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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 March 31, 2000
[_] 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
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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 May 2, 2000, the Company had 4,663,640 shares of its $.0005 par value
common stock issued and outstanding.
1
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PART 1 - FINANCIAL INFORMATION
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<CAPTION>
PAGE
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ITEM 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet at March 31, 2000........ 2
Unaudited Condensed Consolidated Statements of Operations for the
three month periods ended March 31, 2000 and 1999
and for the period from inception (April 11, 1996) to March 31, 2000.. 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 2000 and 1999
and for the period from inception (April 11, 1996) to March 31, 2000.. 4
Notes to Condensed Consolidated Financial Statements.................... 5
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2
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31,
2000
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<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 454,921
Prepaid and other 59,077
-------------------
Total current assets 513,998
Equipment, net of accumulated depreciation of $7,847 7,573
Trademarks, net of accumulated amortization of $1,402 4,830
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TOTAL ASSETS $ 526,401
===================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,286
-------------------
Total current liabilities 68,286
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, $.001 par value, 8,824 shares 9
issued and outstanding
Common stock, 20,000,000 shares authorized, $.0005 par value 4,604,132 2,302
shares issued and outstanding
Additional Paid in capital - Common 3,318,540
Additional Paid in capital - Preferred 99,991
Deficit accumulated during the development stage (2,962,727)
-------------------
Net shareholders' equity 458,127
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 526,401
===================
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from inception
(April 11, 1996)
Three Months Ended March 31 to March 31,
--------------------------------
2000 1999 2000
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<S> <C> <C> <C>
Costs and expenses:
Research and development $ 164,337 $ 191,416 $2,031,524
General and administrative 61,456 51,134 682,259
Depreciation and amortization 738 927 22,889
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Operating loss (226,531) (243,477) (2,736,672)
Other income (expense):
Interest expense (7,000)
Interest income 827 1,577 30,032
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827 1,577 23,032
Loss before minority interest (225,704) (241,900) (2,713,640)
Minority interest 1,120
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Net Loss ($225,704) ($241,900) ($2,712,520)
========================================================
Basic and diluted net loss per share ($0.05) ($0.06)
================================
Basic and diluted weighted average number
of common shares outstanding 4,313,149 4,345,449
================================
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4
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<TABLE>
<CAPTION>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited) Cumulative
from inception
(April 11, 1996)
Three Months Ended March 31, to March 31,
--------------------------------
2000 1999 2000
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<S> <C> <C> <C>
Cash flows from Operating activities:
Net loss ($225,704) ($241,900) ($2,712,520)
Adjustments to reconcile net income to net cash
used by operating activities:
Minority interest (1,120)
Depreciation and amortization 738 927 22,889
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 (decrease) in other assets 127,030 (32,800) (5,346)
Increase in accounts payable 451 17,489 68,754
Increase (decrease) in accrued expenses (50,000) 216,000
Increase in accrued interest 7,000
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Net cash used by operating activities (147,485) (256,284) (2,246,144)
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Cash flows from investing activities:
Tercero acquisition (49,999)
DSDS acquisition (79,000)
Capital expenditures (15,420)
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Net cash used by investing activities (144,419)
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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 and warrants 497,444 101,765 1,186,414
Issuance of common stock 915,200
Repurchase of common stock (280)
Issuance of preferred stock 255,000 674,000
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Net cash provided by financing activities 497,444 356,765 2,845,484
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Net increase in cash 349,959 100,481 454,921
Cash, beginning of period 104,962 49,864
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Cash, end of period $ 454,921 $ 150,345 $ 454,921
=========================================================
Non-cash investing and financing activities:
Issuance of common stock for note receivable $ 150
Debt to equity conversion $ 77,000
Acquisition of minority interest $ 33,250
Sale of Tercero - elimination of goodwill ($40,000)
Preferred dividends paid through issuance of common stock $ 25,725
Acquisition of Med Enclosures, LLC for Note payable $ 250,000
Settlement of lawsuit through issuance of common stock $ 200,000 $ 200,000
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CPC OF AMERICA, INC. AND SUBSIDIARIES
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
1. Organization and summary of significant accounting policies
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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 subsidiaries, CPCA 2000, Inc. and
HeartMed, LLC and its majority-owned subsidiary, Med Enclosures, LLC. 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 ended March 31, 2000 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, 1999.
2. Shareholders' equity
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Series A Preferred stock
------------------------
In January and February 2000, 70,469 shares of Series A Preferred Stock
were converted into 127,447 shares of Common Stock at a conversion price of
$4.70 per share.
Common stock
------------
In January, February and March of 2000, the Company issued 93,879 shares of
common stock upon the exercise of outstanding options and received the net
proceeds of $112,444 from the payment of the exercise price on these
options. In January and March of 2000, the Company issued 220,000 shares
upon the exercise of outstanding warrants and received the net proceeds of
$385,000 from the payment of the exercise price on these warrants.
6
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CPC OF AMERICA, INC. AND SUBSIDIARIES
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
2. Shareholders' equity (continued)
---------------------------------
In February 2000, as a settlement of its lawsuit with Carepoint Networks,
Inc., the Company agreed to pay $50,000 cash and to issue 33,333 common
shares valued at the then current market price of $6.00 per share.
On April 25, 2000 the Company paid $255,208 to its subsidiary, Med
Enclosures, LLC, to pay the outstanding balance on a promissory note held
by Med Enclosures in the original principal amount of $250,000. Med
Enclosures used these funds to acquire a patent from Gene Myers
Enterprises, Inc. ("GME"). As additional consideration, GME agreed to waive
the $4,000,000 capital provision contained in the Operating Agreement for
Med Enclosures.
Stock options
-------------
In the first quarter of 2000, the Company granted to one of its consultants
options to purchase up to 75,000 shares of its common stock at an exercise
price of $5.75 per share.
3. Commitments and contingencies
- ----------------------------------
In January 1997, the Company entered into a consulting agreement with its
financial advisor, a related party, for five years at $5,000 per month. The
agreement was revised in November 1997 to $8,000 per month, in April 1998
to $10,000 per month and for an additional five years and in April 1999 to
$18,333 per month. As of March 31, 2000, the Company prepaid a company
controlled by this related party $59,077 for research and development costs
to be provided in the year 2000.
7
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ITEM 2. Management's Discussion and Analysis or Plan of Operation
General
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To date, the Company's activities have included the market analysis and
development of its counterpulsation units, acquisition of Med Enclosures, LLC,
and the raising of development and working capital. The Company has developed
and prepared for market the CPCA 2000 and the CPCA 2000M, a mobile version of
the Company's stand-alone counterpulsation unit. Both units have been submitted
for approval from the federal Food and Drug Administration ("FDA"). The Company
intends to commence revenue producing operations in the fourth quarter of 2000,
subject to FDA approval of its counterpulsation units. The Company has also
acquired the patents to the puncture closure device and technique known as "The
Myers Solution." The Company intends to submit The Myers Solution for FDA
approval in the fourth quarter of 2000 following pre clinical and clinical
trials and to commence commercial operations of the product in the fourth
quarter of 2001. The Company has financed its activities to date through the
sale of its securities.
The Company recently commenced a private placement offering of shares of
its Series B Preferred Stock, $.001 par value per share ("Series B Preferred
Stock"). In the private placement, the Company intends to offer up to 228,571
shares of Series B Preferred Stock at a price of $8.75 per share for the gross
offering amount of $2,000,000. The Series B Preferred Stock is convertible into
shares of Common Stock and holders thereof are entitled to an annual dividend of
5%, payable in either cash or shares of Common Stock. The Series B Preferred
Stock is being offered pursuant to Rule 506 under the Act solely to "accredited
investors" as that term is defined in Rule 501 under the Act. As of the date of
this report, no shares of Series B Preferred Stock have been sold.
In addition to its working capital on hand as of the date of this report,
the Company believes that it will require, at least, an additional $2,000,000 of
capital in order to fund its plan of operations over the next 12 months as well
as an additional $4,000,000 to fund the FDA approval process for The Myers
Solution. The Company expects to fund its working capital requirements over the
next 12 months from its private placement of shares of Series B Preferred Stock
as well as from the exercise of outstanding warrants and options. The Company
expects to obtain the capital to fund the FDA approval process for The Myers
Solution from either the sale of its equity securities or from the sale of
interests in Med Enclosures.
There can be no assurance, however, that the Company will be able to obtain
sufficient additional capital, either through the present private placement of
Series B Preferred Stock, from other outside investors, the exercise of warrants
and options or otherwise, in order to fund the Company's working capital
requirements in a timely manner or to fund the FDA approval process for The
Myers Solution. The report of the Company's independent accountants for the
fiscal year ended December 31, 1999 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.
8
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Forward Looking Statements
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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 and uncertainties including, but no limited to, the Company's ability to
complete preclinical and clinical studies for its products and the difficulty of
predicting regulatory approvals, technological innovations of competitors,
changes in health-care regulations, litigation claims, product acceptance,
unexpected changes in government regulations, the Company's present financial
condition, 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.
9
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
In April 1999, the Company was named as a defendant in a lawsuit
brought by Carepoint Network, Inc. in the Third Judicial District Court of Salt
Lake County, State of Utah. In that action, Carepoint alleged that the Company
entered into a contract with Carepoint to purchase all of the issued and
outstanding capital stock of Carepoint and that the Company breached this
contract by failing to consummate the transaction. In February 2000, the Company
agreed to settle this matter for $50,000 in cash and 33,333 shares of Common
Stock.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
In the first quarter of 2000, the Company issued 220,000 shares of
common stock upon the exercise of outstanding warrants. The shares were issued
pursuant to Rule 506 under the Securities Act of 1933, as amended. There was no
underwriter involved in this issuance.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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Inapplicable.
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
10
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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: May 2, 2000 By: /s/ ROD A. SHIPMAN
-------------------------
Rod A. Shipman,
President and Chief Executive Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 513,998
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 513,998
<PP&E> 12,403
<DEPRECIATION> 0
<TOTAL-ASSETS> 526,401
<CURRENT-LIABILITIES> 68,286
<BONDS> 0
0
9
<COMMON> 2,302
<OTHER-SE> 418,531
<TOTAL-LIABILITY-AND-EQUITY> 526,401
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 226,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,704)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
