<PAGE>
FORM 10-Q
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 JUNE 30, 1996
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
incorporation or organization) Identification Number)
16160 CAPUTO DRIVE
MORGAN HILL, CA 95037
(Address of principal executive (Zip Code)
offices)
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 June 30, 1996
COMMON STOCK, $.10 PAR VALUE 3,629,376
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Statements of Operations- 2
Three and six months ended June 30, 1996 and
June 30, 1995
Consolidated Condensed Balance Sheets- 3
June 30, 1996 and December 31, 1995
Consolidated Condensed Statements of Cash Flows- 4
Six months ended June 30, 1996 and June 30, 1995
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 6. Other Information 7
SIGNATURE 8
1
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
--------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,024 $ 4,774 $ 10,064 $ 10,857
Cost of sales 2,286 2,530 5,368 5,247
-------- -------- -------- --------
Gross profit 1,738 2,244 4,696 5,610
-------- -------- -------- --------
Research and development expenses 145 186 297 370
Selling expenses 2,548 2,727 5,039 5,536
General and administrative expenses 1,298 1,764 2,693 3,659
Restructuring charges 275 1,395 275 1,395
Amortization of intangible assets 75 86 150 171
-------- -------- -------- --------
Operating loss (2,603) (3,914) (3,758) (5,521)
Interest income (5) 44 25 122
Interest expense (240) (89) (448) (166)
Other income (expense), net (143) (588) 1,155 (305)
-------- -------- -------- --------
Loss before income taxes (2,991) (4,547) (3,026) (5,870)
Income tax expense (25) (4) (281) (10)
-------- -------- -------- --------
Net loss $ (3,016) $ (4,551) $ (3,307) $ (5,880)
======== ======== ======== ========
Net loss per share $ (0.83) $ (1.25) $ (0.91) $ (1.62)
======== ======== ======== ========
Average number of shares outstanding
during the period 3,629 3,629 3,629 3,629
======== ======== ======== =========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
2
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 2,434 $ 2,780
Accounts receivable, net......................... 4,745 4,211
Other receivables................................ 303 302
Inventories...................................... 4,832 5,200
Prepaid expenses................................. 242 239
--------- ---------
Total current assets......................... 12,556 12,732
Property, plant and equipment, net................. 3,299 3,359
Intangible assets, net............................. 156 167
Excess cost over net assets acquired, net.......... 4,146 4,281
Other assets....................................... 548 530
--------- ---------
$ 20,705 $ 21,069
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes and advances payable to related parties.... $ 2,948 2,948
Accounts payable................................. 5,377 5,853
Accrued expenses................................. 6,109 5,600
Tax liabilities.................................. 6,559 6,605
--------- ---------
Total current liabilities.................... 20,993 21,006
Notes and advances payable to related parties...... 5,500 2,450
Other long-term liabilities........................ 1,878 1,943
--------- ---------
Total liabilities............................ 28,371 25,399
--------- ---------
Stockholders' equity (deficit):
Common stock, $.10 par value per share........... 447 447
Additional paid-in capital....................... 68,580 68,580
Foreign currency translation adjustments......... 644 712
Accumulated deficit.............................. (72,675) (69,407)
Cost of shares held in treasury.................. (4,662) (4,662)
--------- ---------
Total stockholders' equity................... (7,666) (4,330)
--------- ---------
$ 20,705 $ 21,069
========= =========
</TABLE>
3
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash used by operating activities $ (3,190) $ (5,217)
Cash flows from investing activities:
Purchases of fixed and intangible assets (206) (497)
Proceeds from sale of properties -- 739
-------- --------
Net cash used by investing activities (206) 242
Cash flows from financing activities:
Borrowings from related parties 3,050 --
Repayment of short-term borrowings -- (1,000)
Repayment of other long-term liabilities -- (89)
-------- --------
Net cash used by financing activities 3,050 (1,089)
Net decrease in cash and cash equivalents (346) (6,064)
Cash and cash equivalents at beginning of period 2,780 9,952
-------- --------
Cash and cash equivalents at end of period $ 2,434 $ 3,888
======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
4
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COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. INVENTORIES
Inventories as of June 30, 1996 consist of the following (in thousands):
Raw materials $ 2,085
Finished goods 3,221
-------
5,306
Less inventory reserves 474
-------
$ 4,832
=======
NOTE 2. TRANSACTIONS WITH RELATED PARTIES
The Company entered into a Note and Warrant Purchase Agreement (the
"Purchase Agreement") dated May 22, 1996 with Parker G. Montgomery, the
Company's President and Chairman of the Board of Directors, and Theodore H.
Kruttschnitt, a member of the Company's Board of Directors. The Purchase
Agreement provides for the establishment of a $2,000,000 line of credit in favor
of the Company. The line of credit can be drawn down by the Company in $500,000
increments. Amounts drawn down will be due on December 31, 2000 and will bear
interest at the rate of 12% per annum, subject to obtaining a permit from the
Commissioner of Corporations of the State of California. As consideration for
the establishment of the line of credit, the Company has issued warrants to each
of the lenders to purchase 285,714 shares of Common Stock of the Company. In
addition, for each $1,000 borrowed by the Company from a lender under the line
of credit, the Company has agreed to issue to such lender warrants to purchase
an additional 286 shares of Common Stock. The exercise price of the warrants is
$1.75 per share. The line of credit is secured by a pledge of all of the issued
and outstanding stock of the Company's wholly owned subsidiary, Cabot
Laboratories, Inc.
The transactions covered by the 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. The Company plans to use
amounts drawn under the lines of credit to repay existing accounts payable and
for working capital. As of June 30, 1996, the Company had drawn $1,500,000 under
the line of credit and had issued warrants to purchase 428,714 shares and
571,714 shares of its Common Stock to Mr. Montgomery and Mr. Kruttschnitt,
respectively.
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 June 30,
1996 and December 31, 1995 and the consolidated condensed results of their
operations and cash flows for the six months ended June 30, 1996 and 1995.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1995.
The Company's net sales for the three months ended June 30, 1996 decreased
$750,000 over the prior quarter resulting in sales for the six months ended June
30, 1996 of $10,064,000 compared to sales of $10,857,000 for the six months
ended June 30, 1995. The decrease is primarily due to lower promotional sales
of Cabot's skin care products and higher returns.
Gross margins for the quarter and year to date ended June 30, 1996 were 43%
and 47% respectively, compared to 47% and 52% for the same periods a year ago.
The decrease is primarily attributable to higher returns, rework costs and close
out sales at below standard gross margins.
Selling costs for the three and six months ended June 30, 1996 decreased
$179,000 and $497,000 respectively, primarily due to lower employee and sales
related costs and lower advertising and promotional expenses.
General and administrative expenses decreased $466,000 and $966,000 for the
three and six months ended June 30, 1996 primarily due to lower legal and
personnel costs.
Taxes increased $271,000 for the six months ended June 30, 1996 primarily
due to international profits.
Restructuring charges of $275,000 reflect severance and commission expenses
related to personnel reductions and the closing of the New York office.
Other income (expense), net for the six months ended June 30, 1996
includes $1,200,000 of insurance proceeds covering past product liability
claims. Other income expense, net for the six months ended June 30, 1995
of $(588,000) includes an expense of $685,000 related to a change in estimated
liability for certain environmental clean-up costs, a $284,000 charge related
to foreign currency fluctuations, a $112,000 write down of an investment in
marketable securities, a gain of $338,000 for insurance proceeds covering past
product liability claims and a gain of $350,000 from the sale of property held
by one of the Company's wholly-owned subsidiaries.
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 June 30, 1996, current liabilities exceeded current assets
by $8,437,000 and cash required by operations was $3,190,000 for the six months
ended June 30, 1996.
6
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On May 22, 1996, the Company entered into a Note and Warrant Purchase
Agreement with Parker G. Montgomery and Theodore H. Kruttschnitt. The agreement
provides for the establishment of a $2,000,000 line of credit which can be drawn
down in $500,000 increments. The notes are due on December 31, 2000 and will
bear interest at 12% per annum. As consideration for the establishment of the
line of credit, the Company issued warrants to each lender to purchase 285,714
shares of the Common Stock of the Company. In addition, for each $1,000 borrowed
by the Company from a lender under the line of credit, the Company agreed to
issue to such lender warrants to purchase an additional 286 shares of Common
Stock. The exercise price of the warrants is $1.75 per share. As of June 30,
1996 the Company had drawn down $1,500,000.
The Company expects a continuing deficiency in cash generated from
operations in 1996. To meet its operating needs, the Company may issue
additional equity or debt securities, or sell certain product lines or one or
more of its subsidiary corporations; control growth of or reduce expenditures;
or obtain financing from stockholders, financial institutions, or other sources.
No assurances can be given that the Company will obtain financing on terms
acceptable to the Company.
In the second quarter of 1996, the Company revised its estimated
restructuring charges and recorded an additional charge of $275,000 for
severance payments and costs associated with the subleasing of the Company's New
York facility. During 1995, the Company recorded $1,395,000 of restructuring
charges. For the six months ended June 30, 1996, the Company paid $416,000 of
these restructuring charges. As of June 30, 1996, the balance of the
restructuring charges to be paid amounted to $314,000.
PART II
ITEM 6.
a) Exhibits-Exhibit 27-Financial Data Schedule
b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter for which
this report is filed:
Date of Report Item
-------------- ----
May 22, 1996 Item 7, Financial Statements
and Exhibits.
7
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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: August 8, 1996 By: MICHAEL J. BRADEN/S/
----------------------
Michael J. Braden
Vice President and
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,434
<SECURITIES> 0
<RECEIVABLES> 6,185
<ALLOWANCES> 1,440
<INVENTORY> 4,832
<CURRENT-ASSETS> 12,556
<PP&E> 5,503
<DEPRECIATION> 2,204
<TOTAL-ASSETS> 20,705
<CURRENT-LIABILITIES> 20,993
<BONDS> 0
0
0
<COMMON> 447
<OTHER-SE> (8,113)
<TOTAL-LIABILITY-AND-EQUITY> 20,705
<SALES> 10,064
<TOTAL-REVENUES> 10,064
<CGS> 5,368
<TOTAL-COSTS> 7,732
<OTHER-EXPENSES> 522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 448
<INCOME-PRETAX> (3,026)
<INCOME-TAX> 281
<INCOME-CONTINUING> (3,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,307)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.91)
</TABLE>
