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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 June 30, 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
CPC OF AMERICA, INC.
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(Exact name of small business issuer as specified in its charter)
Utah 11-3320709
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1133 4TH STREET STE. 200, SARASOTA, FL 34236
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(Address of principal executive offices)
941 906-9546
---------------------------
(Issuer's telephone number)
Not Applicable
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(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 June 30, 2000, the Company had 4,694,505 shares of its $.0005 par value
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
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INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Balance Sheet at June 30, 2000 (unaudited) 3
Condensed Statements of Operations for the Quarter
Ended June 30, 2000 and June 30, 1999 (unaudited) 4
Condensed Statements of Operations for the Six Months
Ended June 30, 2000 and June 30, 1999 (unaudited) 5
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 2000 and June 30, 1999 (unaudited) 6
Notes to Condensed Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
2
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 619,205
Prepaid and other 126,672
-----------
Total current assets 745,877
Equipment, net 6,990
Patents and trademarks - net 254,674
-----------
$ 1,007,541
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,435
-----------
Total current liabilities 47,435
-----------
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, $.001 par value
Series A, 8,824 shares issued and outstanding 9
Series B, 71,429 shares issued and outstanding 71
Common stock, 20,000,000 shares authorized, $.0005 par value,
4,694,505 shares issued and outstanding 2,345
Additional paid in capital - preferred 933,045
Additional paid in capital - common 3,882,436
Unamortized stock option costs (250,000)
Deficit accumulated during the development stage (3,607,800)
-----------
Total shareholders' equity 960,106
-----------
$ 1,007,541
===========
</TABLE>
3
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Cumulative
June 30, from inception
----------------------- (April 11, 1996)
2000 1999 to June 30, 2000
---------- ---------- ----------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 180,756 $ 298,367 $ 2,212,280
General and administrative 256,503 19,220 938,762
Depreciation and amortization 739 927 23,628
---------- ---------- -----------
Operating loss (437,998) (318,514) (3,174,670)
---------- ---------- -----------
Other income (expense):
Interest expense (5,205) (1) (12,205)
Interest income 6,259 1,867 36,291
---------- ---------- -----------
1,054 1,866 24,086
---------- ---------- -----------
Loss before minority interest (436,944) (316,648) (3,150,584)
Minority interest - 1,120
---------- ---------- -----------
Net loss $ (436,944) $ (316,648) $(3,149,464)
========== ========== ===========
Basic and diluted net loss per share $ (0.09) $ (0.08)
========== ==========
Basic and diluted weighted average number
of common shares outstanding 4,649,348 4,165,491
========== ==========
</TABLE>
4
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Cumulative
June 30, from inception
----------------------- (April 11, 1996)
2000 1999 to June 30, 2000
---------- ---------- ----------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 345,093 $ 489,782 $ 2,212,280
General and administrative 317,959 70,355 938,762
Depreciation and amortization 1,477 1,854 23,628
---------- ---------- -----------
Operating loss (664,529) (561,991) (3,174,670)
---------- ---------- -----------
Other income (expense):
Interest expense (5,205) (1) (12,205)
Interest income 7,086 3,444 36,291
---------- ---------- -----------
1,881 3,443 24,086
---------- ---------- -----------
Loss before minority interest (662,648) (558,548) (3,150,584)
Minority interest - 1,120
---------- ---------- -----------
Net loss $ (662,648) $ (558,548) $(3,149,464)
========== ========== ===========
Basic and diluted net loss per share $ (0.15) $ (0.13)
========== ==========
Basic and diluted weighted average number
of common shares outstanding 4,481,368 4,255,299
========== ==========
</TABLE>
5
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Six months ended from inception
June 30, (April 11, 1996)
------------------------ to June 30,
2000 1999 2000
---------- ---------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(662,648) $(558,548) $(3,149,464)
Adjustments to reconcile net loss to
net cash used by operating activities:
Minority interest - - (1,120)
Depreciation and amortization 1,477 1,854 23,628
Amortization of stock option cost 30,000 - 30,000
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 59,473 (47,601) (72,903)
Increase in accounts payable (15,183) (224) 53,120
(Decrease)/increase in accrued expenses (50,000) 12,671 216,000
Increase in accrued interest - - 7,000
---------- --------- -----------
Net cash used by operating activities (636,881) (591,848) (2,735,540)
---------- --------- -----------
Cash flows from investing activities:
Tercero acquisition/sale - - (49,999)
DSDS acquisition - - (79,000)
Purchase of patent (20,000) - (20,000)
Capital expenditures - - (15,420)
---------- --------- -----------
Net cash used by investing activities (20,000) - (164,419)
---------- --------- -----------
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 and warrants 546,124 195,201 1,235,094
Issuance of preferred stock 625,000 509,000 1,299,000
Issuance of common stock - - 915,200
Repurchase of common stock - - (280)
---------- --------- -----------
Net cash provided by financing activities 1,171,124 704,201 3,519,164
---------- --------- -----------
Net increase (decrease) in cash 514,243 112,353 619,205
Cash, beginning of period 104,962 49,864 -
---------- --------- -----------
Cash, end of period $ 619,205 $ 162,217 $ 619,205
========== ========= ===========
</TABLE>
6
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CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Six months ended from inception
June 30, (April 11, 1996)
-------------------- to June 30,
2000 1999 2000
-------- -------- ----------------
<S> <C> <C> <C>
Non-cash investing and financing activities:
Issuance of common stock for note receivable $ - $ - $ 150
Debt to equity conversion $ - $ - $ 77,000
Acquisition of minority interest $18,000 $ 33,250
Sale of Tercero - elimination of goodwill $ - $ - $ (40,000)
Preferred dividends paid through issuance of
common stock $ 25,725 $ - $ 25,725
Acquisition of Med Enclosures for note payable $ $ - $ 250,000
Settlement of lawsuit through issuance of
common stock $200,000 $ - $ 200,000
Acquisition of patent through issuance of
common stock $230,000 $ - $ 230,000
</TABLE>
7
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Notes to Unaudited Condensed Financial Statements
June 30, 2000
1. Organization and summary of significant accounting policies
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Organization
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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 to develop or acquire controlling
interests in various niche cardiology diagnostic, therapeautic and disposal
products. 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 majority-owned subsidiaries, CPCA 2000, Inc. and
HeartMed, LLC and its 73.3%-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 six months ended June 30, 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.
8
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2. Shareholders' equity (continued)
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Series B Preferred Stock
------------------------
In the second quarter of 2000, 71,429 shares of Series B Preferred Stock
were sold for net proceeds of $625,000.
Common Stock
------------
In the first six months of 2000, the Company issued 137,150 shares of common
stock upon the exercise of options for net proceeds of $161,124 and 220,000
shares of common stock upon the exercise of outstanding warrants for net
proceeds of $385,000.
In the second quarter of 2000, the Company issued 47,042 common shares
valued at $230,000 and paid $20,000 cash to Gene Myers Enterprises (GME) for
the purchase of a patent held by GME.
In February 2000, in settlement of its lawsuit with Carepoint Networks,
Inc., the Company paid $50,000 cash and issued 33,333 common shares valued
at the then current market price of $6.00 per share.
Stock Options
-------------
In the first and second quarter of 2000, the Company granted to two of its
consultants options to purchase up to 75,000 and 100,000, respectively,
shares of its common stock at exercise prices of $5.75 and $5.00 per share.
The options have been valued at $1.60 per share using the Black-Scholes
model and recorded on the balance sheet as Unamortized stock option cost and
are expensed as the services are provided. The options are for services to
be provided over the next two years and vest as the services are provided.
3. Related Party Transactions
------------------------------
The Company has prepaid a company controlled a major shareholder $111,600
for research and development costs to be provided in the year 2000.
9
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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
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 as
"MedClose" 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 intends to commence revenue producing
operations in the fourth quarter of 2000, subject to FDA approval of its
counterpulsation units.
In the first quarter of 2000, the Company 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 is offering
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, 71,429 shares of Series B Preferred Stock
for the net proceeds of $625,000 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 MedClose. 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 MedClose 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
MedClose. 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.
10
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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 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.
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
In the second quarter of 2000, the Company issued 47,042 common shares
valued at $230,000 and paid $20,000 cash to Gene Myers Enterprises (GME) for the
purchase of a patent held by GME. The shares were issued pursuant to Rule 506
under the Securities Act of 1933, as amended. There was no underwriter involved
in this issuance.
In the second quarter of 2000, 71,429 shares of Series B Preferred Stock
were sold for net proceeds of $625,000. 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.
---------------------------------------------------
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.
12
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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: August 11, 2000 By: /s/ ROD A. SHIPMAN
--------------------------
Rod A. Shipman,
President and Chief Executive Officer
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