<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 June 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 No X
------- --------
As of August 13, 1998, the Company had 4,270,666 shares of its $.0005 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
ITEM 1. Financial Statements
<S> <C>
Unaudited Condensed Consolidated Balance Sheet at June 30, 1998............ 2
Unaudited Condensed Consolidated Statements of Operations for the
three month periods and six month periods ended June 30, 1998 and 1997... 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1998 and 1997........................... 4
Notes to Condensed Consolidated Financial Statements....................... 5
</TABLE>
-1-
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1998
----------
ASSETS
<S> <C>
Current assets:
Cash and equivalents $ 294,252
Deposits 43,500
----------
Total current assets 337,752
Equipment, net of accumulated depreciation of $2,639 12,781
Patents, net of accumulated amortization of $4,800 71,450
Trademarks, net of accumulated amortization of $312 5,920
Other 95
----------
$ 427,998
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,153
Accrued expenses 14,000
----------
Total current liabilities 27,153
Accrued expenses 2,000
----------
Total liabilities 29,153
----------
Minority interest 14,290
----------
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,
4,270,666 shares issued and outstanding 2,135
Additional paid-in capital 1,058,415
Deficit accumulated during the development stage (675,995)
----------
Net shareholders' equity 384,555
----------
$ 427,998
==========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Developmental Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Three Months Ended from inception
------------------------------------------------- (April 11, 1996)
June 30, June 30, to June 30,
1998 1997 1998
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 48,953 $ 126,486 $ 498,206
General and administrative 15,987 15 75,987
Depreciation and amortization 2,127 192 15,624
--------------------- ---------------------- ----------------------
Operating loss 67,067 126,693 589,817
Interest income (expense):
Interest expense - - (7,000)
Interest income 4,287 1,080 16,649
--------------------- ---------------------- ----------------------
4,287 1,080 9,649
Loss before minority interest 62,780 125,613 580,168
Minority interest (240) - (720)
--------------------- ---------------------- ----------------------
Net loss $ 62,540 $ 125,613 $ 579,448
===================== ====================== ======================
Basic and diluted net loss per share $ 0.01 $ 0.03
===================== ======================
Basic and diluted weighted average number
of common shares outstanding 4,270,666 3,836,380
===================== ======================
</TABLE>
3
See accompanying notes to financial statements
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Six Months Ended from inception
------------------------------------------------- (April 11, 1996)
June 30, June 30, to June 30,
1998 1997 1998
--------------------- ---------------------- --------------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 142,008 $ 173,452 $ 591,261
General and administrative 22,511 115 82,511
Depreciation and amortization 4,254 302 17,751
--------------------- ---------------------- --------------------
Operating loss 168,773 173,869 691,523
Interest income (expense):
Interest expense -- -- (7,000)
Interest income 9,206 3,180 21,568
--------------------- ---------------------- --------------------
9,206 3,180 14,568
Loss before minority interest 159,567 170,689 676,955
Minority interest (480) -- (960)
--------------------- ---------------------- --------------------
Net loss $ 159,087 $ 170,689 $ 675,995
===================== ====================== ====================
Basic and diluted net loss per share $ 0.04 $ 0.05
===================== ======================
Basic and diluted weighted average number
of common shares outstanding 4,261,605 3,718,143
===================== ======================
</TABLE>
4
See accompanying notes to financial statements
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Six Months Ended from inception
---------------------------------------------- (April 11, 1996)
June 30, June 30, to June 30,
1998 1997 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (159,087) $(170,689) $ (675,995)
Adjustments to reconcile net income to net
cash used by operating activities:
Minority interest (480) -- (960)
Depreciation and amortization 4,254 302 17,751
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 (18,500) -- (43,594)
Increase in trademarks -- -- (6,232)
Increase in accounts payable -- 236,053 13,152
Increase (decrease) in accrued expenses (10,000) -- 16,000
Increase in accrued interest -- -- 7,000
-------------------- -------------------- --------------------
Net cash used by operating activities (183,813) 65,666 (594,679)
-------------------- -------------------- --------------------
Cash flows from investing activities:
Tercero acquisition/sale -- - (49,999)
DSDS acquisition -- - (61,000)
Capital expenditures -- 3,636 (15,420)
-------------------- -------------------- --------------------
Net cash used by investing activities -- 3,636 (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 -- 30,000 30,000
Issuance of common stock 58,000 377,000 915,200
-------------------- -------------------- --------------------
Net cash provided by financing activities 58,000 407,000 1,015,350
-------------------- -------------------- --------------------
Net increase in cash (125,813) 476,302 294,252
Cash, beginning of period 420,065 0 --
-------------------- -------------------- --------------------
Cash, end of period $ 294,252 $ 476,302 $ 294,252
==================== ==================== ====================
</TABLE>
5
See accompanying notes to financial statements
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 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 majority-owned subsidiaries, DSDS (80%) and CPCA (100%). All
significant intercompany transactions and balances have been eliminated in
consolidation.
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 six months ended June 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 for the year ended December 31, 1997.
6
(continued)
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
2. Shareholders' equity
- -----------------------
Common stock
------------
In March 1997, 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. As of June 30, 1998,
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.
In the first quarter of 1998 the Company sold 2 units (40,000 shares) for
$58,000.
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.
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 10-QSB has been adjusted
to reflect the two-for-one stock split.
7
(continued)
<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
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
--------- ------------- -----------
Outstanding at June 30, 1998 8,330,334 $1.125 - 2.50 2003 - 2008
========= ============= ===========
Exercisable at June 30, 1998 4,266,334
=========
</TABLE>
8
(continued)
<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 1,000,000 shares of common
stock at an exercise price of $2.50 exercisable for ten years were also
granted under each agreement, with an additional 1,000,000 options to be
granted if the agreements are extended for an additional five year term. The
options vest and become exercisable in five equal installments of 200,000
shares each year starting on the grant date.
4. Letter of intent
- --------------------
In June 1998, the Company entered into a letter of intent with Medical
Resources Technologies Ltd. ("MRT") to buy CarePoint Network Inc. The
acquisition will provide management service organization functions for the
Company and MRT.
5. Organization of HeartMed, LLC
- ---------------------------------
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.
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 will 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 ("PPO"s), 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 fourth
quarter of 1998, subject to FDA approval of its counterpulsation units. In the
opinion of management, the Company has sufficient cash resources in order to
sustain its operations throughout the 1998 fiscal year.
Over the next 12 months, assuming FDA approval of its counterpulsation
units in the fourth quarter of 1998, the Company intends to make the
counterpulsation technology available through a delivery system of company-owned
and joint-ventured facilities. Each facility will 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 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.
On June 3, 1998, the Company entered into a Letter of Intent with CarePoint
Network, Inc., a Utah corporation ("CarePoint"). Based in Salt Lake City, Utah,
CarePoint is an MSO currently serving physician practices in two western states.
Prior to the closing of its acquisition by the Company, CarePoint intends to
acquire RGL Medical Services, LLC, a Utah limited liability corporation. Both
of these companies provide MSO services including marketing and practice
development, practice financial management, accounts receivable management,
strategic business planning, office operations, purchasing and inventory
control, transcriptions services, human resources management, education,
training and seminars, radiology services and alliance and network development.
Pursuant to the terms of the Letter of Intent, the Company shall acquire all of
the issued and outstanding capital stock of CarePoint. The total purchase price
for the capital stock of CarePoint shall be $3,140,000, which shall consist of
$2,482,000 in cash and $658,000 worth of the Company's Common Stock. As of the
date of this quarterly report, the Company is seeking financing commitments
sufficient to fund its required cash payment of $2,482,000, however there are no
commitments as of the date of this quarterly report and there can be no
assurance that the Company will be able to obtain the necessary financing to
close its acquisition of CarePoint.
10
<PAGE>
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, 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.
-4-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
In June 1998, the Company was named as a defendant in a lawsuit brought
by Charles M. O'Rourke, the Company's former attorney, in the United States
District Court for the Eastern District Court of New York. The lawsuit also
named as defendants Rod Shipman, Chief Executive Officer of the Company, and Dr.
Richard Rubin, a former officer and director of the Company. The lawsuit alleges
that Mr. O'Rourke performed various legal services for the Company for which he
was to receive as payment both shares of Common Stock and options to purchase
shares of Common Stock. The complaint alleges that the Company deprived Mr.
O'Rourke of the value of his shares by refusing to allow Mr. O'Rourke to sell
his shares under Rule 144 of the Securities Act of 1933 ("1933 Act"). Mr.
O'Rourke alleges causes of action for breach of contract, fraud, breach of
fiduciary duty, conversion, unjust enrichment and for declaratory and injunctive
relief. Mr. O'Rourke seeks damages in an amount in excess of $966,000.
The Company has filed an answer and a counterclaim against Mr.
O'Rourke, seeking the return of both the shares of Common Stock and the options
on the grounds that Mr. O'Rourke failed to provide adequate consideration.
Although the Company intends to vigorously defend against these allegations, the
Company believes that an adverse determination of the lawsuit would not have a
materially adverse effect on the financial condition or operations of the
Company.
Item 2. Changes in Securities.
---------------------
On June 17, 1998, the Company commenced a two-for-one split of the
outstanding shares of its Common Stock and, at the same time, effected a change
in the par value of the Common Stock from $.001 per share to $.0005 per share.
All share information set forth in this quarterly report gives effect to the
split and change in par value as of June 17, 1998.
In April 1998, the Company issued to its president and key consultant
each an option to purchase 2,000,000 shares of Common Stock at an exercise price
of $2.50 per share. Options to purchase 200,000 shares of Common Stock are
immediately exercisable and options to purchase 200,000 shares vest and first
become exercisable on the next nine anniversaries of the date of grant. The
options expire on April 22, 2008. There was no underwriter involved in these
issuances. The issuances were conducted pursuant to Section 4(2) of the 1933
Act.
In April 1998, the Company issued to five employees and consultants of
the Company options to purchase an aggregate of 137,000 shares of Common Stock
at an exercise price of $2.50 per share. All of the options are immediately
exercisable except for options to purchase 80,000 shares granted to one
consultant, of which options to purchase 16,000 shares of Common Stock are
immediately exercisable and options to purchase 16,000 shares vest and first
become exercisable on the next four anniversaries of the date of grant. The
options expire on April 22, 2003. There was no underwriter involved in these
issuances. The issuances were conducted pursuant to Section 4(2) of the 1933
Act.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Pursuant to a majority written consent of shareholders effective as of
June 1, 1998, the shareholders of the Company elected to the Board of Directors
of the Company Rod A. Shipman, William C. Lievense and Rafe Cohen.
Pursuant to a majority written consent of shareholders effective as of
June 17, 1998, the shareholders of the Company approved an amendment to the
Articles of Incorporation of the Company for purposes of effecting a two-for-one
split of the outstanding shares of the Company's Common Stock and a change in
the par value of the Common Stock from $.001 per share to $.0005 per share. See
Item 2, Part II, above.
-5-
<PAGE>
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.
-6-
<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: August 14, 1998 By: /s/ ROD A. SHIPMAN
-------------------------
Rod A. Shipman,
Chief Financial Officer
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 294,252
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 337,752
<PP&E> 15,420
<DEPRECIATION> 2,639
<TOTAL-ASSETS> 427,998
<CURRENT-LIABILITIES> 27,153
<BONDS> 0
0
0
<COMMON> 2,135
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 427,998
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 67,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (62,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,540)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
