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 EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 33-96882-LA
CARING PRODUCTS INTERNATIONAL, INC.
-----------------------------------------------------------------
(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)
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(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 August 19, 1997, the Registrant
had 4,125,375 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
<PAGE>
CARING PRODUCTS INTERNATIONAL, INC.
FORM 10-QSB
For the Quarter Ended June 30, 1997
INDEX
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PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. 3
Consolidated Balance Sheets - June 30, 1997 and 3
June 30, 1996
Consolidated Statements of Operations 4
For the three months ended June 30, 1997 and 1996
Consolidated Statements of Stockholders' Equity 5
For the three months ended June 30, 1997
Consolidated Statements of Cash Flows 6
For the three months ended June 30, 1997 and 1996
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 9
Item 2. Changes in Securities. 9
Item 3. Defaults Upon Senior Securities. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K. 9
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and June 30, 1997
<TABLE>
<CAPTION>
============================================================================================================
June 30, June 30, 1997
1996* (Unaudited)
- ------------------------------------------------------------------------------------------------------------
Assets
------
<S> <C> <C>
Current assets:
Cash $ 164,063 132,880
Restricted cash 3,169,243 2,537,591
Accounts receivable, less allowance for doubtful accounts of $44,723 at
June 30, 1996 and $88,274 at June 30, 1997 423,449 951,875
Inventories 1,490,938 3,110,444
Prepaid expenses 118,648 9,055
----------------------------
Total current assets 5,366,341 6,741,844
----------------------------
Equipment, net 179,231 234,602
Intangible assets, net 266,863 228,706
Other assets -- 17,782
----------------------------
$ 5,812,435 7,222,934
============================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 358,008 836,188
Accrued liabilities 66,338 282,532
Line of credit 2,500,000 3,644,928
Notes payable to related parties -- 780,000
Current portion of lease obligations 11,529 3,775
Current portion of long-term debt 13,182 8,635
----------------------------
Total current liabilities 2,949,057 5,556,058
----------------------------
Lease obligations, less current portion 5,920 26,106
Long-term debt, less current portion 16,858 5,485
----------------------------
Total liabilities 2,971,835 5,587,649
Stockholders' equity:
Preferred stock, no shares outstanding
Common stock, 3,678,208 and 4,125,375 shares outstanding at June 30,
1996 and June 30, 1997, respectively 36,782 41,254
Additional paid-in capital 11,173,675 12,848,703
Accumulated deficit (8,369,857) (11,254,673)
----------------------------
Total stockholders' equity 2,840,600 1,635,284
Commitments, contingencies and subsequent events
- ------------------------------------------------------------------------------------------------------------
$ 5,812,435 7,222,934
============================================================================================================
</TABLE>
*Derived from the 1996 audited financial statements.
3
<PAGE>
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Three-month periods ended June 30, 1996 and 1997
================================================================================
Three-month period
ended June 30,
----------------------------
1996* 1997
(Unaudited)
- --------------------------------------------------------------------------------
Revenues $ 428,468 818,403
Cost of sales 450,497 385,471
----------------------------
Gross profit (loss) (22,029) 432,932
----------------------------
Operating expenses:
Selling 328,808 548,950
General and administrative 233,119 289,467
Amortization and depreciation 18,585 14,278
----------------------------
Total operating expenses 580,512 852,695
----------------------------
Loss from operations (602,541) (419,764)
----------------------------
Other income (expense):
Interest income 3,336 22,499
Interest expense (44,375) (152,155)
Other, net -- (74,090)
----------------------------
(41,039) (203,747)
----------------------------
Net loss $ (643,580) (623,510)
----------------------------
Net loss per share $ 0.17 0.15
----------- -----------
Weighted average common shares and common 3,723,708 4,125,375
equivalent shares outstanding ----------- -----------
*Derived from the 1996 audited financial statements.
4
<PAGE>
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Three-month period ended June 30, 1997
<TABLE>
<CAPTION>
==========================================================================================================================
Common Stock Aditional Total
------------------------------ paid-in Accumulated stockholders'
Shares Amount capital deficit equity
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 4,125,375 $ 41,254 12,685,111 (10,631,163) 2,095,202
Fair value of warrants issued with
line of credit guarantee -- -- 163,592 -- 163,592
Net Loss -- -- -- (623,510) (623,510)
==========================================================================================================================
Balance at June 30, 1997 4,125,375 41,254 12,848,703 (11,254,673) 1,635,284
==========================================================================================================================
</TABLE>
June 30, 1997
============================
Preferred Common stock
stock
============================
Par value $ 0.01 $ 0.01
Authorized 1,000,000 75,000,000
Issued -- 4,125,375
Outstanding -- 4,125,375
5
<PAGE>
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three-month periods ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
=========================================================================================================
Three-month periods
ended June 30,
----------------------------
1996* 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (643,580) (623,510)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization and depreciation 30,982 26,341
Deemed interest -- 34,082
Change in operating assets and liabilities:
Increase in accounts receivable (142,771) (326,790)
Decrease (increase) in inventories 318,054 (677,861)
Decrease in prepaid expenses 4,076 9,986
Increase (decrease) in accounts payable 6,696 (193,230)
Increase (decrease) in accrued liabilities (12,632) 145,442
Decrease (increase) in other assets 105 (8,847)
--------------------------
Net cash used in operating activities (439,070) (1,614,387)
--------------------------
Cash flows from investing activities:
Capital expenditures (4,058) --
Acquisition of intangible assets (26) --
--------------------------
Net cash used in investing activities (4,084) --
--------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock and capital contributions (7,224) --
Decrease (increase) in restricted cash (467,893) 157,080
Proceeds from line of credit -- 1,390,297
Repayment of line of credit -- (115,858)
Repayment of long-term debt (53) (3,491)
Proceeds from notes payable to related parties -- 950,400
Repayment of notes payable to related parties -- (741,700)
Repayment of lease obligations (32) (8,034)
--------------------------
Net cash provided by (used in) financing activities (475,202) 1,628,694
--------------------------
Increase (decrease) in cash (918,356) 14,307
Cash at beginning of period 1,082,419 118,573
--------------------------
Cash at end of period $ 164,063 132,880
==========================
Supplemental disclosure of cash flow information - cash paid during the
period for interest $ 45,547 147,468
==========================
Supplemental disclosure of non-cash financing activities - Estimated fair
market value of warrants issued $ -- 163,592
=========================================================================================================
</TABLE>
*Derived from the 1996 audited financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
For the fiscal quarter ended June 30, 1997 (the "1997 Period"), the
Company generated revenues from the sale of its proprietary adult incontinence
products of $818,403 as compared to $428,468 for the fiscal quarter ended June
30, 1996 (the "1996 Period"). The 91% increase in revenues was a result of the
increase in the number of retail drug store chains which sell the Company's
Rejoice incontinence products.
Cost of good sold was $385,471 and $450,497 for the 1997 Period and the
1996 Period, respectively. The decrease in cost of goods sold was attributable
to significant reduction in costs associated with pant production, including
less Canadian production staff over the comparable period. The gross profit for
the 1997 Period was $432,932 as compared to ($22,029) for the 1996 Period. The
gross profit margin improved to 53% in the 1997 Period. The improvement in gross
profit margin represented the first introduction of retail pant product produced
at a lower unit priced pant subcontractor in Mexico and the significant
reduction in Canadian-based staff and facility costs. In addition, the Company
introduced retail packaged liners produced at a lower priced liner converter in
the United States.
Total operating expenses increased 47% from $580,512 in the 1996 Period
to $852,695 in the 1997 Period. The increase was primarily attributable to
increased advertising and sales expenses associated with supporting an increased
number of drug stores which sell the Company's products, as well as employee
travel and new salary expenses associated with the Company's commencement of
sales training and marketing activities. Total marketing and advertising
expenses increased 67% from $328,808 in the 1996 Period to $548,950 in the 1997
Period. General and administrative expenses increased 24% from $233,119 to
$289,467 in the 1997 Period. The increase represented increased operating costs
associated with the growth in the Company's headquarters location.
The Company also generated $22,499 in interest income during the 1997
Period as compared to $3,336 in interest income generated during the 1996
Period. Interest income was offset by interest expense of $152,155 in the 1997
Period and $44,375 in the 1996 Period. The increase in interest expense related
to the increase in short-term and long-term borrowings in the 1997 Period from
the 1996 Period.
The net loss for the 1997 Period was $623,510 as compared to $643,580
for the 1996 Period, a 3% improvement. The net loss per share was $.15 in the
1997 Period as compared to $.17 per share in the 1996 Period.
Liquidity and Capital Resources
- -------------------------------
In May 1997, Bradstone Equity Partners Inc. (f/k/a H.J. Forest Products
Ltd.), a Canadian public company which trades on the Toronto Stock Exchange,
guaranteed a Cdn $1.75 million credit facility for the Company from the Toronto
Dominion Bank. The guarantor received warrants to purchase 126,667 shares of the
Company's common stock. The warrants are exercisable at $1.86 per share through
May 8, 1998 and at $2.16 per share through May 9, 1999. The warrants were
recorded on issuance at their estimated fair market value of $163,592 with a
corresponding reduction in the recorded value of the line of credit. The debt
discount will be amortized to interest expense over one year, the term of the
line of credit.
7
<PAGE>
In July 1997, the credit facility was increased to approximately $2.5
million. In addition, in May 1997, the Company borrowed $1.25 million under a
note payable to Bradstone Equity Partners Inc. These credit facilities were used
to repay outstanding shorter term obligations.
Subsequent to the close of the 1997 Period, the Company retired a $2.5
million bank loan which was secured by a certificate of deposit. The
certificate of deposit was used as the source of funds for repayment.
As of June 30, 1997, the Company's principal sources of liquidity
included cash (including amounts restricted as security for loans) of
$2,670,471, net accounts receivable of $951,875 and inventories of 3,110,444.
The Company's operating activities used cash of $1,614,387 for the three month
period ended June 30, 1997. Increases in accounts payable of $193,230 and
increases in accounts receivable of $326,790 reflect the increased operations of
the Company. Increased inventories primarily reflect the Company's growing sales
volume with larger chain stores which require greater inventory availability and
the longer lead times associated with liner production.
In June 1997, the Company completed a one-for-six reverse stock split
of its issued and outstanding common stock.
The Company is subject to various claims and contingencies related to
lawsuits and other matters arising in the normal course of business. Management
believes the ultimate liability, if any, arising from such claims or
contingencies is not likely to have a material adverse effect on the Company's
results of operations or financial condition.
8
<PAGE>
PART II
-------
OTHER INFORMATION
Item 1. Legal Proceedings.
Previously reported in the Company's Form 10-KSB for the fiscal year
ended March 31, 1997.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended June 30, 1997, the stockholders approved a
one-for-six reverse stock split of the Company's Common Stock, which
was effected on June 16, 1997.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
9
<PAGE>
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: August 20, 1997 By: /s/ William H.W. Atkinson
--------------------------
William H.W. Atkinson,
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FORM 10-QSB FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> JUN-30-1996 JUN-30-1997
<CASH> 3,333,306 2,670,471<F1>
<SECURITIES> 0 0
<RECEIVABLES> 468,172 1,040,149
<ALLOWANCES> 44,723 88,274
<INVENTORY> 1,490,938 3,110,444
<CURRENT-ASSETS> 5,366,341 6,741,844
<PP&E> 200,992 251,502
<DEPRECIATION> 21,761 16,900
<TOTAL-ASSETS> 5,812,435 7,222,934
<CURRENT-LIABILITIES> 2,949,057 5,556,058
<BONDS> 22,778 31,591
0 0
0 0
<COMMON> 36,782 41,254
<OTHER-SE> 2,803,818 1,594,030
<TOTAL-LIABILITY-AND-EQUITY> 5,812,435 7,222,934
<SALES> 428,468 818,403
<TOTAL-REVENUES> 428,468 818,403
<CGS> 450,497 385,471
<TOTAL-COSTS> 580,512 852,695
<OTHER-EXPENSES> 41,039 203,747
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 44,375 152,155
<INCOME-PRETAX> (643,580) (623,510)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (643,580) (623,510)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (643,580) (623,510)
<EPS-PRIMARY> (0.17) (0.15)
<EPS-DILUTED> 0 0
<F1> Cash and cash items balance includes $3,169,243 and $2,537,591 in
restricted cash at June 30, 1996 and 1997, respectively.
</TABLE>
