<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, 1999
[ ] 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.
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(Exact name of small business issuer as specified in its charter)
Nevada 11-3320709
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1133 Fourth Street, Suite 200, Sarasota, Florida 34236
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(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 15, 1999, the Company had 3,984,428 shares of its $.0005 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
PAGE
----
<S> <C>
Unaudited Condensed Consolidated Balance Sheet at September 30, 1999......... 2
Unaudited Condensed Consolidated Statements of Operations for the
three month period ended September 30, 1999 and 1998
and for the period from inception (April 11, 1996) to September 30, 1999... 3
Unaudited Condensed Consolidated Statements of Operations for the
nine month period ended September 30, 1999 and 1998
and for the period from inception (April 11, 1996) to September 30, 1999... 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine month period ended September 30, 1999 and 1998
and for the period from inception (April 11, 1996) to September 30, 1999... 5
Notes to Condensed Consolidated Financial Statements......................... 6
</TABLE>
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
30-Sep
1999
ASSETS
Current assets:
Cash and equivalents $ 137,297
Prepaid and other 185,632
Total current assets 322,929
Equipment, net of accumulated depreciation $5,723 8,926
Trademarks, net of accumulated amortization of $935 5,141
TOTAL ASSETS $ 336,996
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 51,796
Total current liabilities 51,796
Shareholders' Equity:
Preferred stock, 5,000,000 shares authorized, $.001 par value,
74,588 shares issued and outstanding 75
Common stock, 20,000,000 shares authorized, $.0005 par
value
3,973,324 shares issued and outstanding 1,986
Additional Paid in capital - Common 1,555,084
Additional Paid in capital - Preferred 845,082
Treasury Stock 13,440
Deficit accumulated during the development stage (2,130,467)
Net shareholders' equity 285,200
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 336,996
2
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Three Months Ended from inception
--------------------------- (April 11, 1996)
Sept 30 Sept 30 to Sept. 30,
1999 1998 1999
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 186,522 $ 218,555 $ 1,657,364
General and administrative 16,551 8,663 263,161
Depreciation and amortization 927 2,126 21,225
Operating loss (204,000) (229,344) (1,941,750)
Interest income (expense):
Interest expense - - (7,001)
Embedded interest expense (16,500) - (211,157)
Interest income 726 1,930 28,321
(15,774) 1,930 (189,837)
Loss before minority interest (219,774) (227,414) (2,131,587)
Minority interest - (160) 1,120
Net Loss ($219,774) (227,574) ($2,130,467)
Basic and diluted net loss per share (0.06) (0.05)
Basic and diluted weighted average number
of common shares outstanding 3,933,891 4,270,944
</TABLE>
3
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Nine Months Ended from inception
--------------------------------- (April 11, 1996)
Sept Sept to Sept. 30,
1999 1998 1999
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 676,304 $ 360,563 $ 1,657,364
General and administrative 86,906 31,174 263,162
Depreciation and amortization 2,780 6,380 21,224
Operating loss (765,990) (398,117) ( 1,941,750)
Interest income (expense):
Interest expense (1) - (7,001)
Embedded interest expense (186,157) - (211,157)
Interest income 4,169 11,136 28,321
(181,989) 11,136 (189,837)
Loss before minority interest (947,979) (386,981) (2,131,587)
Minority interest - - 1,120
Net Loss ($947,979) ($386,981) ($2,130,467)
Basic and diluted net loss per share (0.23) (0.09)
Basic and diluted weighted average number
of common shares outstanding 4,133,225 4,263,992
</TABLE>
4
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Nine Months Ended from inception
----------------------------------- (April 11, 1996)
Sept. 30 Sept. 30 to Sept. 30,
1999 1998 1999
<S> <C> <C> <C>
Cash flows from Operating activities:
Net loss ($947,980) ($386,341) ($2,130,468)
Adjustments to reconcile net income to net cash
used by operating activities:
Minority interest (640) (1,120)
Depreciation and amortization 2,781 6,380 21,225
Embedded interest expense 186,157 211,157
Contribution of officer's salary 80,000
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 other assets (38,537) (20,019) (131,863)
Increase in trademarks
Increase (decrease) in accounts payable 4,946 46,170
Increase (decrease) in accrued expenses 6,107 (26,000) 22,107
Increase in accrued interest 7,000
Net cash used by operating activities (786,526) (426,620) (1,797,593)
Cash flows from investing activities:
Tercero acquisition 0 0 (49,999)
DSDS acquisition 0 0 (79,000)
Capital expenditures 0 0 (15,420)
Net cash used by investing activities 0 0 (144,419)
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 99,373 35,000 244,373
Exercise of warrants 215,586 215,586
Issuance of common stock 57,520 915,200
Issuance of preferred stock 559,000 634,000
Net cash provided by financing activities 873,959 92,520 2,079,309
Net (decrease)increase in cash 87,433 (334,100) 137,297
Cash, beginning of period 49,864 420,065
Cash, end of period $ 137,297 $ 85,965 $ 137,297
</TABLE>
5
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
September 30, 1999
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.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the amounts of the
Company and its wholly owned subsidiary CPCA 2000. 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 three months and nine months ended September 30,
1999 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-KSB for the
year ended December 31, 1998.
2. Shareholders' equity
- -----------------------
Series A Preferred stock
------------------------
In September 1999, the Company issued 5,882 shares of Series A Preferred
Stock for net proceeds of $50,000. The Company has recorded $16,500 as
additional paid in capital for the discount related to the embedded interest
in the preferred stock and fully amortized the expense in the second quarter,
when the stock was issued. This interest expense is included in the caption
"Embedded interest expense" in the accompanying September 30, 1999
consolidated statement of operations.
Common stock
------------
In September 1999, warrants were exercised to purchase 50,000 shares of the
Company's $.005 par value at $1.75 per share of the Company's common stock
for net proceeds of $87,500. In July, August and September 1999, 28,867
options were exercised at $1.125 per share for the net proceeds of $32,475.
6
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
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 market value
of the Company's common stock. A summary of stock options activity follows:
<TABLE>
<CAPTION>
Exercise
Number of Price
Options Per Share Expiration
---------- ------------ ----------
<S> <C> <C> <C>
Outstanding at December 31, 1998 7,115,000 $1.125 - 9.00 2003 - 2008
Exercised in Q1 (20,458) $1.125 2006
----------------------------------------
Outstanding at March 31, 1999 7,094,542 $1.125 - 9.00 2003 - 2008
Exercised in Q2 1999 (33,133) $1.125 - 2.50 2006
Cancelled in Q2, 1999 (490,000) $1.125 2006
----------------------------------------
Outstanding at June 30, 1999 6,571,409 $1.125 - 9.00 2003 - 2008
Granted in Q3 1999 125,000 $5.50 2006
Exercised in Q3 1999 (28,867) $1.125 2006
----------------------------------------
Outstanding at September 30, 1999 6,667,542 $1.125 - 9.00 2003 - 2008
----------
Exercisable at September 30, 1999 3,319,542 $1.125 - 9.00 2003 - 2008
</TABLE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
General
- -------
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 as soon it
obtains FDA approval of its counterpulsation units. The Company is unable to
provide an estimate at this time of when FDA approval of the counterpulsation
units may be obtained.
Following FDA approval of its counterpulsation units, the Company intends
to make the counterpulsation technology available through a delivery system of
company-owned and joint-ventured facilities. In addition, the Company intends to
market is counterpulsation units to
7
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
existing and new facilities through national and international distributors.
Each company-owned and joint-ventured 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.
In addition to its working capital on hand as of the date of this report,
the Company believes that it will require an additional $1,000,000 of capital in
order to fund its plan of operations over the next 12 months. To fund its
working capital requirements, in November 1998, the Company commenced a private
placement of shares of its Series A Preferred Stock, $.001 par value per share
("Series A Preferred Stock"). In the private placement, the Company is offering
a total of 235,294 shares of Series A Preferred Stock at a price of $8.50 per
share, pursuant to Rule 506 under the Securities Act of 1933 as amended. The
Series A Preferred Stock has no voting rights. Each Series A Preferred Share is
convertible into Common Stock at a conversion price of $8.50 per share, however,
on December 31, 1999, the conversion price shall be adjusted to the lower of (i)
seventy-five percent (75%) of the average last sale price of the Common Stock
for the thirty (30) trading days immediately preceding such date as reported on
any stock exchange or (ii) $6.38 per share. As of September 30, 1999, the
Company had sold 74,588 shares of Series A Preferred Stock for the gross
proceeds of $634,000. As of November 15, 1999 the Company has closed the Series
A Preferred Offering upon its receipt of an additional $40,000 for 4,705 shares
of Series A Preferred Stock being sold in November.
The Company expects to obtain the working capital it needs from both the
present private placements of Series A Preferred Stock as well as from the
exercise of currently outstanding warrants and options. There can be no
assurance, however, that the Company will be able to obtain sufficient
additional capital, either through the present private placement, the exercise
of warrants or otherwise, in order to fund the Company's working capital
requirements in a timely manner. The Company through November 15, 1999 has
obtained working capital totaling $1,019,231 from a combination of the Series A
Preferred, and exercising of current outstanding warrants and options. The
report of the Company's independent accountants for the fiscal year ended
December 31, 1998 states that due to the absence of operating revenues and the
Company's limited capital resources, there is doubt about the Company's ability
to continue as a going concern.
Year 2000
- ---------
The Company utilizes computer software programs and operating systems,
including applications used in operating the CPCA 2000 and various
administrative and billing functions. To the extent the Company's software
applications contain source codes that are unable to appropriately interpret the
upcoming calendar year 2000, some level of modification, or even replacement of
such applications, may be necessary. The Company has performed an audit of its
computer systems to assess the scope of the Company's risks and bring its
applications into
8
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
compliance. Following the completion of that audit, management of the Company
believes that all of the Company's and its third party systems are Year 2000
compliant. Management estimates that the cost to the Company of performing its
Year 2000 audit is $5,000 and that the costs of bringing all of its software
programs into compliance with the Year 2000 is $25,000.
Forward Looking Statements
- --------------------------
This 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 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
In August, 1999, the Company was named and served as a defendant in a
lawsuit brought by Richard E. Rubin, MD, former officer and director of the
Company in the United States District Court for the District of Maryland,
Southern Division. Rubin alleges that the Company breached an employment
contract with Rubin and prevented him from selling his shares or exercising
options in the Company. Rubin seeks damages in excess of $5,000,000. The
Company has filed a motion to dismiss certain claims in the complaint and, in
the alternative, for a change of venue to New York. Following the filing of the
motion, the parties stipulated to transfer the action to the United States
District Court for the Eastern District of New York. The motion to dismiss the
claim brought under Section 10(b) of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder, will be transferred as well. The Company
believes that the allegations of Rubin's complaint are without merit and,
accordingly, the Company intends to vigorously defend this case. The Company
believes that a determination of the lawsuit adverse to the Company will not
have a material adverse effect on the financial condition or operations of the
Company.
In November 1999, the Company shall settle the dispute between CPC of
America, Inc. and CPCA2000, Inc., on the one hand, and Partner Provider Health,
Inc., TLC The Laser Center, Inc. and HeartMed LLC, on the other hand, over the
HeartMed LLC joint venture, on mutually agreeable terms, under which all
litigation shall been dismissed, no money shall be paid, and HeartMed shall
become the wholly owned subsidiary of CPC of America, Inc."
9
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
In September 1999, the Company sold a total of 5,882 shares of its Series A
Preferred Stock at a price of $8.50. The Series A Preferred Stock is
convertible at any time into shares of the Company's $0.0005 par value common
stock ("Common Stock") at a conversion price of $8.50 per share, however, on
December 31, 1999, the conversion price shall be adjusted to the lower of (i)
75% of the average last sale price of the Common Stock for the 30 day trading
days immediately preceding such date as reported on any stock exchange or (ii)
$6.38 per share. There was no underwriter involved in the issuance. The Shares
were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended
("1933 Act").
In September 1999, the Company issued 50,000 shares of Common Stock to two
shareholders upon the exercise of warrants with an exercise price of $1.75 per
share. There was no underwriter involved in this issuance. The shares were
issued pursuant to Section 4(2) of the 1993 Act.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Acquisition of Med Enclosure, LLC
-----------------
On September 22, 1999, the Company entered into a Letter of Intent to
acquire controlling interest of Med Enclosure, LLC., a Nevada limited liability
corporation Med Enclosure, LLC. retains the proprietary and intellectual rights
to the recently granted patents for the arterial site closure procedure known as
"The Myers Solution." This acquisition complements CPC's primary focus on
Cardiology care, including diagnostic, therapeutic and consumable/disposable
products.
Arterial site closure is predominately used in invasive procedures such as
Cardiology, Peripheral interventions, Electrophysiology, Neurology and
Radiology. There are currently three methods in use on a worldwide basis:
Suture Technique, Bovine Collagen Plug and Human Glue Application. "The Myers
Solution" utilizes anterior arterial wall debridement (removal and disruption of
surface artery cells creating a "sticky" surface) in and about the arteriotomy
(puncture site), followed by energy-activated homogeneous human glue deployment
to an activated surface which produces the ideal solution, thereby avoiding
sutures, foreign material administration, and the avoidance of the discomfort of
a one-half incision to the patient. The Company will be submitting an
application to the FDA for market clearance for "The Myers Solution".
10
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
11
<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 15, 1999 By: /s/ ROD A. SHIPMAN
--------------------------------
Rod A. Shipman,
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 137,297
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 322,929
<PP&E> 14,067
<DEPRECIATION> 5,723
<TOTAL-ASSETS> 336,996
<CURRENT-LIABILITIES> 51,796
<BONDS> 0
0
845,082
<COMMON> 1,986
<OTHER-SE> 1,555,084
<TOTAL-LIABILITY-AND-EQUITY> 336,996
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (952,148)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (947,979)
<INCOME-TAX> 0
<INCOME-CONTINUING> (947,979)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (947,979)
<EPS-BASIC> 0
<EPS-DILUTED> (0.23)
</TABLE>
