SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
/ X / ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
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
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CARING PRODUCTS INTERNATIONAL, INC.
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(Name of small business issuer in its charter)
DELAWARE 98-0134875
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(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
PO BOX 9288, SEATTLE, WASHINGTON 98109
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(principal mailing address)
(206)523-7065
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(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
-
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB. / X /
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State issuer's revenue for its most recent fiscal year. $538,489.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
$1,528,171.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST 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 May 15, 2000: 3,056,343 shares of common stock, $.01 par
value (the "Common Stock").
Transitional Small Business Disclosure Format (check one):
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Certain exhibits Included in prior filings made
Listed in response to Item 13(a) under the Securities Act of 1933.
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<CAPTION>
CARING PRODUCTS INTERNATIONAL, INC
FORM 10-KSB
FOR THE YEAR ENDED MARCH 31, 2000
INDEX PAGE NUMBER
<S> <C> <C>
PART I:
Item 1 Description of Business . . . . . . . . . . . . . . . . . . . . . 4
Item 2 Description of Properties . . . . . . . . . . . . . . . . . . . . 8
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . 8
PART II
Item 5 Market Information . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6 Managements Discussion and Analysis of
Financial Condition and Results of Operation . . . . . . . . . 10
Item 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 14
Consolidated Balance Sheets at March 31, 1999 and March 31, 2000 .. 17
Consolidated Statements of Operations for the years
ended March 31, 1999 and March 31, 2000 . . . . . . . . . . 18
Consolidated Statement of Stockholders Equity for
the years ended March 31, 1999 and March 31, 2000 . . . . . . . 19
Consolidated Statements of Cash Flows for the years
ended March 31, 1999 and March 31, 2000 . . . . . . . . . . 20
Notes to Financial Statements . . . . . . . . . . . . . . . . . 21
Item 8 Changes and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 27
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act . . . . . . . 28
Item 10 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 29
Item 11 Security Ownership of Certain Beneficial Owners and Management . 33
Item 12 Certain Relationships and Related Transactions . . . . . . . . . . 33
Item 13 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Caring Products International, Inc. and its subsidiaries (collectively, the
"Company" or "CPI") has designed a line of proprietary urinary incontinence
products with disposable liners which have been sold under the Rejoice name.
These products provide a practical, convenient and cost effective solution to
the special needs of incontinent adults. The Company's primary product
incorporates a two-piece incontinence management system consisting of a reusable
light-weight cotton pant specifically designed to look and feel like
conventional underwear and a disposable, highly absorbent liner.
Since inception, the Company's primary activities have been geared to the
development of commercial markets for its incontinence products in the US and to
a lesser extent, Canada and Europe. In addition, the Company has sought to
diversify its product line interests through development of other consumer
products which can be sold to retail chains, catalog, direct mail or through the
Internet. The Company anticipates that the availability of the Rejoice product
line will end during Fiscal 2001 with the anticipated closure of one or more of
its warehouses on or about June 30, 2000 due to the lack of financial resources
to replenish its inventory and support the ongoing sales and marketing of its
product lines.
CORPORATE HISTORY
The Company, Caring Products International, Inc., a Delaware corporation,
resulted from a series of corporate reorganizations and related transactions, as
follows:
First West Canada Capital Corporation ("FWCC") was originally incorporated under
the laws of the Province of British Columbia on December 6, 1984. On December
20, 1993, FWCC renounced its original jurisdiction of incorporation and became a
Wyoming corporation. On December 23, 1993, FWCC merged into FWCC Merger Corp.,
a wholly owned subsidiary of FWCC, which was incorporated in the State of
Delaware on December 7, 1993. Prior to the merger, which effected the
reincorporating of FWCC as a Delaware corporation, FWCC was an inactive
corporation whose shares were listed for trading on the VSE.
On November 4, 1992, Caring Products International, Inc. was incorporated under
the laws of the State of Delaware ("Old Caring Products"). On December 30,
1993, Old Caring Products merged with and into FWCC Merger Corp., and FWCC
Merger Corp. became the surviving corporation. In connection with this merger,
the then existing officers and directors of FWCC Merger Corp. resigned, the then
existing officers and directors of Old Caring Products became the officers and
directors of FWCC Merger Corp. and the name of the surviving entity was changed
to Caring Products International, Inc.
Caring Products Industries, Ltd., a British Columbia corporation, is a wholly
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owned subsidiary of Caring Products International, Inc. and until March 1996
principally engaged in pant production. C.P. International, Inc., a Delaware
corporation, is also a wholly owned subsidiary of Caring Products International,
Inc., and its principal business is the sale and marketing of the Company's
products. Creative Products International, Inc., is a wholly owned subsidiary of
the Company organized to complete development and commercialize various products
unrelated to the Company's adult incontinence product lines. The term, the
"Company" as used herein, Caring Products International, Inc. and its current or
former wholly owned subsidiaries, Caring Products Industries, Ltd., Creative
Products International, Inc. and C.P. International, Inc.
In June 1999, Caring Products International, Inc. announced the spin-off of
Creative Products International, Inc., ("CPII") a then wholly-owned subsidiary,
to shareholders of record as of June 30, 1999. During June 1999 the Company
transferred approximately $170,000 of intellectual property associated with
development stage products unrelated to the Company's adult incontinence
products to CPII. During the year, the Company also transferred a total of
$350,000 to provide initial working capital to CPII. On December 23, 1999, the
Company completed the spin-off to shareholders of record. Shareholders received
one share of CPII common stock for every two shares of Caring Products
International, Inc. stock owned on the record date. CPII is a development stage
company with interests in the development of certain consumer products and
retail-oriented consumer services which may, at some future date, be
commercialized through retail, the Internet or direct mail markets. It is
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anticipated that these products and services will require additional capital
investment and the development of marketing and/or licensing partners to
complete commercial development. There is no assurance that CPII will be able
to secure adequate financial, management and marketing resources to complete
product development and organize a financially viable operating company. The
shares of CPII do not trade on any exchange. There is also no assurance that
CPII will be able to develop an active market for its securities in the future.
In light of changes in the chain drug retail market which substantially
increased the costs required to support retail chain distribution for consumer
products and the position of the Company's financial resources which were
substantially less than the Company's competition, the Board of Directors in
early 1999 announced its intention to review all the strategic options available
to the Company. The Company also initiated a cost-cutting program to reduce
administrative, marketing and other related operating costs, while the Company
reviewed its options. No new inventory was added during the fiscal year and
sales and marketing activities were reduced. The Company anticipates that it
will close one or more of its sub-contracted inventory fulfillment warehouses on
or about June 30, 2000, due to reduced inventory and related storage and
distribution needs to support a declining customer base.
Unless otherwise indicated, all share and per share data contained herein gives
effect to a one-for-six reverse stock split and one-for-four reverse stock split
(the "Reverse Stock Splits") of the Company's Common Stock effected on June 16,
1997 and October 20, 1997, respectively.
PRODUCTS
The Company has designed a line of adult incontinence products that it believes
offers to those who suffer from light and moderate incontinence a more dignified
and less costly alternative to their traditional options, such as adult
disposable diapers, belted undergarments or guards. The competing incontinence
products designed for individuals with light bladder control problems are
similar to many feminine hygiene products which do not prevent side seepage when
a person is moving or sitting down. The Company has not designed products for
the incontinence sufferer, usually bedridden individuals, who require products
for heavier bladder control and protection for bed linen. The Company believes
that the daily cost of using Rejoice incontinence products is significantly less
than the cost of using competing brand name disposable diapers, belted
undergarments and guards.
The Company's adult incontinence products consist of a reusable light-weight
cotton pant specifically designed to look and feel like conventional underwear
and a disposable, highly absorbent, thin liner. The liner fits securely into a
patented channel in each pant which the Company believes provides reliable
protection against side seepage even when the wearer is moving or sitting down.
The Company's pants are manufactured in a pull-on style and a wide range of
sizes.
SALES AND MARKETING
The Company developed its products for home consumers with light and moderate
incontinence such as individuals recovering from surgery, with neurological
diseases, women with interstitial cystitis and other chronic bladder infections,
or spinal injuries. These individuals are likely to have permanent rather than
temporary incontinence problems and require greater daily usage of liners than
individuals with very light or light incontinence.
The Company's marketing efforts to gain sources of product distribution have
been focused in the retail market and certain segments of the healthcare
market. The Company has utilized different marketing strategies for the retail
and healthcare segments of its business which include surgical supply stores,
hospital supply companies and healthcare oriented catalogs.
The Company began selling Rejoice in retail locations in the United States in
September 1995, and the product is now available in several drug chains,
independent pharmacies, and surgical supply stores. As is customary in the
retail industry, the Company does not have any supply agreements with any of
such stores. In addition, the Company has to pay upfront listing allowances or
"slotting fees" to gain shelf space in chain drug stores and participate in
in-store advertising programs, and accept charges for product that is damaged on
the store shelf from chain mishandling, pilferage of product contents or other
damage which affects the appearance of the product to consumers and is
considered no longer in saleable condition to the retail chain. These costs of
gaining and maintaining shelf space vary by chain, but have increased
significantly during the period following the rapid consolidation of the retail
drug chain industry in 1996 and 1997. The industry is now dominated by four
drug store chains plus a small number of mass merchants with national
distribution.
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Because of the substantially higher costs of maintaining a national advertising
presence and participating in certain in-store advertising programs, which was
beyond the Company's resources, distribution of Rejoice at national and most
regional drug chains ended during 1999. The Company's decision to end costly
in-store advertising and shelf placement payment programs contributed to
the termination of many distribution relationships. The Company has experienced
difficulty in receiving payment from some of its larger customers for goods
previously shipped. The Company's available inventory in sizes and styles
requested by the customer, which is declining due to lack of new production, is
also a factor contributing to declining sales and working capital availability.
As noted in prior statements, due to the higher than expected costs of gaining
and maintaining distribution at chain drug stores as well as increased
competition in the marketplace from marketers with greater financial resources
than the Company, the Company announced in February 1999, that it intended to
review all of its strategic options. Some of these options include licensing
the Company's incontinence product to domestic or international industry
participants, seeking acquisitions of companies or products which can utilize
the Company's database of physicians, home consumers or network of retail
brokers which assist in gaining distribution of products to retail grocery, drug
or mass merchandiser chains, merging with another company, and ceasing the sale
of the Rejoice brand of incontinence products. There is no assurance that the
Company will be able to identify a marketing or licensing partner for the
Rejoice brand or its patent or be able to successfully implement any action
related to a re-structuring of the Company. The Company has not generated a
profit for an entire fiscal year since its inception and has relied on raising
new equity to support its marketing plans. There is no assurance that the
Company will be able to raise new sources of working capital or equity to
continue the Company's business operations.
MANUFACTURING AND FULFILLMENT
Historically, the Company has "outsourced" certain operating processes and it
expects to continue to do so for the foreseeable future. The Company currently
subcontracts the warehousing and delivery of the Company's products. The
Company has produced its adult incontinence pants through subcontractors located
in Canada and Mexico under non-exclusive supply agreements. There are many
low-cost sources of production for the Company's products available in Asia,
India and Mexico. Although the Company has made the strategic decision to cease
production while it considers its strategic options and conserves working
capital, the Company believes that it would be able to begin production again
with the addition of significantly greater financial resources, updated
marketing and product distribution plan and participation of a marketing and
distribution partner to adequately support the re-introduction of a consumer
brand into highly competitive retail or healthcare markets.
The airlaid raw material for the Company's liners has been manufactured by
Buckeye Cellulose Corporation, formerly known as Merfin Hygienic Products Ltd.
("Buckeye"), a producer of airlaid paper. There are other sources of raw
material for the Company's liners in Europe, Canada and the US. To date, the
Company has not encountered any difficulties in obtaining its requisite supply
of liner raw material for its adult incontinence or its children's products.
The airlaid raw material produced by an airlaid paper manufacturer is shipped to
subcontractors in the United States where it is converted into finished liners
according to the Company's specifications. The process of liner conversion
involves slitting the finished rolls of raw materials into designated liner
lengths, covering each liner with a soft cotton-like coverstock, adding a
self-adhesive strip to each liner and packaging the liners for shipment to one
of the Company's fulfillment centers in Harrisburg, Pennsylvania; Sparks,
Nevada; Dallas, Texas; or in Vancouver, Canada. The Company believes that there
are numerous options for liner conversion and warehousing and fulfillment
services and that it would not be difficult to make arrangements for additional
or different service providers, if business needs required it. The Company
closed its warehouse facility relationship in Vancouver, Canada in May 2000.
RESEARCH AND DEVELOPMENT
In prior years, the Company has devoted time and financial resources to research
and development activities to develop its current products and improvements to
those products. These costs have declined in recent years, with expenditures of
$95,790 in 1999. The Company did not incur any research and development costs
in 2000. The Company does not anticipate that research and development will
represent a significant portion of its expenses in the future.
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BACKLOG
The Company generally ships within three to ten days of receipt of a purchase
order depending upon the size of the order and availability of requested
inventory. Since the Company has not added to its inventory position during the
fiscal year, it has not been able to ship all requested product SKU's to its
customers due to lack of inventory. Without the addition of new resources to
the Company or sale or licensing of the Company's product line to another
company, outstanding orders for products may not be filled on a timely basis, if
ever.
COMPETITION
The disposable incontinence products industry is highly competitive and consists
of several large and medium sized companies as well as numerous smaller
companies. Many of the Company's competitors have financial, marketing and
other resources substantially greater than the Company's, as well as a
substantially longer history of operations than the Company. Competition in the
industry is generally based on price, performance and comfort as well as the
ability to adequately advertise product features and benefits to consumers on a
national basis and support distribution with in-store paid advertising, slotting
fees and other in-store promotion monies.
The retail market is dominated by major national brand product manufacturers
including Kimberly Clark's Depend and Poise brands, Johnson & Johnson's Serenity
brand and Proctor & Gamble's Attends brand, which was recently sold to Paper
Pak, another industry competitor. In addition to these companies which
collectively dominate the market, the retail market for disposable incontinence
products is made up of medium sized and small companies, as well as a small, but
fast growing, private label segment currently dominated by Confab, Inc. Each of
these competitors have greater resources for marketing and advertising their
brands than the Company.
Proctor & Gamble Company, Kimberly Clark Corporation and INBRAND Corporation
dominate the healthcare market. Several medium sized and numerous smaller firms
account for the balance of the healthcare market.
PATENTS AND TRADEMARKS
In November 1994, the U.S. Patent and Trademark Office issued a patent to the
Company covering the Company's channel pant design, that expires on July 30,
2012. Management believes that favorable rulings on certain patent claims will
help protect against new entrants into the combination two-piece incontinence
and training pant market with similar designs that specifically guard against
side-seepage.
There is no assurance that additional products that the Company develops will be
patentable, that the issued patent will provide the Company with any competitive
advantages or will not be challenged by any third parties, or that the patents
of others will not have an adverse effect on the Company's business.
Furthermore, there is no assurance that competitors will not be able to design
around the Company's patented products or develop or acquire substantially
equivalent trade secrets and proprietary technology independent of the Company.
Competitors of the Company may have filed applications for or may have received
patents, and may obtain additional patents and proprietary rights relating
to products that compete with those of the Company. Litigation and other
proceedings, which could result in substantial cost to the Company, may be
necessary to enforce any patents issued to the Company to determine the scope
and validity of third party proprietary rights. In addition, there is no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.
The Company uses a number of trademarks and logos in connection with the sale
and advertising of its products. The Company believes that its trademarks and
logos are of considerable value to its business and intends to continue to
protect them to the fullest extent possible. Although the Company protects its
proprietary technology in part by confidentiality agreements with its employees,
consultants and certain contractors, there can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently discovered by its competitors.
During June 1999, the Company transferred approximately $170,000 of intellectual
property to Creative Products International, Inc. then a wholly owned subsidiary
of the Company. As part of the agreement, the Company will retain certain
royalty free license rights for use of the patent in the adult incontinence
market.
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EMPLOYEES
During Fiscal 2000, the Company steadily reduced the number of salaried staff as
part of a administrative cost-cutting effort. As of March 31, 2000, the Company
employed several part-time administrative and accounting staff as well as 3
persons on a full-time salaried basis. Of the full time staff, one was employed
in operations and two in marketing and sales. The Company does not have a
collective bargaining agreement with any of its employees, and the Company
considers its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company terminated its lease at 200 First Avenue West, Suite 200, Seattle,
Washington on June 30, 1999 without penalty. The Company is not subject to any
lease agreement.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of its security holders during
the fourth quarter of the fiscal year ending March 31, 2000.
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PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A)(1) MARKET INFORMATION
The Company's Common Stock traded on the Vancouver Stock Exchange ("VSE") under
the symbol "CPI" since January 1994, following its merger with FWCC Merger
Corp., and under the symbol "CRP" since June 16, 1997, and under the symbol
"CPM" since November 4, 1997, and has also traded on the OTC Bulletin Board
under the symbol "CGPD" since August 14, 1997 and under the symbol "CGPDD" from
October 21, 1997 through November 20, 1997, and commencing November 21, 1997,
under the symbol "CGPD." On December 15, 1997, the Common Stock began trading
on the Nasdaq SmallCap Market under the symbol "BDRY". On June 21, 1999, the
common stock began to trade on OTC Bulletin Board under the ticker symbol
"BDRY".
The following table sets forth the high and low bid prices for the Common Stock
on the Nasdaq SmallCap Market for the periods indicated. All prices are stated
in U.S. dollars:
ACTUAL
HIGH LOW
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Fiscal Year Ending March 31, 1999
First Quarter $ 2.88 $ 1.69
Second Quarter 3.44 1.75
Third Quarter 1.94 .25
Fourth Quarter 1.19 .41
ACTUAL
HIGH LOW
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Fiscal Year Ending March 31, 2000
First Quarter $ .375 $ .125
Second Quarter .218 .062
Third Quarter .110 .031
Fourth Quarter 2.000 .070
On May 26, 2000, the closing price of the Common Stock on the OTC Bulletin Board
Market was $.50
(A) (2) RECENT SALES OF UNREGISTERED SECURITIES
No securities that were not registered under the Securities Act of 1933 as
amended (the "Act") have been issued or sold by the Registrant within the
past two years, except as described below. The share information below does
not reflect the Reverse Stock Splits except as otherwise noted.
1. On May 8, 1997, the Company obtained an additional bank line of credit
and issued to the guarantor thereof, Bradstone Equity Partners Inc. (f/k/a
H.J. Forest Products Inc.), warrants to purchase 31,667 shares (post
reverse splits) of Common Stock at $7.44 per share at any time until May 8,
1998 and thereafter at $8.64 per share. Bradstone Equity Partners Inc. is a
Canadian publicly held corporation. These warrants were issued pursuant to
Regulation S. On May 5, 1998, the Company reduced the exercise price of the
warrants to $1.875 per share. These warrants expired on May 8, 1999.
2. From time to time during the past three years, the Company has granted
options and issued warrants to officers, directors and employees of the
Company. The grants of options have been made at exercise prices ranging
from $12.00 to $24.00 per share and the grants of warrants have been made
at exercise prices ranging from $7.44 to $19.20 per share. To date, no
options have been exercised. On May 5, 1998, 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). To the extent
options or warrants have been issued by the Company to U.S. persons, they
have been issued to sophisticated investors pursuant to the exemption for
transactions not involving a public offering provided in Section 4(2) of
the Act, and the securities have been appropriately legended. No new
options were granted during the fiscal year ended March 31, 2000.
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3. In connection with the settlement of certain litigation, on October 22,
1997, the Company issued to three plaintiffs two-year warrants to purchase
an aggregate of 8,000 shares of Common Stock at an exercise price of $3.34
per share. These warrants were issued to sophisticated investors pursuant
to the exemption for transactions not involving a public offering provided
in Section 4(2) of the Act, and the securities have been appropriately
legended. These warrants expired on October 22, 1999.
4. 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, or
$7.50. Pursuant to the underwriter's agreement, the exercise price of the
warrants was reduced to $6 at March 31, 1999.
5. On May 5, 1998, the Company issued to Bradstone Equity Partners, Inc.
warrants to purchase 50,000 shares of Common Stock at $1.875 per share.
Bradstone Equity Partners, Inc. is a Canadian publicly held corporation.
These warrants were subsequently amended to expire May 4, 2003. These
warrants were issued pursuant to Regulation S. These options expired May 4,
2000.
6. On January 31, 1999, the Company issued to two non-executive employees
warrants to purchase one share of common stock at $1.875 until January 31,
2004. The amount of warrants issued was 130,000. The warrants have been
issued to sophisticated investors pursuant to the exemption for
transactions not involving a public offering provided in Section 4(2) of
the Act, and the securities have been appropriately legended.
7. On January 31, 1999, the Company issued to a non-executive employee
warrants to purchase 18,750 shares of common stock at $5 until January 31,
2004. The warrants have been issued to sophisticated investors pursuant to
the exemption for transactions not involving a public offering provided in
Section 4(2) of the Act, and the securities have been appropriately
legended.
8. On June 30, 1999 the Company issued a total of 275,000 restricted shares
under the 1999 Restricted Share plan to 4 employees of the Company. These
shares have been issued to sophisticated investors pursuant to the
exemption for transactions not involving a public offering provided in
Section 4(2) of the Act, and the securities have been appropriately
legended.
(B) HOLDERS
The number of record holders of the Company's Common Stock as of March 31, 2000
was 100.
(C) DIVIDENDS
The Company has never paid a dividend on its Common Stock. It is the present
policy of the Company not to pay cash dividends on the Common Stock. Any
payment of cash dividends on the Common Stock in the future will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plans for expansion, as well as other factors
that the Board of Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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-KSB.
OVERVIEW
From the date of the Company's incorporation in November 1992 through September
1995 when it began marketing Rejoice, the Company was principally engaged in
various activities, including product development, technology acquisition,
recruitment of employees, identification of sources of subcontracted production,
organization of marketing and production headquarters, market research and
testing, trademark and patent filings and the raising of funds to support the
Company's substantial product development expenses. Revenues from various
product test-marketing programs in retail, catalog, direct mail and healthcare
markets during that period were nominal.
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Until March 1996, the Company produced pants in its own facility in Burnaby,
British Columbia. The Company secured a new source of pant production during
the fiscal year ended March 31, 1997 from a large underwear manufacturer located
in Northern Mexico. That producer offered a lower per unit pant cost than the
Company's per unit pant cost at its own facility in Canada or through a
Canadian-based pant subcontractor. During Fiscal 1998, the Company closed its
pant manufacturing facility in Burnaby. Since inception, the Company produced
its liner products through sub-contractors located in Canada and the US.
In September 1995, the Company shipped product to its first regional drug store
chain for storewide distribution and shelf placement. In subsequent years the
Company expanded product distribution to include larger chain drug stores,
Veteran's hospitals, catalogs, independent pharmacies and surgical supply stores
as well as promotional distribution on televised home shopping stations and
other specialty product outlets.
As discussed below, the fiscal year ended March 31, 1999 was characterized by
nominal sales offset by significant expenses associated with product
distribution, promotion, slotting fees and other in-store advertising and
certain reductions to inventory valuation due to slower moving items or specific
pant styles which were discontinued. During the year, the Company also ended
primary advertising to retain the Company's cash resources.
Given the high costs associated with increasing and maintaining distribution for
its incontinence products at larger 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
licensing the Company's products, merging with another company, potential
acquisitions, obtaining new sources of equity and cost-cutting measures. As
part of the Company's cost cutting measures in fiscal year ended March 31, 1999,
the Company ceased paid advertising to consumers and participation in costly
in-store chain promotions which are a requirement to remain on the shelves of
many large drug store chains in the US. The Company further reduced its payroll
and other administrative costs. There is no assurance that any of these
measures will improve the Company's cash flow, reduce the Company's losses, or
increase the sales and/or distribution for the Company's products without
increased expense to the Company.
The Company announced the spin-off of Creative Products International, Inc.
("CPII") a then wholly-owned subsidiary of the Company in June 1999. The
Company determined that the product development and the potential to
commercialize products and services unrelated to the adult incontinence market
were better served in a separate company. The Company also determined at the
time of spin-off announcement that the two companies have different dynamics and
were subject to different competitive forces and must be managed with different
development strategies, capital structures, and management teams with skills
conducive to each company's business needs. The spin-off of CPII was completed
in December 1999. Each shareholder of record of the Company received 1 share of
CPII for every two shares of the Company.
During the fiscal year ended March 31, 2000, the Company's sales continued to
decline due to the elimination of brand advertising support programs and costly
in-store chain advertising. While the Company has significantly reduced
expenditures in all aspects of the Company's operations, it expects that it will
continue to lose money. Further the Company has taken additional reductions to
its inventory value to reflect reduced demand for the Company's products, poor
mix of SKU's to meet current customer orders and deteriorating market and
distribution network for the Company's brand. As a result of the foregoing the
Company anticipates that it will close one or more of its product fulfillment
centers when the available inventory mix at each of three remaining product
storage and fulfillment centers is unable to generate sufficient sales to exceed
the costs of maintaining the center. It is anticipated that the Company will
begin to close one or more of its fulfillment centers on or about June 30, 2000.
The Company is not under contractual obligation and may close any facility at
any time, without ongoing expense to the Company.
RESULTS OF OPERATIONS
COMPARISON OF THE FISCAL YEAR ENDED MARCH 31, 1999 TO THE FISCAL YEAR ENDED
MARCH 31, 2000
Revenues decreased from $1,235,918 in Fiscal 1999 to $538,489 in Fiscal 2000, a
56% decrease. The decrease was a result of decreased distribution of Rejoice in
regional and national chain drug stores, decreased support of the brand in
consumer advertising, increased problems for long-term consumers to find a local
source of supply for the brand, and lack of available products sold in the
quantities and styles desired by national distributors of consumer healthcare
products.
11
<PAGE>
Cost of sales decreased from $2,161,229 in Fiscal 1999 to $490,742 in Fiscal
2000, a decrease of 77%. This decrease is attributable to the affects of the
reduction of inventory valuation taken at the end of Fiscal 1999. In Fiscal
Years 1999 and 2000, the Company did not add to its inventory through new
production. For the fiscal year ended 2000, the Company generated a gross
profit of $47,747 as compared to a negative gross profit of $925,311 in the
prior fiscal year.
Total operating expenses decreased from $3,417,016 in Fiscal 1999 to $1,093,020
in Fiscal 2000, a 68% decrease. This decrease reflects the implementation of
the Company's cost cutting programs which included reductions in payroll, sales
and advertising, product storage and distribution, customer service and other
administration associated with serving a national consumer base which purchases
products through chain drug stores to a smaller consumer base which purchases
products through direct mail, regional drug stores and catalogs.
Sales and marketing costs decreased 90% from $1,795,920 in Fiscal 1999 to
$168,235 in Fiscal 2000. Specific reductions included the reduction in
marketing and travel costs associated with soliciting new accounts and providing
advertising and marketing support to generate consumer sales at sources of
product distribution.
General and administrative expenses decreased 43% from $1,538,518 in Fiscal 1999
to $877,326 in Fiscal 2000. Accounting and legal fees continued to be a
significant portion of administration costs due to specific filing, accounting
and other requirements to complete the spin-off of CPII during Fiscal 2000.
Depreciation and amortization expense decreased from $82,578 in Fiscal 1999 to
$47,459 in Fiscal 2000, a 43% decrease. The decrease is primarily attributable
to the transfer of assets to CPII which was subsequently spun-off to
shareholders as a separate operating company and reduction of value of certain
equipment.
Interest expense decreased from $9,992 in Fiscal 1999 to $741 in Fiscal 2000, a
93% decrease. This decrease was attributable to reduction in short-term
obligations. Interest income generated was $12,285 in Fiscal 2000 compared to
$85,231 in Fiscal 1999. This decrease was attributable to reduction in cash
balances in interest bearing deposits.
The Company generated other income of $408,251 during Fiscal 2000 as compared to
$85,231 in Fiscal 1999, a 379% increase. This increase was attributable to
several negotiated reductions in accounts payable, a refund from a chain
retailer and other reductions to costs incurred in prior periods.
As a result of the foregoing, the Company generated a loss of $753,224 in Fiscal
2000 as compared to $4.2 million in Fiscal 1999, an 82% reduction. The net
loss per share decreased from $1.53 to $.25, an 84% reduction. During the
Fiscal year ended 2000, the number of shares outstanding increased from
2,781,343 to 3,056,343.
On December 14, 1997, US $350,160.05 was deposited into an account at the
direction of the Company's former Chief Executive Officer, Mr. William H.W.
Atkinson, to secure an undisclosed personal commitment between the CEO and his
brother. On January 12, 1998, the former CEO signed a personal guarantee form
and designated Company funds as security for the personal guarantee. The
existence of the pledge was brought to the Company's attention by the depository
in late September. The Board of Directors immediately initiated an
investigation with respect to the pledge and related matters. On November 8,
1998, the Board took action to prevent the application of the Company's funds to
support the personal guarantee, removed Mr. Atkinson as Chairman, and terminated
his employment contract with the Company, pursuant to its terms. The Company's
Chief Financial Officer, Sandra Sternoff, resigned. Susan Schreter
subsequently assumed the responsibilities of CEO. On November 13, 1998 the
depository notified the Company that it had placed a hold on the Company's
accounts pending an investigation of documentation. The Company responded and
filed a lawsuit against the depository demanding the release of the Company's
funds. On February 9, 1999, the Company settled its litigation with the
depository. A total of US $360,913.65, representing both US and Canadian dollar
accounts, was returned to the Company and the Company was released by the
depository from further potential liability under the unauthorized guarantee
signed by Mr. Atkinson. Both accounts at the depository were subsequently
closed. The loss, not including legal expenses of over $100,000, was
approximately US $57,000.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the sale of equity
and debt. The Company did not generate new funding through the sale of
securities, exercise of stock options or warrants or new debt to the Company.
As of March 31, 2000 the Company's principal sources of liquidity included cash
of $181,763, net accounts receivable of $57,498 after allowance for doubtful
accounts of $3,026 and inventory of $15,715. The Company reduced the value of
its inventory by $166,153 to reflect certain slower moving SKU's, reduction to
distribution and anticipation that it will close certain product storage
fulfillment centers during the second fiscal quarter of 2001.
During Fiscal 2000, the Company transferred $350,000 and certain intellectual
property to its wholly-owned subsidiary CPII. This company was later spun-off
to shareholders. The spin-off resulted in a reduction to the Company's cash
resources.
The Company's operating activities used cash of $177,434 for the year ended
March 31, 2000. The Company's future liquidity will be dependent on the
Company's ability to continue to sell its remaining inventory, reduce expenses,
close some or all of its warehouses on a timely basis, sell its brand, collect
its receivables, obtain a merger candidate for the Company, or obtain new
sources of debt or equity. There is no assurance that the Company will be able
to generate the funds needed to offset its current or future obligations on a
timely basis.
OTHER MATTERS
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
During 1998, the Company adopted the provisions of SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information ("SFAS 131") which
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes the
related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS 131 had no significant impact on the Company's
consolidated financial statements.
FORWARD LOOKING STATEMENTS
This Form 10-KSB 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.
13
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The following consolidated financial statements of Caring Products
International, Inc. are included in Item 7:
Consolidated Balance Sheets at March 31, 1999 and 2000.
Consolidated Statements of Operations for the Years Ended March 31, 1999
and 2000.
Consolidated Statement of Stockholders' Equity for the Years Ended March
31, 1999 and 2000.
Consolidated Statements of Cash Flows for the Years Ended March 31, 1999
and 2000.
Notes to Consolidated Financial Statements.
14
<PAGE>
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1999 and 2000
(With Independent Auditors' Report Thereon)
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Board of Directors
Caring Products International, Inc.
We have audited the accompanying consolidated balance sheets of Caring Products
International, Inc. and subsidiaries as of March 31, 1999 and March 31, 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Caring
Products International, Inc. and subsidiaries as of March 31, 1999 and March
31, 2000, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $753,224. These factors, among
others, as discussed in Note 3 to the financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ GRANT THORNTON LLP
Seattle, Washington
June 5, 2000
16
<PAGE>
<TABLE>
<CAPTION>
CARING PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
ASSETS
1999 2000
------------- -------------
<S> <C> <C>
Current Assets
Cash $ 707,847 $ 181,763
Accounts receivable less allowance
of $460,000 and $3,026, respectively 353,263 57,498
Inventory 560,338 15,715
Prepaid expenses 25,208 24,091
------------- -------------
Total current assets 1,646,656 279,068
Equipment, net 143,798 20,338
Intangible assets, net 173,580 -
Other assets 18,041 -
------------- -------------
$ 1,982,075 $ 299,406
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 326,745 $ 107,945
Accrued liabilities 43,826 24,621
Customer deposits 244,575 -
------------- -------------
Total current liabilities 615,146 132,566
Stockholders Equity
Preferred stock, par value $0.01 per share; authorized,
1,000,000 shares; none outstanding - -
Common stock, par value $0.01 per share; authorized,
15,000,000 shares; issued and outstanding, 2,781,343
and 3,056,343 in March 31, 1999 and 2000, respectively 27,814 30,564
Additional paid-in capital 19,681,685 19,232,069
Accumulated deficit (18,342,570) (19,095,794)
------------- -------------
Total stockholder's equity 1,366,929 166,839
------------- -------------
$ 1,982,075 $ 299,405
============= =============
</TABLE>
See accompanying notes to consolidated statements
17
<PAGE>
<TABLE>
<CAPTION>
CARING PRODUCTS INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
Revenues $ 1,235,918 $ 538,489
Cost of Sales 2,161,229 490,742
------------ ------------
Gross profit (loss) (925,311) 47,747
Operating expenses
Selling 1,795,920 168,235
General and administrative 1,538,518 877,326
Amortization and depreciation 82,578 47,459
------------ ------------
Total operating expenses 3,417,016 1,093,020
------------ ------------
Loss from Operations (4,342,327) (1,045,273)
Other income (expense)
Other income 85,231 408,251
Interest expense (9,992) (741)
Loss on sale of assets - (96,365)
Other, net 8,361 (19,096)
------------ ------------
83,600 292,049
------------ ------------
Net loss $(4,258,727) $ (753,224)
============ ============
Common shares outstanding 2,781,343 3,056,343
Net loss per common share basic and diluted $ (1.53) $ (0.25)
------------ ------------
Weighted average common shares 2,781,343 2,987,781
------------ ------------
</TABLE>
See accompanying notes to consolidated statements
18
<PAGE>
<TABLE>
<CAPTION>
CARING PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THEYEARS ENDED MARCH 31, 1999 AND MARCH 31, 2000
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1998 2,781,343 $27,814 $19,686,115 $(14,083,843) $ 5,630,086
Offering expenses - - (4,430) - (4,430)
Net Loss for the year ended - - - (4,258,727) (4,258,727)
---------- -------- ------------ ------------- ------------
Balance at March 31, 1999 2,781,343 27,814 19,681,685 (18,342,570) 1,366,929
Restricted common stock issued
to employees 275,000 2,750 52,250 - 55,000
Investment in Creative Products
common stock 384,000 3,840 15,360 - 19,200
Spin off of Creative Products (384,000) (3,840) (517,226) - (521,066)
Net Loss for the year ended - - - (753,224) (753,224)
---------- -------- ------------ ------------- ------------
Balance at March 31, 2000 3,056,343 $30,564 $19,232,069 $(19,095,794) $ 166,839
========== ======== ============ ============= ============
</TABLE>
See accompanying notes to consolidated statements
19
<PAGE>
<TABLE>
<CAPTION>
CARING PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
Increase (Decrease) in Cash 1999 2000
------------ ----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,258,727) $(753,224)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization and depreciation 116,333 47,459
Issuance of restricted common stock to employees - 55,000
Provision for losses in accounts receivable 436,721 456,974
Provision for losses in inventory 1,094,983 166,153
Write-off of intangible assets 15,000 -
Loss from disposal of equipment 573 96,365
Accounts receivable (189,189) (161,209)
Inventories 608,012 378,470
Prepaid expenses (9,426) 1,117
Other assets - 18,041
Accounts payable (713,351) (218,800)
Accrued liabilities (24,962) (19,205)
Customer deposits 244,575 (244,575)
------------ ----------
Net cash used in operating activities (2,679,458) (177,434)
Cash flows from investing activities
Intangible expenditures (23,834) -
Proceeds from sale of equipment - 1,350
------------ ----------
Net cash (used in) provided by investing activities (23,834) 1,350
Cash flows from financing activities
Payment on deferred offering costs (4,430) -
Investment in Creative Products common stock - 19,200
Cash contributed to Creative Products (369,200)
------------ ----------
Net cash used in financing activities (4,430) (350,000)
------------ ----------
Decrease in cash (2,707,722) (526,084)
Cash at beginning of period 3,415,569 707,847
------------ ----------
Cash at end of period $ 707,847 $ 181,763
============ ==========
Supplemental cash flow information:
Cash paid for interest $ 9,992 $ 741
============ ==========
Noncash investing and financing activities:
Net book value of assets spun off to Creative Products $ - $ 151,866
============ ==========
</TABLE>
See accompanying notes to consolidated statements
20
<PAGE>
CARING PRODUCTS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 2000
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
(a) DESCRIPTION OF BUSINESS
Caring Products International, Inc. (CPI) is organized under the laws
of the state of Delaware. CPI's business is the marketing and selling
of proprietary adult urinary incontinence products, primarily in the
United States. The Company anticipates that it will cease active sales
of its brands in Fiscal 2001 unless it obtains new funding to support
its operations.
(b) BASIS OF PRESENTATION
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the U.S. and present
the financial position, results of operations and changes in financial
position of CPI and its wholly-owned subsidiaries (collectively, the
"Company"). All material inter-company balances and transactions have
been eliminated in consolidation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INVENTORIES
Inventories are stated at the lower of cost, as determined by the
first-in, first-out method, or market (net realizable value).
(b) EQUIPMENT
Equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is calculated using the
straight-line method over the estimated useful lives of the assets
ranging from 2 to 5 years.
(c) INTANGIBLE ASSETS
Intangible assets, representing technology purchased and costs of
patents, copyrights and trademarks, are stated at cost. Amortization
is recorded using the straight-line method over the assets' estimated
useful lives which do not exceed 10 years. The Company periodically
reviews its intangible assets to assess recoverability. Impairment is
recognized in operating results when intangible assets are deemed
unrecoverable.
(d) REVENUE RECOGNITION
The Company recognizes revenue and establishes provisions for
estimated product returns when its products are shipped to customers.
Products of the Company held by various third party storage and
delivery companies are not recognized in revenue, but are included in
inventory.
(e) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(f) FOREIGN CURRENCY TRANSLATION
The Company considers the U.S. dollar to be its functional currency.
The Company has a wholly owned subsidiary, located in Canada.
Accordingly, transactions by the subsidiary denominated in Canadian
dollars are re-measured at the exchange rates in effect at the date of
the transaction. At each balance sheet date, monetary balances
denominated in currencies other than the U.S. dollar are re-measured
using current exchange rates.
Gains and losses resulting from foreign currency transactions are
included in other, net, in the consolidated statements of operations.
Gains and losses arising from these transactions for each of the years
ended March 31 include a loss of $133,205 for 1999 and a gain of
$6,758 for 2000, respectively.
21
<PAGE>
(g) LOSS PER SHARE
Loss per share is based on the weighted average number of common
shares outstanding during each period. The weighted average number of
common shares was 2,781,343 as of March 31, 1999, and 2,987,781 as of
March 31, 2000, respectively. The effect of common equivalent shares
on the computation of loss per share assuming dilution for the years
ended March 31, 1999 and March 31, 2000 was anti-dilutive and
therefore is not included.
(h) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
(i) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense was
approximately $530,000 and $0 for the years ended March 31, 1999 and
2000, respectively.
(3) GOING CONCERN
As shown in the consolidated financial statements, the Company incurred a
net loss of $4,258,727 in 1999 and $753,224 in 2000. The Company also
incurred a negative gross profit of $925,311 in March 31, 1999 and a
nominal gross profit in 2000. These factors, as described below, raise
doubt about the Company's ability to continue as a going concern. 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. In early 1999, the Company announced its intent to evaluate all
of its strategic options including licensing the Company's products,
potential acquisitions, obtaining new sources of equity and cost-cutting
measures. There is no assurance that the Company will be successful in its
efforts to significantly improve its financial and operating condition. The
Company has not added to its inventory since the fiscal year ended March
31, 1998. Due to the declining inventory position of the Company and
reduced sales activity, the Company anticipates that it will run out of
salable inventory during the fiscal year ending March 31, 2001. The sale of
inventory has been a primary source of funds for the Company's operations
during the fiscal year ended March 31, 2000.
(4) CONCENTRATION OF RISK
The Company maintains cash equivalents with various financial institutions
located in the U.S. and Canada. The Company's policy is to limit the
exposure at any one financial institution and to invest solely in highly
liquid investments that are readily convertible to cash. The Company sells
its products to various customers located primarily in the U.S.
(5) INVENTORIES
The Company wrote down $166,153 of inventory in 2000 to account for certain
products that were held for more than a 12 month period, products
specifically packaged for a retail chain or a specific market in which the
Company's products are no longer in active distribution, to reflect reduced
sales activity from lack of advertising and the expectation that the
Company will have to sell such inventory at substantial discounts or
dispose through charitable donations to hospitals or relief organizations.
The Company may close one or more of its fulfillment centers on or about
June 30, 2000 due to declining need for inventory storage and fulfillment
services.
22
<PAGE>
(6) EQUIPMENT
Equipment consists of the following:
MARCH 31, MARCH 31,
1999 2000
---- ----
Computer equipment $106,100 $ 23,225
Office equipment 66,265 5,330
Plant equipment 122,445 --
Capital lease office equipment -- 40,076
Leasehold improvements 5,670 --
-------- -------
300,480 68,631
Less accumulated depreciation and amortization 156,682 48,293
-------- -------
Net equipment $143,798 $20,338
======== =======
The Company recorded a loss on the disposal of equipment of $96,365 for the
year ended March 31, 2000 in conjunction with the closing of its production
and administrative facilities.
(7) INTANGIBLE ASSETS
Intangible assets consists of the following:
MARCH 31, MARCH 31,
1999 2000
---- ----
Purchased technology $250,000 $239,102
Patents and trademarks 154,756 --
-------- --------
404,756 239,102
Less accumulated amortization 231,176 239,102
-------- --------
Net intangible assets $173,580 $ --
======== ========
At March 31, 1999, the Company wrote off $15,000 of its intangible assets
to reflect certain trademarks that are no longer used in the Company's
business. During June 1999, the Company transferred intellectual property
with a net book value of $151,866 to Creative Products International, Inc.,
then a wholly owned subsidiary of the Company. See Note 8.
(8) SPIN OFF OF CREATIVE PRODUCTS
During June 1999, the Board of Directors approved the spin-off of Creative
Products International, Inc. to shareholders of record on June 30, 1999. On
December 23, 1999, shareholders of record of the Company received one share
of Creative Products International, Inc. common stock for every two shares
of Caring Products International, Inc. stock. As part of the spin-off the
Company provided a total of $350,000 to Creative Products for initial
working capital.
(9) RELATED PARTIES
At March 31, 1999 and 2000, accounts payable included $72,638 and $53,547
in payables to related parties, respectively, for legal services. During
1999, the Company paid approximately $20,000 in consulting fees to a
related party.
23
<PAGE>
(10) COMMITMENTS
During 1999, the Company leased office facilities under an operating lease
agreement, which was terminated without penalty in June 1999. Rent expense
for leased facilities in 1999 totaled $89,949.
(11) STOCKHOLDERS' EQUITY
(a) WARRANTS
At March 31, 1999 and March 31, 2000 the Company had warrants
outstanding to purchase common shares as follows:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Warrants issued in conjunction with the Private Placement whereby
one warrant entitles the holder to purchase one share at $15.03;
subsequently amended to expire on May 4, 2000, with an increase
in warrant amount which can be exercised at $1.875 203,563 203,563
Warrants issued pursuant to the guarantee of the bank line of credit
whereby one warrant entitled the holder to purchase one share at
$7.44 through May 8, 1998 and thereafter at $8.64 through May 8, 1999;
subsequently amended to $1.875 through May 8, 1999 31,667 --
Warrants issued whereby one warrant entitles the holder to
purchase one share at $3.34 until October 21, 1999 8,000 --
Warrants issued to non-executive employee to purchase
one share at $5.00 until January 31, 2004 18,750 18,750
Warrants issued to two non-executive employees to purchase one
share at $1.875 until January 31, 2004 130,000 130,000
Warrants issued to non-employee to purchase one share
at $1.875 until May 4, 2003 50,000 50,000
Warrants issued in conjunction with completion of public offering
at a price of $7.50, subsequently reduced exercise price to $6
pursuant to underwriter's agreement, until December 15, 2002 1,750,000 1,750,000
--------- ---------
Total warrants outstanding 2,191,980 2,152,313
--------- ---------
</TABLE>
(b) 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 related to the issuance of $55,000 for the year
ended March 31, 2000.
(12) EMPLOYEE BENEFIT PLANS
(a) RETIREMENT PLAN
The Company had a 401(k) savings and retirement plan covering all full
time employees who are at least 21 years of age and have at least
three months of service. Under the plan, employees could defer up to
15% of their pretax salary, but not more than the statutory limits.
The plan was dissolved as of December 31, 1998 due to lack of
participation.
(b) STOCK OPTION PLANS
As of March 31, 1999 and 2000, the Company had two incentive stock
option plans which are described below:
1993 INCENTIVE PROGRAM: Under the 1993 Incentive Program, as amended
and restated, 87,167 shares of common stock plus 10% of any increase
in the number of shares of common stock issued and outstanding from
the date of the program agreement to the date the program was formally
adopted by the Company's Board of Directors are available for grant to
eligible employees and consultants of the Company. The aggregate fair
market value of stock which becomes exercisable by an individual
grantee pursuant to the plan is limited to $100,000 in any calendar
year.
24
<PAGE>
Stock options under the 1993 Incentive Program vest immediately for
individuals on the Board of Directors of the Company, after two years
of service for all employees, and after two years of affiliation with
the Company for consultants. Although the program allows stock options
to be issued for a maximum term of ten years, all stock options
outstanding have a maximum term of five years from the date of grant.
Stock options are granted at an exercise price equal to the closing
bid price on the date of the Board of Directors' approval or higher.
In November 1996, the Company's Board of Directors resolved that no
additional stock options would be granted under the 1993 Incentive
Program.
1996 INCENTIVE PROGRAM: Under the 1996 Incentive Program, 208,333
shares of common stock less any shares outstanding under the 1993
Incentive Program, plus any shares forfeited under the 1996 and 1993
Incentive Programs, shares purchased by the Company on the open market
and shares surrendered to the Company in payment of the exercise price
of stock options issued under the 1996 and 1993 Incentive Programs are
available for grant to eligible employees and consultants of the
Company. No award may be granted which will result in the awards
outstanding under the plan to be more than 25% of the total number of
shares the Company has outstanding.
Stock options under the 1996 Incentive Program vest immediately for
individuals on the Board of Directors of the Company, after two years
of service for all employees and after two years of affiliation with
the Company for consultants. Although the program allows stock options
to be issued for a maximum term of ten years, all stock options
outstanding have a maximum term of five years from the date of grant.
Stock options are granted at an exercise price equal to the closing
bid price on the date of the Board of Directors' approval.
In August 1997, the Company amended its 1996 Incentive Program to,
among other things, modify the total shares of common stock available
for grant to eligible employees and consultants of the Company from
208,333 to 625,000. The amendment was approved by the Company's
stockholders in October 1997. At March 31, 1998 there were 139,358
stock options under the 1993 and 1996 Plans outstanding with a
weighted average exercise price of approximately $16.08. The options
were adjusted for a 1:6 and 1:4 reverse stock split in fiscal 1998. At
March 31, 1999 there were 572,000 stock options under the 1993 and
1996 Plans outstanding at an exercise price of $1.875 all of which are
vested. On May 5, 1998, the Company canceled all shares under the 1993
and 1996 Plans outstanding and re-issued 552,000 stock options at an
exercise price of $1.875, which expire on May 3, 2003. As of March 31,
2000, 9,000 of the 552,000 were forfeited, leaving 543,000 outstanding
as of March 31, 2000.
In August 1997, the Company granted 306,250 stock options, subject to
certain contingencies to certain employees at an exercise price of $5
which expire on August 27, 2002. At March 31, 1998 there were 300,000
stock options outstanding. During the fiscal year ended March 31,
1999, 187,500 of these options were retired. There were 112,500 stock
options outstanding as of March 31, 1999 and 2000 all of which were
vested.
The Company applied APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option awards. Had compensation cost for the
Company's stock option awards been determined consistent with SFAS No.
123, the Company's net loss would have been increased to the pro forma
amounts indicated below:
YEAR ENDED MARCH 31,1999
---------------------------
Net loss:
As reported $4,258,727
Pro forma $4,869,327
Net loss per share:
As reported $ 1.53
Pro forma $ 1.75
The fair value of option grants is estimated using the Black-Scholes
option pricing model with the following weighted average assumptions
used for grants in fiscal year 1999: expected volatility of 173.47%;
risk free interest rate of 6.50%; expected lives of five years; and a
zero percent dividend yield. No options were issued in 2000 and all
options granted prior to Fiscal Year 2000 were fully vested as of
March 31, 2000; therefore, no compensation expense would have been
recognized under SFAS No. 123.
25
<PAGE>
The following is a summary of stock options outstanding at March 31,
1999:
OPTIONS OUTSTANDING
--------------------
WEIGHTED-AVERAGE
NUMBER REMAINING NUMBER OF OPTIONS
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
---------------- ----------- ----------------- -----------------
$ 1.875 20,000 4.27 years 20,000
$ 1.875 552,000 4.09 years 552,000
$ 5.00 112,500 3.41 years 112,500
The following is a summary of stock options outstanding at March 31,2000:
OPTIONS OUTSTANDING
--------------------
WEIGHTED-AVERAGE
NUMBER REMAINING NUMBER OF OPTIONS
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
---------------- ----------- ----------------- -----------------
$ 1.875 20,000 3.267 years 20,000
$ 1.875 543,000 3.09 years 543,000
$ 5.00 112,500 2.41 years 112,500
(13) INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes (SFAS 109).
The Company had net deferred tax assets, primarily consisting of net
operating loss carryforwards, of approximately $3,109,900 and $3,354,000 as
of March 31, 1999 and 2000, respectively. Total U.S. Federal net operating
loss carryforwards of approximately $9,695,000 at March 31, 2000 expire in
the years 2009 to 2019, but are further limited as discussed below.
The Company has not recorded an income tax benefit in the years ended March
31, 1999 and 2000 due to the recording of a valuation allowance as an
offset to the net deferred tax assets. A valuation allowance is provided
due to uncertainties relating to the realization of the deferred tax
assets. Due to potential limitations under Section 382 of the Internal
Revenue Code, some of the operating losses may not be available and
subsequent changes in ownership may result in further limitations. As of
March 31, 2000, the valuation allowance was increased by approximately
$1,906,000.
The income tax provision reconciled to the tax computed at the statutory
Federal rate was as follows:
1999 2000
----------- -----------
Tax benefit at statutory rate $ 1,448,000 $ 256,100
Permanent differences - (12,000)
Net operating loss carryforward - 1,661,900
Valuation allowance (1,448,000) (1,906,000)
----------- -----------
TOTAL $ - $ -
=========== ===========
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, money market funds,
receivables, and accounts payable. The fair value of these financial
instruments approximates their carrying amounts based on current market
indicators, such as prevailing interest rates.
(15) 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.
26
<PAGE>
(16) OTHER INCOME
Other income consists of the following for the years ended March 31:
1999 2000
------- --------
Interest income $85,231 $ 12,286
Discounted accounts payable - 65,100
Settlement for customer credits - 184,177
Effects of change in estimate of
allowance for doubtful accounts - 100,239
Recovery of bad debts - 26,825
Other - 19,624
------- --------
$85,231 $408,251
======= ========
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE>
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent of the Common Stock of the
Company to file reports of ownership and change in ownership with the Securities
and Exchange Commission and the exchange on which the Common Stock is listed for
trading. Executive officers, directors and more than ten percent stockholders
are required by regulations promulgated under the Exchange Act to furnish the
Company with copies of all Section 16(a) reports filed. Based solely on the
Company's review of copies of the Section 16(a) reports filed for the fiscal
year ended March 31, 2000, the Company believes that all reporting requirements
applicable to its executive officers, directors, and more than ten percent
stockholders were complied with for the fiscal year ended March 31, 2000.
The following table sets forth information concerning the directors and
executive officers of the Company as of March 31, 2000:
Susan A. Schreter (1)(4) 38 President and acting CEO
and Chairman of the Board
Anthony A. Cetrone (1)(3) 71 Director
Michael M. Fleming (2)(3) 51 Director
Paul Stanton (2) 62 Vice Chairman of the Board
Dr. Herbert Sohn 72 Director
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Change in Executive Management
The Company's by-laws provide that the size of the Board of Directors shall
initially be fixed by the Incorporator, and thereafter may be changed by
resolution of the Board. The Company's Board of Directors currently is fixed at
eight members, and there are three vacancies. Members of the Board serve until
the next annual meeting of stockholders and until their successors are elected
and qualified. Meetings of the Board are held when and as deemed necessary or
appropriate. Officers are appointed by and serve at the discretion of the
Board. There are no family relationships among any of the Company's officers
and directors.
SUSAN A. SCHRETER became acting Chairman and CEO of the Company in November
1999. She has served as a director since inception. From July 1985 to December
1992, she was founder and President of Beta International, Inc., New York, New
York, a firm providing consulting services to growing companies, private
business investors and buy-out funds in the areas of acquisition, due diligence,
cash flow planning, strategic business planning and capital investment. From
February 1992 to January 1995, Ms. Schreter served as a director of Omnicorp
Limited, a provider of environmental services. Ms. Schreter currently serves as
acting Chief Executive Officer and Chairman of the Board.
ANTHONY A. CETRONE, a director of the Company since September 1993, has been
President and Chief Executive Officer of Micron Medical Products ("Micron
Medical"), Fitchburg, Massachusetts, a medical products company, since April
1988. Micron Medical has been a subsidiary of Arrhythmia Research Technology,
Inc., Austin, Texas, a company that manufactures cardiological medical products
("Arrhythmia Research") since November 1992. Since October 1991, he has also
served as the Chairman of the Board of Micron Products, the parent of Micron
Medical. From January 1993 to February 1995, Mr. Cetrone also served as the
President and Chief Executive Officer of Arrhythmia Research and has served on
Arrhythmia's Board since November 1992.
28
<PAGE>
MICHAEL M. FLEMING is partner of the law firm of Ryan, Swanson & Cleveland,
Seattle, Washington, where he has been affiliated since November 1992. He
specializes in real estate, dispute resolution, securities and environmental
matters. Since July 1988, Mr. Fleming has also served as the President and
owner of Kidcentre, Inc., a provider of childcare services in Seattle,
Washington. Since April 1985, he has also been the President and owner of
Fleming Investment Co., Seattle, Washington, a private investment company. Mr.
Fleming was elected to the Company's Board of Directors in November 1992.
DR. HERBERT SOHN was elected to the Board of Directors in August 1997. Since
1989, Dr. Sohn has served as an attending urologist at the Louis A. Weiss
Memorial Hospital in Chicago. He has also served as a clinical associate
professor of surgery at the Abraham Lincoln School of Medicine at the University
of Illinois since 1973. A graduate of the Chicago Medical School, Dr. Sohn
completed residencies in urology and surgery at the University Hospitals of
Cleveland. He also received a Juris Doctorate degree from the John Marshall Law
School.
PAUL STANTON was elected to the Board of Directors in September 1996 and has
served as Vice Chairman of the Board since joining the board. He also has
served as a consultant to the Company since February 1996. Mr. Stanton has been
employed as President of Paul Stanton & Associates, which provides strategic
analysis and consulting services to product manufacturers and retail drug
chains, since January 1996. From February 1986 to December 1995, he was Vice
President of General Merchandise and Drug Store Merchandising of Pathmark, an
East Coast supermarket chain.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established three committees: Executive
Committee, Compensation Committee and Audit Committee. The Board appoints the
members of the various committees and those members serve at the discretion of
the Board.
The Executive Committee, which can consist of up to three members, has been
delegated the authority to exercise all powers and authority of the Board of
Directors in the management of the business and affairs of the Company,
including the right to authorize: (i) the purchase of stock; (ii) adopt an
agreement of merger or consolidation; (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Company's properties
or assets; (iv) recommend to the stockholders a dissolution of the Company or a
revocation of dissolution; (v) amend the by-laws; or (vi) authorize the
declaration of a dividend. The Executive committee meets at such times as it
deems appropriate.
The Compensation Committee has been established to review and make
recommendations to the Board regarding the compensation to be paid by the
Company and its subsidiaries to their executive officers, key employees and
consultants, including, without limitation, the grant of incentive awards under
the Company's incentive program. (See "Stock Option Plans.") The Compensation
Committee consists solely of independent directors and meets at such times as it
deems appropriate.
The Audit Committee has been established to review and monitor the general
policies and practices of the Company and its subsidiaries with regard to
accounting, financial reporting, internal auditing and financial controls and to
serve as a channel of communication between the Board of Directors and the
Company's independent certified accountants. At least a majority of the Audit
Committee consists of independent directors. The Audit Committee meets at such
times as it deems appropriate.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three fiscal years ended March 31, 1998, 1999 and 2000 of the Company's
President and acting Chief Executive Officer (the "Named Executive Officer").
No other executive officer of the Company received salary and bonuses of
$100,000 or more in the fiscal year ended March 31, 1999.
29
<PAGE>
SUMMARY COMPENSATION TABLE*
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------ --------------
OPTIONS/SAR'S
NAME OF PRINCIPAL POSITION YEAR ( $ ) ( # )
---------------------------- ---- -------- -------
Susan A. Schreter, President
and Director 2000 $175,000*
1999 $125,000 215,000
1998 $125,000 112,500
* Includes one time payment of $75,000 to end three year employment contract.
* Columns in the Summary Compensation Table that were not relevant to the
compensation paid to the Named Executive Officers were omitted. No employee of
the Company receives any additional compensation for his or her services as a
director. Non-management directors receive no salary for their services as
such, but receive a fee of $2,000 for each meeting attended, and may participate
in the Company's stock option plans. The Board of Directors has authorized
payment of reasonable travel or other out-of-pocket expenses incurred by
non-management directors in attending meetings of the Board of Directors and
committees thereof.
In January 1999, the Company approved the 1999 Restricted Stock Plan of which a
total of 275,000 shares were authorized for issuance to various employees of the
Company. On June 30, 1999, Ms. Schreter was awarded a total of 130,000 shares
under the Plan. Stock option grants reflected for Ms. Schreter for the fiscal
year ended March 31, 1999 reflect shares canceled and subsequently reissued on
May, 1998 at an exercise price of $1.875.
EMPLOYMENT AGREEMENT. In December 1993, the Company entered into three-year
employment agreement with Ms. Schreter, the Company's President and acting Chief
Executive Officer. This agreement was subsequently amended as of March 1996 to
provide, among other things, for an additional three-year term. Upon a change in
control, as defined in the agreements, Ms. Schreter would have been entitled to
receive, in addition to other compensation and benefits due, her then-effective
base salary for a period of three years from the date of termination, plus all
benefits, other than the bonus and stock options (or the value thereof), to
which she would have been entitled had she continued her employment. This
payment amount, in the event of change of control would have entitled Ms.
Schreter to a lump sum payment exceeding $375,000. In September, 1999 Ms.
Schreter agreed to a revised contract which among its other provisions provided
for a one-time payment of $75,000. Ms. Schreter will not be entitled to receive
a payment based on her three year pro forma salary from the date of termination
in the event of a change of control, as defined in the contract.
OPTION GRANTS. The following tables shows at March 31, 1999, certain
information regarding options granted to the Named Executive Officer. No stock
options were granted to the Named Executive Officer during the fiscal year ended
March 31, 2000.
OPTION GRANTS IN FISCAL YEAR 1999
(INDIVIDUAL GRANT)
NUMBER OF PERCENT TO
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(1) PRICE ($/SHARE) DATE
---- ---------- -------------- ------ -------- ------
Susan A. Schreter 215,000 38% $1.875 5/3/03
(1) Based on options to purchase 572,000 shares of Common Stock granted to
employees, directors and consultants, including executive officers, in
Fiscal 1999.
(2) The terms of such options are consistent with those of options granted to
other employees and directors under the Company's Stock Option Plans. The
options vested immediately because of length of service. The Plans
provisions permitting the Board of Directors to, among other things,
accelerate vesting of options in the event of a change in control of the
Company.
30
<PAGE>
FISCAL YEAR END OPTIONS/OPTION VALUES TABLE. The following table sets forth
information regarding exercises of stock options during the fiscal year ended
March 31, 2000, by the Named Executive Officers and the year-end values of
exercised and unexercised options by such Named Executive Officers:
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2000
AND FISCAL YEAR-END OPTION/SAR VALUE
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL FISCAL YEAR
SHARES YEAR END (#) END (#)
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------- --- --------------- -------------
Susan A. Schreter 0 $0 327,500(1)/0(2) $0(1)/$0(2)
(1) Exercisable options.
(2) Unexercisable options.
On August 27, 1997, the Company awarded Susan A. Schreter stock options to
purchase 112,500 shares of Common Stock (the "Schreter Options) at an exercise
price of $5, under an amendment to the 1996 Stock Option Plan adopted by the
Board of Directors on such date and subsequently approved by the requisite vote
of the stockholders. The number of the Schreter Options will be reduced pro
rata if the total number of stock exceeds 7.7% of the total number of shares of
Common Stock issued and outstanding (excluding shares Isabel upon exercise of
outstanding options and warrants) upon completion of the Offering. The Options
vest in four equal semi-annual installments commencing six months from the date
of grant. The Options terminate upon the expiration of five years from the date
of grant, or, if sooner, three months after termination of Ms. Schreter as an
employee of the Company for any reason (or such shorter period as required by
the VSE, if any) and, if her employment is terminated for cause, her respective
Options terminate immediately. In addition, the Options are subject to the
terms and conditions of the 1996 Stock Option Plan. See "Management - Stock
Option Plans." On May 1998, the Company canceled 215,000 shares previously
issued to Ms. Schreter and reissued them at an exercise price of $1.875. These
stock options expire on May 3, 2003.
STOCK OPTION PLANS
The Company's 1993 Incentive Program (the "1993 Stock Option Plan") was adopted
by the Board of Directors and approved by the Company's stockholders in November
1993. The Company's 1996 Incentive Program (the "1996 Stock Option Plan") was
adopted by the Board of Directors and approved by the Company's stockholders in
November 1996. Pursuant to the terms of the 1996 Stock Option Plan, no further
awards will be made under the 1993 Stock Option Plan. The 1993 Stock Option
Plan and the 1996 Stock Option Plan are sometimes collectively referred to as
the "Stock Option Plans." The Stock Option Plans were adopted to provide a
means by which selected officers, employees, directors and consultants to the
Company could be given an opportunity to purchase stock in the Company. The
purpose of the Stock Option Plans is to promote the growth of the Company by
enabling the Company to attract and retain the best available persons for
positions of substantial responsibility and to provide certain key employees
with additional incentives to contribute to the success of the Company.
Under the 1993 Stock Option Plan, 87,167 were initially reserved for issuance.
The 1993 Stock Option Plan further provides for an increase of 10% of any
increase in the number of shares issued and outstanding over the number of
shares outstanding on December 20, 1993, the date the 1993 Stock Option Plan was
adopted. No further awards will be made under the 1993 Stock Option Plan.
Under the 1996 Incentive Program, the aggregate number of shares of Common Stock
that may be issued or transferred is 208,333 (the "Base Amount"), plus (i) any
shares of Common Stock which are forfeited under the 1993 Stock Option Plan or
the 1996 Stock Option Plan after the Board's adoption of the 1996 Stock Option
Plan; plus (ii) the number of shares of Common Stock repurchased by the Company
in the open market and otherwise with an aggregate price no greater than the
cash proceeds received by the Company from the sale of shares under the 1993
Stock Option Plan or the 1996 Stock Option Plan; plus (iii) any shares of Common
Stock surrendered to the Company in payment of the exercise price of options
issued under the 1993 Stock Option Plan or the 1996 Stock Option Plan; provided
that the aggregate number of shares available for grants at any given time will
be reduced by the aggregate of all shares previously issued or transferred
pursuant to the Stock Option Plans plus the aggregate of all shares which may
become subject to issuance or transfer under then-outstanding and then-currently
exercisable grants under the Stock Option Plans; and provided, further, that no
award may be issued that would bring the total of all outstanding awards under
the 1996 Stock Option Plan to more than 25% (the "Maximum Percentage") of the
total number of the shares of Common Stock at the time outstanding. The maximum
number of shares for which options may be granted under the 1996 Stock Option
Plan to any employee during any calendar year is 41,667 (the "Annual Amount").
31
<PAGE>
On August 27, 1997, the Board of Directors adopted an amendment to the 1996
Stock Option Plan (the "Amendment"), pursuant to which the Base Amount was
increased from 208,333 shares to 625,000 shares, the Annual Amount was increased
from 41,667 shares to 150,000 shares and the Maximum Percentage was increased
from 25% to 35%. The Company's stockholders approved the Amendment on October
6, 1997, which was subject by its terms and under applicable regulatory
requirements to the completion of the Offering which was completed in December
1997. Pursuant to the Amendment, stock option grants may be made prior to such
stockholder approval, but in no event may such grants be exercised until such
approval is obtained.
During the fiscal year ended March 31, 1999, 490,500 stock options were retired
and 20,000 shares were issued to a consultant to the Company at an exercise
price of $1.875. In addition a total of 552,000 stock options under the 1993
and 1996 Stock Option plan were canceled and reissued at a price of $1.875.
These options expire on May 3, 2003. No new stock options were granted in the
fiscal year ended March 31, 2000.
The Stock Option Plans provide for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, restricted stock grants and restored grants
(collectively, "Grants") as approved by the Board of Directors or a committee
thereof (the "Committee"). Incentive stock options granted under the Stock
Option Plans are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Non-qualified stock options granted under the Stock Option Plans are
intended not to qualify as incentive stock options under the Code.
Eligible participants under the Stock Option Plans include executive,
professional or administrative employees, directors, executive officers,
consultants or advisors of the company and its direct or indirect subsidiaries,
all of whom are collectively referred to as "Grantees." Incentive stock options
may be granted under the Stock Option Plans only to selected employees
(including officers) of the Company and its affiliates. All Grantees may be
awarded Grants other than incentive stock options.
The maximum term of incentive stock options under the Stock Option Plans is 10
years, except that in certain cases, as discussed below, the maximum term is
five years. The exercise price of incentive stock options under the Stock
Option Plans may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant and, in some cases, as
discussed below, may not be less than 110% of such fair market value. The
exercise price of non-qualified options under the Stock Option Plans is
determined by the Board, which has agreed not to grant on-qualified options that
have an exercise price less than 85% of the fair market value of the Common
Stock subject to the option on the date of the option grant.
No incentive stock option may be granted under the Stock Option Plans to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of option does not exceed five years from the date of grant.
For incentive stock options granted under the Stock Option Plans, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which such options are exercisable for the first time by
any Grantee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000.
Grants under the 1993 Stock Option Plan terminate within such period determined
by the Board up to 90 days after the grantee ceases to be employed by the
-----
Company or any affiliate of the Company, unless (i) termination of employment is
due to such person's permanent and total disability (as defined in the Code), in
which case the Grant may be exercised at any time within twelve months of such
termination; (ii) the grantee dies while employed by the Company or any
affiliate of the Company, in which case the Grant may be exercised (to the
extent the option was exercisable at the time of the grantee's death) within
such period determined by the Board between six and twelve months of the
grantee's death by the person or persons to whom the rights to such option
passed by will or by the laws of descent and distribution; or (ii) the Grant by
its terms specifically provides otherwise. Grants under the 1996 Stock Option
Plan may be exercised only while the Grantee is in the employment or consultancy
of the Company, except that the Board or Committee may provide for partial or
complete exceptions to this requirement. The Stock Option Plans terminate on
the tenth anniversary of their respective effective dates unless terminated
earlier by the Board or extended by the Board.
32
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 2000
(adjusted to reflect the Reverse Stock Splits effected on June 16, 1997 and
October 20, 1997) with respect to the beneficial ownership of the Company's
Common Stock by (i) each stockholder to the best available knowledge of the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock; (ii) each director, (iii) the Named Executive Officers and (iv)
all executive officers and directors as a group.
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES (1) PERCENT OWNED
----------------------------------------- ----------- --------------
OFFERING
--------
Susan A. Schreter (2) 366,394 13%
C/O PO Box 9288
Seattle, WA 98109
Anthony A. Cetrone (3) 30,095 1%
Michael M. Fleming (3) 30,095 1%
Paul Stanton (4) 22,500 *
Dr. Herbert Sohn (5) 27,000 *
All Executive Officers and Directors
as a Group (5 persons) 476,084 17%
(See footnotes.)
* Less than 1%.
(1) Beneficial ownership of directors, officers and 5% or more stockholders
includes both Outstanding Common Stock and shares issuable upon exercise of
warrants or options that are currently exercisable or will become
exercisable within 60 days of July 4, 1999. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Includes 327,500 shares issuable upon exercise of currently outstanding
stock options. Does not include 130,000 restricted shares issued June 30,
1999.
(3) Includes 30,000 shares issuable upon exercise of currently outstanding
stock options.
(4) Includes 22,500 shares issuable upon exercise of currently exercisable
stock options.
(5) Includes ---27,000 shares issuable upon exercise of currently exercisable
stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
It is the policy of the Company, with respect to insider transactions, that all
transactions between the Company, its officers, directors, principal
stockholders and their affiliates be on terms no less favorable to the Company
than could be obtained from unrelated third parties in arms-length transactions,
and that all such transactions shall be approved by a majority of the
disinterested members of the Board of Directors. The Company believes that the
transactions described above complied with such policy.
ITEM 13. EXHIBITS
EXHIBITS
27.1 Financial Data Schedule
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
Washington, on June 7, 2000.
CARING PRODUCTS INTERNATIONAL, INC.
By: /s/ Susan A. Schreter
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Susan A. Schreter
Acting Chairman of the Board and CEO
In accordance with the requirements of the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Susan A. Schreter Acting Chairman and CEO
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Susan A. Schreter
/s/ Anthony A. Cetrone Director June 7, 2000
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Anthony A. Cetrone
/s/ Michael M. Fleming Director June 7, 2000
------------------------
Michael M. Fleming
/s/ Paul Stanton Director June 7, 2000
------------------------
Paul Stanton
/s/ Herbert Sohn Director June 7, 2000
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Herbert Sohn
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