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 March 31, 1998
------------------
[ ] 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
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(Address of principal executive offices)
(516) 752-3550
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(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 |_| No |X|
State the number of shares outstanding of each of the issuer's classes of
common equity as of May 10, 1998, the latest practicable date: 20,555,242
--------------
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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BCAM INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet--March 31, 1998 (Unaudited)..........3
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1997 (Unaudited)..........................4
Condensed Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997 (Unaudited)................................5
Condensed Consolidated Statements of Changes in Shareholders' Equity -
Three Months Ended March 31, 1998 (Unaudited)......................6
Notes to Condensed Consolidated Financial Statements - March 31, 1998
(Unaudited)......................................................7-12
Item 2. Management's Discussion and Analysis or Plan
of Operations.................................................13-15
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.....................................................16
Item 2. Changes in Securities and Use of Proceeds.............................16
Item 4. Submission of Matters to a Vote of Security Holders...................17
Item 5. Other Information..................................................17-18
Item 6. Exhibits and Reports on Form 8-K......................................18
SIGNATURES....................................................................19
INDEX OF EXHIBITS.............................................................20
2
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BCAM International, Inc.
Condensed Consolidated Balance Sheet (Unaudited)
March 31, 1998
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 656,000
Accounts receivable, less allowance for doubtful accounts of
approximately $120,000 1,822,000
Inventory 6,870,000
Prepaid expenses and other current assets 279,000
Current assets of discontinued operations 270,000
------------
Total current assets 9,897,000
Property, plant, and equipment, at cost:
Land & buildings 835,000
Equipment, furniture and fixtures 3,086,000
Leasehold improvements 51,000
------------
3,972,000
Less accumulated depreciation and amortization (910,000)
------------
3,062,000
Deferred finance costs, net 839,000
Other assets 328,000
------------
Total assets $ 14,126,000
============
Liabilities and shareholders' equity
Current liabilities:
Current portion of long term debt $ 575,000
Accounts payable 1,829,000
Accrued expenses and other current liabilities 1,363,000
Current liabilities of discontinued operations, principally accruals 325,000
------------
Total current liabilities 4,092,000
Long term debt and convertible notes, net of current maturities
and unamortized debt discount 8,567,000
Other non-current liabilities 301,000
Minority interest 0
Commitments and contingencies
Shareholders' equity
Acquisition preferred stock, 750,000 shares authorized, none outstanding
Preferred stock, 2,000,000 shares authorized, none issued
Common stock, par value $.01 per share; authorized 65,000,000 shares,
19,238,226 shares issued and 18,475,044 shares outstanding 193,000
Paid-in surplus 28,308,000
Unamortized charge for beneficial debt conversion (3,016,000)
Deficit (23,420,000)
------------
2,065,000
Less 763,182 treasury shares (899,000)
------------
1,166,000
------------
Total liabilities and shareholders' equity $ 14,126,000
============
</TABLE>
See accompanying notes
3
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BCAM International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended March 31
----------------------------
1998 1997
------------ ------------
Revenues
Sales $ 3,835,000 $
License revenue 2,000
------------ ------------
Total 3,837,000
Cost of revenues 2,336,000
------------ ------------
Gross profit 1,501,000
Selling, general and administrative 1,910,000 367,000
Charge for compensatory element of 1997
options approved in 1998 858,000
------------ ------------
Research & development 150,000 8,000
------------ ------------
Income (loss) from operations (1,417,000) (375,000)
------------ ------------
Other income (expense)
Interest and financing costs (494,000) --
Charge for beneficial debt
conversion (1,493,000) --
Interest income 24,000 7,000
------------ ------------
1,963,000
------------ ------------
Loss from continuing operations (3,380,000) (368,000)
Discontinued operations, including
estimated loss on disposal of
approximately $250,000 in 1998 (803,000) (50,000)
------------ ------------
Net loss $ (4,183,000) $ (418,000)
============ ============
Net loss per share:
Continuing operations $ (0.19) $ (0.03)
Discontinued operations $ (0.05) $ (0.00)
------------ ------------
Net loss per share $ (0.24) $ (0.03)
============ ============
Weighted average number of common
shares outstanding 17,720,000 15,408,000
============ ============
See accompanying notes
4
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BCAM International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net loss $(4,183,000) $ (418,000)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 90,000 23,000
Amortization of unamortized charge for beneficial debt conversion 1,493,000 --
Amortization of deferred finance cost and debt discount 135,000 --
Compensation charge for stock options including $286,000 related to
discontinued operations 1,144,000 --
Interest paid in kind 390,000 --
Changes in operating assets and liabilities:
Accounts receivable (238,000) (25,000)
Inventory (592,000)
Current assets of discontinued operations (17,000)
Prepaid expenses and other current assets (74,000) (119,000)
Accounts payable, accrued expenses and other current liabilities 894,000 78,000
All other operating changes (93,000)
----------- -----------
Net cash (used in) operating activities (1,051,000) (461,000)
----------- -----------
Investing activities
Purchase of equipment and software technology (130,000) (97,000)
Cash paid for deferred acquisition costs -- (84,000)
----------- -----------
Net cash (used in) provided by investing activities (130,000) (181,000)
----------- -----------
Financing activities
Proceeds from sale of common stock -- 1,075,000
Payment of notes payable and long term debt 72,000 --
Proceeds from short-term debt 0 --
Drawdown (payment) of revolving credit agreement 171,000 --
Cash paid for deferred financing, stock issuance and registration costs -- (48,000)
All other, net -- --
----------- -----------
Net cash provided by financing activities 243,000 1,027,000
----------- -----------
(Decrease) increase in cash and cash equivalents (938,000) 386,000
Cash and cash equivalents at beginning of period 1,594,000 526,000
----------- -----------
Cash and cash equivalents at end of period $ 656,000 $ 912,000
=========== ===========
</TABLE>
See accompanying notes
5
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BCAM International
Condensed Consolidated Statements of Common Shareholders' Equity
<TABLE>
<CAPTION>
Unamortized
Charge for
Common Stock $.01 par value Paid-in Beneficial Debt
Shares Amount Surplus Conversion Deficit
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 18,171,641 $ 182,000 $ 26,338,000 $ (4,290,000) $(19,237,000)
------------------------------------------------------------------------
Conversion of subsidiary preferred stock into
common stock of the Company 1,066,585 11,000 607,000
Record beneficial debt conversion 219,000
Amortization of beneficial debt conversion 1,493,000
Record Compensation element of stock options 1,144,000
Net loss (4,183,000)
------------------------------------------------------------------------
Balance at March 31, 1998 19,238,226 $ 193,000 $ 28,308,000 $ (3,016,000) $(23,420,000)
========================================================================
<CAPTION>
Shares held
Subtotal Treasury Total
-------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ 2,993,000 $ (899,000) $ 2,094,000
-------------------------------------------
Conversion of subsidiary preferred stock into
common stock of the Company 618,000 618,000
Record beneficial debt conversion 1,493,000 1,493,000
Amortization of beneficial debt conversion (4,183,000) (4,183,000)
Record Compensation element of stock options
Net loss
-------------------------------------------
Balance at March 31, 1998 $ 2,065,000 $ (899,000) $ 1,166,000
===========================================
</TABLE>
See accompanying notes.
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BCAM International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1998
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. Financial position at March 31, 1998 and results of operations for the
three-month period ended March 31, 1998 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 3). Results of
operations for the three-month period ended March 31, 1997 do not reflect the
results of Drew Shoe (because this period precedes the acquisition of Drew Shoe)
and have been restated to reflect, as discontinued operations, the Company's
Ergonomic Consulting Services Division ("ECSD") and HumanCAD Software Operations
("HCAD"). Results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of results of operations to be expected for the
year ending December 31, 1998.
For further information, refer to the audited consolidated financial
statements and related notes thereto of the Company (at December 31, 1997 and
for the two year periods then ended) and the audited statements of operations
and cash flows of Drew Shoe (for the period from January 1, 1997 to September
22, 1997 and for the year ended December 31, 1996) included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1997.
2. Description of Business and Principles of Consolidation
BCAM International, Inc. and subsidiaries (the "Company") has been
primarily a software, technology and consulting company, specializing in
providing ergonomic solutions (human factors engineering) to individuals,
corporations and government. On September 22, 1997, the Company acquired Drew
Shoe Corporation ("Drew Shoe") as described in Note 3.
The Company's revenues have recently been derived primarily from ECSD. In
December 1997 the Board of Directors of the Company decided to discontinue the
operations of ECSD due to the inability of that business to generate operating
profits for the Company. In February 1998, the Board of Directors of the Company
decided to discontinue the operations of HumanCAD as a result of the lack of
available financing, on acceptable terms to the Company, to further the
necessary business development activities of that division.
Since the acquisition of Drew Shoe, the Company's revenues in the near
term are expected to be derived principally from the medical footwear business.
The Company's focus is on creating value for its shareholders through its
investment in medical footwear and related industries and on broadening and
strengthening the development and commercialization of the Company's Intelligent
Surface Technology ("IST") and its proprietary "microvalve".
The consolidated financial statements include the accounts of BCAM
International, Inc. and its subsidiaries, Drew Shoe (medical footwear), BCAM
Technologies, Inc. (principally IST and related technologies), BCA Services,
Inc. (principally ECSD) which has been discontinued), and HumanCAD Systems, Inc.
(principally software development and marketing which has been discontinued).
3. 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.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear
7
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headquartered in Lancaster, Ohio. In addition, Drew Shoe operates 15 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 December 31, 1997, a
preliminary estimate of the fair value of assets and liabilities has been made
based upon certain appraisals and other data that is preliminary and subject to
change. Based upon such preliminary evaluation at December 31, 1997,
approximately $21,000 of goodwill has been recorded in connection with the
acquisition of Drew Shoe.
The following summary shows the unaudited pro-forma results of operations
for the three-month period ended March 31, 1997 assuming that the Company had
purchased Drew Shoe as of January 1, 1997. This information gives effect to the
increased interest and financing costs (excluding certain material non-
recurring charges for beneficial conversion features of certain security
placements and other costs which are discussed in Note 4 below and in Notes 6
and 7 to the Consolidated Financial Statements at December 31, 1997) and the
amortization of fair value adjustments principally for increased depreciation
and amortization. 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 any anticipated profits from Drew Shoe.
Quarter ended
March 31, 1997
--------------
Revenues $ 3,700,000
------------
Loss from operations $ (161,000)
------------
Loss from continuing operations $ (526,000)
------------
Net Loss, excluding non-recurring
charges $ (643,000)
------------
4. Long Term Debt and Convertible Notes
Secured bank debt - Simultaneously with the acquisition of Drew Shoe, the
Company through its wholly-owned subsidiary, Drew Shoe, entered into a 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 March 31,
1998, the Company believes there was an aggregate of approximately $3,100,000
available under the revolving line of credit facility, approximately $2,789,000
of which is in use at that date.
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% (10% at March
31,1998). The term loan portion of the credit facility also bears an interest
rate of prime plus 1.5% (10% at March 31, 1998) and is payable in monthly
principal installments of $11,905, plus interest, through September 30, 2000
with a payment due at that time of $583,000. 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, as amended on
April 14, 1998, requires Drew Shoe to maintain compliance with certain financial
covenants, principally net worth, and contains restrictions on the transfer of
cash to the Company.
Costs incurred in connection with the bank term loan and revolving credit
totaling approximately $75,000, are included in Deferred finance cost and are
being amortized to Interest and financing cost using the effective interest
method over a two year period.
Secured 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, as amended, on April 16,
1999, 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 (subject to
antidilution provisions). The Convertible Notes bear an interest rate of
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10%, payable semi-annually, but the Company, at its discretion, may pay interest
in the form of additional Convertible Notes in which case the annual interest
rate becomes 13% with semi-annual compounding.
On March 19, 1998, the Company elected to pay the semiannual interest
payment in the form of additional Convertible Notes ("payment in kind"). As
such, the Company increased the related obligation by $390,000
On April 14, 1998, the noteholders and the Company entered into the First
Amendment of the Note Purchase Agreement (together with a Stock Pledge Agreement
and Security Agreement) in order to restructure the agreement. The key elements
of the restructuring are as follows: (1) waiving of the Company's violations of
the financial covenants at December 31, 1997 (as well as certain other breaches
of the agreement), (2) eliminating the financial covenants through April 16,
1999, (3) securing the obligation with a pledge of all of the assets of the
Company (excluding the assets of Drew Shoe which are already pledged to a bank),
including the stock of the Company's subsidiaries, (4) accelerating the maturity
date for the obligation from September 19, 2002 to April 16, 1999, (5)
cancellation of Class DD warrants to purchase 400,000 shares of common stock of
the Company, (6) issuance to the holders a total of 10% of the common shares of
the Company's subsidiaries Drew Shoe Corporation and BCAM Technologies, Inc. As
a result of the restructuring, the Company has a significant capital requirement
to repay this obligation ($6,390,000 including $390,000 of interest "paid in
kind" on March 19, 1998) in approximately one year or face default and
foreclosure on the security. It is the Company's intention to refinance or
otherwise restructure this obligation prior to its maturity. The Company expects
to take a significant charge to operations in the second quarter of 1998 in
connection with the finalization of the restructuring of the debt.
The Company has allocated approximately $1,872,000 of the $6,000,000
received from the sale of the Convertible Notes and Warrants as the estimated
value of the detachable warrants issued in connection with the Convertible Notes
resulting in a discount to the value assigned to the Convertible Notes. Such
amount has been amortized over the initial five-year term of the Convertible
Notes in the accompanying condensed consolidated financial statements.
Deferred financing costs of approximately $825,000 in connection with the
transaction are being amortized over the initial five-year term of the
Convertible Notes in the accompanying financial statements.
The market value of the Company's common stock on the Nasdaq SmallCap
market on September 19, 1998 was approximately $1.50 and approximately $1.25 at
March 19, 1998 (when additional Convertible Notes were issued as payment in kind
for interest).
In response to positions recently taken by the Securities and Exchange
Commission, Emerging Issues Task Force Statement D-60 has been issued. Statement
D-60 requires certain 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). This accounting requires that the beneficial 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 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 at September 19, 1997, and an additional $219,000 at
March 19, 1998, to Unamortized Charge for Beneficial Debt Conversion in the
shareholders' equity section of its Consolidated Balance Sheet. Such amount
represents the value of the beneficial debt conversion feature of the
Convertible Notes measured at the date of issuance in September 1997 and for the
payment in kind in March 1998. This amount is being charged to Interest and
financing costs in the Consolidated Statements of Operations at the rate, as
adjusted for the March 1998 payment in kind, of approximately $1,591,000 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 3.
At March 31, 1998, long term debt consists of the following:
10%/13% Convertible Notes, face amount
$6,390,000, net of approximately $1,673,000
of unamortized debt discount with interest
payable on March 19 and September19, due
April 16, 1999 unless earlier converted $4,717,000
9
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Revolving credit arrangement with a bank,
payable on September 30, 1999, bearing
interest at prime plus 1.5 % 2,789,000
Term Loan agreement with a bank, bearing
interest at prime plus 1.5% payable in monthly
principal installments of $11,905 plus interest
through September 30, 2000 when the final
payment of $583,000 is due. 929,000
Notes payable to sellers of Drew Shoe (including
$187,500 payable to the ongoing President of
Drew Shoe), bearing interest at 8%, with monthly
payments of principal aggregating $8,333 plus interest
and balloon payments aggregating $200,000 on
September 19, 1999 350,000
All other 355,000
----------
Total long term debt 9,140,000
less: current portion 573,000
----------
$8,567,000
==========
Principal payment requirements on the above obligations, adjusted for the
debt restructure described above is approximately as follows subsequent to March
31, 1998:
Years ended Amount
----------
1998 $573,000
1999 9,550,000
2000 690,000
----------
10,813,000
Less unamortized debt discount (1,673,000)
----------
Total Long-term Debt at March 31, 1998 $9,140,000
----------
5. Private Placements
1998 Private placement of common shares and warrants - On April 22, 1998,
the Company completed a private offering of its common stock and warrants. The
offering raised aggregate proceeds of $2,000,000 for the purchase of 1,980,198
shares of common stock of the Company and warrants to purchase 250,000 shares of
common stock at $2.05 for three years by six accredited investors. The Company
has agreed to register such shares and has agreed to penalties of 3% per month
should the registration statement not be declared effective within 130 days.
The number of shares issuable to these investors will be "repriced"
pursuant to a schedule initially in four $300,000 increments and then in four
$200,000 increments on eight occasions commencing with the effectiveness of a
registration statement covering the shares and again 60 days later and then in
30 day intervals. On such dates, the investor would receive the additional
number of shares, if any, that result from the difference between the number of
shares actually issued and the number of shares which would have been issued
using a 23% discount to the market price, as defined, at that time. The
operation of this provision could result in significantly greater number of
shares being issued. The investors have agreed not to sell any shares before at
least 120 days after the closing. The Company has agreed not to issue certain
financings and has agreed to pay a placement agent a 6.5% fee in connection with
the transaction.
1997 Sale of common stock and warrants of the Company - In January 1997,
the Company commenced an offering and ultimately sold 1,075,000 equity units
(each consisting of one share of the
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Company's common stock and one non-redeemable Class AA warrant) for $1,075,000.
The Class AA warrants, as amended, entitle the holder to purchase one share of
the Company's Common Stock at $0.65 per share until March 31, 2002. In April
1998, warrants to purchase 100,000 shares of common stock were exercised by he
holders.
During 1997 the Company issued Convertible Preferred Stock of its BCA
Services, Inc. ("BCA") subsidiary (and certain warrants) which were convertible
into common stock of the Company. (As discussed in Note 7 to the Condensed
Consolidated Financial Statements for the year ended December 31, 1997 included
in the Company's Form 10-KSB.) During the three months ended March 31, 1998, the
remaining Convertible Preferred Stock of BCA was converted into 1,066,585 shares
of the Company's common stock at an average conversion price of approximately
$0.65 per share.
6. Discontinued Operations
Ergonomic Consulting Services Division - In December 1997, the Board of
Directors of the Company approved a plan to sell the operations of its Ergonomic
Consulting Services Division ("ECSD"). ECSD has not generated operating profits
and is no longer considered a core asset in light of the Company's current
strategy. The plan of disposition involved finding a strategic buyer who would
take over the Company's contractual commitments (some of which are long-term) to
consulting division customers and liquidating the remaining assets through
collection (with respect to receivables) or sale or disposal (with respect to
furniture and equipment). On February 9, 1998, the Company closed on the sale of
the revenue contract rights and transfer of the obligations for certain related
personnel of the ECSD to a third party. Terms of the sale call for the payment
of a portion of future revenues of the contracts sold as well as a portion of
certain follow-on work, or referrals for work provided by the Company. At March
31, 1998, assets of the ECSD were approximately $180,000, and liabilities were
not material. The operations of the ECSD from January 1, 1998 through disposal
on February 9, 1998 did not generate a loss due to the high utilization of
personnel on contracts during that time. Approximately $50,000 has been accrued
in the December 31, 1997 financial statements as a loss on disposal representing
management's estimate of the write-off of furniture and equipment and accrual of
certain lease costs. Management believes that the $50,000 accrual recorded in
December 1997 continues to be adequate at March 31, 1998. There was no material
severance paid in connection with the discontinuance of the ECSD.
HumanCAD Systems Operations - During late February 1998, as a result of
specific events at the time, the Board of Directors of the Company approved a
plan to seek alternative value for the HumanCAD Systems operations ("HCAD") by
(i) initially reducing the activity and (ii) seeking a strategic or management
buyer for the operation.
In December 1997, the Company had reached agreement with a funding source
to provide approximately $2.5 million for development and marketing of the
Company's existing and planned HCAD ergonomic modeling software products. In
January 1998, the Company commenced executing the business plan contemplated by
the financing but in late February 1998, the funding source advised the Company
that they were no longer willing to go forward with the planned financing. The
Company continues to seek a strategic or possible management buyer for HCAD.
The measurement date for the discontinuance is February 1998, at which
time losses from January 1, 1998 through February 1998 have been recorded and a
provision for discontinued operations (principally severance and non-cancellable
lease costs) has been made. At March 31, 1998, assets of the HCAD were
immaterial and liabilities (excluding intercompany) were approximately $300,000
consisting principally of trade payables and payroll.
Revenues, gross margin and net loss for ECSD and HCAD discontinued
operations are approximately the following for the quarter ended December 31,
1998 and 1997:
1998 1997
------------ ------------
Revenues $ ,000 $ 71,000
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Gross Margin $ ,000 $ (8,000)
Net Loss $ (,000) $(117,000)
7. Other
Per share data - In March 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Standards ("SFAS") No. 128, Earnings per
Share. Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings 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.
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 ended March 31, 1998 and 1997, since the future availability of net
operating loss carryforwards have been offset in full by valuation allowances in
accordance with FASB Statement No. 109.
Antidilution adjustments to 10%/13% Convertible Notes and Class B Warrants
and Class E Warrants - Principally as a result of the 1998 Private Placement of
common stock and warrants in April 1998, the Company believes that the
antidilution provisions of the Convertible Notes and the Class B and Class E
Warrants have been triggered. The calculation of the revised amounts has not yet
been completed by the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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
The Company has historically been a software, technology and consulting company,
specializing in providing ergonomic solutions (human factors engineering) to
individuals, corporations and government. On September 22, 1997, the Company
acquired Drew Shoe Corporation ("Drew Shoe"), a designer, marketer, manufacturer
and distributor of medical footwear. Drew Shoe had annual revenues of
approximately $15.1 million in 1997 and $14.6 million in 1996 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.
The Company's revenues have recently been derived primarily from ergonomic
consulting services. In December 1997 the Board of Directors of the Company
decided to sell the operations of the ergonomic consulting services business as
discussed in Note 6 to Condensed Consolidated Financial Statements. In late
February 1998, the Board of Directors of the Company decided to seek alternative
value for, and discontinued, the operations of the HumanCAD software division as
discussed in Note 6 to the Condensed Consolidated Financial Statements.
Since the acquisition of Drew Shoe, the Company's revenues in the near term are
expected to be derived principally from the medical footwear business. The
Company is a now a medical footwear and technology company with a focus on: (i)
building its presence in medical footwear and related industries through
internal growth and planned acquisitions, (ii) advancing the development and
commercialization of the Company's Intelligent Surface Technology ("IST") and
(iii) developing new technologies including its proprietary "microvalve." The
Company has collaborative research and development relationships with the State
University of New York at Stony Brook and with MCNC which provide resources in
strengthening the Company's technologies.
See Liquidity and Capital Resources regarding the restructure of certain
long-term debt.
Results of Operations
Results of operations for the three months ended March 31, 1998 continue to be
significantly impacted by restructuring developments including: (1) the
integration of the September 1997 acquisition of Drew Shoe, (2) the
discontinuation of the Ergonomic Consulting Services and HumanCAD software
divisions, (3) a charge to compensation expense for certain options granted
during 1997 which were at exercise prices which were below the market value when
approved by the shareholders in February 1998 and (4) charges and costs related
to the financing to acquire Drew Shoe and other financing during the year.
Drew Shoe acquisition - 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 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
three months ended March 31, 1998, but not for the three months ended March 31,
1997. Drew Shoe had operating income (before subsidiary interest and finance
costs, net of interest income, of approximately $110,000) of approximately
$142,000 during the quarter ended March 31, 1998. Further, the Company expects
to take steps to build the revenue base and profitability of Drew Shoe. The
Company expects that its revenues in the near term will be principally from Drew
Shoe.
Discontinued operations - As discussed in greater detail in Note 6 to the
Condensed Consolidated Financial Statements, the Company has recorded the
operations of the Ergonomic Consulting Services
13
<PAGE>
Division ("ECSD") and HumanCAD Software Division ("HCAD") as discontinued
operations. The two divisions represented combined revenues and operating losses
of approximately $202,000 and $803,000, respectively, for the three months ended
March 31, 1998. Provisions for losses on discontinuance of these operations of
approximately $50,000 and $250,000 have been recorded to operations in the
fourth quarter of 1997 and first quarter of 1998, respectively. Additionally,
the three-months ended March 31, 1998 includes a charge to discontinued
operations for approximately $286,000 for the compensatory element of stock
options granted in 1997 and approved by the shareholders in February 1998. These
divisions were discontinued because ECSD did not generate operating profits for
the Company and HCAD required capital which the Company could not obtain on
favorable terms.
Charges and costs related to financings - Interest and financing costs for the
year ended December 31, 1997 consisted principally of: (i) non-cash amortization
of Unamortized charge for beneficial debt conversion of approximately $1,493,000
as a result of the application of EITF Statement D-60, (ii) amortization of debt
discount recorded to recognize estimated fair value of detachable warrants of
approximately $95,000, (iii) amortization of Deferred finance costs of
approximately $50,000 and (iv) accrual for interest and all other of
approximately $350,000 (including approximately $90,000 to reflect the
incremental interest (from 10% to 13%) associated with the Company's decision to
make the March 19, 1998 interest payment in kind). See Note 4 to financial
statements regarding the significant non-cash charge which results from the
accounting under EITF Statement D-60.
Ongoing selling, general and administrative costs - Selling, general and
administrative costs increased from approximately $367,000 to approximately
$1,910,000 principally as a result of the addition of such costs at Drew Show as
well as increased corporate costs for compensation and professional fees.
Research and development costs - In the three months ended March 31, 1998,
research and development costs consist principally of costs associated with the
Company's development of a "microvalve" in collaboration with a third party,
MCNC.
License revenues - License revenues consist principally of revenues received
from IST products and have not been significant to date. One Company's licensee,
Textron, has launched a new product, in September 1997, utilizing IST in an
automobile seat. It is expected that such product would generate license
revenues for the Company in approximately the fourth quarter of 1998.
Liquidity and Capital Resources
From December 31, 1997 to March 31, 1998, Company's financial position changed
as follows:
March 31, 1998 December 31, 1997
-------------- -----------------
Cash $656,000 $1,594,000
Working capital $5,805,000 $6,716,000
Long-term debt (see below) $595,000 $7,972,000
Total Assets $14,126,000 $14,177,000
Shareholders equity $1,166,000 $2,094,000
Additionally, on April 14, 1998, the Company restructured its Convertible Notes
such they their maturity has been accelerated from September 19, 2002 to April
16, 1999 and the obligation has been secured, among other matters discussed
elsewhere in this Form 10-QSB. This creates a capital need in approximately one
year to either satisfy the obligation or face possible foreclosure on the
security. See Note 4 to Condensed Consolidated Financial Statements and Item 5.
Other Information.
14
<PAGE>
At March 31, 1998, the Company required additional capital in order to fund its
operations during 1998. During April 1998, the Company commenced a private
placement and raised an aggregate $2,000,000 though the issuance of common stock
and warrants (See Item 2 Changes in Securities and Use of Proceeds). This
financing would permit the Company to continue to pursue its business strategy
for approximately 12 months. Thereafter, the Company will require additional
capital to pursue its business plan, including to repay secured debt coming due
in April 1999. Further, the capital raised in this financing would most likely
not be sufficient to fund any significant acquisitions and is not planned to be
used for that purpose. The Company expects that it may be required to raise
substantial additional capital in order to fund its acquisition strategy and to
develop and exploit its "microvalve".
On April 14, 1998, the Company and the holders of the 10%/13% Convertible Notes
(See - Recent sales of unregistered securities and Note 4 to Condensed
Consolidated Financial Statements) agreed to restructure the 10%/13% Convertible
Notes as discussed in Note 4. As part of the restructuring, the Company agreed
to accelerate repayment of the obligation from September 19, 2002 to April 16,
1999, to secure the obligation with all of the assets of the Company and to
grant the holders a 10% interest in the Company's Drew Shoe and BCAM Technology
subsidiaries. As a result, the Company has a significant capital requirement to
repay this obligation ($6,390,000, including interest paid in kind on March 19,
1998) in approximately one year or face default and possible foreclosure on the
security. It is the Company's intention to refinance or otherwise restructure
this obligation prior to its maturity.
Factors That May Affect Future Results
The Company's future operating results are dependent on the Company's ability
to: (i) obtain sufficient capital to fund its development, growth and
acquisition plans, (ii) generate profitable growth at Drew Shoe, (iii) generate
sufficient profits from operations to fund its debt service, (iv) identify and
successfully close potential acquisitions on terms that are favorable to the
Company (vi) further successful development of IST and increase the number of
licensees, and the commercialization of IST by its licensees, (vii )
introduction of IST in medical footwear and orthotic products, (viii)
successfully develop the "microvalve", (ix) general economic conditions and
conditions in the financial and medical footwear markets.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Litigation
In January 1998, Ulin & Holland Incorporated ("U & H") filed suit against
the Company's Drew Shoe subsidiary in United States District Court for the
District of Massachusetts. The suit alleges that U & H was retained in 1992 by
Drew Shoe pursuant to which U & H alleges that it is due a fee of not less than
$297,000 in connection with the Company's acquisition of Drew Shoe. Drew Shoe
disputes this claim and the Company intends to vigorously defend this action.
There are no other material legal proceedings pending against the Company.
Item 2. Changes in Securities and Use of Proceeds
Sale of Common Stock and Warrants in April 1998 - On April 22, 1998 the
Company completed an offering of $2,000,000 of its common stock and warrants in
a private placement to accredited investors.
The offering raised aggregate proceeds of $2,000,000, before expenses, for
the purchase of 1,980,198 shares of common stock of the Company, subject to
"repricing" as described below, and warrants to purchase 250,000 shares of
common stock at $2.05 for three years by six accredited investors as follows:
<TABLE>
<CAPTION>
Common Common Total
Shares Shares in Common Common shares
Name of purchaser Amount paid(b) issued (a) escrow (a)(b) Shares (a) under warrants
----------------- -------------- ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balmore Funds S.A $ 850,000 631,189 210,395 841,584 106,250
Austost Anstalt Schaan $ 750,000 556,931 185,643 742,574 93,750
Beeston Investments Ltd. $ 200,000 148,515 49,505 198,020 25,000
Manor Investments $ 100,000 74,258 24,752 99,010 12,500
Ellis Enterprises $ 50,000 37,129 12,376 49,505 6,250
East Lane Corporation, Ltd. $ 50,000 37,129 12,376 49,505 6,250
------------- ------------- ------------- ------------ --------------
Totals $ 2,000,000 1,485,151 495,047 1,980,198 250,000
============= ============= ============= ============ ==============
</TABLE>
(a) Prior to "repricing", if any, as discussed below.
(b) See below regarding proceeds and shares held in escrow pending the filing of
a registration statement.
- ----------
The Company has agreed to register such shares and has agreed to penalties of 3%
per month should the registration statement not be declared effective within 130
days.
The number of shares issuable to these investors will be "repriced" in
increments of invested proceeds pursuant to a schedule. The increments are
initially four $300,000 increments and then four $200,000 increments on eight
occasions. The repricing increments commence with the effectiveness of a
registration statement covering the shares, then one increment 60 days later and
the remaining six increments in 30 day intervals thereafter. On such dates, the
investor would receive the additional number of shares, if any, that result from
the difference between the number of shares actually issued and the number of
shares which would have been issued at 77% of the average closing bid price, as
defined, for the five trading days immediately preceeding but not including, the
"repricing" date. Each "repricing' calculation is made independent of the other
"repricing" calculations.
The operation of the "repricing" provision could result in significantly greater
number of shares being issued than the amounts listed in the above table.
The investors have agreed not to sell any shares before at least 120 days after
the closing. The Company is exposed to penalties for failure to have a
registration statement declared effective covering such shares within 130 days.
The Company has agreed not to issue certain financings for 270 days after
issuance of all shares under the "repricing" provisions without the consent of
the investors and has agreed to a right of first
16
<PAGE>
refusal as defined in the agreements.
The Company has paid a placement agent a 6.5% fee in connection with the
transaction.
The $2,000,000 issuance of common stock and warrants will trigger the
anti-dilution provisions of the 10%/13% Convertible Notes and the Company's
currently outstanding Class B and Class E warrants. Anti-dilution computations
have not yet been completed.
The Registrant claims exemption from registration of this placement by virtue of
Section 4(2) of the Securities Act of 1933. The proceeds of the offering are to
be utilized for general working capital purposes.
Item 4. Submission of Matters to a Vote of Shareholders
At its 1997 Annual meeting of shareholders held on February 19, 1998 (and
with respect to proposal number 4, an adjournment to March 16, 1998) the
following matters were brought for a vote of the shareholders:
<TABLE>
<CAPTION>
Proposal Votes for Votes against Abstain
- ------------------------------------------------- ---------------------- -------------------- -----------------
<S> <C> <C> <C>
1. Adoption of a staggered Board of Directors 10,076,491 386,336 56,560
2. Election of Directors
- Michael Strauss 16,743,045 282,455
- Robert B. Wong 16,738,045 287,455
- Norman B. Wright 16,680,460 345,040
- Charles G. Schuyler (a) 16,722,560 302,940
- Joel L. Gold 16,696,345 329,155
- Glenn F. Santmire 16,746,455 279,055
- Mark L. Plaumann 16,745,745 279,755
- Stephen Savitsky 16,744,945 280,555
3. Approval of an increase in the number of
shares available for grant under the 1995
stock option plan 16,162,581 736,869 126,050
4. Approval of a change to the Corporation's
ByLaws to permit the issuance of up to
2,000,000 shares of Preferred Stock 9,916,047 1,338,736 208,045
5. Approval of a change to the Corporation's
ByLaws to increase the Authorized Common
Shares from 40,000,000 to 65,000,000 8,003,173 1,173,326 330,200
6. Ratification of the appointment of Ernst &
Young L.L.P. as the Corporation's auditors
for 1997 16,827,030 28,740 169,730
</TABLE>
(a) On April 1, 1998 Mr. Schulyer resigned from the Board of Directors of the
Company and will continue in his role of President and Chief Executive
Officer of the Company's Drew Shoe subsidiary. On April 14, 1998, as part of
the Debt Restructuring described in Item 5. below, the Board of Directors
elected Mr. Joseph Jacobs, President of Wexford Management LLP, a management
and investment firm and principal owner of Impleo LLP (owner of $5,000,000
of secured Convertible Notes of the Company) to the Board of Directors of
the Company.
Item 5. Other Information
Debt Restructuring - Effective April 14, 1998 the Company and the holders
of the 10%/13% Convertible Notes and related warrants entered into a First
Amendment (and related Stock Pledge Agreement and Security Agreement) of the
September 1997 Note Purchase Agreement in order to restructure the obligation.
The key elements of the restructuring are as follows: (1) waiving of the
17
<PAGE>
Company's violations of the financial covenants at December 31, 1997 (as well as
certain other breaches of the agreement), (2) eliminating the financial
covenants through April 16, 1999, (3) securing the obligation with a pledge of
all of the assets of the Company (excluding the assets of Drew Shoe which are
already pledged to a bank), including the stock of the Company's subsidiaries,
(4) accelerating the maturity date for the obligation from September 19, 2002 to
April 16, 1999, (5) cancellation of Class DD warrants to purchase 400,000 shares
of common stock of the Company, (6) issuance to the holders of a total of 10% of
the common shares of the Company's subsidiaries Drew Shoe Corporation and BCAM
Technologies, Inc. The Company expects to take a significant charge to
operations in the second quarter of 1998 in connection with the finalization of
the restructuring of the debt.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
On May 5, 1998, the Company filed a Report on Form 8-K with respect to the
Debt Restructuring discussed in Item 5 above, the issuance of securities and use
of proceeds discussed in Item 2 above and the addition of Mr. Joseph Jacobs to,
and the resignation of Mr. Charles G. Schulyer from, the Company's Board of
Directors as discussed in Item 4 above. Mr. Schulyer continues in his full time
role as President and Chief Executive of Drew Shoe.
18
<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: May 20, 1998 By: /s/ Michael Strauss
------------ --------------------
Michael Strauss
Chairman of the Board of Directors
Chief Executive Officer
Dated: May 20, 1998 By: /s/ Kenneth C. Riscica
------------ ----------------------
Kenneth C. Riscica
Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
(principal financial and accounting
officer)
19
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Exhibit
27 Financial Data Schedule
10.1 Amendment to Loan and Security Agreement
between Drew Shoe Corporation and Bank One NA
dated May 14, 1998
20
AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT (this "Amendment") to the Loan and Security Agreement is
entered into as of the 14th day of May, 1998, by and between Drew Shoe
Corporation (the "Borrower"), and Bank One, National Association (the "Bank").
RECITALS:
A. As of September 19, 1997, the Borrower and the Bank executed a certain
Loan and Security Agreement (the "Loan Agreement"), setting forth the terms of
certain extensions of credit to the Borrower; and
B. As of September 19, 1997, the Borrower executed and delivered to the
Bank, inter alia, a revolving note in the original principal sum of Four
Million Five Hundred Thousand Dollars ($4,500,000.00) (hereinafter the
"Revolving Note"); and
C. As of September 19, 1997, the Borrower executed and delivered to the
Bank, inter alia, a commercial loan note in the original principal sum of One
Million Dollars ($1,000,000.00) (hereinafter the "Term Note") (the Revolving
Note and the Term Note are hereinafter collectively referred to as the "Notes");
and
D. In connection with the Loan Agreement and the Notes, the Borrower
executed and delivered to the Bank certain other loan documents, open-end
mortgages, assignment of rents and security agreements, contents, assignments,
security agreements, agreements, instruments and financing statements in
connection with the indebtedness related to in the Loan Agreement (all of the
foregoing, together with the Notes and the Loan Agreement, are hereinafter
collectively referred to as the "Loan Documents"); and
E. The Borrower is currently in default of Section 7.15, "Debt Service
Coverage Ratio," of the Loan Agreement (the "Identified Default"); and
F. The Borrower has required that the Bank amend and modify certain terms
and covenants in the Loan Agreement and waive the Identified Default, and the
Bank is willing to do so upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assign do hereby agree, represent and
warrant as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in the Loan Agreement.
2. The first paragraph of Section 7.15, "Debt Service Coverage Ratio" of
the Loan
<PAGE>
Agreement it hereby amended to recite in as follows:
7.15 Debt Service Coverage Ratio. The Borrower shall maintain at all
times specified below a ratio of (a) EBITDA minus expenditures for
fixed or capital assets (whether financed or unfinanced) and
expenditures, including without limitation, costs, of any
acquisition, which should be capitalized in accordance with GAAP for
such period minus payments for federal, state, local and foreign
income taxes ("Adjusted EBITDA") to (b) Debt Service, of not less
than (i) .70 to 1.00 for the period beginning April 1, 1998, and
ending June 30, 1998, (ii) .85 to 1.00 for the period beginning
April 1, 1998, and ending September 30, 1998, (iii) 1.05 to 1.00 for
the period beginning April 1, 1998, and ending December 31, 1998,
(iv) 1.10 to 1.00 for the period beginning April 1, 1998, and ending
March 31, 1999, and (v) 1.25 to 1.00 at all times thereafter. The
ratio of Adjusted EBITDA to Debt Service shall be determined
quarterly for the periods specified above through March 31, 1999,
and thereafter beginning June 30, 1999, and as of the end of each
calendar quarter for the twelve month period ending on such date.
The remainder of Section 7.15 of the Loan Agreement shall remain as originally
written.
3. The Bank hereby waives the Identified Default for the period through
and including March 31, 1998.
4. Conditions of Effectiveness. This Amendment shall become effective as
of May 14th, 1998, upon satisfaction of all of the following conditions
precedent:
(a) The Bank shall have received two duly executed copies of the Amendment
to Loan Agreement and such other certificates, instruments, documents,
agreements, and opinions of counsel as may be required by the Bank, each of
which shall be in form and substance satisfactory to the Bank and its counsel;
and
(b) The representations contained in paragraph 5 below shall be true and
accurate.
5. Representations. The Borrower represents and warrants that after giving
effect to this Amendment (a) each and every one of the representations and
warranties made by or on behalf of the Borrower in the Loan Agreement or the
Loan Documents is true and correct in all respects on and as of the date hereof,
except to the extent that any of such representations and warranties related, by
the expressed terms thereof, solely to a date prior hereto; (b) the Borrower has
duly and properly performed, complied with and observed each of its covenants,
agreements and obligations contained in the Loan Agreement and Loan Documents;
and (c) except for the Identified Default, no event has occurred or is
continuing, and no condition exists which would constitute an Event of Default
or a Pending Default.
6. Amendment to Loan Agreement. (a) Upon the effectiveness of this
Amendment, each reference in the Loan Agreement to "Loan and Security
Agreement," "Loan Agreement,"
-2-
<PAGE>
"Agreement," the prefix "herein," "hereof," or words of similar import, and each
reference in the Loan Documents to the Loan Agreement shall mean and be a
reference to the Loan Agreement as amended hereby. (b) Except as modified
herein, all of the representations, warranties, terms, covenants and conditions
of the Loan Agreement, the Loan Documents and all other agreements executed in
connection therewith shall remain as written originally and in full force and
effect in accordance with their respective terms, and nothing herein shall
affect, modify, limit or impair any of the rights and powers which the Bank may
have thereunder. The amendment set forth herein shall be limited precisely as
provided for herein, and shall not be deemed to be a waiver of, amendment of,
consent to or modification of any of the Bank's rights under or of any other
term or provisions of the Loan Agreement, any Loan Document, or other agreement
executed in connection therewith, or of any term or provision of any other
instrument referred to therein or herein or of any transaction or future action
on the part of the Borrower which would require the consent of the Bank,
including, without limitation, waivers of Events of Default which may exist
after giving effect hereto. The Borrower ratifies and confirms each term,
provision, condition and covenant set forth in the Loan Agreement and the Loan
Documents and acknowledges that the agreement set forth therein continue to be
legal, valid and binding agreements, and enforceable in accordance with their
respective terms.
7. Authority. The Borrower hereby represents and warrants to the Bank that
(a) the Borrower has legal power and authority to execute and deliver the within
Amendment; (b) the officer executing the within Amendment on behalf of the
Borrower has been duly authorized to execute and deliver the same and bind the
Borrower with respect to the provisions provided for herein; (c) the execution
and delivery hereof by the Borrower and the performance and observance by the
Borrower of the provisions hereof not violate or conflict with the articles of
incorporation, regulations or by-laws of the Borrower or any law applicable to
the Borrower or result in the breach of any provision of or constitute a default
under any agreement, instrument or document binding upon or enforceable against
the Borrower; and (d) this Amendment constitutes a valid and legally binding
obligation upon the Borrower in every respect.
8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties had
executed the same counterparts.
9. Cost and Expenses. The Borrower agrees to pay on demand in accordance
with the terms of the Loan Agreement all costs and expenses of the Bank in
connection with the preparation, reproduction, execution and delivery of this
Amendment and all other loan documents entered into in connection herewith,
including the reasonable fees and out-of-pocket expenses of the Bank's counsel
with respect thereto.
10. Governing Law. This Amendment shall be governed by and construed in
accordance with the law of the State of Ohio.
-3-
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have hereunto set
their hands as of the date first set forth above.
THE BORROWER:
DREW SHOE CORPORATION
By: /s/ Charles G. Schuyler
--------------------------
Its: President
--------------------------
THE BANK:
BANK ONE, NATIONAL ASSOCIATION
By: /s/ Mark S. Slayman
--------------------------
Its: Vice President
--------------------------
CONSENT OF GUARANTOR
The undersigned, being a guarantor of the Borrowers indebtedness to the
Bank pursuant to certain guaranty agreements with the Bank, hereby consents and
agrees to be bound by the terms, conditions and execution of the above Amendment
and hereby further agrees that its obligations shall be continuing as provided
in said guaranty agreements and said guaranty agreements shall remain as written
originally and continue in full force and effect in all respects.
BCAM INTERNATIONAL, INC.
By: /s/ Michael Strauss
--------------------------
Its: President
--------------------------
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 656,000
<SECURITIES> 0
<RECEIVABLES> 1,942,000
<ALLOWANCES> (120,000)
<INVENTORY> 6,870,000
<CURRENT-ASSETS> 9,897,000
<PP&E> 3,972,000
<DEPRECIATION> (910,000)
<TOTAL-ASSETS> 14,126,000
<CURRENT-LIABILITIES> 4,092,000
<BONDS> 0
0
0
<COMMON> 193,000
<OTHER-SE> 973,000
<TOTAL-LIABILITY-AND-EQUITY> 14,126,000
<SALES> 3,837,000
<TOTAL-REVENUES> 3,837,000
<CGS> 2,336,000
<TOTAL-COSTS> 2,918,000
<OTHER-EXPENSES> 1,469,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 494,000
<INCOME-PRETAX> (3,380,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (803,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,183,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.24)
</TABLE>
