<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
Commission File No. 1-12848
CROWN LABORATORIES, INC.
Delaware 75-2300995
- - - - ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6780 Caballo Street, Las Vegas, Nevada 89119
- - - - --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(702) 696-9300
- - - - --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
- - - - ----------
The number of outstanding shares of the registrant's only class of common stock
as of March 31, 1995:
Common Stock, $.001 par value - 12,364,691
<PAGE> 2
Part I - Financial Information
Item (1) Financial Statements
Item (2) Management's discussion and analysis of financial
condition of operations.
Part II - Other Information
Item (1) Legal Proceedings
Item (6) Exhibits and Reports on Form 8-K
<PAGE> 3
CROWN LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
UNAUDITED AUDITED
1995 1994
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,525,662 $ 1,826,935
Employee and officer advances 15,466 5,445
Inventory 12,795 1,588
Prepaid expenses 82,623 62,866
----------- -----------
Total current assets 1,636,546 1,896,834
PROPERTY AND EQUIPMENT
Leasehold improvements 1,281,266 886,424
Equipment 3,030,785 2,418,946
----------- -----------
4,312,051 3,305,370
Accumulated Depreciation (38,142) (36,284)
----------- -----------
Net Property and Equipment 4,273,909 3,269,086
DEPOSITS 1,166,392 899,124
----------- -----------
Total assets $ 7,076,847 $ 6,065,044
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 423,600 $ 298,320
Accounts payable and accrued expenses 293,931 243,830
----------- -----------
Total current liabilities 717,531 542,150
LONG-TERM DEBT & CAPITAL LEASE LIABILITIES 1,387,748 813,431
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock -- $0.001 par value;
5,000,000 shares authorized; none
outstanding
Common Stock -- $0.001 par value;
50,000,000 shares authorized;
12,364,691 and 11,840,941 shares outstanding
in 1995 and 1994, respectively 12,365 11,841
Additional paid-in-capital 9,578,186 8,653,500
Accumulated deficit (4,618,983) (3,955,878)
----------- -----------
Total shareholders' equity 4,971,568 4,709,463
----------- -----------
Total liabilities and shareholders' equity $ 7,076,847 $ 6,065,044
=========== ===========
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Balance Sheets.
<PAGE> 4
CROWN LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
UNAUDITED
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
SALES -- --
COST OF SALES -- --
GENERAL AND ADMINISTRATIVE EXPENSES 654,971 195,164
---------- ----------
Loss from operations (654,971) (195,164)
OTHER INCOME (EXPENSE)
Interest expense (26,409) (1,667)
Interest income 18,275 11,694
---------- ----------
Loss before income taxes (663,105) (185,137)
INCOME TAX PROVISION -- --
---------- ----------
NET LOSS ($663,105) ($185,137)
========== ==========
NET LOSS PER SHARE ($0.06) ($0.02)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 12,033,754 10,166,198
========== ==========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are
an Integral Part of these Financial Statements.
<PAGE> 5
CROWN LABORATORIES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK ADDITIONAL PAID- ACCUMULATED
COMMON STOCK IN CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Balance Dec. 31, 1994 11,840,941 $11,841 $8,653,500 ($3,955,878) $4,709,463
Shares issued under private placement 523,750 524 917,279 -- 917,803
Shares issued to consultants for
services rendered 7,407 7,407
Net loss for the period ended -- -- -- (663,105) (663,105)
March 31, 1995
---------- ------- ---------- ----------- ----------
Balance March 31, 1995 12,364,691 $12,365 $9,578,186 ($4,618,983) $4,971,568
========== ======= ========== =========== ==========
</TABLE>
The Accompanying Notes to the Financial Statements are
an Integral Part of these Financial Statements.
<PAGE> 6
CROWN LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
UNAUDITED
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($663,105) ($185,137)
Add (deduct) items not impacting cash -
Depreciation and amortization 1,935 1,935
(Increases) decreases in assets -
Employee and officer advances (10,021) 20,550
Inventory (11,207)
Prepaid expenses (19,757)
Increases (decreases) in liabilities
Accounts payable and accrued expenses 50,101 (82,773)
----------- ----------
Total cash (used) in operating activities (652,054) (245,425)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in leasehold improvements (1,006,681) (46,029)
Deposits on equipment purchases (267,345) (370,650)
----------- ----------
Total cash (used) in investing activities (1,274,026) (416,679)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of loans payable 750,000 --
Repayment of loans payable (50,403) (110,000)
Issuance of shares to consultants 7,407 --
Proceeds from issuance of shares 1,047,500 23,217
Fundraising costs (129,697)
Repurchase of common shares -- (29,600)
----------- ----------
Total cash provided by financing activities 1,624,807 (116,383)
----------- ----------
Net increase in cash and cash equivalents (301,273) (778,487)
Cash and cash equivalents, beginning of period 1,826,935 2,827,412
----------- ----------
Cash and cash equivalents, end of period $ 1,525,662 $2,048,925
=========== ==========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are
an Integral Part of these Financial Statements.
<PAGE> 7
CROWN LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND DECEMBER 31, 1994
1. BACKGROUND
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Crown Laboratories,
Inc. Annual Report on Form 10-KSB (as amended).
Crown Laboratories, Inc. (the "Company" or "Crown"), was incorporated on
February 23, 1989 as Industrialistics, Inc. In April 1989, Roe Pharmaceutical
Company ("Roe") acquired 95% of the outstanding shares of the common stock of
Industrialistics, Inc. In September 1991, Roe exchanged all of its shares of
common stock of Industrialistics, Inc. for all the outstanding common stock of
Roe. In November 1991, Industrialistics, Inc. changed its name to Crown
Laboratories, Inc. Roe was dissolved in October 1993. For accounting purposes,
the Company's financial statements reflect the carryover of Roe and its
predecessor's bases in assets and liabilities as of the date that Crown acquired
Roe.
Since inception, the Company and its predecessors have been engaged in research
and development of proprietary medical nutritional dry-mix and liquid products
to be sold primarily to nursing homes and hospitals. Historically, the Company's
business was based substantially on dry-mix products. In order to assure a
dependable supply of its liquid and dry-mix products at a competitive price,
management determined that the Company should acquire equipment and operate its
own manufacturing facility. The Company is currently building a manufacturing
facility to produce the above products. There were no sales for the period ended
March 31, 1995 and fiscal 1994.
The Company and its operations are subject to the various risks inherent in the
start-up and development of a new business enterprise. The operating history of
the Company is limited. There can be no assurance the Company will be able to
produce its products and operate profitably. Competitors of the Company have
substantially greater resources than the Company. The Company may require
further financial resources. The Company will not have sales until the Las Vegas
manufacturing facility is complete and operational.
The Company regards the formulations of its products to be proprietary, but
presently it has no patent or other protective rights. The Company is studying
and evaluating the need and costs associated with patents and other protective
rights. Currently, the Company exerts substantial efforts to protect trade
secrets and to keep formulas and related process know-how confidential. However,
there can be no assurance it will be successful in these efforts. The Company
has filed to register its trademark.
1
<PAGE> 8
2. PROPOSED MANUFACTURING PLANT
Crown Laboratories, Inc. anticipates it will begin manufacturing its line of dry
mix adult nutritional and specialty dietary products during the second quarter
of 1995. The major pieces of equipment necessary to manufacture the Company's
proprietary line of aseptic liquid products has been received, and manufacturing
will begin upon completion of the commissioning of the equipment. The
commissioning process is expected to begin by the second quarter of 1995. The
commissioning process could take approximately two months. The purchased
equipment has been manufactured to the F.D.A. regulatory specifications for
aseptic packaging and processing equipment. Commissioning of the equipment is
required by the U. S. Food and Drug Administration.
The Company has leased a manufacturing and office facility and purchased, leased
and commited to lease approximately $7.0 million of production equipment and
leasehold improvements, representing all the equipment and leasehold
improvements necessary to commence operations. As of March 31, 1995, the Company
paid $3.5 million in cash for $6.5 million in production equipment and leasehold
improvements (refer to note 3 for lease commitments).
The Company is studying both the feasibility and financing of constructing an
additional manufacturing facility in Puerto Rico. This facility would be much
smaller and would be responsible for all dry blending. Raw materials and labor
are less expensive in Puerto Rico than in Las Vegas, Nevada, and will result in
a lower cost of manufacturing. The Company would be eligible for employee tax
credits and grants from the Puerto Rican government to cover moving costs and
leasehold improvements. In order to qualify for these tax credits, the Company
has arranged for the incorporation of this subsidiary in Puerto Rico, which has
not yet been capitalized, and would attempt to raise up to $6 million in such
subsidiary on terms and conditions acceptable to the Company. One possibility
being considered is that the Company would issue shares of convertible preferred
stock. Through March 31, 1995, the Company had incurred and expensed $49,018
relating to these efforts.
3. PRIVATE PLACEMENT
The Company concluded a private placement (the "Private Placement") of equity
securities in November 1994, which was sold in units of $50,000 for 25,000
shares of common stock and warrants to purchase 12,500 shares of common stock
for $3 per share. In the Private Placement, the Company raised an additional
$3,100,000 in equity financing after subtracting selling shareholders proceeds,
and before related offering costs of approximately $425,000 and issued 1,547,975
shares and warrants to acquire 877,500 shares of the Company's common stock at
$3.00 per share (see note 6). In addition, the Company issued to the Placement
Agent and brokers warrants to acquire 165,750 shares of the Company's common
stock at a price of $2.40 per share.
The Company is currently seeking to raise up to $2.2 million (44 Units) in
additional equity financing through another private placement (the "1995 Private
Placement"). The terms and conditions of the 1995 Private Placement are similar
to the terms and conditions of the recently concluded Private Placement. Through
April 25, 1995, the Company has raised $1,377,500, of which $1,047,500 was
raised through March 31, 1995, and is reflected these financial statements net
of $129,697 of costs. At the Company's option and discretion, it may increase
the amount to be raised in the 1995 Private Placement, close the 1995 Private
Placement, or extend the 1995 Private Placement. There can be no assurances that
the Company will be able to successfully complete the Second Private Placement
or if completed, that the Company would not require additional funds at a later
date, which would involve dilution to the Company's existing shareholders.
2
<PAGE> 9
4. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturity dates of three months or less at the date of purchase.
Inventory
Inventory is stated at the lower of cost or market using the first-in first-out
method of accounting. At March 31, 1995 and December 31, 1994, inventory
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw Materials $12,795 $1,588
Work in Progress 0 0
Finished Goods 0 0
Inventory $12,795 $1,588
======= ======
</TABLE>
Property and Equipment
Property and equipment are stated at historical cost. Depreciation and
amortization are recorded using the straight line method over the estimated
useful lives of assets which are generally five years. Recently acquired
equipment and improvements for the new production facility will not be
depreciated until production begins. The Company only capitalizes those costs
directly related to the equipment and has not capitalized any management,
executive or overhead costs. Such costs are charged to expense as they are
incurred.
As of March 31, 1995, the Company has received delivery of the filler. Upon
certification, the Company will accept title and assume a $1 million loan from
Standard Chartered Bank which is discussed in Note 3. This will increase
property and equipment by $2.1 million and reduce deposits by $1.1 million.
Income Taxes
The Company has operated at a loss since inception and has a net loss
carryforward of $4,618,983 as of March 31, 1995. Roe had a substantial net
operating loss carryforward at the time of dissolution. The Company is
researching the availability of such net operating losses to the Company. The
availability of all loss carryforwards may be limited as a result of changes in
shareholders and certain elections made by the Company. For accounting purposes
the Company has provided a full valuation allowance for these loss carryforwards
and has not established a deferred tax asset.
5. EARNINGS PER SHARE
Earnings per share of common stock and common stock equivalents have been
computed using the weighted average number of shares of common stock
outstanding. The dilutive effect, if any, of common stock equivalents assumed to
be outstanding during the period have also been considered in computing earnings
per share. Since the inclusion of the options and warrants results in a
decreased loss on a per share basis, the options and warrants were not included
in computing earnings per share.
3
<PAGE> 10
6. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
The following information supplements the statement of cash flows for the period
ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest Paid $ 26,409 $ 1,667
Income Taxes 0 0
Assets acquired through capital lease financing 0 0
</TABLE>
7. LONG-TERM DEBT AND CAPITAL LEASE LIABILITIES
<TABLE>
<CAPTION>
March 31, December 31,
Collateral 1995 1994
---------- ---- ----
<S> <C> <C> <C>
SBA loan -
Guaranteed by Messrs. Craig and Scott Nash who have
personally pleged and placed in escrow 500,000 shares
of Crown common stock. Monthly payments of $10,440
for 120 months ending January 2005. various
Original balance $750,000. equipment $ 741,130 $ 0
First Security Bank of Nevada -
Guaranteed by Messrs. Craig and Scott Nash
Monthly payments of $8,430 for 84 months
ending December 2002 (see note 10) various
Original balance $500,000 plus accrued interest. equipment $ 500,000 $ 503,982
General Electric Capital Corporation -
Guaranteed by Messrs. Craig and Scott Nash
Monthly lease payments of $11,100 for 60 months
ending July 1999. Original balance $514,605 Processor 452,813 476,163
MCBA, Inc. -
Monthly lease payments of $3,401 for 36 months
ending June 1997. Original balance $109,000 Software 77,523 84,639
Memorex-Telex -
Monthly lease payments of $1,396 for 36 months
ending June 1997. Original balance $35,727 Computer 27,435 31,429
Sprint/North Leasing
Monthly lease payments of $533 for 36 months Telephone 12,447 15,538
ending August 1997. Original balance $14,814
plus accrued interest
----------- ----------
1,811,348 1,111,751
Less: current portion 423,600 298,320
----------- ----------
Long-term debt and capital lease liabilities net of current portion: $ 1,387,748 $ 813,431
=========== ==========
The amounts due under the lease obligations are net of interest expense.
</TABLE>
4
<PAGE> 11
Capital lease liabilities and long-term debt as of March 31, 1995 are payable as
follows:
<TABLE>
<S> <C>
1995 $ 383,820
1996 423,600
1997 392,686
1998 359,640
1999 304,140
Thereafter 837,180
----------
2,701,066
Less amount representing interest 889,718
----------
$1,811,348
----------
</TABLE>
Standard Chartered Bank (Switzerland) S. A., has agreed to loan the Company
$1,000,000 towards the purchase of the filler machine. The loan will commence
when the filler machine has been installed and passes all tests in the Las Vegas
plant. The interest rate will be 8.5%. Repayment is as follows: 1) $775,000 is
repayable in 18 monthly installments of $43,056, plus interest at a rate of
8.5%. The first installment is due two months after the date of the loan, and
the last monthly installment is due and payable 19 months after the date of the
loan, 2) a balloon payment of $225,000 is due and payable 20 months after the
date of the loan. The Company has granted to Standard Chartered Bank a security
interest in the filler machine.
8. MANAGEMENT EMPLOYMENT CONTRACTS
Refer to Form 10-KSB/A1 for discussions of Management Employment Contracts.
In connection with the employment agreements described above, the Company has an
obligation to make minimum cash payments of $392,250 for the remainder of 1995,
$627,000 for 1996, $705,000 for 1997, $717,500 for 1998, and $721,000 for 1999.
Certain consultants are issued shares of common stock for services rendered. The
equivalent fair value of these shares are expensed as they are earned throughout
the contract periods. Such value is based upon an opinion the Company receives
from its investment advisor and primarily differs from the asking price as a
result of restrictions. During the quarter ended March 31, 1995, the Company
charged approximately $7,407 to earnings attributable to the vesting of these
shares. During the quarter ended March 31, 1994, nothing was charged.
The Company has established a bonus pool, whereby 10% of pre-tax profits will be
made available to employees, with Craig and Scott Nash in the aggregate being
entitled to 50% of the bonus pool. The remainder of the pool will be allocated
at the discretion of the Compensation Committee. Given that the Company has not
yet generated pre-tax profits, no bonuses have been paid.
5
<PAGE> 12
9. 1992 STOCK OPTION PLAN
Refer to Form 10-KSB/A1 for discussions of the 1992 Stock Option Plan.
10. OTHER STOCK OPTIONS AND WARRANTS
As of March 31, 1995, the Company had granted the following options to purchase
1,131,503 shares of its common stock at the following exercise prices:
<TABLE>
<CAPTION>
# shares subject to date of
forfeiture vesting
<S> <C> <C> <C>
260,000 shares at $1.275 per share through June 1997 50,000 1-96
246,503 shares at $1.65 per share through August 1998 -0-
50,000 shares at $1.50 per share through June 1999 -0-
125,000 shares at $1.70 per share through September 1999 -0-
100,000 shares at $1.38 per share through June 29, 1999 50,000 5-96
200,000 shares at $1.75 per share through September 24, 1999 200,000 see below
150,000 shares at $2.125 per share through January 2000 150,000 see below
</TABLE>
The options to purchase 200,000 shares of common stock at $1.75 per share have
been granted to a marketing consultant. The vesting of these options are based
on various levels of performance as per the marketing agreement.
In January 1995, the Company retained an investment consultant for public and
investor relations. The consultant receives a monthly fee and based upon
performance, can earn options to purchase up to 150,000 shares of common stock
at $2.125 per share. These options will expire in January 2000.
In connection with the Private Placement of 1,547,975 shares of the Company's
common stock in November 1994, the Company issued warrants to acquire 877,500
shares of the Company's common stock at an exercise price of $3.00 per share.
The Company has the right to call such warrants at a call price of $.10 per
warrant, if at any time the current market price of the Company's common stock
has been at least $4.00 per share for 30 consecutive days, ending within 15 days
of the notice of such call. All unexercised and uncalled warrants will expire on
November 30, 1996. The Company also issued to its placement agent and brokers
warrants to acquire 165,750 shares of the Company's common stock at an exercise
price of $2.40 per share. These warrants will expire on November 30, 1999.
In connection with the 1995 Private Placement, through April 25, 1995, the
Company has raised $1,377,500 and has issued 688,750 shares of the Company's
common stock and warrants to acquire 344,375 shares of the Company's common
stock under the same terms as in the Private Placement. These warrants expire in
April 1997. The Company also issued to its placement agents and brokers warrants
to acquire 65,438 shares of the Company's common stock at an exercise price of
$2.40 per share. These warrants will expire on April 2000.
11. PREFERRED STOCK AND POTENTIAL ANTI-TAKEOVER RIGHTS
Refer to Form 10-KSB/A1 for discussions on Preferred Stock and Potential
Anti-Takeover Rights.
6
<PAGE> 13
12. DIVIDEND POLICY
Since its inception, the Company has not generated any earnings and has not paid
any dividends on its common stock. Payment of future dividends, if any, will be
determined by the Company's Board of Directors based upon a number of
considerations, including the Company's financial condition, capital
requirements, cash flow, profitability, business outlook, contractual
restrictions and other factors. In the foreseeable future, the Company intends
to retain all of its earnings to finance the development and expansion of its
business.
13. COMMITMENTS AND CONTINGENCIES
The Company has entered into a five year lease for its Las Vegas manufacturing
facility, which requires monthly payments of $25,080, subject to escalation
commencing in September of 1995. During the first quarter of 1995, the Company
paid $75,240 in lease payments for the building. Minimum payments due on the
building are as follows:
<TABLE>
<S> <C>
1995 $225,720
1996 $300,960
1997 $300,960
1998 $300,960
1999 $200,640
</TABLE>
As of March 31, 1995, the Company had entered into agreements to purchase $6.5
million of equipment of which $3.5 million has been paid.
In 1990, the Company entered into a five-year brokerage agreement with
International Marketing and Sales ("IMS") to act as exclusive sales broker for
an anticipated significant customer. Under such agreement, IMS is entitled to
receive commissions of 2% to 5% and up to 37,806 shares of the Company's common
stock if certain sales levels are achieved.
The Company is negotiating with various parties to enter into consulting
arrangements. The Company will compensate consultants either in cash, shares of
common stock, or a combination thereof.
A significant portion of the Company's outstanding common shares have been
issued with registration rights, which will require the Company to pay for the
costs of any registration processing.
14. LITIGATION
Currently, the Company has three litigation matters pending:
Crown v. Swinney et al. was filed by the Company in March 1994, in the
District Court for the State of Nevada, concerning the attempt of a shareholder
to sell unregistered securities of the Company by public sale. The Company has
obtained a temporary restraining order preventing the sale which has been in
effect since March 1994. A hearing has been held, and this matter is currently
pending decision of the Court. The Company believes that it will prevail in this
matter and the liability of the Company, if any, would be limited to attorneys
fees for the defendant.
Zananiri v. Crown et al. was a lawsuit filed by Mr. Zananiri in April, 1994
in California Superior Court alleging fraud and "alter ego" arising from a debt
of Roe Pharmaceutical Co., a discontinued subsidiary of the Company, which was
personally guaranteed by Craig Nash. The Company filed a Motion for Summary
7
<PAGE> 14
Judgment, since the underlying debt has been fully satisfied by Mr. Nash. On
April 20, 1995, Mr Zananiri dismissed the lawsuit without prejudice. The Company
is filing a motion to recover its legal fees in this matter.
Crown v. Antretter et al. was filed in Federal District Court in the State
of Nevada by the Company in November 1994 seeking an injunction and damages
concerning the disclosure of non-public material information, misinformation and
omission of material fact by Mr. Antretter, a former director and former
investment banker of the Company, selectively to his clients and broker dealers.
These communications were not authorized by the Company, and were in direct
violation of the agreements Mr. Antretter has with the Company. The Company's
request for a temporary injunction was denied. However, the Court reserved the
right to reconsider a preliminary injunction if Mr. Antretter continued to
breach his agreement or made any other disclosures. Mr. Antretter filed a Motion
to Dismiss, which on March 10, 1995, the Court dismissed and treated as a Motion
to Amend. Crown has filed an amended complaint to futher support its allegations
and quantify its damages. Mr. Antretter has subsequently filed another Motion to
Dismiss. The Company believes that it will prevail on the merits.
Other Legal Matters
John D. Kaweske is associated with R.K. Grace and Company, the current
investment banker of the Company. He was also the former partner of John
Antretter, the former investment banker of the Company. John D. Kaweske has
informed the Company that his father, John J. Kaweske, has been sued by the
Securities and Exchange Commission. The suit alleges that there has been a civil
violation of the securities laws regarding commissions paid by the Company
directly to John Antretter, pursuant to an agreement the Company had with John
Antretter, for an investment made by funds managed by John J. Kaweske. The
Securities and Exchange Commission has requested and received full documentation
from the Company regarding the payment of the commissions to Mr. Antretter. The
Company's records reflect that Mr. Antretter was paid commissions in full for
all investments received from the funds managed by John J. Kaweske. To the best
of the Company's knowledge, the Company is not the subject of any investigation
by the Securities and Exchange Commission, specifically, or any other person or
entity, nor is it a party to this litigation or any other litigation being
pursued by the Securities and Exchange Commission.
8
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company has been in the pre-marketing phase and had no sales for
the three month periods ended March 31, 1995 and 1994. Sales will not begin
until later in 1995 when its manufacturing facility is scheduled for completion.
The Company has begun to establish markets for liquid products. For the three
months ended March 31, 1995 and the three months ended March 31, 1994, the
Company had incurred losses of $621,098 and $185,137, respectively. The
accumulated consolidated deficit at March 31, 1995 was $4,576,976. Losses have
continued since such date and are higher than the previous period since the
Company is nearing completion of its facility, resulting in increased staff and
overhead. The losses have resulted primarily from fund raising, employee wages
and plant start-up and organizational costs, which have been significant.
The Company has its corporate and manufacturing facilities
strategically located in Las Vegas, Nevada. The Company was able to obtain a
favorable lease of corporate and manufacturing space with lessor provided
improvements.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1995, the Company had working capital of $983,990.
<PAGE> 16
FUNDING
Following a private placement of equity securities in 1993 which raised net
proceeds of $4,560,000, the Company concluded a private placement (the "Private
Placement") of its securities in November 1994, which was sold in units of
$50,000 consisting of 25,000 shares of Common Stock and warrants to purchase
12,500 shares of Common Stock for $3 per share. The gross proceeds from the
Private Placement were $3,505,000 of which $3,100,000 was received by the
Company; the balance was delivered to certain selling shareholders. In the
Private Placement, the Company issued 1,547,975 shares of Common Stock and
warrants to acquire up to 877,500 shares of the Company's Common Stock at an
exercise price of $3 per share. The Company has the right to call such warrants
at a call price of $0.10 per warrant, if at any time the current market price of
the Company's Common Stock has been at least $4.00 per share for 30 consecutive
days, ending within 15 days of the notice of such call. All unexercised and
uncalled warrants will expire on November 30, 1996. The Company also issued to
the Placement Agent and brokers in the Private Placement warrants to acquire
165,750 shares of the Company's Common Stock at an exercise price of $2.40 per
share. These warrants will expire in November 1999.
The Company is currently seeking to raise up to $2.2 million (44 Units)
in additional equity financing through another private placement (the "1995
Private Placement"). The terms and conditions of the 1995 Private Placement are
similar to the terms and conditions of the recently concluded Private Placement.
Between January 1 and April 25, 1995, $1,377,500 has been raised from the 1995
Private Placement. At the Company's option and discretion, it may increase the
amount to be raised in the 1995 Private Placement, close the Second Private
Placement, or extend the 1995 Private Placement. There can be no assurances that
the Company will be able to successfully complete the 1995 Private Placement or,
if completed, that the Company would not require additional funds at a later
date, which would involve dilution to the Company's existing shareholders.
In each of the recent private placements, the securities were not
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from such
registration.
The Company is dependent on the commissioning and start up of its
manufacturing plant in Las Vegas to continue in existence and expand operations.
The Company believes, based upon the current anticipated commissioning date, the
existing funds, funds to be raised in the 1995 Private Placement, and existing
and proposed leases and equipment financing will allow it to complete its
manufacturing facility. These funds, together with revenues from all other
sources, including future operating revenues, will satisfy the Company's
operating cash requirements for 1995. No assurance can be given as to when
additional working capital will be required, or that additional working capital
can be obtained, or, if obtainable, that the terms will be satisfactory to the
Company, or that obtaining such working capital would not result in substantial
dilution of stockholder's interests.
<PAGE> 17
PLANT
The Company has signed a five year lease, for a 62,000 square foot
facility in Las Vegas, Nevada. This facility is nearing completion and the
Company anticipates it will begin manufacturing its line of dry mix adult
nutritional and specialty dietary products during the second quarter of 1995.
The major pieces of equipment necessary to manufacture the Company's proprietary
line of aseptic liquid products have been received, and manufacturing will begin
upon completion of the commissioning of the equipment. The commissioning process
is also expected to begin by the second quarter of 1995. The commissioning
process could take approximately two months. The purchased equipment has been
manufactured to the F.D.A. regulatory specifications for aseptic packaging and
processing equipment. Commissioning of the equipment is required by the U.S.
Food and Drug Administration.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 14 in the Notes to Financial Statements
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
A Form 8-K and 8-K/A-1 was filed
on March 8, 1995, reporting certain
private placements.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
CROWN LABORATORIES, INC.
Date: May 12, 1995 By:
----------------------------
Craig E. Nash
Chief Executive Officer
Chairman, Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
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