<PAGE>
As filed with the Securities and Exchange Commission on July 25, 2000
Registration No. 333-
===============================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
CPC OF AMERICA, INC.
(Name of small business issuer in its charter)
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<S> <C> <C>
Nevada 3841 11-3320709
(State or jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer
or organization) Classification Code Number) Identification No.)
</TABLE>
1133 Fourth Street, Suite 200
Sarasota. Florida 34236
(Address and telephone number of principal executive offices
and principal place of business)
______________________________________
1133 Fourth Street, Suite 200
Sarasota. Florida 34236
941-906-9546
(Name, address and telephone number of agent for service)
___________________________
Copies to:
Daniel K. Donahue, Esq
Oppenheimer Wolff & Donnelly LLP
500 Newport Center Drive, Suite 700
Newport Beach, CA 92660
(949) 823-6000
___________________________
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
____________________________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
____________________________________________________
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=============================================================================================================================
Proposed Proposed
Title of Each Class of Securities Maximum Offering Maximum Aggregate Amount of
to be Registered Amount to be Registered Price per Share (1) Offering Price Registration Fee
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0005 par value 250,000 Shares $5.00 $1,250,000 $330
=============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of
1933, based upon the last sale of the Registrant's common stock on July
18, 2000, as reported in the over-the-counter market.
_______________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
PROSPECTUS
250,000 Shares
CPC OF AMERICA, INC.
Common Stock
This prospectus relates to the offer and sale of 80,375 shares of our
common stock by the selling stockholders identified in this prospectus and our
offer and sale of up to 169,625 shares of common stock. The selling stockholders
will determine when they will sell their shares, and in all cases, will sell
their shares at the current market price or at negotiated prices at the time of
the sale. Although we have agreed to pay the expenses related to the
registration of the shares being offered, we will not receive any proceeds from
the sale of the shares by the selling stockholders.
Our common stock is currently traded on the OTC Bulletin Board under the
symbol "CPCF." On July 18, 2000, the last reported sale price of the common
stock on the OTC Bulletin Board was $5.00 per share.
Please see "Risk Factors" beginning on page 4 to read about certain factors
you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is __________, 2000
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<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
accurate only as of the date of this prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary............................................................................... 1
Risk Factors.......................................................................... 3
Market for Common Equity and Related Stockholder Matters.............................. 6
Dividend Policy....................................................................... 6
Selling Stockholders.................................................................. 7
Management's Discussion and Analysis or Plan of Operation............................. 8
Business.............................................................................. 9
Management............................................................................ 16
Principal Stockholders................................................................ 19
Description of Securities............................................................. 20
Legal Matters......................................................................... 21
Experts............................................................................... 21
Available Information................................................................. 22
Index to Financial Statements......................................................... 23
</TABLE>
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<PAGE>
SUMMARY
You should read this summary in conjunction with the more detailed
information and financial statements appearing elsewhere in this prospectus.
This prospectus contains forms of forward-looking statements. When used in this
prospectus, 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, which are
identified and described in the "Risk Factors" section, below. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary from those anticipated,
estimated, or projected and the variations may be material. We caution you not
to place undue reliance on any such forward-looking statements, all of which
speak only as of the date made.
Our Company
We are engaged in the business of developing and/or acquiring cardiology
therapeutic and disposable devices and products as well as the manufacturing and
distributing of these devices and products for the diagnosis and treatment of
coronary artery disease. To date, we have developed and/or acquired two
products: the CPCA 2000 counterpulsation devices and The Myers Solutions
puncture closing device and technique. Both the CPCA 2000 and The Myers Solution
are in the development stage and we are currently seeking FDA approval of both
of these products.
Our first product is the CPCA 2000 counterpulsation unit, a non-invasive,
atraumatic and non-toxic method of treating certain coronary disease states.
Counterpulsation involves the rhythmic inflation and deflation of sets of
balloons or cuffs wrapped around the muscles of the calves, thighs and buttocks
and is designed to eliminate the symptoms associated with the narrowing of the
cardiac arteries. We have applied for FDA approval of our counterpulsation units
and expect to commence marketing in the U.S. in the fourth quarter of 2000. We
have also recently acquired a controlling interest in Med Enclosures, LLC, the
holder of three patents for the puncture closing device and technique known as
The Myers Solution. The Myers Solution is a proprietary technique to close
puncture wounds following catheterization procedures and is designed to reduce
the risk of hemorrhage and speed recovery time for patients following these
procedures. We intend to submit The Myers Solution for FDA approval in the
fourth quarter of 2000.
Our executive offices are located at 1133 Fourth Street, Suite 200,
Sarasota, Florida 34236; phone (941) 946-9546.
The Offering
This offering relates to the offer and sale of 80,375 shares of our common
stock by the selling stockholders identified in this prospectus as well as
169,625 shares of common stock offered by us. The selling stockholders will
determine when they will sell their shares, and in all cases, will sell their
shares at the current market price or at negotiated prices at the time of the
sale. Although we have agreed to pay the expenses related to the registration of
the shares being offered, we will not receive any proceeds from the sale of the
shares by the selling stockholders.
We are offering for sale up to 169,625 shares of our common stock. While we
may sell some or all of the 169,625 shares for cash, it is our intention to
issue the 169,625 shares for noncash consideration, including services rendered.
We have entered into an agreement with some of the selling stockholders which
guarantees that the average market price for their shares shall be at least
$6.00 per share and have agreed to issue additional shares to these stockholders
to cover any deficiencies in the market price of our common stock. Except for
the shares we may issue to these stockholders, we have no plans or arrangements
at this time to issue any of the 169,625 common shares and we do not intend to
issue any of the 169,625 common shares for noncash consideration except to non-
affiliates in arms' length transactions. In the event we issue any of the
169,625 common shares for cash, we expect to do so at prevailing market prices.
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<PAGE>
Summary Financial Information
The summary financial information set forth below has been derived from our
financial statements. You should read this information in conjunction with the
financial statements and notes thereto, included elsewhere in this memorandum.
Statement of Operations Data:
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<CAPTION>
Three Months From Inception
Ended (April 11, 1996) to
Year Ended Year Ended March 31, 2000 March 31, 2000
December 31, 1998 December 31, 1999 -------------- --------------
----------------- ----------------- (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue................. $ 0 0 0 0
Net loss.................... (640,580) (1,329,328) (225,704) (2,712,520)
Net loss per share.......... (.38) (.16)
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Balance Sheet Data:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999 March 31, 2000
----------------- ----------------- --------------
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents...... $ 49,864 104,962 454,921
Working capital................ 156,215 (26,716) 445,712
Total assets................... 213,806 304,247 526,401
Total liabilities.............. 40,744 317,823 68,286
Total stockholders'
equity/deficit............... 173,062 (13,576) 458,127
</TABLE>
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<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose part or all of your investment.
We Are a Development Stage Company and Have No Significant Operating History.
We were incorporated in 1996 and to date have not generated any revenues from
operations. To date, our activities have included the market analysis and
development of our counterpulsation units, the acquisition of a controlling
interest in Med Enclosures, LLC and the raising of working capital. We believe
that we have in place the foundation upon which we can achieve significant
growth in revenue. However, as a result of the absence of any operating history
or revenues, there can be no assurance that we will achieve a significant level
of operations and, if so, that such operations can continue to be conducted on a
profitable basis.
We Have Limited Sources of Financing and Will Require Additional Capital to
Support Our Growth.
We have not generated any revenues from our operations and until we begin
generating revenues and earnings, we will continue to depend on financing from
outside sources to sustain our operations We recently commenced a private
placement of shares of our Series B Preferred Stock, pursuant to which we seek
to raise up to $2,000,000 in gross proceeds. We intend to use the proceeds from
this offering to obtain FDA approval for our counterpulsation units, to fund
clinical and pre-clinical trials for MedClose and for our working capital
requirements. We anticipate, based on currently proposed plans and assumptions,
that the proceeds of this private placement, together with available cash
resources, will be sufficient to satisfy our anticipated cash requirements for
the next twelve months. If the gross proceeds from the private placement are
less than $2,000,000, however, our ability to implement our plan of operations
will be hindered and the planned expenditures towards funding the regulatory
approval of our products may be limited. The report of our independent public
accountants for the year ended 1999 states that due to the absence of operating
revenue, there is substantial doubt about our ability to continue as a going
concern.
Our Medical Devices And Procedures Are Subject To Extensive Government
Regulation.
Clinical testing, manufacture and sale of our counterpulsation units and
puncture closing devices are subject to regulation by numerous governmental
authorities, principally the FDA and comparable state and foreign regulatory
agencies. The approval process can be expensive and time-consuming. We have
applied for FDA approval of our counterpulsation units through a pre-market
notification filing under Section 510(k) of the Food, Drug and Cosmetics Act.
Applicants under the Section 510(k) procedure must prove that the device for
which approval is sought is substantially equivalent to devices on the market
prior to the Medical Device Amendments of 1976 or devices approved thereafter
pursuant to the Section 510(k) procedure. We intend to file for FDA approval of
MedClose in the fourth quarter of 2000. Although we expect a favorable response
from the FDA, the failure to receive requisite FDA approval for the
counterpulsation units or MedClose, or significant delays in obtaining such
approval, would prevent us from commercializing our products as anticipated.
Our Markets Are Highly Competitive.
We expect to face significant competition in connection with the marketing of
both our counterpulsation units and MedClose puncture closing device. We are
aware of three other companies that are currently producing and marketing or
intending to market a counterpulsation device similar to ours. These companies
have already cleared the FDA approval process with their products and have begun
to market their products in the U.S. We also have several competitors that
manufacture and market puncture closure devices, including Perclose, Inc.,
Kensey Nash, Datascope Corp. and Vascular Solutions, Inc. All of our competitors
have greater marketing and financial resources than we do and, accordingly,
there can be no assurance that we will be able to compete effectively or that
competitive pressures we will face will not prevent us from increasing our
present level of operations.
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<PAGE>
Our Patents And Trademarks May Not Adequately Protect Our Intellectual Property.
We have filed a patent application for our counterpulsation units with the U.S.
Patent and Trademark Office and we have already received a trademark on the name
"CPCA 2000." In addition, our subsidiary, Med Enclosures, holds three patents
for the puncture closing device and technique known as The Myers Solution and
has applied for a trademark for the name "The Myers Solution" and MedClose.
There can be no assurance, however, that these patents and trademarks, or any
patents or trademarks that may be issued in the future, will meaningfully
protect our products from the production of similar products by competitors. In
addition, if our patent, trademark or other proprietary rights are violated, or
if a third party claims that we violate their patent, trademark or other
proprietary rights, we may be required to engage in litigation. Proprietary
rights litigation tends to be costly and time consuming and bringing or
defending claims related to our proprietary rights may require us to redirect
our human and monetary resources to address those claims.
Our Medical Devices May Contain Defects That Could Be Costly To Correct, Delay
Market Acceptance Of Our Products And Expose Us To Costly Litigation.
We may be subject to product liability claims for injuries sustained as a result
of our counterpulsation units and puncture closing devices. Although we intend
to obtain product liability insurance at such time as we begin the marketing of
our medical devices, any product liability claims brought against us, if
successful and of sufficient magnitude, could cause us to spend significant
resources on litigation. In addition, these claims could damage our reputation
in the industry.
We May Engage In Future Acquisitions That Dilute Our Stockholders, Cause Us To
Incur Debt And Assume Contingent Liabilities
As part of our business strategy, we expect to review acquisition prospects that
would complement our current product offerings or that may otherwise offer
growth opportunities. While we have no current agreements or negotiations
underway with respect to any such acquisitions, we may acquire businesses,
products or technologies in the future. Such actions by us could materially
adversely affect our results of operations and/or the price of our common stock.
Acquisitions also entail numerous risks, including:
. difficulties in assimilating acquired operations, technologies or
products;
. unanticipated costs associated with the acquisition could materially
adversely affect our results of operations;
. diversion of management's attention from other business concerns;
. adverse effects on existing business relationships with suppliers and
customers;
. risks of entering markets in which we have no or limited prior
experience; and
. potential loss of key employees of acquired organizations.
We have limited experience in assimilating acquired organizations into our
operations and we may not be able to successfully integrate any businesses,
products, technologies or personnel that we might acquire in the future. Our
failure to do so could have a material adverse effect on our business, financial
condition and results of operations.
Certain Provisions In Our Corporate Charter And Bylaws May Discourage Take-Over
Attempts And Thus Depress The Market Price Of Our Stock
Certain provisions of our Certificate of Incorporation and Bylaws may be deemed
to have an anti-takeover effect. Such provisions may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider to be in that
stockholder's best interests. For example, our Articles of Incorporation allows
our Board of Directors
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<PAGE>
to issue additional shares of common stock or establish one or more classes or
series of preferred stock, having rights, preferences and limitations as
determined by the Board of Directors without stockholder approval.
Certain Provisions In Our Corporate Charter And Bylaws May Effect The Rights Of
Common Stock Holders
Our Board of Directors has the authority to issue up to an additional 10,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by our
stockholders. To date, we have 8,824 shares of Series A Preferred Stock
outstanding. Our board of directors has also authorized the issuance of up to
500,000 shares of Series B Preferred Stock, none of which have been issued. Any
additional preferred stock issued by our board of directors may contain rights
and preferences adverse to the voting power and other rights of the holders of
common stock.
We Do Not Have An Active Trading Market For Our Shares.
Our common stock is traded on the OTC Bulletin Board under the symbol "CPCF." On
July 18, 2000, the last reported sale price of the common stock on the OTC
Bulletin Board was $5.00 per share. The range of last sale prices of our stock
over the previous 52 weeks included a high and low of $8.50 and $4.25,
respectively. However, we consider our common stock to be "thinly traded" and
any last reported sale prices may not be a true market-based valuation of our
common stock.
Forward-Looking Statements.
This prospectus contains forms of forward-looking statements that are based on
our beliefs as well as assumptions made by and from information currently
available to us. When used in this Prospectus, 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, which are identified and described in this "Risk
Factors" section. 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. We caution
potential investors not to place undue reliance on any forward-looking
statements, all of which speak only as of the date made.
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<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the OTC Bulletin Board under the symbol "CPCF."
The following table shows the high and low bid prices of our common stock for
the periods indicated since the inception of trading in June 1998 as reported by
the OTC Bulletin Board. These quotations reflect inter-dealer prices without
retail markup, markdown or commission and may not necessarily represent actual
transactions. All share prices are adjusted to reflect the two-for-one split of
our common stock that was effected in February 1998.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1998:
First quarter (from February 18, 1998) $ 3.125 $ 1.50
Second quarter 14.75 2.375
Third quarter 15.62 8.62
Fourth quarter 8.62 3.25
1999
First quarter $ 11.50 $ 4.625
Second quarter 8.875 5.25
Third quarter 10.37 5.25
Fourth quarter 8.62 4.75
2000
First quarter 8.125 5.00
Second quarter 6.125 4.00
Third quarter (through July 18, 2000) 5.1875 4.00
</TABLE>
As of the date of this prospectus, we had approximately 59 record holders.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our common stock, however
our preferred stockholders are entitled to a 5% annual dividend payable either
in cash or shares of our common stock. We currently intend to retain any future
earnings to finance the growth and development of our business and therefore we
have no immediate plans to pay cash dividends on our common stock. Any future
determination to pay cash dividends on our common stock will be at the
discretion of our board of directors and will be dependent upon our financial
condition, results of operations, capital requirements, general business
condition and other factors our board of directors considers relevant.
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<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the offer and sale of 169,625 shares of common
stock as well as 80,375 shares of our common stock by the selling stockholders
identified below in this offer. None of the selling stockholders are or have
been affiliates of ours, however Dr. Myers, an affiliate of Gene Myers
Enterprises, Inc., is one of our consultants and serves as our Medical and
Clinical Affairs Director for CPCA2000, Inc. and Med Enclosures, LLC. The
selling stockholders will determine when they will sell their shares, and in
all cases, will sell their shares at the current market price or at negotiated
prices at the time of the sale. Although we have agreed to pay the expenses
related to the registration of the shares being offered, we will not receive
any proceeds from the sale of the shares by the selling stockholders.
All of the selling stockholders, except for Gene Myers Enterprises, Inc.
received their shares in connection with the settlement of a lawsuit brought
against us by CarePoint Networks, Inc. In connection with that settlement, we
issued a total of 33,333 shares of common stock to these selling stockholders
as consideration for the settlement of the lawsuit. As a condition to that
settlement, we provided a guarantee to these stockholders that the average last
sale price of our common stock for the 90 trading days immediately preceding
August 31, 2000 would be at least $6.00 per share. In the event the average
last sale price for this period was less that $6.00 per share, we agreed to
issue these selling stockholders additional shares of common stock or cash so
that all of the shares issued to these selling stockholders, when multiplied by
the actual average last sale price of the common stock over this period, would
equal at least $200,000. The additional shares of common stock that we may
issue to these selling stockholders to ensure an aggregate average sale price
of $200,000 will come from the 169,625 shares of common stock we are offering
by way of this prospectus.
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of the date of this prospectus by
the selling stockholder:
<TABLE>
<CAPTION>
Shares Beneficially Owned
Prior to Offering
-----------------------------------------
Number of Number of Shares Shares Beneficially Owned
Name Shares owned offered After Offering(1)
------------------------------------ ----------------------------------------- -----------------------------------------
<S> <C> <C> <C>
Jackson M. Rhudy 4,688 4,688 0
Robert G. Leo 10,258 10,258 0
G. Kirk Olsen 8,111 8,111 0
Kent F. Meacham 7,612 7,612 0
David G. Williams 2,664 2,664 0
Gene Myers Enterprises, Inc. 47,042 47,042 0
</TABLE>
____________
(1) Assumes all of the offered shares are sold.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
-------
To date, our activities have included the market analysis and development
of our counterpulsation units, acquisition of a controlling interest in Med
Enclosures, LLC, and the raising of development and working capital. We have
developed and prepared for market the CPCA 2000 and the CPCA 2000M, a mobile
version of our stand-alone counterpulsation unit. Both units have been submitted
for approval from the FDA. We intend to commence revenue producing operations in
the fourth quarter of 2000, subject to FDA approval of our counterpulsation
units. We have also acquired a controlling interest in Med Enclosures which
holds the patents to the puncture closure device and technique known as "The
Myers Solution." We intend to submit 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. We have
financed our activities to date through the sale of our securities.
We recently commenced a private placement offering of shares of our Series
B Preferred Stock. In the private placement, we are offering up to 457,142
shares of Series B Preferred Stock at a price of $8.75 per share for the gross
offering amount of $4,000,000. The Series B Preferred Stock is convertible into
shares of common stock on a one-for-one basis 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
Securities Act of 1933, as amended, solely to "accredited investors" as that
term is defined in Rule 501 under the Securities Act. As of the date of this
prospectus, 71,429 shares of Series B Preferred Stock have been sold.
As of March 31, 2000, we had working capital of $445,712. In addition to
our working capital on hand, we believe that we will require, at least, an
additional $2,000,000 of capital in order to fund our plan of operations over
the next 12 months as well as an additional $4,000,000 to fund the FDA approval
process for MedClose. We expect to fund our working capital requirements over
the next 12 months from our private placement of shares of Series B Preferred
Stock as well as from the exercise of outstanding warrants and options. We
expect to obtain the capital to fund the FDA approval process for MedClose from
either the sale of our equity securities or from the sale of interests in Med
Enclosures.
There can be no assurance, however, that we 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 our working capital requirements in a
timely manner or to fund the FDA approval process for MedClose. The report of
our independent accountants for the fiscal year ended December 31, 1999 states
that due to the absence of operating revenues and our limited capital resources,
there is doubt about our ability to continue as a going concern.
Forward Looking Statements
--------------------------
This prospectus contains forward-looking statements that are based on our
beliefs as well as assumptions and information currently available to us. When
used in this prospectus, the words "believe," "expect," "anticipate," "estimate"
and similar expressions are intended to identify forward-looking statements.
These statements are subject to those risks, uncertainties and assumptions
included in the section "Risk Factors. 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. We caution you not to place undue reliance on any forward-looking
statements, all of which speak only as of the date of this prospectus.
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<PAGE>
BUSINESS
General
CPC of America is engaged in the business of developing and/or acquiring
cardiology therapeutic and disposable devices and products as well as the
manufacturing and distributing of these devices and products for the diagnosis
and treatment of coronary artery disease. To date, we have developed and/or
acquired two products: the CPCA 2000 counterpulsation devices and MedClose
puncture closing device and technique.
Our first product, the CPCA 2000 counterpulsation unit, is a non-invasive,
atraumatic and non-toxic method of treating certain coronary disease states.
MedClose is a puncture closing device and technique that utilizes a human glue
deployment to close puncture wounds following surgery. Both the CPCA 2000 and
MedClose are in the development stage and neither has been approved for sale by
the FDA.
Coronary Artery Disease and Treatment
Coronary artery disease is the most common cause of death in industrial
nations. The coronary arteries serve the heart with oxygen and other nutrients.
The progressive narrowing of these coronary arteries by increasing layers of
fatty plaque can lead to heart attacks, brain failure and eventually death. The
direct cost of coronary disease is great in terms of treatment expense, loss of
earnings and productivity while the indirect costs are incalculable in terms of
pain, suffering and limited lifestyles.
A percentage of these patients undergo invasive surgical procedures such as
angioplasty, artery bypass surgery or cardiac catheterization, all of which are
designed to remedy coronary artery narrowing. Coronary angioplasty is an
invasive process whereby a small balloon attached to a catheter is inserted into
a clogged artery. The balloon is then inflated to compress plaque and to open
the narrowed artery. The estimated cost per successfully treated patient using
the angioplasty method approaches $16,000 and many patients fail multiple
attempts at angioplasty. Coronary artery bypass surgery involves supplementing
the original arteries on the surface of the heart with additional conduits, or
bypasses, which carry the blood around areas of blockage or narrowing. These
bypasses or detours are frequently created by using veins harvested from the
patient's leg or arteries harvested from the chest wall. This invasive procedure
requires more lengthy hospitalization than angioplasty, carries a higher risk of
complications, and can cost up to $50,000 per patient. Many bypass conduits
close in the years following surgery requiring a return to medications,
angioplasty, or repeat bypass attempts. Cardiac catheterization is an invasive
procedure that involves threading a catheter through an artery from a patient's
groin to the heart. While cardiac catheterization is invaluable in diagnosing
and treating coronary artery blockages, it carries a serious risk of
hemorrhaging following the procedure at the site where the artery is punctured.
Counterpulsation Technology: "CPCA2000"
We have designed and, subject to FDA approval, intend to manufacture and
market a counterpulsation device under the name CPCA 2000, as well as a mobile
version of our counterpulsation device under the name CPCA 2000M.
Counterpulsation involves the rhythmic inflation and deflation of sets of
balloons or cuffs wrapped around the muscles of the calves, thighs and buttocks.
Inflation and deflation occurs in a sequential manner, progressing from the
calves to the lower and upper thighs and then to the buttocks. The sequence of
cuff inflation and deflation compresses the vascular beds and is timed to the
beating of the patient's own heart through synchronization with the patient's
electrocardiogram. Cuffs inflate sequentially and rapidly at the onset of
diastole to prevent blood from being trapped in vascular beds. Cuffs deflate
just before the heart squeezes, reducing the pressure against which the heart
must pump and allowing the heart to eject blood more efficiently and completely.
Counterpulsation is designed to increase the ease of work during the contraction
phase and to increase blood flow during the relaxation phase of the cardiac
cycle. Counterpulsation is significantly less invasive than angioplasty, artery
bypass surgery and cardiac catheterization and is designed to reduce the need
for these more invasive, complicated and costly procedures.
Patients are typically treated with counterpulsation therapy during 35 one-
hour outpatient visits or sessions, spanning four to seven weeks. During their
treatments, the patients remain outside the hospital and are free to pursue work
and other scheduled activities. Treatment success is observed by relief of
symptoms, possible reduction in medication, increased exercise capacity on the
treadmill, and elimination of areas of poor cardiac
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<PAGE>
circulation. A course of counterpulsation treatments, with a total global cost
of $7,500 or less, compares favorably with the higher risk, expense, pain and
lost productivity time associated with the invasive angioplasty, coronary bypass
or cardiac catheterization procedures.
A 1992 study by doctors at Stony Brook University in New York showed that
counterpulsation eliminated or reduced angina in over 80% of the patients
studied. In that study, doctors tested the clinical efficacy and tolerability of
counterpulsation in 18 patients with incapacitating chronic angina. In all
patients, treatment with counterpulsation was associated with a substantial
improvement in symptoms, with more than 80% of the patients in the study
reporting a complete absence of symptoms while performing their usual
activities. In addition, Thalium-201 stress testing (performed for the same
exercise duration before and after counterpulsation treatment) showed complete
resolution of ischemic defects in 12 patients (67%), a decrease in the area of
ischemia in two (11%), and no change in four (22%). Thus, 14 patients (78%) had
a reduction in myocardial ischemia as assessed by Thalium-201 imaging. In
addition, stress test results using a treadmill showed a significant increase in
exercise duration following counterpulsation treatment. We were not involved
with this study.
Three years following the initial study, data from 17 of the original 18
patients was studied, including 13 of the 14 patients who had previously shown a
reduction in myocardial ischemia. One of these 13 patients suffered a myocardial
infarction and another underwent a revascularization procedure during the
intervening period. The other 11 patients all remained free of limiting angina.
In 1998, results of a study regarding the effectiveness of counterpulsation
were reported in a section of the official program of the American Heart
Association's 71st Scientific Sessions. The study involved a randomized, sham-
controlled, double-blinded clinical trial of 139 patients with chronic angina.
The study used standardized methodology to determine whether counterpulsation
treatment had an effect on quality-of-life functions up to 12 months after
completion of treatment. Of the 125 patients who entered the study, the group
who received counterpulsation treatment demonstrated a 23% improvement in their
quality-of-life 12 months after the completion of their treatment. The group
that did not receive the counterpulsation treatment showed no improvement.
Puncture Closure Devices: "MedClose"
MedClose is a proprietary technique for use during catheterization procedures
that is designed to reduce the risk of hemorrhage and speed recovery time for
patients following these procedures. MedClose is based on a basic principle of
arterial clotting. When the outer surface of an artery, called the adventitia,
is injured it releases a sticky chemical that serves as an adhesive for the
body's clot-inducing substances, thus initiating the clotting process. MedClose
accelerates the release of this chemical through the use of a special instrument
that surgically debrides the adventitia. To further speed clotting, this
debridement is combined with one of the newly developed forms of "human glue."
These products, a mixture of natural thrombin and fibrinogen, are widely
available and relatively inexpensive. In addition, they can be manufactured to
become adhesive only when exposed to a specific catalyst such as a laser.
The glue alone is not sufficient to close the artery, however. Debridement
is the key to the effectiveness of this technique, creating a surface area that
allows the glue to adhere and form a solid seal. MedClose includes a patented
instrument and technique to temporarily close the wound, debride the surrounding
adventitia and deliver a form of human glue to the puncture site that can be
activated by laser light. Our majority-owned subsidiary, Med Enclosures, holds
the patents for both the instrument and the technique used in connection with
MedClose.
We believe that a major advantage of MedClose is that it requires no
sutures and leaves no foreign matter in the artery thereby reducing the risk of
an embolism resulting from residual material left in the artery. In addition, we
believe that MedClose will significantly reduce the recovery time of patients
following catheterization procedures. Physicians traditionally have used sutures
to close puncture wounds following catheterization procedures. Using sutures
requires direct pressure to be applied to the wound for up to 45 minutes and for
the patient to remain still for up to 12 hours following the procedure to avoid
hemorrhaging. MedClose, by contrast, eliminates the need for direct pressure to
be applied to the wound and reduces the recovery time following the procedure to
approximately two hours. As a result, MedClose reduces the need for patients to
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<PAGE>
remain completely immobile following the catheterization procedure and limits
the recovery time and discomfort associated with the catheterization procedures.
Marketing and Distribution
Counterpulsation Technology "CPCA2000"
We intend to engage third parties, through original equipment manufacturing
relationships, to manufacture our products. We intend to commence marketing and
distribution of our products by establishing relationships with key providers
and referring physicians across the nation, in geographically strategic
locations.
Distribution and marketing of the medical products will be accomplished
through joint ventures between our sales groups and clinics and institutions
that will be purchasing our units. We do not currently have any of these
agreements in place. Our strategy is to sell one or more of our counterpulsation
units to physicians, clinics and hospitals, with us receiving revenues from the
proceeds of the sale as well as from service fees and licensing fees. We
anticipate that we will need to employ approximately 10 full-time employees to
develop and enhance our sales, marketing and distribution efforts. We intend to
grow our distributorship network and sales to and through:
. Major cardiology groups;
. HMO groups;
. Major payor groups and insurance companies;
. Other existing diagnostic and therapeutic companies and centers;
. National and international distribution agreements; and
. Internet e-commerce.
Following FDA approval of the CPCA 2000, we intend to initially focus our
marketing efforts on the state of Florida. We believe that Florida has a
relatively high concentration of eligible patients with the ability to pay
before complete reimbursement by the payors is fully recognized.
Puncture Closure Device "MedClose"
We initially intend to market MedClose to both hospitals and to physicians
through both national and international distribution agreements. None of these
agreements are currently in place. We intend to establish a direct sales support
team to assist the distributors with their customers and to establish national
contracting agreements with major providers of services.
We intend to offer our products to potential customers through a marketing
campaign consisting of public relations, direct mail and personal selling
efforts by our representatives. The public relations campaign will be designed
to raise awareness of MedClose and its puncture closure device among both
industry leaders and the general public. We intend to generate publicity for The
Myers Solution through press conferences, demonstrations and press releases to
trade and professional publications.
Although we initially intend to concentrate our marketing efforts on the
U.S. domestic market, once domestic operations have been established we intend
to expand our marketing efforts in various international markets. We intend to
market our counterpulsation units and puncture closing devices to international
customers through affiliations and/or agreements with international partners.
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<PAGE>
Government Regulation and Supervision
FDA Approval Process
Clinical testing, manufacture and sale of the CPCA 2000, CPCA 2000M and
"MedClose" are subject to regulation by numerous governmental authorities,
principally the FDA, and corresponding state and foreign regulatory agencies.
Pursuant to the federal Food, Drug and Cosmetic Act, and the regulations
promulgated thereunder, the FDA regulates the clinical testing, manufacturing,
labeling, distribution and promotion of medical devices. Under the Medical
Device Act of 1976, the FDA places medical devices into one of three classes
called Class I, II, or III, on the basis of the controls deemed necessary by the
FDA to reasonably ensure their safety and effectiveness. Class I devices are
subject only to general controls (e.g., labeling, premarket notification and
adherence to good manufacturing practices. Class II devices are subject to
general controls and performance standards established by the FDA, including
postmarket surveillance, patient registries and FDA guidelines. Class III
devices must receive premarket approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices,
or new devices which have been found to be substantially equivalent to devices
currently on the market). Both the CPCA 2000 and MedClose are considered by the
FDA to be Class III devices.
Before a new medical device can be introduced to the market, the
manufacturer generally must obtain FDA clearance through either a "510(k)
premarket notification" or through a premarket approval application. Although
Class III devices normally require FDA clearance through the premarket approval
process, because counterpulsation devices and puncture closure devices are
already on the market, newer versions, similar to the CPCA 2000 and The Myers
Solution, have been permitted to be marketed pursuant to the 510(k) premarket
notification procedure. However, there is no assurance that we will continue to
be eligible to utilize the 510(k) premarket notification process in the future
or that the FDA will not in the future require us to submit a premarket
application, which would be a more costly, lengthy and uncertain approval
process.
Generally, 510(k) premarket notification clearance will be granted if the
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device, or to a preamendment Class III medical device for which
the FDA has not called for premarket approval applications. The FDA has recently
been requiring a more rigorous demonstration of substantial equivalence than in
the past, for example, by more frequently requiring clinical data. It generally
can take from four to 12 months or longer from submission of the product to
obtain 510(k) premarket clearance. The FDA may determine that a proposed device
is not substantially equivalent to a legally marketed device or that additional
data is needed before a substantial equivalence determination can be made. A
determination that a device is not substantially equivalent to a device already
on the market, or a request for additional data, would delay the market
introduction of our products and could have a material adverse effect on our
business, financial condition and results of operations. For any of our devices
that are cleared through the 510(k) process, modifications or enhancements that
could significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device will require a new
510(k) submission. There can be no assurance that we will obtain 510(k)
premarket clearance within the above time frames, if at all, for any of the
devices for which we may file a 510(k).
Further, once FDA approval is obtained, our products will be subject to
pervasive and continuing regulation by the FDA, including various record keeping
requirements and the requirement to report adverse experiences with the use of
the device. We are also subject to inspection on a routine basis for compliance
with the FDA's good manufacturing practices regulations. These regulations
impose certain procedural and documentation requirements upon us and the
companies with which we contract to manufacture our products. The FDA has
recently finalized changes to good manufacturing practice requirements that,
among other things, add requirements for design controls and maintenance of
service records. These changes are expected to increase the cost of compliance.
On November 12, 1998, we submitted to the FDA our final application for the
CPCA 2000. The FDA responded to the application on February 10, 1999 with
requests for clarification on certain issues and for additional data. The FDA
inspected one of our manufacturing facilities in May 1999. We intend to submit
MedClose for FDA approval during the fourth quarter of 2000.
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<PAGE>
Third-Party Coverage
The commercial success of the CPCA 2000 is also dependent upon positive
coverage policies by the Health Care Financing Administration, which administers
the Medicare program, as well as by other third-party payors. In February 1999,
the HCFA extended Medicare coverage to external counterpulsation treatment for
patients with disabling angina who, in the opinion of a cardiologist or
cardiothoracic surgeon, are not readily amenable to surgical interventions. In
November 1999, the Health Care Financing Administration created a new code to
describe external counterpulsation technology. This new code, HCPCS code G0166,
is specific to Medicare beneficiaries and went into effect on January 1, 2000
for angina patients being treated by the counterpulsation. The allowable charge
under this HCPCS code for 35 one-hour treatments is $4,550. Certain patients may
require additional services, such as evaluation and management, which may be
billed separately. We expect third-party insurance companies to follow the lead
of Medicare and to adopt similar coverage policies for counterpulsation
treatment. Failure by these third-party payors to adopt coverage policies
similar to Medicare's, or the elimination of coverage entirely for
counterpulsation treatment, would seriously impact the demand for our
counterpulsation units.
Anti-Kickback Statutes
In addition, there are federal and state laws, which regulate the financial
relationships between manufacturers of medical devices and hospitals, physicians
and other potential purchasers of medical devices. The federal Medicare and
Medicaid anti-kickback statute prohibits financial relationships designed to
induce the purchase, or arranging for or recommending the purchase, of items or
services for which payment may be made under Medicare, Medicaid, or other
federally funded state health care programs. The anti-kickback statute contains
exceptions for, among other things, properly reported discounts and compensation
for bona fide employees. In addition, federal regulations establish certain
"safe harbors" from liability under the anti-kickback statute, including further
refinements of the exceptions for discounts and employee compensation. Our
future practices, in some cases, may not meet all of the criteria for a safe
harbor from anti-kickback law liability. Other provisions of state and federal
law provide civil and/or criminal penalties for presenting or causing to be
presented for payment claims that are fraudulent or for items or services that
were not provided as claimed. Because of the breadth of the statutory provisions
described above, it is possible that some of our business practices could be
subject to scrutiny and challenge under one or more such laws. Such a challenge
could have a material adverse effect on our business, financial condition and
results of operations.
Competition
Counterpulsation Technology "CPCA2000"
At present, we are aware of only three other companies that are currently
producing and marketing or intending to market a counterpulsation device similar
to the CPCA 2000 or the CPCA 2000M: Vasomedical, Inc., Cardiomedics, Inc., and
Cardio-Vascular Electronics, Inc. Some of these companies have already begun to
market their counterpulsation units in the U.S. and, accordingly, have already
obtained some level of market acceptance. We believe that these competitors have
only a limited presence in the market and that the market in general for
counterpulsation devices is largely untapped. There can be no assurance,
however, that we will be able to compete initially or on a continual basis with
companies that are currently marketing counterpulsation devices or those that
presently seek to enter into the counterpulsation device market.
We estimate that counterpulsation therapy is presently used to treat only a
small percentage of all patients with coronary artery diseases. Accordingly, we
anticipate that the CPCA 2000 and the CPCA 2000M will indirectly compete with
more mainstream cardiology treatment techniques, such as angiography, coronary
angioplasty, coronary artery bypass surgery and medication. While
counterpulsation does not replace the need for these services in all cases, a
percentage of coronary artery disease patients can be successfully treated using
counterpulsation as an alternative to invasive procedures.
Puncture Closure Device "MedClose"
We have several competitors that manufacture and market in the puncture
closure devices, including St. Jude Medical, Perclose, Inc., Kensey Nash,
Datascope Corp. and Vascular Solutions, Inc. We believe our devices
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have competitive advantages over other products because our product is superior
in delivery of arterial site closures that are safe, variable and cost
effective. However, all of our competitors have greater marketing and financial
resources than we do and, accordingly, there can be no assurance that we will be
able to compete effectively, if at all.
Patents and Trademarks
At present, we have submitted applications to patent the CPCA 2000 and our
counterpulsation technology and have already received a trademark on the name
"CPCA 2000." In addition, our subsidiary, Med Enclosures, holds three patents
for the device and procedure for The Myers Solution and we have applied for a
trademark for the name The Myers Solution and MedClose. Our ability to compete
successfully depends, in part, on our ability to protect the proprietary
technology contained in our products. We will rely upon a combination of patent,
trade secret and trademark laws, together with non-disclosure agreements, to
establish and protect proprietary rights in our counterpulsation devices and
other technology, as well as our trade names and other similar property. We also
intend to enter into confidentiality agreements with our employees,
manufacturers, distributors, customers and suppliers, and will limit access to
and distribution of our proprietary information. If and when implemented, these
measures will only afford us limited protection, as there can be no assurance
that any steps taken by us to protect these proprietary rights will be adequate
to prevent misappropriation of our technology or the independent development by
others of similar technology. In addition, although we believe that there
currently are no infringement claims against us and no grounds for the assertion
of such claims, the cost of responding to any claim could be significant.
Research and Development
Since inception, our research and development expenses have amounted to
approximately $1,867,000. These expenditures have included the design and
development of both the CPCA 2000 and the CPCA 2000M, as well as the submission
of both of these units to the FDA for approval. At present, none of these
research and development expenses have been borne by customers, as we have not
begun to market or sell our products and services. We acquired the technology
for The Myers Solution from Gene Myers Enterprises, Inc. in 1999.
Employees
As of the date of this report, we employ two persons consisting of our two
executive officers. Neither of these employees is represented by a union or is
subject to a collective bargaining agreement. We have not experienced a work
stoppage and we believe that our relationship with our employees is good. We
contract with various consultants to provide services to us including
engineering, software, testing, regulatory, product development, medical and
clinical affairs on a project by project basis.
Property
Our executive offices are located in Sarasota, Florida and consist of
approximately 1,000 square feet which we rent on a month to month basis.
Legal Proceedings
In June 1998, we were named as a defendant in a lawsuit brought by Charles
M. O'Rourke, our former attorney, in the United States District Court for the
Eastern District of New York. The lawsuit also named as a defendant Rod Shipman,
our Chief Executive Officer. The lawsuit alleges that Mr. O'Rourke performed
various legal services for us 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 we deprived Mr. O'Rourke of the value of his shares by refusing to
allow Mr. O'Rourke to sell his shares under Rule 144 under the Securities Act of
1933. 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. We have 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 for the
securities, as well as monetary damages for the legal malpractice we believe
O'Rourke committed while serving as our counsel. We intend to vigorously defend
against Mr. O'Rourke's allegations and prosecute our counterclaim. We
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<PAGE>
believe that a determination of the lawsuit adverse to us will not have a
materially adverse effect on our financial condition or operations.
In February 1999, we filed a lawsuit against Partner Provider Health, Inc.
("PPH") and its parent company, TLC, The Laser Center, Inc., a Canadian
corporation, alleging breach of contract, misrepresentation and fraud. In
November 1999, we settled the dispute over the HeartMed LLC joint venture on
mutually agreeable terms under which all litigation has been dismissed, no money
has been paid, and HeartMed has become the wholly owned subsidiary of CPC of
America, Inc. HeartMed, LLC is planned for future endeavors when deemed
appropriate.
In March 1999, we were named as a defendant in a lawsuit brought by Nancy
Lee, one of our former consultants, in the United States District Court for the
Central District of California. In her complaint, Ms. Lee alleged that we
prohibited Ms. Lee from selling the balance of her shares of stock she acquired
as one of our founders. Ms. Lee seeks a judicial declaration from the court that
she is the rightful owner of the shares. We have filed an answer and a
counterclaim against Ms. Lee seeking the return of the shares of common stock on
the grounds that Ms. Lee failed to provide adequate consideration for the
securities. We intend to vigorously defend against Ms. Lee's allegations and
prosecute our counterclaim. We believe that a determination of the lawsuit
adverse to us will not have a materially adverse effect on our financial
condition or operations.
In April 1999, we were 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. CarePoint alleges that we entered into a contract with
CarePoint to purchase all of the issued and outstanding capital stock of
CarePoint and that we breached this contract by failing to consummate the
transaction. In February 2000, we agreed to settle this matter for $50,000 in
cash and 33,333 shares of common stock. As part of this settlement, we agreed to
guarantee to these parties that the aggregate average market price of these
shares would be at least $200,000. We have agreed to issue to these parties
additional shares of common stock to ensure that the aggregate average market
price equals at least $200,000. All of the CarePoint parties are included as
selling stockholders in this prospectus.
In August, 1999, we were named and served as a defendant in a lawsuit
brought by Richard E. Rubin, M.D., one of our former officers and directors, in
the United States District Court for the District of Maryland, Southern
Division. Rubin alleges that we breached an employment contract with him and
prevented him from selling his shares of common stock or exercising his options.
Rubin seeks damages in excess of $5,000,000. We have filed an answer denying any
and all liability to Rubin. We have interposed counterclaims against Rubin
seeking recovery of the shares and options we believe are unlawfully held by
him, or in the alternative, monetary damages. We believe that the allegations of
Rubin's complaint are without merit and, accordingly, we intend to vigorously
defend this case. We believe that a determination of the lawsuit adverse to us
will not have a material adverse effect on our financial condition or
operations.
The O'Rourke, Rubin and Lee matters have all been consolidated and
transferred to U.S. District Court for the District of New York.
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MANAGEMENT
Set forth below are our directors and officers.
<TABLE>
<CAPTION>
Name Age Position
------------------------------------ ---------- ------------------------------------------------------
<S> <C> <C>
Rod A. Shipman 49 President, Secretary, Chief Financial Officer
and Director
Rafe Cohen 52 Treasurer and Director
William C. Lievense 52 Director
</TABLE>
Mr. Shipman has been our President, Chief Executive Officer and Secretary
since January 1997 and has been one of our directors since our inception in May
1996. From August 1994 to September 1999, Mr. Shipman was President and Chief
Executive Officer of R.A. Shipman & Associates, L.L.C., a health care consulting
firm. From January 1993 to July 1994 he served as Senior Vice President and
Chief Operating Officer of MRI Medical Diagnostics, a Colorado corporation that
provided imaging and nuclear medical services and operated a senior retirement
facility. Mr. Shipman also served as a director of that company from May 1993 to
June 1994.
Mr. Cohen has served as our treasurer and as one of our directors since
July 1998. Mr. Cohen previously served as one of our directors in 1996. Mr.
Cohen is a certified public accountant and has owned and managed his own
accounting practice since 1974. Mr. Cohen also currently serves as President of
Galaxy Theaters.
Mr. Lievense has served as one of our directors since October 1996. Mr.
Lievense was the President and Chief Executive Officer of Columbia/Doctors
Hospital of Sarasota, Florida, and its predecessor, Galen Health Care
Corporation from 1993 to his recent retirement in January 2000.
All directors serve for a one-year term and until their successors are duly
elected and qualified. All officers serve at the discretion of the Board of
Directors.
Key Consultants
The CTM Group, Inc., has a consulting contract to provide us with strategic
planning services. Mr. Paul Shabty is the key consultant from the CTM Group,
Inc. who provides these consulting services. Mr. Shabty is one of our founders
and served as our President, Treasurer and Chairman of the Board from April 1996
to January 1997. Mr. Shabty was a member of the Board of Trustees of
Columbia/Doctors Hospital of Sarasota, Florida. He is a former director of TD
Technologies, Inc., a private engineering and software company, and Advanced
Technologies Management Corporation, a medical software and management company.
Mr. Shabty has been involved in the medical and manufacturing industries since
1970. He was the Founder, Chairman of the Board and Chief Executive Officer of
Medical Clinic Unlimited, Inc., which specialized in both the provision of
outpatient dialysis services and the manufacturing of medical devices, equipment
and supplies.
Gene Myers, M.D. has been our Medical and Clinical Affairs Director since
July 1998 for CPCA2000, Inc. and Med Enclosures, LLC since November 1999. Dr.
Myers currently practices as a cardiologist in Sarasota, Florida. Dr. Myers also
developed and patented the device and procedure now known as The Myers Solution
and MedClose. In August 1999, he assigned these patents to Med Enclosures. Dr.
Myers has performed medical internships at the University of Michigan's
Department of Internal Medicine and at the University Health Center of
Pittsburgh. Dr Myers was also an Assistant Resident, Research Cardiology Fellow
and Chief Medical Resident at Duke University Hospital.
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<PAGE>
Executive Compensation.
Cash Compensation of Executive Officers. The following table sets forth the
cash compensation we paid to our Chief Executive Officer for services rendered
during the fiscal years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------- --------------------------------------
Name and Position Year Salary Bonus Other Annual Restricted Common Shares All Other
Compensation Stock Underlying Options Compensation
Awards ($) Granted
(# Shares)
------------------------------ ----- -------- ----- --------------- ------------ ------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rod A. Shipman, President and 1999 $195,000 -0- -0- -0- -0- -0-
Secretary 1998 -0- -0- -0- -0- 2,000,000 -0-
1997 -0- -0- -0- -0- -0- -0-
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Name Shares Acquired Value Realized ($) Number of Securities Value of Unexercised
on Exercise (#) Underlying In-the-Money
Unexercised Options/SARs at FY-
Options/SARs at FY- End ($)(1)
End (#)
Exercisable/
Exercisable/ Unexercisable
Unexercisable
------------------------- -------------------- --------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Rod A. Shipman 110,770 $520,596 1,269,230/1,600,000 $5,686,246/$7,168,120
President and Secretary
</TABLE>
(1) Based on a price of $6.00 per share for the common stock as quoted on the
OTC Bulletin Board on December 31, 1999.
Compensation of Directors. At the present time, directors do not receive
compensation for serving as directors, however we may in the future begin to
compensate our non-officer directors. All directors receive reimbursement for
out-of-pocket expenses in attending Board of Directors meetings. From time to
time we may engage certain members of the Board of Directors to perform services
on our behalf and will compensate such persons for the services which they
perform.
Employment Agreements. On April 23, 1998, we entered into an Employment
Agreement with Rod A. Shipman to serve as our President and Chief Executive
Officer. Pursuant to the terms of that employment agreement, Mr. Shipman
received an annual salary of $120,000. Effective April 1, 1999, we amended the
terms of Mr. Shipman's employment agreement to increase annual compensation to
$220,000 and to permit Mr. Shipman to use his accrued salary to pay the exercise
price on his outstanding options. Pursuant to his employment agreement, Mr.
Shipman received options to purchase 2,000,000 shares of common stock at an
exercise price of $2.50 per share, of which options to purchase 200,000 were
immediately exercisable and options to purchase 200,000 shares vest and first
become exercisable on April 23 on each of the next nine anniversaries of the
date of grant. The options expire on April 22, 2008. The Employment Agreement is
for a term of ten years.
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<PAGE>
Certain Relationships and Related Transactions
In January 1997, we entered into a consulting agreement with the CTM Group,
Inc., a Nevada corporation. The CTM Group is the beneficial owner of greater
than five percent (5%) of our issued and outstanding common stock of the
Company. In addition, the key consultant from the CTM Group, Mr. Paul Shabty, is
one of our former officers and directors. Pursuant to the terms of its
consulting agreement, CTM Group received fees of $5,000 per month in exchange
for consulting services rendered on our behalf. In November 1997, the consulting
fees payable to CTM Group were increased to $8,000 per month.
On April 23, 1998, we amended our agreement with the CTM Group to increase
the consulting fees to $120,000 per year. In addition, the CTM Group received
options to purchase 2,000,000 shares of common stock at an exercise price of
$2.50 per share, of which options to purchase 200,000 shares were immediately
exercisable and options to purchase 200,000 shares vest and first become
exercisable on each of the next nine anniversaries of the date of grant. The
options expire on April 22, 2008. The amended consulting agreement is for a term
of ten years. In April 1999, we amended this consulting agreement again to
increase the consulting fees payable to the CTM Group to $220,000 per year.
Limitation of Liability of Directors and Indemnification of Directors and
Officers
The Nevada Revised Statutes provides that corporations may indemnify its
officers, directors, employees and agents from liability for monetary liability
if he acted in good faith and in a manner which he reasonably believed to be in
the best interests of the corporation. In addition to the foregoing, our bylaws
provide that we may indemnify directors, officers, employees or agents to the
fullest extent permitted by law and we have agreed to provide such
indemnification to each of our directors.
The above provisions in our bylaws may have the effect of reducing the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their fiduciary duty, even though such an action, if successful, might
otherwise have benefited us and our stockholders. However, we believe that the
foregoing provisions are necessary to attract and retain qualified persons as
directors.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the shares of our common stock as of the date of this prospectus by
(i) each person who is known by us to be the beneficial owner of more than five
percent (5%) of the issued and outstanding shares of common stock, (ii) each of
our directors and executive officers and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage Owned*
------------------------ ------------------------
<S> <C> <C>
Rod A. Shipman(1)(2) 1,659,042 27.3%
Rafe Cohen(1) 37,000 (3)
Dr. Richard E. Rubin(4) 456,666 10.4%
William C. Lievense(1) 40,000 (3)
CTM Group, Inc.(5)(6) 2,277,867 36.8%
Leslie J. Kessler(7)(8) 950,000 18.7%
All officers and directors as a group(3 persons)(2) 1,736,042 28.5%
</TABLE>
_______________
(1) Address is 1133 Fourth Street, Suite 200, Sarasota, Florida 34236. Mr.
Shipman is our President, Secretary, and Chief Financial Officer and a
director. Mr. Cohen is our Treasurer and a director. Mr. Lievense is a
director.
(2) Includes options granted to Mr. Shipman to purchase 1,469,230 shares of
common stock. Does not include options to purchase 1,400,000 shares of
common stock, which are subject to annual vesting.
(3) Less than one percent.
(4) Address is 5530 Wisconsin Avenue, Suite 750, Chevy Chase, Maryland 20815.
(5) Address is 1350 East Flamingo, #800, Las Vegas, Nevada 89119.
(6) Includes options granted to the CTM Group to purchase 1,590,866 shares of
common stock. Does not include options to purchase 1,400,000 shares of
common stock, which are subject to vesting.
(7) Address is 11 Hedgerow Lane, Jericho, New York 11753.
(8) Includes an option granted to Ms. Kessler to purchase 490,000 shares of
common stock at $1.125 per share for a ten-year period ending May 2, 2006.
* Based on 4,603,701 shares outstanding plus the number of shares which the
stockholder has the right to purchase pursuant to outstanding options, as
listed in the footnotes to this table.
-19-
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 20,000,000 shares of $.0005 par value common
stock, of which, as of the date of this prospectus, 4,603,701 shares were issued
and outstanding and held by 59 recordholders. As of the date of this prospectus,
7,436,609 shares of common stock have been reserved for issuance upon the
exercise of outstanding options, warrants and preferred stock.
Holders of shares of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election of
directors requires the favorable vote of a majority of the shares voting, except
in the case of certain fundamental matters (such as certain amendments to the
Articles of Incorporation, and certain mergers and reorganizations), in which
cases Nevada law and our bylaws require the favorable vote of at least a
majority of all outstanding shares. Stockholders are entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor, and in the event of our liquidation,
dissolution or winding up to share ratably in all assets remaining after payment
of liabilities. The holders of shares of common stock have no preemptive,
conversion, subscription or cumulative voting rights.
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock of which
8,824 shares designated as Series A Preferred Stock are issued and outstanding
as of the date of this prospectus. Our board of directors is authorized to issue
from time to time, without stockholder authorization, in one or more designated
series or classes, any or all of the authorized but unissued shares of preferred
stock with such dividend, redemption, conversion and exchange provisions as may
be provided in the particular series. Any series of preferred stock may possess
voting, dividend, liquidation and redemption rights superior to that of the
common stock. The rights of the holders of common stock will be subject to and
may be adversely affected by the rights of the holders of any preferred stock
that may be issued in the future. Issuance of a new series of preferred stock,
while providing desirable flexibility in connection with possible acquisition
and other corporate purposes, could make it more difficult for a third party to
acquire, or discourage a third party from acquiring, a majority of our
outstanding voting stock.
Series A Preferred Stock In November 1998, our board of directors
authorized an initial series of preferred stock known as "Series A Preferred
Stock." As of the date of this prospectus, there are 8,824 shares of Series A
Preferred Stock Shares issued and outstanding. The Series A Preferred Stock
initially consisted of 500,000 authorized shares ("Series A Shares"), however in
May 2000, we reduced the number of authorized Series A Shares to 8,824 shares,
which equaled the number of issued and outstanding Series A Shares as of the
same date.
In November 1998, we commenced a private placement of shares of our Series
A Preferred Stock at a price of $8.50 per share. In the private placement, we
sold a total of 79,293 shares of Series A Preferred Stock. Each Series A
Preferred Share is convertible into common stock at a conversion price of $4.70
per share and as of the date of this prospectus, all but 8,824 shares of Series
A Preferred Stock have been converted into shares of common stock. In the event
of liquidation, the holders of Series A Preferred Stock shall be entitled to
receive a liquidation preference payment of $8.50 per share before any
distribution or payments are made to the holders of the common stock. The
holders of shares of Series A Preferred Stock shall be entitled to receive
annual dividends at the rate of five percent (5%) of the liquidation preference
($8.50) per share per year, payable in cash or in shares of Series A Preferred
Stock, at the option of the holder.
Series B Preferred Stock. Our Board of Directors has designated a second
series of Preferred Stock known as "Series B Preferred Stock" consisting of
500,000 authorized shares, 71,429 of which are outstanding as of the date of
this prospectus. The Series B Preferred Stock has no voting rights. Each Series
B Preferred Share is convertible into common stock at a conversion price of
$8.75 per share, however, on June 30, 2001, the conversion price shall be
adjusted to the lower of (i) seventy-five percent (75%) of the average last ask
price of the common stock for the thirty (30) trading days immediately preceding
such date as reported on any stock exchange or (ii) $6.56 per share.
-20-
<PAGE>
In the event of liquidation, the holders of Series B Preferred Stock shall
be entitled to receive a liquidation preference payment of $8.75 per share
before any distribution or payments are made to the holders of the common stock.
The holders of shares of Series B Preferred Stock shall be entitled to receive
annual dividends at the rate of five percent (5%) of the liquidation preference
($8.75) per share per year, payable in cash or in shares of Series B Preferred
Stock, at the option of the holder. In addition, the Series B Preferred Shares
shall participate with the common stock in any dividends or distributions pari
passu.
Stock Option Plan
We have adopted a 1996 Stock Option Plan ("Plan"), which permits us to
grant options to employees, officers, directors, consultants and independent
contractors. An aggregate of 6,000,000 shares of common stock may be issued
pursuant to the Plan. As of the date of this prospectus, options to purchase a
total of 4,697,000 shares of common stock have been granted under the Plan.
Dividends
We do not anticipate the payment of cash dividends on our common stock in
the foreseeable future.
Transfer Agent
Our transfer agent for our common stock is American Securities Transfer &
Trust, Inc., 12039 W. Alameda Parkway, Suite Z-2, Lakewood, Colorado 80228.
LEGAL MATTERS
Certain legal matters with respect to the shares of common stock offered
hereby will be passed upon for us by Oppenheimer Wolff & Donnelly LLP, Newport
Beach, California.
EXPERTS
Cacciamatta Accountancy Corporation, independent auditors, have audited, as
set forth in their report appearing elsewhere in this prospectus, our financial
statements as of December 31, 1999 and 1998. We have included our financial
statements in the prospectus in reliance on Cacciamatta Accountancy Corp.'s
report, given on their authority as experts in accounting and auditing.
-21-
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and, in accordance therewith, file reports, proxy statements and
other information with the SEC. Our reports, proxy statements and other
information filed pursuant to the Securities Exchange Act of 1934 may be
inspected and copied at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the SEC maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The address of the SEC's web site is
http://www.sec.gov.
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the common stock offered hereby. As
permitted by the rules and regulations of the SEC, this prospectus, which is
part of the registration statement, omits certain information, exhibits,
schedules and undertakings set forth in the registration statement. Copies of
the registration statement and the exhibits are on file with the SEC and may be
obtained from the SEC's web site or upon payment of the fee prescribed by the
SEC, or may be examined, without charge, at the offices of the SEC set forth
above. For further information, reference is made to the registration statement
and its exhibits.
-22-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CPC OF AMERICA, INC.
(A Development Stage Company)
<TABLE>
<CAPTION>
Audited Financial Statements:
<S> <C>
Report of Independent Certified Public Accountants....................................................... F-1
Consolidated Balance Sheet at December 31, 1999.......................................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998
and cumulative from inception (April 11, 1996) to December 31, 1999.................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
from inception (April 11, 1996) to December 31, 1999................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998
and cumulative from inception (April 11, 1996) to December 31, 1999.................................... F-5
Notes to Consolidated Financial Statements............................................................... F-6
Unaudited Financial Statements
Unaudited Condensed Consolidated Balance Sheet at March 31, 2000........................................ F-14
Unaudited Condensed Consolidated Statements of Operations for the
three month period ended March 31, 2000 and 1999
and for the period from inception (April 11, 1996) to March 31, 2000.................................. F-15
Unaudited Condensed Consolidated Statements of Cash Flows for the
three month period ended March 31, 2000 and 1999
and for the period from inception (April 11, 1996) to March 31, 2000.................................. F-16
Notes to Condensed Consolidated Financial Statements.................................................... F-17
</TABLE>
-23-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
CPC of America, Inc.
We have audited the accompanying consolidated balance sheet of CPC of America,
Inc. and subsidiaries (a development stage company) (the "Company") as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 1999 and for the period from inception (April 11,
1996) to December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes, on a test basis, examination of evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CPC of
America, Inc. and subsidiaries as of December 31, 1999, and the results of their
consolidated operations and cash flows for each of the two years in the period
ended December 31, 1999 and for the period from inception (April 11, 1996) to
December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to the
consolidated financial statements, the Company has incurred losses since its
inception and remains in the development stage. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters are also described in Note 6. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
March 22, 2000
F-1
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 104,962
Prepaid and other 186,145
------------
Total current assets 291,107
Equipment, net of accumulated depreciation of $7,265 8,155
Trademark, net of accumulated amortization of $1,246 4,985
------------
$ 304,247
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 67,823
Accrued legal settlement 250,000
------------
Total current liabilities 317,823
------------
Commitments and contingencies -
Shareholders' deficit:
Preferred stock, 5,000,000 shares authorized, $.001 par value,
Series A - 79,293 shares issued and outstanding 79
Common stock, 20,000,000 shares authorized, $.0005 par value,
4,129,533 shares issued and outstanding 2,065
Additional paid-in capital - preferred 898,407
Additional paid-in capital - common 1,822,900
Deficit accumulated during the development stage (2,737,027)
------------
Total shareholders' deficit (13,576)
------------
$ 304,247
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Cumulative
from inception
(April 11, 1996)
Year ended December 31, to December 31,
--------------------------------------------- -----------------
1999 1998 1999
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 886,127 $ 531,807 $ 1,867,187
General and administrative 444,547 116,256 620,803
Depreciation and amortization 3,707 4,947 22,151
------------------- ------------------- ----------------
Operating loss (1,334,381) (653,010) (2,510,141)
------------------- ------------------- ----------------
Other income (expense):
Interest expense - - (7,000)
Interest income 5,053 11,790 29,205
------------------- ------------------- ----------------
5,053 11,790 22,205
------------------- ------------------- ----------------
Loss before minority interest (1,329,328) (641,220) (2,512,936)
Minority interest - 640 1,120
------------------- ------------------- ----------------
Net loss $ (1,329,328) $ (640,580) $ (2,511,816)
=================== =================== ================
Basic and diluted net loss per share $ (0.38) $ (0.16)
=================== ===================
Basic and diluted weighted average number
of common shares outstanding 4,104,371 4,285,471
=================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
From inception (April 11, 1996) to December 31, 1999
<TABLE>
<CAPTION>
Series A Preferred Stock Common Stock Note Additional
--------------------------- ---------------------------------
Amount Amount Receivable Paid-in
-------------- ----------------------
Number Per Number Per from Capital-
of Shares Share Total of Shares Share Total Shareholder Common
--------- ----- ----- --------- ------------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization -- $ -- $ -- 2,400,000 $ 0.005 $ 1,200 $ -- $ --
Issuance of common stock for a note -- -- -- 300,000 0.005 150 (150) --
Issuance of common stock for cash -- -- -- 100,000 0.05 50 -- 4,950
Issuance of common stock for services -- -- -- 764,000 0.05 382 -- 37,818
Net loss for 1996 -- -- -- -- -- -- -- --
--------- ----- ----- --------- ------------- ------- ----------- ----------
Balance, December 31, 1996 -- -- 3,564,000 1,782 (150) 42,768
Exercise of options -- -- -- 26,666 1.125 13 -- 29,987
Issuance of common stock for cash and
conversion of note payable ($77,000) -- -- -- 640,000 1.45 320 -- 927,680
Payment of note receivable
from shareholder -- -- -- -- -- -- 150 --
Net loss for 1997 -- -- -- -- -- -- -- --
--------- ----- ----- --------- ------------- ------- ----------- ----------
Balance, December 31, 1997 -- -- 4,230,666 -- 2,115 -- 1,000,435
Exercise of options -- -- -- 57,000 1.125 - 2.50 29 -- 114,971
Issuance of common stock for cash -- -- -- 40,000 1.45 20 -- 57,980
Issuance of preferred stock for cash 8,824 8.50 9 -- -- -- -- --
Valuation of beneficial conversion
feature on Series A Preferred -- -- -- -- -- -- -- --
Contribution of officer's salary -- -- -- -- -- -- -- 80,000
Net loss for 1998 -- -- -- -- -- -- -- --
--------- ----- --------- ------- ----------- ----------
Balance, December 31, 1998 8,824 9 4,327,666 2,164 -- 1,253,386
Exercise of warrants -- -- -- 209,490 1.75 105 -- 366,503
Exercise of options -- -- -- 146,903 1.21 73 -- 177,289
Issuance of preferred stock for cash 70,469 8.50 70 -- -- -- -- --
Preferred stock dividend -- -- 5,474 4.70 3 -- 25,722
Valuation of beneficial conversion
feature on Series A Preferred -- -- -- -- -- -- --
Repurchase of common shares -- -- (560,000) 0.0005 (280) -- --
Net loss for 1999 -- -- -- -- --
--------- ----- --------- ------- ----------- ----------
Balance, December 31, 1999 79,293 $ 79 4,129,533 $ 2,065 $ -- $1,822,900
========= ===== ========= ======= =========== ==========
<CAPTION>
Deficit
Additional Accumulated
Paid-in During the Net
Capital- Development Shareholders'
Preferred Stage Equity(Deficit)
--------- ----------- ---------------
<S> <C> <C> <C>
Initial capitalization $ -- $ -- $ 1,200
Issuance of common stock for a note -- -- --
Issuance of common stock for cash -- -- 5,000
Issuance of common stock for services -- -- 38,200
Net loss for 1996 -- (59,079) (59,079)
--------- ----------- --------------
Balance, December 31, 1996 -- (59,079) (14,679)
Exercise of options -- -- 30,000
Issuance of common stock for cash and
conversion of note payable ($77,000) -- -- 928,000
Payment of note receivable
from shareholder -- -- 150
Net loss for 1997 -- (457,829) (457,829)
--------- ----------- --------------
Balance, December 31, 1997 -- (516,908) 485,642
Exercise of options -- -- 115,000
Issuance of common stock for cash -- -- 58,000
Issuance of preferred stock for cash 74,991 -- 75,000
Valuation of beneficial conversion
feature on Series A Preferred 25,000 (25,000) --
Contribution of officer's salary -- -- 80,000
Net loss for 1998 -- (640,580) (640,580)
--------- ----------- --------------
Balance, December 31, 1998 99,991 (1,182,488) 173,062
Exercise of warrants -- -- 366,608
Exercise of options -- -- 177,362
Issuance of preferred stock for cash 598,930 -- 599,000
Preferred stock dividend -- (25,725) --
Valuation of beneficial conversion
feature on Series A Preferred 199,486 (199,486) --
Repurchase of common shares -- -- (280)
Net loss for 1999 -- (1,329,328) (1,329,328)
--------- ----------- --------------
Balance, December 31, 1999 $ 898,407 $(2,737,027) $ (13,576)
========= =========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
from inception
Year ended December 31, (April 11, 1996)
--------------------------------------- to December 31,
1999 1998 1999
------------------- ------------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,329,328) $ (640,580) $ (2,486,816)
Adjustments to reconcile net loss to net cash
used by operating activities:
Minority interest - (640) (1,120)
Depreciation and amortization 3,707 4,947 22,151
Contribution of officer's salary - 80,000 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 (39,050) (62,000) (132,376)
Increase in accounts payable 27,079 28,072 68,303
(Decrease)/ increase in accrued expenses 250,000 (10,000) 266,000
Increase in accrued interest - - 7,000
------------------- ------------------ ---------------------
Net cash used by operating activities (1,087,592) (600,201) (2,098,659)
------------------- ------------------ ---------------------
Cash flows from investing activities:
Tercero acquisition/sale - - (49,999)
DSDS acquisition - (18,000) (79,000)
Capital expenditures - - (15,420)
------------------- ------------------ ---------------------
Net cash used by investing activities - (18,000) (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 and warrants 543,970 115,000 688,970
Issuance of preferred stock 599,000 75,000 674,000
Issuance of common stock - 58,000 915,200
Repurchase of common stock (280) - (280)
------------------- ------------------ ---------------------
Net cash provided by financing activities 1,142,690 248,000 2,348,040
------------------- ------------------ ---------------------
Net increase (decrease) in cash 55,098 (370,201) 104,962
Cash, beginning of period 49,864 420,065 -
------------------- ------------------ ---------------------
Cash, end of period $ 104,962 $ 49,864 $ 104,962
=================== ================== =====================
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 $ - $ 250,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
December 31, 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.
On July 25, 1997, the Company acquired 80% of DSDS Group, Inc. ("DSDS"). The
sole owner of DSDS, John P. Colonna, served as a technical and engineering
consultant to the Company. DSDS had no operating history and its only assets
consisted of two patents relating to a self-destructing single-use syringe.
The patents had approximately 16 years remaining before expiration, and were
deemed to have a fair value of $76,250. The Company purchased its interest in
DSDS for a total price of $61,000, of which $25,000 was paid in cash at the
closing, and $36,000 was to be paid by the Company in 18 equal monthly
installments. The transaction was accounted for as a purchase of DSDS by the
Company and, accordingly, the accompanying financial statements include the
amounts and operations of the Company from its inception and of DSDS from
July 25, 1997. In September 1998, the Company purchased the remaining 20%
interest of DSDS for $18,000 cash. The pro forma summary combining the
results of operations of the Company and DSDS as if the acquisition had
occurred at the inception of CPC (April 11, 1996) would be the same as the
accompanying financial statements since DSDS had no operations. On December
1, 1998, the Company sold DSDS for its book value of $60,000 to a consulting
firm that has been providing research and development activities to the
Company since early 1998. In consideration for the acquisition of DSDS, this
R & D consulting firm provided $60,000 worth of consulting services to the
Company through May 1999.
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.
On February 1, 1999, the Company filed a lawsuit against Partner Provider
Health, Inc. (PPH) alleging breach of contract, misrepresentation and fraud
relating to its joint venture with HeartMed LLC. Under terms of a November
1999 settlement, CPC dropped its lawsuit and received the remaining interest
in HeartMed LLC making it a wholly owned subsidiary of CPC. HeartMed LLC had
no operations or assets during 1999.
On November 22, 1999, CPC formed Med Enclosures, LLC, a Nevada Limited
Liability Corporation, (MED) with Gene Myers Enterprises, Inc., (GME) a
minority stockholder of CPC. CPC received a 73.3% interest in MED for a
$250,000 note payable due November 5, 2000. GME contributed two patents,
developed by GME, to MED, that are recorded at GME's carrying value of zero.
Med Enclosures had no operations from November 22, 1999 through December 31,
1999. If CPC fails to raise $4,000,000 for MED by November 2000 to fund the
FDA approval process for "The Myers Solution" procedure, its interest in Med
Enclosures converts to GME.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the amounts of the
Company and its subsidiaries, DSDS, from July 1997 through November 1998,
CPCA, from June 1998, and MED and HeartMed LLC from November 1999. All
significant intercompany transactions and balances have been eliminated in
consolidation.
F-6
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
1. Organization and summary of significant accounting policies (continued)
---------------------------------------------------------------------------
Cash and equivalents
--------------------
The Company considers all liquid investments with a maturity of three months
or less from the date of purchase that are readily convertible into cash to
be cash equivalents. Balances in bank accounts may, from time to time, exceed
federally insured limits.
Trademarks
----------
The trademark is stated at cost and is amortized using the straight-line
method over its economic useful life, which is estimated at ten years.
Equipment
---------
Depreciation expense is provided over the estimated useful life of 5 years
using the straight-line method.
Use of estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Intangibles and long-lived assets
---------------------------------
Long-lived assets are reviewed annually for impairment whenever events or
changes in circumstances indicate that carrying amount of an asset may not be
recoverable. Impairment is necessary when the undiscounted cash flows
estimated to be generated by the asset are less than the carrying amount of
the asset.
Income taxes
------------
The Company reports certain expenses differently for financial and tax
reporting purposes and, accordingly, provides for the related deferred taxes.
Income taxes are accounted for under the liability method in accordance with
SFAS 109.
Research and development costs
------------------------------
Costs and expenses that can be clearly identified as research and development
are charged to expense as incurred in accordance with FASB Statement No. 2,
"Accounting for Research and Development Costs".
Basic and diluted net loss per share
------------------------------------
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards 128, Earnings Per Share ("SFAS 128"), which superseded
Accounting Principles Board Opinion 15 ("APB 15"). Net loss per share for all
periods presented has been restated to reflect the adoption of SFAS 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption
that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average
market price during the period.
F-7
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
Stock-based compensation
------------------------
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for
stock-based compensation. However, SFAS No. 123 allows an entity to continue
to measure compensation cost related to stock and stock options issued to
employees using the intrinsic method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB25"), "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting method of APB 25
must make pro forma disclosure of net income and earnings per share, as if
the fair value method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation to
employees under APB 25.
2. Stockholders' equity (deficit)
---------------------------------
Series A Preferred stock
------------------------
In November 1998, the Company offered in a private placement memorandum
Series A preferred stock at $8.50 per share. As of November 15, 1999, the
Company sold 79,293 shares for net proceeds of $674,000. The Series A
Preferred stock has no voting rights and has a 5% annual dividend which may
be payable in cash or common stock. Each Series A share was convertible into
one common share until December 31, 1999, when the conversion price was
adjusted to the lower of $6.38 or 75% of the average last sale price of the
common stock for the 30 trading days immediately preceding such date as
reported on any stock exchange, according to the terms of the original
agreement. At December 31, 1999 the conversion price was calculated at $4.70
per share. On December 31, 1999, the dividend of $25,725 was paid by issuing
5,474 shares of the Company's common stock. No shares were converted in 1999.
Common stock
------------
In the second quarter of 1999, the Company reached an agreement with one of
its stockholders to repurchase 560,000 shares at par. These shares were
originally issued for services and the Company claimed that the services had
not been provided. In addition, options to purchase 490,000 common shares
held by the stockholder were canceled.
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 these financial statements has
been adjusted to reflect the two-for-one stock split.
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 December 31,
1998, the Company had sold 34 units, including 3 units in conversion of a
note 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. During
1999, warrants to purchase 209,490 common shares were exercised and warrants
to purchase 1,150,510 common shares were outstanding at December 31, 1999.
In December 1996, the Company issued 4,000 shares of common stock to its
attorney for payment of $200 in legal fees.
In October 1996, the Company issued 760,000 shares of common stock to related
parties in payment of $38,000 in consulting fees rendered in 1996.
F-8
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
2. Stockholders' equity (deficit) (continued)
-----------------------------------------------
Common stock (continued)
------------------------
In May 1996, the Company sold to its founders 2,400,000 shares of common
stock for $.0005 cash per share and 300,000 shares for a $150 note
receivable. In September 1996, the Company sold 100,000 shares of common
stock for $.05 cash per share to one of its founders.
Stock options
-------------
The Company has granted options to purchase its common stock. 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:
<TABLE>
<CAPTION>
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) $ 1.18
------------------ ------------------
Outstanding at December 31, 1997 4,193,334 $1.125 - 1.25 2006
------------------ ------------------
Granted 4,152,000 $ 1.25 - 9.00 2008
Exercised (57,000) $1.125 - 2.50
Canceled (1,173,334) $ 1.125
------------------ ------------------
Outstanding at December 31, 1998 7,115,000 $1.125 - 9.00 2003 - 2008
Granted 25,000 $ 5.50 2004
Exercised (146,903) $1.125 - 2.50
Canceled (490,000) $ 1.125
------------------ ------------------
Outstanding at December 31, 1999 6,503,097 $1.125 - 9.00 2003 - 2008
================== ================== ===============
Exercisable at December 31, 1999 3,255,097 $1.125 - 9.00 2003 - 2008
================== ================== ===============
</TABLE>
F-9
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
2. Stockholders' equity (deficit) (continued)
-----------------------------------------------
Stock options (continued)
-------------------------
The following information applies to all options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average average average
Exercise Options remaining exercise Number exercise
Price Outstanding life (years) price exercisable price
--------------- -------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.125 2,370,097 6 $ 1.125 2,370,097 $ 1.125
$ 2.50 4,093,000 8 $ 2.50 845,000 $ 2.50
$ 4.63 - 5.50 30,000 4 $ 5.35 30,000 $ 5.35
$ 9.00 10,000 4 $ 9.00 10,000 $ 9.00
</TABLE>
Included in total options granted in 1998 and 1996 are 4,080,000 and
4,200,000, respectively, options granted to employees. Statement of Financial
Accounting Standards 123, "Accounting for Stock-Based Compensation",
encourages but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees", and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock.
The following information applies to employee options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average average average
Exercise Options remaining exercise Number exercise
Price Outstanding life (years) price exercisable price
------------ -------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.125 2,370,097 6 $ 1.125 2,370,097 $ 1.125
$ 2.50 4,078,000 8 $ 2.50 830,000 $ 2.500
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1998 and 1996, respectively: risk-free interest rate of 6%
and 9%; volatility of 50% and 200%; and a weighted fair value of $1.26 and
$.001. The fair value of the options issued to non-employees during 1999 and
1998 was determined to be minimal.
F-10
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
2. Stockholders' equity (deficit) (continued)
-----------------------------------------------
Stock options (continued)
-------------------------
Had compensation cost been determined based on the fair value of the options
at the grant dates consistent with the method of SFAS 123, the Company's net
loss and loss per share would have been:
<TABLE>
<CAPTION>
1999 1998
----------------- -------------------
<S> <C> <C>
Net loss
As reported $ (1,329,328) $ (640,580)
Pro forma $ (2,397,391) $ (2,399,129)
Basic and fully diluted loss per share
As reported $ (0.38) $ (0.16)
Pro forma $ (0.64) $ (0.57)
</TABLE>
3. Basic and diluted net loss per share
---------------------------------------
The following table illustrates the required disclosure of the reconciliation
of the numerators and denominators of the basic and diluted earnings per
share computations.
<TABLE>
<CAPTION>
1999 1998
------------------ ----------------
<S> <C> <C>
Basic and diluted loss per share:
---------------------------------
Numerator
---------
Net loss $ (1,329,328) $ (640,580)
Preferred dividend (25,725) -
Beneficial conversion feature preferred stock (199,486) (25,000)
------------------ ----------------
$ (1,554,539) $ (665,580)
Denominator
-----------
Basic and diluted weighted average number of
common shares outstanding during the period 4,104,371 4,285,471
Basic and diluted loss per share $ (0.38) $ (0.16)
Incremental common shares (not included in
denominator of diluted earnings per share
calculation due to their antidilutive nature)
attributable to exercise of:
Outstanding options 6,503,097 7,115,000
Outstanding warrants 1,150,510 1,360,000
Preferred stock 143,404 -
------------------ ----------------
7,797,011 8,475,000
================== ================
</TABLE>
F-11
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
4. Income taxes
------------------
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting and tax bases of its assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when
deemed appropriate. For 1999 and 1998 there is no difference between income
tax expense and the amount computed by applying the federal statuatory income
tax rate.
At December 31, 1999, the Company has a net operating loss carryforward for
federal tax purposes of $2,667,000 which, if unused to offset future taxable
income, will expire in 2012 through 2014.
The Company had deferred tax assets of $930,000 and $405,000 at December 31,
1999 and 1998, respectively, relating to its net operating loss. A valuation
allowance has been recognized to offset all of the related deferred tax asset
due to the uncertainty of realizing the benefit.
5. Commitments and contingencies
--------------------------------
Lease
-----
The Company leases office space on a month-to-month basis at $95 per month.
Actual rent expense was $1,649 in 1999 and $1,860 in 1998.
Consulting agreements
---------------------
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. Options to purchase 2,000,000 shares of common stock at an
exercise price of $2.50 per share were also granted under the April 1998
revision agreement. The options vest and become exercisable in ten equal
installments of 200,000 shares each year starting on the grant date and are
exercisable for ten years. As of December 31, 1999, the Company prepaid a
company controlled by this related party $177,000 for research and
development costs to be provided in the year 2000.
In April 1998, the Company entered into an employment agreement with its
President and CEO for ten years. The agreement provides for a base salary of
$10,000 per month beginning May 1998, to be paid when the Company begins
recording revenues. In December 1998, the Company's president elected to
contribute his accrued salary of $80,000 to the Company. Options to purchase
2,000,000 shares of common stock at an exercise price of $2.50 per share were
granted under the agreement. The options vest and become exercisable in ten
equal installments of 200,000 shares each year starting on the grant date and
are exercisable for ten years. The employment agreement was revised in April
1999 to $18,333 per month.
Litigation
----------
In settlement of its lawsuit with CarePoint Networks, Inc., in February 2000
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. The total
settlement amount of $250,000 is included in the consolidated statement of
operations under general and administrative expenses.
F-12
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
Other
-----
As part of the formation of MED, CPC agreed it would raise $4,000,000 for MED
by November 2000 to fund the FDA approval process of "The Myers Solution"
procedure. If CPC fails to raise the necessary funds, GME has the right to
purchase the Company's 73.3% interest in MED for $1.00.
6. Going concern
----------------
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has
reported losses from its inception, is still in the development stage and
does not have sufficient cash to cover its current operating needs.
Management anticipates that it will need to raise an additional $2,000,000 in
order to fund its operations over the next 12 months. In addition, CPC needs
to raise $4,000,000 as described in Notes 1 and 5 in order to maintain its
interest in Med Enclosures, LLC.
CPC intends to offer up to 228,571 shares of its Series B Preferred Stock,
$.001 par value per share ("Series B") in a private placement. The offering
price will be $8.75 per share for a gross offering amount of $2,000,000. The
Series B will be convertible into one share of common stock until June 30,
2001, when the conversion price will be adjusted to the lower of 75% of the
average ask price of the common stock for the 30 trading days immediately
preceding such date as reported on any stock exchange or $6.56 per share.
Holders are entitled to an annual dividend of 5%, payable in either cash or
shares of common stock.
In addition to the private placement, the Company expects to obtain working
capital from the sale of equity securities as well as the exercise of common
stock options and warrants. The Company expects 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. There can be no assurance, however,
that the Company will be able to obtain sufficient additional capital, either
through the private placement of Series B, from other outside investors, the
exercise of options and warrants, or otherwise, in order to fund the
Company's working capital requirements in a timely manner.
F-13
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31,
2000
-------------------
<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
-------------------
TOTAL ASSETS $ 526,401
===================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,286
-------------------
Total current liabilities 68,286
Stockholders' 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 stockholders' equity 458,127
-------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 526,401
===================
</TABLE>
F-14
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from inception
(April 11, 1996)
Three Months Ended March 31 to March 31,
---------------------------------------
2000 1999 2000
----------------------------------------------------------
<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
----------------------------------------------------------
Operating loss (226,531) (243,477) (2,736,672)
Other income (expense):
Interest expense (7,000)
Interest income 827 1,577 30,032
----------------------------------------------------------
827 1,577 23,032
Loss before minority interest (225,704) (241,900) (2,713,640)
Minority interest 1,120
----------------------------------------------------------
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
=====================================
</TABLE>
F-15
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from inception
(April 11, 1996)
Three Months Ended March to March 31,
---------------------------------------
31,
---
2000 1999 2000
---------------------------------------------------------
<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
---------------------------------------------------------
Net cash used by operating activities (147,485) (256,284) (2,246,144)
---------------------------------------------------------
Cash flows from investing activities:
Tercero acquisition (49,999)
DSDS acquisition (79,000)
Capital expenditures (15,420)
---------------------------------------------------------
Net cash used by investing activities (144,419)
---------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes to stockholders 73,000
Proceeds from note receivable from stockholder 150
Payments on note payable to stockholder (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
---------------------------------------------------------
Net cash provided by financing activities 497,444 356,765 2,845,484
---------------------------------------------------------
Net increase in cash 349,959 100,481 454,921
Cash, beginning of period 104,962 49,864
---------------------------------------------------------
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
</TABLE>
F-16
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 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. Stockholders' equity
-----------------------
(A) 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.
(B) 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.
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.
F-17
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Shareholders' equity (continued)
-----------------------------------
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.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Nevada Statutes
---------------
Section 78.751 of the Nevada General Corporation Law provides for the
indemnification of our officers, directors and corporate agents under certain
circumstances as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, has no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually paid and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
II-1
<PAGE>
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent legal counsel in
a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
or articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Bylaws
------
The Company's Bylaws provide for the permissive indemnification of the
Company's officers and directors under certain circumstances as follows:
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The
-------------------------------------
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY THE CORPORATION. The corporation may
--------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees, actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner which
he
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<PAGE>
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director,
------------------
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2, or in defense of any claim, issue or matter therein, he must
be indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1
-----------------
and 2, unless ordered by a court or advanced pursuant to Section 5, must be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the
-------------------
bylaws or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this section
do not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. OTHER RIGHTS. The indemnification and advancement of
------------
expenses authorized in or ordered by a court pursuant to this Article VI:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section 2 or for the
advancement of expenses made pursuant to Section 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 7. INSURANCE. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture,
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<PAGE>
trust or other enterprise for any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liability
under the provisions of this Article VI.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
----------------------
authorized representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
Section 9. SEVERABILITY. If any of the provisions of this Article
------------
are held to be invalid or unenforceable, this Article shall be construed as if
it did not contain such invalid or unenforceable provision and the remaining
provisions of this Article shall remain in full force and effect.
Section 10. RETROACTIVE EFFECT. To the extent permitted by
------------------
applicable law, the rights and powers granted pursuant to this Article VI shall
apply to acts and actions occurring or in progress prior to its adoption by the
board of directors.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses incurred in
connection with the sale and distribution of the securities being registered.
All of the amounts shown are estimates except the Securities and Exchange
Commission registration fee.
<TABLE>
<S> <C>
Security and Exchange Commission registration fee........... $ 333.75
Printing and engraving expenses............................. $1,500.00
Legal fees and expenses..................................... $5,000.00
Accounting fees and expenses................................ $2,000.00
Miscellaneous expenses...................................... $1,000.00
--------
Total............................................. $9,833.75
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
During the last three years the Company sold unregistered shares of
its common stock in the following transactions:
A. From March 1997 to February 1998, the Company conducted a private
placement of units of its securities ("Units"), each Unit consisting of 20,000
shares of common stock and warrants to purchase up to 40,000 shares of common
stock at an exercise price of $1.75 per share from February 10, 1999 to December
31, 2000. The Units were offered at a price of $29,000 per Unit. In the private
placement, the Company sold thirty-four (34) Units to twenty-seven (27)
investors. The gross proceeds of the private placement were $986,000, including
the conversion of $70,000 of indebtedness. There was no underwriter involved in
this placement. The issuance was conducted pursuant to Rule 504 under the 1933
Act.
B. In April 1997, the Company issued 13,333 shares of common stock
to one individual upon the exercise of options. The exercise price paid to the
Company was $2.25 per share. There was no underwriter involved in this issuance.
The issuance was conducted pursuant to Section 4(2) of the 1933 Act.
C. In April 1998, the Company issued to its president and to its 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.
D. In April 1998, the Company issued to five 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
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<PAGE>
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.
E. In October 1998, the Company issued an aggregate of 15,000 shares of
common stock upon the exercise of stock options to one of its officers and to a
consultant. The exercise price paid to the Company ranged from $1.125 to $2.50
per share. There was no underwriter involved in this issuance. The issuance was
conducted pursuant to Section 4(2) of the 1933 Act.
F. In September 1998, the Company issued to two consultants options to
purchase an aggregate of 10,000 shares of common stock at an exercise price of
$9.00 per share. All of the options are immediately exercisable and expire on
September 30, 2003. There was no underwriter involved in these issuances. The
issuances were conducted pursuant to Section 4(2) of the 1933 Act.
G. In November 1998, the Company issued an aggregate of 42,000 shares of
common stock upon the exercise of stock options to three consultants of the
Company. The exercise price paid to the Company ranged from $1.125 to $2.50 per
share. There was no underwriter involved in this issuance. The issuance was
conducted pursuant to Section 4(2) of the 1933 Act.
H. In December 1998, the Company issued to a consultant options to
purchase up to 5,000 shares of common stock at an exercise price of $4.625 per
share. All of the options are immediately exercisable and expire on December 31,
2003. There was no underwriter involved in these issuances. The issuances were
conducted pursuant to Section 4(2) of the 1933 Act.
I. From November 1998 to November 1999, the Company conducted a private
placement of shares of its Series A Preferred Stock at a price of $8.50 per
share. In the private placement, the Company sold 79,293 shares of Series A
Preferred Stock for the aggregate proceeds of $674,000. The private placement
was conducted pursuant to Rule 506 under the 1933 Act. There is no underwriter
involved in the private placement.
J. Between February 1999 and December 1999, the Company issued an
aggregate of 209,490 shares of common stock upon the exercise of outstanding
warrants with an exercise price of $1.75 per share. The issuances were conducted
pursuant to Rule 506 under the 1933 Act. There were no underwriters involved
with these issuances.
K. 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 27. Exhibits
3.1 Articles of Incorporation of the Company.(1)
3.2 Bylaws of the Company.(1)
4.1 Specimen of Common Stock Certificate.(1)
4.2 Certificate of Designations of the Company.(4)
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP regarding legality of the
securities being issued.*
10.1 Consulting Agreement between the Company and CTM Group, Inc.(1)
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<PAGE>
10.2 Stock Purchase Agreement between the Company and DSDS Group, Inc.
dated July 25, 1997.(1)
10.3 Employment Agreement dated April 23, 1998 between the Company and Rod
A. Shipman.(2)
10.4 Operating Agreement dated August 21, 1998 between the Company and
Partner Provider Health, Inc.(2)
10.5 Consulting Agreement dated April 23, 1998 between the Company and CTM
Consulting Group, Inc.(2)
10.6 Agreement dated November 17, 1998 between the Company and Automated
Specialties Enterprises, Inc.(3)
10.7 Agreement dated November 17, 1998.(3)
10.8 Amendment to Employment Agreement dated April 1, 1999 between the
Company and Rod A. Shipman(4)
10.9 Amendment to Consulting Agreement dated April 1, 1999 between the
Company and CTM Group, Inc.(4)
10.10 Letter Agreement between the Company and Leslie J. Kessler dated May
18, 1999.(5)
10.11 Operating Agreement for Med Enclosures LLC(6)
21.1 List of Subsidiaries.
23.1 Consent of Cacciamatta Accountancy Corporation, independent auditors.
27.1 Financial Data Schedule
_______________
* To be filed by amendment.
(1) Previously filed as part of the Company's registration statement on Form
10-SB (SEC File No. 0-24053) filed with the Securities and Exchange
Commission on April 20, 1998.
(2) Previously filed as part of the Company's registration statement on Form
10-SB/A (SEC File No. 0-24053) filed with the Securities and Exchange
Commission on August 14, 1998.
(3) Previously filed as part of the Company's annual report on Form 10-KSB (SEC
File No. 0-24053) for the year ended December 31, 1998 filed with the
Securities and Exchange Commission on March 31, 1999.
(4) Previously filed as part of the Company's quarterly report on Form 10-QSB
(SEC File No. 0-24053) for the quarter ended March 31, 1999 filed with the
Securities and Exchange Commission on May 17, 1999.
(5) Previously filed as part of the Company's quarterly report on Form 10-QSB
(SEC File No. 0-24053) for the quarter ended June 30, 1999 filed with the
Securities and Exchange Commission on August 9, 1999.
(6) Previously filed as part of the Company's annual report on Form 10-KSB (SEC
File No. 0-24053) for the year ended December 31, 1999 filed with the
Securities and Exchange Commission on April 14, 2000.
Item 28. Undertakings.
(a) The undersigned Company hereby undertakes:
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<PAGE>
(1) To file, during any period which offers or sales are being made,
a post-effective amendment to this registration statements:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts of events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for the liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described herein, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange such indemnification is against public policy as expressed in the
opinion of the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by director, officers or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for the filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sarasota, State of Florida, on July 18, 2000.
CPC OF AMERICA, INC.
Date: July 18, 2000 By: /s/ ROD A. SHIPMAN
----------------------
Rod A. Shipman, President and Chief
Executive Officer
In accordance with the Securities Act of 1933, as amended, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ROD A. SHIPMAN President, Chief Financial Officer, July 18, 2000
--------------------------- Secretary and Principal Accounting
ROD A. SHIPMAN Officer and Director
/s/ RAFE COHEN Treasurer and Director July 18, 2000
---------------------------
RAFE COHEN
/s/ WILLIAM LIEVENSE Director July 18, 2000
---------------------------
WILLIAM LIEVENSE
</TABLE>
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