<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. 2
TO
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1933
Commission File No. 1-12848
CROWN LABORATORIES, INC.
(Name of small business issuer in its charter)
Delaware 75-2300995
(State of Incorporation) (I.R.S. Employer I.D. No.)
6780 Caballo Street
Las Vegas, Nevada 89119
(Address of Principal Executive Office)
(702) 696-9300
(Registrant's Telephone Number, Including Area Code)
Indicate by a check mark whether the registrant (1) has filed all the 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 ____
The number of outstanding shares of the registrant's only class of common stock
as of September 30, 1996 Common Stock, $.001 par value -18,795,488
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The Company has continued in the pre-marketing phase of operation. For the
three month period ended September 30, 1996, the Company incurred losses of
($1,297,353) vs. ($1,140,288) in the same period in 1995. The increased loss is
due to additional salary expense associated with additions to staff and other
operating expenses (including cost penalties associated with pre-paying a lease
on the Company's aseptic processor and not exercising its option to purchase its
building which are discussed in detail later in the Notes to the Financial
Statements) and start-up expenses associated with the Company's entry into the
market. The accumulated consolidated deficit at September 30, 1996 was
($11,044,192) while shareholders' equity was $7,880,957. Losses have continued
since such date due primarily to expenditures for salaries, plant start-up and
other operating expenses.
The Company received U.S. Food & Drug Administration (F.D.A.) approval of its
aseptic processing and packaging equipment on June 25, 1996. Since that time,
the Company has been involved in fine-tuning its product formulations and
modifying its aseptic packaging equipment to support commercial level production
in anticipation of its entry into the market.
Even though the machinery has been certified, there can be no assurances
regarding if and when the Company will commence initial production of its liquid
nutritional products or that the products will meet with acceptance in the
market.
The Company has entered into two consulting agreements which provide for
customer introductions to major potential purchasers of the Company's products.
The first contract calls for a fixed cash fee of $40,000. This amount will be
amortized ratably as the customer introductions are made presently estimated
to cover a 24-month period. The other contract calls for the consultant to
make introductions and follow-up calls to 7 major potential accounts over the
next 4 years. The consultant was granted 180,000 shares of the Company's Common
Stock as compensation for the agreement. The value of these shares ($225,000),
based on the market price of the shares at the time of grant ($1.25 per share),
is being expensed ratably over the life of the contract.
Additionally, the Company has entered into agreements with certain employees
which provide for the grant of common stock and stock options (at an 85%
discount to market price as of their date of employment) which vest over a five
year period. Additionally, the Company had entered into a consulting agreement
for investor relations services which provides for the issuance of 30,000
options to purchase the Company's common stock at an 85% discount to the market
price of the stock on the date of signing the agreement. Compensation expense
relating to these common stock and option grants is approximately $49,000 for
the three months ended September 30, 1996.
Effective on August 15, 1996, the Board of Directors granted 50,000 options to
purchase the Company's common stock at 85% of market price of the stock on the
date of grant to each of three outside directors (Arthur Berkowitz, Linda
Carrick, Ph.D. and Lee Hooker) for their service on the Board of Directors over
the next two years. 25,000 options vest upon the date of grant with the
remaining 25,000 vesting on June 1, 1998. All options expire on August 13, 1999.
Additionally, the Board of Directors granted 40,000 options to purchase the
Company's common stock at $1.75 per share to Arthur Berkowitz for his efforts in
the establishment of a marketing consulting agreement for the Company. These
options, (20,000 of which vest immediately with the remaining 20,000 vesting
based upon the achievement of certain sales levels to specific major accounts),
expire on September 24, 1999.
FINANCIAL CONDITION
Working capital at September 30, 1996 was $1,046,529. Cash and cash equivalent
balances were $1,938,090 as of September 30, 1996. Based on the funding the
Company has secured (discussed in "Funding", below), the Company believes that
it has adequate funds to support its operations into early 1997. After that time
the Company may require additional funds to support its operations and entry and
expansion into the marketplace. There can be no assurances that the Company
will be able to secure additional financing, or, if additional financing is
obtained, that it will be on terms and conditions that are acceptable to the
Company.
FUNDING
On July 31, 1996, the Company raised $1 million through the sale pursuant to
Regulation S under the Securities Act of 1933, as amended of its Series E
Preferred Stock. The Series E Preferred Stock imputes an average effective
interest rate of 6% which is payable in shares of the Company's common stock on
the "Dividend Dates", (August 1, 1997 and August 1, 1998). The Series E
Preferred Stock is convertible into common shares at a rate equal to 10,000
divided by the market value of the Common Stock adjusted by a discount factor
which ranges from 15% to 31% depending on the time the shares are held from the
issuance
2
<PAGE> 3
date, (the longer the stock is held, the deeper the discount unless the Common
Stock price falls below $0.75, in which case the discount no longer applies).
Under this conversion formula, as the Common Stock price drops, the number of
Common Shares into which the Series E Preferred Stock is convertible continues
to grow. This number is not subject to a ceiling. A total of 50,000 five year
options to purchase the Company's common stock at $2.00 per share were issued to
two finders for their role in raising these funds.
The Company entered into a term loan agreement with FINOVA Capital Corporation
which provides for a $3 million, fixed rate (11.93% annual percentage rate);
(this rate is pegged at a spread of 561 basis points above the 5 year Treasury
Note rate at the time of closing), 5 year term loan (interest only for the first
six months, amortized over the remaining 54 months) secured by a first lien
against the fixed assets and leasehold improvements of the Company. The
commitment provides for the advance of an additional $1.5 million upon securing
sales contracts totaling $7 million on an annualized basis. The loan agreement
requires that the Company adhere to certain covenants. Specifically, they
require that the Company maintain a minimum tangible net worth of $5 million, a
senior debt to tangible net worth ratio of 1 to 1 and a cash flow ratio of 2 to
1. The first two covenants are effective on the closing date of the loan while
the cash flow ratio takes effect on December 31, 1997. Additionally, as part of
the terms of the loan agreement, the Company has agreed to issue 300,000 five
year, warrants to FINOVA to purchase a share of the Company's common stock at
the closing market price of the stock on the date prior to closing ($1 7/16).
On May 10, 1996, the Company commenced a private placement of equity securities
with a minimum of $540,000 to a maximum of $2,520,000 (the private placement
provides for the over-subscription of the placement up to $3,000,000 at the
Company's discretion) in units priced at $45,000. Each unit consists of 30,000
shares of the Company's common stock and 30,000 warrants to purchase the
Company's common stock at a price of $1.60 for a period of six months after the
final closing of the placement. The Company extended the private placement's
expiration date from June 28, 1996 to July 31, 1996. A total of $1,912,500 was
raised in the private placement. The private placement was closed on July 30,
1996.
On September 19, 1996, the Company's Board of Directors approved a re-pricing of
the May 10, 1996 Private Placement. Under the re-pricing, each unit was adjusted
to consist of 36,000 shares of Common Stock per Unit purchased as compared to
the 30,000 shares per Unit contained under the original terms of the Private
Placement. This resulted in the issuance of an additional 255,000 shares of
Common Stock being issued in conjunction with the Private Placement.
On February 15, 1996, the Company offered the holders of its warrants (issued
in conjunction with private placements in 1994 and 1995), the opportunity to
lower the exercise price of the warrants from $3.00 to $1.375 per share
provided that they exercise at least 60% of their holdings. The expiration
date of the remaining warrants, if any, would be extended for one year at the
original exercise price. This offer was extended on March 12, 1996 until March
28, 1996. A total of 613,688 warrants for which the aggregate exercise price
was $843,821 were exercised.
During the quarter ended March 31, 1996, the Company raised an additional
$500,000 through a placement pursuant to Regulation S under the Securities Act
of 1933, as amended of its Series C Preferred Stock bringing the total of Series
C Preferred Stock issued to $4 million. The Series C Preferred Stock pays no
dividends, but imputes a 6% effective annual interest rate upon conversion into
common stock which will be accounted for over the time during which the
preferred stock is outstanding. The conversion rate is determined by the
acquisition value of the preferred stock (plus imputed interest referred to
above) and an 18% discount to the 5 day average market price of the common
shares at the time of exercise. As of July 2, 1996, all of the Series C
Preferred Stock issued had been converted into 3,294,735 Common Shares.
To the extent that the Company uses equity securities to raise additional funds
to satisfy its working capital needs, there will be additional dilution to the
Company's existing shareholders. There can be no assurances that the Company
will be able to secure additional financing, or, if additional financing is
obtained, that it will be on terms and conditions that are acceptable to the
Company.
Except for the historical information contained herein, matters discussed in
this Form 10-QSB may be forward looking statements that involve risks and
uncertainties, including the Company's beginning of commercial levels of
production and the acceptance of its products in the marketplace. Such risks and
other risks are detailed from time to time in the Company's SEC report,
including Form 10-KSB, Form 10-KSB/A1 and Form 10-KSB/A2 for the year ended
December 31, 1995.
3
<PAGE> 4
CROWN LABORATORIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS UNAUDITED AUDITED
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,938,090 $677,431
Accounts Receivable 11,882 60,121
Inventory
Raw & Packaging Materials 145,257 97,647
Finished Goods 24,197 11,347
Prepaid expenses & employee and
officer advances 206,027 44,509
------------ -----------
Total current assets 2,325,453 891,055
PROPERTY AND EQUIPMENT
Leasehold improvements 1,300,044 1,291,497
Machinery & Equipment 7,989,550 7,595,945
------------ -----------
9,289,594 8,887,442
Accumulated Depreciation & Amortization (369,483) (208,679)
------------ -----------
Net Property and Equipment 8,920,111 8,678,763
MACHINERY RIGHTS & BLUEPRINTS 242,917 184,478
DEPOSITS & DEFERRED ASSETS 709,784 232,006
------------ -----------
TOTAL ASSETS $12,198,265 $9,986,302
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $314,783 $267,713
Accounts payable and accrued expenses 964,141 1,451,633
------------ -----------
Total current liabilities 1,278,924 1,719,346
ACCRUED SALES TAX PAYABLE 312,994 387,124
LONG-TERM DEBT & CAPITAL LEASE LIABILITIES 2,725,390 1,408,912
SHAREHOLDERS' EQUITY
PREFERRED STOCK -- $0.001 par value; 1,010,000 2,121,233
5,000,000 shares authorized;
100 shares outstanding in 1996 and 200 in 1995
COMMON STOCK -- $0.001 par value;
50,000,000 shares authorized;
18,795,488 and 14,290,513 shares outstanding
in 1996 and 1995, respectively 18,795 14,290
Additional paid-in-capital 17,896,354 12,163,600
Accumulated deficit (11,044,192) (7,828,203)
------------ -----------
Total shareholders' equity 7,880,957 6,470,921
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,198,265 $9,986,302
============ ===========
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
4
<PAGE> 5
CROWN LABORATORIES, INC.
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET SALES $ - $ - $ - $ -
Cost of Sales - $ - - -
GROSS PROFIT - - - -
General and Administrative Expenses 1,151,137 1,064,050 3,063,913 2,531,445
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,151,137) (1,064,050) (3,063,913) (2,531,445)
Other Income/(Expense)
Other Income 25,200 - 75,600 -
Other Expense (119,783) (119,783)
Interest expense (64,998) (84,152) (154,541) (153,048)
Interest income 13,366 7,914 23,415 36,657
LOSS BEFORE INCOME TAXES (1,297,353) (1,140,288) (3,239,223) (2,647,835)
Income Tax Provision - - - -
----------- ----------- ----------- -----------
NET LOSS ($1,297,353) ($1,140,288) ($3,239,223) ($2,647,835)
=========== =========== =========== ===========
NET LOSS PER SHARE ($0.07) ($0.08) ($0.19) ($0.20)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 17,833,920 13,760,727 16,833,920 13,124,891
=========== =========== =========== ===========
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
5
<PAGE> 6
CROWN LABORATORIES, INC.
Consolidated Statements of Cash Flow
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS ($3,239,223) ($2,647,836)
ADD/(DEDUCT) ITEMS NOT IMPACTING CASH:
Depreciation and amortization 160,804 59,595
Issuance of shares to employees 497,509 148,399
and consultants
CHANGES IN ASSETS AND LIABILITIES:
(Increase)/Decrease in receivables 48,239 -
(Increase)/Decrease in inventories (60,460) (220,372)
(Increase)/Decrease in prepaid expenses
and employee advances (161,518) 33,024
Increase/(Decrease) in accounts payable
and accrued expenses (487,492) 865,220
----------- -----------
TOTAL CASH GENERATED FROM/(USED FOR) OPERATIONS (3,242,140) (1,761,970)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures and leasehold improvements (402,151) (4,558,657)
(Increase)/Decrease in rights and blueprints (58,440) -
(Increase)/Decrease in deposits and deferred assets (204,729) 597,300
Increase/(Decrease) in accrued sales taxes payable (74,129) -
TOTAL CASH (USED IN)/GENERATED FROM INVESTING ACTIVITIES (739,449) (3,961,357)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 3,000,000 750,000
Repayment of loans payable (1,636,452) (163,671)
Proceeds from issuance of common and 4,256,322 5,399,750
preferred stock and the exercise of warrants
Cost of funding (273,049) -
Fundraising costs (104,573) (331,201)
----------- -----------
TOTAL CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 5,242,248 5,654,878
----------- -----------
Net increase/(decrease) in cash and cash equivalents 1,260,659 (68,449)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 677,431 1,826,935
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,938,090 $1,758,486
=========== ===========
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
6
<PAGE> 7
CROWN LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BACKGROUND AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with 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 and nine
month periods ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Crown Laboratories, Inc. Annual Report on
Form 10-KSB.
2. MANUFACTURING FACILITY
The Company presently leases a 62,000 square foot manufacturing facility in Las
Vegas, Nevada for the purpose of manufacturing its line of nutritional
products. The Company received the F.D.A.'s approval of its aseptic processing
and packaging equipment on June 25, 1996. Since that time, the Company has been
involved in fine-tuning its product formulations and modifying its aseptic
packaging equipment to support commercial level production in anticipation of
its entry into the market.
Even though the machinery has now been certified, there can be no assurances
regarding if and when the Company will commence initial production of its
liquid nutritional products or that the products will meet with acceptance in
the market.
The Company's option to purchase its facility in Las Vegas has expired. The
Company has expensed $65,800 in non-refundable fees and deposits associated
with the financing and purchase of its building. These expenses are included in
the "Other Income/Expense" section contained in the Consolidated Statements of
Operations. The Company believes that there is a possibility that a portion or
all of these fees and deposits will be recovered.
3. FINANCING
On July 31, 1996, the Company raised $1 million through the sale pursuant to
Regulation S under the Securities Act of 1933, as amended of its Series E
Preferred Stock. The Series E Preferred Stock imputes an average effective
interest rate of 6% which is payable in shares of the Company's common stock on
the "Dividend Dates", (August 1, 1997 and August 1, 1998). The Series E
Preferred Stock is convertible into common shares at a rate equal to 10,000
divided by the market value of the Common Stock adjusted by a discount factor
which ranges from 15% to 31% depending on the time the shares are held from the
issuance date, (the longer the stock is held, the deeper the discount unless the
Common Stock price falls below $0.75, in which case the discount no longer
applies). Under this conversion formula, as the Common Stock price drops, the
number of Common Shares into which the Series E Preferred Stock is convertible
continues to grow. This number is not subject to a ceiling. A total of 50,000
five year options to purchase the Company's common stock at $2.00 per share were
issued to two finders for their roles in raising these funds.
The Company entered into a term loan agreement with FINOVA Capital Corporation
which provides for a $3 million, fixed rate (11.93% annual percentage rate);
(this rate is pegged at a spread of 561 basis points above the 5 year Treasury
Note rate at the time of closing), 5 year term loan (interest only for the first
six months, amortized over the remaining 54 months) secured by a first lien
against the fixed assets and leasehold improvements of the Company. The
commitment provides for the advance of an additional $1.5 million upon securing
sales contracts totaling $7 million on an annualized basis.
The loan agreement requires that the Company adhere to certain covenants.
Specifically, they require that the Company maintain a minimum tangible net
worth of $5 million, a senior debt to tangible net worth ratio of 1 to 1 and a
cash flow ratio of 2 to 1. The first two covenants are effective on the closing
date of the loan while the cash flow ratio takes effect on December 31, 1997.
Additionally, as part of the terms of the loan agreement, the Company has agreed
to issue 300,000 five year, warrants to FINOVA to purchase a share of the
Company's common stock at the closing market price of the stock on the date
prior to closing ($1 7/16). The Company paid $80,000 as a cash fee to a finder
and the finder's nominee. Additionally, the Company issued to the finder's
nominee, 100,000 shares of the Company's Common Stock and 50,000 Warrants to
purchase the Company's Common Stock at the closing market price of the stock on
the date of closing the loan ($1.4375 per share). The cost of the finders fee
and the stock granted to the finder's nominee are being amortized over the life
of the loan (5 years). In connection with the loan from FINOVA, the Company
incurred legal expenses, for both their attorneys and for FINOVA's attorneys (as
provided for in the loan agreement) totaling approximately $49,000. These
amounts have been capitalized and are being expensed over the life of the loan.
Minimum principal payments due on the loan over the next 5 years are as follows:
<TABLE>
<CAPTION>
Year Principal Due
---- -------------
<S> <C>
1996 $ 0
1997 395,635
1998 585,405
1999 659,192
2000 742,280
Thereafter 617,488
----------
Total Principal $3,000,000
</TABLE>
From the proceeds of the loan, the Company paid off its loans with First
Security Bank of Nevada (secured term loan and SBA loan), its lease with G.E.
Capital Corporation financing its aseptic processor, its telephone system lease
and its fork lift and pallet lift leases. The Company paid a pre-payment
penalty on its lease with G.E. Capital of $53,983.23. This amount has been
expensed in the quarter ended September 30, 1996. This expense is included
in the "Other Income/Expense" section contained in the Consolidated Statements
of Operations.
On May 10, 1996, the Company commenced a private placement of equity securities
with a minimum of $540,000 to a maximum of $2,520,000 (the private placement
provides for the over-subscription of the placement up to $3,000,000 at the
Company's discretion) in units priced at $45,000. Each unit consists of 30,000
shares of the Company's common stock and 30,000 warrants to purchase the
Company's common stock at a price of $1.60 for a period of six months after the
final closing of the placement. As of September 30, 1996, the Company had raised
$1,912,500 through the private placement (partial units have been sold) which
was closed on July 30, 1996.
On September 19, 1996, the Company's Board of Directors approved a re-pricing of
the May 10, 1996 Private Placement. Under the re-pricing, each unit was adjusted
to consist of 36,000 shares of Common Stock per Unit purchased as compared to
the 30,000 shares per Unit contained under the original terms of the Private
Placement. This resulted in the issuance of an additional 255,000 shares of
Common Stock being issued in conjunction with the Private Placement.
On February 15, 1996, the Company offered the holders of its warrants (issued
in conjunction with private placements in 1994 and 1995), the opportunity to
lower the exercise price of the warrants from $3.00 to $1.375 per share
provided that they exercise at least 60% of their holdings. The expiration date
of the remaining warrants, if any, would be extended for one year at the
original exercise price. This offer was extended on March 12, 1996 until March
28, 1996. A total of 613,688 warrants for which the aggregate exercise price
was $843,821 were exercised.
During the quarter ended March 31, 1996, the Company raised an additional
$500,000 through a placement pursuant to Regulation S under the Securities Act
of 1933, as amended of its Series C Preferred Stock bringing the total of Series
C Preferred Stock issued to $4 million. The Series C Preferred Stock pays no
dividends, but imputes a 6% effective annual interest rate upon conversion into
common stock which will be accounted for over the time during which the
preferred stock is outstanding. The conversion rate is determined by the
acquisition value of the preferred stock (plus imputed interest referred to
above) and an 18% discount to the 5 day average market price of the common
shares at the time of exercise. As of July 2, 1996, all of the Series C
Preferred Stock issued had been converted into 3,294,735 Common Shares.
To the extent that the Company uses equity securities to raise additional funds
to satisfy its working capital needs, there will be additional dilution to the
Company's existing shareholders. There can be no assurances that the Company
will be able to secure additional financing, or, if additional financing is
obtained, that it will be on terms and conditions that are acceptable to the
Company.
7
<PAGE> 8
4. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Refer to Form 10-KSB for discussions of Significant Accounting Policies.
5. COMMITMENTS AND CONTINGENCIES
The Company has entered into a five year lease of its Las Vegas manufacturing
facility, (with an option to renew the lease for an additional five year
period), which requires monthly payments of $26,576, subject to annual
inflation escalations. During 1995, the Company paid $278,768 in lease
payments for the building. Minimum payments due under the building lease are
as follows:
<TABLE>
<S> <C>
1996 $318,912
1997 $318,912
1998 $318,912
1999 $159,456
2000 -0-
</TABLE>
6. LITIGATION
The Company will be subject to normal business litigation and claims concerning
products and services rendered to the Company. None of these matters are
material to the Company's financial position or results of operations.
In addition to normal business litigation, the Company has the following
material litigation:
CROWN V. SWINNEY ET AL., the Company has sought to enforce the legends
on its stock under the Securities Act of 1933. The court issued an
injunction, and after the injunction became moot, the court decided
that the injunction was wrongful. The Company has posted a
supercedeas bond in the amount of $89,695 secured by a certificate
of deposit to cover its potential liability in this case. As the
enforceability of the Company's legends on its securities is at stake,
the Company posted a bond and appealed the Nevada District Court's
decision. This appeal has been accepted by the Nevada Supreme Court.
Although, the Company believes that its liability, if any, will be
limited to attorney's fees, it has expensed the amount of the
preliminary judgment, approximately $64,000 in 1995.
CROWN V. ROLFENADE ET AL., was filed by the Company, in March, 1995,
and subsequently amended to incorporate all of the defendant company's
"alter egos" in September, 1995. The action is for breach of contract,
misrepresentation and fraud. Rolfenade warranted that the packaging
machine would be in compliance with F.D.A. requirements. The packaging
machine was not in compliance with the applicable regulations and the
Company has made substantial modifications to the filler to bring it
into compliance. The Company therefore brought suit against
Rolfenade and its alter egos. The Company has served all defendants
under the Hague Convention.
On September 9, 1996, the Company entered into a settlement agreement with Paul
Kouri to settle all claims, demands and/or causes of action which may exist
between them, whether known, unknown or suspected. Under the settlement
agreement, the Company has agreed, among other things, to provide to Mr. Kouri
180,000 shares of Common Stock. The Company has further agreed to include these
shares in the next registration statement which the Company would use its
best efforts to file within 30 days from the date of the settlement agreement.
In return, Mr. Kouri has agreed to enter into a non-assignable four year
marketing agreement with the Company pursuant to which Mr. Kouri will assist
the Company in marketing its products.
8
<PAGE> 9
7. SUBSEQUENT EVENTS
On November 11, 1996, The Pacific Stock Exchange began trading the Company's
Common Stock. This is in addition to the Company's existing listing on the
American Stock Exchange's Emerging Company Marketplace ("AMEX:ECM").
Additionally, the Company shipped approximately $33,000 of its dry-mix products
to a customer in Asia.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 in the Notes to Financial Statements
Item 4. Submission of Matters to a Vote of Security-Holders
The annual meeting of shareholders of the Company was
held on July 18, 1996, at the Rio Hotel & Casino in Las
Vegas, Nevada. At the Meeting, an election of members of
the Board of Directors of the Company was held and the
following individuals (comprising the entire membership
of the Board) were elected to one year terms.
Member of the Board Votes For Votes Against Abstentions
------------------- --------- ------------- -----------
Craig E. Nash 11,987,536 127,234 10,415
Scott O. Nash 11,987,536 127,234 10,415
Arthur M. Berkowitz 11,987,536 127,234 10,415
Linda Carrick, Ph.D. 11,986,036 128,734 10,415
Vincent J. Casella 11,986,036 128,734 10,415
Christopher Demetree 11,986,036 128,734 10,415
Lee Allen Hooker 11,986,036 128,734 10,415
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 FINOVA Capital Corporation Loan and Security
Agreement
(b) Reports on Form 8-K
None
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN LABORATORIES, INC.
Date: November 21, 1996 By: /s/ Craig E. Nash
----------------------------------
Craig E. Nash
Chief Executive Officer
Chairman, Board of Directors
By: /s/ Scott E. Hilley
----------------------------------
Scott E. Hilley
Vice President, Finance
