SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _________ to ___________
Commission file number 0-18109
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BCAM INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 13-3228375
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1800 Walt Whitman Road, Melville, New York 11747
- ------------------------------------------------
(Address of principal executive offices)
(516) 752-3550
---------------------------
(Issuer's telephone number)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ___ No ___
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 16,677,233
----------
Transitional Small Business Disclosure Format (check one): Yes ____ No X
<PAGE>
BCAM INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet--September 30, 1997 (Unaudited)...........3
Condensed Consolidated Statements of Operations - Three Months
and Nine Months ended September 30, 1997 and 1996 (Unaudited)...............4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997 and 1996 (Unaudited).....................................5
Condensed Consolidated Statements of Changes in Shareholders' Equity -
Nine Months Ended September 30, 1997 (Unaudited)........................... 6
Notes to Condensed Consolidated Financial Statements - September 30, 1997
(Unaudited)..................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................13
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................18
SIGNATURES....................................................................20
INDEX OF EXHIBITS.............................................................21
2
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<TABLE>
<CAPTION>
BCAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
<S> <C>
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
</TABLE>
3
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<TABLE>
<CAPTION>
BCAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED 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
============= ================ ============== ==================
See accompanying notes
</TABLE>
4
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<TABLE>
<CAPTION>
BCAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------
1997 1996
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
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 financing 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)
All other, net 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
================== =================
See accompanying notes
</TABLE>
5
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<TABLE>
<CAPTION>
BCAM International
Consolidated Statements of Common Shareholders' Equity
SHARES
COMMON STOCK HELD
$.01 PAR VALUE PAID-IN UNAMORTIZED IN
SHARES AMOUNT SURPLUS FINANCE DEFICIT SUBTOTAL TREASURY TOTAL
COSTS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 15,642,915 $ 156,000 $ 14,959,000 $ - $ (13,201,000 $ 1,914,000 $ (899,000) $ 1,015,000
January 1, 1997
------------------------------------------------------------------------------------------------------------------
Shares issued in 1,075,000 11,000 1,064,000 - - 1,075,000 - 1,075,000
connection with
January 1997
Private Placement
Registration and
issuance costs - - (36,000) - - (36,000) - (36,000)
To account for
Convertible
Notes:
Allocation to - - 1,500,000 - - 1,500,000 - 1,500,000
detachable
warrants
Beneficial - - 5,925,000 (5,925,000) - - - -
feature
Shares issued in 375,000 4,000 446,000 - - 450,000 - 450,000
acquisition of
Drew Shoe
Shares and 347,500 3,000 944,000 - - 947,000 - 947,000
financing
options granted
in connection
with
acquisition
Amortization of - - - 179,000 - 179,000 - 179,000
Deferred
financing charges
Amortization of - - 788,000 - - 788,000 - 788,000
minority interest
Acquisition - - (589,000) - - (589,000) - (589,000)
financing costs
Net loss - - - - (2,842,000) (2,842,000) - (2,842,000)
------------------------------------------------------------------------------------------------------------------
Balance at 17,440,415 $ 174,000 $ 25,001,000 $(5,746,000) (16,043,000) $ 3,386,000 $(899,000) $2,487,000
September 30,
1997
==================================================================================================================
See accompanying
notes.
</TABLE>
6
<PAGE>
BCAM INTERNATIONAL, INC.
(THE "COMPANY")
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.
Nine Months Ended
-----------------
1997 1996
---- ----
Revenues $11,820,000 $11,357,000
======== =========
Loss from Operations (excluding ( 900,000) ( 1,049,000)
non-recurring charges) ======== =========
Net loss (excluding non-recurring charges) (1,729,000) ( 1,787,000)
======== =========
Net loss per share (0.11) (0.12)
======== =========
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 is included with deferred financing costs in
the accompanying Condensed Consolidated Balance Sheet and 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 small 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 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 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.
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.
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 exceeds 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:
Number of Shares Total Shares
Exercise Price 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.
- --------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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 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 (approximately $130,000) as well as (iii) amortization of
Deferred finance costs and accrual for interest. See Note 3 to financial
statements 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 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The September 22, 1997 purchase of Drew Shoe results in a significant
improvement 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 financial statements). As a result, the Company's financial
position has changed, during the quarter ended September 30, 1997, as follows:
September 30, 1997 June 30, 1997 Improvement
------------------ ------------- -----------
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 improvements 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 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 a high
potential software product. Such business development activities could likely
require the Company to raise additional capital (debt or equity or convertible
securities) to support its plans to grow the business.
FORWARD-LOOKING STATEMENTS
Information set forth in this Form 10-QSB 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
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(I) PREFERRED STOCK OF BCA SERVICES, INC. ("BCA"), A SUBSIDIARY OF THE
COMPANY- 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", effectively a maximum 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 (unless extended) 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 (convertible into the Company's common stock at a maximum
price of $0.6563 per share) and warrants to purchase 25,000 shares of common
stock (at $.7219 per share), and UFH Endowment, Ltd., which also purchased a
total of 50 shares of Preferred Stock Stock (convertible into the Company's
common stock at a maximum price of $0.6563 per share) and warrants to purchase
25,000 shares of common stock (at $.7219 per share).
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 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). 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 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 $0.72 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 of a registration statement
by November 4, 1997. The Company's registration statement covering the
underlying common shares was declared effective on November 12, 1997 and the
Preferred Stock holders agreed to declare the penalty provisions null and void.
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 has recorded the preferred stock of the
subsidiary as "minority interests" in the consolidated financial statements.
Then, the Company immediately charged approximately $788,000 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.
(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 (the "Convertible Notes") and
Non-Redeemable Class DD Warrants to eight investors 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 to purchase 2,400,000 shares of common
stock are 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:
<TABLE>
<CAPTION>
Name of purchaser Amount paid Common shares issuable Common shares under
warrants
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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 Company.
The remaining $1,000,000 of proceeds was not subject to a commission. The
Company refers the reader to Note 3, "10%/13% Convertible Notes and Warrants",
in the "Notes to Condensed Consolidated Financial Statements", regarding
non-cash fees paid.
As a result of the accounting described in the last paragraph of Item 2(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
has also, under generally accepted accounting principles, allocated
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
over $500,000) over the five year term of the Convertible Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
(i) On October 1, 1997, the Company filed a report on Form 8-K to report
its acquisition of Drew Shoe Corporation on September 22, 1997 as well as
related acquisition financing (an aggregate $6,000,000 of 10%/13% Convertible
Notes and Warrants to purchase 2,400,000 shares of common stock at $1.75). The
Convertible Notes are convertible into an aggregate of 7,500,000 shares of
common stock at a price of $0.80 until September 19, 2002. In addition, the
Company reported that it had guaranteed a term loan and revolving line of credit
between Drew Shoe Corporation and Bank One N.A. The Company also reported that
it had completed, on September 8, 1997, the sale of an additional $500,000 of
preferred stock of its BCA Services, Inc. subsidiary (which shares are
convertible into shares of the Company's common stock) under a private placement
which commenced on July 22, 1997. Further, the Company reported that it had
placed an additional $200,000 of preferred stock of BCA Services, Inc. on
September 18, 1997 on similar terms as the July 22, 1997 private placement
offering except that the conversion price is $.93 and the fees charged were
less.
(ii) On October 31, 1997, the Company filed a report on Form 8-K/A in
connection with its acquisition of Drew Shoe Corporation and filed with such
report the following financial statements: Balance sheets of Drew Shoe
Corporation as of June 30, 1997 (unaudited) and December 31, 1996 (audited)
Statements of Income and Retained Earnings of Drew Shoe
Corporation for the six months ended June 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996 and 1995
(audited)
Statements of Cash Flows of Drew Shoe Corporation for the six
months ended June 30, 1997 and 1996 (unaudited) and for the years
ended December 31, 1996 and 1995 (audited)
Further, the Company filed the following unaudited pro-forma information to
reflect the Company's acquisition of Drew Shoe Corporation, the acquisition
financing and the September issuances of preferred stock of BCA Services, Inc.,
in connection with such report as if such transactions had occurred at the
beginning of the periods reported as follows:
Pro-Forma Balance Sheet at August 31, 1997 (unaudited)
Pro-Forma Statement of Operations for the eight months ended
August 31, 1997 (unaudited)
Pro-Forma Statements of Operations for the year ended December
31, 1996 (unaudited)
Also in connection with such report, the Company reported:
Issuance of options to purchase approximately 2,097,000 shares of
common stock of the Company issued to employees, directors and
consultants (including 1,500,000 for three executive officers of
the Company and its HumanCAD division), including options for
approximately 1,922,000 shares which are subject to shareholder
approval.
The addition of Mssrs. Charles Schuyler, Mark Plaumann and
Stephen Savitsky to its Board of Directors and the resignation of
Mr. Cherubini from its Board of Directors.
The addition of Mr. Kenneth C. Riscica as Vice-President -
Finance, Chief Financial Officer, Treasurer and Secretary of the
Company.
The revision of the exercise price of the Class B Warrants and
Class E Warrants in accordance with antidilution provisions as
indicated therein and elsewhere in this report.
The issuance of shares, warrants and options as compensation in
connection with the acquisition of Drew Shoe and related
financing as indicated therein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BCAM INTERNATIONAL, INC.
Dated: November 14, 1997 By: /s/ Michael Strauss
----------------- --------------------
Michael Strauss
Chairman of the Board of Directors
Chief Executive Officer
Dated: November 14, 1997 By: /s/ Kenneth C. Riscica
----------------- ----------------------
Kenneth C. Riscica
Vice President - Finance, Chief
Financial Officer, Treasurer and
Secretary (principal financial and
accounting officer)
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Exhibit
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Condensed Consolidated Balance Sheet, Condensed
Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000856143
<NAME> BCAM International, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 3,297,000
<SECURITIES> 0
<RECEIVABLES> 1,858,000
<ALLOWANCES> 11,000
<INVENTORY> 6,411,000
<CURRENT-ASSETS> 11,932,000
<PP&E> 3,280,000
<DEPRECIATION> 725,000
<TOTAL-ASSETS> 15,772,000
<CURRENT-LIABILITIES> 3,517,000
<BONDS> 0
0
0
<COMMON> 174,000
<OTHER-SE> 2,313,000
<TOTAL-LIABILITY-AND-EQUITY> 15,772,000
<SALES> 353,000
<TOTAL-REVENUES> 771,000
<CGS> 442,000
<TOTAL-COSTS> 442,000
<OTHER-EXPENSES> 2,026,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,000
<INCOME-PRETAX> (2,842,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,842,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,842,000)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
