) (1,993,024)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,781,343 $ 27,814 $ 19,703,089 $ (12,624,187) $ 7,106,716
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1997
-----------------------
Preferred Common
stock stock
----- -----
Par value $ 0.01 $ 0.01
Authorized 1,000,000 75,000,000
Issued - 2,781,343
Outstanding - 2,781,343
See accompanying notes to consolidated financial statements
5
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
UNAUDITED
Nine-month periods
ended December 31
------------------
1996 1997
---- ----
Cash flows from operating activities:
Net loss $ (2,124,415) $ (1,993,024)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 90,823 77,459
Deemed interest 0 163,592
Gain on sale of fixed asset 0 (1,311)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 11,219 408,460
Decrease (increase) in inventories (203,195) (373,870)
Decrease in prepaid expenses 96,338 10,474
Increase in other assets 0 (14,860)
Decrease in accounts payable 60,016 (999,249)
Decrease in accrued liabilities (38,341) (54,586)
------------ -------------
Net cash used in operating activities (2,107,555) (2,776,915)
------------ -------------
Cash flows from investing activities:
Purchase of capital assets (137,097) (20,782)
Proceeds from sale of fixed asset 0 1,311
------------ -------------
Net cash used in investing activities (137,097) (19,471)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common stock and capital
contributions 1,508,684 7,822,051
Decrease (increase) in restricted cash, net 4,823 2,694,671
Proceeds from lines of credit 2,500,000 0
Repayment of lines of credit 0 (2,500,000)
Repayment of long term debt (9,344) (17,611)
Proceeds from long term debt 0 0
Proceeds from notes payable to related parties 0 1,994,650
Repayment of notes payable to related parties (2,500,000) (2,565,950)
Repayment of lease obligations (9,194) (17,028)
Increase in deferred financing costs 0 (556,562)
------------ -------------
Net cash provided by financing activities 1,494,969 6,854,221
------------ -------------
Increase (decrease) in cash (749,683) 4,057,835
Cash at beginning of period 1,082,419 118,573
------------ -------------
Cash at end of period $ 332,736 $ 4,176,408
------------ -------------
------------ -------------
Supplemental disclosure of cash flow
information - cash paid during the period for interest $ 53,627 $ 401,085
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 0 424,543
See accompanying notes to consolidated financial statements
6
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE-MONTH PERIODS ENDED DECEMBER 31, 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 $12,624,187 at December 31, 1997.
On December 15, 1997, the Company completed a public offering ("the
Offering") of 1,750,000 units at $5.00 per unit, each unit consisting 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 the Offering were $6,840,946, net of deferred
financing costs.
All of the Company's outstanding debt was repaid in December 1997 with
proceeds from the Offering.
In April 1997, the Company obtained a line of credit with Toronto
Dominion Bank in the amount of Cdn. $1,750,000. Borrowings bore
interest at the Canadian prime rate plus .25%. The Company issued to
the guarantor Bradstone Equity Partners, Inc., f/k/a H.J. Forest
Products, Inc. ("Bradstone") warrants to purchase 31,667 shares of the
Company's Common Stock. 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 was
being amortized to interest expense over the term of the line of credit.
The Company repaid borrowings under the line of credit in December 1997,
which were $1,252,715, net of deemed interest of $163,592.
7
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED:
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
(3) LIQUIDITY, CONTINUED:
In May and July 1997, the Company borrowed a total of $1,250,000 under a
note payable to Bradstone. Interest on the note was payable monthly at
the Canadian prime rate plus 3%.
In December 1997, the note payable to Bradstone was repaid, including
accrued interest of $65,983.
In October and November 1997, Paulson Investment Company, Inc.
("Paulson"), one of the representatives of the underwriters of the
Offering, loaned the Company a total of $550,000. The loans were
non-interest bearing and were to be repaid by the Company out of the net
proceeds of the Offering. The Company repaid these loans in December
1997.
As of December 31, 1997, the Company's principal sources of liquidity
included cash of $4,176,408, net accounts receivable of $216,625, and
inventories of $2,806,453. The Company's operating activities used cash
of $2,776,915 during the nine month period ended December 31, 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:
NINE-MONTH PERIODS ENDED DECEMBER 31, 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 30% for the nine month period ended December
31, 1996 and 5% for the three month period ended December 31, 1996.
Revenues from Canadian customers for the nine and three month periods
ended December 31, 1997 were 9% and 5% of total sales, respectively.
Approximately 52% of revenues were from one customer for the nine month
period ended December 31, 1997 representing a 2,000 store initial
roll-out, and approximately 42% of revenues were from three customers
for the nine month period ended December 31, 1996. During the three
month period ended December 31, 1997, approximately 36% of revenues were
from three customers and approximately 67% of revenues were from three
customers for the three month period ended December 31, 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 were deferred until the proceeds were
received by the Company on December 15, 1997, at which time they were
charged against the proceeds.
(6) INVENTORIES
As of December 31, 1997, inventories consisted of the following:
Finished goods $ 2,544,963
Raw materials 226,922
Packaging 34,568
-----------
$ 2,806,453
-----------
-----------
9
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED:
NINE-MONTH PERIODS ENDED DECEMBER 31, 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. The payment of $25,000 was made in December 1997.
In March 1996, the Company's Canadian pant subcontractor, LeGenereux
Clothing Company, Ltd. ("LeGenereux"), filed a lawsuit against the
Company claiming breach of its pant assembly agreement and claiming
liquidated damages in the amount of $913,607. In November 1997, the
Company was advised by LeGenereux that it had dropped its lawsuit
against the Company. No financial consideration was given to LeGenereux
as part of the settlement. LeGenereux returned raw materials provided by
the Company and no penalty was charged against LeGenereux for its
failure to assemble the remaining pants under the terms of the assembly
agreement. All returned raw materials have been sent to the Company's
Mexico-based subcontractor for assembly.
(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.
(9) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, EARNINGS 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.
This statement is effective for financial statements issued for periods
ending December 15, 1997, including interim periods, and requires dual
presentation of basic and diluted earnings per share on the face of the
income statement.
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 consolidated statements of
operations for the three and nine-month periods ended December 31, 1997.
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 consisted primarily of
drug store chains and retail stores. The Company is now beginning to
enter certain healthcare markets through hospital supply companies and
other distributor relationships.
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. All of the Company's pants
are now being produced in Mexico, where Rejoice pants can be produced at
a significant savings compared to Rejoice pants which had been produced
in Canada.
RESULTS OF OPERATIONS
Revenues increased from $1,403,822 for the nine month period ended
December 31, 1996 to $1,442,929 for the nine month period ended December
31, 1997, an increase of 3%. Revenues decreased from $509,179 in the
three month period ended December 31, 1996 (the "1996 Period") to
$245,976 in the three month period ended December 31, 1997 (the "1997
period"), a decrease of 52%. The decrease in revenues during the 1997
Period was primarily the result of a spike in sales during the 1996
Period from initial orders from two drug store chains and a healthcare
distributor. The Company did not ship any initial orders to large
chains or healthcare distributors during the 1997 Period. The increase
in revenues during the nine month period ended December 31, 1997
compared to the nine month period ended December 31, 1996 was primarily
attributable to new account roll-outs and the maintenance of pricing and
volume levels with existing customers. Re-order activity was
significantly affected by lack of cash available for advertising.
Cost of sales decreased from $1,386,383 for the nine month period ended
December 31, 1996 to $804,083 for the nine month period ended December
31, 1997, a decrease of 42%. Cost of sales decreased from $337,311 in
the 1996 Period to $151,921 in the 1997 Period, a decrease of 55%. The
decrease for both periods was primarily the 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 nine
months ended December 31, 1997, and a lower cost per liner obtained from
the Company's liner subcontractor in the United States during the nine
month period ended December 31, 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 $17,439 for the nine months ended
December 31, 1996 to $638,846 for the nine months ended December 31,
1997, an increase of 3,563%. The improvement of gross profit margins for
the nine month period ended December 31, 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 on sales decreased from $171,868 for the 1996
Period to $94,055 for the 1997 Period, a decrease of 45%. The decrease
in gross profit margin in the 1997 Period compared to the 1996 Period
was primarily attributable to the product mix between healthcare and
retail and lower sales in 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
OPERATING EXPENSES
Total operating expenses decreased 5% from $864,518 in the 1996 Period
to $819,539 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 8% from
$2,285,114 for the nine month period ended December 31, 1996 to
$2,462,536 for the nine month period ended December 31, 1997. Total
selling expenses increased 15% from $378,452 in the 1996 Period to
$434,680 in the 1997 Period, and 37% from $1,130,515 for the nine month
period ended December 31, 1996 to $1,546,564 for the nine month period
ended December 31, 1997. The increase was primarily attributable to
increased promotional expenses to support large retail customers,
absorption of certain set-up costs for new customers, as well as
expenses associated with the Company's commencement of sales training
and initial market testing activities within the healthcare market.
General and administrative expenses decreased 21% from $464,273 for the
1996 Period to $369,045 for the 1997 Period. General and administrative
expenses decreased 20% from $1,085,630 for the nine month period ended
December 31, 1996 to $868,416 for the nine month period ended December
31, 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.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
OTHER INCOME (EXPENSE), NET
The Company generated $101,257 in interest income during the 1996 Period
as compared to $7,921 in the 1997 Period. The Company generated
$190,561 in interest income during the nine month period ended December
31, 1996 as compared to $54,569 during the nine month period ended
December 31, 1997. The decrease in interest income is attributable to
lower average deposit balances. Interest income was offset by interest
expense of $44,337 during the 1996 Period as compared to $164,834 for
the 1997 Period, and $134,644 for the nine month period ended December
31, 1996 as compared to $386,210 for the nine month period ended
December 31, 1997. The increase in interest expense related to the
increase in short-term and long-term borrowings, as well as the
recognition of the unamortized deemed interest as expense upon the
repayment of borrowings under the Company's line of credit in December
1997.
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 December 15, 1997, the Company completed a public offering ("the
Offering") of 1,750,000 units at $5.00 per unit, each unit consisting 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 the Offering were $6,840,946, net of deferred
financing costs.
All of the Company's outstanding debt was repaid in December 1997 with
proceeds from the Offering.
In April 1997, the Company obtained a line of credit with Toronto
Dominion Bank in the amount of Cdn. $1,750,000. Borrowings bore
interest at the Canadian prime rate plus .25%. The Company issued to the
guarantor Bradstone Equity Partners, Inc., f/k/a H.J. Forest Products,
Inc. ("Bradstone") warrants to purchase 31,667 shares of the Company's
Common Stock. 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 was being
amortized to interest expense over the term of the line of credit.
The Company repaid borrowings under the line of credit in December 1997,
which were $1,252,715, net of deemed interest of $163,592.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED:
In May and July 1997, the Company borrowed a total of $1,250,000 under a
note payable to Bradstone. Interest on the note was payable monthly at
the Canadian prime rate plus 3%.
In December 1997, the note payable to Bradstone was repaid, including
accrued interest of $65,983.
In October and November 1997, Paulson Investment Company, Inc.
("Paulson"), one of the representatives of the underwriters of the
Offering, loaned the Company a total of $550,000. The loans were
non-interest bearing and were to be repaid by the Company out of the net
proceeds of the Offering. The Company repaid these loans in December
1997.
As of December 31, 1997, the Company's principal sources of liquidity
included cash of $4,176,408, net accounts receivable of $216,625, and
inventories of $2,806,453. The Company's operating activities used
cash of $2,776,915 during the nine month period ended December 31, 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.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
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, 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. The payment of
$25,000 was made in December 1997.
In March 1996, the Company's Canadian pant subcontractor,
LeGenereux Clothing Company, Ltd. ("LeGenereux"), filed a lawsuit
against the Company claiming breach of its pant assembly agreement
and claiming liquidated damages in the amount of $913,607. In
November 1997, the Company was advised by LeGenereux that it had
dropped its lawsuit against the Company. No financial consideration
was given to LeGenereux as part of the settlement. LeGenereux
returned raw materials provided by the Company and no penalty was
charged against LeGenereux for its failure to assemble the
remaining pants under the terms of the assembly agreement. All
returned raw materials have been sent to the Company's Mexico-based
subcontractor for assembly.
Item 2. Changes in Securities.
During the quarter ended December 31, 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.
On December 15, 1997, the Company completed a public offering,
consisting of 1,750,000 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.
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 and Reports on Form 8-K.
(a) Exhibits:
27.1 - - Financial Data Schedule
(b) Reports on Form 8-K:
None.
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: FEBRUARY 17, 1998 BY: /S/ SUSAN A. SCHRETER
-------------------------
SUSAN A. SCHRETER
PRESIDENT
17