<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-24053
CPC of America, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 11-3320709
- ------------------------------------ ------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1133 Fourth Street, Suite 200, Sarasota, Florida 34236
- --------------------------------------------------------------------------------
(Address of principal executive offices)
941-906-9546
---------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 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
------- -------
As of November 12, 1998, the Company had 4,295,666 shares of its $.0005 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet at September 30, 1998.... 2
Unaudited Condensed Consolidated Statements of Operations for the
three month periods and nine month periods ended September 30, 1998
and 1997 and for the period from inception (April 11, 1996) to
September 30, 1998..................................................... 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1998 and 1997
and for the period from inception (April 11, 1996) to September 30,
1998.................................................................. 5
Notes to Condensed Consolidated Financial Statements.................... 6
1
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September
1998
----------
ASSETS
<S> <C>
Current assets:
Cash and equivalents $ 85,965
Deposits 43,595
----------
Total current assets 129,560
Equipment, net of accumulated depreciation of $3,410 12,010
Patents, net of accumulated amortization of $6,000 57,640
Trademarks, net of accumulated amortization of $468 5,764
----------
$ 204,974
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,153
----------
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, $.001 par value,
none issued and outstanding -
Common stock, 20,000,000 shares authorized, $.0005 par value,
4,295,666 shares issued and outstanding 2,148
Additional paid-in capital 1,093,402
Deficit accumulated during the development stage (903,729)
----------
Net shareholders' equity 191,821
----------
$ 204,974
==========
</TABLE>
2
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Three Months Ended from inception
---------------------------- (April 11, 1996)
September 30, September 30, to September 30,
1998 1997 1998
------------ ------------ ----------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 218,555 $ 173,810 $809,816
General and administrative 8,663 21,303 91,174
Depreciation and amortization 2,126 - 19,877
---------- ---------- --------
Operating loss 229,344 195,113 920,867
Interest income (expense):
Interest expense - - (7,000)
Interest income 1,930 0 23,498
---------- ---------- --------
1,930 0 16,498
Loss before minoruty interest 227,414 195,113 904,369
Minority interest (160) (240) (1,120)
---------- ---------- --------
Net loss $ 227,254 $ 194,873 $903,249
========== ========== ========
Basic and diluted net loss per share $ 0.05 $ 0.05
========== ==========
Basic and diluted weighted average number
of common shares outstanding 4,270,944 3,836,380
========== ==========
</TABLE>
3
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Nine Months Ended from inception
---------------------------- (April 11, 1996)
September 30, September 30, to September 30,
1998 1997 1998
------------ ------------ ----------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 360,563 $ 300,296 $809,816
General and administrative 31,174 27,281 91,174
Depreciation and amortization 6,380 2,184 19,877
---------- ---------- --------
Operating loss 398,117 329,761 920,867
Interest income (expense):
Interest expense - - (7,000)
Interest income 11,136 8,147 23,498
---------- ---------- --------
11,136 8,147 16,498
Loss before minority interest 386,981 321,614 904,369
Minority interest (640) (240) (1,120)
---------- ---------- --------
Net loss $ 386,341 $ 321,374 $903,249
========== ========== ========
Basic and diluted net loss per share $ 0.09 $ 0.08
========== ==========
Basic and diluted weighted average number
of common shares outstanding 4,263,992 3,789,466
========== ==========
</TABLE>
4
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Nine Months Ended from inception
---------------------------- (April 11, 1996)
September 30, September 30, to September 30,
1998 1997 1998
------------ ------------ ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(386,341) $(321,374) $ (903,249)
Adjustments to reconcile net income to net
cash used by operating activities:
Minority interest (640) (240) (1,120)
Depreciation and amortization 6,380 10,105 19,877
Gain on disposition of Tercero - - (15,679)
Issuance of common stock for services - - 38,200
Sale of Tercero - assignment of payables - - 55,678
Increase in deposits & other assets (20,019) (3,445) (45,113)
Increase in trademarks - - (6,232)
Increase in accounts payable - 222,895 13,152
Increase (decrease) in accrued expenses (26,000) 32,000 0
Increase in accrued interest - 5,250 7,000
--------- --------- ----------
Net cash used by operating activities (426,620) (54,809) (837,486)
--------- --------- ----------
Cash flows from investing activities:
Tercero acquisition/sale - - (49,999)
DSDS acquisition - (61,000) (61,000)
Capital expenditures - (3,637) (15,420)
--------- --------- ----------
Net cash used by investing activities - (64,637) (126,419)
--------- --------- ----------
Cash flows from financing activities:
Proceeds from notes to shareholders - - 73,000
Proceeds from note receivable from shareholder - - 150
Payments on note payable to shareholder - - (3,000)
Exercise of options 35,000 30,000 65,000
Issuance of common stock 57,520 377,000 914,720
--------- --------- ----------
Net cash provided by financing activities 92,520 407,000 1,049,870
--------- --------- ----------
Net increase in cash (334,100) 287,554 85,965
Cash, beginning of period 420,065 8,968 -
--------- --------- ----------
Cash, end of period $ 85,965 $ 296,522 $ 85,965
========= ========= ==========
</TABLE>
5
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1998
1. Organization and summary of significant accounting policies
- --------------------------------------------------------------
Organization
------------
CPC of America, Inc., a Nevada corporation ("CPC" or the "Company"), was
formed on April 11, 1996 to manufacture and distribute external
counterpulsation medical devices and own controlling interests in various
management service organizations ("MSO"s) and medical services companies.
The Company is classified as a development stage company because its
principal activities involve obtaining capital and rights to certain
technology, and conducting research and development activities.
In June 1998 CPC formed CPCA 2000, Inc., a Nevada corporation ("CPCA") to
serve as the Company's wholly-owned operating subsidiary. The Company
transferred all of its assets and liabilities to CPCA.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the amounts of the
Company and its wholly-owned subsidiaries, DSDS (100%) and CPCA (100%).
All significant intercompany transactions and balances have been eliminated
in consolidation.
In August of 1998 the Company purchased the remaining 20% of DSDS.
Interim periods
---------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not
include all of the information required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of results for any future period. These statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-SB/A for the year ended
December 31, 1997.
6
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
2. Shareholders' equity
- ------------------------
Common stock
------------
In June 1998, the Company effected a two-for-one stock split, decreasing the
par value to $.0005 per share. The number of authorized shares remained at
20,000,000. All share information reported in this Form 10-QSB has been
adjusted to reflect the two-for-one stock split.
In July 1997, the Company amended the number of common shares authorized from
10,000,000 to 20,000,000 and authorized 5,000,000 shares of preferred stock
at $.001 par value of which no shares are currently issued or outstanding.
From March 1997 to February 1998, the Company offered in a private placement
memorandum 35 units at $29,000 per unit. Each unit consists of 20,000 shares
of common stock and warrants to purchase 40,000 shares of common stock
exercisable at $1.75 per share from February 10, 1999 until December 31,
2000. In that offering, the Company sold 34 units, including 3 units in
conversion of notes payable. An investor converted a note with a balance of
$70,000 and related accrued interest of $7,000 into 3 units, and the Company
received $10,000 cash for the balance. No value was allocated to the warrants
because the exercise price was above market price at the time of issuance.
7
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
2. Shareholders' equity (continued)
- ------------------------------------
Stock options
-------------
The Company has granted options to purchase its common stock to its founders.
The option prices at the time of grant were at or above the fair value of the
Company's common stock. A summary of stock option activity follows (the
number of shares has been adjusted for the two-for-one stock split):
<TABLE>
<CAPTION>
Exercise
Number of Price Year of
Options Per Share Expiration
----------- ------------- -------------
<S> <C> <C> <C>
Inception (April 11, 1996) - - -
Granted 4,420,000 $1.125 - 1.25 1997 - 2006
----------- -------------
Outstanding at December 31, 1996 4,420,000 $1.125 - 1.25 1997 - 2006
----------- -------------
Exercised (26,666) $1.125
Expired (200,000) $1.175
----------- -------------
Outstanding at December 31, 1997 4,193,334 $1.125 - 1.25 2006
----------- -------------
Granted 4,000,000 $2.50 2008
Granted 137,000 $2.50 2003
Exercised (25,000) $1.125 - 2.50
Canceled (1,173,334) $1.125
----------- -------------
Outstanding at September 30, 1998 7,132,000 $1.125 - 2.50 2003 - 2008
=========== =============
Exercisable at September 30, 1998 3,468,000
===========
</TABLE>
8
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
3. Employment agreements
- ------------------------
In April 1998, the Company entered into an employment agreement with its
President and CEO, and a consulting agreement under similar terms with its
financial advisors, a related party, for five years with a five year
extension option. The latter consulting agreement replaces the original
agreement held with the Company's financial advisors. The agreements provide
for annual base salaries of $120,000 plus bonus to be paid when the Company
begins recording revenues. Options to purchase 2,000,000 shares of common
stock at an exercise price of $2.50 exercisable for ten years were also
granted under each agreement. The options vest and become exercisable in ten
equal installments of 200,000 shares each year starting on the grant date.
4. Letters of intent
- ----------------------
In May 1998, the Company entered into a letter of intent with Partner
Provider Health Inc. to form a nationwide joint venture cardiology disease
management company. On August 14, 1998, the Company and Partner Provider
Health, Inc. ("PPH"), a company engaged in the business of providing
specialized support services to regional organizations of health care
providers, organized a Delaware limited liability company under the name
HeartMed, LLC ("HeartMed"). HeartMed has been organized to provide managed
health care and related practice management in the area of cardiology disease
management. PPH shall be the managing member of HeartMed. PPH and the
Company will share in both the capitalization of HeartMed and its profits,
losses and distributions on a 51/49% basis.
In June 1998, the Company entered into a letter of intent with Medical
Resources Technologies Ltd. ("MRT") to buy CarePoint Network Inc. In the
third quarter of 1998, the Company elected to abandon its proposed
acquisition of CarePoint based upon the results of further due diligence.
The Company expects to sell DSDS at or above its carrying value by the end of
1998.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
CPC of America, Inc. (the "Company") was formed under the laws of the State of
Nevada on April 11, 1996 and was established to operate in three primary health
care areas. First, the Company intends to manufacture and distribute external
counterpulsation devices for the treatment of coronary artery disease. The
Company intends to provide counterpulsation treatment through Company-owned and
joint-venture clinical facilities. Second, the Company intends to acquire
existing management service organizations ("MSO"s) to provide management
assistance and other services to specialty medical groups, including those in
the cardiology field. Finally, the Company intends to enter into joint ventures
with third-parties, called "co-sourcing" arrangements, to provide cardiology
services and support to hospitals, health maintenance organizations ("HMO"s),
preferred provider organizations, and other physician groups.
To date, the Company's activities have included the market analysis and
development of its counterpulsation units and the raising of initial working
capital. The Company has developed and prepared for market both the CPCA 2000
and the CPCA 2000M, a mobile version of the Company's stand-alone
counterpulsation unit. Both units have been submitted for FDA 510(k) approval.
The Company has financed its activities to date through the sale of its
securities. The Company intends to commence commercial operations in the first
quarter of 1999, subject to FDA approval of its counterpulsation units.
The Company believes that it requires a minimum of $1,000,000 in order to
carry out its market plan and to fund its working capital requirements for the
next 12 months. The Company intends to finance its activities through the sale
of its securities, including the private placement described below. In the
event the Company is unable to obtain additional financing, the Company will be
required to find areas within the Company in which to cut costs. Any cost
cutting by the Company will have a negative impact on the introduction and
marketing of the Company's counterpulsation units and the commencement of the
Company's commercial operations.
Over the next 12 months, assuming FDA approval of its counterpulsation units
in the first quarter of 1999, the Company intends to make the counterpulsation
technology available through a delivery system of customers who purchase the
units and Company-owned and joint-ventured facilities. Each customer or
facility is expected to provide two or more counterpulsation units to provide
patients with easy access to treatment. Potential joint-venture partners
include community and university hospitals, private practice groups, managed
care organizations, including HMOs, diagnostic imaging centers and preventive
cardiology centers. Staffing would include a cardiologist who will review the
patient's history from the referring physician, examine the patient and
formulate the counterpulsation treatment plan. In addition, specially trained
nurses will be present in the center to monitor each patient's treatment. The
Company intends to attract patients from referrals from physicians, insurance
carriers, HMOs and hospitals, as well as self-referred patients. The facilities
will not offer full service long-term cardiology management in an attempt to
avoid competition with cardiologists, surgeons and hospitals.
On June 3, 1998, the Company entered into a Letter of Intent with CarePoint
Network, Inc., a Utah corporation ("CarePoint"), an MSO currently serving
physician practices in two western states. In the third quarter of 1998, the
Company elected to abandon its proposed acquisition of CarePoint based upon the
results of further due diligence.
On August 28, 1998, pursuant to the terms of a Settlement Agreement and Mutual
Release with John P. Colonna, the Company purchased from Colonna 1,500 shares of
the common stock of DSDS Group, Inc., a Florida corporation ("DSDS") for
$18,000. As a result
10
<PAGE>
of this transaction, the Company currently owns 100% of the issued and
outstanding common stock of DSDS.
In November 1998, the Company commenced a private placement of shares
("Shares") of its Series A Preferred Stock. The Company intends to offer 235,294
shares of Series A Preferred Stock at a price of $8.50 per Share for the gross
offering proceeds of approximately $2,000,000. The Shares are convertible into
shares of the Company's Common Stock at the initial conversion price of $8.50
per share, subject to certain anti-dilution provisions. However, on December 31,
1999, the conversion price automatically adjusts to the lower of (i) 75% of the
average last sale price of the Common Stock for the prior 30 trading days or
(ii) $6.38 per share. The Shares shall also be entitled to an annual dividend
equal to 5% of the liquidation preference ($8.50) payable in cash or in shares
of Series A Preferred Stock, at the option of the holder. The Shares shall have
no voting rights and shall be redeemable by the Company at a price equal to the
liquidation preference. All offers and sales of Shares in the private placement
shall be made pursuant to Rule 506 under the Securities Act of 1933, as amended
("1933 Act") and shall be made only to "accredited investors" within the meaning
of Rule 501 under the 1933 Act. Proceeds from the sale of the Shares shall be
applied toward the marketing of the Company's counterpulsation units and towards
working capital.
All of the software products used in both the fixed and mobile versions of the
Company's counterpulsation units are designed to function properly with respect
to dates in the year 2000 and thereafter. During the first quarter of 1999, the
Company intends to undertake an internal audit of those software products used
internally by the Company to assess which systems need to be modified or
replaced so that they will all be year 2000 compliant. However, the Company
does not believe that the Year 2000 issue will have a material impact on its
operations or revenues.
This quarterly report contains forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this quarterly report, the words
"believe," "expect," "anticipate," "estimate" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions disclosed in the Company's
Registration Statement on Form 10-SB/A, including, without limitation, the
Company's recent commencement of commercial operations and the risks and
uncertainties concerning the acceptance of its services and products by its
potential customers; the Company's present financial condition and the risks and
uncertainties concerning the availability of additional capital as and when
required; technological changes; increased competition; and general economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. The Company
cautions potential investors not to place undue reliance on any such forward-
looking statements all of which speak only as of the date made.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Inapplicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
Exhibit 27.
(b) Reports on Form 8-K
-------------------
Inapplicable.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CPC of America, Inc.
(Registrant)
Dated: November 13, 1998 By: /s/ ROD A. SHIPMAN
-------------------------
Rod A. Shipman,
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 85,965
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 129,560
<PP&E> 15,420
<DEPRECIATION> 3,410
<TOTAL-ASSETS> 204,974
<CURRENT-LIABILITIES> 13,153
<BONDS> 0
0
0
<COMMON> 2,148
<OTHER-SE> 1,093,402
<TOTAL-LIABILITY-AND-EQUITY> 204,974
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (398,117)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (386,341)
<INCOME-TAX> 0
<INCOME-CONTINUING> (386,341)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386,341)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.09)
</TABLE>
