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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
Commission File Number 0-11727
COOPER DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 94-2876745
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
16160 CAPUTO DRIVE
MORGAN HILL, CA 95037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code: (408) 779-8088
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
COMMON STOCK, $.10 PAR VALUE 3,629,376
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
INDEX
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PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Statements of Operations- 2
Three and nine months ended September 30, 1995
and October 31, 1994
Consolidated Condensed Balance Sheets- 3
September 30, 1995 and December 31, 1994
Consolidated Condensed Statements of Cash Flows- 4
Nine months ended September 30, 1995 and October 31, 1994
Notes to Consolidated Condensed Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 6
CONDITION AND RESULTS OF OPERATIONS
PART II.
ITEM 5. Other Information 8
SIGNATURE
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1
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, October 31, September 30, October 31,
-------------------------- --------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,572 $ 5,780 $15,429 $15,888
Cost of sales 2,833 2,922 8,080 7,894
------- ------- ------- -------
Gross profit 1,739 2,858 7,349 7,994
------- ------- ------- -------
Research and development expenses 138 152 508 586
Selling expenses 2,772 2,879 8,308 7,905
General and administrative expenses 2,055 2,088 5,714 5,788
Restructuring charges ---- ---- 1,395 ----
Amortization of intangible assets 85 147 256 284
------- ------- ------- -------
Operating loss (3,311) (2,408) (8,832) (6,569)
Interest income 21 167 143 490
Interest expense (82) (55) (248) (185)
Other income (expense), net 584 (1,140) 279 (1,021)
------- ------- ------- -------
Loss before income taxes (2,788) (3,436) (8,658) (7,285)
Income tax expense (5) (28) (15) (52)
------- ------- ------- -------
Net loss $(2,793) $(3,464) $(8,673) $(7,337)
======= ======= ======= =======
Net loss per share $ (0.77) $ (0.95) $ (2.39) $ (2.02)
Average number of shares outstanding
during the period 3,629 3,629 3,629 3,629
======= ======= ======= =======
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See accompanying notes to consolidated condensed financial statements.
2
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,511 $ 9,952
Accounts receivable, net 4,058 4,139
Other receivables 287 429
Inventories 6,820 6,009
Prepaid expenses 120 190
-------- --------
Total current assets 13,796 20,719
Property, plant and equipment, net 3,178 2,808
Intangible assets, net 112 116
Excess cost over net assets acquired, net 4,463 4,667
Other assets 549 515
-------- --------
$22,098 $28,825
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings $ ----- $ 1,000
Notes payable to related parties 2,948 2,948
Accounts payable 5,757 3,822
Accrued expenses 6,366 5,633
Tax liabilities 6,334 6,386
-------- --------
Total current liabilities 21,405 19,789
Other long-term liabilities 1,991 2,195
-------- --------
Total liabilities 23,396 21,984
-------- --------
Stockholders' equity (deficit):
Common stock, $.10 par value per share 447 447
Additional paid-in capital 68,580 68,580
Foreign currency translation adjustments 678 250
Accumulated deficit (66,341) (57,668)
Cost of shares held in treasury (4,662) (4,662)
Unrealized loss on marketable securities ----- (106)
-------- --------
Total stockholders' equity (1,298) 6,841
-------- --------
$22,098 $28,825
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, OCTOBER 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash used by operating activities $(6,038) $(5,072)
Net cash used by discontinued operations ____ (1,084)
------- -------
Net cash used by operating activities (6,038) (6,156)
Cash flows from investing activities:
Cash acquired in CDSA transaction, net of
amount disbursed ____ 731
Purchases of fixed and intangible assets (1,067) (605)
Payments for the purchase of common stock rights ____ (637)
Proceeds from sale of properties 739 259
------- -------
Net cash used by investing activities (328) (252)
Cash flows from financing activities:
Repayment of short-term borrowings (1,000) ____
Repayments of other long-term liabilities (75) (864)
------- -------
Net cash used by financing activities (1,075) (864)
Net decrease in cash and cash equivalents (7,441) (7,272)
Cash and cash equivalents at beginning of period 9,952 19,558
------- -------
Cash and cash equivalents at end of period $ 2,511 $12,286
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. INVENTORIES
Inventories as of September 30, 1995 consist of the following (in
thousands):
<TABLE>
<S> <C>
Raw materials $ 2,571
Work-in-process 19
Finished goods 4,821
-------
7,411
Less inventory reserves 591
-------
$ 6,820
=======
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NOTE 2. RESTRUCTURING CHARGES
The Company has developed plans to reduce costs of goods and improve
productivity. As a result of these plans, the Company announced to its employees
that it will implement a restructuring program which involves consolidation of
several offices and manufacturing facilities into one newly leased facility in
Morgan Hill, California, and the resultant relocations, separations, and related
costs. The consolidated condensed statement of operations includes $1,395,000 of
pretax charges relating to this program. Included in this amount is $810,000 for
the severance costs of 71 employees working in manufacturing, distribution and
administration at the Company's Islip New York facilities and $585,000 related
to facility leases, closedown costs, and asset retirements. The closing of the
Islip facilities is scheduled to be completed by December 31, 1995. The Company
has made no payments as yet for its restructuring program the cost of which is
included in accrued liabilities as of September 30, 1995. The Company expects
such payments to be completed by the end of the second quarter in 1996.
NOTE 3. MANAGEMENT REPRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all the adjustments necessary to present
fairly the Company's consolidated condensed financial position as of September
30, 1995 and December 31, 1994 and the consolidated condensed results of their
operations and cash flows for the nine months ended September 30, 1995 and
October 31, 1994.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
On December 20, 1994 the Company elected to change its fiscal year from
October 31 to December 31. The management discussion that follows compares the
three and nine months ended September 30, 1995 to the three and nine months
ended October 31, 1994, the closest previous quarter reported upon.
Three and Nine Months Ended September 30, 1995 Compared with Three and Nine
Months Ended October 31, 1994
The Company's net sales for the three months ended September 30, 1995 were
$4,572,000 compared to net sales of $5,780,000 for the three months ended
October 31, 1994. Sales for the nine months ended September 30, 1995 were
$15,429,000 compared to net sales of $15,888,000 for the nine months ended
October 31, 1994. The decreases are primarily due to higher returns and lower
sales of the Company's Vitamin E Skin Care line.
The gross profit percentage for the three months ended September 30, 1995
decreased 11 percentage points as a percentage of net sales over the three
months ended October 31, 1994 primarily due to higher inventory reserves and
higher returns referred to above.
Selling costs for the nine months ended September 30, 1995 increased
$403,000 over the nine months ended October 31, 1994 primarily due to higher
marketing costs.
Restructuring charges of $1,395,000 reflect the costs of closing down the
Central Islip and Menlo Park facilities. See note 2.
Other income (expense), net for the nine months ended September 30, 1995 of
$279,000 includes a gain of $525,000 from a commission for services rendered to
CVI/Beta, a gain of $338,000 for insurance recoveries related to DES claims, and
a gain of $350,000 from the sale of property held by a wholly-owned subsidiary
of the Company. These gains were partially offset by an expense of $685,000
related to a change in estimated liability for certain environmental clean-up
costs, a $220,000 charge related to foreign currency fluctuations, a $112,000
write down of an investment in marketable securities. Other income (expense),
net for the nine months ended October 31, 1994 of ($1,021,000) principally
includes a reserve of $537,000 against the carrying value of stock and options
acquired pertaining to a potential acquisition, one time expenses of $275,000
related to certain litigation and settlement costs, a gain of $131,000 related
to the sale of substantially all of the assets of the Bahamas facility.
6
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CAPITAL RESOURCES AND LIQUIDITY
The Company has experienced operating cash flow deficiencies for a number
of years and has relied upon asset sales and financing from stockholders to fund
liquidity needs. At September 30, 1995, current liabilities exceeded current
assets by $7,609,000 and cash required by operations was $6,038,000 for the nine
months ended September 30, 1995. The Company does not expect to generate
positive cash flow from operations for at least the remainder of 1995.
On November 10, 1995, the Company announced that it entered into a Note and
Warrant Purchase Agreement with the Company's two principal stockholders, Parker
G. Montgomery and Theodore H. Kruttschnitt pursuant to which a $4,000,000
unsecured line of credit has been established. The Company plans to use amounts
drawn under the line of credit to finance its current operations.
As reported in Note 2, the Company plans to consolidate certain facilities
and start in-house production of certain of its product lines. An accrual for
$1,395,000 has been recorded as of September 30, 1995 relating to the costs to
close down the facilities. No payments have been made against the restructuring
program.
The Company has incurred significant expense in connection with its attempt
to gain control of Avanza Corp. ("Avanza") and to finance the ongoing legal
challenges to Avanza's and certain of its officers and directors actions in
opposition thereto and may continue to incur additional expense in the future.
7
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PART II
ITEM 5. OTHER INFORMATION
Note and Warrant Financing Transaction
The Company entered into a Note and Warrant Purchase Agreement, (the "1995 Note
Purchase Agreement") as of November 10, 1995, with Mr. Montgomery, its Chairman
of the Board and President, and Mr. Kruttschnitt, a Director, to finance current
operations. The 1995 Note Purchase Agreement provides for a $4,000,000 unsecured
line of credit of which $1,000,000 was drawn down as of November 10, 1995. The
notes bear interest at 12% and are due on December 31, 2000. As consideration
for the establishment of the line of credit, the Company has issued warrants to
each of the lenders to purchase 500,000 shares of common stock of the Company.
In addition, for each $1,000 actually borrowed under the line by the Company
from each lender, the Company has agreed to issue to such lender warrants to
purchase an additional 250 shares of common stock. As of November 10, 1995 the
Company had issued a warrant to purchase 125,000 shares of common stock to each
lender. The exercise price of the warrants is $2.50 per share.
The transactions covered by the Note and Warrant Purchase Agreement were
negotiated and approved by a Special Committee of the Board of Directors of the
Company, with the assistance of an independent investment banker and independent
legal counsel. The Company plans to use amounts drawn under the line of credit
to finance its current operations.
ITEM 6.
a) Exhibits - Form of Note and Warrant Purchase Agreement between the Company,
Parker Montgomery, and Theodore H. Kruttschnitt dated as of
November 10, 1995.
b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter for which this report
is filed.
8
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Cooper Development Company
--------------------------
(Registrant)
Date: November 14, 1995 By: /s/ MICHAEL J. BRADEN
---------------------
Michael J. Braden
Vice President and
Chief Financial Officer
9
