As filed with the Securities and Exchange Commission on December 30, 1997
Registration No. 33-38204
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
POST-EFFECTIVE AMENDMENT NO. 13 ON
FORM SB-2 TO
REGISTRATION STATEMENT
ON FORM S-1
Under
The Securities Act of 1933
--------------------------
BCAM INTERNATIONAL, INC.
(Name of small business issuer in its charter)
New York 8911 13-3228375
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
1800 Walt Whitman Road
Melville, New York 11747
(516) 752-3550
(516) 752-3558 (fax)
(Address and telephone number of principal executive
offices and principal place of business)
----------------------------------------------------------------
Michael Strauss, Chairman of the Board
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
(516) 752-3550
(516) 752-3558 (fax)
(Name, address and telephone number of agent for service)
------------------------------------------
Copies to:
Norman M. Friedland, Esq.
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
(516) 663-6600
(516) 663-6641 (fax)
------------------------------------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
<PAGE>
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than the securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Title of Securities to be Registered Registered Per Share Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Redeemable Class B Warrants (a).... 807,659 1.14 1,211,489 $367.12
- --------------------------------------------------------------------------------------------------------------------
Redeemable Class E Warrants (a).... 491,588 0.95 614,485 $186.21
- --------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Redeemable Class B Warrants (b) 1,292,254 (e) (e) (e)
- --------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Redeemable Class E Warrants (c) 737,382 (f) (f) (f)
- --------------------------------------------------------------------------------------------------------------------
Common Stock Issued in Connection
with Stock Options Issued to
Consultants (d) 875,000 1.00744 881,510 $267.12
- --------------------------------------------------------------------------------------------------------------------
Total Registration Fee................................................................................. $820.45(g)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 2,530,000 Redeemable Class B Warrants were issuable upon the exercise of
2,530,000 Redeemable Class A Warrants and 2,530,000 Redeemable Class E
Warrants were registered by the original Registration Statement declared
effective February 11, 1991 and by Amendment No. 3 (November 27, 1991)
thereof. As of September 30, 1997, 807,659 Redeemable Class B Warrants and
491,588 Redeemable Class E Warrants remain outstanding. Each Redeemable
Class B Warrant and each Redeemable Class E Warrant entitles the holder to
purchase 1.6 and 1.5, respectively, shares of Common Stock.
(b) 2,783,000 shares of Common Stock issuable upon exercise of the Redeemable
Class B Warrants were originally registered by the Original Registration
Statement declared. As of September 30, 1997, 1,292,254 shares of Common
Stock remain issuable upon the exercise of 807,659 Redeemable Class B
Warrants that are outstanding.
(c) 2,783,000 shares of Common Stock issuable upon exercise of the Redeemable
Class E Warrants and such shares were originally registered by the
original Registration Statement declared effective February 11, 1991, and
by Amendment No. 3 (November 27, 1991) thereof. Subsequent conversion of
1,717,000 Redeemable Class A Warrants into 1,717,000 Redeemable Class E
Warrants per the Discounted Warrant plan provide the issuance of 1,888,700
shares of Common Stock upon the exercise of the Redeemable Class E
Warrants. As of September 30, 1997, 737,382 shares of Common Stock remain
issuable upon the exercise of 491,588 Redeemable Class E Warrants that are
outstanding.
(d) 875,000 shares of Common Stock issuable upon the exercise of 875,000
options issued to consultants.
(e) Common Stock issuable upon exercise of the Redeemable Class B Warrants. No
separate filing fee required.
(f) Common Stock issuable upon exercise of the Redeemable Class E Warrants. No
separate filing fee required.
(g) Fees relating to items (a), (b), and (c) and to Common Stock issued in
connection with January 15, 1997 and July 21, 1997 private placements were
paid upon filing of the Registration Statement and the SB-2 Registration
Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
BCAM INTERNATIONAL, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Item Number Caption in Form SB-2 Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Cover of Prospectus
Front Cover Page of Prospectus.....................
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover
Prospectus......................................... Page of Prospectus
3. Summary Information and Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................... Use of Proceeds; Agreements
5. Determination of Offering Price.................... Underwriter; Agreements
6. Dilution........................................... Dilution
7. Selling Security Holders........................... Not Applicable
8. Plan of Distribution............................... Plan of Distribution
9. Legal Proceedings.................................. Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and Management
Control Persons....................................
11. Security Ownership of Certain Beneficial Owners Principal Stockholders
and Management.....................................
12. Description of Securities.......................... Description of Securities
13. Interest of Named Experts and Counsel.............. Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
15. Organization Within Last Five Years................ Business
16. Description of Business............................ Business
17. Management's Discussion and Analysis of Plan of Management's Discussion and Analysis
Operation..........................................
18. Description of Property............................ Business - Properties
19. Certain Relationships and Related Transactions..... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Risk Factors
21. Executive Compensation............................. Management - Executive Compensation
22. Financial Statements............................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures............... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
BCAM INTERNATIONAL, INC.
807,659 Redeemable Class B Warrants Expiring on January 18, 1998(a)
491,588 Redeemable Class E Warrants Expiring on January 18, 1998(b)
1,292,254 Shares of Common Stock Issuable Upon Exercise of Redeemable
Class B Warrants(c)
737,382 Shares of Common Stock Issuable Upon Exercise of Redeemable
Class E Warrants(c)
875,000 Shares of Common Stock Issuable upon the Exercise of
875,000 Stock Options(d)
(a) 807,659 Redeemable Class B Warrants expiring on January 18, 1998 were
issued in December 1993, upon the exercise of Redeemable Class A Warrants that
were issued and sold as part of the Company's initial public offering ("IPO") in
January, 1990 (Registration No. 33-31282). The expiration date of the warrants
was extended from January 17, 1997 to January 18, 1998 by unanimous resolution
of the Board of Directors on December 20, 1996. Each Redeemable Class B Warrant
currently entitles the registered holder thereof to purchase one and six-tenths
(1.6) shares of Common Stock at an exercise price of $1.14 per share (subject to
adjustment upon the occurrence of certain anti-dilution events). The Redeemable
Class B Warrants are subject to redemption by the Company at $.03 per Warrant,
on not less than 30 days' prior written notice if the average exercise price of
the Common Stock exceeds the applicable average closing bid price for any period
of 30 consecutive business days ending within 15 days prior to the date of the
notice of the redemption.
(b) 491,588 Redeemable Class E Warrants (initially registered by the
Company in November, 1991 [Registration No. 33-38204, Post-Effective
Registration No. 3]) were issued during a 70 day period ending February 19, 1992
(the "Special Class A Exercise Period") pursuant to a Discounted Warrant Plan
which provided that a holder of a Redeemable Class A Warrant who exercised his
right to purchase the Common Stock during the Special Class A Exercise Period
would receive a Redeemable Class E Warrant. Each Redeemable Class E Warrant
currently entitles the registered holder thereof to purchase one and five-tenth
(1.5) shares of Common Stock at an exercise price of $0.94 per share (subject to
adjustment upon the occurrence of certain anti-dilution events) until January
18, 1998. See "Description of Securities - Redeemable Class E Warrants). The
Redeemable Class E Warrants are subject to redemption by the Company at $.03 per
Warrant, on not less than 30 days' prior written notice if the average exercise
price of the Common Stock exceeds the applicable average closing bid price for
any period of 30 consecutive business days ending within 15 days prior to the
date of the notice of the redemption
(c) 1,292,254 shares of Common Stock that are issuable upon exercise of
the Redeemable Class B Warrants and 737,382 shares of Common Stock that are
issuable upon exercise of the Redeemable Class E Warrants.
(d) The Company granted an aggregate of 875,000 options to several
consultants and a former joint venture partner and will issue 875,000 shares of
Common Stock upon the exercise of such options at the following exercise prices
(i) 300,000 stock options at $1.0469 with an expiration date of May 7, 1999;
(ii) 100,000 stock options at $1.1719 with an expiration date of August 20,
2006; (iii) 100,000 stock options at $1.69 with an expiration date of July 21,
1999; (iv) 300,000 stock options at $.75 with an expiration date of May 7, 1999,
(v) 45,000 options at $.75 with an expiration date of May 7, 1999, (vi) 25,000
options at $.75 with an expiration of May 7, 1999, (vii) 5,000 options at $.75
with an expiration of May 7, 1999. Such shares are being registered for resale,
not original issuance.
The Company is not aware of any underwriting arrangements with respect to
the sale of the securities to which this Prospectus relates. The Common Stock is
traded from time to time on the Boston Stock Exchange and the Common Stock and
the Redeemable Class B Warrants and the Redeemable Class E Warrants are traded
in the NASDAQ Over-The-Counter market (Small Cap) at prices then prevailing.
1
<PAGE>
The Company will receive proceeds from any exercise of the options and the
Warrants described (see "Use of Proceeds").
The representative average of the high and low bid quotations of the
Company's Common Stock on December 22, 1997, as reported on NASDAQ (symbol:
BCAM), is $1.141 per share. (See "Market for Company's Common Equity and Related
Stockholder Matters").
THESE SECURITIES ARE SUBJECT TO A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS AND DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is December __, 1997.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation or projections of future performance
other than those contained in this Prospectus, and any such other information,
projections or representation if given or made must not be relied upon as being
authorized by the Company. The delivery of this Prospectus or any offer or sale
hereunder at any time does not imply that the information herein is correct as
of any time subsequent to the date hereof or that there has not been any change
in the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than those to which it relates or any of the securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form SB-2 under the 1933 Act with respect to the
Common Stock offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Company's
Common Stock, reference is made to the Registration Statement and such exhibits.
Statements in the Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed, or incorporated by
reference, as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Company is subject to the
informational requirements of the Exchange Act, and in accordance therewith,
files reports and other information with the Commission. The Registration
Statement, the exhibits thereto and such reports and other information may be
inspected by anyone without charge at the principal officer of the Commission at
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and copies of all or any part of it may be obtained from the
Commission upon payment of a prescribed fee. The Company's Class A Common Stock
is quoted on the NASDAQ Stock Market and reports and other information
concerning the Company may also be inspected and copied at the office of the
NASDAQ Stock Market, Inc., NASDAQ Operations, 1735 K Street, N.W., Washington,
D.C. 20549. The Commission also maintains a web site that contains reports,
proxy and information statements and other information that may be obtained
electronically by using the Commission's Web Site on the Internet at
http://www.sec.gov.
2
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by
reference to the more detailed information, financial statements and notes
appearing elsewhere in this Prospectus. Each prospective investor is urged to
reach this Prospectus in its entirety. Unless the context requires otherwise,
all references to "BCAM" and the "Company" herein include its subsidiaries. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. When used in this Prospectus, the words "anticipate," "believe,"
"estimate" and "expect" and other similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
prospectus. As used in this Prospectus, "fiscal year" refers to the fiscal year
ending December 31 of the specifically identified calendar year.
THE COMPANY
BCAM International, Inc. (the "Company") has been primarily a software
technology and consulting company, specializing in providing ergonomic solutions
(human factors engineering) to individuals, major corporations and government
agencies, including the National Aeronautics Space Administration ("NASA"). On
September 22, 1997, the Company acquired Drew Shoe Corporation ("Drew Shoe"), a
leading designer, marketer, manufacturer and distributor of medical footwear.
Drew Shoe had revenues for its year ended December 31, 1996 of approximately
$14.6 million and has been in business for approximately 125 years. Drew Shoe
provides the Company with ongoing revenue, as well as potential new product
opportunities through utilization of Company technology (both existing and under
development) into Drew Shoe products and a platform for further possible
acquisition of medical footwear and related business. See "Risk Factors; History
of Operating Losses; Effect of Recent Acquisition". The Company's revenues have
historically been derived primarily from consulting services. Since the
acquisition of Drew Shoe, the Company's revenues in the near term are expected
to be largely affected by the medical footwear business. The Company's focus is
on broadening and strengthening the development and accelerating the
commercialization of the Company's Intelligent Surface Technology ("IST"),
continuing the development of proprietary software, which consists of the
intelligent part of IST, MannequinPro(TM)(TM), and the EARLY(R) process,
Ergonomic Product Assessment and Redesign, and Ergonomic Workplace Assessment,
as well as acquisitions in the medical footwear and related businesses.
On September 9, 1997, the Company announced that the 1998 Cadillac STS would
offer, as an option, a driver and passenger seat, utilizing the Company's IST
technology through a license agreement with McCord Winn Textron, Inc., a
subsidiary of Textron, Inc. There can be no assurance that this
commercialization of the Company's IST technology will result in material
revenues.
The Company's subsidiaries consist of BCAM Technologies, Inc. (principally IST
and related technologies), BCA Services, Inc.(principally human ergonomics
consulting), HumanCAD Systems, Inc. (principally software development and
marketing) and Drew Shoe Corporation (medical footwear).
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Offer
Securities Offered..................... 807,659 Redeemable Class B Warrants
and 1,292,254 shares of Common Stock
issuable upon exercise of Redeemable
Class B Warrants;
491,588 Redeemable Class E Warrants
and 737,382 shares of Common Stock
issuable upon exercise of Redeemable
Class E Warrants;
875,000 shares of Common Stock
issuable upon the exercise of 875,000
stock options by consultants and a
former joint venture partner.
Each Redeemable Class B Warrant may be
exercised until January 18, 1998 to
purchase one and six-tenths (1.6)
shares of Common Stock at $1.14 per
share. Each Redeemable Class E Warrant
may be exercised until January 18,
1998 to purchase one and five-tenths
(1.5) shares of Common Stock at a
price of $0.95 per share. See
"Description of Securities - Warrants"
and "Recent Events - Discounted
Warrant Plan." Stock options may be
exercised as follows: (i) 300,000
stock options at $1.0469 until May 7,
1999; (ii) 100,000 stock options at
$1.1719 until August 20, 2006; (iii)
100,000 stock options at $1.69 until
July 21, 1999; (iv) 300,000 stock
options at .75 until May 7, 1999, (v)
45,000 options at $.75 until May 7,
1999, (vi) 25,000 options at $.75
until May 7, 1999, and (vii) 5,000
options at $.75 until May 7, 1999.
Shares of Common Stock Outstanding
Before Offering........................ 17,231,088 (1)
Shares of Stock Outstanding After
Offering............................... 20,135,724 (1)
Use of Proceeds........................ For general working capital purposes.
Working capital purposes may include
acquisitions. (See "Use of Proceeds")
Risk Factors .......................... Investment in the securities offered
hereby involves a high degree of risk
and immediate and substantial
dilution. See "Risk Factors" and
"Dilution."
NASDAQ Symbols......................... Common Stock - BCAM Redeemable Class B
Warrants - BCAML Redeemable Class E
Warrants - BCAMZ
Boston Stock Exchange Symbol........... Common Stock - BAM
- --------------------------------------------------------------------------------
4
<PAGE>
(1) Does not include (i) shares of Common Stock issuable under options to
acquire an aggregate of 432,000 shares (net of cancellations and
exercises), issued under the Company's 1989 Stock Option Plan, as amended
(the "1989 Plan"), (ii) shares of Common Stock issuable upon the exercise
of options granted to non-management directors under the Company's 1989
Non-Statutory Stock Option Plan (the "Non-Statutory Plan"), under which
options to acquire an aggregate of 100,000 shares (net of cancellations
and exercises) have been granted, (iii) shares of Common Stock reserved
for issuance under the Company's 1995 Stock Option Plan (the "1995 Plan"),
under which options to acquire an aggregate of 5,682,500 shares (net of
cancellations and exercises) have been granted, 3,682,500 shares of which
are subject to shareholder approval, (iv) 7,500,000 shares of Common Stock
issuable upon conversion of 10%/13% Convertible Notes due September 19,
2002, (v) 2,400,000 shares of Common Stock issuable in connection with
detachable warrants issued in connection with the 10%/13% Convertible
Notes, (vii) 1,075,000 shares of Common Stock issuable upon exercise of
warrants issued in connection with a January 1997 private placement,
(viii) approximately 2,453,954 shares issuable upon conversion of
Preferred Stock and related warrants issued in connection with financings
completed earlier in 1997 and (ix) options and warrants to purchase
825,000 shares of Common Stock in connection with the acquisition of Drew
Shoe Corporation and related financing. See (A) "Management - Stock Option
Plans", "Management - Director Compensation", "Principal
Stockholders-Security Ownership of Certain Beneficial Owners and
Management", and "Description of Securities."
- --------------------------------------------------------------------------------
Summary Financial Data
The summary historical financial data set forth below are derived from the
audited consolidated financial statements of the Company as of December 31, 1996
and for the years ended December 31, 1996 and 1995, and the unaudited condensed
consolidated financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996, appearing elsewhere in this
Prospectus. On September 22, 1997 the Company acquired Drew Shoe and has
accounted for Drew Shoe under the purchase method of accounting. As such, the
Company's financial position at September 30, 1997 (unaudited) includes the
financial position of Drew Shoe based upon a preliminary allocation (based upon
estimates which are subject to change) of the purchase price of Drew Shoe.
Results of operations for the nine-month period ended September 30, 1997 include
the results of Drew Shoe's operations for the period since its acquisition by
the Company on September 22, 1997 (see Note 2 to unaudited condensed
consolidated financial statements as of and for the period ended September 30,
1997) and are, in any event, not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
The summary pro-forma financial data set forth below shows the unaudited
pro-forma results of operations assuming that the Company had purchased Drew
Shoe as of the beginning of each period shown. This information is derived from
the financial statements described above as well as the pro-forma information
and audited financial statements of Drew Shoe (appearing elsewhere in this
Prospectus) and unaudited financial information for Drew Shoe for the nine
months ended September 30, 1997 (not presented herein). This information gives
effect to the increased interest and financing costs (excluding certain material
non-recurring charges which are discussed in Notes 3 and 5 of the unaudited
condensed consolidated financial statements of the Company as of and for the
period ended September 30, 1997 and in "Special Risk Factors") and the
amortization of preliminary fair value adjustments principally for increased
depreciation. The Company has not included a provision for income taxes because
it believes that it will have sufficiently available net operating losses to
offset anticipated profits from Drew Shoe.
The summary historical financial data should be read in conjunction with
the Company's consolidated and, condensed consolidated, financial statements and
notes thereto included elsewhere in this Prospectus.
5
<PAGE>
The summary pro-forma financial data should be read in conjunction with
the financial statements of the Company referred to above as well as to
pro-forma information of the Company and Drew Shoe and the financial statements
of Drew Shoe as of December 31, 1996 (audited), also included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Summary Financial Information
(Dollar Amounts In Thousands, Except Per Share Data)
Pro-Forma Historical
----------------------------- ------------------------------------------------
Nine Months Year ended Year ended Nine Months ended
September 30, December 31, December 31, September 30,
------------- ------------ ------------ -------------
1997 1996 1996 1995 1997(a) 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenue .............. $ 11,902 $ 15,214 $ 605 $ 752 $ 771 $ 384
========== ========== ========== ========== ========== ==========
Income (loss) from
operations ............... (1,355) (1,172) (1,568) (1,863) (1,697) (1,222)
========== ========== ========== ========== ========== ==========
Interest and financing
costs(c) ................. (1,140) (1,421) (15) 0 (378) (5)
========== ========== ========== ========== ========== ==========
Minority interests (c) ... 0 0 0 0 (788) 0
========== ========== ========== ========== ========== ==========
Net loss ................. (2,441) (2,525) (1,514) (1,689) (2,842) (1,172)
========== ========== ========== ========== ========== ==========
Weighted average number of
common and equivalent
shares ................... 16,475,000 16,600,000 14,868,000 14,818,000 15,807,000 14,865,000
========== ========== ========== ========== ========== ==========
Net loss per share ....... ($ 0.15) ($ 0.15) ($ 0.10) ($ 0.11) ($ 0.18) ($ 0.08)
========== ========== ========== ========== ========== ==========
</TABLE>
September 30, 1997
(as adjusted)(b) (actual)
---------------- --------
Balance Sheet Data:
Cash, cash equivalents and ................... $ 6,297 $ 3,297
marketable securities ........................ ======== ========
Working capital .............................. 11,415 8,415
========== ==========
Total assets ................................. 18,772 15,772
========== ==========
Long term debt ............................... 8,704 8,704
========== ==========
Minority interests ........................... 1,060 1,060
========== ==========
Stockholder's equity ......................... 5.487 2,487
========== ==========
6
<PAGE>
Notes:
(a) Financial position at September 30, 1997 (unaudited) and results of
operations for the nine-month period ended September 30, 1997 includes the
financial position and results of operations of Drew Shoe Corporation ("Drew
Shoe") since its acquisition by the Company on September 22, 1997 (see Note 2 to
the unaudited condensed consolidated financial statements) and are, in any
event, not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 1997. At September 30, 1997, a
preliminary estimate of the fair value of assets and liabilities acquired in the
acquisition of Drew Shoe has been made based upon data which is preliminary and
subject to change. Based upon such preliminary evaluation at September 30, 1997
(unaudited), there is not a material amount of goodwill recorded in the
acquisition of Drew Shoe.
(b) Reflects estimated net proceeds of approximately $3,000,000, reflecting the
issuance of approximately 2,904,636 shares of Common Stock of the Company upon
the assumed exercise of the Class B Warrants, Class E Warrants and options to
purchase 875,000 shares of Common Stock pursuant to the offering. Does not
reflect the conversion, in November and December 1997, of shares of BCA
Services, Inc. (a wholly owned subsidiary of the Company until July 1997)
preferred stock into approximately 553,855 shares Common Stock of the Company.
Does not reflect the conversion (with respect to 10%/13% Convertible Notes) or
the exercise (with respect to outstanding warrants and options), of other
securities not being registered at this time which are derivative into the
Common Stock of the Company. See "Description of Securities" and Notes to
Consolidated Financial Statements and Notes to Condensed Consolidated Financial
Statements of the Company for a description of the terms of such derivative
securities.
(c) Excludes non-recurring charges including the application of Emerging Issues
Task Force pronouncement D-60 for the beneficial value of the conversion feature
of certain financings completed in 1997 including $788,000 related to a
convertible preferred stock of a subsidiary (charge to minority interest) and an
initial amount of $180,000 related to a convertible note payable (interest and
financing cost). See "Financial Statements", Notes to Condensed Consolidated
Financial Statements for the period ended September 30, 1997, "Risk Factors --
Special Risk Factors, Charges to Operations from Recent Financings", and
"Description of Securities" for a fuller discussion. Such charges are excluded
from the summary pro-forma information above because they are non-recurring in
nature.
7
<PAGE>
RECENT ACQUISITION OF DREW SHOE CORPORATION
AND RELATED ACQUISITION FINANCING
Effective September 22, 1997, the Company acquired all of the outstanding
Common Stock of Drew Shoe for approximately $4.7 million plus the assumption of
liabilities. The purchase price was paid by delivery to the two shareholders of
Drew Shoe of an aggregate of $3,882,000 in cash, promissory notes in the
aggregate principal amount of $400,000 and by delivery of an aggregate of
375,000 shares of the Company's Common Stock. The promissory notes bear an
interest rate of 8% per annum, are due on September 19, 1999, and are payable in
twenty-four (24) equal monthly installments aggregating $8,333.34 (plus
interest) with a final payment due in the twenty-fifth (25th) month aggregating
$200,000.
See "Description of Securities; 10%/13% Convertible Notes and Non
Redeemable Class DD Warrants" for a description of the securities issued in
order to finance the acquisition of Drew Shoe.
Simultaneously with the acquisition, Drew Shoe closed a credit facility
(guaranteed by the Company) consisting of a revolving line of credit and term
loan with a commercial bank providing for total potential availability of $5.5
million, the majority of which is based upon agreed upon percentages of accounts
receivable and inventory. As of the date of the acquisition, the Company
believes there to be approximately $4.5 million available under this credit
facility (approximately $3.75 million of which was drawn down to pay certain
existing liabilities of Drew Shoe and to transfer $250,000 to the Company).
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. For its fiscal year ending December
31, 1996, Drew Shoe had revenues of approximately $14.6 million. The Company
intends to continue to operate Drew Shoe as a manufacturer of medical footwear.
Drew Shoe provides the Company with ongoing revenue, as well as potential
new product opportunities through (i) utilization of Company technology (both
existing and under development) into Drew Shoe products, (ii) a base from which
to possibly acquire additional retail outlets for Drew Shoe products (iii)
profit and systems improvement opportunities and (iv) a platform for possible
further acquisition of medical footwear and related business. The Company
believes that the medical footwear business is a fragmented business with
expansion opportunities for the Company. There is no assurance that such
opportunities will materialize or result in profitable operations.
Since the acquisition of Drew Shoe, the Company's revenues in the near
term are expected to be largely affected by the medical footwear business. The
operations of Drew Shoe alone are not sufficient to turn the Company profitable
in the immediate future. In fact, the Company has financed the acquisition of
Drew Shoe with convertible notes that will add significant cash and non-cash
charges for interest and financing as well as financial covenants.
Reference is made to "Special Risk Factors - Charges to Operations Related
to Recent Financings", "Description of Securities, 10%/13% Redeemable
Convertible Notes", Notes to Condensed Consolidated Financial Statements as of
September 30, 1997 (unaudited), Pro-Forma financial data as well as other areas
of this Prospectus for a more complete understanding of the Drew Shoe
acquisition and related financing.
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk, and should only be purchased by investors who can afford the
loss of their entire investment. Each prospective investor should carefully
consider the following risks, as well as other information, described elsewhere
in this Prospectus (see especially "Risk Factors", "Special Risk Factors" as
well as the financial statements of the Company and of Drew Shoe as well as
pro-forma financial data of the Company and of Drew Shoe included elsewhere in
this Prospectus), before purchasing the securities offered hereby. This
Prospectus contains forward-looking statements, which involve risks and
uncertainties. When used herein, the words "anticipate," "believe," "estimate,"
and "expect" and similar expressions as they relate to the Company or its
management are
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intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expected in, or implied by, these forward-looking statements. Factors that could
cause or contribute to such differences include those discussed in the following
risk factors.
FINANCIAL STANDARDS FOR CONTINUED NASDAQ LISTING. On August 22, 1997 the
Securities and Exchange Commission approved NASDAQ proposed changes to its
current listing criteria (the "new requirements"). Under the new requirements,
for initial listing the Company, generally, must have (i) net tangible assets of
at least $4,000,000, or a market capitalization of at least $50,000,000, or net
income in two of the last three years of $750,000; (ii) a minimum of 1,000,000
shares publicly held; (iii) a minimum of $5,000,000 in market value of public
float; (iv) a minimum bid price of $4.00 per share; (v) a minimum of 300
shareholders; (vi) an operating history of one year or a market capitalization
of $50,000,000; and (vii) implementation of corporate governance requirements.
Under the proposed rules for continued listing, the Company, generally, must
have (i) net tangible assets of $2,000,000, or a market capitalization of at
least $35,000,000, or net income in two of the last three years of at least
$500,000; (ii) a minimum of 500,000 shares publicly held; (iii) a minimum of
$1,000,000 in market value of public float; (iv) a minimum bid price of $1.00
per share; (v) a minimum of 300 shareholders; and (vi) implementation of
corporate governance requirements. NASDAQ has indicated that companies failing
to satisfy the new continued listing requirements will be generally allowed six
months to meet this new requirement by demonstrating, among other things,
compliance with the previous requirements.
Prior to August 22, 1997, to maintain its listing on the NASDAQ SmallCap
market, the Company must have total assets of at least $2,000,000; capital and
surplus of at least $1,000,000 and a minimum bid price of $1 per share,
provided, however, the $1.00 bid price per share is not applicable if the
Company maintains a public float of $1,000,000 and capital and surplus of
$2,000,000 (the "previous requirements"). Prior to September 1, 1997, the
Company's Common Stock did not have a bid price of more than $1.00 per share and
the Company did not have capital and surplus of $2,000,000. Further, at June 30,
1997, the Company did not report total assets of at least $2,000,000. The
Company was notified by NASDAQ that it did not meet its listing requirements.
Pursuant to the Company's request, the Company made a presentation to the
Listing Qualifications Committee of The Nasdaq Stock Market, Inc. on September
18, 1997 to present its plan for compliance with the previous requirement and
the new requirements. On October 15, 1997, the Company was notified by The
Nasdaq Stock Market Inc. that its listing on the SmallCap market would be
continued on the basis of compliance with the listing standards, specifically
that the Company's stock had a bid price of over $1.00 per share and its total
assets were more than $2,000,00. There can be no assurance that the Company will
be able to maintain its listing on the Nasdaq SmallCap market.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the NASDAQ maintenance requirements, trading of the Common Stock will be
conducted in the "pink sheets" or the NASD's Electronic Bulletin Board. In the
absence of the Company's securities being quoted on NASDAQ, or the Company
having $2,000,000 in net tangible assets, trading in the securities would
continue to be covered by Rule 15g-9 promulgated under the Exchange Act for
non-NASDAQ and non-exchange listed securities. Under such rule, broker-dealers
who recommend such securities to individuals other than established customers
and accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
The Commission has adopted regulations that generally define a "penny
stock" to be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity security
listed on NASDAQ and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
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As a result the market liquidity for such securities has been severely
affected by limiting the ability of broker-dealers to sell securities. There is
no assurance that trading in the Company's securities will not be subject to
these or other regulations that would adversely affect the market for such
securities.
While the Company currently meets the maintenance standards of the NASDAQ
Small Cap Market, there is no assurance that it will be able to continue to
maintain compliance with such requirements to remain listed.
HISTORY OF OPERATING LOSSES; EFFECT OF RECENT ACQUISITION. The Company has
been a software technology and consulting company specializing in ergonomic
solutions for individuals, government and major corporations, and has incurred
operating losses since its inception. The Company's revenues have historically
been derived principally from ergonomic consulting services. The Company
reported a net loss of $2,842,000 (including approximately $968,000 of
non-recurring charges described in the interim condensed consolidated financial
statements) for the nine-month period ended September 30, 1997, and net losses
of $1,514,140 and $1,689,480 for the fiscal years ended December 31, 1996 and
1995, respectively. Since inception, the Company has accumulated deficits. As of
September 30, 1997, the accumulated deficit was approximately $16,043,000.
On September 22, 1997, the Company acquired Drew Shoe, a designer,
manufacturer, marketer and distributor of medical footwear with annual revenues
of approximately $14.6 million for its year ended December 31, 1996. Drew Shoe
has been in business for approximately 125 years. The Company believes that the
acquisition of Drew Shoe provides it with several opportunities including: (a)
the possibility of incorporating its IST technology into medical footwear, (b)
significant revenue and operations, (c) growth opportunities through possible
acquisitions in the medical footwear and related industries. There can be no
assurance that the Company will be able to capitalize on such opportunities or
achieve profitable operations.
The Company's operations are subject to numerous risks associated with the
establishment and development of a business and the commercialization of new
technologies. Although the Company has recently acquired Drew Shoe, the
operations of Drew Shoe alone are not sufficient to turn the Company profitable
in the immediate future. Further, the Company has financed the acquisition of
Drew Shoe with Convertible Notes that will add significant cash and non-cash
charges for interest and financing as well as financial covenants (See "Special
Risk Factors - Charges to Operations Related to Recent Financings" and
"Description of Securities, 10%/13% Redeemable Convertible Notes.") The
Company's plans include: (1) building on the acquisition of Drew with cost and
systems improvements; (2) acquisitions of additional retail facilities (Drew
currently has 14); (3) acquisition of medical footwear companies and related
businesses; and (4) aggressively pursuing its HumanCAD(R) Division through the
sales of its MannequinPro(TM) software and development of other related
ergonomic software products. There can be no assurance that the Company will
achieve or sustain profitable operations through the Drew acquisition or through
the business strategy articulated above.
DISCRETION IN USE OF PROCEEDS DESIGNATED FOR WORKING CAPITAL. With respect
to any proceeds that the Company receives from the conversion of the warrants or
options, when and if that occurs, the Company will have broad discretion with
respect to the application of the proceeds. While such funds are to be applied
for working capital and general purposes in furtherance of the Company's
business, investors will be reliant on management as to the specific
applications of the proceeds.
NO ESTABLISHED MARKETS. Although the Company believes it has the right
products and services for the market place, there can be no assurance that the
Company's potential clients will find the Company's services or products of the
type provided or proposed by the Company to be desirable or of economic value.
RISKS OF EXPANSION. The Company has incurred and continues to incur
significant expenses to attract and retain qualified management personnel,
engineers, scientists, and ergonomists, for marketing and sales, and development
activities. The Company's expenses may exceed its revenues until such time as
the volume and profitability of its business increase to the extent necessary to
offset these expenses.
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HISTORICAL DEPENDENCE ON MAJOR CUSTOMERS. During the fiscal year ended
December 31, 1996, L.A. Rumbold Ltd., The Long Island Lighting Company ("LILCO")
and Stanley Tools, Inc. accounted for 38%, 18% and 18%, respectively, and 74%,
in the aggregate of the Company's net revenue. No assurance can be given that
the Company will continue to be retained by any of its major clients beyond the
current projects or that such clients will retain the Company for any future
services. During the fiscal year ended December 31, 1995, BE Aerospace, Inc.,
Remington Arms Company, Inc. and Reebok International, Ltd. ("Reebok") accounted
for 29%, 12% and 11% respectively, and 52%, in the aggregate, of the Company's
net revenues. In addition, Drew Shoe relies on the Veteran's Administration for
approximately 7% of its revenues. There is no assurance that the Veteran's
Administration will remain a major customer.
EFFECT OF STATE OF ECONOMY. The market for the Company's services may be
adversely affected by a recession or other economic downturn. During an economic
recession, such services may be considered discretionary and delays in
commencing ergonomic programs are possible. These factors are not within the
control of the Company.
GROWTH LIMITATIONS INHERENT IN SERVICE PORTION OF BUSINESS. The
specialized ergonomic consulting services and software products typically
provided by the Company require significant time and attention of the Company's
technical personnel. Accordingly, the Company's ability to deliver such
specialized services is limited by the relatively few qualified personnel
employed by the Company, at any given time, to perform these services.
FIXED PRICE CONTRACTS. The ergonomic consulting services provided by the
Company are often offered to clients on a fixed price basis. Approximately two
thirds of the Company's revenues in the year ended December 31, 1996 were from
fixed priced contracts with a duration of more than one year. Such contracts are
accounted for under the percentage of completion method. In setting its price
for services, the Company seeks to estimate the technical staff's hours that
will be required to provide the services. To the extent that the Company
underestimates the total hours that will be required to satisfy the contract,
the Company could realize a loss on any particular contract or contracts.
LIMITED RIGHTS TO CERTAIN PRODUCTS. In certain cases, the Company may
develop products for its clients in response to a specific request of such
client. In such cases, the client may fund all or a significant portion of the
Company's development costs. Although the Company believes that it owns the
rights to develop any products derived from work performed, including certain
products under development by the Company, no assurance can be given that any
client which has retained the Company will not in the future assert the right to
restrict the Company's activities with respect to any technology developed or
claim rights to products sought to be commercialized by the Company.
LACK OF PATENT PROTECTION; RELIANCE ON TRADE SECRET AND COPYRIGHT
PROTECTION. The Company has obtained eight issued patents and has six pending
patents. There can be no assurance that its technologies are entitled to patent
protection or that the claims in the pending patent applications (currently six)
will be issued as patents, that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patents owned by the Company or,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity of a patent and prevent infringement can be
substantial even if the Company prevails. Furthermore, there can be no assurance
that others will not independently develop similar technologies, duplicate the
Company's technology or design around the patented aspects of the Company's
technology or that the Company will not infringe on patents or other rights
owned by third parties.
The Company protects its proprietary written material, know-how, computer
software and technology which it has or may develop, through the use of
copyrights, common-law trade secret protection, trademarks and service marks,
and contractual arrangements. These laws provide only limited protection,
however, since they do not protect the "ideas" or "concepts" reflected in such
materials or software, but only protect the expression of the "ideas" or
"concepts" contained therein. While the Company enters into confidentiality
arrangements with its employees, consultants and customers, and implements
various measures to maintain "trade secret" protection for its products in an
attempt to maintain the proprietary nature of its products, there can be no
assurance that these measures will be successful. Accordingly, there is no
assurance that competitors
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may not develop products, materials or software which perform similar or
identical functions as the Company's products or proprietary software without
infringing upon the Company's copyrights or violating trade secret laws. The
legal and factual issues arising in copyright or trade secret litigation are
often both complex and unclear and any attempt to enforce the Company's rights
thereunder will face both the high cost of litigation and the uncertainty of the
result.
POSSIBLE CHARGE TO OPERATIONS FROM OPTIONS GRANTED. The Company's Board of
Directors has granted, subject to shareholder approval at the next meeting of
shareholders, options to purchase an aggregate of 3,682,500 shares of common
stock at a weighted average exercise price of approximately $1.15 (with some
options exercisable as low as $.75). Because such options are subject to
shareholder approval, the measurement date for financial accounting purposes
will be the later of the date of grant or approval. As a result, if the market
price of the Company's common stock on the date of approval is below the
exercise prices of the individual grants at the date of grant, a non-cash charge
to compensation expense will be required to be recorded to the Company's
consolidated financial statements. Such charge could be very material.
The risk exists that investors may be confused by such non-cash charge or
that the value of the common stock may be depressed by such charge.
GOVERNMENT REGULATION. The Company does not believe that its present and
currently proposed activities are generally subject to any material government
regulation in the United States or other countries. It is possible that certain
products developed by the Company in the future as an adjunct to its ergonomics
business, might be deemed under new legislation or regulations to be "medical
devices" or otherwise be subject to the jurisdiction of the Federal Food and
Drug Administration or similar agencies. In the event that any product is
subject to such governmental regulation, the Company will be required to obtain
any necessary approvals, which could delay or, in certain circumstances, even
prevent the introduction to the marketplace of such product and result in
significant expense.
RETENTION OF KEY PERSONNEL; LIMITED EXPERIENCE WITH COMPANY. The Company
is dependent upon the services of Michael Strauss, the President and Chief
Operating Officer, the Chairman of the Board of Directors and Chief Executive
Officer of the Company, Robert Wong, Vice Chairman, Chief Technology Officer,
(also Acting Secretary, Acting Treasurer and Acting Chief Financial Officer of
the Company from September 1996 to October 1997), Norman Wright, Vice Chairman
of the Company and President and Chief Executive Officer of the "HumanCAD"
Systems Division of the Company and Charles Schuyler, President of Drew Shoe and
Vice Chairman of the Company. Although the Company currently has employment
agreements with Michael Strauss (through the end of 1999), Robert Wong (through
the end of 1998), Norman Wright (through April 7, 1999), and Charles Schuyler
(through September 1999), there can be no assurance that the Company will be
able to retain the services of these key personnel, and the loss of the services
of such personnel could have a material adverse effect on the Company's business
and prospects. Currently, the Company has a $4,000,000 term key man life
insurance policy on the life of Charles Schulyer, and a $1,000,000 term key man
life insurance policy on the life of Michael Strauss, which policy has been
increased to $4,000,000 from an amount of $1,000,000.
COMPETITION. Although management believes that the Company's unique
technologies, proprietary software, methodologies and know-how give it a
competitive advantage, other companies or agencies are developing, and have
developed, particular services and technologies that are competitive with the
Company's services and technology and that increased competition is likely. It
is certain that some competitors will have significantly greater financial,
technical and other resources than the Company. Many of the large industrial
companies, especially major insurance companies, that form the primary market
for the Company's ergonomic consulting services may also seek to develop or have
already developed their own ergonomic programs. Similar services may also be
supplied by universities, hospitals, government agencies or other entities, many
of which may have substantially greater financial and other resources than the
Company. (See also "Special Risk Factors - Ongoing Operation of Drew Shoe;
History and Profitability and Competition")
POTENTIAL LIABILITY; INSURANCE COVERAGE. The Company may be exposed to
liability claims for injuries, property damage or other losses arising out of
improper provision of services. The Company currently has liability insurance
for such losses, which the Company believes, is sufficient to cover all claims.
However,
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there can be no assurance that it will be able to maintain such coverage or
obtain additional coverage, at a reasonable cost or otherwise, or that the
coverage that it has or that it may obtain will be sufficient to cover any and
all claims. Although no claims have been asserted to date, in the event that a
claim is successfully asserted against the Company, such claim could have a
material adverse effect on the Company.
SHARES ELIGIBLE FOR FUTURE SALE. As of September 30, 1997, the Company had
outstanding 807,659 Redeemable Class B Warrants exercisable at $1.14 per share
to purchase 1,292,254 shares of Common Stock, 491,588 Redeemable Class E
Warrants exercisable at $.95 per share to purchase 737,382 shares of Common
Stock and 1,075,000 Non-Redeemable Class AA Warrants exercisable at $.65 per
share to purchase 1,075,000 shares of Common Stock. As of September 30, 1997,
the Company also had Non-Redeemable Class BB Warrants outstanding to purchase
100,000 shares of Common Stock exercisable at $.7219 per share in connection
with $1,000,000 raised from the first and second tranches of a potential
financing of $1,500,000 Should the Company choose to exercise its option to
utilize the third tranche of $500,000, the Company will be obligated to issue an
additional 50,000 Non-Redeemable Class BB Warrants. In addition, the Company
completed a separate offering of $200,000 on September 18, 1997, which resulted
in the issuance of 10,000 Non-Redeemable Class CC Warrants to purchase 10,000
shares of Common Stock exercisable at $1.0264 per share. On September 19, 1997,
the Company issued 2,400,000 Non-Redeemable Class DD Warrants to purchase
2,400,000 shares of Common Stock at $1.75 per share, in connection with the
issuance of the 10%/13% Convertible Subordinated Notes as part of the financing
for the Drew Shoe acquisition, and 500,000 Non-Redeemable Class EE Warrants to
purchase 500,000 shares of Common Stock at $0.80 per share. (See Special Risk
Factors - "Relative Terms and Conditions of Recent Financings")
The Company has also granted stock options to purchase an aggregate of
7,414,500 additional shares of its Common Stock (net of exercises and
cancellations) including 6,214,500 options granted as part of the 1989 and 1995
Stock Option Plans (3,682,500 of which are subject to shareholder approval), and
1,200,000 options granted to outside consultants at exercise prices ranging from
$0.75 to $1.69 per share. Of these shares, the Company has granted to its
non-management directors, former directors and consultants options to purchase
an aggregate of 1,807,500 shares of its Common Stock at exercise prices ranging
from $0.75 to $3.22 per share. Holders of options and warrants are likely to
exercise them when, in all likelihood, the Company could obtain additional
capital on terms more favorable than those provided by such options or warrants.
Further, while such options and warrants are outstanding, they may adversely
affect the terms on which the Company can obtain additional capital. In
addition, future sales of Common Stock could depress the market price of the
Company's Common Stock (further see "Possible Charge to Operations From Options
Granted").
DILUTIVE EFFECTS OF THE SHARES BEING REGISTERED. Investors in the common
shares offered hereby will be subject to immediate and substantial dilution to
their investment based upon the Company's tangible book value (unaudited) of
approximately $0.053 per share at September 30, 1997, upon exercise of
Redeemable Class B Warrants, Redeemable Class E Warrants, and the Stock Options
issued to consultants and a former joint venture partner, of $1.009, $0.859 and
$0.906, respectively. See "Dilution".
NO DIVIDENDS. The Company has paid no cash dividends on its Common Stock
since its inception and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future.
MARKET OVERHANG. Future sales of common stock could depress the market
price of the Company's common stock. Further, the options and warrants presently
outstanding (approximately 3,682,500 of which are subject to shareholder
approval), convertible into a total of 13,529,136 shares, could adversely affect
the market for the Common Stock, and any sale of the Common Stock acquired
pursuant to such options and warrants could also depress the market price of the
Common Stock.
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING WARRANTS
AND OPTIONS. Holders of the Warrants or Options may reside in or move to
jurisdictions in which the common shares underlying the securities may not be
registered or otherwise qualified for sale during the period that the securities
are exercisable. In this event, the Company would be unable to issue common
shares unless and until the shares could be qualified for sale in jurisdictions
in which such purchasers reside, or an exemption to such qualification exists in
such jurisdiction. The Company has no obligation to effect any such registration
or qualification. If the Company elects to attempt such registration or
qualification, no assurances can be given that the Company will be able to
effect any required registration or qualification. Notwithstanding this, the
Company intends to put forth its best efforts to cause this registration
statement to be effective by
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approximately January 9, 1998. However, no assurances can be given that the
statement will be effective on or about that date. The Company has qualified the
offering in the following states: Alabama, Connecticut, Florida, Georgia,
Hawaii, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Michigan,
Mississippi, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Texas,
Utah, West Virginia and Wisconsin. See "Description of Securities".
SPECIAL RISK FACTORS
The following are special risk factors which the Company believes are related to
the acquisition of Drew Shoe and related financing transactions as well as
certain pre-acquisition financing transactions.
CHARGES TO OPERATIONS RELATED TO RECENT FINANCINGS. On July 24, 1997 a
subsidiary of the Company (BCA Services, Inc.) completed the first tranche for
$500,000 and on September 8, 1997 completed the second tranche for $500,000, of
a potential aggregate $1,500,000 private offering of its Preferred Stock to
accredited investors. The shares of Preferred Stock are convertible into the
Company's Common Stock ("Common Stock") at a price equal to 70% of the average
closing bid price of the Common Stock over a three day trading period ending on
the day preceding the conversion date (the "Variable Conversion Price"). The
Conversion Price may not be greater than 100% of the Variable Conversion Price
on the first closing date (the "Fixed Conversion Price"). The Fixed Conversion
Price is $0.6563. On the first anniversary of the closing date, all outstanding
shares of Preferred Stock must be converted into shares of Common Stock of the
Company. In addition, for each 50 shares of Preferred Stock sold, each purchaser
received warrants to purchase up to 25,000 shares of Common Stock per $500,000
raised, exercisable at a rate of 110% of the Variable Conversion Price on the
closing date. The warrants have a term of five years and the Common Stock
underlying the warrants contain registration rights.
On September 17, 1997, BCA Services, Inc. completed a separate private
placement of $200,000 of Preferred Stock on similar terms as the $1,500,000
financing referred to above, with the exception that the Fixed Conversion Price
for these shares is $.9331 per share. In addition, the purchasers received
warrants to purchase, in the aggregate, up to 10,000 shares of Common Stock,
exercisable at a rate of 110% of the Variable Conversion Price on the closing
date. The warrants have a term of five years and the Common Stock underlying the
warrants contain registration rights
On September 19, 1997, the Company issued subordinated convertible notes
(the "Convertible Notes") and warrants to eight investors for an aggregate
consideration of $6,000,000. The Convertible Notes are due on September 19,
2002, unless at any time after September 19, 1998, they are converted, at $.80
per share, into 7,500,000 shares of Common Stock of the Company. The Convertible
Notes bear an interest rate of 10%, payable semi-annually, but the Company, at
its discretion, may pay interest in the form of its convertible notes (on the
same terms), in which case the annual interest rate becomes 13% annually with
semi-annual compounding. The Convertible Notes contain certain financial
covenants requiring the maintenance of minimum levels of interest coverage and
net worth (as defined). Warrants issued to the noteholders are for the purchase
of 2,400,000 shares of common stock, exercisable at $1.75 per share at any time
prior to September 19, 2002.
In response to positions recently taken by the Securities and Exchange
Commission, the Emerging Issues Task Force issued Statement D-60 which requires
special accounting for securities issued which are convertible into common stock
at a value which is "in the money" at the date of issuance. Such accounting
requires that the beneficial value of such conversion feature be charged to
operations (in the case of a convertible note) or to retained earnings as
dividends (in the case of a preferred stock) over a period reflecting the
shortest period in which the investor has to exercise under the most favorable
terms to the investor (based upon the traded market price, without discount,
compared to the conversion amount). As a result of such accounting, the Company
expects to charge approximately $5,925,000 related to the Convertible Notes to
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interest and financing costs ratably over a one year period beginning on
September 19, 1997. The Company also has charged amounts related to the issuance
of $1,200,000 of the Preferred Stock of BCA Services, Inc. (approximately
$788,000 for the quarter ended September 30, 1997) to minority interests
immediately. These charges will be in addition to charges to amortize the
estimated value of the detachable warrants issued in connection with the
Convertible Notes (estimated to be approximately $1,500,000) and the related
deferred financing costs (estimated to approximate $700,000) over the term of
the Convertible Notes (five years).
The risk exists that non-cash charges of the magnitude described above
(for example approximately $7,000,000 over the twelve months from September 1997
to September 1998) may be confusing to investors or otherwise have a depressive
effect on the valuation of the Company's common stock.
REVOLVING LINE OF CREDIT; TERM LOAN. In conjunction with the Drew Shoe
acquisition, Drew Shoe has obtained a commitment from Bank One, NA ("Bank One")
for a $4,500,000 asset-based revolving line of credit (the "Line of Credit"),
with an interest rate of the Prime Rate plus 1.5%, a closing fee of 1/2 of 1%,
and a maturity date of September 30, 1999. Additionally, Bank One has committed
to a Term Loan of $1,000,000, with an interest rate of the Prime Rate plus 1.5%,
a closing fee of $5,000, and a maturity date of September 30, 2000. Both the
Line of Credit and the Term Loan are secured by all of Drew Shoe's assets,
including receivables and inventory, land, building, machinery and equipment,
which will determine the total amount available. The Company is a guarantor of
Drew Shoe's obligations under the Bank One agreement.
As of the closing of the Drew Shoe acquisition, the Company estimated that
approximately $4,500,000 was available to it under the combined Line of Credit
and Term Loan. Of this available amount, Drew Shoe drew down approximately
$3,750,000 which was used to satisfy certain existing liabilities and to make a
transfer of $250,000 to the Company.
There can be no assurance that the full $5,500,000 will ever be available
to the Company (because the lender may disallow some portion of Drew Shoe's
assets as security) or that amounts which are available will be sufficient for
the operations and plans of Drew Shoe. In addition, even if the entire
$5,500,000 anticipated is available, there can be no assurance that this amount
is sufficient to fund all of the future working capital requirements of Drew
Shoe.
ONGOING OPERATION OF DREW SHOE; OPERATING HISTORY AND PROFITABILITY. Drew
Shoe was incorporated approximately 60 years ago. The company was primarily a
comfort shoe manufacturer until 1992, when it shifted its focus to medical
footwear, which had previously comprised only a small portion of the company's
business. Accordingly, Drew Shoe has only a five year operating history in the
medical footwear business.
In fiscal 1996, Drew Shoe had net income of approximately $26,000 on sales
of approximately $14,609,000, and in fiscal 1995 Drew Shoe had net income of
approximately $284,000 on sales of approximately $13,647,000. There can be no
assurance that Drew Shoe will be profitable. Although Drew Shoe has experienced
moderate revenue growth since it shifted its focus to medical footwear, such
growth may not be sustainable and may not be indicative of future operating
results. See "Management of Growth; Risks Associated with Expansion; Capital
Requirements".
Drew Shoe's prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by manufacturers and, to some extent,
retailers, in the process of shifting their sales and marketing efforts to new
end users and, in effect, anticipating growth from a new target market. In order
to address these risks, Drew Shoe must, among other things, respond to
competitive developments, attract, retain and motivate qualified persons, and
continue to develop its expertise in marketing, product development and customer
service as well as improve its information systems. There can be no assurance
that Drew Shoe will be successful in addressing these risks. The failure of Drew
Shoe to achieve significant profitability would have a material adverse effect
on the Company.
COMPETITION. The market for the wholesale distribution and retail
distribution of medical footwear and comfort shoes is intensely competitive.
Drew Shoe faces strong existing competition for similar products and will face
significant competition from new companies or existing companies with new
products. Many of
15
<PAGE>
these companies may be better financed, have better name recognition and good
will, have more marketing expertise and capabilities, have a larger and more
loyal customer base, along with other attributes, that may enable them to
compete more effectively. Drew Shoe has minimal, if any, proprietary rights to
prevent competitors from duplicating its footwear.
The market for medical footwear, and for casual shoes, which may be
perceived by many consumers as a substitute for medical footwear, includes a
number of well-established companies with recognized brand names. Potential
purchases of medical footwear are often based upon highly subjective decisions
that may be influenced by numerous factors, many of which are out of Drew Shoe's
control. As a result, Drew Shoe may face substantial competition from existing
and new companies that market both medical and comfort shoes that are perceived
to meet needs for comfort and protection, and are visually appealing. There can
be no assurance as to the market acceptance of Drew shoes in relation to its
competition.
RELIANCE ON A SINGLE MAJOR PRODUCT LINE. Drew Shoe has relied to a large
extent on medical footwear for sales. In addition, 80% of its sales are women's
shoes. If sales of these products are less than projected, Drew Shoe's business,
operating results and financial condition would be materially adversely
affected. In addition, while only a minor percentage of Drew Shoe's revenue is
currently related to the 1994 Federal legislation which provides for Medicare
funding of shoes for diabetics, the Company has anticipated in its revenue
projections that some portion of its future growth will be related to this
factor as individuals become aware of this Medicare reimbursable benefit. If
Drew Shoe does not properly promote this opportunity, Drew Shoe's business,
operating results and financial condition would be adversely affected.
RELIANCE ON CERTAIN DISTRIBUTION CHANNELS. Drew Shoe relies on its own
specialty retail stores for approximately 15% of its distribution, the Veteran's
Administration for approximately 7% of its distribution, and approximately 2,000
specialty retail stores as customers for the remainder of its distribution. Drew
Shoe intends to expand distribution through its own specialty retail stores. The
retail business is intensely competitive. There can be no assurance that Drew
Shoe's own specialty retail stores, which also distribute competitors' products,
will be profitable and will therefore, be a viable distribution mechanism.
Further, there can be no assurance that Drew Shoe distribution through
unaffiliated retail stores will continue to support its current pricing
structure if additional competition should enter the market. Further, there can
be no assurance that the Veteran's Administration will remain a major customer.
DEPENDENCE ON CERTAIN SUPPLIERS; FOREIGN SUPPLIERS. Drew Shoe depends on
various raw materials and components to manufacture its shoes, many of which are
dependent on one supplier. Drew Shoe does not have binding long-term supply
contracts with these suppliers. Therefore, Drew Shoe's success will depend on
maintaining its relationships with these suppliers and developing relationships
with new suppliers. Any significant delay or disruption in the supply of leather
and other key materials caused by manufacturers' production limitations,
material shortages, quality control problems, labor interruptions, shipping
problems or other reasons would materially adversely affect the Company's
business. The delays in receiving such supplies from alternative sources would
cause Drew Shoe to sustain at least temporary shortages of materials which would
have a material adverse effect on the Company's business, operating results and
financial condition.
Approximately 15% of Drew Shoe's supplies, primarily leather, are provided
by Italian companies. As a result, the supply of some of the materials required
to manufacture Drew's shoes is subject to additional cost and risk factors, many
of which are out of the Company's control, including political instability,
import duties, trade restrictions, work stoppages and foreign currency
fluctuations. An interruption or material increase in the cost of supply would
materially adversely affect Drew Shoe's business, operating results and
financial condition.
MANUFACTURING AND INVENTORY SYSTEMS. Drew Shoe's business is subject to
inventory risk, in that its inventory turnover has been traditionally low and
its lack of adequate inventory management systems has resulted in a significant
writedown of inventory in 1996, which is greater than historical norms.
Inventory losses are currently determined annually upon the occurrence of a
physical inventory and subsequent reconciliation of the results against
accounting records. The Company intends to improve, develop and implement
inventory management systems to correct these problems. However, there can be no
assurance that the Company will be successful in doing so. Drew Shoe's business
is also subject to manufacturing risk, in
16
<PAGE>
that its machinery and equipment may not be as modern as that of its
competitors. Inventory management systems and other manufacturing improvements
including manufacturing automation may require significant funding. There can be
no assurance that the Company will have sufficient funding to implement these
improvements or that, even if funding is sufficient, the Company will be
technically and operationally successful in implementing these improvements.
LABOR CONTRACT. The Drew Shoe business is subject to potential increases
in its labor cost, in that its union contract is up for renegotiation in May of
1998. There can be no assurance that potential increases in labor costs can be
passed through to the consumer in increased pricing. Furthermore, there can be
no assurance that new management will be able to maintain the quality of the
labor/management relationship developed at Drew Shoe over the years.
DEPENDENCE ON KEY PERSONNEL. Drew Shoe is dependent upon certain key
personnel, including Charles Schuyler, the President of Drew Shoe and Larry
Martin, the Vice President of Finance of Drew Shoe, to manage, market and
operate the Company's business. There is strong competition for qualified
personnel in the shoe manufacturing industry, and the loss of key personnel or
an inability of Drew Shoe to attract, retain and motivate key personnel could
adversely affect Drew Shoe's business, operating results and financial
condition. While the Company has employment contracts with Mr. Schuyler & Mr.
Martin through September 1999, there can be no assurance that Drew Shoe will be
able to retain its existing key personnel or attract additional qualified
personnel. Currently, the Company has a $4,000,000 key man life insurance policy
on Charles Schuyler.
NO EXPERIENCE OF MANAGEMENT IN FOOTWEAR BUSINESS. Management of the
Company has no prior experience in operating a footwear business such as Drew
Shoe. There can be no assurance that the Company will be able to successfully
develop Drew Shoe's business.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS. Because sales of shoes have
historically been dependent, to some extent, on discretionary consumer spending,
Drew Shoe's revenues are subject to fluctuations based upon the general economic
conditions of the United States. If there is a general economic downturn or
recession in the United States consumer spending on medical footwear could
decline which could have a material adverse effect on Drew Shoe's business,
operating results and financial condition.
PRODUCT RETURNS FROM WARRANTY. Drew Shoe, as part of its marketing
efforts, accepts product returns for 30 days from the date of sale, and charges
customers a $6 restocking fee. Drew Shoe has experienced an approximately 10%
return rate over the past two years. The percentage has not varied significantly
over the past 5 years. If the rate of returned product increases, Drew Shoe's
business, operating results and financial condition could be materially
adversely affected.
MANAGEMENT OF GROWTH; RISKS ASSOCIATED WITH EXPANSION; CAPITAL
REQUIREMENTS. Drew Shoe's growth and expected growth has resulted in, and is
expected to continue to result in, increased demands on Drew Shoe's management
and its operating systems. This growth may require an increase in the number of
employees and an increase in the responsibilities of both existing and new
management personnel. This growth may result in a strain on Drew Shoe's existing
operational, financial, human resource and information systems.
Drew Shoe's financial and management controls, reporting systems and
procedures have evolved with the growth of Drew Shoe and there can be no
assurance that Drew Shoe's controls, systems or procedures will continue to be
adequate to support its operations. The Company expects that Drew Shoe will need
to further develop its management controls, reporting systems and procedures to
accommodate potential future growth and enhance current efficiency. There can be
no assurance that Drew Shoe will be able to do so effectively and on a timely
basis, and failure to do so when necessary could have a material adverse effect
upon Drew Shoe's business, operating results and financial condition.
SEASONALITY AND QUARTERLY FLUCTUATIONS. Historically, sales of Drew Shoe
products are not seasonal. However, sales revenue and profitability may vary
from quarter to quarter based on the introduction of new products, opening of
new stores, weather conditions, marketing and media expenditures, and certain
non-
17
<PAGE>
recurring charges.
DIVERSION OF COMPANY EXECUTIVE'S ATTENTION. The Drew Shoe acquisition and
integration into BCAM's core business is expected to consume a significant
amount of time of Michael Strauss, the Company's Chief Executive Officer, which
will detract from his ability to focus on BCAM's "core business" as well as
other new opportunities, which could adversely affect the future growth and
development of this aspect of the Company's business.
18
<PAGE>
MARKET FOR COMPANY'S EQUITY SECURITIES
COMMON STOCK - NASDAQ
1995 High Bid Low Bid
- ---- -------- -------
First Quarter 1 1/16 3/4
Second Quarter 1 9/32 7/8
Third Quarter 1 21/32 31/32
Fourth Quarter 2 1
1996
- ----
First Quarter 1 1/4 29/32
Second Quarter 1 5/16 29/32
Third Quarter 1 23/32 15/16
Fourth Quarter 1 7/16 13/16
1997
- ----
First Quarter 1 3/8 27/32
Second Quarter 1 1/8 11/16
Third Quarter 23/32 1 7/8
Fourth Quarter, through 1 31/32 1
December 22, 1997
COMMON STOCK - BOSTON STOCK EXCHANGE
1995 High Sales Price Low Sales Price
- ---- ---------------- ---------------
First Quarter 1 1/16 13/16
Second Quarter 1 9/32 31/32
Third Quarter 1 1/2 1
Fourth Quarter 1 13/16 1 1/8
1996
- ----
First Quarter N/A N/A
Second Quarter 1 1/4 1 1/16
Third Quarter 1 19/32 1
Fourth Quarter 1 7/16 7/8
1997
- ----
First Quarter 1 1/4 27/32
Second Quarter 1 3/32 3/4
Third Quarter 1 3/32 23/32
Fouth Quarter, through 1 5/8 1 5/8
December 22, 1997
19
<PAGE>
REDEEMABLE CLASS B WARRANTS - NASDAQ
1995 High Bid Low Bid
- ---- -------- -------
First Quarter 1/8 1/8
Second Quarter 1/8 1/8
Third Quarter 1/8 1/8
Fourth Quarter 7/32 1/8
1996
- ----
First Quarter 1/8 1/8
Second Quarter 1/8 1/16
Third Quarter 1/8 1/8
Fourth Quarter 1/16 1/16
1997
- ----
First Quarter 1/16 1/16
Second Quarter NA NA
Third Quarter 1/4 5/8
Fourth Quarter, through 9/32 3/4
December 22, 1997
REDEEMABLE CLASS E WARRANTS - NASDAQ
1995 High Bid Low Bid
- ---- -------- -------
First Quarter 11/32 1/4
Second Quarter 3/8 5/16
Third Quarter 5/8 3/8
Fourth Quarter 7/8 3/8
1996
- ----
First Quarter 7/16 3/8
Second Quarter 3/8 3/8
Third Quarter 5/8 3/8
Fourth Quarter 7/8 5/16
1997
- ----
First Quarter 5/16 5/16
Second Quarter 5/16 1/4
Third Quarter 1/16 7/16
Fourth Quarter, through 3/8 13/16
December 22, 1997
20
<PAGE>
DILUTION
As of September 30, 1997, the net tangible book value per share of the
Company's Common Stock was approximately $.053. "Net tangible book value per
share" represents the amount of the Company's tangible assets, less the amount
of its liabilities, minority interest and redeemable stock, divided by the
number of shares of Common Stock outstanding. After giving effect to the receipt
of the proceeds from the sale of Common Stock upon exercise of the balance of
Redeemable Class B Warrants and Redeemable Class E Warrants at exercise prices
per share of $1.14 and $0.95, respectively, and the exercise of the 875,000
shares under options with exercise prices of $0.75 to $1.69, the pro-forma net
tangible book value per share of Common Stock as of September 30, 1997, would
have been $.201. This would result in dilution to purchasers of Common Stock
upon the exercise of all shares purchased pursuant to the Warrants and options
of $.851. Refer to the following table for the dilution of the shares
purchasable under each of the Warrants and the options as a group (based upon
the weighted average exercise price per share).
Redeemable Redeemable
Class B Class E 875,000
Warrants Warrants Options Total
-------- -------- ------- -----
Public offering price per
share of Common Stock
upon exercise of Warrants
and Stock Options $1.140 $0.950 $0.75- $1.052
$1.69
Net tangible book value
per share at September
30, 1997 $0.053 $0.053 $0.053 $0.053
Net increase per share
attributable upon
exercise of the Warrants
and Stock Options $0.078 $0.038 $0.048 $0.148
Pro forma net tangible
book value per share of
Common Stock after
exercise of the Warrants
and Stock Options $0.131 $0.091 $0.101 $0.201
Dilution of net tangible
book value per share of
Common Stock to new $1.009 $0.859 $0.906 $0.851
investors
21
<PAGE>
USE OF PROCEEDS
The Company will derive proceeds from any exercise of the Redeemable Class
B and E Warrants and from the 875,000 shares being registered hereby. The
Redeemable Class B and E Warrants are exercisable no later than January 18, 1998
(formerly January 16, 1995). The options have various expiration dates ranging
from May 1999 to May 2007. Assuming the exercise of the Redeemable Class B and E
Warrants, the maximum aggregate amount of such proceeds is estimated at
approximately $2,173,000 (before any expenses). Assuming the exercise of the
options to purchase 875,000 shares of Common Stock, the Company would receive
aggregate proceeds of approximately $880,000 (before any expenses). If the
Company were to receive such proceeds indicated above, said proceeds would be
utilized for general working capital purposes.
The Company may also use working capital for acquisitions.
The foregoing represents the Company's best estimate of its use of the net
proceeds from any exercise of the Warrants and Stock Options offered hereby,
based upon the current state of its business operations, its current plans and
current economic and industry conditions. Further events, including the
problems, delays, expenses and complications frequently encountered by
businesses as well as changes in economic, regulatory or competitive conditions
or the success or lack thereof of the Company's research and marketing
activities and planned acquisitions, may require reallocation of funds or may
require the delay, abandonment or reduction of the Company's efforts.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997, as adjusted to reflect (a) the issuance and sale of
1,292,254 shares of Common Stock upon exercise of the Redeemable Class B
Warrants at $1.14 per share; (b) the issuance and sale of 737,382 shares of
Common Stock upon issuance of the Redeemable Class E Warrants at $0.95 and (c)
the issuance of 875,000 shares of Common Stock upon exercise of 875,000 stock
options to employees, directors, former directors, consultants, and a former
joint venture partner.
September 30, 1997
(unaudited)
As Adjusted Actual
------------ ------------
10%/13% Convertible Notes, net of
unamortized amount allocated to warrants $ 4,195,000 $ 4,195,000
Other long-term debt 4,513,000 4,513,000
Minority interest (a) 1,060,000 1,060,000
- ----------
Acquisition Preferred Stock, par value $.01 $ -- $ --
per share, authorized 750,000 shares, no
shares issued or outstanding
Common Stockholders' Equity:
Common Stock, $.01 par value; 40,000,000
shares authorized; 17,440,415 shares issued
and 16,667,233 outstanding; 20,335,051
shares issued and 19,571,869 outstanding, as
adjusted (a) 203,000 174,000
Paid-in surplus 27,972,000 25,001,000
Unamortized financing charge (5,746,000) (5,746,000)
Deficit (16,043,000) (16,043,000)
------------ ------------
6,386,000 3,386,000
Less:
Treasury Shares (763,182 shares) (899,000) (899,000)
------------ ------------
Common Stockholders' Equity $ 5,487,000 $ 2,487,000
============ ============
Total Capitalization $ 15,255,000 $ 12,255,000
============ ============
Notes:
(a) Does not include the effects to reduce minority interest and increase common
shareholders' equity which results from the conversions, in November and
December 1997, of approximately $400,000 of preferred stock of BCA Services,
Inc. (a subsidiary of the Company) into approximately 553,855 shares of common
stock of the Company.
23
<PAGE>
SELECTED FINANCIAL DATA
The selected historical financial data set forth below are derived from
the audited consolidated financial statements of the Company as of December 31,
1996 and for the years ended December 31, 1996 and 1995, and the unaudited
condensed consolidated financial statements as of September 30, 1997 and for the
nine months ended September 30, 1997 and 1996, appearing elsewhere in this
Prospectus. On September 22, 1997 the Company acquired Drew Shoe and has
accounted for Drew Shoe under the purchase method of accounting. As such, the
Company's financial position at September 30, 1997 (unaudited) includes the
financial position of Drew Shoe based upon a preliminary allocation (based upon
estimates which are subject to change) of the purchase price of Drew Shoe.
Results of operations for the nine-month period ended September 30, 1997 include
the results of Drew Shoe's operations for the period since its acquisition by
the Company on September 22, 1997 (see Note 2 to unaudited condensed
consolidated financial statements as of and for the period ended September 30,
1997) and are, in any event, not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
The summary pro-forma financial data set forth below shows the unaudited
pro-forma results of operations assuming that the Company had purchased Drew
Shoe as of the beginning of each period shown. This information is derived from
the financial statements described above as well as the pro-forma information
and audited financial statements of Drew Shoe (appearing elsewhere in this
Prospectus) and unaudited financial information for Drew Shoe for the nine
months ended September 30, 1997 (not presented herein). This information gives
effect to the increased interest and financing costs (excluding certain material
non-recurring charges which are discussed in Notes 3 and 5 of the unaudited
condensed consolidated financial statements of the Company as of and for the
period ended September 30, 1997 and in "Special Risk Factors") and the
amortization of preliminary fair value adjustments principally for increased
depreciation. The Company has not included a provision for income taxes because
it believes that it will have sufficiently available net operating losses to
offset anticipated profits from Drew Shoe.
The summary historical financial data should be read in conjunction with
Company's consolidated and, condensed consolidated, financial statements and
notes thereto included elsewhere in this Prospectus.
The summary pro-forma financial data should be read in conjunction with
the financial statements of the Company referred to above as well as to the
unaudited pro-forma information of the Company and Drew Shoe, the audited
financial statements of Drew Shoe as of December 31, 1996 and the unaudited
interim financial statements of Drew Shoe as of June 30, 1997, also included
elsewhere in this prospectus.
24
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Information
(Dollar Amounts In Thousands, Except Per Share Data)
Pro-Forma Historical
----------------------------- ------------------------------------------------
Nine Months Year ended Year ended Nine Months ended
September 30, December 31, December 31, September 30,
------------- ------------ ------------ -------------
1997 1996 1996 1995 1997(a) 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Data:
Net revenue 11,902 15,214 $ 605 $ 752 $ 771 $ 384
-------------------------------------------------------------------------------------------------
Gross margin 4,710 5,757 273 598 329 227
Selling, general and
administrative 5,985 7,026 1,802 1,832 1,943 1,370
Research and development 80 98 98 186 83 79
-------------------------------------------------------------------------------------------------
Loss from operations (1,355) (1,172) (1,568) (1,864) (1,697) (1,222)
-------------------------------------------------------------------------------------------------
Interest income 54 68 54 175 21 55
Interest and financing cost (1,140) (1,421) -- -- (378) (5)
Minority interest -- -- -- -- (788) --
-------------------------------------------------------------------------------------------------
Total financial
charges (1,086) 1,353 54 175 (1,145) 50
-------------------------------------------------------------------------------------------------
Net loss $ (2,441) $ (2,525) $ (1,514) $ (1,689) $ (2,842) $ (1,172)
========== ========== ========== ========== ========== ==========
Weighted average number
of common shares 16,475,000 16,600,000 14,868,000 14,818,000 15,807,000 14,865,000
Net loss per share $ (0.15) $ (0.15) $ (0.10) $ (0.11) $ (0.18) $ (0.08)
</TABLE>
September 30, 1997
(as adjusted)(b) (actual)
---------------- --------
BALANCE SHEET DATA:
Cash and equivalents $ 6,297 $ 3,297
========== ==========
Working capital 11,415 8,415
========== ==========
Total assets 18,772 15,772
========== ==========
Long term debt 8,704 8,704
========== ==========
Minority interests 1,060 1,060
========== ==========
Stockholder's equity 5,487 2,487
========== ==========
NOTES:
(a) Includes the (unaudited) results of operations of Drew Shoe for eight days
since its acquisition by the Company on September 22, 1997.
(b) Includes the financial position of Drew Shoe as of September 30, 1997
(unaudited) based upon a preliminary allocation of the purchase price to
the estimated fair value of assets and liabilities acquired. Assumes the
exercise of the Class B and Class E Warrants being registered hereby for a
total of 2,173,683 shares and the exercise of options being registered
hereby for a total of 875,000 shares. The assumed net proceeds are
approximately $3,000,000 after considering estimated expenses of the
offering.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below in Factors That May
Affect Future Results
OVERVIEW
BCAM International, Inc. (the "Company") has been a software technology
and consulting company, specializing in ergonomic (human factor) solutions for
individuals, government, and for major corporations. The Company's focus since
1995 has been on (I) accelerating the development and commercialization of the
Company's Intelligent Surface Technology ("IST"), (II) continuing the
development of proprietary software MannequinPro(TM) and the EARLY(R) process,
(III) upgrading and marketing its proprietary software ("HumanCAD(R)") products
of MannequinPro(TM) and EARLY(R), and marketing Software Based Ergonomic
Consulting Services and (IV) making one or more acquisitions of existing
businesses which could provide the Company with a greater revenue base and
opportunity to utilize its technology. The Company also continues to provide its
Traditional Ergonomic Consulting Services in Ergonomic Product Assessment and
Redesign and Ergonomic Workplace Assessment.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
RESULTS OF OPERATIONS
Effective September 22, 1997, the Company acquired all of the outstanding
Common Stock of Drew Shoe for approximately $4.7 million plus the assumption of
liabilities. Drew Shoe is a designer, manufacturer, marketer and distributor
(both wholesale and retail) of medical footwear. The Company has accounted for
its acquisition of Drew Shoe under the purchase method of accounting. As such,
the results of operations of Drew Shoe are consolidated with the Company's
operations for the quarter and nine months for eight days beginning on September
22, 1997. Drew Shoe's revenues during that period were approximately $353,000
and it had no operating income partly because that short period of operations
was interrupted by physical inventory counting necessitated by the acquisition.
The Company expects that Drew Shoe, with revenues of over $14.5 million in
calendar 1996, will be a significant contributor to revenues in future quarters.
Further, the Company expects to take steps to build the revenue base and
profitability of Drew Shoe.
Revenues from non Drew Shoe business activities were approximately $43,000
(25%) lower for the quarter ended September 30, 1997 compared to 1996. The
reduction in the current year reflects customer delayed starts of certain
consulting projects and lower than expected software and license revenue.
Revenues for the nine months ended September 30, 1997 were approximately $34,000
(9%) higher for the nine months compared to the prior year.
Selling, general and administrative costs reflect an increase of
approximately $297,000 from the sequentially preceding quarter. The increase
consists principally of approximately $138,000 related to the inclusion of Drew
Shoe expenses and approximately $100,000 related to executive bonus and payment
of deferred compensation. The quarterly selling, general and administrative
costs are higher than the prior year because of the factors described in the
preceding sentence as well as marketing and other investments being made in the
HumanCAD Systems business and other matters.
Interest and financing costs for the quarter and nine months ended
September 30, 1997 consisted principally of: (i) non-cash amortization of
unamortized financing charge as a result of the application of EITF Statement
D-60 (approximately $180,000), (ii) costs of financings which the Company chose
not to complete
26
<PAGE>
(approximately $130,000) as well as (iii) amortization of Deferred finance costs
and accrual for interest. See Note 3 to condensed consolidated financial
statements as of September 30, 1997 (unaudited) regarding the significant non
cash charge which results from the accounting under EITF Statement D-60.
Non-cash charges to minority interests of $788,000 during the quarter and
nine months ended September 30, 1997 reflect the accounting for the beneficial
conversion feature of subsidiary preferred stock issued during the quarter. Such
accounting, in accordance with EITF Statement D-60 is described in Note 5 to the
condensed consolidated financial statements as of and for the period ended
September 30, 1997 included elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
The September 22, 1997 purchase of Drew Shoe results in a significant
change in the financial position, working capital and liquidity of the Company.
This results from: (i) the issuance of $6,000,000 of 10%/13% Convertible Notes,
due 2002, and Warrants, (ii) the credit facility with a bank and (iii) the
purchase of significant operating assets in Drew Shoe (principally inventory,
receivables, facilities and equipment), net of expenses and liabilities
associated with the transactions. The Company's financial position, working
capital and liquidity was also improved during the quarter by the issuance of
$1,200,000 of convertible preferred stock of a subsidiary (see Note 5 to
condensed consolidated financial statements as of and for the period ended
September 30, 1997 included elsewhere in this Prospectus). As a result, the
Company's financial position has changed, during the quarter ended September 30,
1997 (unaudited), as follows:
September 30, 1997 June 30, 1997 Change
------------------ ------------- ------
(unaudited) (unaudited)
Cash $ 3,297,000 $ 240,000 $ 3,057,000
Working capital $ 8,415,000 $ 226,000 $ 8,189,000
Total Assets $ 15,772,000 $ 1,559,000 $ 14,213,000
Shareholders equity $ 2,487,000 $ 1,161,000 $ 1,326,000
These changes are supported by increases in debt for (i) the Convertible
Notes, (ii) approximately $400,000 in notes payable to the sellers of Drew Shoe,
(iii) approximately $3,700,000 of borrowings under a term loan and revolving
credit facility from a bank, (iv) approximately $450,000 in a short term note
payable in October 1997 and (v) approximately $225,000 in other long term debt.
Subsequent to September 30, 1997, the $450,000 short term note was repaid, as
was $250,000 under the revolving credit arrangement at Drew Shoe. See Notes 3,
4, 5 and 7 to Condensed Consolidated Financial Statements as of September 30,
1997 and "Description of Securities" for a description of the terms of the
Convertible Notes, credit facility, convertible preferred stock and short term
note payable.
The Company believes that its liquidity and capital needs for the coming
twelve months can be supported by its present cash resources. However, the
Company's plans for the coming months anticipate further acquisitions, some of
which could be material, and further investment in what it believes to be high
potential software products. Such business development activities will likely
require the Company to raise additional capital (debt or equity or convertible
securities) to support its plans to grow the business over the coming twelve
months.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
RESULTS OF OPERATIONS
Software sales and Software Based Ergonomic Consulting Service contributed
minimal revenue in 1996 and 1995. The Company's Traditional Ergonomic Consulting
Services provided virtually all revenue to the Company
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from contracts providing for a fixed price or a fixed hourly rate. For the year
ended December 31, 1996, revenue from long-term fixed price contracts accounted
for under the percentage of completion method of accounting totaled
approximately two thirds of revenues (See - Note 2 to the audited financial
statements of the Company as of December 31, 1996 and for each of the two years
then ended). In setting its price for services, the Company seeks to estimate
the man hours that will be required to provide the services. To the extent that
the Company underestimates the man hours that will be required, or the expenses
it will incur in performing a contract, the Company could realize a loss on any
particular contract. Net revenue decreased by $147,523 in 1996 from 1995.
Net revenue includes the following:
Year Ended December 31,
-----------------------
1996 1995
-------- --------
Intelligent Surface Technology (IST) $ 28,030 $ 96,473
Ergonomic Product Assessment and Redesign services 415,160 451,508
Ergonomic Workplace Assessment services 161,364 204,096
-------- --------
$604,554 $752,077
======== ========
Revenue from IST includes the initial payments for licensing the IST as
well as fees associated with the development of the prototypes for the specific
applications. Revenue from IST in 1996 includes $15,000 connected with the Sealy
option and development agreement signed in 1996. In 1996, $12,500 of revenue
from the 1994 Lumex agreement was written off after the termination of that
agreement. IST revenue declined $68,443 in 1996 from 1995 and accounted for 5%
of net revenue in 1996 versus 13% in 1995. The majority of 1995 revenue is
attributable to the licensing and development agreements with Reebok for
Intelligent Footwear and Athletic Sport and Fitness Equipment and Lumex.
Due to the one-time nature of many of the Company's consulting contracts,
revenue from Ergonomic Product Assessment and Redesign services, and Ergonomic
Workplace Assessment services (Traditional Ergonomic Consulting Services)
fluctuates from year to year. Ergonomic Product Assessment and Redesign services
revenue decreased by $36,348 in 1996 from 1995 and provided 69% of the Company's
revenue in 1996 compared to 60% in 1995. Revenue from Ergonomic Workplace
Assessment services decreased $42,732 in 1996 from 1995 and accounted for 26% of
net revenue in 1996 versus 27% in 1995. Both of these decreases reflect a change
in the strategy to focus on industries where the Company has significant
expertise, and to build long-term relationships for future integration of our
technology in these companys' products.
Direct costs include salaries, equipment purchases for contracts,
consulting fees and certain other costs. Gross profit may fluctuate from period
to period. Factors influencing fluctuations include the nature and volume of
services provided to individual customers which affect contract pricing, the
Company's success in estimating contract costs (principally professional time),
the timing of hiring new professionals, who may require training before gaining
experience, efficiencies and meeting customer demands.
Direct costs decreased $325,290, to $272,980 in 1996 from $598,270 in 1995
primarily due to: (i) a more favorable mix of internal versus outside resources
in 1996 as compared to 1995, and (ii) the elimination in 1996 of a reserve for
$149,000 for Textron development, previously recorded in 1994, representing
estimated expenses for providing additional development services to Textron.
Under the agreed amendment with Textron, signed in August 1996, Textron may
receive a credit for $150,000 from any royalties that may be earned by the
Company and will be proportional over a four-year period commencing in the first
year when royalties become payable.
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Gross profit, as set forth in the table below, increased by $ 177,767 in
1996 as compared to 1995. The increase was due to the reduction in direct costs
which more than offset the decline in net revenue.
Year Ended December 31,
-----------------------
1996 1995
-------- --------
Net Revenue $604,554 $752,077
Direct Costs 272,980 598,270
-------- --------
Gross Profit $331,574 $153,807
======== ========
Gross Profit Percentage 55% 20%
Selling, general and administrative expenses were $1,801,915 in 1996,
which included approximately $355,000 in certain costs which are non-recurring
in nature and reflect certain acquisition, financing and other strategic costs,
as well as reductions in personnel costs for positions eliminated, among other
items. Without these non-recurring expenses the selling, general and
administrative costs in 1996 would have been $1,446,653. Therefore, excluding
these 1996 non-recurring items, selling, general and administrative expenses
would have been approximately $1,446,653 in 1996, $1,831,494 in 1995 (which
includes approximately $193,000 of non-recurring expenses consisting principally
of non-recurring consulting costs) and $2,339,225 in 1994.
The Company's research and development costs decreased $87,965 to $97,854
in 1996 from $185,819 in 1995. This decrease is primarily due to the
capitalization of $85,191 of development expenditures in 1996 relating to the
upgrade of the Company's MannequinPro(TM) software, released in March 1997. In
prior years, these costs were R&D in nature and accordingly were expensed in the
period they were incurred. The remaining costs reflect the development of
several components relating to certain applications of the IST. During 1996 and
1995, the Company made progress in the development of the necessary components
relating to certain applications of the IST, such as a microvalve (patent filed
in June 1996), a self-generating power supply and an intelligent switch.
Net interest income decreased $119,971 to $54,055 in 1996 from $174,026 in
1995. The decrease is primarily attributable to a decrease in cash available for
investment.
Due to the net losses and the accounting rules in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for
Income Taxes", there was no provision for income taxes in 1996 and 1995.
As a result of all of the above, the net loss in 1996 decreased $175,340
to $1,514,140 from $1,689,480 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and held-to-maturity securities decreased by
$1,682,514 to $526,344 at December 31, 1996, from $2,208,858 at December 31,
1995. Net cash used in operating activities, mainly to cover the 1996 net loss,
was $1,394,584 for the year ended December 31, 1996, compared to $2,010,346 in
the year ended December 31, 1995. Financing activities used $98,246 in cash for
the year ended December 31, 1996, compared to $59,299 for the year ended
December 31, 1995. This consisted mainly of uses of cash for stock registration
and issuance costs, as well as cash paid for deferred acquisition and finance
costs associated with the Drew Shoe acquisition.
Accounts receivable, net of the allowance for doubtful accounts, decreased
to $22,537 at December 31, 1996, from $135,995 at December 31, 1995. Three
customers comprised 84% of gross accounts receivable at December 31, 1996.
Unbilled receivables decreased from $173,403 at December 31, 1995 to
$100,362 at December 31, 1996 due to fluctuations in volume of business and
patterns of billing.
Prepaid expenses and other current assets increased to 74,491 at December
31, 1996, from 60,182 at December 31, 1995.
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Accounts payable, accrued expenses and sundry liabilities decreased to
$285,065 at December 31, 1996, from $422,671 at December 31, 1995. The decrease
of $137,606 resulted primarily from the elimination of an accrual for $149,000
relating to the Textron licensing agreement.
Consequently, working capital decreased $1,717,098 to $438,669 at December
31, 1996, from $2,155,767 at December 31, 1995.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are dependent on the Company's
ability to (i) successfully further develop IST and increase the number of
licensees, and the commercialization of IST by its licensees, (ii) further
develop and sell its HumanCAD(R) software consisting of MannequinPro(TM),
EARLY(R) process and Back-To-Work(TM) methodology, (iii) successfully market and
sell its new Software Based Consulting Services and its Traditional Ergonomic
Consulting Services and (iv) complete the Company's acquisition of Drew Shoe,
future profitability of Drew Shoe and introduction of IST in medical footwear
and orthotic products.
FORWARD-LOOKING STATEMENTS
Information set forth in this Prospectus regarding the Company's plans for
future operations constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any forward-looking statements
should be considered in light of the factors set forth in the "Risk Factors"
section of this Prospectus.
BUSINESS
BCAM International, Inc. (the "Company") has been primarily a software
technology and consulting company, specializing in providing ergonomic solutions
(human factors engineering) to individuals, major corporations and government
agencies, including the National Aeronautics Space Administration ("NASA"). The
company's revenues have historically been derived primarily from consulting
services. In early 1996, the Company refocused its efforts on (I) broadening and
strengthening its patent portfolio, and accelerating the commercialization of
the Company's Intelligent Surface Technology ("IST"), (II) continuing its
development of proprietary software, which consists of the intelligent part of
"IST", MannequinPro(TM), and the EARLY(R) process, (III) building its ergonomic
consulting services business, which consists of Ergonomic Product Assessment and
Redesign, and Ergonomic Workplace Assessment and (IV) pursuing acquisitions
which could provide a larger base of revenues in businesses which can utilize
Company technology.
On September 22, 1997, the Company acquired Drew Shoe Corporation ("Drew
Shoe"), a leading designer, marketer, manufacturer and distributor of medical
footwear. Drew Shoe had revenues for its year ended December 31, 1996 of
approximately $14.6 million and has been in business for approximately 125
years. Drew Shoe provides the Company with ongoing revenue, as well as potential
new product opportunities through utilization of Company technology (both
existing and under development) into Drew Shoe products and a platform for
further possible acquisitions of medical footwear and related businesses. See
"Risk Factors; History of Operating Losses; Effect of Recent Acquisition". The
Company's revenues have historically been derived primarily from consulting
services. Since the acquisition of Drew Shoe, the Company's revenues in the near
term are expected to be largely affected by the medical footwear business
On September 9, 1997, the Company announced that the 1998 Cadillac STS would
offer, as an option, a driver and passenger seat, utilizing the Company's IST
technology through a license agreement with McCord Winn Textron, Inc., a
subsidiary of Textron, Inc. There can be no assurance that this
commercialization of the Company's IST technology will result in material
revenues.
The Company's subsidiaries consist of BCAM Technologies, Inc. (principally IST
and related technologies),
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BCA Services, Inc.(principally human ergonomics consulting), HumanCAD Systems,
LTD. (Canada) (principally software development and marketing) and Drew Shoe
Corporation (medical footwear).
During the course of the Company's performance of ergonomic product and
workplace assessment services, the Company from time to time develops certain
know-how based upon data from its consulting services which it is able to embody
into proprietary technologies. When this occurs, and it is believed that the
technology is a significant enhancement from the existing technology, the
Company files for patent protection under the laws of the United States and, if
warranted, internationally.
INTELLIGENT SURFACE TECHNOLOGY
Since 1991, the Company has been issued eight patents, and currently has
six additional patent filings pending related to its Intelligent Surface
Technology("IST"), which empowers surfaces to automatically measure any part of
the body touching said surface and then, in real time, adjust themselves to
conform to that user's body to provide the utmost comfort and fit. Such a
surface is considered an intelligent surface because it is able to learn about
the user and recognize patterns in the user's movements through the Company's
proprietary software. The Company has identified applications for this
technology in the primary areas of seating, footwear and bedding. In addition,
the technology can be used for, among other things, handtools, exercise
equipment and helmets.
CURRENT LICENSEES
Textron. The Company and McCord Winn Textron, Inc., a subsidiary of
Textron, Inc.("Textron"), signed a development and license agreement in March
1993 (the "Textron Agreement"), which was amended in October 1993 and August
1996. Under the Textron agreement, the Company granted an exclusive worldwide
license to Textron, to use the IST patents and know-how in the manufacture, use
and sale of seats and seating components in the transportation industry,
wheelchairs, office furniture applications, and hospital beds. In 1993, the
Company received licensing revenues of approximately $550,000 from Textron under
this agreement. In 1996, Textron informed the Company that it expects a certain
1998 model automobile to be introduced in the fall of 1997, to incorporate IST
in the design of the driver and passenger seat.
The August 1996 amendment to the Textron Agreement obligated Textron to
pay royalties to the Company through December 31, 1999, for any products
designed by Textron using the Company's IST. The royalties average 3% of net
sales after the first $150,000 of net sales. After January 1, 2000, Textron
shall be obligated to pay the Company royalties only for products designed which
actually incorporate IST patents and know-how transmitted to Textron by the
Company after May 31, 1996. The Company has disclosed to Textron that it has
received four patents and one notice of allowance after May 31, 1996.
Reebok. In January 1994, the Company and Reebok signed a world-wide
exclusive licensing and development agreement for the use of IST footwear.
Generally, if the Company's technology is incorporated into Reebok's footwear,
the Company expects to receive approximately $1.00 for every pair of shoes sold.
In addition, Reebok has a right of first refusal to obtain exclusive licenses to
use IST in athletic, sport and fitness equipment. Medical equipment and
orthopedic shoes and other devices are specifically excluded from the Reebok
license. In 1994 and 1995, the Company received approximately $162,000 in
licensing revenue from Reebok under this agreement. The Company and Reebok are
continuing to work closely in developing the application of the Company's IST,
which is expected to be introduced in Reebok's footwear products in due course.
Sealy. In August, 1996, the Company signed an agreement with Sealy, Inc.
to utilize the Company's IST, computer software, know-how and expertise towards
development of new Sealy products. Specifically, Sealy has an option agreement
to utilize IST in its adjustable bed and a right of first refusal as applied to
all bedding products (excluding medical bedding applications).
Since 1991, when the first patent was issued in IST, the Company has
recorded cumulative sales revenue of $1,009,753.
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POTENTIAL NEW LICENSEES
The Company has identified several organizations that can benefit from its
technologies and ergonomic design expertise. As a result of this activity, the
Company is in advanced discussions with a (1) a manufacturer of recliners, (2)
an office furniture company for office seating products, (3) an airline for its
first class seat, (4) a wheelchair manufacturer, (5) a hospital bedding company,
(6) a manufacturer of operating room tables and (7) a tool manufacturer. It is
actively pursuing the leading companies within these fields in order to increase
the number of licensees and generate additional revenue.
MARKETING STRATEGY
The Company focuses on licensing rights to its IST technology to major
corporations that meet specific criteria. Criteria include (1) size, (2)
financial stability, (3) marketing presence and (4) sufficient resources to
commercialize the Company's technology. The company's pricing objectives for the
purchase of rights include an advance sufficient to insure the licensee's focus
on commercialization of the technology and a royalty payment for each unit sold
by the licensee.
TECHNOLOGY STRATEGY
The Company's technology objectives for IST are to increase the number of
users for IST, license as many organizations as possible to use its IST and
commercialize its technology as rapidly as practical. The Company believes that
these objectives can be accomplished by a strategy of (1) broadening and
strengthening the Company's portfolio of patents in IST and (2) developing key
components in the IST system, such as a microvalve, self-generating power supply
and intelligent switch, (3) enhancing its application engineering development
capability, and (4) developing know-how and methodologies in incorporating IST
into common products such as seats, helmets, footwear and hand-tools.
IST PATENTS
During 1995 and 1996, the Company substantially broadened and strengthened
its intellectual property related to IST, both domestically and internationally.
During, 1996, the United States Patent Office issued three patents and the
Company received a notice of allowance from the European Patent Office. The
Company now has eight issued patents and six pending patents.
The new patents, together with the pending patents, have enabled the
Company to broaden its market for licensing its technology, both domestically
and internationally. The newly allowed claims cover a broad range of uses of
IST, especially for medical applications.
PROPRIETARY SOFTWARE DEVELOPMENT
In addition to the IST software, the Company's other software development
efforts have always been focused in areas that support the Company's Ergonomic
Consulting services. Since 1989, the Company has developed, marketed,
maintained, and continuously upgraded two proprietary software packages:
MannequinPro(TM) and Mannequin On-Site(TM), and the EARLY(R) process.
MANNEQUINPRO(TM)
The Company's HumanCAD(R) division launched the marketing of
MannequinPro(TM) software for Windows in the second quarter of 1997. The
software is compatible with CAD and other graphic programs, and has motion
capture capabilities useful for graphical illustrations and motion analysis. The
Company believes that many universities, design organizations and government
agencies, including NASA, are current users of the earlier version of
MannequinPro(TM). The results of a successful beta test of the new version of
MannequinPro(TM), and preliminary market survey confirmed that a substantial
market exists, especially among CAD users and industrial designers. The Company
estimates that there are approximately 2,000,000 CAD seats in existence, which
are growing at a rate of 400,000 seats per year.
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MannequinPro(TM) is a human modeling program that enables the user to
render 3-dimensional scaleable humanoid figures on a personal computer (PC).
These figures can be articulated into any position and then can be viewed from
any angle, distance or perspective. The result of that view can be printed,
plotted or exported to other graphics software for further enhancement of the
image. The figures can walk, bend, reach and grasp objects. A user can test the
functionality of many devices. The Company has recently upgraded a Windows(R)
version that processes on all Windows(R) platforms.
EARLY(R)
The Company's EARLY(R) process (Ergonomic Assessment of Risk and
Liability) allows the ergonomist to integrate videotapes of tasks with the
assistance of sophisticated software to identify risk of Cumulative Trauma
Disorders and determine opportunities for ergonomic intervention. This process
could facilitate a good fit between the workplace and workers' capabilities.
Currently, the Company's EARLY(R) process is marketed on a retail basis to
industrial companies and governments, and wholesale to insurance companies. See
Marketing of Ergonomic Consulting Services.
ERGONOMIC CONSULTING SERVICES BUSINESS
The Company believes that its ergonomic consulting services are the
primary source of new product ideas and with it, the potential for royalty
income, as well as new product and service offerings. During the course of the
Company's performance of ergonomic product and workplace assessment services,
the Company from time to time develops certain know-how based upon data from its
consulting services which it is able to embody into proprietary technologies.
When this occurs, and it is believed that the technology is a significant
enhancement from the existing technology, the Company files for patent
protection under the laws of the United States and, if warranted,
internationally.
ERGONOMIC PRODUCT ASSESSMENT AND REDESIGN
The Company performs comprehensive subjective and objective ergonomic
testing of products. The tests quantify the product's relationship to the human
subject in terms of comfort, fit, usability and user performance. Results of the
ergonomic testing are used by product developers, manufacturers and industrial
design firms to improve existing products and/or develop new ones. In essence,
the Company serves as the "User's Representative", communicating user needs in
terms that engineers and industrial designers can apply in the design of
product. This analysis provides substantial guidance and a strong foundation for
the design process.
ERGONOMIC WORKPLACE ASSESSMENT
Workers' Compensation coverage to employees cost U.S. employers over $100
billion in 1996. It is also estimated that more than 2.5 million people
developed musculoskeletal disorders in 1996, and according to OSHA, each year
over $20 billion dollars are spent on repetitive stress injuries (or Cumulative
Traumatic Disorders). Many of these injuries involve lost duty time for
recuperation and reassignment of injured workers to other jobs, in addition to
medical treatment costs, thus escalating total workers' compensation costs.
The Company provides Ergonomic Workplace Assessment services to industrial
companies, government, and insurance companies, to reduce musculoskeletal
injuries, through its proprietary EARLY(R) services and custom tailored
consulting services and provides benefits including (1)the potential for
improved productivity and (2)enhanced product and service quality.
EARLY(R) is a unique laboratory service for the analysis of an
organization's workplace for ergonomic health using proprietary
computer-assisted software for biomechanical analysis. EARLY(R) allows for the
prediction of musculoskeletal injury likelihood and the development of
cost-effective solutions to reduce the risk factors related to Work Related
Musculoskeletal Disorders (WMSDs) with emphasis on Cumulative Trauma Disorders.
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Benefits of the EARLY(R) service to clients are that it may (1)reduce
workers' compensation costs, (2) help prevent work related musculoskeletal
disorders, (3) assist in compliance with OSHA, NIOSH, and ADA regulations, (4)
increase productivity and improve quality of life, (5)provide practical
ergonomic engineering and off-the-shelf product solutions, and/or (6)organize
job rotation schedules.
EARLY(R) consists of a three-phase process: data collection, laboratory
analysis and solution(s). Data collection includes a short videotape of the task
being performed, an employee musculoskeletal stress questionnaire and historical
injury and illness data. Laboratory analysis is performed by ergonomists using
proprietary, computerized biomechanical modeling techniques at the Company's
laboratories. Recommendations are provided from a data-base of standard
solutions. If no solution is available from the data-base, customized solutions
are also developed.
Customized analyses, not typically available as part of standard EARLY(R),
are provided including (1)unique recommendations which are beyond EARLY(R)'s
database of standard solutions, (2)implementation assistance, (3)long-term
monitoring and (4)follow-up.
MARKETING OF ERGONOMIC CONSULTING SERVICES
Ergonomics, human factors, originated in academia and was only recently
popularized by industry. Because the sales process is long and complex, the
Company's emphasis is on building long-term relationships with major
organizations and maximizing return from each relationship. The company markets
and promotes its Ergonomic Consulting Services with traditional methods
including obtaining referrals from existing clients, publishing articles,
speaking at seminars and conducting industry specific seminars. The Company is
expanding the scope of its sales efforts to also include attending and
exhibiting at trade shows, utilizing direct marketing techniques, building a
highly experienced and professional sales team, advertising in selected trade
publications and expanding its Internet web site.
PRICING OF ERGONOMIC CONSULTING SERVICES
The Company's pricing formula generally includes a fixed consulting fee
together with a royalty which may be earned when the Company's ergonomic product
redesign recommendations are commercialized or a percentage of cost savings when
major ergonomic workplace assessment recommendations are implemented.
RESEARCH AND DEVELOPMENT
The Company's research and development is focused on enhancing and
commercializing the Company's core technologies. The Company attempts to
minimize spending on research. Therefore, the Company typically attempts to
acquire the rights to use an existing technology, if available. The Company
will, however, fund research for technology, when the needed technology is not
available. For example, the Company is funding research, design and development
of a microvalve which is needed in the application of its IST for hand tools and
footwear.
The Company uses its internal resources and subcontractors, as needed, in
its research and development activities. For example, the Company has
established a collaborative research and development relationship with the State
University of New York at Stony Brook, and plans to establish additional
relationships with other universities, and government laboratories, as
necessary.
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COMPETITION
Management of the Company believes that its unique technologies,
proprietary software, methodologies and know-how are a competitive advantage.
The Company believes that MannequinPro(TM) is the only software package of its
kind that will process on a PC with a minimum of resources, i.e., 8 MB of
memory. Most other human modeling software requires more computing resources
such as workstation hardware. Therefore, MannequinPro(TM) has significant
economic advantages over other competing software of its kind. With respect to
its Ergonomic Workplace Assessment, there are many competing sources for similar
services to the Company's offerings. However, the Company believes its EARLY(R)
process, with its accompanying proprietary software, provides significant
advantages in terms of (1) cost and (2)proven database solutions for its
clients.
There are many sources of ergonomic product design services, especially
internal designers of organizations. Other companies and agencies are
developing, and have developed, particular services and technologies that are
competitive with the Company's services and technology and management believes
that increased competition is likely. Some of the Company's competitors have
significantly greater financial, technical and other resources than the Company.
GOVERNMENT REGULATION
The Company's present and anticipated activities are not generally subject
to government regulation in the United States or other countries.
While the Company cannot predict the extent to which it may be affected by
legislative or other regulatory developments, it does believe that the current
policies of OSHA encourage the use of the Company's services. The Company
believes that if OSHA continues to focus on ergonomic issues, it will result in
both industry and the general public becoming more aware of the need for
ergonomic services and products. Focus is also occurring at the FDA to encourage
more human factor engineering in the design of medical devices.
The costs and effects of complying with environmental laws by the Company
are not material.
PROPRIETARY INFORMATION
The patent process is a major protection for the Company's intellectual
property. As of today, the Company has obtained eight patents and has filed six
additional patent applications relating to its IST. One of the six patents filed
is significant because it is for a critical component needed to miniaturize the
application of the IST. Such miniaturization will allow the Company to a)
accelerate the commercialization of many applications, b) enter the very large
and expanding medical footwear market with applications for diabetics,
arthritics and the aging population, and c) provide applications to other
industries, such as the hand tool industry. The Company also has five U.S.
patents in fields other than IST.
The Company protects its proprietary written material, know-how, computer
software and technology which it has or may develop, through the use of United
States copyrights, common-law trade secret protection, trademarks and service
marks, and contractual arrangements. In addition, the Company enters into
confidentiality arrangements with its employees, consultants and customers, and
implements various measures to maintain "trade secret" protection for its
products.
DREW SHOE ACQUISITION
Effective September 22, 1997, the Company acquired all of the outstanding
Common Stock of Drew Shoe for approximately $4.6 million plus the assumption of
liabilities. The purchase price was paid by delivery to the two shareholders of
Drew Shoe of an aggregate of $3,882,000, promissory notes in the aggregate
principal amount of $400,000 and by delivery of an aggregate of 375,000 shares
of the Company's Common Stock. The promissory notes bear an interest rate of 8%
per annum, are due on September 19, 1999, and are payable in twenty-four (24)
equal monthly installments aggregating $8,333.34 (plus interest) with a final
payment due in the twenty-fifth (25th) month aggregating $200,000.
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See "Description of Securities; 10%/13% Convertible Notes and Non
Redeemable Class DD Warrants" for a description of the securities issued in
order to finance the acquisition of Drew Shoe.
Simultaneously with the acquisition, Drew Shoe closed a credit facility
(guaranteed by the Company) consisting of a revolving line of credit and term
loan with a commercial bank providing for total availability of $5.5 million, a
portion of which is based upon agreed upon percentages of accounts receivable
and inventory. As of the acquisition, the Company believes there to be
approximately $4.5 million available under this credit facility (approximately
$3.75 million of which was drawn down to pay certain existing liabilities of
Drew Shoe and to transfer $250,000 to the Company.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. For its fiscal year ending December
31, 1996, Drew Shoe had revenues of approximately $14.6 million. The Company
intends to continue to operate Drew Shoe as a manufacturer of medical footwear.
Drew Shoe provides the Company with ongoing revenue, as well as potential
new product opportunities through (i) utilization of Company technology (both
existing and under development) into Drew Shoe products, (ii) a base from which
to possibly acquire additional retail facilities for Drew Shoe products (iii)
profit and systems improvement opportunities and (iv) a platform for possible
further acquisitions of medical footwear and related businesses. The Company
believes that the medical footwear business is a fragmented business with
expansion opportunities for the Company.
Since the acquisition of Drew Shoe, the Company's revenues in the near
term are expected to be largely affected by the medical footwear business. The
operations of Drew Shoe alone are not sufficient to turn the Company profitable
in the immediate future. The Company has financed the acquisition of Drew Shoe
with convertible notes that will add significant cash and non-cash charges for
interest and financing as well as financial covenants.
Reference is made to "Special Risk Factors - Charges to Operations Related
to Recent Financings" and "Description of Securities, 10%/13% Redeemable
Convertible Notes" and to "Financial Statements - Notes to Condensed
Consolidated Financial Statements as of September 30, 1997 (unaudited)".
EMPLOYEES
As of November 30, 1997, the Company had approximately 270 employees,
including approximately 253 persons employed by Drew Shoe. Of the 253 employees
at Drew Shoe, approximately 18 are employed part time and approximately 140 are
covered by a collective bargaining agreement that expires in May 1998. In
addition, the Company established a collaborative research & development
relationship with the State University of New York at Stony Brook, with plans to
establish additional relationships with other universities, government
laboratories, and other sub-contractors.
PROPERTIES
Since 1990, the Company has leased office space at 1800 Walt Whitman Road,
Melville, New York. The Company's lease expires on March 31, 2000. The current
annualized lease rate for this space is approximately $138,000, which is subject
to annual increases. The facility, which contains approximately 8,400 square
feet, includes biomechanics research laboratories and a comprehensive ergonomic
library as well as offices. The laboratories are used both for testing and for
the redesign of products. Drew Shoe owns a 40,000 square foot facility at 252
Quarry Road, Lancaster, Ohio which serves as the executive office as well as
warehouse and certain manufacturing facilities. Drew Shoe also has a 60,000
square foot manufacturing facility on Forest Rose Avenue in Lancaster, Ohio
which houses its principal manufacturing operations. Drew Shoe also leases
retail space to house its 14 retail outlets. Such facilities call for aggregate
annual rentals of approximately $286,000 per year. The Company's HumanCAD
division has a development facility in Toronto, Canada which contains
approximately 1,500 square feet and an immaterial amount of annual rent.
The facilities are believed to be adequate for the Company's operations into the
foreseeable future.
36
<PAGE>
LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
SUPPLIERS
The Company's traditional business involves providing services, and the
materials it uses in its business may be obtained from numerous suppliers. Drew
Shoe depends on various raw materials and components to manufacture its shoes,
many of which are dependent on one supplier. Drew Shoe does not have binding
long-term supply contracts with these suppliers. Approximately 15% of Drew
Shoe's supplies, primarily leather, are provided by Italian companies. The
Company believes that its relationships with its vendors are satisfactory.
FORWARD-LOOKING STATEMENTS
Information set forth in this Prospectus regarding the Company's plans for
future operations constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any forward-looking statements
should be considered in light of the factors set forth in the "Risk Factors"
section of this Prospectus.
37
<PAGE>
MANAGEMENT
Directors and Executive Officers
The current directors and executive officers of the Company are as
follows:
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Michael Strauss 55 Chairman, President, Chief Executive
Officer and Director
Robert P. Wong 56 Vice Chairman, Chief Technology
Officer and Director
Norman B. Wright 61 Vice Chairman, President and Chief
Executive Officer,
HumanCAD(R) Systems and Director
Charles G. Schuyler 50 Vice Chairman, President and Chief
Executive Officer of Drew Shoe
Corporation (a Subsidiary of the
Company) and Director
Kenneth C. Riscica 44 Vice President - Finance, Chief
Financial Officer, Treasurer,
Secretary
Joel L. Gold 56 Director
Sandra Meyer 60 Director
Glenn F. Santmire 54 Director
Mark L. Plaumann 42 Director
Stephen Savitsky 52 Director
Michael Strauss became the Company's President and Chief Operating Officer
effective January 2, 1995 and its Chairman of the Board and Chief Executive
Officer on February 16, 1995. From 1991 to December 31, 1994, Mr. Strauss was
President and Chief Operating Officer of Colorado Prime Corp., a home food
service company providing home delivery of high quality, custom designed food
programs to retail customers. From 1984 to 1991, he was Chairman and Chief
Executive Officer of Capital Credit Corporation, a subsidiary of Union
Corporation, a New York Stock Exchange Company. Capital Credit Corporation
provides receivables management and consumer debt collection services to
corporations in the financial services, telecommunications, health care and
related businesses. Prior to his tenure at Union Corporation, Mr. Strauss was
employed by American Express Company in various senior management positions
including Executive Vice President of the Financial Services Division of
Shearson Lehman Brothers, Executive Vice President of Travel Related Services,
and President of American Express Canada, Inc. Mr. Strauss has a BBA from the
City University of New York and an MBA from the Baruch School-City University of
New York.
Robert P. Wong was appointed Vice Chairman of the Board and Chief
Technology Officer in February 1995, after having become a director in February
of 1994. From September 1996 through October 15, 1997, Mr. Wong also served as
Acting Chief Financial Officer and Treasurer. Previously, from February 1994
through February 1995, Mr. Wong worked as a representative for the Prudential
Insurance Company, and was a private investor from 1989 to February 1995. Over
the previous 27 years, Mr. Wong was founder and president of several technology
companies and president of several subsidiaries of Coordinated Apparel, Inc. Mr.
Wong has an SB in Electrical Engineering and also an SB in Industrial Management
from Massachusetts Institute of Technology.
Norman B. Wright was appointed President and Chief Executive Officer of
BCAM's HumanCAD Systems division and Vice-Chairman of BCAM's Board of Directors
in April of 1997. Previously, Mr. Wright was President and Chief Executive
Officer of Virtek Vision International, Inc., a Canadian-based, multi-
38
<PAGE>
national laser-projection machine intelligence and pattern analysis systems
designer and manufacturer. Prior to that he has held senior management posts in
several companies and has launched and guided a number of public software
technology companies through their successful development.
Kenneth C. Riscica joined the executive officers of the Company as Vice
President - Finance, Chief Financial Officer, Treasurer and Secretary effective
October 16, 1997. Mr. Riscica, formerly a partner in charge of an emerging
companies practice group with Arthur Andersen & Co. LLP (having been a partner
from 1987 to 1992 after joining the firm in 1976), more recently served as Chief
Executive Officer of Riscica Associates, Inc., a financial and management
consulting firm and as Chief Financial Officer of Magna-Lab, Inc., a publicly
traded medical technology company.
Joel L. Gold was elected a Director in February 1994. Since September
1997, Mr. Gold has served as Vice Chairman of Coleman and Company Securities,
Inc. and Senior Managing Director of Interbank Capital Group, LLC. From April
1996 to September 1997, Mr. Gold was Executive Vice President of L.T. Lawrence
Co., an investment banking firm. From April 1995 to April 1996, Mr. Gold was a
managing director and head of investment banking at Fechtor & Detwiler. From
1993 to 1995, Mr. Gold was a managing director at Furman Selz Incorporated, an
investment banking firm. Prior to joining Furman Selz, from 1991 to 1993, he was
a managing director at Bear Sterns & Co., an investment banking firm.
Previously, Mr. Gold was a managing director at Drexel Burnham Lambert for
nineteen years. He is currently a member of the Board of Directors of Concord
Camera, Sterling Vision, Inc. and Life Medical Sciences. Mr. Gold has a law
degree from New York University and an MBA from Columbia Business School.
Glenn F. Santmire was appointed a director in October 1995. Since 1995 he
has been employed by Unisys Corporation as Group Vice President of the Worldwide
Services-Market Sector Group. From 1994 to 1995 he was President of GFS
Associates, Inc., a consulting firm which he founded. From 1992 to 1994 Mr.
Santmire was a Senior Vice President at Mastercard International and from 1990
to 1992 he was President of Enhanced Telephone Services, Inc., a subsidiary of
Citibank. Mr. Santmire possesses both a BA and an MBA degree from New York
University as well as a law degree from George Washington University School of
Law.
Sandra Meyer was appointed a director in July of 1997. Ms. Meyer has been
a Senior Partner at Clark & Weinstock, a management consulting firm providing
strategic advisory service to corporations and institutions, since 1993. She is
retired from Citicorp where she served as a senior corporate officer, corporate
affairs from 1989 to 1993. Prior to joining Citicorp, she served in increasingly
senior marketing and general management positions at American Express and
General Foods (now part of Kraft).
Charles G. Schuyler was appointed a director in September of 1997. Mr.
Schuyler is President and Chief Executive Officer of Drew Shoe Corporation
("Drew Shoe"). Drew Shoe was acquired by the Company on September 22, 1997. Mr.
Schuyler commenced his employment with Drew Shoe in 1970 and became a 50%
principal owner in 1982. Mr. Schuyler is a member of the National Shoe Retailers
Association, Pedorthic Footwear Association and Two/Ten Foundation. Mr. Schuyler
is a graduate of Ohio University majoring in Economics.
Mark L. Plaumann was appointed a director in September of 1997. Mr.
Plaumann has been a Senior Vice President of Wexford Management since January
1996, and since March 1995 has been a director and/or Vice President of the
general partner of various public partnerships managed by Wexford Management.
Mr. Plaumann joined the predecessor entities of Wexford Management in February
1995. Prior to joining Wexford Management, Mr. Plaumann was a Managing Director
of Alvarez & Marsal, Inc., a crisis management consulting firm, from 1990 to
1995, and from 1985 to 1990 he was with American Healthcare Management, Inc., an
owner and operator of hospitals, where he served in a variety of capacities,
most recently as its President. Prior to that he was with Ernst & Young LLP in
its auditing and consulting divisions for eleven years. Mr. Plaumann is a
director of Wahlco Environmental Systems, Inc., a manufacturer of environmental
conditioning systems.
Stephen Savitsky was appointed a director in October of 1997. Mr. Savitsky
is the Founder, Chairman of the Board of Directors and Chief Executive Officer,
since 1988, of Staff Builders, Inc., a large provider of temporary services to
the home healthcare industry in the United States. Mr. Savitsky has a BA in
Economics
39
<PAGE>
from Yeshiva University and an MBA in Marketing and Finance from Baruch School
of Business.
All directors hold office until the next annual meeting of shareholders
and until their successors have been duly elected and qualified. There are no
family relationships between any of the directors, executive officers or persons
nominated or chosen by the Company to become directors or executive officers.
The Company's officers are elected annually by the Board of Directors and serve
at the discretion of the Board.
The Company carries insurance providing indemnification to all of the
Company's directors and officers for claims against them by reason of, among
other things, any act or failure to act in their capacities as directors or
officers. To date, no sums have been paid to any past or present director or
officer of the Company under this or any prior indemnification insurance policy.
The New York Business Corporation Law permits a corporation, through its
certificate of incorporation, to prospectively eliminate or limit the personal
liability of its directors to the corporation or its stockholders for damages
for breach of fiduciary duty as a director, with certain exceptions. The
exceptions include acts or omissions in bad faith or which involve intentional
misconduct or knowing violations of law, improper declarations of dividends, and
transactions from which the director personally gained in fact a financial
profit or other advantage to anything he was not legally entitled. The Company's
Restated Certificate of Incorporation exonerates its directors from personal
liability to the extent permitted by this statutory provision.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Bonus Other Annual Options All Other
Name and Principal Position Year Salary ($) ($) Compensation ($) (#) Compensation ($)
- --------------------------- ---- ---------- --- ---------------- --- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael Strauss (1) 1996 $ 200,000 -- $ 8,280 -- --
Chairman, President, 1995 $ 200,000 -- $ 7,743 1,000,000 --
Chief Executive 1994 -- -- -- -- --
Officer and Chief
Operating Officer
Robert Wong (2) 1996 $ 102,000 -- $ 6,000 -- --
Vice Chairman, 1995 $ 87,000 -- $ 2,000 492,500 --
Chief Technology 1994 -- -- -- 7,500 --
Officer, Acting Chief
Financial Officer,
Acting Secretary, and
Acting Treasurer
</TABLE>
(1) Mr. Strauss became employed by the Company as its President and Chief
Operating Officer on January 2, 1995 at an annual salary of $200,000. He
subsequently became Chairman and Chief Executive Officer on February 16,
1995. (See " " regarding the January 1997 employment contract with Mr.
Strauss. In September 1997, the Board of Directors granted Mr. Strauss a
cash bonus of $75,000 based upon his efforts to close and finance the
acquisition of Drew Shoe.
(2) Mr. Wong was elected a Director in February 1994. He became employed by
the Company as its Chief Technology Officer, and was appointed Vice
Chairman, on February 16, 1995 at an annual salary of $84,000 which was
subsequently raised to $102,000 and, since January 1997, to $127,000. From
September 1996 to October 15, 1997 he is also served as Acting Chief
Financial Officer, Acting Secretary and Acting Treasurer. (See " "
regarding the January 1997 employment contract with Mr. Wong.
Subsequent to fiscal year end, options to purchase 2,000,000 shares of
Common Stock, 1,880,250 of which are subject to shareholder approval of the
amendment to the 1995 Stock Option Plan described herein, were issued to Michael
Strauss. Including these options, Mr. Strauss has been granted options to
purchase an aggregate of 3,000,000 shares of Common Stock at prices ranging from
$.75 to $1.5157 per share.
Subsequent to fiscal year end, options to purchase 750,000 shares of
Common Stock, 690,125 of
40
<PAGE>
which are subject to shareholder approval of the amendment to the 1995 Stock
Option Plan described herein, were issued to Robert P. Wong. Including these
options, Mr. Wong has been granted options to purchase an aggregate of 1,250,000
shares of Common Stock at prices ranging from $.75 to $1.68 per share.
Option Grants in Fiscal Year 1994 and 1995 (9)
Individual Grants
Number of % of Total Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal of Base Expiration
Name Granted (#) Year 1995(9) Price ($/SH) Date
- -------------------- ------- ------- ------- -------
Michael Strauss 300,000(1) 15.94% $1.0313 1/03/05
Chairman, President 200,000(2) 10.63 0.9219 2/16/05
& Chief Executive 500,000(3) 26.57 1.0469 7/03/05
Officer
Robert P. Wong 7,500(4) N/A 1.6800 7/21/04
Vice Chairman, 25,000(5) 1.33 0.9219 2/16/05
Chief Technology 175,000(6) 9.30 0.9219 2/16/05
Officer, Acting 25,000(7) 1.33 1.0313 6/22/05
Chief Financial 267,500(8) 14.22 1.0469 7/3/05
Officer, Acting
Secretary and Acting
Treasurer
- ----------------------------
1 Options vested are as follows: 100,000 shares on January 3, 1996; 100,000
shares on January 3, 1997; 50,000 shares on January 3, 1998; and 50,000
shares on January 3, 1999.
2 Options vested are as follows: 50,000 shares on February 16, 1996; 50,000
shares on February 16, 1997; 50,000 shares on February 16, 1998; and
50,000 shares on February 16, 1999.
3 Options vested are as follows: 125,000 shares on July 3, 1996; 125,000
shares on July 3, 1997; 125,000 shares on July 3, 1998; and 125,000 shares
on July 3, 1999.
4 Options vested are as follows: 7,500 shares on July 21, 1994.
5 Options vested are as follows: 10,000 shares on August 16, 1995; 7,500
shares on February 16, 1996; and 7,500 shares on February 16, 1997.
6 Options vested are as follows: 43,750 shares on February 16, 1996; 43,750
shares on February 16, 1997; 43,750 shares on February 16, 1998 and 43,750
shares on February 16, 1999.
7 Options vested are as follows: 10,000 shares on December 22, 1995; 7,500
shares on June 22, 1996; and 7,500 shares on June 22, 1997.
8 Options vested are as follows: 66,875 shares on July 3, 1996; 66,875
shares on July 3, 1997; 66,875 shares on July 3, 1998; and 66,875 shares
on July 3, 1999.
9 There were no options or stock appreciation rights granted or exercised or
long term incentive plan payments during the year ending December 31, 1996
to the persons set forth in the Summary Compensation Table. See "Security
Ownership of Certain Beneficial Owners and Management" for disclosure of
Options granted in 1997.
41
<PAGE>
Option Exercises and Holdings
The following table sets forth information concerning the exercise of
stock options by the Named Executives during the Company's fiscal year ended
December 31, 1996 and the value of any in-the-money unexercised stock options as
of December 31, 1996:
Aggregated Option Exercises in Last Fiscal Year and Current Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Aggregated Option Options at December 31, In-the-Money Options at
Exercises in 1996 1996(#) December 31, 1996 (9)
Shares Acquired Value
Name on Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
($)
<S> <C> <C> <C> <C>
Michael Strauss ____ ____ 275,000/725,000 -0- / -0-
Chairman, President &
Chief Executive Officer
Robert P. Wong ____ ____ 153,000/347,000 -0- / -0-
Vice Chairman , Chief
Technology Officer
</TABLE>
There were no options or stock appreciation rights granted or exercised or
long term incentive plan payments during the year ending December 31, 1996 to
the persons set forth in the Summary Compensation Table. See "Security Ownership
of Certain Beneficial Owners and Management" for disclosure of Options granted
in 1997.
EMPLOYMENT AGREEMENTS
MICHAEL STRAUSS
Mr. Michael Strauss became the President and Chief Operating Officer of
the Company effective January 2, 1995 pursuant to an employment agreement dated
October 13, 1994 and amended on February 16, 1995. On February 16, 1995 Mr.
Strauss became the Chief Executive Officer and Chairman of the Board of
Directors. Pursuant to a revised employment agreement effective January 1, 1997,
and expiring December 31, 1999, unless renewed, Mr. Strauss receives a base
salary at a rate of $225,000 per year. Mr. Strauss shall be entitled to receive
a bonus, which amount for the period ending December 31, 1997 shall not exceed
$100,000 nor be less than $25,000. The amount of the bonus for the years ending
December 31, 1998 and December 31, 1999 shall be agreed to by Mr. Strauss and
the Company by December 31, 1997, and be based upon mutually agreed to
objectives for Mr. Strauss. Mr. Strauss is also entitled to participate in any
pension plans or bonus plans of the Company or of any subsidiary, which ever is
more beneficial to him, to be included in the Company's health, disability, life
insurance and other benefit plans, and to receive an allowance for the cost of
an automobile.
Mr. Strauss received, in addition to his salary and any bonus, (i) options
to purchase at the fair market value January 2, 1995, an aggregate of 300,000
shares of common stock of the Company, scheduled to vest and become exercisable
for 100,000 shares on January 2, 1996, for 100,000 shares on January 2, 1997,
and for 50,000 shares on January 2, 1998 and 1999, respectively; (ii) options to
purchase at the fair market value on February 16, 1995, an aggregate of 200,000
shares of common stock of the Company, scheduled to vest and become exercisable
for 50,000 shares on February 16, 1996, 1997, 1998 and 1999 respectively; and
(iii) options to purchase at the fair market value on May 7, 1997, an aggregate
of 1,000,000 shares of common stock of the Company, scheduled to vest and become
42
<PAGE>
exercisable 33 1/3% of such shares immediately, 33 1/3% of such shares on
January 2, 1998, and 33 1/3% of such shares on January 2, 1999. All options
granted hereunder shall be incentive stock options to the extent they may
qualify for such treatment.
The employment agreement terminates upon death or long-term or permanent
disability of Mr. Strauss. The Company may terminate Mr. Strauss' employment for
"Cause" which is defined as (i) being convicted of a felony, (ii) a material
breach of or failure to perform under the employment agreement, or (iii)
intentional dishonesty in the performance of his duties under the employment
agreement. The Company may also terminate Mr. Strauss without cause on one
hundred eighty days prior written notice. Upon termination without cause, Mr.
Strauss receives all salary and other compensation to date of termination, plus
severance. Upon termination on death or disability, Mr. Strauss receives all
salary and other compensation to date of termination. Upon termination for
"Cause", Mr. Strauss receives all salary and other compensation except any
earned but unpaid bonus to date of termination.
The employment agreement contains a covenant by which Mr. Strauss agreed
not to disclose any of the Company's confidential information, nor use any of
its intellectual property at any time, except as required in the conduct of his
duties. Mr. Strauss further agreed to assign to the Company all inventions and
works of authorship made, discovered, or conceived by Mr. Strauss during the
term of employment and agrees to assist the Company in perfecting its rights to
such intellectual property. In addition, Mr. Strauss has agreed not to compete
with the Company for a period of six months from that date of termination, or
such shorter period as determined by the Company. The employment agreement also
prevents Mr. Strauss during the time employed by the Company, and for six months
thereafter, from (i) soliciting business from or engaging in business of the
type conducted by the Company with, any person, firm or entity which was a
customer of the Company at any time within two years preceding his termination,
(ii) inducing any such customers to reduce their business with the Company,
(iii) soliciting or attempting to solicit any employees of the Company to leave
the employ of the Company, (iv) offering or causing to be offered employment to
any person who was employed by the Company at any time during the two years
prior to his termination of employment.
ROBERT P. WONG
Mr. Robert P. Wong became Vice Chairman of the Board and Chief Technology
Officer of the Company effective February 16, 1995. Pursuant to an employment
agreement effective January 1, 1997, and expiring December 31, 1998, unless
renewed, Mr. Wong receives a base salary at a rate of $127,000 per annum. Mr.
Wong shall be entitled to receive a bonus, which amount for the period ending
December 31, 1997 shall not exceed $70,000 nor be less than $25,000. The amount
of the bonus for the year ending December 31, 1998 shall be agreed to by Mr.
Wong and the Company by December 31, 1997, and be based upon mutually agreed to
objectives for Mr. Wong. Mr. Wong is also entitled to participate in any pension
plans or bonus plans of the Company or of any subsidiary, which ever is more
beneficial to him, to be included in the Company's health, disability, life
insurance and other benefit plans, and to receive an allowance for the cost of
an automobile.
Mr. Wong received , in addition to his salary and any bonus, options to
purchase at the fair market value on May 7, 1997, an aggregate of 500,000 shares
of common stock of the Company, scheduled to vest and become exercisable 50% of
such shares immediately and 50% of such shares on January 2, 1998. All options
granted hereunder shall be incentive stock options to the extent they may
qualify for such treatment.
The employment agreement terminates upon death or long-term or permanent
disability of Mr. Wong. The Company may terminate Mr. Wong's employment for
"Cause" which is defined as (i) being convicted of a felony, (ii) a material
breach of or failure to perform under the employment agreement, or (iii)
intentional dishonesty in the performance of his duties under the employment
agreement. The Company may also terminate Mr. Wong without cause on one hundred
eighty days prior written notice. Upon termination without cause, Mr. Wong
receives all salary and other compensation to date of termination, plus
severance. Upon termination on death or disability, Mr. Wong receives all salary
and other compensation to date of termination. Upon termination for "Cause", Mr.
Wong receives all salary and other compensation except any earned but unpaid
bonus to date of termination.
43
<PAGE>
The employment agreement contains a covenant by which Mr. Wong agreed not
to disclose any of the Company's confidential information, nor use any of its
intellectual property at any time, except as required in the conduct of his
duties. Mr. Wong further agreed to assign to the Company all inventions and
works of authorship made, discovered, or conceived by Mr. Wong during the term
of employment and agrees to assist the Company in perfecting its rights to such
intellectual property. In addition, Mr. Wong has agreed not to compete with the
Company for a period of six months from that date of termination, or such
shorter period as determined by the Company. The employment agreement also
prevents Mr. Wong, during the time employed by the Company and for six months
thereafter, from (i) soliciting business from or engaging in business of the
type conducted by the Company with, any person, firm or entity which was a
customer of the Company at any time within two years preceding his termination,
(ii) inducing any such customers to reduce their business with the Company,
(iii) soliciting or attempting to solicit any employees of the Company to leave
the employ of the Company, (iv) offering or causing to be offered employment to
any person who was employed by the Company at any time during the two years
prior to his termination of employment.
NORMAN B. WRIGHT
Mr. Norman B. Wright became Vice Chairman of the Board and President and
Chief Executive Officer of the HumanCAD Systems division in April 1997. Pursuant
to a consulting agreement effective April 7, 1997, and expiring April 7, 1999,
unless renewed, Mr. Wright receives a basic consulting fee at a rate of $125,000
per annum. Mr. Wright is entitled to receive a performance bonus on an annual
basis within 30 days of the end of the Company's fiscal year. The amount of such
bonus shall be fixed by the board of directors of the Company acting upon
recommendations from Management and its Compensation Committee, provided that
the minimum amount of incentive bonus payable to Mr. Wright in respect of each
of the first two years of the engagement will be not less than $25,000.00. Mr.
Wright is also entitled to receive an allowance for the cost of an automobile,
and will be reimbursed for the costs of maintaining a health plan, including a
term life insurance policy.
Mr. Wright received , in addition to his salary and any bonus, options to
purchase at the fair market value on May 7, 1997, an aggregate of 500,000 shares
of common stock of the Company, scheduled to vest and become exercisable 50% of
such shares immediately and 50% of such shares on April 7, 1998. All options
granted hereunder shall be incentive stock options to the extent they may
qualify for such treatment.
Notwithstanding the fixed term of the engagement, the Company may
terminate the engagement of Mr. Wright at any time for cause including but not
limited to any material breach of the provisions of the agreement by Mr. Wright.
The employment agreement contains a covenant by which Mr. Wright agreed
not to disclose any of the Company's confidential information, nor use any of
its intellectual property at any time, except as required in the conduct of his
duties. Mr. Wright further agreed to assign to the Company all inventions and
works of authorship made, discovered, or conceived by Mr. Wright during the term
of employment and agrees to assist the Company in perfecting its rights to such
intellectual property. In addition, Mr. Wright has agreed not to compete with
the Company for a period of twelve months from that date of termination, or such
shorter period as determined by the Company. The employment agreement also
prevents Mr. Wright, during the time employed by the Company and for twelve
months thereafter, from (i) soliciting business or engaging in business of the
type conducted by the Company from any person, firm or entity which was a
customer of the Company at any time within two years preceding his termination
or a prospective customer, (ii) inducing any such customers to reduce their
business with the Company, (iii) soliciting or attempting to solicit any
employees of the Company to leave the employ of the Company, (iv) offering or
causing to be offered employment to any person who was employed by the Company
at any time during the two years prior to his termination of employment.
44
<PAGE>
STOCK OPTION PLANS
The Board of Directors and the Shareholders of the Company approved and
adopted the 1995 Stock Option Plan(the "1995 Plan"). Pursuant to the 1995 Plan,
the Company is permitted to issue ISOs and NQOs to employees, directors or
consultants of the Company (ISOs and NQOs are hereinafter collectively referred
to as "Options"). ISOs under the 1995 Plan are intended to qualify for the tax
treatment accorded under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). NQOs are intended to be Options which do not qualify for
the tax treatment accorded under Section 422 of the Code. The purpose of the
1995 Plan is to assist the Company in attracting and retaining the services of
competent employees, directors and consultants. The 1995 Plan replaces all prior
option plans and no further options will be granted under the prior option
plans.
Under the Code, generally, there will be no tax consequences from the
grant or exercise of an ISO under the 1995 Plan. An employee holding (i) an ISO
at least two years from the date of grant and (ii) the Common Stock issued on
exercise for at least one year after the exercise, will have long term capital
gain or loss income tax treatment for the gain or loss recognized on the sale of
the Common Stock. The difference between the fair market value of the Common
Stock at the time the ISO is exercised and the exercise price will be an "item
of adjustment" under Code Section 56(b)(3) for purposes of the Alternative
Minimum Tax under Code Section 55. If an employee disposes of the Common Stock
without meeting these holding period requirements, the employee will realize
ordinary income equal to the difference between the lesser of the fair market
value of the Common Stock on the date of exercise and the exercise price or the
amount realized over the adjusted basis and capital gain treatment for any
excess realized, and the Company will be entitled to a corresponding income tax
deduction, in an amount equal to the ordinary income realized by the employee.
When an employee is entitled to capital gain treatment on the sale of the Common
Stock, there is no taxable event to the Company. The employee also must remain a
Company employee from the time the ISO was granted until three (3) months before
the date of actual exercise, except that disabled employee or a deceased
employee's representative may exercise an ISO twelve (12) months after
termination of employment.
Under the Code, generally, there will be no tax consequences from the
grant of a NQO under the 1995 Plan. An employee, director or consultant holding
a NQO shall be deemed to receive compensation upon exercise of the NQO in an
amount equal to the excess, if any, of the fair market value of the Common Stock
issued on exercise over the exercise price. The employee, director or consultant
will realize ordinary income, and the Company will be entitled to a
corresponding income tax deduction, in an amount equal to such excess. Such
income constitutes "wages" subject to the withholding requirements of the Code.
The basis of the Common Stock acquired pursuant to the NQO will be increased by
the amount of taxable income attributable to the exercise. All gain or loss on
the sale of the Common Stock will be capital gain or loss.
The foregoing is based upon the current Federal tax laws and regulations
and is not a complete description of the tax aspects of the 1995 Plan. In
addition, each optionee may be subject to state and local taxes.
All employees, directors and consultants of the Company, any subsidiary or
any parent of the Company are eligible to participate in the 1995 Plan.
Currently, three officers, three non-officer directors, and all other employees
are eligible to participate. The Board of Directors anticipates that the number
of eligible employees, directors and consultants may increase with the growth of
the Company.
The 1995 Plan is administered by the Board of Directors of the Company,
which to the extent it shall determine may delegate its powers with respect to
the administration of the 1995 Plan to a committee (the "Committee") consisting
of not less than three members, who shall be directors of the Company. To the
extent permitted under the express provisions of the 1995 Plan, the Board of
Directors shall have authority to determine which employees, directors or
consultants are eligible to receive Options, the number of shares covered by
each grant of an Option, and otherwise to interpret and administer the 1995
Plan. The Board of Directors may at any time terminate the 1995 Plan and may,
under certain circumstances, amend the 1995 Plan, provided that no amendment may
materially increase the maximum number of shares subject to the 1995 Plan,
materially increase the maximum benefits accruing under the 1995 Plan,
materially modify the
45
<PAGE>
requirements for eligibility, make any change requiring shareholder approval
under the Code or the 1934 Act, or change the terms of an outstanding Option
without the consent of the optionee.
Under the 1995 Plan, ISOs to purchase shares of the Company's Common Stock
shall not be granted with an exercise price less than 100 percent of the fair
market value of the Common Stock on the date the ISO is granted; provided,
however, than an employee that owns more than ten (10%) percent of the voting
power of all classes of the Company's Common Stock shall not be granted an ISO
with an exercise price of less than 110% percent of the fair market value of the
Common Stock on the date of the grant. The option price per share with respect
to each NQO granted under the 1995 Plan shall be determined by the Board of
Directors. The employee, director or consultant shall pay for the Common Stock
acquired on exercise of Options under the 1995 Plan by delivering a check
payable to the order of the Company, or cash, a promissory note, or shares of
Common Stock having a fair market value on the date of delivery equal to
aggregate exercise price for such number of Option shares and any income tax
withholding due. In no event shall the optionee have any right or status as a
shareholder prior to the issuance of the Option shares.
Options under the 1995 Plan shall have a term of not more than ten (10)
years; provided, however, that in no event shall any ISO granted to a person
then owning more than ten (10%) percent of the voting power of all classes of
the Company's Common Stock be exercisable more than five (5) years after the
date the Option is granted. Except for provisions requiring acceleration of
vesting, no Option shall vest or be first exercisable prior to six months from
the date of grant. Any Option granted to an employee under the 1995 Plan shall
terminate three (3) months after termination of employment, except as may be
extended by the Board. Any Option granted to a consultant or non-employee
director shall terminate twelve (12) months after he ceases to be a consultant
or non-employee director, except as may be extended by the Board. Any Option
granted under the 1995 Plan shall terminate (i) on the earlier of the expiration
of the Option or twelve (12) months after the date on which the optionee ceases
to be an employee, a non-employee director, or a consultant if such termination
results from the optionee's permanent and total disability; and (ii) on the
earlier of the expiration of the Option or twelve (12) months after the
optionee's death, if the optionee was an employee, non-employee director or
consultant at death, during which period the optionee's executors or
administrators may exercise any Option not exercised by the optionee during his
lifetime. If the optionee's death occurs within three (3) months after
termination as an employee, a non-employee director or a consultant, the Option
may be exercised until the earlier of twelve (12) months following the date of
the optionee's death or the expiration of the Option. The aggregate fair market
value, determined at the time the ISO is granted, of the Common Stock with
respect to which ISOs are exercisable for the first time by an employee in any
calendar year under the 1995 Plan may not exceed $100,000. Subject to the
foregoing and to the specific limitations set out in the 1995 Plan, any Option
granted pursuant to the 1995 Plan shall contain provisions established by the
Board of Directors setting forth the manner of exercise of such Option.
Pursuant to the terms of the 1995 Plan, the number of shares covered by an
Option and the Option price per share (as well as the maximum number of shares
as to which Options may be granted to any one individual) are subject to
adjustment for stock dividends, stock splits, mergers, consolidations, and other
similar events. Otherwise, the maximum number of shares that can be issued under
the 1995 Plan is 2,000,000.
In the event of a change of control, all Options become fully vested.
Change of control is deemed to occur when (i) any group becomes the owner of at
least 20% of the total voting power of all classes of capital stock of the
Company entitled to vote in an election, (ii) the current directors shall cease
to constitute a majority of the board, (iii) the shareholders approve a certain
plan of liquidation or merger or consolidation of the Company where the
Company's current shareholders do not hold at least a majority of common stock
of the surviving corporation or the Board of Directors immediately prior to the
merger or consolidation would not constitute a majority of the Board of
Directors of the surviving corporation, or the shareholders approve an agreement
providing for the sale or other disposition of substantially all of the
Company's assets.
Unless sooner terminated in accordance with its terms, the 1995 Plan will
expire on the date ten (10) years after the date of its adoption by the Board of
Directors and no Option may be granted after that date.
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<PAGE>
In 1989, the directors of the Company adopted and the stockholders of the
Company approved the adoption of the 1989 Stock Option Plan(the "1989 Plan"). In
1992, the Board of Directors adopted and the stockholders approved the adoption
of an amendment to the Plan to (a) increase the total number of shares with
respect to which options may be granted by 500,000 to 1,565,957, (b) permit the
granting of NQOs at a price per share less than the fair market value of the
Company's Common Stock on the date of grant, (c) permit options to be exercised
up to two years after termination of employment under certain circumstances, and
(d) make certain other changes necessary to bring the 1989 Plan into compliance
with Rule 16b-3 under Section 16 of the 1934 Act ("Rule 16b-3"). The purpose of
the 1989 Plan was to enable the Company to attract and encourage key employees,
including officers and consultants, to contribute to the success of the Company
by granting such employees ISOs and/or NQOs and by granting NQOs to such
consultants. The 1989 Plan provides for the granting of options to purchase
shares of the Company's Common Stock at a price per share not less than the fair
market value on the date of grant, provided that NQOs may be granted at less
than the fair market value of the Common Stock on the date of grant. No option
may be outstanding for more than ten years after its grant.
The 1989 Plan has been administered by the Board of Directors or a
committee of not less than two or more directors appointed by the Board of
Directors (the "Committee"). Members of the Board who are not employees of the
Company are not eligible to participate in the 1989 Plan. The Board (or the
Committee) had determined, among other things, the recipients of grants, whether
a grant consisted of ISOs or NQOs or a combination thereof, and the number of
shares to be subject to such options.
Upon exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or check or, if authorized by
the Board of Directors, by promissory note or in shares of the Company's Common
Stock, or in a combination of the above. Generally, options may be exercised
while the recipient is an employee of the Company and within 3 months after
termination of employment. In the event of a termination of employment due to
the death or permanent disability of an employee, options may be exercised up to
twelve months following the date of termination (but in no event after the
scheduled expiration date of the option).
The 1989 Plan was replaced by the 1995 Plan.
Pursuant to the 1995 Plan, the Board of Directors has granted options to
acquire an aggregate of 1,760,500 shares of Common Stock of the Company (net of
cancellations). The Board of Directors intends such options to be ISOs to the
extent such is allowable under the Code. Any such options granted as ISOs which
exceed such limitation shall be characterized as NQOs. The Board of Directors
has also granted NQOs to acquire an aggregate of 165,000 shares of Common Stock
(net of cancellations) pursuant to the 1995 Plan to various officers and
directors and consultants.
Pursuant to the 1989 Plan, the Board of Directors granted ISOs to acquire
32,000 shares of Common Stock of the Company (net of cancellations). In
addition, the Board of Directors granted NQOs to acquire an aggregate of 400,000
shares of Common Stock of the Company (net of cancellations) to a consultant.
The Board of Directors had also granted NQOs to acquire an aggregate of 100,000
shares of Common Stock (net of cancellations) pursuant to the Non-Statutory Plan
to various officers and directors.
All outstanding options are exercisable at prices ranging from $0.922 to
$3.219 per share. The exercise prices of all outstanding options were determined
by the Board to be not less than the fair market value of the Common Stock as of
the date of grant. The options all expire not more than ten years after the date
of grant and by their terms become void if any of the recipients violate any
restrictive covenant or confidentiality agreement executed by them with respect
to the Company.
DIRECTOR COMPENSATION
Employee-directors receive no compensation for serving on the Board of
Directors other than reimbursement of expenses incurred in attending meetings.
Non-employee directors elected or appointed to the Board of Directors are paid
an annual directors' fee of $5,000 plus $500 for each Board meeting attended and
are reimbursed for expenses incurred in attending meetings. During the Company's
fiscal year ended
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<PAGE>
December 31, 1996, no stock options were issued to any of the Company's
non-employee directors.
Subsequent to fiscal year end, options to purchase 50,000 shares of Common
Stock were issued to Joel L. Gold. Including these options, Mr. Gold has been
granted options to purchase an aggregate of 107,500 shares of Common Stock at
prices ranging from $.75 to $1.68 per share.
Subsequent to fiscal year end, options to purchase 50,000 shares of Common
Stock were issued to Glenn F. Santmire. Including these options, Mr. Santmire
has been granted options to purchase an aggregate of 75,000 shares of Common
Stock at prices ranging from $.75 to $1.5156 per share.
Subsequent to fiscal year end, options to purchase 50,000 shares of Common
Stock were issued to Sandra Meyer, at an exercise price of $.7813 per share.
Subsequent to fiscal year end, options to purchase 750,000 shares of
Common Stock, 690,125 of which are subject to shareholder approval of the
amendment to the 1995 Stock Option Plan described herein, were issued to Norman
B. Wright, at prices ranging from $.75 to $1.5157 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 22, 1997 based
on information obtained from the records of the Company with respect to the
beneficial ownership of shares of Common Stock of the Company by (i) each person
known by the Company to be owners of more than five percent of the outstanding
shares of Common Stock, (ii) each director and nominee and certain executive
officers, and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
Common Stock
------------
Amount and Nature Percentage of Common
Name and Address of Beneficial Owner of Beneficial Ownership(1) Stock Owned
------------------------------------ -------------------------- -----------
<S> <C> <C>
R. Weil & Associates (2) 1,234,500 (6) 6.5%
Kirr, Marbach & Company LLC (2) 2,054,500 (7) 10.9%
Kirr Marbach Group (2) 2,252,500 (8) 11.9%
Austost Anstalt Schaau (3) 2,025,000 (9) 10.8%
UFH Endowment Ltd. (3) 2,025,000 (9) 10.8%
Impleo, LLC (4) 2,000,000 (10) 11.2%
Wexford Management, LLC (4) 2,000,000 (11) 11.2%
Wexford Special Situations 1997, LP (4) 1,250,600 (12) 7.0%
Michael Strauss (5) 1,266,666 (13) 7.1%
Robert P. Wong (5) 528,750 (14) 3.1%
Norman B. Wright (5) 250,000 (15) 1.5%
Joel L. Gold( 5) 107,500 (16) *
Sandra Meyer (5) -0- (17) *
Glenn F. Santmire (5) 25,000 (18) *
Charles Schuyler (5) 375,000 2.2%
Mark Plaumann (5) -0- *
Stephen Savitsky (5) -0- *
All officers and directors as a group (9 persons) 2,552,916 11.5%
</TABLE>
1) The Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them.
2) Address is 621 Washington Street, Columbus, IN 47201.
3) Address is c/o L.H. Financial Services, 160 Central Park South, New York,
NY 10019.
4) Address is 411 West Putnam Avenue, Greenwich, CT 06830.
5) Address is c/o BCAM International, Inc., 1800 Walt Whitman Road, Melville,
New York 11747
6) Includes 320,000 shares issuable upon exercise of Non-Redeemable Class AA
Warrants being registered herein and 62,000 shares issuable upon exercise
of Non-Redeemable Class DD Warrants not being registered herein.
7) Kirr Marbach & Company LLC, a registered investment advisor and the
managing general partner of the three Limited Partnerships (621 Partners,
Appleton Associates and R. Weil & Associates), has sole voting and
dispositive discretion with respect to securities held by the Limited
Partnerships, which include in the aggregate 700,000 shares issuable upon
exercise of Non-Redeemable Class AA Warrants being registered herein and
122,000 shares issuable upon exercise of Non-Redeemable Class DD Warrants
not being registered herein.
8) Kirr Marbach & Co., LLC (as a general partner of the Limited
Partnerships), David M. Kirr, Terry B. Marbach and Gregg T. Summerville
may be deemed to constitute a group within the meaning of Regulation
13D-G. Beneficial ownership by this group include in the aggregate 700,000
shares issuable upon exercise of Non-Redeemable Class AA Warrants being
registered herein and 320,000 shares issuable upon exercise of
Non-Redeemable Class DD Warrants not being registered herein.
9) Includes 2,000,000 shares of Common Stock issuable upon the conversion of
50 shares of BCA Services,
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<PAGE>
Inc. Preferred Stock being registered herein and 25,000 shares issuable
upon exercise of Non-Redeemable Class BB Warrants being registered herein.
10) Impleo, LLC was organized for the purpose of investing in the Registrant.
The members of Impleo are Wexford Spectrum Investors, LLC, Wexford Special
Situations 1997, LP and Wexford Special Situations 1997 Institutional, LP.
Impleo has sole voting and dispositive discretion with respect to
securities held by these entities, which include, in the aggregate,
2,000,000 shares of Common Stock issuable upon exercise of Non-Redeemable
Class DD Warrants not being registered herein.
11) Wexford Management LLC, the manager of Impleo, LLC and Wexford Spectrum
Investors, LLC and the investment manager of Wexford Special Situations
1997, LP and Wexford Special Situations 1997 Institutional, LP, has sole
voting and dispositive discretion with respect to securities held by these
entities, which include, in the aggregate, 2,000,000 shares of Common
Stock issuable upon exercise of Non-Redeemable Class DD Warrants not being
registered herein.
12) Include 1,250,600 shares of Common Stock issuable upon exercise of
Non-Redeemable Class DD Warrants not being registered herein.
13) Includes options to purchase 679,833 shares of Common Stock exercisable
within 60 days of the date hereof, plus options to purchase 586,833 shares
of Common Stock which will be exercisable within 60 days subject to
shareholder approval. Does not include options to purchase 439,917 shares
of Common Stock not exercisable within 60 days of the date hereof, and
options to purchase 1,293,417 shares of Common Stock not exercisable
within 60 days and subject to shareholder approval.
14) Includes options to purchase 308,688 shares of Common Stock exercisable
within 60 days of the date hereof, plus options to purchase 220,062 shares
of Common Stock which will be exercisable within 60 days subject to
shareholder approval. Does not include options to purchase 251,187 shares
of Common Stock not exercisable within 60 days of the date hereof, and
options to purchase 470,063 shares of Common Stock not exercisable within
60 days and subject to shareholder approval.
15) Includes options to purchase 29,938 shares of Common Stock exercisable
within 60 days of the date hereof, plus options to purchase 220,062 shares
of Common Stock which will be exercisable within 60 days subject to
shareholder approval. Does not include options to purchase 29,937 shares
of Common Stock not exercisable within 60 days of the date hereof, and
options to purchase 470,063 shares of Common Stock not exercisable within
60 days of the date hereof and subject to shareholder approval.
16) Includes options to purchase 57,500 shares of Common Stock exercisable
within 60 days of the date hereof. Does not include options to purchase
50,000 shares of Common Stock not exercisable within 60 days of the date
hereof and subject to shareholder approval
17) Does not include options to purchase 50,000 shares of Common Stock not
exercisable within 60 days of the date hereof and subject to shareholder
approval.
18) Includes options to purchase 25,000 shares of Common Stock exercisable
within 60 days of the date hereof. Does not include options to purchase
50,000 shares of Common Stock not exercisable within 60 days of the date
hereof and subject to shareholder approval.
* Less than 1.0%
- ----------------------------
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<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
In June 1995, the Company authorized an increase in its authorized Common
Stock from 20,000,000 shares, $.01 par value per share, to 40,000,000 shares,
$.01 par value per share, of which 17,231,088 shares of Common Stock are issued
and outstanding as of December 23, 1997. In December 1997, the Board of
Directors agreed to ask for shareholder approval to increase the number of
authorized share of Common Stock from 40,000,000 to 65,000,000. Such
shareholders' meeting is being scheduled for February 1998. The holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available theretofore and in such amounts as the Board of
Directors may from time to time determine. See "Dividend Policy." Each
stockholder is entitled to one vote per share of Common Stock held by him. Under
the Company's Restated Certificate of Incorporation the Common Stock is not
subject to redemption. See "Certain Transactions-Redemption." Upon liquidation,
dissolution or winding up of the Company and following provision for the
liquidation preference of all outstanding preferred stock, the assets legally
available for distribution to the holders of Common Stock are distributable
ratably among the holders of the outstanding Common Stock. All outstanding
shares of Common Stock are, and the shares of Common Stock issuable upon
exercise of the Warrants will upon issuance, be fully paid and non-assessable.
In September 1989, the Company authorized and adopted a Restated Certificate of
Incorporation which provided that the Company's Common Stock is not entitled to
any preemptive rights. The Company has received from each of its Pre-IPO
Stockholders waivers of any preemptive rights such stockholders may have been
entitled to with respect to prior issuances of securities by the Company.
WARRANTS
The following warrants are issued and outstanding:
<TABLE>
<CAPTION>
Number of Shares
Number of Exercise Price Obtained Upon
Warrants (per share, as Exercise of Expiration
Warrants Outstanding adjusted) Each Warrant Dates
-------- ----------- --------- ------------ -----
<S> <C> <C> <C> <C>
Redeemable Class B 807,659 $1.14 1.6 1/18/98
Redeemable Class E 491,588 $0.95 1.4 1/18/98
Non-Redeemable Class AA 1,075,000 $ .65 1.0 3/31/98
Non-Redeemable Class BB 50,000 $1.03125 1.0 7/22/02
</TABLE>
REDEEMABLE CLASS B AND REDEEMABLE CLASS E WARRANTS.
The Redeemable Class B and E Warrants have been issued pursuant to a
warrant agreement, dated January 17, 1990 (as amended, the "Warrant Agreement"),
among the Company, the Underwriter and North American Transfer Co., as assignee
from American Stock Transfer & Trust Company, warrant agent (the "Warrant
Agent"), and are evidenced by warrant certificates in registered form.
WARRANT AMENDMENTS
On December 20, 1996, the Company extended the expiration date of the
Company's Redeemable Class B Warrants and Redeemable Class E Warrants to January
17, 1998 and amended the exercise price of the Redeemable Class B Warrants to
$1.14/share .
As provided initially in the Warrant Agreement, each Redeemable Class B
Warrant entitled the holder thereof to purchase one share of Common Stock at
exercise prices, ranging from $3.33 to $4.67 per share, subject to adjustment,
at any time commencing upon issuance of the Redeemable Class B Warrants until
the
51
<PAGE>
close of business on the expiration date (originally January 17, 1998), unless
previously redeemed. The Redeemable Class B Warrants are subject to redemption
by the Company at any time on not less than 30 days' prior written notice, at
$.03 per Warrant, if (i) the average closing bid price of the Common Stock
exceeds the applicable average closing bid price for any period of 30
consecutive business days ending within 15 days prior to the date of the notice
of redemption and (ii) the Company has in effect a current prospectus covering
the Common Stock issuable upon exercise of the Redeemable Class B Warrants.
The exercise price of the Redeemable Class B and E Warrants and the number
and kind of shares of Common Stock or other securities and property to be
obtained upon the exercise of those Warrants are subject to adjustment in
certain circumstances, including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or sale of
Common Stock at less than the market price of the Common Stock, provided that no
adjustment shall be made unless and until the adjustment, or the aggregate of
successive adjustments, would exceed $.25 per share. Additionally, an adjustment
would be made upon the sale of all or substantially all of the assets of the
Company so as to enable those Warrant holders to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable in
such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon exercise of such Warrant. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of those
Warrants.
After giving effect to the foregoing provisions, the exercise prices for
the Redeemable Class E and Redeemable Class B Warrants, have been adjusted to
the prices set forth in the table below, and the number of shares to be obtained
upon the exercise of the Redeemable Class B Warrants has been increased from one
share to one and six-tenths (1.6) shares; provided, that, the application of the
foregoing provisions for adjustment upon the issuance of Redeemable Class E
Warrants has not resulted in a further adjustment in the exercise prices of the
Redeemable Class B Warrants because the amount of the adjustment has not
exceeded $.25 per share.
The current exercise price per share for the Redeemable Class B Warrants
are as follows:
EXERCISE PRICE
WARRANTS AND PERIOD (PER SHARE, AS ADJUSTED)
Redeemable Class B (1.6 shares per warrant) $1.14
Redeemable Class E (1.5 shares per warrant) $0.95
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrant holders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the respective expiration date (or earlier redemption date) of such
Warrants at the offices of the Warrant Agent, with the form of "Election to
Purchase" on the reverse side of the Warrant certificate duly completed and
executed, accompanied by payment of the full exercise price (by certified check
payable to the order of the Warrant Agent) for the number of Warrants being
exercised.
The terms of the Redeemable Class E Warrants are identical to those of the
Redeemable Class B Warrants, excluding the adjusted exercise prices set forth
above and the adjusted conversion ratio, provided that, pursuant to the terms of
the Company's Discounted Warrant Plan, each Redeemable Class E Warrant entitles
the registered holder thereof to purchase one and five-tenths (1.5) shares of
Common Stock at $0.95 per share, subject to adjustment, at any time prior to its
expiration on January 17, 1998.
NON-REDEEMABLE CLASS AA WARRANTS
1,075,000 Non-redeemable Class AA Warrants were issued in 1997 in
connection with a private placement offering for $1,075,000. 1,075,000 shares of
the Company's Common Stock are issuable upon the
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<PAGE>
exercise of the 1,075,000 Warrants at an exercise price of $.65 per share. The
Non-Redeemable Class AA Warrants are exercisable until March 31, 2002. One
Warrant is convertible into one share of the Company's Common Stock. As of the
date of this filing, the Common Stock Shares issuable upon conversion of the
Warrants had not been registered.
The terms of the Non-Redeemable Class AA Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above and the conversion ratio, provided that, pursuant to the terms of the
private placement offering, each Non-Redeemable Class AA Warrant entitles the
registered holder thereof to purchase one share of Common Stock at $.65 per
share, subject to adjustment, at any time prior to its expiration on March 31,
2002.
NON-REDEEMABLE CLASS BB WARRANTS
50,000 Non-redeemable Class BB Warrants were issued on July 22, 1997 in
connection with the first tranche of a potential financing of $1,500,000. In
addition, the Company expects to exercise its option to utilize the second
tranche of $500,000 by September 8, 1997, resulting in the issuance of an
additional 50,000 Non-Redeemable Class BB Warrants. Should the Company choose to
exercise its option to utilize the third tranche of $500,000, the Company will
be obligated to issue an additional 50,000 Non-Redeemable Class BB Warrants. The
150,000 aggregate potential outstanding Warrants are exercisable at $1.03125 per
share. One Warrant is convertible into one share of the Company's Common Stock.
The Non-Redeemable Class BB Warrants are exercisable until July 22, 2002. As of
the date of this filing, no Common Stock Shares had been registered in
connection with the Non-Redeemable Class BB Warrants.
The terms of the Non-Redeemable Class BB Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above and the conversion ratio, provided that, pursuant to the terms of the
private placement offering, each Non-Redeemable Class BB Warrant entitles the
registered holder thereof to purchase one share of Common Stock at $1.03125 per
share, subject to adjustment, at any time prior to its expiration on July 22,
2002.
NON-REDEEMABLE CLASS CC WARRANTS
The Company completed an offering of $200,000 on September 17, 1997, which
resulted in the issuance of 10,000 Non-Redeemable Class CC Warrants to purchase
10,000 shares of Common Stock exercisable at $1.0264 per share. One Warrant is
convertible into one share of the Company's Common Stock. The Non-Redeemable
Class CC Warrants are exercisable until September 17, 2002. As of the date of
this filing, no Common Stock had been registered in connection with the
Non-Redeemable Class CC Warrants.
The terms of the Non-Redeemable Class CC Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above, the conversion ratio and certain more extensive dilution provisions
contained in the Redeemable Class B Warrants, provided that, pursuant to the
terms of the private placement offering, each Non-Redeemable Class CC Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
$1.0264 per share, subject to adjustment, at any time prior to its expiration on
September 17, 2002.
NON-REDEEMABLE CLASS DD AND NON-REDEEMABLE CLASS EE WARRANTS
On September 19, 1997, the Company issued 2,400,000 Non-Redeemable Class
DD Warrants to purchase 2,400,000 shares of Common Stock at $1.75 per share, in
connection with the issuance of the 10%/13% Convertible Subordinated Notes as
part of the financing for the Drew Shoe acquisition, and 500,000 Non-Redeemable
Class EE Warrants to purchase 500,000 shares of Common Stock at $0.80 per share
The terms of the Non-Redeemable Class DD Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above, the conversion ratio and certain more extensive
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<PAGE>
dilution provisions contained in the Redeemable Class B Warrants, provided that,
pursuant to the terms of the private placement offering, each Non-Redeemable
Class DD Warrant entitles the registered holder thereof to purchase one share of
Common Stock at $1.75 per share, subject to adjustment, at any time prior to its
expiration on September 19, 2000.
The terms of the Non-Redeemable Class EE Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above, the conversion ratio and certain more extensive dilution provisions
contained in the Redeemable Class B Warrants, provided that, pursuant to the
terms of the private placement offering, each Non-Redeemable Class EE Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
$.80 per share, subject to adjustment, at any time prior to its expiration on
September 19, 2000.
ACQUISITION PREFERRED STOCK
The Company is authorized to issue 750,000 shares of its Acquisition
Preferred Stock, $.01 par value, none of which are presently issued and
outstanding. The Acquisition Preferred Stock is only permitted to be issued as
consideration pursuant to (i) a statutory merger or consolidation as to which
the Company is the surviving entity, (ii) the acquisition by the Company of
substantially all the assets or business of another entity or (iii) the
acquisition by the Company of 50% or more of the voting securities of another
entity. The Acquisition Preferred Stock is issuable from time to time in one or
more series. The Board of Directors is authorized to fix, before issuance, (i)
the voting powers, if any, and (ii) the designations, preferences and any other
rights, qualifications, limitations and restrictions applicable to each series
of Acquisition Preferred Stock, including, without limitation, dividend rates
and conditions, dividend preferences, conversion and redemption rights and
liquidation preferences. The Board of Directors may without approval of the
holders of the Common Stock issue the Acquisition Preferred Stock with voting
and conversion rights which may adversely affect the rights, including voting
rights, of the holders of the Common Stock.
8% PREFERRED STOCK
The Company is authorized to issue 15,000 shares of its 8% Preferred
Stock, $10.00 par value, none of which are issued and outstanding. Holders of 8%
Preferred Stock do not have any voting rights.
Holders of shares of 8% Preferred Stock are entitled to cumulative cash
dividends at an annual rate of $.80 per share, payable quarterly, as and when
declared by the Board of Directors, before any dividend may be paid or declared
on the Common Stock. The Company may at any time, and within five years after
issuance must, redeem the 8% Preferred Stock, at $10.00 per share, together with
accrued and unpaid dividends, if any. In the event of the liquidation or winding
up of the Company, holders of the 8% Preferred Stock will be entitled to receive
$10.00 per share, together with all accrued and unpaid dividends, before any
amounts may be paid in respect of the Company's Common Stock.
PREFERRED STOCK OF BCA SERVICES
On July 22, 1997, the Company commenced an offering of 150 shares of
Series A Convertible Preferred Stock in BCA Services, Inc. (a subsidiary of BCAM
International, Inc.), the proceeds of which were to be used for working capital
purposes. The first tranche was in the amount of $500,000 and 50 Convertible
Preferred Stock Shares were issued. The second tranche was drawn down on
September 8, 1997, also in the amount of $500,000 and an additional 50
Convertible Preferred Stock Shares were issued. The Company has until November
7, 1997 (unless extended) to draw down the third tranche, presuming that the
Company's registration statement has been declared effective. Such registration
statement was declared effective on November 12, 1997 and the placement agent
has indicated informally to the Company that it would be willing to place the
third tranche. Each share of BCA Services Inc. Preferred Stock entitles the
holder to convert to a number of common shares of BCAM International Inc. at any
time during a one year period following the closing date and is convertible into
BCAM International, Inc. Common Stock at 70% of the average closing bid price of
BCAM common stock over the three day trading period ending on the day preceding
the conversion date. The conversion price may in no event be greater than $.6563
("maximum price").
The Preferred Stock contains a penalty provision permitting redemption,
together with penalties, at
54
<PAGE>
the option of the holder if the underlying common stock is not registered under
an effective registration statement prior to approximately January 4, 1998 and
certain economic penalties for if not registered prior to November 4, 1997. On
November 12, 1997, the Company's registration statement with the Securities and
Exchange Commission was declared effective. The preferred shareholders have
waived any penalties related to the additional eight days to register the
underlying stock.
In addition, the Company completed a separate offering of $200,000 on
September 17, 1997 and 20 additional shares of Series A Convertible Preferred
Stock in BCA Services, Inc were issued. The proceeds were to be used for working
capital purposes. Each share of BCA Services, Inc. Preferred Stock entitles the
holder to convert to a number of common shares of BCAM International, Inc. at
any time during a one year period following the closing date and is convertible
into BCAM International, Inc. Common Stock at 70% of the average closing bid
price of BCAM common stock over the three day trading period ending on the day
preceding the conversion date. The conversion price may in no event be greater
than $.9331 ("maximum price"). See "Special Risk Factors, Charges to Operations
Related to Recent Financings."
Through December 23, 1997, an aggregate of $400,000 of BCA Services, Inc.
Preferred Stock was converted into 553,855 common shares of the Company at
exercise prices of $0.6563 for the July 22, 1997 offering, and approximately
$0.80 for the September 17, 1997 offering. All of the shares under the September
17, 1997 offering have been converted.
10%/13% REDEEMABLE CONVERTIBLE NOTES AND WARRANTS
On September 22, 1997, the Company issued subordinated convertible notes
(the "Convertible Notes") and warrants to purchase 2,400,000 shares of the
Company's common stock to eight investors for a total consideration of
$6,000,000. The Convertible Notes are due on September 19, 2002, unless at any
time after September 19, 1998, they are converted, at $.80 per share, into
7,500,000 shares of Common Stock of the Company. The Convertible Notes bear an
interest rate of 10%, payable semi-annually, but the Company, at its discretion,
may pay interest in the form of its convertible notes (on the same terms), in
which case the annual interest rate becomes 13% annually with semi-annual
compounding. The Convertible Notes contain provisions requiring the maintenance
of certain financial ratios over the term of the Convertible Notes principally
related to interest coverage and net worth. Non compliance with such covenants
could result in a default of the Convertible Notes.
See "Non-Redeemable Class DD and Non-Redeemable Class EE Warrants"
regarding the terms of the warrants to purchase 2,400,000 shares of common stock
issued in connection with the Convertible Notes. See "Special Risk Factors,
Charges to Operations Related to Recent Financings."
TRANSFER AGENT AND WARRANT AGENT
North American Transfer Co., Freeport, New York is the Company's transfer
and warrant agent.
55
<PAGE>
BUSINESS COMBINATION PROVISIONS
New York law regulates "business combinations," a term covering a broad
range of transactions, between "resident domestic corporations" (as defined,
which term would include the Company) and an interested stockholder, which is
defined as any person beneficially owning, directly or indirectly, 20% or more
of the outstanding voting stock of the resident domestic corporation or any
affiliate or associate of such owner. However, if the interested stockholder has
owned at least 5% of such outstanding voting stock at all times from October 31,
1985 to the date at which he or it first attains 20% ownership (the "Stock
Acquisition Date"), the proposed business combination is exempt from this
statute. Under the statute, a resident domestic corporation may not engage in
any business combination with any interested stockholder unless (a) if the
business combination is to occur within five years of the date the stockholder
acquired 20% or more ownership, either the business combination or the stock
acquisition must have been previously approved by the board of directors, or (b)
the business combination is approved by a majority of outstanding voting shares
(not including those shares owned by the interested stockholder), which approval
may not be effectively given until approximately five years after the interested
stockholder's Stock Acquisition Date, or (c) the consideration paid to the
non-interested stockholders must meet certain stringent conditions imposed by
the statute. The restrictions imposed by the statute will not apply to a
corporation which amends its by-laws by the affirmative vote of a majority of
its outstanding voting stock (not including those shares held by the interested
stockholders) to "elect out" of the statute; provided that such amendment will
not be effective for 18 months after such vote and will not apply to any
business combination where the Stock Acquisition Date is on or prior to the date
of the amendment.
At this time, the Company will not seek to "elect out" of the statute and,
therefore, the restrictions imposed by the statute will apply to the Company.
The Company does not presently anticipate participating in any business
combination or similar transaction covered by the "business combination" statute
in the foreseeable future and is not actively considering or discussing any such
transaction.
SHARES ELIGIBLE FOR FUTURE SALE
Upon issuance of all shares of Common Stock registered hereby, the Company
will have 18,339,671 shares of Common Stock outstanding all of which are freely
tradable, accept 1,075,000 shares of Common Stock which have not yet been
registered. The 18,339,671 shares include 1,292,254 shares of Common Stock
issuable upon exercise of Non-Redeemable Class B Warrants, 737,382 shares of
Common Stock issuable upon exercise of Non-Redeemable Class E Warrants, and
875,000 shares of Common Stock issued in connection with Stock Options issued to
Consultants.
With respect to an aggregate of 2,292,500 of Common Stock under Stock
Option plans that could be issued upon the exercise of options granted to
employees and certain consultants, such stock is also expected to be freely
tradable upon the exercise of the options, increasing total shares eligible for
future sales to 20,632,171. There can, however, be no assurance that such
options will be exercised on the dates on which such exercises and sales will
occur.
As of the date of this filing, the Company had 1,075,000 shares of Common
Stock issuable on the exercise of 1,075,000 Non-Redeemable Class AA Warrants and
1,075,000 shares of Common Stock issued, all of which had not yet been
registered, all of such Warrants and Shares issued in conjunction with a 1997
Private Placement Offering; 150,000 shares of Common Stock issuable, but not yet
registered, on the exercise of 150,000 Non-Redeemable Class BB Warrants; and
6,000,000 shares of Common Stock issuable, but not yet registered, on the
conversion of shares of Redeemable Convertible Preferred Stock in BCA Services
Inc. Such stock is expected to be freely tradable upon the exercise of the
options, and upon the conversion of the shares to the extent available under the
terms of the Formula, up to, and including 6,000,000 shares, increasing maximum
aggregate shares eligible for future sales to 27,857,171. There can, however, be
no assurance that such options will be exercised on the dates on which such
exercises and sales will occur.
56
<PAGE>
PLAN OF DISTRIBUTION
The securities registered hereby and described in this prospectus may be
sold by the owner from time to time through dealers or brokers in transactions
on NASDAQ Over-The-Counter market (Small Cap) at prices then prevailing, or
directly to one or more purchasers in negotiated transactions at negotiated
prices, or in a combination thereof. The Company is not aware of any agreements
or arrangements on the part of any person concerning the sale of any of the
securities registered hereby. The Company, at the request of any person
intending to sell any of the securities registered hereby, will deliver copies
of this prospectus, at no cost or charge, to such persons.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Ruskin, Moscou, Evens & Faltischek, P.C., Mineola, New York.
EXPERTS
The consolidated financial statements at December 31, 1996 and for each of
the two years in the period then ended have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, which is included
elsewhere herein. Such consolidated financial statements are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Drew Shoe Corporation as of December 31, 1996
and for each of the years ended December 31, 1996 and 1995 have been audited by
J.H. Cohn LLP, independent public accountants, as set forth in their report
thereon, which is included elsewhere herein. Such financial statements are
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
57
<PAGE>
INDEX OF FINANCIAL STATEMENTS AND
UNAUDITED PRO-FORMA DATA
HISTORICAL FINANCIAL STATEMENTS OF BCAM INTERNATIONAL, INC.:
Report of Independent Auditors..................................................
Consolidated Balance Sheet - December 31, 1996..................................
Consolidated Statements of Operations -
Years Ended December 31, 1996 and 1995.......................................
Consolidated Statements of Common Shareholders' Equity -
Years Ended December 31, 1996 and 1995.......................................
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996 and 1995.......................................
Notes to Consolidated Financial Statements -
December 31, 1996............................................................
Condensed Consolidated Balance Sheet--September 30, 1997 (Unaudited)............
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1997 and 1996 (Unaudited)....................
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 (Unaudited)...................
Notes to Condensed Consolidated Financial Statements -
September 30, 1997 (Unaudited)...............................................
HISTORICAL FINANCIAL STATEMENTS OF DREW SHOE CORPORATION:
Report of Independent Public Accountants
Balance Sheet - December 31, 1996 (audited) and June 30, 1997 (unaudited).......
Statements of Income and Retained Earnings - Years Ended December 31, 1996 and
1995 (audited) and the Six Months Ended June 30, 1997 and 1996
(Unaudited) .................................................................
Statements of Cash Flows - Years Ended December 31, 1996 and 1995 (audited).....
and the Six Months Ended June 30, 1997 and 1996 (Unaudited)...........
Notes to Financial Statements (including notes applicable to unaudited periods).
UNAUDITED PRO-FORMA DATA REFLECTING THE ACQUISITION OF DREW SHOE:
Introduction ...................................................................
Pro-forma Consolidated Statement of Operations for the year ended December 31,
1996 reflecting the acquisition of Drew Shoe
(unaudited) .................................................................
Pro-forma Consolidated Statement of Operations for the nine months ended
September 30, 1997 reflecting the acquisition of Drew Shoe
(unaudited) .................................................................
F-1
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
BCAM International, Inc.
We have audited the accompanying consolidated balance sheet of BCAM
International, Inc., as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BCAM
International, Inc. at December 31, 1996, and the consolidated results of their
operations and cash flows for each of the two years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Melville, New York
February 27, 1997, except for
Note 10, as to which the date
is March 28, 1997
F-2
<PAGE>
BCAM International, Inc.
Consolidated Balance Sheet
December 31, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 526,344
Accounts receivable - trade, less allowance for
doubtful accounts
of $11,245 22,537
Unbilled receivables 100,362
Prepaid expenses and other current assets 74,491
------------
Total current assets 723,734
Property, plant and equipment, at cost:
Furniture and fixtures 220,318
Equipment 593,542
Leasehold improvements 50,519
------------
864,379
Less accumulated depreciation and amortization 670,591
------------
193,788
Deferred finance and acquisition costs 158,624
Other assets, principally patents (net of
accumulated amortizationof $263,874) 228,535
------------
Total assets $ 1,304,681
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 118,501
Accrued expenses and sundry liabilities 166,564
------------
Total current liabilities 285,065
Other liabilities 4,289
Commitments and contingencies --
Acquisition preferred stock, par value $.01 per
share--authorized 750,000 shares, no shares
issued or outstanding --
Common shareholders' equity:
Common stock, par value $.01 per share--authorized
40,000,000 shares, 15,642,915 shares issued
and 14,879,733 shares outstanding 156,429
Paid-in surplus 14,959,288
Deficit (13,201,290)
------------
1,914,427
Less 763,182 treasury shares (899,100)
------------
1,015,327
============
Total liabilities and shareholders' equity $ 1,304,681
============
See accompanying notes.
F-3
<PAGE>
BCAM International, Inc.
Consolidated Statements of Operations
Year ended December 31
1996 1995
-----------------------------
Net revenue $ 604,554 $ 752,077
-----------------------------
Costs and expenses:
Direct costs of revenue 272,980 598,270
Selling, general and administrative 1,801,915 1,831,494
Research and development 97,854 185,819
-----------------------------
2,172,749 2,615,583
-----------------------------
Net loss from operations (1,568,195) (1,863,506)
Interest income, net of interest expense of
$14,579 in 1996 54,055 174,026
=============================
Net loss $ (1,514,140) $ (1,689,480)
=============================
Net loss per share $ (0.10) $ (0.11)
=============================
Weighted average number of common shares and
common equivalent shares outstanding 14,868,128 14,818,055
=============================
See accompanying notes.
F-4
<PAGE>
BCAM International, Inc.
Consolidated Statements of Common Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock $.01 par value
--------------------------- Paid-in
Shares Amount surplus Deficit Subtotal
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 15,520,415 $155,204 $ 14,994,058 $ (9,997,670) $ 5,151,592
Shares issued in connection with
conversion of BCA Services,
Inc. stock 100,000 1,000 99,000 -- 100,000
Registration and issuance costs -- -- (59,299) -- (59,299)
Net loss -- -- -- (1,689,480) (1,689,480)
-------------------------------------------------------------------------------
Balance at December 31, 1995 15,620,415 156,204 15,033,759 (11,687,150) 3,502,813
Exercise of common stock warrants 22,500 225 20,520 -- 20,745
Registration and issuance costs -- -- (94,991) -- (94,991)
Net loss -- -- -- (1,514,140) (1,514,140)
-------------------------------------------------------------------------------
Balance at December 31, 1996 15,642,915 $156,429 $ 14,959,288 $(13,201,290) $ 1,914,427
===============================================================================
Shares held in
Treasury Total
--------- -----------
Balance at January 1, 1995 $(899,100) $ 4,252,492
Shares issued in connection with
conversion of BCA Services,
Inc. stock -- 100,000
Registration and issuance costs -- (59,299)
Net loss -- (1,689,480)
---------------------------
Balance at December 31, 1995 (899,100) 2,603,713
Exercise of common stock warrants -- 20,745
Registration and issuance costs -- (94,991)
Net loss -- (1,514,140)
---------------------------
Balance at December 31, 1996 $(899,100) $ 1,015,327
===========================
</TABLE>
See accompanying notes.
F-5
<PAGE>
BCAM International, Inc. Consolidated Statements of Cash Flows
Year ended December 31
1996 1995
---------------------------
OPERATING ACTIVITIES
Net loss $(1,514,140) $(1,689,480)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts -- 34,726
Depreciation 86,220 103,479
Amortization 103,895 63,648
Interest accreted on held-to-maturity
securities -- (114,370)
Changes in operating assets and liabilities:
Accounts receivable, billed and unbilled 186,499 (156,769)
Prepaid expenses and other current assets (14,309) 102,798
Accounts payable, accrued expenses and
sundry liabilities (less amount accrued
for finance and acquisition costs) (239,195) (277,998)
Other liabilities (3,554) (26,888)
-------------------------
Net cash used in operating activities (1,394,584) (1,960,854)
-------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (6,031) (5,188)
Investment in software technology (150,618) (49,492)
Proceeds from sale of equipment -- 1,200
Purchases of held-to-maturity securities -- (2,799,782)
Proceeds from sale of held-to-maturity securities 1,507,172 4,535,000
Cash paid for deferred acquisition costs (33,035) --
------------------------
Net cash provided by investing activities 1,317,488 1,681,738
------------------------
FINANCING ACTIVITIES
Proceeds from note payable 400,000 --
Repayment of note payable (400,000) --
Net proceeds from exercise of stock options 20,745 --
Payment of stock registration and issuance costs (94,991) (59,299)
Cash paid for deferred finance costs (24,000) --
-----------
Net cash used in financing activities (98,246) (59,299)
-----------
Decrease in cash and cash equivalents (175,342) (338,415)
Cash and cash equivalents at beginning of year 701,686 1,040,101
--------------------------
Cash and cash equivalents at end of year $ 526,344 $ 701,686
==========================
See accompanying notes.
F-6
<PAGE>
BCAM International, Inc.
Notes to Financial Statements
December 31, 1996
1. DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
BCAM International, Inc. (the "Company") is a software technology and consulting
company, specializing in ergonomic (human factor) solutions for individuals,
government, and for major corporations. The Company's focus since 1995 has been
on (i) accelerating the development and commercialization of the Company's
Intelligent Surface Technology ("IST"), (ii) continuing its development of
proprietary software, which consists of IST, MannequinPro(TM), the EARLY(R)
process and Back-to-Work(TM) methodology, and (iii) upgrading and marketing its
proprietary software products, and marketing Software Based Ergonomic Consulting
Services. The Company also provides its Traditional Ergonomic Consulting
Services in Ergonomic Product Assessment and Redesign and Ergonomic Workplace
Assessment, with emphasis on broadening and strengthening long-term business
relationships such as joint ventures, partnerships, licensees and other
alliances.
The consolidated financial statements include the accounts of BCAM
International, Inc. and its subsidiaries, BCA Services, Inc., and BCAM
Technologies, Inc., collectively referred to as the "Company". BCA Services,
Inc. was established in December 1993 to directly focus on providing
comprehensive ergonomic laboratory assessment services to U.S. manufacturing and
service industries for measuring the potential risk of muscoloskeltal injury.
The operations of BCAM Technologies, Inc., formed in December 1992, which were
not significant, were terminated in December 1993.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
at December 31, 1996 consist of demand and money market accounts with U.S. banks
($56,759) and a money market account with a U.S. investment institution
($469,585).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes. Actual
results could differ from those estimates.
REVENUE
The Company's revenues are derived primarily from ergonomic (human factor)
engineering consulting services and from license of related software. The
majority of engineering consulting contracts are fixed price contracts. Revenues
from long term engineering fixed price contracts are recognized based on the
percentage of completion method in the ratio that costs (principally labor)
incurred bear to estimated total costs. Adjustments to cost estimates are made
periodically and related changes reflected in operations when they become known.
Losses expected to be incurred are charged to operations in the period that such
losses become known. Engineering revenues for contracts of less than one year
duration are accounted for under the accrual method based upon engineering labor
expended utilizing calculations which are similar to percentage completion
accounting (based upon labor expended). This method is used because management
considers it the best available measure of progress on these contracts. The
aggregate costs incurred and income recognized on uncompleted contracts in
excess of related billings is shown as a current asset and the aggregate of
billings on uncompleted contracts in excess of related costs incurred and income
recognized is shown as a current liability. Billings on contracts are made in
accordance with the terms of the underlying contracts.
Software license fee revenue is recorded when the software has been delivered to
the value added reseller. There are no significant after sale obligations on the
Company for the license of its software and there is no special
F-7
<PAGE>
customization of the software necessary for the user. The Company does not
presently offer maintenance contracts to customers who license its software.
Through December 31, 1996, software revenues have been immaterial.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method at rates based on the
estimated useful lives of the related assets. The estimated useful lives for
furniture and fixtures is 10 years and equipment is 7 years. Leasehold
improvements are amortized over the lease term or estimated useful life of the
improvements, whichever is shorter.
OTHER ASSETS
The costs of acquiring or processing (principally professional and government
fees) patents, trademarks and other intellectual properties are capitalized at
cost. This amount ($143,344 at December 31, 1996) is being amortized using the
straight-line method over the estimated useful lives of the underlying assets of
approximately 5 years.
In 1996, the Company capitalized software development costs of $85,191 for costs
incurred subsequent to establishing technological feasibility and prior to the
product being available for general release to customers. These costs will be
amortized over two years, the estimated life of the product, using the
straight-line method commencing when the software is deemed available for sale.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations in the period incurred.
INCOME TAXES
The Company accounts for income taxes using Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes." At December 31, 1996,
the Company has net operating loss carryforwards of approximately $13,741,000
for income tax purposes, expiring through 2011.
At December 31, 1996 and 1995, deferred tax assets approximating $4,672,000 and
$4,129,000, respectively, arising from the future availability of net operating
loss carryforwards have been offset in full by valuation allowances in
accordance with FASB Statement No. 109.
NET LOSS PER SHARE
Net loss per share has been computed on the basis of the weighted average number
of common shares outstanding. Common stock equivalents have been excluded
because their effect is antidilutive.
STOCK-BASED COMPENSATION
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the standard, the Company elected to continue
to account for its stock-based compensation under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations (APB 25). Under APB 25, because the exercise price of the
Company's stock options granted equals the market price of the underlying stock
on the date of the grant, no compensation expense is required to be recognized.
ACCOUNTING CHANGE
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the
F-8
<PAGE>
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. This adoption had no effect on the consolidated financial
statements.
RECLASSIFICATION
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
3. ACQUISITION PREFERRED STOCK
The Company is authorized to issue 750,000 shares of its acquisition preferred
stock, $.01 par value, none of which are presently issued and outstanding. The
acquisition preferred stock is only permitted to be issued as consideration
pursuant to (i) a statutory merger or consolidation as to which the Company is
the surviving entity, (ii) the acquisition by the Company of substantially all
the assets or business of another entity or (iii) the acquisition by the Company
of 50% or more of the voting securities of another entity. The acquisition
preferred stock is issuable from time to time in one or more series. The Board
of Directors is authorized to fix, before issuance, the voting powers, if any,
the designations, preferences and any other rights, qualifications, limitations
and restrictions applicable to each series of acquisition preferred stock,
including, without limitation, dividend rates and conditions, dividend
preferences, conversion and redemption rights and liquidation preferences.
F-9
<PAGE>
4. COMMON SHAREHOLDERS' EQUITY
On January 24, 1990, the Company issued and sold 1,100,000 units for $4.00 per
unit in connection with a public offering. The net proceeds, after accounting
for direct expenses of the offering, were approximately $3,397,000. On February
26, 1990, the underwriter issued and sold an additional 165,000 units at $4.00
per unit resulting from the exercise of the overallotment option and the Company
received net proceeds of $574,200. Each unit consists of three shares of common
stock and two Class A warrants. Each Class A warrant is exercisable to purchase
one share of common stock and one Class B warrant at a price of $2.00, subject
to adjustment, commencing one year from the date of the Prospectus (January 17,
1990) until January 17, 1997 (extended from January 16, 1995) subject, in
certain circumstances, to earlier redemption by the Company. As a result of the
dilutive effects of private placements (see Note 7) and the Discounted Warrant
Plan (see below), the number of shares issuable under and the exercise price of
the Company's Class B warrants, which may be exercised commencing upon issuance
until January 17, 1998 (extended from January 17, 1997), have been adjusted such
that each Class B warrant, as adjusted, entitles the holder to purchase one and
two tenths (1.2) shares (originally one share) of Common stock at an adjusted
price that varies from $2.69 to $3.23 to January 17, 1997 and $1.50 per share
thereafter (originally $3.33 to $4.67). As a result of the issuance of
approximately 1,717,000 Class E warrants pursuant to the Discounted Warrant
Plan, each Class A warrant remaining unexercised entitles the holder thereof to
purchase one and two-tenth (1.2) (originally one share) shares of common stock
and one Class B warrant at an adjusted price per share, subject to further
adjustment, of $1.72. Since the Company has satisfied the condition of
redemption, namely the closing bid price of common stock of the Company
exceeding $2.67 for a period of 30 consecutive business days, the remaining
Class A Warrants were called effective November 19, 1993. The Company extended
the redemption date to December 20, 1993 and 807,659 Class A Warrants were
exercised resulting in the issuance of 969,191 shares of common stock and
807,659 Class B Warrants exercisable to purchase 969,191 shares of common stock
and receipt by the Company of net proceeds of $1,667,008.
In connection with the public offering, the Company sold 110,000 Unit Purchase
Options (the "Unit Options") to the underwriter and a finder on January 24, 1990
for a nominal consideration. The units purchasable upon exercise of the Unit
Options are identical to the units sold in the public offering, except that the
warrants included therein are not redeemable. The Unit Options are exercisable
at 130% of the public offering price subject to certain antidilution
adjustments. The Unit Options are exercisable during the five-year period
(originally three-years) commencing two years from the date of the public
offering, expiring January 17, 1997. As a result of the dilutive effects of the
private placement, the number of Unit Options has been increased to 127,547 and
the unit price adjusted to $4.35 per unit (originally $5.20 per unit). Pursuant
to a settlement agreement certain Unit Purchase Option holders surrendered for
exercise in full 30,369 units in a cashless transaction that provided them with
85,674 shares of common stock representing the excess of the fair market value
of the common stock and Class A warrants, over the exercise price of the Unit.
At December 31, 1996, there were 97,178 units (underwriter) and 1,568 units
(finder) outstanding.
In October 1991, the Board of Directors of the Company approved a Discounted
Warrant Plan, providing for 1) a reduction in the price of each Class A warrant
which was exercised during the Class A Limited Exercise Period (expired in 1992)
from $2.00 to the discounted price of $1.50 per share of common stock, and 2)
the issuance to each holder who exercised a discounted Class A warrant during
the Class A Limited Exercise Period, a Class E warrant, in lieu of a Class B
warrant, which has the same terms and conditions as the Class B warrants, except
that the price of each Class E warrant was reduced to the discounted price of
$1.25 per share of common stock until the expiration date on January 17, 1998
(extended from January 16, 1995).
Pursuant to the Discounted Warrant Plan, approximately 1,717,000 Class A
warrants were exercised resulting in the issuance of approximately 1,717,000
shares of common stock and 1,717,000 Class E warrants exercisable to purchase
approximately 1,888,700 shares of common stock and the receipt by the Company of
net proceeds of approximately $2,500,000. During the year ended December 31,
1993, 1,022,825 Class E warrants were exercised resulting in an issuance of
1,125,109 shares of common stock and receipt by the Company of net proceeds of
$1,406,464. In connection with the exercise of the E warrants, options to
purchase 38,508 unregistered shares of common stock exercisable at prices
ranging from $3.31 through $3.44 per share were issued to two registered
brokerage houses, as an inducement for their exercise of the aforementioned
Class E warrants. The options were
F-10
<PAGE>
exercisable for 18 months from the dates of exercise of the Class E warrants
(October 1993). In addition, through December 31, 1992, 202,588 Class E warrants
were exercised resulting in the issuance of approximately 223,000 shares of
common stock and the receipt by the Company of net proceeds of approximately
$280,000. In connection with the Discounted Warrant Plan, the Board of Directors
issued in 1992 an aggregate of 166,154 restricted shares of common stock of the
Company to two registered brokers, in full payment of the compensation due them
for soliciting the exercise of the Class A warrants.
In June 1991, Class D warrants exercisable over a five-year term to purchase
176,250 shares of common stock at $2.00 per share and Class C warrants
exercisable over a five and one-half year term (originally five-year term) to
purchase 200,000 shares of common stock at $1.00 per share were issued in
connection with the private placement (see Note 7). As a result of the exercise
of Class E warrants and pursuant to provisions for adjustment of the exercise
price of the Company's Class D warrants, each Class D warrant entitles the
holder to purchase approximately two and three-tenths (2.3) (originally one
share) shares of common stock at an adjusted price per share, subject to further
adjustment, of approximately $.88 per share and each Class C warrant to purchase
228,571 (originally 200,000) shares of common stock at $.88 per share. Through
December 31, 1996, 173,750 Class D warrants have been exercised resulting in an
issuance of 397,143 shares of common stock and the receipt by the Company of
$347,500 and 63,334 Class C warrants have been exercised resulting in an
issuance of 72,334 shares of common stock and the receipt by the Company of
$63,344. The Class C warrants still outstanding which were to expire on January
17, 1997 were extended to March 18, 1997 and the price was reduced to $.75 per
share. Such warrants expired unexercised.
Effective June 22, 1995, the Company's shareholders voted to increase the number
of authorized common stock from 20 million shares to 40 million shares.
Common shares reserved for future issuance as of December 31, 1996 are
approximately as follows:
Units sold in public offering in 1990:
Class B warrants 969,000
Class E warrants 541,000
Third party options (Note 5) 500,000
Unit Options 766,000
1989 Stock Option Plan (Note 5) 432,000
1989 Nonstatutory Plan (Note 5) 100,000
1995 Stock Option Plan 1,761,000
Warrants issued in private placement in 1991 (Note 7):
Class C warrants 156,000
Class D warrants 6,000
--------------
5,231,000
==============
5. STOCK OPTIONS
In June 1995, the shareholders of the Company approved the adoption of the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for the granting of
incentive stock options ("ISOs") and/or nonqualified stock options to employees,
directors or consultants of the Company to purchase an aggregate of 2,000,000
shares of the Company's common stock. The option price per share for ISOs
granted under the 1995 Plan shall not be less than the fair market value of the
Company's common stock on the date of grant. Furthermore, the option price per
share shall be determined by the Board of Directors. Options vest based on
certain provisions related principally to future services. Options are
exercisable over various periods up to ten years from the date of grant. No
option may be granted under the 1995 Plan after June 2005. At December 31, 1996,
there were 219,500 shares available for granting of future options. The 1995
Plan replaced all prior option plans and no further options will be granted
under the prior option plans.
In 1989, the shareholders of the Company approved the adoption of a 1989 Stock
Option Plan (the "1989 Plan"). The 1989 Plan provided for the granting of
incentive stock options and/or nonqualified stock options to key employees and
consultants to purchase shares of the Company's common stock at a price per
share not less than the fair market value on the date of grant. In 1992, the
Plan was amended to (a) increase the number of shares to
F-11
<PAGE>
1,565,957, (b) permit the granting of nonqualified stock options at a price per
share less than the fair market value of the Company's common stock on the date
of grant and (c) permit options to be exercised up to two years after
termination of employment under certain circumstances. Options vest based on
certain provisions related principally to future services. Options are
exercisable over various periods up to six years from the date of grant.
Pursuant to the terms of the 1995 Plan, no options may be granted under the 1989
Plan after June 22, 1995.
In 1989, the Company also adopted a Nonstatutory Stock Option Plan (the "1989
Nonstatutory Plan") for directors. Under the 1989 Nonstatutory Plan, the Company
could grant options for the purchase of an aggregate of 355,000 shares of common
stock at not less than fair market value at the date of grant. The options
expire at various dates. Pursuant to the terms of the 1995 Plan, no options may
be granted under the 1989 Nonstatutory Plan subsequent to June 22, 1995.
Option activity during each of the two years ended December 31, 1996 for the
1989 Plan and the 1989 Nonstatutory Plan is summarized as follows:
<TABLE>
<CAPTION>
1989 Nonstatutory Plan 1989 Plan
Shares Under Option Shares Under Option
------------------------------------------------------------------------
Weighted
Number Average Number
Option price per of Option price per Exercise of
share Shares share Price Shares
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 190,833 988,008
Granted - $.92 119,000
Cancelled/expired $1.13 to $2.56 (90,833) $.92 to $3.47 (655,008)
-----------
Balance at December 31,1995 100,000 $1.95 452,000
Exercised - $.92 $.92 (2,500)
Cancelled - $.92 to $3.13 $2.18 (17,500)
------------ -----------
Balance at December 31,1996 100,000 $1.94 432,000
============ ===========
</TABLE>
Option activity during each of the two years ended December 31, 1996 for the
1995 Plan is summarized as follows:
1995 Plan
Shares Under Option
-------------------------------------------------
Weighted Number
Option price per Average Of
share Exercise Price Shares
-------------------------------------------------
Balance at January 1, 1995 -
Granted $0.92 to $1.68 1,962,500
Cancelled/expired $0.92 (30,000)
-------------
Balance at December 31,1995 $1.04 1,932,500
-------------
Granted $0.95 to $1.20 $1.09 198,000
Cancelled/expired $0.92 $1.09 (350,000)
Exercised $0.92 $0.92 (20,000)
-------------
Balance at December 31,1996 1,760,500
=============
During 1996, the Company granted 100,000 fully vested nonstatutory stock options
at fair market value to a third party, which are exercisable for a period of ten
years at a price of $1.17 per share. In addition, during 1995, the Company
granted 300,000 fully vested nonstatutory stock options at fair market value to
a third party, which are exercisable for a period of eighteen months at a price
of $1.05 per share, and 5,000 nonstatutory stock options at fair market value to
a third party, which were cancelled in 1996. Further, in 1994 the Company
granted 100,000 nonstatutory stock options at fair market value to a third
party, which vest ratably over two years and are
F-12
<PAGE>
exercisable for a period of five years at a price of $1.69 per share. At
December 31, 1996, 500,000 of these options are outstanding.
* * * * * * * *
Pro-forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based compensation" which requires
that the information be determined as if the Company has accounted for its stock
options granted subsequent to December 31, 1994 under the fair value method of
that statement. The fair value for these options was estimated at the date of
the grant using a Black-Scholes option pricing model. The Company's pro forma
information follows:
December 31
1996 1995
-------------------------------------
Pro forma net loss $ (1,861,660) $ (1,876,559)
Pro forma loss per share $ (.13) $ (.13)
The fair value of these options at the date of the grant was estimated with the
following weighted average assumptions for 1996 and 1995: risk free interest
rates ranging from 5.7% to 7.1%, no dividend yield, volatility factor of the
expected market price of the Company's common stock of 49%, and a weighted
average expected life of the options ranging from six to eight years. Because
Statement 123 is applicable only to options granted subsequent to December 31,
1994 and employee stock options granted vest over a period from one to four
years, its pro forma effect will not be fully reflected in pro forma net income.
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Outstanding Average
Exercise Price December 31, Contractual Exercise at December Exercise
1996 Life Price 31, 1996 Price
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.92-$1.00 495,500 8.0 years $0.92 157,250 $0.92
$1.01-$2.00 1,589,000 6.8 years $1.12 708,375 $1.12
$2.01-$3.22 208,000 0.2 years $2.64 205,000 $2.65
- ------------------------------------------------------------------------------------------
$0.92-$3.22 2,292,500 2.5 years $1.22 1,070,625 $1.38
==========================================================================================
</TABLE>
The weighted average fair value of all stock options granted in 1996 was $.70
per share.
6. LEASES
The Company leases its office space for a term extending through March 31, 2000.
In August, 1996, this lease was modified to reflect a reduction in leased space.
Additionally, the Company has entered into various operating leases for
equipment. Future minimum payments under noncancellable operating leases for
years ending December 31 are as follows:
1997 $150,674
1998 155,146
1999 155,865
2000 39,316
=============
$501,001
=============
Rent expense in 1996 and 1995, under all operating leases, was approximately
$168,000 and $179,000, respectively.
F-13
<PAGE>
7. PRIVATE PLACEMENTS
On June 25, 1991, the Company completed a private placement, for which D.H.
Blair and Co. Inc. ("Blair") acted as placement agent, of $1,762,500 of its
securities, consisting of $1,101,562 of Senior Secured Convertible Promissory
Notes (the "Notes") convertible into Common Stock at $1.00 per share, 660,937
shares of common stock at $1.00 per share and 176,250 Class D warrants
exercisable over a five-year term at $.88 per share (originally $2.00 per share)
for 402,731 shares (originally 176,250 shares) of common stock. These securities
had been sold pursuant to a Securities Purchase Agreement among the Company, the
purchasers and Blair as purchasers' representative (the "Purchase Agreement"),
in a total of 35.25 Units of $50,000 each, consisting of a $31,250 Note, 18,750
shares of common stock and 5,000 Class D warrants. The Company paid Blair a fee
of $176,250 and expenses of $56,750 and issued to Blair, Class C warrants
exercisable over a five-year term to purchase 228,571 shares (originally 200,000
shares) of common stock at $.88 (originally $1.00 per share). All of the Notes
were converted or redeemed in 1992.
During the period commencing in June 1993 and ending in September 1993, the
Company completed four separate private placements ("Private Placements"), of an
aggregate of 1,843,873 shares of the Company's common stock at prices ranging
from $1.10 to $1.15 per share for net proceeds of $2,039,925. The Company paid
commissions in the amount of $35,075 to an individual, granted 100,000 shares of
unregistered common stock and options to purchase an additional 425,000 shares
of common stock at prices ranging from $1.31 to $3.47 per share, in
consideration of services rendered in connection with the Private Placements.
8. DEFERRED REVENUE
On December 27, 1993, the Company sold 100,000 shares (2.4% interest) of its
subsidiary BCA Services, Inc. to Polaris Partners for the sum of $100,000
resulting in the Company recording such amount as deferred revenue. Pursuant to
an exchange agreement dated April 6, 1995, the Company agreed to exchange the
100,000 shares of BCA Services, Inc. for 100,000 shares of BCAM International,
Inc., at which time $99,000 of the deferred revenue was credited to paid-in
surplus and $1,000 was credited to common stock.
9. SIGNIFICANT CUSTOMERS
The Company generated a significant percentage of its revenue from a small
number of customers. In 1996, revenue from three customers comprised
approximately 74% of total revenue (38%, 18% and 18%). In 1995, revenue from
four customers comprised approximately 62% of total revenue (29%, 12%, 11% and
10%).
At December 31, 1996, three customers accounted for approximately 84% of the
Company's gross accounts receivable. Consistent with industry standards,
receivables are generally payable within 90 to 120 days and collateral is not
required.
10. SUBSEQUENT EVENTS
On March 19, 1997 the Company entered into an agreement with another company
(the "acquiree") to purchase all of the common stock of the acquiree for
approximately $4,600,000. This commitment is contingent upon the Company
obtaining the necessary financing to fund the purchase. The Company does not
have any obligations under this agreement should management be unable to obtain
this financing.
On January 15, 1997, the Company offered a minimum of 400,000 units, each
consisting of one share of the Company's common stock and a non-redeemable Class
AA warrant which entitles the holder to purchase one share of the Company's
Common Stock at a price of $1.10 per share, until March 31, 1999. The offering
was completed on March 28, 1997, and the Company sold 1,075,000 units for
$1,075,000. The funds will be used for the advancement of various technologies
as well as for working capital.
11. RESTATEMENT OF DECEMBER 31, 1996 BALANCE SHEET CLASSIFICATION
The previously filed Balance Sheet contained in the Form 10-KSB filed for the
year ended December 31, 1996 included the costs associated with the acquisition
and financing of Drew Shoe Corporation as a component of
F-14
<PAGE>
current assets. These costs are more appropriately classified as non-current
assets under generally accepted accounting principles. The Balance Sheet as of
December 31, 1996 has been restated to reflect the correct classification of
these costs. Such change has an effect on the Statement of Cash Flows for the
year ended December 31, 1996, which has similarly been restated. As a result,
the working capital of the Company at December 31, 1996, which was previously
recorded as $597,293, is now correctly recorded as $438,669 after the
reclassification (restatement).
- --------------------------------
F-15
<PAGE>
BCAM International, Inc.
Condensed Consolidated Balance Sheet (Unaudited)
September 30, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 3,297,000
Accounts receivable, less allowance for doubtful accounts of
approximately $11,000 1,858,000
Unbilled receivables 51,000
Inventory 6,411,000
Prepaid expenses and other current assets 315,000
------------
Total current assets 11,932,000
Property, plant, and equipment, at cost:
Land & buildings
825,000
Equipment, furniture and fixtures 2,405,000
Leasehold improvements
50,000
------------
3,280,000
Less accumulated depreciation and amortization
(725,000)
------------
2,555,000
Deferred finance costs 791,000
Other assets, principally patents and capitalized software
(net of accumulated amortization of $110,000) 494,000
------------
Total assets $ 15,772,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,287,000
Secured notes payable 450,000
Accrued expenses and other current liabilities 1,604,000
Current portion of long term debt 176,000
------------
Total current liabilities 3,517,000
Long term debt, net of current maturities 4,195,000
Convertible Notes payable, net of unamortized amount
allocated to warrants 4,509,000
Other liabilities 4,000
Minority interest 1,060,000
Commitments and contingencies --
Acquisition preferred stock, none outstanding
Common shareholders' equity:
Common stock, par value $.01 per share; authorized
40,000,000 shares, 17,440,415 shares issued and
16,677,233 shares outstanding 174,000
Paid-in surplus 25,001,000
Unamortized financing charge (5,746,000)
Deficit (16,043,000)
------------
3,386,000
Less 763,182 treasury shares (899,000)
------------
2,487,000
------------
Total liabilities and shareholders' equity $ 15,772,000
============
See accompanying notes
F-16
<PAGE>
BCAM International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 353,000 $ -- $ 353,000 $ --
Services 100,000 158,000 314,000 356,000
Software and license revenue 30,000 15,000 104,000 28,000
------------ ------------ ------------ ------------
Total 483,000 173,000 771,000 384,000
Cost of revenues 291,000 108,000 442,000 157,000
------------ ------------ ------------ ------------
Gross profit 192,000 65,000 329,000 227,000
Selling, general and administrative 915,000 294,000 1,943,000 1,370,000
Research & development 53,000 33,000 83,000 79,000
------------ ------------ ------------ ------------
Total operating expenses 968,000 327,000 2,026,000 1,449,000
------------ ------------ ------------ ------------
Income (loss) from operations (776,000) (262,000) (1,697,000) (1,222,000)
Other Income (Expense)
Interest and financing costs (376,000) (5,000) (378,000) (5,000)
Interest income 7,000 14,000 21,000 55,000
------------ ------------ ------------ ------------
(369,000) 9,000 (357,000) 50,000
Minority interests (788,000) -- (788,000) --
------------ ------------ ------------ ------------
Net loss $ (1,933,000) $ (253,000) $ (2,842,000) $ (1,172,000)
============ ============ ============ ============
Net loss per share $ (0.12) $ (0.02) $ (0.18) $ (0.08)
============ ============ ============ ============
Weighted average number of common
shares outstanding 16,052,450 14,877,233 15,807,260 14,864,605
============ ============ ============ ============
</TABLE>
See accompanying notes
F-17
<PAGE>
BCAM International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,842,000) $(1,172,000)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 82,000 107,000
Amortization of Unamortized finanicng charge and deferred finance costs 192,000
Non-cash Minority interest charge 788,000 --
Changes in operating assets and liabilities:
Accounts receivable, billed and unbilled 33,000 (26,000)
Inventory (43,000) --
Prepaid expenses and other current assets (10,000) 56,000
Accounts payable, accrued expenses and sundry liabilities 553,000 (210,000)
Other liabilities -- 39,000
----------- -----------
Net cash (used in) operating activities (1,247,000) (1,206,000)
----------- -----------
INVESTING ACTIVITIES
Cash paid for purchase of shares of Drew Shoe (3,882,000) --
Cash paid for costs to acquire Drew Shoe (475,000) --
Purchase of equipment (88,000) --
Investment in software technology and other (119,000) (112,000)
Proceeds from sale of held to maturity securities -- 1,500,000
----------- -----------
Net cash (used in) provided by investing activities (4,564,000) 1,388,000
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock 1,075,000 --
Proceeds from sale of preferred stock minority interest of subsidiary 1,200,000 --
Proceeds from sale of Convertible Notes and Warrants 6,000,000 --
Proceeds, net, from new bank financing arrangement at Drew Shoe 1,135,000 --
Payment of existing debentures due to former Drew Shoe shareholders (845,000) --
Proceeds from short-term debt 450,000 600,000
Drawdown (payment) of revolving credit agreement 250,000 --
Net proceeds from exercise of options -- 18,000
Cash paid for deferred financing, stock issuance and registration costs (668,000) (68,000)
Other investing activities 47,000 --
----------- -----------
Net cash provided by financing activities 8,644,000 550,000
----------- -----------
(Decrease) increase in cash and cash equivalents 2,833,000 732,000
Cash and cash equivalents at beginning of period 464,000 702,000
=========== ===========
Cash and cash equivalents at end of period $ 3,297,000 $ 1,434,000
=========== ===========
</TABLE>
See accompanying notes
F-18
<PAGE>
BCAM International
Consolidated Statements of Common Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock $.01 par
value Paid-in Unamortized
Shares Amount surplus Finance Costs Deficit Subtotal
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 15,642,915 $156,000 $ 14,959,000 $ -- $(13,201,000) $ 1,914,000
------------------------------------------------------------------------------
Shares issued in connection with 1,075,000 11,000 1,064,000 -- -- 1,075,000
January 1997 Private Placement
Registration and issuance costs -- -- (36,000) -- -- (36,000)
To account for Convertible Notes:
Allocation to detachable warrants -- -- 1,500,000 -- -- 1,500,000
Beneficial conversion feature -- -- 5,925,000 (5,925,000) -- --
Shares issued in acquisition of Drew Shoe 375,000 4,000 446,000 -- -- 450,000
Shares and options granted in connection
with acquisition financing 347,500 3,000 944,000 -- -- 947,000
Amortization of Deferred financing charges -- -- -- 179,000 -- 179,000
Amortization of minority interest -- -- 788,000 -- -- 788,000
Acquisition financing costs -- -- (589,000) -- -- (589,000)
Net loss -- -- -- -- (2,842,000) (2,842,000)
------------------------------------------------------------------------------
Balance at September 30, 1997 17,440,415 $174,000 $ 25,001,000 $(5,746,000) $(16,043,000) $ 3,386,000
==============================================================================
<CAPTION>
Shares held
in
Treasury Total
-------------------------
<S> <C> <C>
Balance at January 1, 1997 $(899,000) $ 1,015,000
-------------------------
Shares issued in connection with -- 1,075,000
January 1997 Private Placement
Registration and issuance costs -- (36,000)
To account for Convertible Notes:
Allocation to detachable warrants -- 1,500,000
Beneficial conversion feature -- --
Shares issued in acquisition of Drew Shoe -- 450,000
Shares and options granted in connection
with acquisition financing -- 947,000
Amortization of Deferred financing charges -- 179,000
Amortization of minority interest -- 788,000
Acquisition financing costs (589,000)
Net loss -- (2,842,000)
-------------------------
Balance at September 30, 1997 $(899,000) $ 2,487,000
=========================
</TABLE>
See accompanying notes.
F-19
<PAGE>
BCAM International, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1997
1. BASIS OF PRESENTATION
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.
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
adjustments and accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
September 30, 1997 include the financial position and results of operations of
Drew Shoe Corporation ("Drew Shoe") since its acquisition by the Company on
September 22, 1997 (see Note 2) and are, in any event, not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
For further information, refer to the audited consolidated financial
statements and related notes thereto of the Company included in the Company's
annual report on Form 10-KSB/A for the year ended December 31, 1996 as well as
the audited financial statements and related notes thereto of Drew Shoe as of
December 31, 1996 and for the years ended December 31, 1996 and 1995 included in
Form 8-K/A dated October 31, 1997.
2. ACQUISITION OF DREW SHOE CORPORATION
Effective September 22, 1997, the Company acquired all of the outstanding
Common Stock of Drew Shoe for approximately $4.7 million plus the assumption of
liabilities. The purchase price was paid by delivery to the two shareholders of
Drew Shoe of an aggregate of $3,882,000 in cash, promissory notes in the
aggregate principal amount of $400,000 and by delivery of an aggregate of
375,000 unregistered shares of the Company's Common Stock to one seller (valued
at approximately $1.20 per share to reflect a discount for lack of
registration). The promissory notes bear an interest rate of 8% per annum, are
due on September 19, 1999, and are payable in twenty-four (24) equal monthly
installments aggregating $8,333.34 (plus interest) with final payments due in
the twenty-fifth (25th) month aggregating $200,000.
See Note 3 and "PART II, Item 2. Changes in Securities (ii) Acquisition
financing", for a description of the securities issued in order to finance the
acquisition of Drew Shoe.
Simultaneously with the acquisition, Drew Shoe entered into a $5.5 million
credit facility with a commercial bank (guaranteed by the Company) which is
further described in Note 4.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. In addition Drew Shoe operates 14
retail shoe specialty stores. The Company has accounted for its acquisition of
Drew Shoe under the purchase method of accounting. Under such method, the
purchase price paid plus costs of the acquisition are allocated to the assets
and liabilities of the acquired company based on the estimated fair value of
assets and liabilities acquired. The remaining amount, if any, is allocated to
goodwill. The results of operations of the acquired company are consolidated
with the Company's operations beginning on the date of purchase. At September
30, 1997, a preliminary estimate of the fair value of assets and liabilities has
been made based upon data which is preliminary and subject to change. Based upon
such preliminary evaluation at September 30, 1997, there is no material amount
of goodwill to be recorded in the acquisition of Drew Shoe.
The following summary shows the unaudited pro-forma results of operations
assuming that the Company had purchased Drew Shoe as of the beginning of each
period shown. This information gives effect to the increased interest and
financing costs (excluding certain material non recurring charges which are
discussed in Notes 3 and 5), the amortization of fair value adjustments
principally for increased depreciation and, in 1996, the allocation to the nine
months of certain adjustments recorded at the end of the year 1996 which are
attributable to earlier in the year. The Company has not included a provision
for income taxes because it believes that it will have sufficiently available
net operating losses available to offset anticipated profits from Drew Shoe.
F-20
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
1997 1996
---- ----
<S> <C> <C>
Revenues $11,902,000 $ 11,357,000
=========== ============
Loss from Operations (excluding non-recurring charges) (1,355,000) (1,049,000)
=========== ============
Net loss (excluding non-recurring charges) (2,441,000) (1,787,000)
=========== ============
Net loss per share (0.15) (0.12)
=========== ============
</TABLE>
3. 10%/13% CONVERTIBLE NOTES AND WARRANTS
In order to fund the acquisition of Drew Shoe and provide working capital to the
Company, on September 19, 1997, the Company issued subordinated convertible
notes (the "Convertible Notes"), and Non-Redeemable Class DD Warrants, in the
aggregate amount of $6,000,000. The Convertible Notes are due on September 19,
2002, unless at any time after September 19, 1998 they are converted, at $.80
per share, into 7,500,000 shares of Common Stock of the Company. The Convertible
Notes bear an interest rate of 10%, payable semi-annually, but the Company, at
its discretion, may pay interest in the form of its Convertible Notes in which
case the annual interest rate becomes 13% with semi-annual compounding. The
Convertible Notes require the Company to maintain compliance with certain
financial covenants including maintenance of minimum levels of interest coverage
and net worth (as defined).
The Non-Redeemable Class DD Warrants entitle the holders to purchase
2,400,000 shares of common stock at $1.75 per share at any time prior to
September 19, 2002. The Company has, under generally accepted accounting
principles, allocated approximately $1,500,000 of the $6,000,000 received from
the sale of the Convertible Notes and Warrants as the estimated value (based
upon a "Black Scholes" calculation) of the detachable warrants issued in
connection with the Convertible Notes and as a discount to the value assigned to
the Convertible Notes. Such amount will be amortized over the five year term of
the Convertible Notes.
The market value of the Company's common stock on the Nasdaq SmallCap
market on the date of the transaction was approximately $1.50.
The private placement of convertible notes and warrants to one investor
group (aggregating $5,000,000 of the total $6,000,000) was made with the
assistance of an investment banker who charged a cash fee of 6% ($300,000) plus
187,500 unregistered shares of common stock (valued at $1.20 per share to
reflect a discount for lack of registration), and warrants to purchase 500,000
shares of common stock at an exercise price of $0.80 per share, of the Company.
The cash fee, shares of stock and the estimated fair value of the warrants
aggregate approximately $1,000,000. This amount has been apportioned between
Deferred financing costs (45%) and Shareholders equity (55%) based upon the
estimated values of the debt vs. equity components of the financing. The portion
allocated to Deferred financing costs (approximately $450,000), together with
legal and other costs of the transaction are being amortized over the five year
term of the Convertible Notes. There were no investment banking fees associated
with the remaining $1,000,000 of proceeds.
In response to positions recently taken by the Securities and Exchange
Commission, Emerging Issues Task Force Statement D-60 has been issued which
requires certain new accounting for securities issued which are convertible into
common stock at a value which is beneficial at the date of issuance (such as the
Convertible Notes described above and the Preferred Stock of BCA Services, Inc.,
a subsidiary of the Company, described in Note 5). This accounting requires that
such value be charged to operations (based upon the traded market price, without
discount, compared to the conversion price) in the case of a convertible note or
to retained earnings as a dividend in the case of a preferred stock, over a
period reflecting the shortest period in which the investor has to exercise and
under the most favorable terms to the investor. As such, the Company has charged
approximately $5,925,000 (representing the beneficial value of the conversion
feature of the Convertible Notes measured at the date of issuance) to
Unamortized financing charge in the shareholders equity section of its Condensed
Consolidated Balance Sheet. Such amount is being charged to Interest and
financing costs in the Consolidated Statements of Operations at the rate of
approximately $1,481,000 per quarter until September 19, 1998. This
F-21
<PAGE>
charge to operations is considered a non-recurring charge in the preparation of
the summary pro-forma data contained in Note 2. Approximately $180,000 was
charged to Interest and financing costs in the quarter ended September 30, 1997.
This charge will be in addition to amortization of Deferred financing costs and
the value assigned to the detachable warrants issued in connection with the
Convertible Notes (approximately $1,500,000), over the five year term of the
Convertible Notes.
4. LONG TERM DEBT
Simultaneously with the acquisition, the Company through its wholly owned
subsidiary, Drew Shoe, entered into a $5,500,000 credit facility with a
commercial bank consisting of: (i) a revolving line of credit up to $4,500,000
(which is based upon agreed upon percentages of accounts receivable and
inventory) and (ii) a term loan of $1,000,000. As of the Drew Shoe acquisition,
the Company believes there to be approximately $4,500,000 available under this
credit facility (approximately $3,750,000 of which was drawn down to pay certain
existing liabilities of Drew Shoe, including an existing liability to that bank
of approximately $2,655,000 and debentures payable to former shareholders of
approximately $845,000, and to transfer $250,000 to the Company). The revolving
line of credit matures on September 30, 1999, and calls for current payments of
interest at a rate of prime plus 1.5%. The term loan portion of the credit
facility (in the principal amount of $1,000,000) also bears an interest rate of
prime plus 1.5% and is payable in monthly installments through September 30,
2000. Both the revolving line of credit and term loan may be used for general
working capital purposes and are guaranteed by the Company. The credit facility
with this bank requires Drew Shoe to maintain compliance with certain financial
covenants, principally net worth, and contains restrictions on the transfer of
cash to the Company.
At September 30, 1997, long term debt consists of the following:
September 30, 1997
------------------
Revolving credit arrangement with a bank,
payable on September 19, 1999, bearing
interest at prime plus 1.5 % $2,737,000
Term Loan agreement with a bank, bearing
interest at prime plus 1.5% payable in monthly
principal installments of $11,000 plus interest
through September 30, 2000 1,000,000
Notes payable to sellers of Drew Shoe, bearing
interest at 8%, calling for monthly payments of
principal aggregating $8,333 plus interest with
balloon payments aggregating $200,000 on
September 19, 1999 400,000
Amount payable to parties related to former owners
of Drew Shoe due September 30, 1998, bearing
interest at prime 214,000
Other, net 20,000
----------
total long term debt 4,371,000
less: current portion 176,000
----------
$4,195,000
==========
On October 2, 1997, $250,000 of the amount outstanding under the revolving
credit was repaid. Costs incurred in connection with the bank term loan and
revolving credit total approximately $75,000, are included in Deferred finance
cost and are being amortized to Interest and finance cost using the effective
interest method.
5. SALE OF PREFERRED STOCK OF SUBSIDIARY
On July 22, 1997 BCA Services, Inc. ("BCA"), a previously wholly-owned
subsidiary of the Company, commenced an Offering (the "Offering") to sell up to
150 shares of BCA's Convertible Preferred Stock (the "Preferred Stock") for a
total consideration of $1,500,000 in a private offering to accredited investors.
F-22
<PAGE>
The Preferred Stock is convertible into shares of the Company's common
stock at a price equal to 70% of the average closing bid price of the common
stock over a three day trading period ending on the day preceding the conversion
date (the "Variable Conversion Price"). The Conversion Price may not be greater
than 100% of the Variable Conversion Price on the first closing date (the "Fixed
Conversion Price", effectively a maximum conversion price). The Fixed Conversion
price is $0.6563. On the first anniversary of the closing date, all outstanding
shares of Preferred Stock must be converted into shares of common stock of the
Company.
Pursuant to the terms of the Offering, the Company divided the Offering
into three tranches. The first tranche, to purchase 50 shares of Preferred Stock
for $500,000, closed on July 24, 1997; the second tranche to purchase 50 shares
of Preferred Stock for $500,000, closed on September 8, 1997. The Company has
until November 7, 1997 (unless extended) to draw down the third tranche,
presuming effectiveness of a registration statement (see below).
On September 18, 1997, BCA completed a separate offering of its Preferred
Stock, plus warrants, for $200,000 on similar terms and conditions as the
Offering (excluding the existing Fixed Conversion Price and certain fees). As a
result of this offering, 20 shares of Preferred Stock (convertible into the
Company's common stock at a maximum price of $0.9331 per share) were issued,
along with Non-Redeemable Class CC Warrants to purchase up to 10,000 shares of
Common Stock (at $1.0264 per share).
In addition, for each 50 shares of Preferred Stock sold, each purchaser
received Non-Redeemable Class BB Warrants to purchase up to 25,000 shares of
common stock per $500,000 raised, exercisable at a rate of 110% of the Variable
Conversion Price on the first closing date. The warrants have a term of five
years and the common stock underlying the warrants contain registration rights.
In connection with the first and second tranches, warrants to purchase up to
50,000 shares of common stock, at $.7219 per share, were issued.
The two private placements of BCA preferred stock were made with the
assistance of a placement agent who charged a commission of 8% in fees and 2% in
expenses plus warrants to purchase up to 75,000 (50,000 of which have been
issued in conjunction with the first two tranches) shares of common stock of the
Registrant at approximately $0.72 per share, for five years for the first
offering and 6% in fees and no warrants for the second offering.
The Preferred Stock contains a penalty provision permitting redemption,
together with penalties, at the option of the holder if the underlying common
stock is not registered under an effective registration statement prior to
approximately January 4, 1998. A separate economic penalty (increased dividends
of 3% per month retroactive to July 24, 1997 and continuing until effectiveness)
would be triggered by the absence of effectiveness, assuming good faith efforts
of the Company, of such a registration statement by November 4, 1997. The
Company's registration statement covering the shares underlying the Preferred
Stock was declared effective on November 12, 1997 and the parties agreed to the
cancellation of the penalty provisions.
See Note 3 regarding certain accounting treatment called for by Emerging
Issues Task Force Statement D-60. Because the Preferred Stock issued is that of
a subsidiary, but is convertible into shares of the Company, the Company has
recorded the Preferred Stock of the subsidiary as "Minority interests" in the
consolidated financial statements. The Company has immediately charged
approximately $788,000 related to the "beneficial" conversion feature for
amounts drawn down in the quarter ended September 30, 1997 to Minority interests
in the accompanying Statement of Operations. Such amount is considered a non
recurring charge in preparation of the summary pro forma data in Note 2.
Additional charges would occur if and when the third tranche is drawn down in
the fourth quarter of 1997.
6. PRIVATE PLACEMENT
On January 15, 1997, the Company offered a minimum of 400,000 units, each
consisting of one share of the Company's common stock and a non-redeemable Class
AA warrant which entitled the holder to purchase one share of the Company's
Common Stock at a price of $1.10 per share, until March 31, 1999. The proceeds
were to be used for the advancement of various technologies as well as for
working capital. The offering was completed on March 28, 1997, and the Company
sold 1,075,000 units for $1,075,000. On May 14, 1997 the Company changed the
conversion price of the Class AA warrants from $1.10 per share to $ .65 per
share and extended the expiration date from March 31, 1999 to March 31, 2002.
F-23
<PAGE>
7. OTHER
PER SHARE DATA - Net loss per share has been computed on the basis of the
weighted average number of common shares outstanding for each of the periods
presented. Common stock equivalents have been excluded since their effect is
antidilutive.
INCOME TAXES - The Company accounts for income taxes in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for
Income Taxes". The Company has not reflected a benefit for income taxes in the
accompanying Condensed Consolidated Statements of Operations for the three
months and nine months ended September 30, 1997 and the three months and nine
months ended September 30, 1996, since the future availability of net operating
loss carryforwards have been offset in full by valuation allowances in
accordance with FASB Statement No. 109.
WARRANTS, OPTIONS, BONUS COMPENSATION - In September 1997 options to
purchase approximately 2,097,000 shares of common stock of the Company were
approved by the Board of Directors for issuance to employees, directors and
consultants (including 1,500,000 for three executive officers of the Company and
its Human CAD subsidiary) at a price of approximately $1.52 per share. Of the
options issued, options to purchase approximately 1,922,000 shares are subject
to approval at the next meeting of the shareholders of the Registrant.
Accordingly, the Company may be subject to a charge to operations if the
exercise price of the options granted is below the market price of the common
stock on the date of shareholder approval. Such charge, if any, could be
material. In September 1997, the Board of Directors approved a cash bonus of
$75,000 for the Company's Chairman, President and Chief Executive Officer in
recognition of his efforts to complete the Drew Shoe acquisition and related
acquisition and pre-acquisition financing (totaling approximately $11 million).
Additionally, approximately $25,000 of deferred increases in pay for two
executive officers were paid and charged to operations in the third quarter of
1997.
COSTS OF FINANCINGS NOT COMPLETED - In the third quarter of 1997, the
Company was able to secure more favorable acquisition financing and credit
facility for its acquisition of Drew Shoe than it had originally expected. As a
result, the Company did not complete a proposed acquisition financing and a
proposed credit facility. Costs associated with such uncompleted financings of
approximately $130,000 were charged to Interest and financing costs in the
quarter ended September 30, 1997.
ANTIDILUTION ADJUSTMENTS TO CLASS B WARRANTS AND CLASS E WARRANTS -
Principally as a result of the Drew Shoe acquisition financing (as well as other
items), the exercise price and number of shares subject to existing Class B
Warrants and Class E Warrants have been adjusted pursuant to anti-dilution
provisions. The revised amounts are as follows:
Exercise Price
Per Share of Number of Shares Total Shares
Common Stock Per Warrant Subject to Warrants
-------------- ----------- -------------------
Class B Warrants:
- -----------------
Previous $1.50 1.2 969,191
Current $1.14 1.6 1,292,254
Class E Warrants:
- -----------------
Previous $1.25 1.1 540,747
Current $0.95 1.5 737,382
SHORT TERM NOTE PAYABLE - On September 11, 1997, the company borrowed
$450,000 from a commercial bank, secured by certain deposits of the Company.
Such amount was repaid, with interest at the prime rate (8%) on October 14,
1997.
RECLASSIFICATIONS - Certain reclassifications have been made to the
consolidated financial statements for the prior year in order to conform to the
classifications used in the current period.
OTHER - There is no material amount of recognized revenue on uncompleted
short term consulting contracts accounted for under the percentage of completion
method of accounting.
- --------------------------------------
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholder
Drew Shoe Corporation
We have audited the accompanying balance sheet of DREW SHOE CORPORATION as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Drew Shoe Corporation as of
December 31, 1996, and its results of operations and cash flows for the years
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
J. H. COHN LLP
Roseland, New Jersey
September 26, 1997
F-1
<PAGE>
DREW SHOE CORPORATION
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June December
ASSETS 30, 1997 31, 1996
------ ----------- ---------
(Unaudited)
Current assets:
Cash $ 176,023 $ 26,757
Accounts receivable, less allowance for
doubtful accounts of $66,500 and $68,000 1,925,197 1,558,622
Inventories 6,644,853 6,694,033
Prepaid expenses and sundry receivables 102,880 116,536
----------- -----------
Total current assets 8,848,953 8,395,948
Property and equipment, net of accumulated
depreciation 1,334,636 1,350,145
Cash surrender value of life insurance, net
of loans of $423,333 and $501,000 74,357 69,074
Intangible pension assets 59,390 59,390
Other assets 187,528 194,200
----------- -----------
Totals $10,504,864 $10,068,757
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 377,023 $ 176,232
Accounts payable 675,878 883,962
Accrued payroll and payroll taxes 281,838 329,065
Accrued pension cost, current portion 246,823 195,435
Accrued other liabilities 150,458 75,022
----------- -----------
Total current liabilities 1,732,020 1,659,716
Notes payable - bank 2,435,253 1,962,253
Long-term debt, net of current portion 1,116,376 1,404,829
Accrued pension cost, net of current portion 110,613 110,613
----------- -----------
Total liabilities 5,394,262 5,137,411
----------- -----------
Commitments
Stockholders' equity:
Common stock, no par value, 1,711.3422
shares authorized; 1,709.8289 shares issued
and outstanding 127,156 127,156
Retained earnings 5,034,669 4,855,413
----------- -----------
Totals 5,161,825 4,982,569
Less excess additional pension liability (51,223) (51,223)
----------- -----------
Total stockholders' equity 5,110,602 4,931,346
----------- -----------
Totals $10,504,864 $10,068,757
=========== ===========
See Notes to Financial Statements.
F-2
<PAGE>
DREW SHOE CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Years Ended
Ended June 30, December 31,
----------------------------- -------------------------------
INCOME 1997 1996 1996 1995
------ ----------- ----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 7,773,892 $ 7,346,378 $ 14,609,346 $ 13,646,926
Cost of goods sold 4,709,086 4,611,994 9,146,708 8,590,713
----------- ----------- ------------ ------------
Gross profit 3,064,806 2,734,384 5,462,638 5,056,213
----------- ----------- ------------ ------------
Operating expenses:
Selling 1,816,954 1,597,533 3,477,433 2,972,764
General and
administrative 915,245 853,321 1,700,379 1,546,155
----------- ----------- ------------ ------------
Totals 2,732,199 2,450,854 5,177,812 4,518,919
----------- ----------- ------------ ------------
Operating income 332,607 283,530 284,826 537,294
Interest expense (178,407) (168,439) (338,447) (347,591)
Interest and other income 25,056 47,288 79,328 93,899
----------- ----------- ------------ ------------
Net income 179,256 162,379 25,707 283,602
RETAINED EARNINGS
-----------------
Balance, beginning of
period 4,855,413 4,885,266 4,885,266 4,853,464
Distributions (55,560) (55,560) (251,800)
----------- ----------- ------------ ------------
Balance, end of period $ 5,034,669 $ 4,992,085 $ 4,855,413 $ 4,885,266
=========== =========== ============ ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
DREW SHOE CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Years Ended
Ended June 30, December 31,
-------------------- --------------------
1997 1996 1996 1995
-------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net income $179,256 $162,379 $ 25,707 $283,602
Adjustments:
Depreciation and amortization 118,480 106,401 247,978 227,088
Changes in operating assets and lia-
bilities:
Accounts receivable (366,575) (198,296) 433,139 (312,845)
Inventories 49,180 (866,579) (711,712) (276,645)
Prepaid expenses and other 13,656 9,712 24,995 84,273
Accounts payable (208,084) 433,201 25,612 222,689
Accrued expenses 79,597 250,080 120,327 (4,250)
-------- -------- --------- --------
Net cash provided by (used in)
operating activities (134,490) (103,102) 166,046 223,912
-------- -------- --------- --------
Investing activities:
Purchases of property and equipment (94,675) (146,347) (266,292) (232,117)
(Increase) decrease in cash surrender
value of life insurance and other (6,907) 142,848 58,904 (135,362)
-------- -------- --------- --------
Net cash used in investing
activities (101,582) (3,499) (207,388) (367,479)
-------- -------- --------- --------
Financing activities:
Net proceeds under revolving note
agreement 473,000 229,681 218,123 396,359
Proceeds from long-term debt 12,828 24,095 450,000
Principal payments on long-term debt (76,662) (73,382) (146,218) (526,523)
Distributions (55,560) (55,560) (157,800)
-------- -------- --------- --------
Net cash provided by financing
activities 385,338 113,567 40,440 162,036
-------- -------- --------- --------
Net increase (decrease) in cash 149,266 6,966 (902) 18,469
Cash, beginning of period 26,757 27,659 27,659 9,190
-------- -------- --------- --------
Cash, end of period $176,023 $ 34,625 $ 26,757 $ 27,659
======== ======== ========= ========
Supplemental disclosure of cash flow data:
Interest paid $166,639 $152,935 $ 329,227 $357,318
======== ======== ========= ========
Supplemental disclosure of noncash investing and financing information:
Change in additional pension liability:
Increase (decrease) in intangible
pension asset $(236,662) $123,951
(Increase) decrease in stockholders'
equity (179,742) 230,965
--------- --------
Totals $(416,404) $354,916
========= ========
Stockholders' receivables offset against
distributions $ 94,000
========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies:
Business:
The Company designs, manufactures, imports, markets and distributes
women's and men's shoes for sale to independent retailers and through
Company-owned retail operations throughout the United States.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Financial instruments and off-balance-sheet risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
accounts receivable. The Company maintains its cash in bank deposit
accounts which, at times, may exceed Federally insured limits.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base, their dispersion across different geographic areas, and
generally short payment terms. In addition, the Company routinely
assesses the financial strength of its customers.
Inventories:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property and equipment:
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets.
Goodwill:
Goodwill, included in other assets, is amortized on a straight-line
basis over periods ranging from five to twenty years.
Revenue recognition:
Revenue from wholesale product sales is recognized at the time products
are shipped. Revenue from retail product sales through Company-owned
retail operations is recognized at the point of sale.
F-5
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (concluded):
Income taxes:
The Company has elected to be treated as an "S" Corporation under the
applicable sections of the Internal Revenue Code. Under these sections,
corporate income or loss, in general, is allocated to the stockholders
for inclusion in their personal income tax returns. Accordingly, there
is no provision for Federal income taxes in the accompanying financial
statements.
The Company has also elected to be treated as an "S" Corporation in the
states in which its files corporate income tax returns. Accordingly, no
provision for state income taxes has been provided in the accompanying
financial statements.
Advertising:
The Company expenses the cost of advertising as incurred. Advertising
costs charged to operations were $365,000 and $364,000 for the years
ended December 31, 1996 and 1995, respectively.
Unaudited interim financial information:
In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial position of the
Company as of June 30, 1997, and its results of operations and cash
flows for the six months ended June 30, 1997 and 1996. Results of
operations for the six months ended June 30, 1997 are not necessarily
indicative of the results of operations for the full year ending
December 31, 1997.
Note 2 - Inventories:
Inventories consist of the following:
June 30, 1997 December 31,
------------- ------------
(Unaudited) 1996
----
Raw materials $ 946,210 $ 858,907
Work-in-process 804,606 988,714
Finished goods 4,894,037 4,846,412
--------------------------
Totals $6,644,853 $6,694,033
========== ==========
F-6
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 3 - Property and equipment:
Property and equipment consists of the following at December 31, 1996:
Range of
Estimated
Useful Lives Amount
------------ ----------
Land $ 100,000
Buildings and improvements 10-35 years 865,325
Machinery and equipment 5-13 years 2,614,715
----------
Total 3,580,040
Less accumulated depreciation 2,229,895
----------
Total $1,350,145
==========
Note 4 - Notes payable - bank:
At December 31, 1996, the Company had outstanding borrowings of
$1,962,253 under a revolving credit and bankers acceptance facility with
Bank One, National Association (the "Bank"). Borrowings under the
revolving credit portion of the agreement bear interest at the prime
rate, while outstanding bankers' acceptances of $500,000 at December 31,
1996 had an effective interest rate of 7.25%. At December 31, 1996, the
Company was in violation of certain covenants in the loan agreement
which were subsequently waived by the Bank.
As discussed in Note 10, the Company entered into a new credit facility
with the Bank on September 22, 1997. Principal payments are not required
under the new revolving credit facility until expiration on September
30, 1999 and, accordingly, the entire amount of notes payable - bank has
been classified as a noncurrent liability in the accompanying balance
sheets at June 30, 1997 and December 31, 1996.
F-7
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - Long-term debt:
Long-term debt consists of the following at December 31, 1996:
Mortgage note with interest at prime plus
.25% (8.5% at December 31, 1996), due
in monthly installments through February
2000, collateralized by real estate (A) $ 395,000
Note payable - related party with interest
at prime, renewable every January 1 for
an additional 12 months, unsecured (B)(D) 213,869
Debentures - related parties with interest
at 10%, due in monthly installments
through July 2002, unsecured (C)(D) 943,476
Other 28,716
----------
1,581,061
Less current portion 176,232
----------
Long-term debt $1,404,829
==========
(A) The mortgage was repaid on September 22, 1997 with proceeds from
a new $1,000,000 term loan payable to the Bank (see Note 10).
The term loan is payable in monthly installments of $11,905 plus
interest at prime plus 1.5% through September 30, 2000, at which
time the outstanding balance is due.
(B) The note was renewed as of January 1, 1997 and, accordingly, is
classified as noncurrent at December 31, 1996.
(C) The debentures were repaid on September 22, 1997 utilizing
$845,056 of proceeds from the new term loan and the revolving
credit facility discussed in Note 10.
(D) Related party interest expense approximated $119,000 and
$129,000 in 1996 and 1995, respectively.
F-8
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - Long-term debt (concluded):
Principal payment requirements on the above obligations, as adjusted for
the refinancing discussed in Note 10, in each of the five years
subsequent to December 31, 1996 are as follows:
Year Ending
December 31, Amount
------------ ------
1997 $176,232
1998 361,853
1999 368,266
2000 670,025
2001 2,195
As the notes payable - bank and long-term debt bear interest at varying
rates based on market, the carrying value approximates fair value at
December 31, 1996.
Note 6 - Pension plans:
The Company has two noncontributory, defined benefit pension plans
covering substantially all employees. Benefits under the plan covering
nonunion employees are based on average monthly compensation and years
of service. Benefits under the plan covering union employees are based
on years of service. The Company's policy is to make contributions to
the plans sufficient to meet minimum funding requirements.
A summary of the components of net periodic pension cost for the years
ended December 31, 1996 and 1995 follows:
1996 1995
-------- --------
Service cost $135,590 $ 80,498
Interest 144,279 94,746
Actual return on plan assets (45,938) (90,671)
Amortization and deferral (12,643) 74,909
-------- --------
Net pension cost $221,288 $159,482
======== ========
F-9
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 6 - Pension plans (continued):
The following table sets forth the funded status and amounts recognized
in the balance sheet as of December 31, 1996:
Underfunded
Overfunded Nonunion
Union Plan Plan
---------- ----------
Actuarial present value of
benefit obligations:
Vested benefit $1,009,957 $ 646,873
Nonvested benefits 6,591 77,875
---------- ----------
Accumulated benefit obligation 1,016,548 724,748
Effect of projected future
compensation levels 335,867
---------- ----------
Projected plan benefit obliga-
tions for services rendered
to date 1,016,548 1,060,615
Plan assets at fair value 1,043,077 342,324
---------- ----------
Plan assets in excess of (less
than) projected benefit ob-
ligations 26,529 (718,291)
Unrecognized net (gain) loss (142,577) 387,090
Prior service cost not yet
recognized in periodic pen-
sion cost 111,421 (8,661)
Unrecognized transition liability 81,003 68,051
Additional minimum liability (110,613)
---------- ----------
Prepaid (accrued) pension
cost 76,376 (382,424)
Less current portion (76,376) 271,811
---------- ----------
Long term portion, representing
additional liability $ -- $ (110,613)
========== ==========
Significant assumptions used in the accounting for the defined benefit
plans were as follows:
Discount rate 7%
Rate of increase in compensation levels 4%
Expected long-term rate of return on assets 8.25%
The plans' assets at December 31, 1996 are invested in an annuity
investment fund, certificates of deposit, insurance contracts and
interest bearing cash accounts.
F-10
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 6 - Pension plans (concluded):
The provisions of Statement of Financial Accounting Standards No. 87
("SFAS No. 87"), "Employers' Accounting for Pensions," require
recognition in the balance sheet of an additional minimum liability and
related intangible asset for pension plans with accumulated benefits in
excess of plan assets. This resulted in the recognition at December 31,
1996 of an additional liability of $110,613. SFAS No. 87 provides that
the intangible asset cannot exceed the amount of unrecognized prior
service costs. At December 31, 1996, an intangible asset of $59,390 was
recognized, with the remaining balance of $51,223 recorded as a
reduction of stockholders' equity.
Effective September 3, 1997, the accrual of future benefits under the
nonunion defined benefit pension plan was sus- pended. The effect of the
curtailment of the nonunion plan on the Company's financial statements
cannot currently be determined.
Note 7 - Commitments and other matters:
Lease commitments:
The Company leases retail space and certain machinery and equipment
under operating leases that expire through 2003. Related rent expense
amounted to $369,000 and $246,000 for the years ended December 31, 1996
and 1995, respectively.
Future minimum rental payments required under the noncancelable
operating leases in years subsequent to December 31, 1996 are as
follows:
Year Ending
December 31, Amount
------------ ------
1997 $317,808
1998 261,377
1999 155,603
2000 49,726
2001 24,708
Thereafter 48,450
--------
Total $857,672
========
Collective bargaining agreement:
At December 31, 1996, approximately 63% of the Company's workforce is
represented under a collective bargaining agreement which expires May
31, 1998.
Concentrations:
The Company relies to a large extent on medical footwear for sales.
Approximately 80% of the Company's sales are
F-11
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
women's shoes. No one customer accounts for more than 10% of the
Company's sales.
Note 8 - Provision for income taxes:
A reconciliation of income taxes based on pre-tax income and the Federal
statutory rate to the Company's effective rate for the years ended
December 31, 1996 and 1995 follows:
December 31,
------------
1996 1995
---- ----
Federal statutory income tax rate 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of Federal
tax benefit 7.8 7.0
"S" Corporation income not subject
to Federal or state tax (48.6) (42.7)
Other 6.8 1.7
---- ----
Effective rate -- % -- %
==== ====
Note 9 - Unaudited proforma income tax information:
Unaudited proforma income tax information as if the Company had been a
"C" Corporation subject to Federal and state income taxes follows:
Six Months Ended Year Ended
June 30, December 31,
1997 1996 1996 1995
-------- -------- ------- --------
Income before income
taxes $179,256 $162,379 $25,707 $283,602
-------- -------- ------- --------
Pro forma provision
for income taxes (73,000) (66,000) (10,000) (115,000)
-------- -------- ------- --------
Pro forma net income $106,256 $ 96,379 $15,707 $168,602
======== ======== ======= ========
Note 10- Subsequent events:
Effective September 22, 1997, the Company's stockholders sold all of the
outstanding common stock of the Company to BCAM International, Inc.
("BCAM"), a publicly-held software technology and consulting company,
for cash and other consideration.
On September 22, 1997, the Company entered into a new $4,500,000
revolving credit facility and a $1,000,000 term loan with the Bank (see
Notes 4 and 5). Under the terms of the revolving credit facility, the
Company may borrow a maximum of 80% of eligible accounts receivable, as
defined, and 35% of eligible inventory, as defined. Such borrowings bear
interest at the prime rate plus 1.5%, payable monthly. Principal
payments are not required under the revolving credit facility until
expiration on September 30, 1999. Borrowings under the revolving credit
facility and the term loan are secured by substantially all of the
Company's assets and guaranteed by BCAM.
F-12
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The agreement contains various restrictive covenants including net worth
requirements, limitations on dividends and distributions, limitations on
transactions with affiliates, as defined, and the maintenance of a debt
service coverage ratio.
F-13
<PAGE>
INTRODUCTION TO UNAUDITED PRO-FORMA
FINANCIAL INFORMATION
On September 22, 1997 the Company acquired Drew Shoe for approximately
$4.7 million plus the assumption of liabilities. The purchase price was paid by
delivery to the two shareholders of Drew Shoe of an aggregate of $3,882,000 in
cash, promissory notes in the aggregate principal amount of $400,000 and by
delivery of an aggregate of 375,000 unregistered shares of the Company's Common
Stock to one seller (valued at approximately $1.20 per share to reflect a
discount for lack of registration). The promissory notes bear an interest rate
of 8% per annum, are due on September 19, 1999, and are payable in twenty-four
(24) equal monthly installments aggregating $8,333.34 (plus interest) with final
payments due in the twenty-fifth (25th) month aggregating $200,000.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. In addition Drew Shoe operates retail
shoe specialty stores. The Company has accounted for its acquisition of Drew
Shoe under the purchase method of accounting. Under such method, the purchase
price paid plus costs of the acquisition are allocated to the assets and
liabilities of the acquired company based on the estimated fair value of assets
and liabilities acquired. The remaining amount, if any, is allocated to
goodwill. At September 30, 1997, a preliminary estimate of the fair value of
assets and liabilities has been made based upon data which is preliminary and
subject to change. Based upon such preliminary evaluation at September 30, 1997,
there is not a material amount of goodwill to be recorded in the acquisition of
Drew Shoe.
In order to fund the acquisition of Drew Shoe and provide working capital to the
Company, on September 19, 1997, the Company issued subordinated convertible
notes in the aggregate amount of $6,000,000 (the "Convertible Notes"). The
Convertible Notes are due on September 19, 2002, unless at any time after
September 19, 1998, they are converted, at $.80 per share, into 7,500,000 shares
of Common Stock of the Company. The Convertible Notes bear an interest rate of
10%, payable semi-annually, but the Company, at its discretion, may pay interest
in the form of its convertible notes in which case the annual interest rate
becomes 13% with semi-annual compounding. The pro-forma financial information
has been prepared assuming the payment of cash interest of 10%.
In addition, the Company issued to the noteholders Non-Redeemable Warrants
to purchase 2,400,000 shares of common stock, exercisable at $1.75 per share at
any time prior to September 19, 2002. The Company has allocated approximately
$1,500,000 of the $6,000,000 received from the sale of the Convertible Notes and
Warrants as the estimated value of the detachable warrants. Such amount is being
amortized over the five year term of the Convertible Notes in the accompanying
pro-forma financial information.
Simultaneously with the acquisition, Drew Shoe entered into a $5.5 million
credit facility with a commercial bank (guaranteed by the Company) which is
further described in Note 4 to the condensed consolidated financial statements
of the Company at September 30, 1997. Approximately $3.7 million is outstanding
under this agreement at the date of acquisition.
The pro-forma financial data set forth below shows the unaudited pro-forma
results of operations assuming that the Company had purchased Drew Shoe as of
the beginning of each period shown. This information is derived from the audited
financial statements of the Company (consolidated) and of Drew Shoe for the year
ended December 31, 1996 and the unaudited financial statements of the Company
for the nine months ended September 30, 1997 (all, appearing elsewhere in this
Prospectus) as well as the unaudited financial statements of Drew Shoe for the
nine months ended September 30, 1997 (not presented herein). This information
gives effect to the increased interest and financing costs (excluding certain
material non-recurring charges which are discussed in Notes 3 and 5 of the
unaudited condensed consolidated financial statements of the Company as of and
for the period ended September 30, 1997 and in "Special Risk Factors") and the
amortization of preliminary fair value adjustments principally for increased
depreciation. The Company has not included a provision for income taxes because
it believes that it will have sufficiently available net operating losses to
offset anticipated profits from Drew Shoe.
<PAGE>
BCAM International, Inc.
Condensed Consolidated Pro-Forma Statement of Operations (Unaudited)
For the nine months ending September 30, 1997
<TABLE>
<CAPTION>
BCAM DREW Pro-Forma Adjustments Pro-Forma
---- ---- --------------------- ---------
dr. cr.
<S> <C> <C> <C> <C> <C>
Revenues $ 418,000 $ 11,484,000 $ $ $ 11,902,000
Cost of Sales 214,000 6,952,000 26,000 h 7,192,000
----------- ------------ ---------- ------ ------------
Gross Profit 204,000 4,532,000 26,000 4,710,000
Selling, general and admin 1,808,000 4,144,000 6,000 g 5,958,000
27,000 h 27,000
Research and development 80,000 -- 80,000
----------- ------------ ---------- ------ ------------
Income (loss) from operations (1,684,000) 388,000 59,000 -- (1,355,000)
Other income (expense):
Interest and other income 18,000 36,000 54,000
Interest and financing cost (35,000) (269,000) 213,000 a (517,000)
100,000 b (100,000)
24,000 c (24,000)
425,000 d (425,000)
21,000 e (21,000)
53,000 f (53,000)
total other (expense) (17,000) (233,000) 836,000 (1,086,000)
----------- ------------ ---------- ------ ------------
Income (loss) before tax (1,701,000) 155,000 895,000 -- (2,441,000)
Provision for taxes (note 3) -- -- -- --
----------- ------------ ---------- ------ ------------
Net income (loss) (excluding
non recurring charges) $(1,701,000) $ 155,000 $ 895,000 $ -- $ (2,441,000)
=========== ============ ========== ====== ============
Weighted Average Shares 16,475,000
============
Net loss per share (excluding
non-recurring charges) ($0.15) (i)
=====
</TABLE>
PRO-FORMA ADJUSTMENTS:
- ----------------------
(a) To amortize deferred financing costs for the value of detachable warrants
issued in connection with convertible notes as follows: $1.5 million
divided by 5 year term of notes = $300,000 ($213,000 for 8.5 months).
(b) To amortize deferred financing costs for the convertible notes over 5
years; $697,000 divided by 5 = $140,000 ($100,000 for 8.5 months).
(c) To amortize the estimated BankOne financing costs - $100,000 divided by 3
= $33,000 ($24,000 for 8.5 months).
(d) To reflect interest expense on convertible notes - $6,000 times 10% =
$600,000 ($425,000 for 8.5 months).
(e) To reflect interest cost for 8% Notes payable to former Drew Shoe
shareholders (approximately $30,000) ($21,000 for 8.5 months).
(f) To reflect incremental increase in interest rate and borrowings under
BankOne Agreement (approx. $75,000/year - $50,000 for 8.5 months).
(g) To amortize goodwill over 40 years (349,000/40=$9,000) based on Drew
Shoe's lengthy existence in an industry which serves basic needs which are
expected to continue ($6,000 for 8.5 months).
(h) To reflect the estimated incremental increase in fixed asset depreciation
of approximately $75,000 ($53,000 for 8.5 months).
(I) Weighted average shares outstanding (15,752,058) + investment banker and
consultant shares (187,500 + 160,000) plus shares to seller (375,000)
totals 16,474,558.
<PAGE>
General Notes:
Note 1. The Company has identified certain cost savings and is evaluating other
cost savings measures for implementation at Drew Shoe. The Company has not
reflected any such cost savings in this pro-forma information because the
specific identification of savings, net of new investments, is not yet
finalized.
Note 2. The Company has excluded from this pro forma information non-recurring
charges related to the issuance of the acquisition financing and the
preferred stock issued by a subsidiary (See Item 5 a (I) and (ii). Such
charges include:
a. Non recurring charge to Minority Interests for imputed
dividend to minority shareholders of subsidiary to be
recorded in the third quarter ended September
1997, approximately. $500,000
b. Non recurring charge to interest and financing costs as
a result of imputed interest in connection with the
issuance of convertible notes and warrants to be amortized
over 12 months ending September 19, 1998, approximately. $5,925,000
c. Non recurring charge to write off costs associated with $155,000
proposed financings which the Company decided not to
complete.
Note 3. The Company has not included a pro forma income tax provision because it
will consolidate Drew Shoe for tax purposes and utilize existing net
operating losses of the Company against any anticipated profits of Drew Shoe.
While such net operating losses are subject to limitations as to their usage,
the Company believes that it will have sufficient available net operating
losses to offset the anticipated profits of Drew Shoe in the near term. Also,
based on the existing results of operations and additional cash interest on a
recurring basis, the consolidated company is likely to be generating
additional pretax losses in the near term.
<PAGE>
BCAM International, Inc.
Condensed Consolidated Pro-Forma Statement of Operations (Unaudited)
For the year ending December 31, 1996
<TABLE>
<CAPTION>
BCAM DREW Pro-Forma Adjustments Pro-Forma
---- ---- --------------------- ---------
dr. cr.
<S> <C> <C> <C> <C> <C>
Revenues $ 605,000 $ 14,609,000 $ 15,214,000
Cost of Sales 273,000 9,147,000 37,500 h 9,457,500
------------ ------------ --------- --------- -------------
Gross Profit 332,000 5,462,000 37,500 5,756,500
Selling, general and admin 1,802,000 5,178,000 9,000 g 7,026,500
Research and development 98,000 98,000
------------ ------------ --------- --------- -------------
Income (loss) from operations (1,372,000) 284,000 28,500 (1,172,000)
Other income (expense):
Interest and other income 68,000 68,000
Interest and financing cost (14,000) (259,000) 300,000 a (573,000)
140,000 b (140,000)
33,000 c (33,000)
600,000 d (600,000)
30,000 e
75,000 f (75,000)
------------ ------------ --------- --------- -------------
total other (expense) 54,000 (259,000) 1,178,000 (1,353,000)
------------ ------------ --------- --------- -------------
Income (loss) before tax (1,318,000) 25,000 1,206,500 (2,525,000)
Provision for taxes (note 3)
------------ ------------ --------- --------- -------------
Net income (loss) (excluding
non-recurring charges) $ (1,318,000) $ 25,000 1,206,500 ($ 2,525,000)
------------ ------------ --------- --------- -------------
Weighted Average Shares 16,600,000
----------
Net loss per share ($0.15)(i)
</TABLE>
PRO-FORMA ADJUSTMENTS:
- ----------------------
(a) To amortize as additional interest the value of detachable warrants issued
in connection with convertible notes as follows: $1.5 million divided by 5
year term of notes = $300,000
(b) To amortize deferred financing costs for the convertible notes over 5
years: $697,000 divided by 5 = $140,000
(c) To amortize the estimated BankOne financing costs - $100,000 divided by 3
= $33,000
(d) To reflect interest expense on convertible notes - $6,000,000 times 10% =
$600,000 (e) To reflect interest cost for 8% Notes payable to former Drew
Shoe shareholders (approximately $30,000)
(f) To reflect incremental increase in interest rate and borrowings under
BankOne loan (approx. $75,000/year)
(g) To amortize goodwill over 40 years (349,000/40 = $9,000), based on Drew
Shoe's lengthy existence in an industry which serves basic needs which are
expected to continue.
(h) To reflect the estimated incremental increase in fixed asset depreciation
of approximately $75,000
(i) Weighted average shares outstanding (15,954,733) plus investment banker
and consultant shares (1187,500 + 160,000) plus shares to seller (375,000)
totals 16,600,000.
<PAGE>
General Notes:
Note 1. The Company has identified certain cost savings and is evaluating other
cost savings measures for implementation at Drew Shoe. The Company has not
reflected any such cost savings in this pro-forma information because the
specific identification of savings, net of new investments, is not yet
finalized.
Note 2. The Company has excluded from this pro forma information non-recurring
charges related to the issuance of the acquisition financing and the
preferred stock issued by a subsidiary (See Item 5 a (I) and (ii). Such
charges include:
a. Non recurring charge to Minority Interests for imputed
dividend to minority shareholders of subsidiary to be
recorded in the third quarter ended September 1997,
approximately. $500,000
b. Non recurring charge to interest and financing costs
as a result of imputed interest in connection with the
issuance of convertible notes and warrants to be
amortized over 12 months ending September 19, 1998,
approximately. $5,925,000
Note 3. The Company has not included a pro forma income tax provision because it
will consolidate Drew Shoe for tax purposes and utilize existing net
operating losses of the Company against any anticipated profits of Drew Shoe.
While such net operating losses are subject to limitations as to their usage,
the Company believes that it will have sufficient available net operating
losses to offset the anticipated profits of Drew Shoe in the near term. Also,
based on the existing results of operations and additional cash interest on a
recurring basis, the consolidated company is likely to be generating
additional pretax losses in the near term.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers. Sections 721 through 725 of
the New York Business Corporation Law provide that New York corporations shall
have the power, under specified circumstances, to indemnify their directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation by
reason of the fact that they were or are such directors, officers, employees or
agents, against expenses incurred in such actions, suits or proceedings. Article
Seventh of the Company's Restated Certificate of Incorporation provides for
indemnification of directors and officers of the Company generally in accordance
with New York law.
Section 721 of the New York Business Corporation Law permits a corporation
to enter into agreements with its directors and officers providing for
indemnification for actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that they
were or are such directors or officers, against expenses incurred in such
actions, suits or proceedings, provided, however, that no such indemnification
may be provided if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Pursuant to such
authority, the Company has entered into an agreement with each of its current
directors indemnifying them to the maximum extent permitted by Section 721. The
agreement provides for the indemnification of these individuals against any and
all civil or criminal actions or proceedings brought as a result of such
individual being a director or officer of the Company and any judgments and
amounts paid in settlement costs and expenses, including reasonable attorneys
fees. No indemnification may be made, however, if a judgment or final
adjudication establishes that the individual committed acts in bad faith or with
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he personally gained financial profit or other advantage to which he was
not legally entitled. Such indemnification shall be made only by the Board
acting with a quorum consisting of directors who are not parties to the action
in question, or by independent legal counsel, or by the stockholders and in all
cases only after a finding that the applicable standard of conduct has been met.
Under Section 722(a), the corporation may indemnify any director or
officer in any action (other than an action by or in the right of the
corporation) brought against him by reason of the fact that he, his testator or
intestate was a director or officer of the corporation, or served another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity at the request of the corporation. Indemnification
may be given for judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, if such director or officer is shown to
have acted in good faith, in furtherance of a purpose believed to be in the best
interests of the corporation, and, in the case of a criminal action or
proceeding, to have had no reason to believe such conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides for permissive
indemnification by the corporation of directors and officers, sued by or in the
right of the corporation, against reasonable expenses including attorney's fees
unless the director or officer is found to have breached his duty to the
corporation under Section 717 or Section 715(h) of the Business Corporation Law,
respectively. Amounts paid under this section may not include amounts paid in
settlement of a threatened or pending action and expenses incurred in defense of
a threatened action or settlement of a pending action without court approval.
Indemnification may be by court order under Section 724 or by approval of
the corporation in the manner set forth in the statute. Under Section 723(a),
success on the merits or otherwise entitles the director or officer to
indemnification under Section 722. If not wholly successful, indemnification
shall be made by the corporation only if a quorum of the board, not including
parties to the action, finds that the standards of Section 722 have been met. If
a quorum cannot be obtained, approval may be by the board upon (i) the opinion
of independent legal counsel or (ii) a determination by the stockholders that
the standards of conduct have been met by the director or officer. Expenses may
be paid in advance if authorized by one of the methods discussed above. Under
Section 724, if the corporation fails to provide indemnification, the director
or officer may apply to the court and may receive indemnification to the extent
authorized under Section 722. Expenses may also be advanced if the court finds
the defendant director or officer to have raised genuine issues of fact or law.
Expenses advanced must be repaid to the corporation if (i) the director or
officer has not met the applicable standard which entitles him to
indemnification or (ii) if he has been paid in excess of the amount to which he
is entitled. Indemnification may not be made if it is inconsistent with the
corporation's certificate, by-laws, board resolutions or agreements or a
condition imposed by the court in approving a settlement.
The New York Business Corporation Law permits a corporation through its
certificate of incorporation to prospectively eliminate or limit the personal
liability of its directors to the corporation or its stockholders for damages
for breach of fiduciary duty as a director, with certain exceptions. The
exceptions include acts or omissions in bad faith or which involve intentional
misconduct or knowing violations of law, improper declaration of dividends, and
transactions from which the director personally gained in fact a financial
profit or other advantage to which he was not legally entitled. The Company's
Restated Certificate of
<PAGE>
Incorporation exonerates its directors from personal liability to the extent
permitted by this statutory provision.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as follows:
Accounting fees and expenses .................................... $20,000
Legal fees and expenses.......................................... $20,000
Printing and Miscellaneous expenses.............................. $10,000
-------
TOTAL............................................................ $50,000
=======
ITEM 3. RECENT FINANCINGS
Recent Sales of Unregistered Securities included:
(I) PREFERRED STOCK OF BCA SERVICES, INC. ("BCA"), A SUBSIDIARY OF THE
REGISTRANT - On July 22, 1997 BCA Services, Inc. ("BCA"), a previously
wholly-owned subsidiary of BCAM International, Inc. (the "Company"), commenced
an Offering (the "Offering") to sell up to 150 shares of BCA's Convertible
Preferred Stock (the "Preferred Stock") for a total consideration of $1.5
million in a private offering to accredited investors.
The Preferred Stock is convertible into shares of the Company's Common
Stock ("Common Stock") at a price equal to 70% of the average closing bid price
of the Common Stock over a three day trading period ending on the day preceding
the conversion date (the "Variable Conversion Price"). The Conversion Price may
not be greater than 100% of the Variable Conversion Price on the first closing
date (the "Fixed Conversion Price"). The Fixed Conversion price is $0.6563. On
the first anniversary of the closing date, all outstanding shares of Preferred
Stock must be converted into shares of Common Stock of the Company.
In addition, for each 50 shares of Preferred Stock sold, each purchaser
received Non-Redeemable Class BB Warrants to purchase up to 25,000 shares of
Common Stock per $500,000 raised, exercisable at a rate of 110% of the Variable
Conversion Price on the first closing date. The warrants have a term of five
years and the Common Stock underlying the warrants contain registration rights.
Pursuant to the terms of the Offering, the Company divided the Offering
into three tranches. The first tranche, to purchase 50 shares of Preferred Stock
for $500,000, closed on July 24, 1997; the second tranche to purchase 50 shares
of Preferred Stock for $500,000, closed on September 8, 1997. The Company has
until November 7, 1997 to draw down the third tranche, presuming effectiveness
of a registration statement (see below). The purchasers of the securities issued
under the first two tranches were two institutional investors including Autost
Anstalt Schaau, which purchased a total of 50 shares of Preferred Stock and
warrants to purchase 25,000 shares of common stock, and UFH Endowment, Ltd.,
which also purchased a total of 50 shares of Preferred Stock and warrants to
purchase 25,000 shares of common stock.
On September 18, 1997, BCA closed a separate offering of its Preferred
Stock plus warrants for $200,000 on similar terms and conditions as the Offering
(excluding the fixed conversion feature and certain fees). As a result of this
offering, 20 shares of Preferred Stock (convertible into the Company's common
stock at $0.9331 per share) were issued, along with Non-Redeemable Class CC
Warrants to purchase up to 10,000 shares of Common Stock (at $1.0264 per share).
The purchasers of the securities were Arcadia Mutual Fund, which purchased 15
shares of Preferred Stock and warrants to purchase 7,500 shares of the Company's
common stock, and David Morgenstern, who purchased 5 shares of Preferred Stock
and warrants to purchase 2,500 shares of the Company's common stock.
The Registrant claims exemption from registration of this placement by
virtue of Section 4(2) of the Securities Act of 1933.
<PAGE>
The two private placements of BCA preferred stock were made with the
assistance of a placement agent, Corporate Capital Management, who charged a
commission of 8% in fees and 2% in expenses plus warrants to purchase up to
75,000 (50,000 of which have been issued in conjunction with the first two
tranches) shares of common stock of the Registrant at approximately $0.66 per
share, for five years for the first offering and 6% in fees and no warrants for
the second offering.
The Preferred Stock contained a penalty provision permitting redemption,
together with penalties, at the option of the holder if the underlying common
stock is not registered under an effective registration statement prior to
approximately January 4, 1998. A separate economic penalty (increased interest
of 3% per month retroactive to July 24, 1997 and continuing until effectiveness)
would be triggered by the absence of effectiveness of a registration statement
relating to the shares underlying the conversion feature by November 4, 1997. On
November 12, 1997, the Company's registration statement with the Securities and
Exchange Commission was declared effective. The preferred shareholders have
waived any penalties related to the additional eight days to register the
underlying stock.
In response to positions recently taken by the Securities and Exchange
Commission, Emerging Issues Task Force Statement D-60 has been issued which
requires accounting for securities issued which are convertible into common
stock at a value which is "in the money" at the date of issuance (such as the
preferred stock described above and the acquisition financing described below).
This accounting requires that such value be charged to operations (based upon
the traded market price, without discount, compared to the conversion amount) in
the case of a convertible note or to retained earnings as a dividend in the case
of a preferred stock, over a period reflecting the shortest period in which the
investor has to exercise and under the most favorable terms to the investor.
Because the securities issued are those of a subsidiary, but are convertible
into shares of the Company, the Company expects to record the preferred stock of
the subsidiary as "minority interests" in the consolidated financial statements.
Then, the Company will immediately charge approximately $500,000 related to the
"in the money" conversion feature for amounts drawn down in the quarter ended
September 30, 1997 to Minority Interests. Additional charges would occur if and
when the third tranche is drawn down in the fourth quarter of 1997. See
pro-forma financial statements and related notes.
(II) ACQUISITION FINANCING - In order to fund the acquisition of Drew Shoe
and provide working capital to the Company, On September 19, 1997, the Company
issued subordinated convertible notes to eight investors in the aggregate amount
of $6,000,000 (the "Convertible Notes"). The Convertible Notes are due on
September 19, 2002, unless at any time after September 19, 1998, they are
converted, at $.80 per share, into 7,500,000 shares of Common Stock of the
Company. The Convertible Notes bear an interest rate of 10%, payable
semi-annually, but the Company, at its discretion, may pay interest in the form
of its convertible notes in which case the annual interest rate becomes 13% with
semi-annual compounding. The Convertible Notes require the Company to maintain
compliance with certain financial covenants including maintenance of minimum
levels of interest coverage and net worth (as defined).
In addition, the Company issued to the noteholders Non-Redeemable Class DD
Warrants to purchase 2,400,000 shares of common stock, exercisable at $1.75 per
share at any time prior to September 19, 2002.
The market value of the Company's common stock on the Nasdaq SmallCap
market on the date of the transaction was approximately $1.50.
The purchasers of the securities are set forth in the following table:
<PAGE>
Common shares Common shares
Name of purchaser Amount paid issuable under warrants
- ----------------- ----------- ------------- --------------
Impleo, LLC $5,000,000 6,250,000 2,000,000
621 Partners 150,000 187,500 60,000
R. Weil & Associates 155,000 193,750 62,000
David M. Kirr 165,000 206,250 66,000
Terry B. Marbach 165,000 206,250 66,000
Gregg T. Summerville 165,000 206,250 66,000
Ralph Weil 100,000 125,000 40,000
Joseph Schueller 100,000 125,000 40,000
---------- --------- ---------
$6,000,000 7,500,000 2,400,000
========== ========= =========
Kirr Marbach & Company, LLC, a registered investment advisor, is the
managing general partner of 621 Partners, Appleton Associates and R. Weil &
Associates, and together with Messrs Kirr, Marbach and Summerville may be deemed
to constitute a group within the meaning of Regulation 13D-G.
The private placement of convertible notes and warrants to Impleo, LLC was
made with the assistance of an investment banker, Josephberg Grosz and Company,
who charged a cash fee of 6% ($300,000) of proceeds plus certain shares of
common stock, and warrants to purchase shares of common stock, of the
Registrant. The remaining $1,000,000 of proceeds was not subject to a
commission. The Registrant refers the reader to "Item 5. (f) Shares, warrants
and options granted in connection with the acquisition of Drew Shoe and related
acquisition financing", regarding non-cash fees paid.
As a result of the accounting described in the last paragraph of Item 5(i)
above, the Company expects to charge to Interest and Financing costs in the
Consolidated Financial Statements approximately $5,925,000 (representing the "in
the money" value of the conversion feature measured at the date of issuance)
over the one year period preceding the earliest date of conversion. The Company
also plans, under generally accepted accounting principles, to allocate
approximately $1,500,000 as the estimated value of the detachable warrants
issued in connection with the convertible notes, which amount will be amortized
over the five year term of the convertible notes. These charges will be in
addition to amortization of deferred financing costs (estimated to approximate
$300,000) over the five year term of the Convertible Notes. See pro-forma
financial statements including footnote c on S-2 and General Note 2 on S-4 and
S-6.
Since December of 1996, the Company has completed the following financings for
working capital purposes:
<PAGE>
ITEM 4. EXHIBITS
3.1 Restated Certificate of Incorporation(1)
3.2 Restated and Amended By-Laws(1)
3.3 Amendment to Certificate of Incorporation(12)
3.4 Amendment to Certificate of Incorporation of BCA Services, Inc.(19)
4.1 Underwriter's Unit Purchase Option(4)
4.2 Finder's Unit Purchase Option(4)
4.3 Warrant Agreement(4)
4.4 Form of Senior Secured Convertible Promissory Note(5)
4.5 Form of Class C Common Stock Purchase Warrant(5)
4.6 Form of Class D Common Stock Purchase Warrant(5)
4.7 Revised Form of Amendment No. 1 to Warrant Agreement(7)
4.8 Revised Form of Class E Common Stock Purchase Warrant(7)
5.1 Opinion of Rivkin, Radler & Kremer (14)
5.2 Opinion of Ruskin, Moscou, Evans & Faltischek P.C. (20)
10.1 Stock Redemption Agreement(1)
10.2 1989 Stock Option Plan(1)
10.3 Employment Agreement with Dr. Clifford M. Gross(1)
10.4 Employment Agreement with Arthur Fein (1)
10.5 Bridge Warrant(1)
10.6 Bridge Note and Related Loan Agreement(1)
10.7 Consulting Agreement with Lear Siegler Seating Corporation(1)
10.8 Extension Agreement to Redemption Agreement (Exhibit 10.1)
10.9 Consulting Agreement dated August 1, 1988 with NRC Resources Group,
Inc.(1)
10.10 General Release of NRC Resources Group, Inc.(1)
10.11 Mortgage Note and Related Loan Agreement and Mortgage and Security
Agreement(1)
10.12 Second Extension Agreement to Redemption Agreement(4)
10.13 Merger and Acquisition Agreement with D.H. Blair & Co., Inc.(4)
10.14 1989 Nonstatutory Stock Option Plan(2)
10.15 Consulting Agreement with D.H. Blair & Co., Inc.(4)
10.16 Consulting Agreement with Steelcase, Inc.(2)
10.17 License and Manufacturing Agreement with MicroComputer Accessories,
Inc.(4)
10.18 Employment Agreement with Cynthia Roth(4)
10.19 Employment Agreement with Kenneth Goodman(4)
10.20 Form of Employment Agreement with Ava Stern(4)
10.21 Form of Employment Agreement with William Sirois(4)
10.22 Lease Of Premises at 1800 Walt Whitman Road, Melville, New York(4)
10.23 Consulting Agreement dated as of February 1, 1990 with NRC Resources
Group, Inc.(4)
10.24 Underwriting Agreement (for IPO) with D.H. Blair & Co., Inc.(4)
10.25 Securities Purchase Agreement dated June 25, 1991 among the Company, the
Purchasers and D.H. Blair & Co., Inc.(5)
10.26 Security Agreement dated as of June 25, 1991 between the Company and D.H.
Blair & Co., Inc., as Purchasers' Representative(5)
10.29 Employment Agreement dated as of June 20, 1991 between David A. Deutsch
and the Company(5)
10.30 Letter of Understanding between Kenneth A. Goodman and the Company(5)
10.31 Employment Agreement dated as of August 1, 1991 between Joel Sher and the
Company(5)
10.32 Amendment to 1989 Stock Option Plan(5)
10.33 Distributor Agreement with Techexport, Inc.(3)
10.34 Partnership Agreement dated December 28, 1992 for Ergonomics Solutions
Group (ESG)(8)
<PAGE>
10.35 License Agreement dated December 28, 1992, between the Company and ESG(8)
10.36 Development and Licensing Agreement dated March 5, 1993 between the
Company and McCord Winn Textron Inc.(8)
10.37 Agreement dated August 22, 1992 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(8)
10.38 Further Amendments to 1989 Stock Option Plan(8)
10.39 Amendment to Development and Licensing Agreement dated October 27, 1993
between the Company and McCord Winn Textron(9)
10.40 Investors Consulting Agreement with Strategic Growth International Inc.(9)
10.41 Agreement dated December 22, 1993 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(9)
10.42 Agreement dated September 29, 1993 between the Company, McCord Winn
Textron, Inc. and Lear Seating Company(9)
10.43 Development and Licensing Agreement dated January 4, 1994 between the
Company and Reebok International Ltd.(9)
10.44 License Agreement dated September 28, 1994 between the Company and Lumex,
Inc.(10)
10.45 Employment Agreement dated October 13, 1994 between Michael Strauss and
the Company(10)
10.46 Letter Agreement dated February 15, 1996, between the Company and McCord
Winn Textron, Inc. to extend the Development and License Agreement dated
March 5, 1993(13)
10.47 Amendment to Employment Agreement between Michael Strauss and the
Company(12)
10.48 1995 Stock Option Plan(12)
10.49 Amendment letter of agreement dated August 15, 1996 between the Company
and McCord Winn Textron, Inc.(15)
10.50 Letter of agreement terminating the September 28, 1994, Development and
License Agreement between the Company and Lumex, Inc.(15)
10.51 Letter of Agreement with Josephberg & Grosz to provide the Company
investment banking services(15)
10.52 Stock Purchase Agreement between the Company and the owners of Drew Shoe
Corporation(15)
10.53 Private Placement Memorandum dated January 15, 1997(16)
10.54 Registration Rights Agreement dated July 15, 1997(16)
10.55 Consulting agreement with Strategic Growth International dated October 4,
1996(16)
10.56 Consulting agreement with R.J. Falkner & Co.(16)
10.57 Consulting agreement with Deltasite Communications Corp(16)
10.58 Consulting agreement with Imin Kao(16)
10.59 Letters of agreement with Charles Schuyler and Frank Shyjka dated July 23,
1997 extending the deadline for the closing of the Drew Shoe Acquisition
as outlined in the Purchase Agreement dated March 20, 1997 from March 28,
1997 to September 15, 1997(17)
10.60 First Addendum to Stock Purchase Agreement (17)
10.61 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Charles Schuyler (18)
10.62 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Frank Shyjka (18)
10.63 Form of 10%/13% Convertible Subordinated Note (18)
10.64 Form of Warrant Agreement (18)
10.65 Form of Registration Agreement (18)
10.66 Form of Subordination Agreement (18)
10.67 Loan and Security Agreement dated as of September 19, 1997 between Bank
One, National Association and Drew Shoe Corporation. (18)
10.68 Guarantee agreement by BCAM International, Inc. of obligation of Drew Shoe
Corporation to Bank One, National Association. (18)
10.69 Form of Revolving Note Agreement with Bank One, National Association (18)
10.70 Term Loan Agreement with Bank One, National Association (18)
10.71 Employment Agreement dated September 19, 1997 between Charles Schuyler and
the Company (19)
10.72 Employment Agreement dated September 19, 1997 between Frank Shyjka and the
Company (19)
10.73 Employment Agreement dated September 19, 1997 between Larry R. Martin and
the Company (19)
21.00 Subsidiaries of the Company(11)
24.1 Consent of Rivkin, Radler & Kremer - included in Exhibit 5.1(14)
<PAGE>
24.2 Consent of Ernst & Young LLP(14)
24.3 Consent of Ernst & Young LLP(20)
24.4 Consent of J.H. Cohn LLP(20)
25.1 Power of Attorney executed by Robert P. Wong(14)
25.2 Power of Attorney executed by Julian H. Cherubini(14)
25.3 Power of Attorney executed by Lawrence N. Cohen(14)
25.4 Power of Attorney executed by Joel L. Gold(14)
25.5 Power of Attorney executed by Glenn F. Santmire(14)
- ----------
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(file no. 33-31282) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (file no. 0-18109) and incorporated
herein by reference thereto.
(3) Filed as part of Item 14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (file no. 0-18109) and
incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1
(file no. 33-38204) and incorporated herein by reference thereto.
(5) Filed as an Exhibit to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(6) Filed as an Exhibit To Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(7) Filed as an Exhibit to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 (file no. 0-18109) and incorporated
herein by reference thereto.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 (file no. 0-18109) and incorporated by
reference thereto.
(10) Filed as an Exhibit to Registrant's Form 10-QSB/A filed December 5, 1994
amending the Form 10-QSB for the quarterly period ended September 30, 1994
(file no. 0-18109) and incorporated by reference thereto.
(11) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 (file no. 0-18109) and incorporated by
reference thereto.
(12) Filed as an Exhibit to Registrant's Form 10-QSB for the quarterly period
ended June 30, 1995 (file no. 0-18109) and incorporated by reference
thereto.
(13) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 (file no. 0-18109) and incorporated by
reference thereto.
(14) Filed as an Exhibit to Post-Effective Amendment No. 7 on Form SB-2 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204) and
incorporated herein by reference thereto.
(15) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 (file no. 0-18109) and incorporated by
reference thereto.
(16) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 13 on
Form SB-2 to Registrant's Registration Statement filed on September 4,
1997 and incorporated herein by reference thereto
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
September 30, 1997 (file no. 0-18109) and incorporated herein by reference
thereto
(18) Filed as an Exhibit to Form 8-K/A filed by the Registrant on October 29,
1997 and incorporated herein by reference thereto.
(19) Filed as an Exhibit to Registrant's Registration Statement on Form S-3/A
filed on October 31, 1997 and incorporated herein by reference thereto.
(20) Filed herewith.
<PAGE>
ITEM 5. UNDERTAKINGS. Undertakings Required by Regulation S-B, Item 512 (a):
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a) (3) of
the 1933 Act;
(ii) to reflect in the prospectus any facts or events which,
individually or together represent a fundamental change in the
information set forth in the registration statement; and
(iii) to include any additional or changed material
information on the plan of distribution.
(2) That, for determining liability under the 1933 Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities being registered which remain unsold at the termination of
the offering.
Undertaking Required by Regulation S-B, Item 512 (e):
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers, and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on behalf of the undersigned in the County of Suffolk, State of New
York, on the __th day of December, 1997.
BCAM INTERNATIONAL, INC.
By: /s/ Michael Strauss
----------------------------------
Michael Strauss
Chairman of the Board, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes each of Michael Strauss and Kenneth C, Riscica with full power
of substitution to execute in the name of such person and to file any Amendment
or Post-Effective Amendment to this Registration Statement making such changes
in this Registration Statement as the Registrant deems appropriate and appoints
each of Michael Strauss and Kenneth C. Riscica with full power of substitution,
attorney-in-fact to sign and to file any amendment and Post-Effective Amendment
to this Registration Statement.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ Michael Strauss Chairman of the Board, December 30, 1997
- -------------------------- President, Chief
Michael Strauss Executive Officer and
Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Kenneth C. Riscica Vice President - Finance, December 30, 1997
- -------------------------- Chief Financial Officer,
Kenneth C. Riscica Treasurer and Secretary
(since October 15, 1997)
ADDITIONAL DIRECTORS:
/s/ Robert P. Wong Vice Chairman of the Board, December 30, 1997
- -------------------------- Chief Technology Officer
Robert P. Wong (Acting Chief Financial
Officer, Acting Secretary,
Acting Treasurer until October
15, 1997)
/s/ Norman B. Wright Director, Vice Chairman December 30, 1997
- -------------------------- of the Board, and President
Norman B. Wright and CEO of the HumanCAD(R)
division
/s/ Joel L. Gold Director December 30, 1997
- --------------------------
Joel L. Gold
/s/ Sandra Meyer Director December 30, 1997
- --------------------------
Sandra Meyer
/s/ Mark Plaumann Director December 30, 1997
- --------------------------
Mark Plaumann
/s/ Glenn F. Santmire Director December 30, 1997
- --------------------------
Glenn F. Santmire
/s/ Stephen Savitsky Director December 30, 1997
- --------------------------
Stephen Savitsky
/s/ Charles Schuyler Director December 30, 1997
- --------------------------
Charles Schuyler
<PAGE>
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation(1)
3.2 Restated and Amended By-Laws(1)
3.3 Amendment to Certificate of Incorporation(12)
3.4 Amendment to Certificate of Incorporation of BCA Services, Inc.(19)
4.1 Underwriter's Unit Purchase Option(4)
4.2 Finder's Unit Purchase Option(4)
4.3 Warrant Agreement(4)
4.4 Form of Senior Secured Convertible Promissory Note(5)
4.5 Form of Class C Common Stock Purchase Warrant(5)
4.6 Form of Class D Common Stock Purchase Warrant(5)
4.7 Revised Form of Amendment No. 1 to Warrant Agreement(7)
4.8 Revised Form of Class E Common Stock Purchase Warrant(7)
5.1 Opinion of Rivkin, Radler & Kremer (14)
5.2 Opinion of Ruskin, Moscou, Evans & Faltischek P.C. (20)
10.1 Stock Redemption Agreement(1)
10.2 1989 Stock Option Plan(1)
10.3 Employment Agreement with Dr. Clifford M. Gross(1)
10.4 Employment Agreement with Arthur Fein (1)
10.5 Bridge Warrant(1)
10.6 Bridge Note and Related Loan Agreement(1)
10.7 Consulting Agreement with Lear Siegler Seating Corporation(1)
10.8 Extension Agreement to Redemption Agreement (Exhibit 10.1)
10.9 Consulting Agreement dated August 1, 1988 with NRC Resources Group,
Inc.(1)
10.10 General Release of NRC Resources Group, Inc.(1)
10.11 Mortgage Note and Related Loan Agreement and Mortgage and Security
Agreement(1)
10.12 Second Extension Agreement to Redemption Agreement(4)
10.13 Merger and Acquisition Agreement with D.H. Blair & Co., Inc.(4)
10.14 1989 Nonstatutory Stock Option Plan(2)
10.15 Consulting Agreement with D.H. Blair & Co., Inc.(4)
10.16 Consulting Agreement with Steelcase, Inc.(2)
10.17 License and Manufacturing Agreement with MicroComputer Accessories,
Inc.(4)
10.18 Employment Agreement with Cynthia Roth(4)
10.19 Employment Agreement with Kenneth Goodman(4)
10.20 Form of Employment Agreement with Ava Stern(4)
10.21 Form of Employment Agreement with William Sirois(4)
10.22 Lease Of Premises at 1800 Walt Whitman Road, Melville, New York(4)
10.23 Consulting Agreement dated as of February 1, 1990 with NRC Resources
Group, Inc.(4)
10.24 Underwriting Agreement (for IPO) with D.H. Blair & Co., Inc.(4)
10.25 Securities Purchase Agreement dated June 25, 1991 among the Company, the
Purchasers and D.H. Blair & Co., Inc.(5)
10.26 Security Agreement dated as of June 25, 1991 between the Company and D.H.
Blair & Co., Inc., as Purchasers' Representative(5)
10.29 Employment Agreement dated as of June 20, 1991 between David A. Deutsch
and the Company(5)
10.30 Letter of Understanding between Kenneth A. Goodman and the Company(5)
10.31 Employment Agreement dated as of August 1, 1991 between Joel Sher and the
Company(5)
10.32 Amendment to 1989 Stock Option Plan(5)
10.33 Distributor Agreement with Techexport, Inc.(3)
10.34 Partnership Agreement dated December 28, 1992 for Ergonomics Solutions
Group (ESG)(8)
10.35 License Agreement dated December 28, 1992, between the Company and ESG(8)
<PAGE>
10.36 Development and Licensing Agreement dated March 5, 1993 between the
Company and McCord Winn Textron Inc.(8)
10.37 Agreement dated August 22, 1992 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(8)
10.38 Further Amendments to 1989 Stock Option Plan(8)
10.39 Amendment to Development and Licensing Agreement dated October 27, 1993
between the Company and McCord Winn Textron(9)
10.40 Investors Consulting Agreement with Strategic Growth International Inc.(9)
10.41 Agreement dated December 22, 1993 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(9)
10.42 Agreement dated September 29, 1993 between the Company, McCord Winn
Textron, Inc. and Lear Seating Company(9)
10.43 Development and Licensing Agreement dated January 4, 1994 between the
Company and Reebok International Ltd.(9)
10.44 License Agreement dated September 28, 1994 between the Company and Lumex,
Inc.(10)
10.45 Employment Agreement dated October 13, 1994 between Michael Strauss and
the Company(10)
10.46 Letter Agreement dated February 15, 1996, between the Company and McCord
Winn Textron, Inc. to extend the Development and License Agreement dated
March 5, 1993(13)
10.47 Amendment to Employment Agreement between Michael Strauss and the
Company(12)
10.48 1995 Stock Option Plan(12)
10.49 Amendment letter of agreement dated August 15, 1996 between the Company
and McCord Winn Textron, Inc.(15)
10.50 Letter of agreement terminating the September 28, 1994, Development and
License Agreement between the Company and Lumex, Inc.(15)
10.51 Letter of Agreement with Josephberg & Grosz to provide the Company
investment banking services(15)
10.52 Stock Purchase Agreement between the Company and the owners of Drew Shoe
Corporation(15)
10.53 Private Placement Memorandum dated January 15, 1997(16)
10.54 Registration Rights Agreement dated July 15, 1997(16)
10.55 Consulting agreement with Strategic Growth International dated October 4,
1996(16)
10.56 Consulting agreement with R.J. Falkner & Co.(16)
10.57 Consulting agreement with Deltasite Communications Corp(16)
10.58 Consulting agreement with Imin Kao(16)
10.59 Letters of agreement with Charles Schuyler and Frank Shyjka dated July 23,
1997 extending the deadline for the closing of the Drew Shoe Acquisition
as outlined in the Purchase Agreement dated March 20, 1997 from March 28,
1997 to September 15, 1997(17)
10.60 First Addendum to Stock Purchase Agreement (17)
10.61 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Charles Schuyler (18)
10.62 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Frank Shyjka (18)
10.63 Form of 10%/13% Convertible Subordinated Note (18)
10.64 Form of Warrant Agreement (18)
10.65 Form of Registration Agreement (18)
10.66 Form of Subordination Agreement (18)
10.67 Loan and Security Agreement dated as of September 19, 1997 between Bank
One, National Association and Drew Shoe Corporation. (18)
10.68 Guarantee agreement by BCAM International, Inc. of obligation of Drew Shoe
Corporation to Bank One, National Association. (18)
10.69 Form of Revolving Note Agreement with Bank One, National Association (18)
10.70 Term Loan Agreement with Bank One, National Association (18)
10.71 Employment Agreement dated September 19, 1997 between Charles Schuyler and
the Company (19)
10.72 Employment Agreement dated September 19, 1997 between Frank Shyjka and the
Company (19)
10.73 Employment Agreement dated September 19, 1997 between Larry R. Martin and
the Company (19)
21.00 Subsidiaries of the Company(11)
24.1 Consent of Rivkin, Radler & Kremer - included in Exhibit 5.1(14)
24.2 Consent of Ernst & Young LLP(14)
<PAGE>
24.3 Consent of Ernst & Young LLP(20)
24.4 Consent of J.H. Cohn LLP(20)
25.1 Power of Attorney executed by Robert P. Wong(14)
25.2 Power of Attorney executed by Julian H. Cherubini(14)
25.3 Power of Attorney executed by Lawrence N. Cohen(14)
25.4 Power of Attorney executed by Joel L. Gold(14)
25.5 Power of Attorney executed by Glenn F. Santmire(14)
- ----------
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(file no. 33-31282) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (file no. 0-18109) and incorporated
herein by reference thereto.
(3) Filed as part of Item 14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (file no. 0-18109) and
incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1
(file no. 33-38204) and incorporated herein by reference thereto.
(5) Filed as an Exhibit to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(6) Filed as an Exhibit To Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(7) Filed as an Exhibit to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 (file no. 0-18109) and incorporated
herein by reference thereto.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 (file no. 0-18109) and incorporated by
reference thereto.
(10) Filed as an Exhibit to Registrant's Form 10-QSB/A filed December 5, 1994
amending the Form 10-QSB for the quarterly period ended September 30, 1994
(file no. 0-18109) and incorporated by reference thereto.
(11) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 (file no. 0-18109) and incorporated by
reference thereto.
(12) Filed as an Exhibit to Registrant's Form 10-QSB for the quarterly period
ended June 30, 1995 (file no. 0-18109) and incorporated by reference
thereto.
(13) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 (file no. 0-18109) and incorporated by
reference thereto.
(14) Filed as an Exhibit to Post-Effective Amendment No. 7 on Form SB-2 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204) and
incorporated herein by reference thereto.
(15) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 (file no. 0-18109) and incorporated by
reference thereto.
(16) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 13 on
Form SB-2 to Registrant's Registration Statement filed on September 4,
1997 and incorporated herein by reference thereto
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
September 30, 1997 (file no. 0-18109) and incorporated herein by reference
thereto
(18) Filed as an Exhibit to Form 8-K/A filed by the Registrant on October 29,
1997 and incorporated herein by reference thereto.
(19) Filed as an Exhibit to Registrant's Registration Statement on Form S-3/A
filed on October 31, 1997 and incorporated herein by reference thereto.
(20) Filed herewith.
Exhibit 5.2
RUSKIN, MOSCOU, EVANS & FALTISCHEK P.C.
170 Old Country Road
Mineola, NY 11501
December 30, 1997
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Gentlemen:
You have requested our opinion in connection with Post-Effective Amendment
No. 13 on Form SB-2 to Form S-1 to be filed by BCAM International, Inc. (the
"Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, (the "Act"), regarding registration under
the Act of certain securities (the "Securities") for sale by the Company and by
certain Selling Shareholders named therein.
As counsel for the Company, we have examined such records, documents and
questions of law as we have deemed appropriate for the purposes of this opinion
and, on the basis thereof, advise you that in our opinion all the Securities
which are currently outstanding are, and which are issuable upon the due and
proper exercise of Securities will be, legally issued and fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Ruskin, Moscou, Evans & Faltischek P.C.
Exhibit 24.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 27, 1997 (except Note 10, as to which the date
is March 28, 1997), included in the Post Effective Amendment No. 13 on Form SB-2
to the Registration Statement (Form S-1 No. 33-47612) and related Prospectus of
BCAM International, Inc. for the registration of 2,904,636 shares of its common
stock.
/s/ Ernst & Young LLP
Melville, New York
December 30, 1997
Exhibit 24.4
Consent of Independent Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form SB-2) and related Prospectus of BCAM International,
Inc. for the registration of 2,904,636 shares of its common stock and to the
inclusion therein of our report dated September 26, 1997 with respect to the
financial statements of Drew Shoe Corporation, as of December 31, 1996 and for
the years ended December 31, 1996 and 1995.
/s/ J. H. Cohn LLP
Roseland, New Jersey
December 30, 1997
24.4
