As filed with the Securities and Exchange Commission on August 11, 1998
Registration No. 333-52815
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------------
BCAM INTERNATIONAL, INC.
(Name of small business issuer in its charter)
New York 8911 13-3228375
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
1800 Walt Whitman Road
Melville, New York 11747
(516) 752-3550
(516) 752-3558 (fax)
(Address and telephone number of principal executive offices
and principal place of business)
----------------------------------------------------------------
Name, address and telephone number
of agent for service: Copies to:
Michael Strauss, Chairman of the Board Norman M. Friedland, Esq.
BCAM International, Inc. Ruskin Moscou Evans & Faltischek, P.C.
1800 Walt Whitman Road 170 Old Country Road
Melville, New York 11747 Mineola, New York 11501
(516) 752-3550 (516) 663-6600
(516) 752-3558 (fax) (516) 663-6642 (fax)
------------------------------------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
=================================================================================================================
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Title of Securities to be Registered Registered Per Share (1) Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (2) ....................... 1,980,198 $1.01 $2,000,000 $ 590.00
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Common Stock Underlying 1998 Private
Placement Warrants (2) ................. 250,000 $2.05 $ 512,500 $ 151.19
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Common Stock (3) ....................... 2,019,802 $1.01 $2,040,000 $ 601.80
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Common Stock (4) ....................... 375,000 $1.13 $ 491,250 $ 144.92
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Total Registration Fee ............................................................................ $1,487.91
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</TABLE>
<PAGE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) On April 22, 1998 the Company completed a private placement of 1,980,198
shares of its common stock, subject to repricing as described elsewhere
herein, and warrants to purchase 250,000 shares of common stock at $2.05
per share for three years, for $2,000,000. The operation of the
"repricing" provision could result in significantly greater number of
shares being issued than the amounts listed in the above table.
(3) Represents shares which the Company and the investors in the April 22,
1998 Private Placement agreed would be initially registered in respect of
shares which may be issued pursuant to the repricing provisions which are
described elsewhere herein. The Company would receive no additional
consideration for the issuance of any such shares.
(4) The 375,000 shares being registered were issued to Charles G. Schuyler in
connection with the acquisition of the stock of Drew Shoe Corporation on
September 22, 1997.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
BCAM INTERNATIONAL, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Item Number Caption in Form SB-2 Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Cover of Prospectus
Front Cover Page of Prospectus.....................
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover
Prospectus......................................... Page of Prospectus
3. Summary Information and Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................... Use of Proceeds; Agreements
5. Determination of Offering Price.................... Underwriter; Agreements
6. Dilution........................................... Dilution
7. Selling Security Holders........................... Not Applicable
8. Plan of Distribution............................... Plan of Distribution
9. Legal Proceedings.................................. Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons.................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management..................................... Principal Stockholders
12. Description of Securities.......................... Description of Securities
13. Interest of Named Experts and Counsel.............. Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
15. Organization Within Last Five Years................ Business
16. Description of Business............................ Business
17. Management's Discussion and Analysis of Plan of
Operation.......................................... Management's Discussion and Analysis
18. Description of Property............................ Business - Properties
19. Certain Relationships and Related Transactions..... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Risk Factors
21. Executive Compensation............................. Management - Executive Compensation
22. Financial Statements............................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures............... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS DATED AUGUST 11, 1998
BCAM INTERNATIONAL, INC.
1,980,198 Shares of Common Stock (a)
250,000 Shares of Common Stock Issuable Upon Exercise of the
1998 Private Placement Warrants (a)
2,019,802 Shares of Common Stock (b)
375,000 Shares of Common Stock (c)
This prospectus relates to the offering of a maximum aggregate of 4,625,000
shares of Common Stock of BCAM International, Inc. (the "Company"). All of the
4,625,000 shares included herein will be offered by various selling shareholders
(the "Selling Shareholders"), and not the Company, as follows: (i) 1,980,198
shares issued in an April 1998 private placement offering (the "April 1998
Offering"), (ii) 250,000 shares issuable upon the exercise of Non-Redeemable
1998 Private Placement warrants which were also issued in the April 1998
Offering, (iii) 2,019,802 shares which the Company and the investors in the
April 1998 Offering agreed would be registered in respect of repricing
provisions which are described elsewhere herein and (iv) 375,000 shares of
Common Stock issued to Charles G. Schuyler in connection with the Company's
acquisition of Drew Shoe Corporation in September 1997.
(a) Pursuant to the April 1998 Offering the Company completed the sale 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, in exchange for aggregate proceeds of $2,000,000
(before placement agent fee of 6.5% and expenses) in a private placement
to accredited investors.
The number of shares issued 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 this registration statement, 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 preceding 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 a significantly
greater number of shares being issued than the shares listed above. For
example, if each of the repricings of all of the increments were made when
the Company's stock price was at the average closing bid price on August
7, 1998, the Company would be obliged to issue an additional 2,175,646
shares, in aggregate, to the selling shareholders. See (b) below.
The investors have agreed not to sell any shares before at least 120 days
after the closing of the Offering in April 1998. The Company is exposed to
penalties for failure to have a registration statement declared effective
covering such shares within 130 days of such closing date. The Company has
agreed, under certain circumstances, not to sell additional securities 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
refusal as defined in the agreements.
<PAGE>
The Registrant claims exemption from registration of the sale of this
Common Stock and Warrants by virtue of Section 4(2) of the Securities Act
of 1933.
(b) Represents shares which the Company and the investors in the April 1998
Offering agreed would be initially registered in respect of shares which
may be issued pursuant to the repricing provisions which are described in
(a) above and elsewhere herein.
(c) Represents shares issued to Charles G. Schuyler, President and Chief
Executive Officer of the Company's Drew Shoe Corporation subsidiary, in
connection with the acquisition of the stock of Drew Shoe Corporation on
September 22, 1997.
The Company is not aware of any underwriting arrangements with respect to the
sale of the securities to which this Prospectus relates. The Common Stock is
traded from time to time on the Boston Stock Exchange and the Common Stock and
its Redeemable Class B Warrants and its Redeemable Class E Warrants are traded
in the NASDAQ (SmallCap) market at prices then prevailing.
The Company will not receive proceeds from the registration of the 1,980,198
shares, the 375,000 shares and the 2,019,802 shares and may receive proceeds if
any of the Warrants described above are exercised. (See "Use of Proceeds").
The closing bid price of the Company's Common Stock on August 7, 1998, as
reported on NASDAQ (symbol: BCAM), is $0.625 per share. (See "Market for
Company's Common Equity and Related Stockholder Matters").
<PAGE>
THESE SECURITIES ARE SUBJECT TO A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
SEE "RISK FACTORS AND DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 11, 1998.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation or projections of future performance
other than those contained in this Prospectus, and any such other information,
projections or representation if given or made must not be relied upon as being
authorized by the Company. The delivery of this Prospectus or any offer or sale
hereunder at any time does not imply that the information herein is correct as
of any time subsequent to the date hereof or that there has not been any change
in the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than those to which it relates or any of the securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form SB-2 under the 1933 Act with respect to the
Common Stock offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Company's
Common Stock, reference is made to the Registration Statement and such exhibits.
Statements in the Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed, or incorporated by
reference, as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Company is subject to the
informational requirements of the Exchange Act, and in accordance therewith,
files reports and other information with the Commission. The Registration
Statement, the exhibits thereto and such reports and other information may be
inspected by anyone without charge at the principal officer of the Commission at
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and copies of all or any part of it may be obtained from the
Commission upon payment of a prescribed fee. The Company's Class A Common Stock
is quoted on the NASDAQ Stock Market and reports and other information
concerning the Company may also be inspected and copied at the office of the
NASDAQ Stock Market, Inc., NASDAQ Operations, 1735 K Street, N.W., Washington,
D.C. 20549. The Commission also maintains a web site that contains reports,
proxy and information statements and other information that may be obtained
electronically by using the Commission's Web Site on the Internet at
http://www.sec.gov.
<PAGE>
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by
reference to the more detailed information, financial statements and notes
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless the context requires otherwise, all
references to "BCAM" and the "Company" herein include its subsidiaries. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. When used in this Prospectus, the words "anticipate," "believe,"
"estimate" and "expect" and other similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
prospectus.
THE COMPANY
BCAM International, Inc. and subsidiaries (the "Company") since its
inception was a specialized ergonomic (i.e. human factors engineering) software,
technology and consulting company. On September 22, 1997, the Company acquired
Drew Shoe Corporation ("Drew Shoe"), a designer, marketer, manufacturer and
distributor of medical footwear. Drew Shoe's annual revenues were approximately
$15.1 million in 1997 and $14.6 million in 1996. Drew Shoe's business generates
non-technology based revenue, as well as potential new product opportunities
through possible commercialization of the Company's Intelligent Surface
Technology ("IST") technology into Drew Shoe products and is an element of the
Company's strategy of further possible acquisition of medical footwear and
related businesses.
The Company's revenues have historically been derived primarily from
ergonomic consulting services. In February 1998, the ergonomic consulting
services business was sold due to the inability of that business to generate
operating profits for the Company. In late February 1998, the Company
discontinued the operations of the HumanCAD Systems 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 building its business in medical footwear and
related industries and on broadening and strengthening the development and
commercialization of the Company's IST and proprietary "microvalve" technology.
Because of the significance of Drew Shoe's operations to the ongoing operations
of the Company, Drew Shoe is considered a "predecessor" of the Company in the
accompanying financial statements.
The Company's principal subsidiaries consist of Drew Shoe Corporation
(medical footwear) and BCAM Technologies, Inc. (principally IST and related
technologies).
While the Company presently believes that it has the liquidity to satisfy
its planned operations through March 1999, in April 1999 very material secured
obligations must be satisfied. The Company presently does not have the resources
to satisfy such obligations and therefore could not prevent foreclosure on all
of the assets of the Company. Further, the April 1998 debt restructure results
in approximately $2.5 million of charges to operations and/or stockholders'
equity that will be recorded in the second quarter ended June 30, 1998. Partly
as a result of such charge, the Company does not presently meet the criteria for
continued listing on the Nasdaq SmallCap market. See "Risk Factors", "Recent
Events", "Summary Financial Data", "Consolidated Financial Statements" and
"Management's Discussion and Analysis or Plan of Operation".
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The Offer
Securities Offered..................... (1) 1,980,198 common shares issued to
six investors in a private placement
which was completed in April 1998, (2)
250,000 shares issuable pursuant to
warrants issued in connection with the
April 1998 Offering, (3) 2,019,802
shares which the Company and the
investors in the April 1998 Offering
agreed to register in respect of shares
which may be issued pursuant to
repricing provisions. The warrants may
be exercised at $2.05 per share for
three years until April 2001and (4)
375,000 shares issued to Charles G.
Schuyler in September 1997 in
connection with the acquisition of Drew
Shoe Corporation and Shares of Common
Stock Outstanding
Before Offering........................ 20,555,242 (1)
Shares of Common Stock Outstanding
After Offering......................... 22,825,044 (1)
Use of Proceeds........................ For general working capital purposes.
Working capital purposes may include
acquisitions. (See "Use of Proceeds").
The Company will not receive proceeds
from the 1,980,198 shares, 375,000
shares and 2,019,802 shares registered
herein and may receive proceeds if the
warrants registered hereby are
exercised by the holders.
Risk Factors .......................... Investment in the securities offered
hereby involves a high degree of risk
and immediate and substantial dilution.
See "Risk Factors" and "Dilution."
NASDAQ Symbols......................... Common Stock - BCAM
Redeemable Class B Warrants - BCAML
Redeemable Class E Warrants - BCAMZ
Boston Stock Exchange Symbol........... Common Stock - BAM
(1) Does not include (i) shares of Common Stock issuable under options to
acquire an aggregate of 432,000 shares (net of cancellations and
exercises), issued under the Company's 1989 Stock Option Plan, as amended
(the "1989 Plan"), (ii) shares of Common Stock issuable upon the exercise
of options granted to non-management directors under the Company's 1989
Non-Statutory Stock Option Plan (the "Non-Statutory Plan"), under which
options to acquire an aggregate of 25,000 shares (net of cancellations and
exercises) have been granted, (iii) shares of Common Stock reserved for
issuance under the Company's 1995 Stock Option Plan (the "1995 Plan"),
under which options to acquire an aggregate of 5,684,500 shares (net of
cancellations and exercises) have been granted, (iv) 8,192,308 shares of
Common Stock issuable upon conversion of 10%/13% Convertible Notes due
April 16, 1999, (v) 2,034,884 shares of Common Stock issuable in
connection with detachable warrants issued in connection with the 10%/13%
Convertible Notes, (vi) 975,000 shares of Common Stock issuable upon
exercise of warrants issued in connection with a January 1997 private
placement, (vii) shares issuable pursuant to options and warrants to
purchase 847,500 shares of Common Stock in connection with the acquisition
of Drew Shoe Corporation and related financing, (viii) approximately
1,292,252 and 737,382 shares issuable upon exercise of Class B and Class E
warrants, respectively and (ix) 400,000 shares issuable pursuant to
warrants issued to a consultant in July 1998. See "Management - Stock
Option Plans", "Management - Director Compensation", "Principal
Stockholders-Security Ownership of Certain Beneficial Owners and
Management", and "Description of Securities" and "Note 7 to Consolidated
Financial Statements".
- --------------------------------------------------------------------------------
<PAGE>
Summary Financial Data
The summary historical financial data set forth below is derived from the
audited consolidated financial statements of the Company as of December 31, 1997
and for the years ended December 31, 1997 and 1996 and from the Company's Drew
Shoe subsidiary for the period from January 1, 1997 to September 22, 1997 (date
of acquisition by the Company) and for the year ended December 31, 1996 as well
as the unaudited condensed consolidated financial statements of the Company as
of March 31, 1998 and for the three months ended March 31, 1998 and 1997. The
Company has accounted for the acquisition of Drew Shoe under the purchase method
of accounting. As such, the Company's financial position at December 31, 1997
and March 31, 1998 (unaudited) includes the financial position of Drew Shoe
based upon an allocation of the purchase price of Drew Shoe. The Company's
results of operations for the year ended December 31, 1997 include the
operations of Drew Shoe for approximately three and one half months since its
acquisition by the Company. The Company's results of operations for the three
months ended March 31, 1998 (unaudited) include the operations of Drew Shoe for
the entire period and the results of operations for the three months ended March
31, 1997 do not include the operations of Drew Shoe.
The summary pro-forma operations data set forth below shows the unaudited
pro-forma results of operations for the year ended December 31, 1997 assuming
that the Company had purchased Drew Shoe as of January 1, 1997. This information
is derived from the financial statements described above as well as the
pro-forma information appearing elsewhere in this Prospectus. This information
gives effect to the increased interest and financing costs (excluding certain
material non-recurring charges which are discussed in Notes 6 and 7 of the
Consolidated Financial Statements of the Company) and the amortization of
preliminary 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 sufficient available net operating losses to
offset anticipated profits from Drew Shoe, if any.
The summary pro-forma balance sheet data presented below reflects: (1) the
proceeds, net of estimated expenses, of the private offering of $2,000,000 of
Common Stock and Warrants in April 1998 (see "Recent Events") and (2) the
material charges and adjustments that result from the April 1998 restructure of
the 10%/13% Convertible Notes (see "Recent Events").
The summary pro-forma financial data should be read in conjunction with
the financial statements of the Company and Drew Shoe referred to above as well
as to the unaudited pro-forma information of the Company and Drew Shoe, also
included elsewhere in this prospectus. Pro-forma results of operations are not
necessarily indicative of the results of operations which would have been
achieved had the Company actually acquired Drew Shoe on January 1, 1997.
<PAGE>
Summary Financial Information
(Dollar and Share Amounts In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Combined The Company The "Predecessor"
-------- ----------- -----------------
Pro-Forma (b) Historical(a) Historical
------------- ----------------------------------------------------- ------------------------
Year Quarter Quarter Year Year January 1, Year
ended ended ended ended ended To ended
Statement of Operations December March March December December September December
Data: 31, 1997 31, 1998 31, 1997 31, 1997 31, 1996 22, 1997 31, 1996
-------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue ............... $ 15,083 $ 3,837 $ -- $ 3,959 $ 29 $ 11,124 $ 14,609
-------- -------- -------- -------- -------- --------
Income (loss) from
operations ................ (1,321) (1,417) (375) (1,684) (1,323) 419 285
-------- -------- -------- -------- -------- -------- --------
Interest and financing
costs(b) .................. (1,584) (1,963) 7 (2,188) 54 (228) (259)
-------- -------- -------- -------- -------- -------- --------
Minority interests(b) ..... (19) -- -- (788) -- -- --
-------- --------
Income (loss) from
continuing operations ..... (2,904) (3,380) (368) (4,660) (1,269) 191 26
-------- -------- -------- -------- -------- -------- --------
Discontinued operations ... (1,376) (803) (50) (1,376) (245) -- --
-------- -------- -------- -------- --------
Net income (loss)(b) ...... (4,262) (4,183) (418) (6,036) (1,514) 191 26
-------- -------- -------- -------- -------- -------- --------
Weighted average common
shares .................... 16,598 17,720 15,408 16,071 14,868 Na Na
-------- -------- -------- -------- --------
Net loss per share -
continuing operations ..... $ (0.18) $ (0.19) $ (0.03) $ (0.29) $ (0.08) Na Na
Net loss per share -
discontinued operations ... $ (0.08) $ (0.05) $ (0.00) $ (0.09) $ (0.02) Na Na
-------- -------- -------- -------- --------
Net loss per share ........ $ (0.26) $ (0.24) $ (0.03) $ (0.38) $ (0.10) Na Na
======== ======== ======== ======== ========
</TABLE>
Summary Financial Information
(Dollar Amounts In Thousands, Except Per Share Data)
The Company
-----------
Pro-Forma Actual
--------- ------
March 31, 1998
-----------------------------
Balance Sheet Data: (unaudited)(c) (unaudited)
-------------- -----------
Cash and cash equivalents .................... $ 2,541 $ 656
------- -------
Inventory .................................... $ 6,870 $ 6,870
------- -------
Working capital .............................. $ 7,690 $ 5,805
------- -------
Total assets ................................. $15,447 $14,126
------- -------
Long term debt, net of debt discount
and current maturities(d) .................. $ 9,935 $ 8,567
------- -------
Minority interests ........................... $ 552 $ --
------- -------
Stockholders' equity ......................... $ 567 $ 1,166
------- -------
- ----------
<PAGE>
Notes:
(a) The results of operations of the Company includes Drew Shoe since its
acquisition by the Company on September 22, 1997. At December 31, 1997, an
estimate of the fair value of assets and liabilities acquired in the acquisition
of Drew Shoe has been made. Based upon such evaluation at December 31, 1997,
there is not a material amount of goodwill recorded in the acquisition of Drew
Shoe.
(b) Pro-forma column excludes non-recurring charges including: (i) the
application of Emerging Issues Task Force pronouncement D-60 for the beneficial
value of the conversion feature of certain financings completed in 1997
including $788,000 related to a convertible preferred stock of a subsidiary
(charge to minority interest), an initial amount, through December 31, 1997, of
approximately $1,635,000 related to a convertible note payable (interest and
financing cost), (ii) the write off of approximately $130,000 of costs
associated with financings which the Company elected not to complete (interest
and financing costs) and (iii) the aggregate charges to operations and
extraordinary item of approximately $2.2 million. Such charges are excluded from
the summary pro-forma information above because they are non-recurring in
nature. The pro-forma column includes the 10% minority interest received by the
holders of the 10%/13% Convertible Notes as part of the April 1998 debt
restructure agreement. See "Financial Statements", "Notes to Consolidated
Financial Statements", "Risk Factors -Secured Debt Coming Due in 1999", "Charges
to Operations from Recent Financings", "Recent Events: Acquisition of Drew Shoe
Corporation and Related Acquisition Financing (Including April 1998
Restructuring of Such Financing)" and "Description of Securities" for a fuller
discussion.
(c) Reflects: (i) the issuance on April 22, 1998 of 1,980,198 shares (prior to
any repricings) of Common Stock of the Company in exchange for $2,000,000, net
of commissions and expenses estimated to be $180,000 and (ii) accounting for
charges associated with the April 1998 restructure of the 10%/13% Convertible
Notes. Such charges include; (i) the write-off of an aggregate of approximately
$564,000 of deferred finance costs and approximately $1,087,000 of debt discount
that results from the shortened term to maturity of the Convertible Notes, (ii)
the write-off of unamortized debt discount of approximately $281,000 that
resulted from the original issuance of the warrants to purchase 400,000 shares
of common stock which the noteholders gave up and (iii) the charge, as an
extraordinary item, of approximately $552,000 as the value of the 10% minority
interest in Drew Shoe and BCAM Technology given up to the noteholders.
(d) See "Risk Factors" and "Notes to Consolidated Financial Statements"
regarding very material secured debt coming due in April 1999 which the Company
presently does not have the ability to satisfy.
<PAGE>
RECENT EVENTS:
ACQUISITION OF DREW SHOE CORPORATION
AND RELATED ACQUISITION FINANCING (INCLUDING APRIL 1998
RESTRUCTURING OF SUCH FINANCING); DISCONTINUANCE
OF ERGONOMIC CONSULTING AND SOFTWARE OPERATIONS;
RECENT PRIVATE PLACEMENT OF COMMON STOCK AND WARRANTS
Effective September 22, 1997, the Company acquired all of the outstanding
Common Stock of Drew Shoe for approximately $4.7 million plus the assumption of
liabilities. The purchase price was paid by delivery to the two shareholders of
Drew Shoe of an aggregate of $3,882,000 in cash, promissory notes in the
aggregate principal amount of $400,000 and by delivery of an aggregate of
375,000 shares of common stock to one shareholder who is the ongoing President
and Chief Executive Officer of Drew Shoe. Drew Shoe is a designer, manufacturer,
marketer and distributor of medical footwear headquartered in Lancaster, Ohio.
The Company intends to continue to operate Drew Shoe as a manufacturer, marketer
and distributor of medical footwear. See "Notes to Consolidated Financial
Statements".
See "Description of Securities; 10%/13% Convertible Notes and Non-
Redeemable Class DD Warrants", "Risk Factors Secured Debt Coming Due in 1999",
"Note 6 to Consolidated Financial Statements" and "Management's Discussion and
Analysis" for a description of the $6,390,000 (including $390,000 of interest
"paid in kind" on March 19, 1998) face amount of 10%/13% Convertible Notes and
warrants issued in order to finance the acquisition of Drew Shoe and an April
1998 restructuring of this obligation which accelerates the maturity of such
10%/13% Convertible Notes to April 16, 1999 and secures the obligation with all
of the assets of the Company not presently secured by a bank (see below).
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 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 significant charges to operations and/or
stockholders equity in the quarter ended June 30, 1998 in connection with the
finalization of the restructuring of the debt. Such charges include; (i) the
write-off of an aggregate of approximately $564,000 of deferred finance costs
and approximately $1,087,000 of debt discount that results from the shortened
term to maturity of the Convertible Notes, (ii) the write-off of unamortized
debt discount of approximately $281,000 that resulted from the original issuance
of the warrants to purchase 400,000 shares of common stock which the noteholders
gave up and (iii) the accrual, an extraordinary item, of approximately $552,000
as the value of the minority interest in Drew Shoe and BCAM Technology given to
the noteholders.
Simultaneously with the acquisition, Drew Shoe closed a credit facility
(guaranteed by the Company and secured by all of the assets of Drew Shoe)
consisting of a revolving line of credit (asset-based) and term loan with a
commercial bank as described more fully in "Note 6 to Consolidated Financial
Statements." Indebtedness under such agreements totaled approximately $3,718,000
at March 31, 1998.
The Company's revenues have historically 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 8 to Consolidated Financial Statements. In late
February 1998, the Board of Directors decided to seek alternative value for the
operations of the HumanCAD Systems division. See "Note 8 to Consolidated
Financial Statements."
<PAGE>
On April 22, 1998 the Company completed the offering 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, in
exchange for aggregate proceeds of $2,000,000 in a private placement to
accredited investors.
The number of shares issued 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 this
registration statement, 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 preceding 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 a significantly
greater number of shares being issued than the shares listed above. For example,
if each of the repricing of all of the increments was made when the Company's
stock price was at the average closing bid price on August 7, 1998, the Company
would be obliged to issue an additional 2,175,646 shares, in aggregate, to the
selling shareholders.
Since the acquisition of Drew Shoe, and the sale of Ergonomic Consulting
Services and discontinuance of the HumanCAD Systems operations, the Company's
revenues in the near term are expected to be derived principally from the
medical footwear business. The operations of Drew Shoe alone are not sufficient
to turn the Company profitable in the immediate future. In fact, the Company has
financed the acquisition of Drew Shoe with convertible notes and bank debt that
add significant cash and non-cash charges for interest and financing and, as
amended in April 1998, the convertible notes need to be refinanced prior to
April 16, 1999. The Company is 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 believes that the medical footwear and
related businesses is a fragmented business with expansion opportunities for the
Company. There is no assurance that such opportunities will materialize, can be
financed by the Company, or result in profitable operations.
As a result of the April 16, 1999 maturity of the 10%/13% Convertible
Notes, the Company may be subject to default and foreclosure on all of its
assets if it is unable to refinance or restructure such obligation. Should such
a default occur, it would represent an event of default under Drew Shoe's
revolving credit and term loan agreement with a bank. Because of the
significance of Drew Shoe's operations to the ongoing operations of the Company,
Drew Shoe is considered a "predecessor" of the Company in the accompanying
financial statements.
Reference is made to "Risk Factors - Secured Debt Coming Due in 1999",
"Charges to Operations Related to Recent Financings", "Description of
Securities, 10%/13% Redeemable Convertible Notes", "Notes to Consolidated
Financial Statements" as well as other areas of this Prospectus for a more
complete understanding of the Drew Shoe acquisition, the discontinued operations
and the effect of the April 1998 restructure of the 10%/13% Convertible Notes.
On May 21, 1998, the Company was notified that it no longer meets the net
tangible assets, the market capital or the net income requirements for continued
listing on the NASDAQ SmallCap Market and that a review would be made of the
Company's eligibility for continued listing. On June 5, 1998 the Company
responded to NASDAQ's request regarding this matter, on June 9, 1998 NASDAQ
determined not to accept the Company's plan and on June 15, 1998 the Company
requested an oral hearing on this matter. On June 29, 1998, NASDAQ granted the
Company's request for an oral hearing and a "stay" of the delisting. On July 21,
1998, the Company submitted certain objections to the determination by Nasdaq as
well as an update of its plans to achieve and maintain compliance. The Company's
hearing was conducted on August 6, 1998 and no determination has yet been
communicated to the Company.
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk, and should only be purchased by investors who can afford the
loss of their entire investment. Each prospective investor should carefully
consider the following risks, as well as other information, described elsewhere
in this Prospectus (see especially "Risk Factors" as well as the financial
statements of the Company and of Drew Shoe as well as pro-forma financial data
of the Company and of Drew Shoe included elsewhere in this Prospectus), before
purchasing the securities offered hereby. This Prospectus contains
forward-looking statements, which involve risks and uncertainties. When used
herein, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expected
in, or implied by, these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in the following risk
factors.
Secured Debt Coming Due in 1999. The Company presently has approximately
$9,322,000 face amount of secured debt coming due in 1999, including $6,390,000
(including $390,000 of interest "paid in kind" at March 31, 1998) 10%/13%
Convertible Notes which are due on April 16, 1999 (the "Convertible Notes") and
approximately $2,789,000 of revolving credit bank debt due on September 19, 1999
(the "Revolving Notes") (together, the "Secured Obligations"). A default of the
10%/13% Convertible Notes would be an event of default under the Revolving Notes
and under a separate Term Loan with a bank (balance of approximately $929,000 at
March 31, 1998) thereby making such obligations currently payable which, if not
paid, could result in foreclosure on the security and guarantee. Other unsecured
obligations also come due or have scheduled payments presently and during this
period and another secured obligation has scheduled payments in 1998 and 1999.
The Convertible Notes are secured by all of the assets of the Company, including
the stock of the Company's subsidiaries, except the assets of Drew Shoe, and the
Revolving Notes and Term Loan are secured by all of the assets of Drew Shoe and
guaranteed by the Company. The Company presently does not have the resources to
satisfy either the Convertible Notes or the Revolving Notes and Term Loan and
could, therefore find itself in default of the payment terms, thereby permitting
the secured creditors to foreclose on their security.
The restructuring of the 10%/13% Convertible Notes will result in charges
to operations and/or stockholders' equity which aggregate approximately $2.5
million and will be recorded in the quarter ending June 30, 1998. The risk
exists that charges of this magnitude may be confusing to investors and may have
a depressive effect on the price of the stock. (Also see "Risk Factors -
Delisting from NASDAQ SmallCap Market").
The Company's plan is to restructure or refinance such Secured Obligations
prior to their maturities. There can be no assurance that the Company will be
successful in its plan to restructure or refinance such Secured Obligations and
that, therefore, the secured creditors may be in a position to foreclose on all
of the assets of the Company. See "Management's Discussion and Analysis or Plan
of Operation", "Description of Securities", and "Note 6 to Consolidated
Financial Statements".
<PAGE>
Delisting from Nasdaq SmallCap Market. On May 21,1998, the Company was
notified that the Company no longer meets the net tangible assets, the market
capital or the net income requirements for continued listing on the Nasdaq
SmallCap Market and that a review would be made of the Company's eligibility for
continued listing on the Nasdaq Stock Market. The criteria for listing on the
Nasdaq Stock Market is discussed in the following paragraphs. On June 5, 1998,
the Company responded to the Nasdaq Stock Market's request for the Company's
proposal for achieving compliance. On June 9, 1998, the Nasdaq Stock Market
informed the Company that it determined not to accept the Company's plan for
achieving compliance and that the Company's securities would be delisted from
the Nasdaq SmallCap Market on June 17, 1998. On June 15, 1998, the Company
requested an oral hearing on this matter. On June 29, 1998, the Nasdaq Stock
Market granted the Company's request for a hearing and advised that the
delisting would be stayed. On July 21, 1998 the Company submitted certain
objections to the determination by Nasdaq as well as an update of its plans to
achieve and maintain compliance. The Company's hearing was conducted on August
6, 1998 and no determination has yet been communicated to the Company.
At March 31, 1998, the Company did not meet the requirements for continued
listing by NASDAQ. Further, the Company will not meet such standards when it
finalizes its June 30, 1998 consolidated financial statements. The private
placement of common stock and warrants in April 1998, net of estimated expenses,
increased net tangible assets by approximately $1.8 million, however, the
Company expects to take aggregate charges of approximately $2.5 million to
operations and/or stockholders' equity as a result of the restructuring of the
Convertible Notes (discussed elsewhere herein). Such charges will be reported in
the June 30, 1998 quarter. As a result, the Company's securities will be
delisted from the Nasdaq Stock Market unless Nasdaq grants the Company's request
to continue its listing, notwithstanding this deficiency, in order to permit the
Company to complete its plan for compliance. Should the Company's securities be
delisted from the Nasdaq SmallCap market the Company would then need to meet the
criteria for new listing in order to be reincluded on the Nasdaq SmallCap
market.
On August 22, 1997 the Securities and Exchange Commission approved NASDAQ
proposed changes to its current listing criteria (the "new requirements"). Under
the new requirements, for initial listing the Company, generally, must have (i)
net tangible assets of at least $4,000,000, or a market capitalization of at
least $50,000,000, or net income in two of the last three years of $750,000;
(ii) a minimum of 1,000,000 shares publicly held; (iii) a minimum of $5,000,000
in market value of public float; (iv) a minimum bid price of $4.00 per share;
(v) a minimum of 300 shareholders; (vi) an operating history of one year or a
market capitalization of $50,000,000; and (vii) implementation of corporate
governance requirements. Under the rules for continued listing, the Company,
generally, must have (i) net tangible assets, as defined, of $2,000,000, or a
market capitalization of at least $35,000,000, or net income in two of the last
three years of at least $500,000; (ii) a minimum of 500,000 shares publicly
held; (iii) a minimum of $1,000,000 in market value of public float; (iv) a
minimum bid price of $1.00 per share; (v) a minimum of 300 shareholders; and
(vi) implementation of corporate governance requirements. NASDAQ has indicated
that companies failing to satisfy the new continued listing requirements will be
generally allowed until February 1998 to meet these new requirements by
demonstrating, among other things, compliance with the previous requirements.
NASDAQ has also indicated that a company's ability to sustain long term
compliance is a factor they review in non-compliance situations.
Disclosure Relating to Low Priced Securities; Possible Restrictions on
Resales of Low Priced Securities and on Broker-Dealer Sales; Possible Adverse
Effect of "Penny Stock" Rules on Liquidity for the Company's Securities. In the
event that the Company is unable to satisfy the NASDAQ maintenance requirements,
trading of the Common Stock will be conducted in the NASD's Electronic Bulletin
Board or the "pink sheets".
<PAGE>
In the absence of the Company's securities being quoted on NASDAQ, or the
Company having $4,000,000 in net tangible assets or market capitalization of
$50,000,000, trading in the securities would continue to be covered by Rule
15g-9 promulgated under the Exchange Act for non-NASDAQ and non-exchange listed
securities. If the Company's securities were removed from Nasdaq (see "Delisting
from NASDAQ SmallCap Market" above), they may become subject to Rule 15c2-6
under the Securities Exchange Act of 1934 (the "1934 Act"), which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by this Rule, a broker-dealer must make a special
suitability determination for the purchase and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such Rule may
affect the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this offering to sell any of the securities
acquired hereby in the secondary market. The commission has adopted regulations
which generally define a "penny stock" to be any non-Nasdaq equity security that
has a market price (as therein defined) less than $5.00 per share, subject to
certain exceptions (see below). For any transaction by broker-dealers involving
a penny stock, unless exempt, the rules require delivery of a risk disclosure
document relating to the penny stock market prior to any such transaction.
Disclosure is also required to be made about compensation payable to both
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on the Nasdaq National Market System,
are otherwise listed on Nasdaq and have certain price and volume information
provided on a current and average revenue criteria. There can be no assurance
that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
any such restrictions, the Commission has the authority, pursuant to Section
15(b)(6) of the 1934 Act, to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of a penny stock from associating
with a broker-dealer or participating in a distribution of a penny stock, if the
Commission finds that such a restriction would be in the public interest.
If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities could be severely adversely
affected.
The Commission has adopted regulations that generally define a "penny
stock" to be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity security
listed on NASDAQ and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
As a result the market liquidity for such securities has been severely
affected by limiting the ability of broker-dealers to sell securities. There is
no assurance that trading in the Company's securities will not be subject to
these or other regulations that would adversely affect the market for such
securities.
See "Risk Factor - Delisting from Nasdaq SmallCap Market".
History of Operating Losses; Effect of Recent Acquisition of Drew Shoe and
Recent Discontinued or Sold Businesses. The Company has been a software
technology and consulting company specializing in ergonomic solutions for
individuals, government and corporations, and has incurred significant operating
losses since its inception. The Company's revenues have historically been
derived principally from ergonomic consulting services. The Company recently
sold its Ergonomic Consulting Services business (February 1998) and discontinued
its HumanCAD Systems operations (February 1998). The Company reported a net loss
of $6,036,000
<PAGE>
(including approximately $2,423,000 of financing charges which will not recur
after September 1998 and approximately $1,376,000 of losses related to
discontinued operations) for the year ended December 31, 1997. Net losses for
the fiscal year ended December 31, 1996 were approximately $1,514,000 (including
approximately $245,000 from discontinued operations). Net loss for the quarter
ended March 31, 1998 totaled approximately $4,183,000 (including $1,493,000 in
financing charges which will not recur after September 1998, non-recurring
charge for compensatory element of 1997 options approved in 1998 of $858,000 and
loss from discontinued operations of $803,000). Since inception, the Company has
accumulated deficits which aggregate, at March 31, 1998 (unaudited),
approximately $23,420,000.
On September 22, 1997, the Company acquired Drew Shoe, a designer,
manufacturer, marketer and distributor of medical footwear. The Company believes
that the acquisition of Drew Shoe provides it with several opportunities
including: (a) the possibility of incorporating its IST technology into medical
footwear, (b) significant revenue and operations, (c) growth opportunities
through possible acquisitions in the medical footwear and related industries.
There can be no assurance that the Company will be able to capitalize on such
opportunities or achieve profitable operations. Further, the operations of Drew
Shoe taken by themselves and at levels which can reasonably be expected to be
attained in the short-term, are not expected to be sufficient to result in
profitable operations for the Company.
The Company's operations are subject to numerous risks associated with the
establishment and development of a business and the commercialization of new
technologies. Although the Company has recently acquired Drew Shoe, the
operations of Drew Shoe alone are not sufficient to turn the Company profitable
in the immediate future. Further, the Company has financed the acquisition of
Drew Shoe with Convertible Notes and bank debt that have added significant cash
and non-cash charges for interest and financing as well as a need to refinance
$6,390,000 face amount of convertible notes coming due in April 1999. (See "Risk
Factors - Secured Debt Coming Due in April 1999", "Charges to Operations Related
to Recent Financings" and "Description of Securities, 10%/13% Redeemable
Convertible Notes" as well as "Management's Discussion and Analysis or Plan of
Operation" and "Notes to Consolidated Financial Statements"). There can be no
assurance that the Company will achieve or sustain profitable operations through
the Drew acquisition or through the business strategy articulated above.
Ongoing Operation of Drew Shoe; Operating History and Profitability. Drew
Shoe was incorporated approximately 60 years ago and has been in business for
approximately 125 years. The company was primarily a comfort shoe manufacturer
until 1992, when it shifted its focus to medical footwear, which had previously
comprised only a small portion of the company's business. Accordingly, Drew Shoe
has only a five year operating history in the medical footwear business.
In fiscal 1996, Drew Shoe had net income of approximately $26,000 on sales
of approximately $14,609,000 and in the approximately eight and one half months
of 1997 prior to its acquisition by the Company on September 22, 1997, Drew Shoe
had revenues of approximately $11,124,000 and net income of approximately
$191,000. There can be no assurance that Drew Shoe will be profitable. Although
Drew Shoe has experienced moderate revenue growth since it shifted its focus to
medical footwear, such growth may not be sustainable and may not be indicative
of future operating results. See "Management of Growth; Risks Associated with
Expansion; Capital Requirements".
Drew Shoe's prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by manufacturers and, to some extent,
retailers, in the process of shifting their sales and marketing efforts to new
end users and, in effect, anticipating growth from a new target market. In order
to address these risks, Drew Shoe must, among other things, respond to
competitive developments, attract, retain and motivate qualified persons, and
continue to develop its expertise in marketing, product development and customer
service as well as improve its information systems. There can be no assurance
that Drew Shoe will be successful in addressing these risks. The failure of Drew
Shoe to achieve significant profitability would have a material adverse effect
on the Company.
<PAGE>
Charges to Operations Related to Recent Financings. During 1997 a
subsidiary of the Company (BCA Services, Inc.) completed an aggregate $1,200,000
private offering of its Preferred Stock, and warrants to purchase the Company's
Common Stock, to accredited investors. The shares of Preferred Stock were
convertible into the Company's Common Stock as defined (See "Description of
Securities - Preferred Stock of BCA Services").
On September 19, 1997, the Company issued subordinated convertible notes
(the "Convertible Notes") and warrants to eight investors for an aggregate
consideration of $6,000,000 (now $6,390,000 as a result of the payment in kind
of the March 19, 1998 interest). The Convertible Notes, as amended, are due on
April 16, 1999, unless at any time after September 19, 1998, they are converted,
as amended, at $.78 per share, into 8,192,308 shares of Common Stock of the
Company. The Convertible Notes bear an interest rate of 10%, payable
semi-annually, but the Company, at its discretion, may pay interest in the form
of its convertible notes (on the same terms), in which case the annual interest
rate becomes 13% annually with semi-annual compounding. Warrants were also
issued to the noteholders for the purchase, as amended, of 2,034,884 shares of
common stock, are exercisable at $1.72 per share at any time prior to September
19, 2002.
In response to positions recently taken by the Securities and Exchange
Commission, the Emerging Issues Task Force issued Statement D-60 which requires
special accounting for securities issued which are convertible into common stock
at a value which is "in the money" at the date of issuance. Such accounting
requires that the beneficial value of such conversion feature be charged to
operations (in the case of a convertible note) or to retained earnings as
dividends (in the case of a preferred stock) over a period reflecting the
shortest period in which the investor has to exercise under the most favorable
terms to the investor (based upon the traded market price, without discount,
compared to the conversion amount). As a result of such accounting, the Company
expects to charge approximately $5,925,000 related to the Convertible Notes to
interest and financing costs ratably over a one year period beginning on
September 19, 1997. An additional approximately $219,000 of beneficial value
arises as a result of the March 19, 1998 payment of interest by issuance of
additional Convertible Notes. Such amount is being amortized over the remaining
six months during which such Convertible Notes may not be converted. The Company
also has charged amounts related to the issuance of $1,200,000 of the Preferred
Stock of BCA Services, Inc. (approximately $788,000 for the quarter ended
September 30, 1997) to minority interests immediately. These charges are in
addition to charges to amortize the debt discount in connection with the
Convertible Notes (estimated to be approximately $1,872,000) and the related
deferred financing costs (estimated to approximate $825,000) over the term of
the Convertible Notes (originally five years and now through April 16, 1999).
The risk exists that non-cash charges of the magnitude described above
(for example, more than $10,500,000 over the twelve months from September 1997
to September 1998) may be confusing to investors or otherwise have a depressive
effect on the valuation of the Company's common stock.
Competition. The market for the wholesale distribution and retail
distribution of medical footwear and comfort shoes is intensely competitive.
Drew Shoe faces strong existing competition for similar products and will face
significant competition from new companies or existing companies with new
products. Many of these companies may be better financed, have better name
recognition and goodwill, have more marketing expertise and capabilities, have a
larger and more loyal customer base, along with other attributes, that may
enable them to compete more effectively. Drew Shoe has no proprietary technology
with respect to the design or manufacture of its medical footwear products.
The market for medical footwear, and for casual shoes, which may be
perceived by many consumers as a substitute for medical footwear, includes a
number of well-established companies with recognized brand names. Potential
purchases of medical footwear are often based upon highly subjective decisions
that may be influenced by numerous factors, many of which are out of Drew Shoe's
control. As a result, Drew Shoe may face substantial competition from existing
and new companies that market both medical and comfort shoes that are perceived
to meet needs for comfort and protection, and are visually appealing. There can
be no assurance as to the market acceptance of Drew shoes in relation to its
competition.
<PAGE>
Reliance on a Single Major Product Line. Drew Shoe has relied to a large
extent on medical footwear for sales. In addition, over 60% of its sales are
women's shoes. If sales of these products are less than projected, Drew Shoe's
business, operating results and financial condition would be materially
adversely affected. In addition, while only a minor percentage of Drew Shoe's
revenue is currently related to the 1994 Federal legislation which provides for
Medicare funding of shoes for diabetics, the Company has anticipated that some
portion of its future growth will be related to this factor as individuals
become aware of this Medicare reimbursable benefit. If Drew Shoe is not
successful in promoting this opportunity, Drew Shoe's business, operating
results and financial condition would be adversely affected.
Reliance on Certain Distribution Channels and Significant Customer. Drew
Shoe relies on its own specialty retail stores for approximately 25% of its
sales, the Veteran's Administration for approximately 11% of its sales, and
approximately 2,000 specialty retail stores as customers for the remainder of
its sales. The Company is presently evaluating the effectiveness of its present
retail stores and is exploring other distribution channels and products for
possible future growth. There is no assurance that its present distribution
channels or potential future distribution channels will be effective or result
in profitable operations. There is no assurance that the Company will conclude
to continue to operate its specialty retail stores which result in approximately
25% of revenues. Further, there can be no assurance that the Veteran's
Administration will remain a major customer.
Dependence on Certain Suppliers; Foreign Suppliers. Drew Shoe depends on
various raw materials and components to manufacture its shoes, many of which are
dependent on one supplier. Drew Shoe does not have binding long-term supply
contracts with these suppliers. Therefore, Drew Shoe's success will depend on
maintaining its relationships with these suppliers and developing relationships
with new suppliers. Any significant delay or disruption in the supply of leather
and other key materials caused by manufacturers' production limitations,
material shortages, quality control problems, labor interruptions, shipping
problems or other reasons would materially adversely affect the Company's
business. The delays in receiving such supplies from alternative sources would
cause Drew Shoe to sustain at least temporary shortages of materials which would
have a material adverse effect on the Company's business, operating results and
financial condition.
Approximately 15% of Drew Shoe's supplies, primarily leather, are provided
by Italian companies. As a result, the supply of some of the materials required
to manufacture Drew's shoes is subject to additional cost and risk factors, many
of which are out of the Company's control, including political instability,
import duties, trade restrictions, work stoppages and foreign currency
fluctuations. An interruption or material increase in the cost of supply would
materially adversely affect Drew Shoe's business, operating results and
financial condition.
Manufacturing and Inventory Systems. Drew Shoe's business is subject to
inventory risk, in that its inventory turnover has been traditionally low and
its lack of adequate inventory management systems has resulted in a significant
writedown of inventory in 1996, which is greater than historical norms.
Inventory losses are currently determined annually upon the occurrence of a
physical inventory and subsequent reconciliation of the results against
accounting records. The Company intends to improve, develop and implement
inventory management systems to correct these problems. However, there can be no
assurance that the Company will be successful in doing so. Drew Shoe's business
is also subject to manufacturing risk, in that its machinery and equipment may
not be as modern as that of its competitors. Inventory management systems and
other manufacturing improvements including manufacturing automation may require
significant funding. There can be no assurance that the Company will have
sufficient funding to implement these improvements or that, even if funding is
sufficient, the Company will be technically and operationally successful in
implementing these improvements.
Labor Contract. The Drew Shoe business is subject to potential increases
in its labor cost, in that a substantial number of employees are covered by a
union contract. Such contract calls for specific increases over the three year
term ending May 2001. There can be no assurance that potential increases in
labor costs can be passed through to the consumer in increased pricing or offset
by greater efficiency. Furthermore, there can be no assurance that management
will be able to maintain the quality of the labor/management relationship
developed at Drew Shoe over the years.
<PAGE>
Dependence on Key Personnel; Retention of Personnel. The Company is
dependent upon the services of Michael Strauss, the President, Chief Executive
Officer and Chairman of the Board of Directors of the Company and Robert Wong,
Vice Chairman, Chief Technology Officer. Additionally, the Company's Drew Shoe
subsidiary is dependent on the services of Charles Schuyler, President and Chief
Executive Officer of Drew Shoe and Larry Martin, the Vice President of Finance
of Drew Shoe. Although the Company currently has employment agreements with
Michael Strauss (through the end of 1999), Robert Wong (through the end of
1998), Charles Schuyler (through September 2000) and Larry Martin (through
September 1999), there can be no assurance that the Company will be able to
retain the services of these key personnel. The loss of the services of such
personnel could have a material adverse effect on the Company's business and
prospects. Currently, the Company has $4,000,000 (each) of term key man life
insurance on the lives of Michael Strauss and Charles Schuyler.
There is strong competition for qualified personnel in the technology and
shoe manufacturing industries, and the loss of key personnel or an inability of
Drew Shoe to attract, retain and motivate key personnel could adversely affect
Drew Shoe's business, operating results and financial condition.
Susceptibility to General Economic Conditions. Because sales of shoes have
historically been dependent, to some extent, on discretionary consumer spending,
Drew Shoe's revenues are subject to fluctuations based upon the general economic
conditions of the United States. If there is a general economic downturn or
recession in the United States consumer spending on medical footwear could
decline which could have a material adverse effect on Drew Shoe's business,
operating results and financial condition.
Product Returns from Warranty. Drew Shoe, as part of its marketing
efforts, accepts product returns for 30 days from the date of sale, and charges
customers a $6 restocking fee. Drew Shoe has experienced an approximately 10%
return rate over the past two years. The percentage has not varied significantly
over the past 5 years. If the rate of returned product increases, Drew Shoe's
business, operating results and financial condition could be materially
adversely affected.
Management of Growth; Risks Associated with Expansion; Capital
Requirements. Drew Shoe's growth and expected growth has resulted in, and is
expected to continue to result in, increased demands on Drew Shoe's management
and its operating systems. This growth may require an increase in the number of
employees and an increase in the responsibilities of both existing and new
management personnel. This growth may result in a strain on Drew Shoe's existing
operational, financial, human resource and information systems.
Drew Shoe's financial and management controls, reporting systems and
procedures have evolved with the growth of Drew Shoe and there can be no
assurance that Drew Shoe's controls, systems or procedures will continue to be
adequate to support its operations. The Company expects that Drew Shoe will need
to further develop its management controls, reporting systems and procedures to
accommodate potential future growth and enhance current efficiency. There can be
no assurance that Drew Shoe will be able to do so effectively and on a timely
basis, and failure to do so when necessary could have a material adverse effect
upon Drew Shoe's business, operating results and financial condition.
Seasonality and Quarterly Fluctuations. Historically, sales of Drew Shoe
products are not seasonal. However, sales revenue and profitability may vary
from quarter to quarter based on the introduction of new products, opening of
new stores, weather conditions, marketing and media expenditures, and certain
non-recurring charges.
Risks of Expansion and Acquisition Plan. The Company has incurred and
continues to incur significant expenses to attract and retain qualified
management personnel and consultants, and to seek out potential acquisition
candidates consistent with its growth strategy. There is no assurance that the
Company's expenditures on such activities will result in any acquisitions or, if
it does result in acquisitions, that such acquisitions can be financed on a
satisfactory basis or at all, or that such potential acquisitions will result in
profitable operations.
<PAGE>
Limited Rights to Certain Products. In certain cases, the Company has
assisted clients of its discontinued Ergonomic Consulting Business to develop
products in response to a specific request of such client. In such cases, the
client may have funded all or a significant portion of the Company's development
costs. Although the Company believes that it owns the rights to develop any
products derived from work performed, including certain products under
development by the Company, no assurance can be given that any client which has
retained the Company will not in the future assert the right to restrict the
Company's activities with respect to any technology developed or claim rights to
products sought to be commercialized by the Company.
Lack of Patent Protection; Reliance on Trade Secret and Copyright
Protection. In the Company's IST and "microvalve" technology business the
Company has obtained eight issued patents and has six pending patents. There can
be no assurance that its technologies are entitled to patent protection or that
the claims in the pending patent applications (currently six) will be issued as
patents, that any issued patents will provide the Company with significant
competitive advantages, or that challenges will not be instituted against the
validity or enforceability of any patents owned by the Company or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity of a patent and prevent infringement can be substantial
even if the Company prevails. Furthermore, there can be no assurance that others
will not independently develop similar technologies, duplicate the Company's
technology or design around the patented aspects of the Company's technology or
that the Company will not infringe on patents or other rights owned by third
parties.
The Company protects its proprietary written material, know-how, computer
software and technology which it has or may develop, through the use of
copyrights, common-law trade secret protection, trademarks and service marks,
and contractual arrangements. These laws provide only limited protection,
however, since they do not protect the "ideas" or "concepts" reflected in such
materials or software, but only protect the expression of the "ideas" or
"concepts" contained therein. While the Company generally enters into
confidentiality arrangements with its employees, consultants and customers, and
implements various measures to maintain "trade secret" protection for its
products in an attempt to maintain the proprietary nature of its products, there
can be no assurance that these measures will be successful. Accordingly, there
is no assurance that competitors may not develop products, materials or software
which perform similar or identical functions as the Company's products or
proprietary software without infringing upon the Company's copyrights or
violating trade secret laws. The legal and factual issues arising in copyright
or trade secret litigation are often both complex and unclear and any attempt to
enforce the Company's rights thereunder will face both the high cost of
litigation and the uncertainty of the result.
Government Regulation. The Company does not believe that its present and
currently proposed activities are generally subject to any material government
regulation in the United States or other countries. It is possible that certain
products developed by the Company in the future as an adjunct to its ergonomics
business, might be deemed under new legislation or regulations to be "medical
devices" or otherwise be subject to the jurisdiction of the Federal Food and
Drug Administration or similar agencies. In the event that any product is
subject to such governmental regulation, the Company will be required to obtain
any necessary approvals, which could delay or, in certain circumstances, even
prevent the introduction to the marketplace of such product and result in
significant expense.
Shares Eligible for Future Sale. Upon issuance of all shares of Common
Stock registered hereby, the Company will have 22,825,044 shares of Common Stock
outstanding. Additionally, the Company will have options warrants and
convertible securities that could result in the issuance of an additional over
24,000,000 shares of common stock. See "Description of Securities".
Holders of options and warrants are likely to exercise them when, in all
likelihood, the Company could obtain additional capital on terms more favorable
than those provided by such options or warrants. Further, while such options
warrants and convertible securities are outstanding, they may adversely affect
the terms on which the Company can obtain additional capital. In addition,
future sales of Common Stock could depress the market price of the Company's
Common Stock.
<PAGE>
Dilutive Effects of the Shares Being Registered. Investors in the common
shares offered hereby will be subject to immediate and substantial dilution to
their investment.
No Dividends. The Company has paid no cash dividends on its Common Stock
since its inception, is precluded from paying cash dividends on its Common Stock
under its 10%/13% Convertible Notes and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future.
Market Overhang. Future sales of common stock could depress the market
price of the Company's Common Stock. Further, the options, warrants and
convertible securities presently outstanding are exercisable/convertible into a
total of over 24,000,000 shares. The exercise/conversion of such instruments
could adversely affect the market for the Common Stock, and any sale of the
Common Stock acquired pursuant to such options, warrants and convertible
securities could also depress the market price of the Common Stock. (See
"Description of Securities").
Non-Registration in Certain Jurisdictions of Shares Underlying Warrants
and Options. Holders of the Warrants or Options may reside in or move to
jurisdictions in which the common shares underlying the securities may not be
registered or otherwise qualified for sale during the period that the securities
are exercisable. In this event, the Company would be unable to issue common
shares unless and until the shares could be qualified for sale in jurisdictions
in which such purchasers reside, or an exemption to such qualification exists in
such jurisdiction. The Company has no obligation to effect any such registration
or qualification. If the Company elects to attempt such registration or
qualification, no assurances can be given that the Company will be able to
effect any required registration or qualification. Notwithstanding this, the
Company intends to put forth its best efforts to cause this registration
statement to be effective by approximately August 13, 1998. However, no
assurances can be given that the statement will be effective on or about that
date. The Company has qualified the offering in the following states: Alabama,
Connecticut, Florida, Georgia, Hawaii, Illinois, Kansas, Kentucky, Louisiana,
Massachusetts, Michigan, Mississippi, New Jersey, New York, Ohio, Pennsylvania,
Rhode Island, Texas, Utah, West Virginia and Wisconsin. See "Description of
Securities".
Discretion in Use of Proceeds Designated for Working Capital. With respect
to any proceeds that the Company receives from the conversion of the warrants or
options, when and if that occurs, the Company will have broad discretion with
respect to the application of the proceeds. While such funds are to be applied
for working capital and general purposes in furtherance of the Company's
business, investors will be reliant on management as to the specific
applications of the proceeds.
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is quoted primarily on the NASDAQ SmallCap
Market under the symbol BCAM. It is also traded on the Boston Stock Exchange
under the symbol BAM.
The following table sets forth the high and low closing bid quotations for
the Common Stock as reported by NASDAQ and the Boston Stock Exchange for each
calendar quarter during 1997 and 1996. The NASDAQ Small Cap market quotations
reflect inter-dealer prices without retail markup, markdown or commission and do
not necessarily represent actual transactions.
NASDAQ
------
1997 High Bid Low Bid
- ---- -------- -------
First Quarter 1 3/8 27/32
Second Quarter 1 1/8 11/16
Third Quarter 1 7/8 23/32
Fourth Quarter 1 31/32 1
1996 High Bid Low Bid
- ---- -------- -------
First Quarter 1 1/4 29/32
Second Quarter 1 5/16 29/32
Third Quarter 1 23/32 15/16
Fourth Quarter 1 7/16 13/16
Boston Stock
High Low
---- ---
1997 Sales Price Sales Price
- ---- ----------- -----------
First Quarter 1 1/4 27/32
Second Quarter 1 3/32 3/4
Third Quarter 1 3/32 23/32
Fourth Quarter 1 5/8 1 5/8
High Low
---- ---
1996 Sales Price Sales Price
- ---- ----------- -----------
First Quarter No Activity No Activity
Second Quarter 1 1/4 1 1/16
Third Quarter 1 19/32 1
Fourth Quarter 1 7/16 7/8
There are in excess of 300 shareholders of record of the Company's common stock
<PAGE>
USE OF PROCEEDS
The Company will derive proceeds only from the exercise, if any, of the
1998 Private Placement Warrants to purchase 250,000 shares of Common Stock at
$2.05 per share. The 1998 Private Placement Warrants are exercisable no later
than April 22, 2001. Assuming the exercise of the Warrants to purchase 250,000
shares of Common Stock, the Company would receive aggregate proceeds of
approximately $500,000 (before any expenses). If the Company were to receive
such proceeds indicated above, said proceeds would be utilized for general
working capital purposes.
The Company may also use working capital for acquisitions.
The foregoing represents the Company's best estimate of its use of the net
proceeds from any exercise of the 1998 Private Placement Warrants based upon the
current state of its business operations, its current plans and current economic
and industry conditions. Further events, including the problems, delays,
expenses and complications frequently encountered by businesses as well as
changes in economic, regulatory or competitive conditions or the success or lack
thereof of the Company's research and marketing activities and planned
acquisitions, may require reallocation of funds or may require the delay,
abandonment or reduction of the Company's efforts.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 (unaudited) and pro-forma at March 31, 1998 to reflect: (1) the
issuance and sale of the 1,980,198 shares of Common Stock and warrants in the
April 1998 Private Placement yielding gross proceeds of $2,000,000, (2) the
issuance of an additional 2,019,802 shares of Common Stock to account for the
repricing provisions of the April 1998 Private Placement, (3) 100,000 shares of
Common Stock issued in April 1998 upon exercise of the Class AA warrants for
gross proceeds of approximately $65,000 and (4) charges related to the
restructure of the 10%/13% Convertible Notes including the write-off of
approximately $564,000 of deferred finance costs and approximately $1,087,000 of
debt discount due to the shortened maturity, the write-off of approximately
$281,000 of unamortized debt discount related to the warrants given up by the
noteholders and accrual of approximately $552,000 of minority interest for the
10% interest in subsidiaries given up to the noteholders. "As adjusted" amounts
reflect the assumed issuance of 250,000 shares upon exercise of the 1998 Private
Placement Warrants. This information does not reflect losses from operations
subsequent to March 31, 1998. See "Notes 6, 7 and 8 to Consolidated Financial
Statements".
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1998 March 31, 1998
-------------- -------------- --------------
As adjusted Proforma (unaudited)
----------- -------- -----------
<S> <C> <C> <C>
Long-term debt and convertible notes, including
current portion of $573,000 (1) $ 10,508,000 $ 10,508,000 $ 9,140,000
Minority interest 552,000 552,000 $ --
Acquisition Preferred Stock, par value $.01 per
share, authorized 750,000 shares, no shares $ -- $ -- $ --
issued or outstanding
Preferred Stock, par value-none, authorized
2,000,000 shares, no shares issued or outstanding $ -- $ -- $ --
Common Stockholders' Equity:
Common Stock, $.01 par value; 65,000,000 shares
authorized; 18,171,641 shares issued and
17,408,459 outstanding; 21,818,424 shares
issued and 21,055,242 outstanding, as adjusted 237,000 234,000 193,000
Paid-in surplus 30,355,000 29,871,000 28,308,000
Unamortized financing charge (3,016,000) (3,016,000) (3,016,000)
Deficit (25,623,000) (25,623,000) (23,420,000)
Less:
Treasury Shares (763,182 shares) (899,000) (899,000) (899,000)
------------ ------------ ------------
Common Stockholders' Equity $ 1,054,000 $ 567,000 $ 1,166,000
============ ============ ============
Total Capitalization $ 12,114,000 $ 11,627,000 $ 10,306,000
============ ============ ============
</TABLE>
- ----------
(1) Secured debt with a face value of approximately $9,322,000 comes due in
1999 beginning with approximately $6,390,000 in Convertible Notes due in
April 1998. The Company presently does not have the resources to satisfy
this obligation when it comes due. See "Notes to Consolidated Financial
Statements", "Risk Factors".
<PAGE>
SELECTED FINANCIAL DATA
The summary historical financial data set forth below is derived from the
audited consolidated financial statements of the Company as of December 31, 1997
and for the years ended December 31, 1997 and 1996 and from the Company's Drew
Shoe subsidiary for the period from January 1, 1997 to September 22, 1997 (date
of acquisition by the Company) and for the year ended December 31, 1996 as well
as the unaudited condensed consolidated financial statements of the Company as
of March 31, 1998 and for the three months ended March 31, 1998 and 1997. The
Company has accounted for the acquisition of Drew Shoe under the purchase method
of accounting. As such, the Company's financial position at December 31, 1997
and March 31, 1998 (unaudited) includes the financial position of Drew Shoe
based upon an allocation of the purchase price of Drew Shoe. The Company's
results of operations for the year ended December 31, 1997 include the
operations of Drew Shoe for approximately three and one half months since its
acquisition by the Company. The Company's results of operations for the three
months ended March 31, 1998 (unaudited) include the operations of Drew Shoe for
the entire period and the results of operations for the three months ended March
31, 1997 do not include the operations of Drew Shoe.
The summary pro-forma operations data set forth below shows the unaudited
pro-forma results of operations for the year ended December 31, 1997 assuming
that the Company had purchased Drew Shoe as of January 1, 1997. This information
is derived from the financial statements described above as well as the
pro-forma information appearing elsewhere in this Prospectus. This information
gives effect to the increased interest and financing costs (excluding certain
material non-recurring charges which are discussed in Notes 6 and 7 of the
Consolidated Financial Statements of the Company) and the amortization of
preliminary 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 sufficient available net operating losses to
offset anticipated profits from Drew Shoe, if any.
The summary pro-forma balance sheet data presented below reflects: (1) the
proceeds, net of estimated expenses, of the private offering of $2,000,000 of
Common Stock and Warrants in April 1998 (see "Recent Events") and (2) the
material charges and adjustments that result from the April 1998 restructure of
the 10%/13% Convertible Notes (see "Recent Events").
The summary pro-forma financial data should be read in conjunction with
the financial statements of the Company and Drew Shoe referred to above as well
as to the unaudited pro-forma information of the Company and Drew Shoe, also
included elsewhere in this prospectus. Pro-forma results of operations are not
necessarily indicative of the results of operations which would have been
achieved had the Company actually acquired Drew Shoe on January 1, 1997.
<PAGE>
Summary Financial Information
(Dollar and Share Amounts In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Combined The Company The "Predecessor"
-------- ----------- -----------------
Pro-Forma(b) Historical(a) Historical
------------- ----------------------------------------------------- ------------------------
Year Quarter Quarter Year Year January 1, Year
ended ended ended ended ended To ended
Statement of Operations December March March December December September December
Data: 31, 1997 31, 1998 31, 1997 31, 1997 31, 1996 22, 1997 31, 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
Net revenue ............... $ 15,083 $ 3,837 $ -- $ 3,959 $ 29 $ 11,124 $ 14,609
-------- -------- -------- -------- -------- --------
Income (loss) from
operations ................ (1,321) (1,417) (375) (1,684) (1,323) 419 285
-------- -------- ------- -------- -------- -------- --------
Interest and financing
costs(b) .................. (1,584) (1,963) 7 (2,188) 54 (228) (259)
-------- -------- ------- -------- -------- -------- --------
Minority interests (b) .... (19) -- -- (788) -- -- --
-------- --------
Income (loss) from
continuing operations ..... (2,904) (3,380) (368) (4,660) (1,269) 191 26
-------- -------- ------- -------- -------- -------- --------
Discontinued operations ... (1,376) (803) (50) (1,376) (245) -- --
-------- -------- ------- -------- --------
Net income (loss) (b) ..... (4,262) (4,183) (418) (6,036) (1,514) 191 26
-------- -------- ------- -------- -------- -------- --------
Weighted average common
shares .................... 16,598 17,720 15,408 16,071 14,868 Na Na
-------- -------- ------- -------- --------
Net loss per share -
continuing operations ..... $ (0.18) $ (0.19) $ (0.03) $ (0.29) $ (0.08) Na Na
Net loss per share -
discontinued operations ... $ (0.08) $ (0.05) $ (0.00) $ (0.09) $ (0.02) Na Na
-------- -------- ------- -------- --------
Net loss per share ........ $ (0.26) $ (0.24) $ (0.03) $ (0.38) $ (0.10) Na Na
======== ======== ======= ======== ========
</TABLE>
Summary Financial Information
(Dollar Amounts In Thousands, Except Per Share Data)
The Company
-----------
Pro-Forma Actual
--------- ------
March 31, 1998
-----------------------------
Balance Sheet Data: (unaudited)(c) (unaudited)
-------------- -----------
Cash and cash equivalents .................... $ 2,541 $ 656
------- -------
Inventory .................................... $ 6,870 $ 6,870
------- -------
Working capital .............................. $ 7,690 $ 5,805
------- -------
Total assets ................................. $15,447 $14,126
------- -------
Long term debt, net of debt discount
and current maturities (d) ................. $ 9,935 $ 8,567
------- -------
Minority interests ........................... $ 552 $ --
------- -------
Stockholders' equity ......................... $ 567 $ 1,166
------- -------
- ----------
<PAGE>
Notes:
(a) The results of operations of the Company includes Drew Shoe since its
acquisition by the Company on September 22, 1997. At December 31, 1997, an
estimate of the fair value of assets and liabilities acquired in the acquisition
of Drew Shoe has been made. Based upon such evaluation at December 31, 1997,
there is not a material amount of goodwill recorded in the acquisition of Drew
Shoe.
(b) Pro-forma column excludes non-recurring charges including: (i) the
application of Emerging Issues Task Force pronouncement D-60 for the beneficial
value of the conversion feature of certain financings completed in 1997,
including $788,000 related to a convertible preferred stock of a subsidiary
(charge to minority interest), an initial amount, through December 31, 1997, of
approximately $1,635,000 related to a convertible note payable (interest and
financing cost), (ii) the write off of approximately $130,000 of costs
associated with financings which the Company elected not to complete (interest
and financing costs) and (iii) the aggregate charges to operations and
extraordinary item of approximately $2.2 million. Such charges are excluded from
the summary pro-forma information above because they are non-recurring in
nature. The pro-forma column includes the 10% minority interest received by the
holders of the 10%/13% Convertible Notes as part of the April 1998 debt
restructure agreement. See "Financial Statements", "Notes to Consolidated
Financial Statements", "Risk Factors - Secured Debt Coming Due in 1999",
"Charges to Operations from Recent Financings", "Recent Events: Acquisition of
Drew Shoe Corporation and Related Acquisition Financing (Including April 1998
Restructuring of Such Financing)" and "Description of Securities" for a fuller
discussion.
(c) Reflects: (i) the issuance on April 22,1998 of 1,980,198 shares of Common
Stock of the Company in exchange for $2,000,000, net of commissions and expenses
estimated to be $180,000 and (ii) accounting for charges associated with the
April 1998 restructure of the 10%/13% Convertible Notes. Such charges include;
(i) the write-off of an aggregate of approximately $564,000 of deferred finance
costs and approximately $1,087,000 of debt discount that results from the
shortened term to maturity of the Convertible Notes, (ii) the write-off of
unamortized debt discount of approximately $281,000 that resulted from the
original issuance of the warrants to purchase 400,000 shares of common stock
which the noteholders gave up and (iii) the charge, an extraordinary item, of
approximately $552,000 as the value of the 10% minority interest in Drew Shoe
and BCAM Technology given to the noteholders.
(d) See "Risk Factors" and "Notes to Consolidated Financial Statements"
regarding very material secured debt coming due in April 1999 which the Company
presently does not have the ability to satisfy.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risks 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 historically 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 8 to Consolidated Financial Statements. In late
February 1998, the Board of Directors of the Company decided to discontinue the
operations of the HumanCAD software division as discussed in Note 8 to
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.
Such revenues, taken by themselves and at levels which can reasonably be
expected to be attained in the short term, are not expected to be sufficient to
result in profitable operations for the Company. The Company is 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 potentially
strengthening the Company's technologies. Because of the significance of Drew
Shoe's operations to the ongoing operations of the Company, Drew Shoe is
considered a "predecessor" of the Company in the accompanying financial
statements.
While the Company believes that it presently has the liquidity to satisfy
its planned operations through March 1999, in April 1999 very material secured
obligations must be satisfied. The Company presently does not have the resources
to satisfy such obligations and therefore could not prevent foreclosure on all
of the assets of the Company. See "Risk Factors" and "Consolidated Financial
Statements" and "Management's Discussion and Analysis or Plan of Operation". See
also "Liquidity and Capital Resources" and "Note 6 to Consolidated Financial
Statements" regarding the restructure of certain long-term debt.
For the year ended December 31, 1997 compared to the year ended December 31,
1996 -
Results of Operations
Results of operations for 1997 are significantly impacted by restructuring
developments including: (1) the acquisition of Drew Shoe (2) the sale of the
Ergonomic Consulting Services business and the discontinuation of HumanCAD
Systems division and (3) charges and costs related to the financing to acquire
Drew Shoe and other financing during the year.
<PAGE>
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. Drew Shoe is a designer, manufacturer,
marketer and distributor (presently 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 1997 operations for approximately three and
one half months beginning on September 22, 1997. Drew Shoe had operating income
of approximately $112,000 (before subsidiary interest and finance costs, net of
interest income, of approximately $106,000). 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 8 to the
Consolidated Financial Statements", the Company has recorded the operations of
the Ergonomic Consulting Services Division ("ECSD") and HumanCAD Systems
operations ("HCAD") as discontinued operations. The two divisions represented
combined revenues and operating losses of approximately $602,000 and $1,356,000,
respectively, in 1997. 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. Because the measurement date for
the HumanCAD discontinuance is in late February 1998, there have been additional
losses of approximately $803,000 recorded from this activity until its
discontinuance in the first quarter of 1998.
Charges and costs related to financings (including minority interest
charge) - 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 $1,635,000 as a result of the
application of EITF Statement D-60, (ii) costs of financings which the Company
chose not to complete of approximately $130,000, (iii) amortization of debt
discount of approximately $180,000, and (iv) interest cost of approximately
$300,000. See "Note 6 to Consolidated Financial Statements" regarding the
significant non-cash charge which results from the accounting under EITF
Statement D-60.
In addition to the interest and financing costs discussed above, the
Company recorded a non-cash charge of approximately $788,000 to minority
interests during 1997. This charge reflects the accounting for the beneficial
conversion feature of subsidiary preferred stock issued during 1997. Such
accounting, in accordance with EITF Statement D-60 is described in "Notes 6 and
7 to the Consolidated Financial Statements.
Ongoing selling, general and administrative costs - Ongoing selling,
general and administrative costs before considering such costs at the acquired
company (Drew Shoe) totaled approximately $1,501,000 in 1997 compared to
approximately $1,408,000 in 1996. The increase consists principally of
approximately $150,000 related to increases in executive compensation and
bonuses over the prior year, offset by various decreases. The Company recorded a
charge of approximately $1.2 million (including approximately $286,000 related
to discontinued operations) in the first quarter of 1998 related to stock
options granted in 1997 (at their fair market value) which were approved by the
shareholders in February 1998 when the market price of the Company's stock
exceeded the option price.
Research and development costs - In 1997, 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 in 1997 or 1996. One
Company 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
The September 22, 1997 purchase of Drew Shoe results in a significant
change to the financial position, working capital, capital resources and
liquidity of the Company. This results from: (i) the issuance of $6,000,000 of
10%/13% Convertible Notes, due as amended in April 1999, and Warrants, (ii) the
secured 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
<PAGE>
position, working capital and liquidity was also affected by the July and
September issuance of an aggregate of $1,200,000 of convertible preferred stock
of a subsidiary, all of which has been converted into common stock of the
Company at March 31, 1998 (see "Note 7 to Consolidated Financial Statements")
and the January through March 1997 private placement of common stock and
warrants for an aggregate consideration of $1,075,000. The changes in Company's
financial position are reflected in the following table:
December 31, 1997 December 31, 1996
----------------- -----------------
Cash $ 1,594,000 $ 526,000
Inventory $ 6,278,000 $ 0
Working capital $ 6,716,000 $ 438,000
Long-term debt (see below) $ 7,972,000 $ 0
Total Assets $14,177,000 $1,304,000
Shareholders equity $ 2,094,000 $1,015,000
See "Notes 5, 6 and 7 to Consolidated Financial Statements" for a
description of the acquisition of Drew Shoe and the terms of the 10%/13%
Convertible Notes, secured credit facility, convertible preferred stock and
short term note payable. The structure of the secured credit facility with a
bank is such that Drew Shoe cannot transfer cash to the Company other than in
the ordinary course of business.
Subsequent to December 31, 1997 a planned financing directed toward the
development and marketing efforts of the HumanCAD Systems business was
terminated by the potential funding source. The losses of that division in the
first quarter of 1998 were approximately $803,000.
At December 31, 1997, the Company required additional capital in order to
fund its operations during 1998. In April 1998, the Company completed a private
placement that raised an aggregate $2,000,000 through the issuance of common
stock and warrants (See - "Recent Sales of Unregistered Securities" and "Note 7
to Consolidated Financial Statements"). This financing would permit the Company
to continue to pursue its business strategy until approximately April 1999. At
that time, the Company will require additional capital to satisfy obligations
coming due and to pursue its business plan (however, see next paragraph).
Further, the capital raised in the 1998 Private Placement 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 will be required to raise
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 agreed to restructure the 10%/13% Convertible Notes (See -- "Recent Sales
of Unregistered Securities", "Risk Factors - Secured Debt Coming Due in 1999 ",
and "Note 6 to Consolidated Financial Statements"). As part of the
restructuring, the Company agreed to accelerate repayment of the obligation from
September 19, 2002 to April 16, 1999, to grant a 10% interest in Drew Shoe and
BCAM Technologies and to secure the obligation with all of the assets of the
Company. As a result, the Company has a significant capital requirement to repay
this obligation (presently $6,390,000) in less than one year or face default on
the security. A default on this obligation would trigger a default on Drew
Shoe's bank debt totaling approximately $3,718,000 at December 31, 1997. It is
the Company's intention, the success of which cannot be assured, to refinance or
otherwise restructure this Convertible Note obligation. If the Company is unable
to restructure or refinance this obligation, the holders will have the right to
foreclose on all of the assets of the Company and a default would be triggered
on Drew Shoe's secured bank debt.
For the three months ended March 31, 1998 compared to the three months ended
March 31, 1997 -
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 Division and HumanCAD
Systems business, (3) a charge to
<PAGE>
compensation expense for certain options granted during 1997 which were at
exercise prices 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 its 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
Consolidated Financial Statements, the Company has recorded the operations of
the Ergonomic Consulting Services Division ("ECSD") and HumanCAD Systems
business ("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 three months ended March 31, 1998 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 Condensed
Consolidated 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 Shoe 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 may generate license
revenues for the Company in approximately the fourth quarter of 1998. The
Company cannot estimate the effect, if any, of the June and July 1998 strike by
the United Auto Workers against General Motors on its ability to generate
license revenue from this product in the second half of 1998.
Liquidity and Capital Resources
From December 31, 1997 to March 31, 1998 (unaudited), Company's financial
position changed as follows:
<PAGE>
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
Cash $ 656,000 $ 1,594,000
Working capital $ 5,805,000 $ 6,716,000
Long-term debt (see below) $ 8,567,000 $ 7,972,000
Total Assets $14,126,000 $14,177,000
Shareholders' equity $ 1,166,000 $ 2,094,000
On April 14, 1998, the Company and the holders of the 10%/13% Convertible
Notes agreed to restructure the 10%/13% Convertible Notes as discussed in "Note
6 to the Consolidated Financial Statements". 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, among other items. 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. See
"Note 6 to Consolidated Financial Statements".
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. 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". See
"Recent Events" and "Notes to Condensed Consolidated Financial Statements"
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 debts when they come due
(including secured debt coming due in 1999), 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 (v)
achieve further successful development of IST and increase the number of
licensees, and the commercialization of IST by its licensees, (vi) introduce IST
in medical footwear and orthotic products and (vii) successfully develop the
"microvalve", and in addition they are also dependent on, (viii) general
economic conditions and conditions in the financial and medical footwear markets
and related industries. Forward-Looking Statements
Information set forth in this Prospectus regarding the Company's plans for
future operations constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any forward-looking statements
should be considered in light of the factors set forth in the "Risk Factors"
section of this Prospectus.
<PAGE>
BUSINESS
BCAM International Inc. (formerly Biomechanics Corporation of America
prior to a name change effected June 22, 1995), was organized in 1984 under the
laws of the State of New York.
GENERAL
BCAM International, Inc. and subsidiaries (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 businesses. Drew Shoe's
operations, taken by themselves and at levels which can reasonably be expected
to be attained in the short-term, are not expected to be sufficient to result in
profitable operations for the Company.
The Company's revenues have historically 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 due to the inability of that business to generate operating profits for
the Company. In late February 1998, the Board of Directors of the Company
decided to seek alternative value for the operations of the HumanCAD Systems
division as a result of the unavailability of financing, on acceptable terms to
the Company, to further the necessary development activities of that division on
a basis which would enhance shareholder value. Since the acquisition of Drew
Shoe, the Company's revenues have been and are expected to be derived
principally from the medical footwear business and related industries. Revenues
from Drew alone are not expected to be at a level sufficient for the Company to
achieve a profit.
The Company's strategic focus is on building its presence in the 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". Because of the significance
of Drew Shoe's operations to the ongoing operations of the Company, Drew Shoe is
considered a "predecessor" of the Company in the accompanying financial
statements.
On September 9, 1997, the Company announced that the 1998 Cadillac STS
would offer, as an option, a driver and passenger seat utilizing the Company's
IST technology through a license agreement with McCord Winn Textron Inc., a
subsidiary of Textron Inc. Revenues from this product have not been material to
date.
The Company's principal subsidiaries consist of Drew Shoe Corporation
(medical footwear), BCAM Technologies, Inc. (principally IST and related
technologies), BCA Services, Inc. (principally human ergonomics consulting which
has been sold), HumanCAD Systems, Inc. (principally software development and
marketing which operations have been reduced substantially while the Company
seeks a strategic alternative for that 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) accelerating 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 valuable resources in strengthening the Company's technologies.
The Company anticipates that its business plan will be enhanced, subject
to the availability of capital, by the acquisition of additional operating
businesses in the medical footwear and related businesses and by the further
development, subject to availability of capital, and commercialization of IST
and "microvalve". The Company hopes, over time, to incorporate its IST and
"microvalve" technology into intelligent medical footwear and other products.
There is no assurance that the Company can accomplish its plans or achieve
profitable operations or raise the capital which would be necessary to achieve
its plans.
<PAGE>
Each of the Company's present and other businesses is described below.
(I) DREW SHOE CORPORATION
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. Drew has a 60,000 square foot
manufacturing facility and a 40,000 square foot distribution, executive office
and manufacturing facility in Lancaster, Ohio. Additionally, Drew operates
approximately 15 retail medical footwear stores in various areas of the United
States. Drew Shoe had annual revenues of approximately $15.1 million in 1997 and
$14.6 million in 1996. Drew relies, for distribution, on sales to approximately
2,000 retail stores (approximately 65%), sales to the Veterans Administration
(approximately 11%) and sales through its 15 owned retail stores (approximately
25%). The Company is presently reviewing the effectiveness of its retail stores.
Drew has been in business for over 125 years and was primarily a comfort shoe
manufacturer and distributor until 1992, when it shifted its focus to medical
footwear. Medical footwear had been a small portion of the Company's business
prior to 1992. Approximately 60% or more of Drew Shoe's sales are of women's
shoes. The Company intends to continue to operate Drew Shoe as a manufacturer,
marketer and distributor of medical footwear.
The Company believes that the industry in which Drew Shoe operates is
fragmented, has several relatively small competitors and represents an
opportunity for consolidation within the industry. Further, the Company believes
that related industries such as custom orthotics and other comfort products may
be a good synergistic fit for the Company and that such companies may also
represent an opportunity for consolidation. In addition to the opportunities
which may exist in the consolidation of medical footwear, orthotic and related
industries, the Company believes that it brings important "comfort" technology
which may have application in medical footwear and related products. As such,
Drew Shoe provides the Company with ongoing revenue, as well as potential
opportunities through (i) a platform for possible further acquisitions of
medical footwear and related businesses (ii) profit and systems improvement
opportunities and (iii) the possible utilization of Company technology (both
existing and under development) in medical footwear, orthotic and other
products.
Since the acquisition of Drew Shoe, the Company's revenues in the near
term are expected to be largely affected by the medical footwear business
however, the operations of Drew Shoe alone are not expected to be sufficient to
turn the Company profitable in the immediate future.
The Company has financed the acquisition of Drew Shoe with convertible
notes and bank debt that have added significant cash and non-cash charges for
interest and financing. (See "Recent Sales of Unregistered Securities" and "Note
6 to Consolidated Financial Statements" for a discussion of the acquisition
financing as well as the April 1998 restructure which secures the financing with
Company assets and accelerates the maturity date of the obligation to April
1999.)
(II) INTELLIGENT SURFACE TECHNOLOGY ("IST")
Since 1991, the Company has developed technologies which resulted in eight
issued patents, as well as various notice of allowance and additional patent
filings related to its IST. IST empowers surfaces to automatically measure any
part of the body touching that surface and then, in real time, adjust that
surface to conform to that user's body to provide the ultimate in comfort and
fit. Such a surface is considered an intelligent surface because it is able to
learn about the user and recognize patterns of the user's activities through its
proprietary software. The Company has identified applications for this
technology in the primary areas of seating, footwear and bedding. In addition,
the technology may be useful for handtools, exercise equipment, helmets, etc.
The Company's strategy has been to license such technology to companies that can
develop products that can exploit this technology.
Current Licensees
Textron. The Company and McCord Winn Textron Inc., a subsidiary of Textron
Inc. ("Textron") signed a Development and License Agreement in March 1993,
amended in October 1993 and August 1996, whereby the Company granted an
exclusive worldwide license to Textron to use the IST patents and know-how in
the manufacture, use and sale of seats, and seating components for the
transportation industry, wheelchairs, office furniture applications and hospital
beds.
<PAGE>
In September 1997, Textron began selling an automobile seat utilizing IST
to the Cadillac Division of General Motors for inclusion, as optional equipment,
in the driver and front passenger seat for the 1998 Cadillac Seville STS model.
Textron is obligated to pay the Company a royalty, after deduction of an agreed
upon credit ($150,000) over four or more years, for the use of the Company's
technology in the sale of the systems. There were no revenues in the 1997
financial statements, and only $2,000 of revenue recognized in the first quarter
of 1998 financial statements, from the sales of Textron. The Company
anticipates, but cannot assure, based upon the information on sales activity and
other information provided by Textron, that it will record license revenues in
the second half of 1998.
The August 1996 amendment obligated Textron to pay royalties to the
Company through December 31, 1999, for any products designed using the Company's
IST. After January 1, 2000, Textron shall be obligated to pay the Company
royalties only for any products designed which actually incorporate IST patents
and know-how transmitted to Textron by the Company after May 31, 1996. The
Company has disclosed to Textron that it has received four patents and one
"Notice of Allowance" after May 31, 1996.
Reebok. In January 1994, the Company and Reebok International Ltd.
("Reebok") signed a world-wide exclusive licensing and development agreement for
the use of IST for certain footwear. In addition, Reebok has a right of first
refusal to obtain exclusive licenses to use IST on athletic, sport and fitness
equipment fields of use. The fields of medical equipment and orthopedic devices
are specifically excluded from the Reebok license. No revenue has been recorded
in 1997 from this license. The Company and Reebok are continuing discussions.
Sealy. In August 1996, the Company signed an agreement with Sealy, Inc. in
which Sealy, Inc. has the option to license IST for its adjustable bed and a
right of first refusal as applied to all bedding products (excluding medical
bedding applications). No revenue has been recorded in 1997 from this license.
The Company is in various stages of discussions with other companies about
the possible license of IST for use in consumer seating and other products.
(III) PROPRIETARY SOFTWARE DEVELOPMENT
Since 1989, the Company has developed, marketed, maintained, and
continuously upgraded its Mannequin Pro(TM) software product. This proprietary
software product was further developed and marketed by the Company's HumanCAD(R)
Systems operation during 1997. In December 1997, the Company received a
commitment for certain financing of the planned development and marketing
activities of HumanCAD in 1998. The Company took an additional facility in
Waterloo, Canada and hired additional sales and marketing and development
personnel subsequent to that time. In late February 1998, the Company was
advised by the funding source that it would no longer be interested in going
forward with the planned financing. The Company then determined to seek
alternative value for its investment in these software products and
significantly reduced its development and marketing efforts. The operations of
the HumanCAD Systems business are considered a discontinued operation in the
accompanying financial statements with a measurement date of February 1998. As
such, additional charges to operations of approximately $803,000 were made in
the first quarter of 1998. The related products of the Human CAD division are as
follows:
Mannequin Pro(TM)
MannequinPro(TM) is a human modeling program that enables the user to
render 3-dimensional scalable humanoid figures on a personal computer. These
figures can be articulated into any position and then can be viewed from any
angle, distance or perspective. The result of that view can be printed, plotted
or exported to other graphics software for further enhancement of the image. The
figures can walk, bend, reach and grasp objects. A user can test the
functionality of the design of almost anything used by humans. The Company has
recently upgraded a Windows(R) version that processes in all Windows(R)
platforms. The software is compatible with CAD and other graphic programs, and
has motion capture capabilities useful for graphical illustrations and motion
analysis. The Company believes that several universities, design organizations
and government agencies, including NASA, are current users of the earlier
version of MannequinPro(TM). HumanCAD has also developed a low cost
<PAGE>
version of MannequinPro called Mannequin OnSite.
(IV) ERGONOMIC CONSULTING SERVICES
Until February 9, 1998, the Company had provided ergonomic consulting
services in two areas: (i) Traditional Ergonomic Consulting Services, in
Ergonomic Product Assessment and Redesign, and Ergonomic Workplace Assessment
and (ii) Software Based Consulting Services, tailored to the implementation and
use of the HumanCAD(R) line of ergonomic software products. Prior to the
acquisition of Drew Shoe, Ergonomic Consulting Services represented the majority
of revenues (over 75%) in 1997 and 1996. On February 9, 1998, this business was
sold to a third party in exchange for 7.5% of revenues under contracts in
process assumed by the third party plus certain defined future revenues.
In Ergonomic Product Assessment and Redesign services, the Company
performed comprehensive subjective and objective ergonomic testing on products
that quantifies the product's relationship in terms of comfort, fit, useability
and user performance to humans. This knowledge was used by product developers,
manufacturers and industrial design firms to improve existing products and/or to
develop new ones.
In Ergonomic Workplace Assessment services, the Company provided
industrial companies, government, and insurance companies with advice on how to
reduce musculoskeletal injuries, through its proprietary EARLY(R) (Ergonomic
Assessment of Risk and Liability) services and other consulting services. Other
benefits are the potential for improved productivity, enhanced product and
service quality.
New investments in these technologies have been discontinued.
SALES AND MARKETING
Drew Shoe - Wholesale
Drew Shoe markets its products through approximately eleven independent
sales representatives and through the efforts of four employees who are part of
a customer service telemarketing team. The sales representatives call on retail
customers periodically during the year and solicit new orders based upon new
product samples and seasonal catalogues, which reflect the Company's complete
product line. The customer service telemarketing team calls or receives calls
from customers who want to place fill-in orders. The Company's products are
advertised locally by Drew customers. Drew participates in these costs based
upon a preset formula. All orders are subject to credit approval and are shipped
from Lancaster, Ohio.
Drew Shoe - Retail
Drew Shoe's 15 retail stores service the medical footwear needs of the
communities in which they are located. Each store communicates its marketing
message via newspaper advertising, direct mail and by calling on appropriate
doctors in the community. Each store has a qualified staff in-house to assist
the customer in meeting their specific footwear needs.
Marketing Strategy for Licensing IST
In order for the Company to obtain new licensees, the Company's marketing
strategy has focused on identifying organizations that:
o Are large,
o Are financially strong,
o Have marketing presence, and
o Have the financial resources to commercialize the technology
The Company will license the IST technology to organizations that meet the above
criteria and will assist those organizations in commercializing the technology.
Research and Development
The Company's research and development is focused on enhancing and
commercializing the Company's core technologies. The Company attempts to
minimize spending on research. Therefore, the Company typically
<PAGE>
will try to acquire the rights to use an existing technology, if available,
rather than spend money and effort to invent a new technology. The Company will,
however, fund research for technology, when the needed technology is not
available. For example, in the case of certain components (i.e., a
self-generating power supply and an intelligent switch) which are necessary to
employ IST for handtools and footwear applications, the Company is seeking to
acquire the rights to technology to manufacture such components instead of
trying to invent those technologies. However, in the case of other control
components (i.e., the microvalve that will control the "air pressure"), the
Company is devoting resources to develop that technology, in order to be in a
better position to exploit the commercial opportunities of IST in a miniaturized
environment. The Company has a collaborative arrangement with MCNC to develop a
microelectric mechanical device "microvalve" using MEMS (micro electric
mechanical systems) technology. In the area of development, the Company is
focusing on software and application engineering for IST to support products of
its licensees and on development of the "microvalve". Further software
developments include principally IST.
The Company uses its internal resources and subcontractors, as needed, in
its research and development activities. For example, the Company has
established collaborative research and development relationships with the State
University of New York at Stony Brook, MCNC and the New Jersey Institute of
Technology, and plans to establish additional relationships with other
universities, and government laboratories, as necessary.
Competition
Drew Shoe
The Company competes in a fragmented medical and comfort niche market
segment of the footwear market. Competition includes P.W. Minor, whose products
are very similar to those offered by Drew Shoe. Various other companies compete
with Drew on the fringe of the medical footwear market, including SAS, a large
manufacturer and retailer of comfort oriented footwear for women and men.
IST
Although there may be similar systems to the Company's IST, the Company
believes that its patents and know-how protect its technology from competition.
Suppliers
Drew Shoe depends on various raw materials and components to manufacture
its shoes, many of which are dependent on one supplier. Drew Shoe does not have
binding long-term supply contracts with these suppliers. Approximately 15% of
Drew Shoe's supplies, primarily leather, are provided by Italian companies. The
Company believes that its relationships with its vendors are satisfactory.
Government Regulation
The Company's present and proposed activities are not generally subject to
government regulation in the United States or other countries. The costs and
effects of complying with environmental laws by the Company are not material.
Proprietary Information
The patent process may be a significant protection for the Company's
intellectual property. The Company has obtained eight patents and has filed six
additional United States patent applications relating to its IST. One of the
patents filed may also be significant since it is for a component which the
Company considers critical and needed to miniaturize the application of the IST.
Such miniaturization may allow the Company to: a) accelerate the
commercialization of many applications, b) enter the potentially large medical
footwear market with applications for diabetics, arthritics and the aging
population, and c) provide applications to other industries, such as the hand
tool industry. The Company also has five U.S. patents in fields other than IST.
<PAGE>
Major Customers
Drew Shoe
During 1996 and 1997 the Veteran's Administration was Drew's largest
customer accounting for approximately 11% of revenue each year. No other
customer accounted for more than 5% of Drew's revenues in either year.
IST
The most significant customer for IST as the Company enters 1998 is
Textron, although revenues to date have been immaterial. See above.
The "Year 2000" issue
At Drew Shoe, there are information systems used for general accounting,
wholesale operations, retail operations and factory management. In October 1997,
Drew Shoe, with the assistance of consultants, began a comprehensive review of
its information systems, most of which are in need of upgrade in order to keep
pace with the growth strategies of the Company. In connection with such efforts,
Drew Shoe made capital expenditure commitments of approximately $50,000 to
upgrade certain hardware and expects to make certain additional commitments for
hardware, peripheral equipment, software and software upgrades in connection
with its comprehensive review of its information systems. These efforts are
expected to result in substantial change to the information systems of Drew Shoe
over the coming eighteen months. In each effort, the "Year 2000" problem is
being addressed as a priority item. Since the scope of proposed changes to the
information systems at Drew Shoe is still under review, management is not able
to estimate the cost, (which may be material), at this time, of changes to its
systems.
At the Company's corporate office, information systems are principally
utilized for general accounting, word processing and analysis. Such systems have
generally been upgraded during 1998 in order to be "Year 2000" compliant. The
Company does not believe that the cost of compliance with "Year 2000" was
material at its headquarters.
Employees
As of June 30, 1998, the Company had approximately 265 employees,
including approximately 255 persons employed by Drew Shoe, 2 employees devoted
to technology, 3 corporate administrative employees, 3 executive officers and 2
employees devoted to the discontinuance of HumanCAD. Of the 255 employees at
Drew Shoe, approximately 18 are employed part-time and approximately 155 are
covered by a collective bargaining agreement that expires in May 2001. In
addition, the Company has established a collaborative research and development
relationship with the State University of New York at Stony Brook and plans to
establish additional relationships with other universities, government
laboratories, and other sub-contractors.
The Company has been able to attract and retain skilled employees by
offering competitive salaries and benefits. The Company believes that its
relationship with its employees is good.
PROPERTY
Since 1990, the Company has leased office space at 1800 Walt Whitman Road,
Melville, New York. The Company's lease, as amended in May 1998, expires on
March 31, 2001. The current annualized lease rate for this space is
approximately $84,000, which is subject to annual increases. The facility,
contains approximately 4,100 square feet of office space, as amended in June
1998. The Company's HumanCAD Systems business has two development facilities,
one in Toronto, Canada and one in Waterloo, Canada. Such facilities contain an
aggregate of approximately 3,000 square feet and were utilized for development
and executive offices. The Waterloo facility has been closed and the Toronto
facility is being closed. The Company hopes to sublet such facilities, if
possible. Drew Shoe owns a 40,000 square foot facility at 252 Quarry Road,
Lancaster,
<PAGE>
Ohio. This facility serves as Drew Shoe's executive office as well as warehouse
and certain manufacturing facilities. Drew Shoe also owns a 60,000 square foot
manufacturing facility on Forest Rose Avenue in Lancaster, Ohio that houses its
principal manufacturing operations. Drew Shoe leases retail space to house its
15 retail outlets. Such facilities call for aggregate annual rentals of
approximately $286,000 per year.
LEGAL PROCEEDINGS
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.
The Company's HumanCAD Systems operations were discontinued in February
1998. The Company is in the process of liquidating the business with the
assistance of appropriate professionals. Various vendors and one customer have
threatened litigation for amounts claimed to be due them. One vendor has filed
litigation against the Company in connection with a claim of approximately
$19,000. There can be no assurance that any threatened litigation will not
result in the filing of an action against the Company or that such action(s)
will not result in additional costs beyond those already included in the
Company's financial statements.
There are no other material legal proceedings pending against the Company.
DIVIDENDS
The Company has paid no cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.
Forward-Looking Statements
Information set forth in this Prospectus regarding the Company's plans for
future operations constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any forward-looking statements
should be considered in light of the factors set forth in the "Risk Factors"
section of this Prospectus.
<PAGE>
MANAGEMENT
Directors and Executive Officers
As of June 30, 1998, the directors and executive officers of BCAM International,
Inc. ("the Company") are as follows:
Name Class Age Position with Company
- ---- ----- --- ---------------------
Michael Strauss I 56 Chairman, President, Chief Executive
Officer and Director
Robert P. Wong I 56 Vice Chairman, Chief Technology Officer
and Director
Norman B. Wright II 61 Vice Chairman, President and Chief
Executive Officer, HumanCAD(R) Systems
Charles G. Schuyler 50 and Director President and Chief Executive
Officer of Drew Shoe Corporation (a
subsidiary of the Company)
Kenneth C. Riscica 44 Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
Joel L. Gold II 56 Director
Glenn F. Santmire III 54 Director
Mark L. Plaumann I 42 Director
Stephen Savitsky III 52 Director
Joseph Jacobs -- 45 Director
The Company's directors have historically been elected by the Company's
stockholders at each annual meeting or, in the case of a vacancy, were appointed
by the directors then in office, to serve until the next annual meeting or until
their successors are elected and qualified. Officers are appointed by and serve
at the discretion of the Board of Directors. At the Annual Meeting of
Stockholders held on February 19, 1998, the stockholders approved a resolution
providing for the staggered election of members of the Board of Directors. The
Company has elected to group the Directors into three classes, with each class
to serve for a three year period. In that manner, the shareholders benefit from
continuity and experience of the Directors. The Directors are grouped into Class
I, Class II and Class III. In the first year of such classifications, it is
necessary to stagger the period of service of the Classes. Thereafter, members
of each Class would serve for three years. Therefore, Class I Directors serve
for a three year period ending with the annual meeting of shareholders following
the year ended December 31, 1999, Class II Directors serve for two years until
the annual meeting following the year ended December 31, 1998 and the Class III
Directors serve for one year until the next annual meeting of the shareholders.
Michael Strauss became the Company's President and Chief Operating Officer
effective January 2, 1995 and its Chairman of the Board and Chief Executive
Officer on February 16, 1995. From 1991 to December 31, 1994, Mr. Strauss was
President and Chief Operating Officer of Colorado Prime Corp., a home food
service company providing home delivery of high quality, custom designed food
programs to retail customers. From 1984 to 1991, he was Chairman and Chief
Executive Officer of Capital Credit Corporation, a subsidiary of Union
Corporation, a New York Stock Exchange Company. Capital Credit Corporation
provides receivables management and consumer debt collection services to
corporations in the financial services, telecommunications, health care and
related businesses. Prior to his tenure at Union Corporation, Mr. Strauss was
employed by American Express Company in various senior management positions
including Executive Vice President of the Financial Services Division of
Shearson Lehman Brothers, Executive Vice President of Travel Related Services,
and President of American Express Canada, Inc. Mr. Strauss has a BBA from the
City University of New York and an MBA from the Baruch School-City University of
New York.
Robert P. Wong was appointed Vice Chairman of the Board and Chief
Technology Officer in February 1995, after having become a director since
February of 1994. From September 1996 through October 15, 1997, Mr. Wong also
served as Acting Chief Financial Officer, Acting Secretary and Acting Treasurer.
Previously, from February 1994 through February 1995, Mr. Wong worked as a
representative for the Prudential Insurance Company, and was a private investor
from 1989 to February 1995. Over the previous 27 years, Mr. Wong was founder and
president of several technology companies and president of several subsidiaries
of Coordinated Apparel, Inc. Mr. Wong has an SB in Electrical Engineering and
also an SB in Industrial Management from Massachusetts Institute of Technology.
<PAGE>
Norman B. Wright was appointed President and Chief Executive Officer of
the Company's HumanCAD Systems division and Vice-Chairman of the Board of
Directors of the Company in April of 1997. Previously, Mr. Wright was President
and Chief Executive Officer of Virtek Vision International, Inc., a
Canadian-based, multi-national laser-projection machine intelligence and pattern
analysis systems designer and manufacturer. Prior to that he has held senior
management posts in several companies and has launched and guided a number of
public software technology companies through their successful development.
Charles G. Schuyler was appointed a director in September of 1997 and
resigned as a director effective April 1, 1998. Mr. Schuyler is President and
Chief Executive Officer of Drew. Drew Shoe was acquired by the Company on
September 22, 1997. Mr. Schuyler commenced his employment with Drew Shoe in 1970
and became a 50% principal owner in 1982. Mr. Schuyler is a member of the
National Shoe Retailers Association, Pedorthic Footwear Association and Two/Ten
Foundation. Mr. Schuyler is a graduate of Ohio University majoring in Economics.
Kenneth C. Riscica joined the executive officers of the Company as Vice
President - Finance, Chief Financial Officer, Treasurer and Secretary effective
October 16, 1997. Mr. Riscica, formerly a partner in charge of an emerging
companies practice group with Arthur Andersen & Co. LLP (having been a partner
from 1987 to 1992 after joining the firm in 1976), more recently served as Chief
Executive Officer of Riscica Associates, Inc.,(1993-1997) a financial and
management consulting firm and as Chief Financial Officer of Magna-Lab, Inc., a
publicly traded medical technology company (1993 to 1997).
Joel L. Gold was elected a Director in February 1994. Since September
1997, Mr. Gold has served as Vice Chairman of Coleman and Company Securities
Inc., and Senior Managing Director of Interbank Capital Group, LLC. From April
1996 to September 1997, Mr. Gold was Executive Vice President of L.T. Lawrence
Co., an investment banking firm. From April 1995 to April 1996, Mr. Gold was a
managing director and head of investment banking at Fechtor & Detwiler. From
1993 to 1995, Mr. Gold was a managing director at Furman Selz Incorporated, an
investment banking firm. Prior to joining Furman Selz, from 1991 to 1993, he was
a managing director at Bear Stearns & Co., an investment banking firm.
Previously, Mr. Gold was a managing director at Drexel Burnham Lambert for
nineteen years. He is currently a member of the Board of Directors of Concord
Camera, Sterling Vision, Inc. and Life Medical Sciences, Inc. Mr. Gold has a law
degree from New York University and an MBA from Columbia Business School.
Glenn F. Santmire was appointed a director in October 1995. Since 1995 he
has been employed by Unisys Corporation as Group Vice President of the Worldwide
Services-Market Sector Group. From 1994 to 1995 he was President of GFS
Associates, Inc., a consulting firm which he founded. From 1992 to 1994 Mr.
Santmire was a Senior Vice President at Mastercard International and from 1990
to 1992 he was President of Enhanced Telephone Services, Inc., a subsidiary of
Citibank. Mr. Santmire possesses both a BA and an MBA degree from New York
University as well as a law degree from George Washington University School of
Law.
Mark L. Plaumann was appointed a director in September of 1997. Mr.
Plaumann has been a Senior Vice President of Wexford Management from January
1996 to March 1997 and is presently a consultant to that firm, and since March
1995 has been a director and/or Vice President of the general partner of various
public partnerships managed by Wexford Management. Mr. Plaumann joined the
predecessor entities of Wexford Management in February 1995. Prior to joining
Wexford Management, Mr. Plaumann was a Managing Director of Alvarez & Marsal,
Inc., a crisis management consulting firm, from 1990 to 1995, and from 1985 to
1990 he was with American Healthcare Management, Inc., an owner and operator of
hospitals, where he served in a variety of capacities, most recently as its
President. Prior to that he was with Ernst & Young LLP in its auditing and
consulting divisions for eleven years. Mr. Plaumann is a director of Wahlco
Environmental Systems, Inc., a manufacturer of environmental conditioning
systems.
Stephen Savitsky was appointed a director in October of 1997. Mr. Savitsky
is the Founder, Chairman of the Board of Directors and Chief Executive Officer,
since 1988, of Staff Builders, Inc., a provider of temporary services to the
home healthcare industry in the United States. Mr. Savitsky has a BA in
Economics from Yeshiva University and an MBA in Marketing and Finance from
Baruch School of Business.
<PAGE>
Joseph Jacobs is the President of Wexford Management LLC (an investment
management firm providing services for a series of investment partnerships,
including Impleo, LLC, the holder of $5,000,000 face amount of Convertible
Notes, several public companies and several private investments).
All directors hold office until the next annual meeting of shareholders
for their Class of directors and until their successors have been duly elected
and qualified. There are no family relationships between any of the directors,
executive officers or persons nominated or chosen by the Company to become
directors or executive officers. The Company's officers are elected annually by
the Board of Directors and serve at the discretion of the Board.
The Company carries insurance providing indemnification to all of the
Company's directors and officers for claims against them by reason of, among
other things, any act or failure to act in their capacities as directors or
officers. To date, no sums have been paid to any past or present director or
officer of the Company under this or any prior indemnification insurance policy.
The New York Business Corporation Law permits a corporation, through its
certificate of incorporation, to prospectively eliminate or limit the personal
liability of its directors to the corporation or its stockholders for damages
for breach of fiduciary duty as a director, with certain exceptions. The
exceptions include acts or omissions in bad faith or which involve intentional
misconduct or knowing violations of law, improper declarations of dividends, and
transactions from which the director personally gained in fact a financial
profit or other advantage to anything he was not legally entitled. The Company's
Restated Certificate of Incorporation exonerates its directors from personal
liability to the extent permitted by this statutory provision.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------ ---------------------------------------------
Name and Principal Salary Bonus Other Annual Options All Other
Position Year ($) ($) Compensation ($) (#) Compensation ($)
---- -------- -------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael Strauss (1)
Chairman, President,
Chief Executive 1997 $225,000 $100,000 $9,000 2,000,000 --
Officer and Chief 1996 $200,000 -- $8,280 -- --
Operating Officer 1995 $200,000 -- $7,743 1,000,000 --
Robert P. Wong (2)
Vice Chairman and 1997 $127,000 $ 25,000 $6,000 750,000 --
Chief Technology 1996 $102,000 -- $6,000 -- --
Officer 1995 $ 87,000 -- $2,000 492,500 --
Norman B. Wright (3)
Vice Chairman and
Chief Executive 1997 $ 93,750 $ 25,000 $7,000 750,000 --
Officer of the 1996 -- -- -- -- --
HumanCAD business 1995 -- -- -- -- --
</TABLE>
(1) Mr. Strauss became employed by the Company as its President and Chief
Operating Officer on January 2, 1995 and became Chairman and Chief
Executive Officer on February 16, 1995
(2) Mr. Wong was elected a Director in February, 1994. He became employed by
the Company as its Chief Technology Officer, and was appointed Vice
Chairman, on February 16, 1995. From September, 1996 through October 15,
1997, he also served as Acting Chief Financial Officer, Acting Secretary
and Acting Treasurer.
(3) Mr. Wright became Vice Chairman of the Board and President and Chief
Executive Officer of HumanCAD Systems business in April 1997. Pursuant to
a consulting agreement effective April 7, 1997, and expiring April 7,
1999, unless renewed, Mr. Wright receives a basic consulting fee at a rate
of $125,000 per annum and a performance bonus of at least $25,000 per year
for the first two years.
<PAGE>
Option Grants in Fiscal Year 1997
Individual Grants
<TABLE>
<CAPTION>
Number of Securities % of Total
Underlying Options Options Granted
Granted to Employees in Exercise of Base
Name (#) Fiscal Year 1997 Price ($/SH) Expiration Date
<S> <C> <C> <C> <C>
Michael Strauss 1,000,000(1) 25.00% $0.75 5/07/07
Chairman, President 1,000,000(2) 25.00 $1.52 9/17/07
& Chief Executive
Officer
Robert P. Wong 500,000(3) 12.00% $0.75 5/07/07
Vice Chairman and 250,000(4) 6.00% $1.52 9/17/07
Chief Technology
Officer
Norman B. Wright 500,000(5) 12.00% $0.75 5/07/07
Vice Chairman and 250,000(6) 6.00% $1.52 9/17/07
Chief Executive
Officer of HumanCAD
Systems
</TABLE>
- ----------
1 Options vested are as follows: 333,333 shares on May 7, 1997; 333,333
shares on January 1, 1998; and 333,334 shares on January 1, 1999
2 Options vested are as follows: 333,333 shares on September 17, 1998;
333,333 shares on September 17, 1999; and 333,334 shares on September 17,
2000.
3 Options vested are as follows: 250,000 shares on May 5, 1997; and 250,000
shares on May 5, 1998.
4 Options vested are as follows: 83,333 shares on September 17, 1998; 83,333
shares on September 17, 1999; and 83,333 shares on September 17, 2000.
5 Options vested are as follows: 250,000 shares on May 5, 1997; and 250,000
shares on May 5, 1998.
6 Options vested are as follows: 83,333 shares on September 17, 1998; 83,333
shares on September 17, 1999; and 83,333 shares on September 17, 2000.
<PAGE>
Option Exercises and Holdings
The following table sets forth information concerning the exercise of
stock options by the Named Executives during the Company's fiscal year ended
December 31, 1997 and the value of any in-the-money unexercised stock options as
of December 31, 1997:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
<TABLE>
<CAPTION>
Aggregated Option
Exercises in 1997
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
on Value Options at December 31, In-the-Money Options at
Exercise Realized 1997(#) December 31, 1997
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Michael Strauss 883,333 / 2,116,667 $104,143 / $197,477
Chairman, President & Chief ---- ----
Executive Officer
Robert P. Wong 528,750 / 721,250 $82,161 / $79,459
Vice Chairman , Chief ---- ----
Technology Officer
Norman B. Wright 250,000 / 500,000 $70,000 / $70,000
Vice Chairman and Chief ---- ----
Executive Officer of HumanCAD
Systems
</TABLE>
Employment Agreements
Michael Strauss
Mr. Michael Strauss became the President and Chief Operating Officer of
the Company effective January 2, 1995 pursuant to an employment agreement dated
October 13, 1994 and amended on February 16, 1995. On February 16, 1995 Mr.
Strauss became the Chief Executive Officer and Chairman of the Board of
Directors. Pursuant to a revised employment agreement effective January 1, 1997,
and expiring December 31, 1999, unless renewed, Mr. Strauss receives a base
salary at a rate of $225,000 per year subject to annual increase for increases
in the consumer price index. Mr. Strauss shall be entitled to receive a bonus,
which amount for the period ending December 31, 1997 shall not exceed $100,000
nor be less than $25,000. The amount of the bonus for the years ending December
31, 1998 and December 31, 1999 shall be agreed to by Mr. Strauss and the Company
by December 31, 1997, and be based upon mutually agreed to objectives for Mr.
Strauss. Such amount has not yet been defined. Mr. Strauss is also entitled to
participate in any pension plans or bonus plans of the Company or of any
subsidiary, which ever is more beneficial to him, to be included in the
Company's health, disability, life insurance and other benefit plans, and to
receive an allowance for the cost of an automobile.
Mr. Strauss received, in addition to his salary and any bonus, (i) options
to purchase at the fair market value January 2, 1995, an aggregate of 300,000
shares of common stock of the Company, scheduled to vest and become exercisable
for 100,000 shares on January 2, 1996, for 100,000 shares on January 2, 1997,
and for 50,000 shares on January 2, 1998 and 1999, respectively; (ii) options to
purchase at the fair market value on February 16, 1995, an aggregate of 200,000
shares of common stock of the Company, scheduled to vest and become exercisable
for 50,000 shares on February 16, 1996, 1997, 1998 and 1999 respectively; (iii)
options to purchase at the fair market value on May 7, 1997, an aggregate of
1,000,000 shares of common stock of the Company, scheduled to vest and become
exercisable 33 1/3% of such shares
<PAGE>
immediately, 33 1/3% of such shares on January 2, 1998, and 33 1/3% of such
shares on January 2, 1999, (iv) options to purchase, at the fair market value on
July 3, 1995, an aggregate of 500,000 shares of common stock of the Company,
scheduled to vest and become exercisable for 125,000 shares on each of the
succeeding four anniversary dates, and (v) options to purchase at the fair
market value on September 17, 1997, an aggregate of 1,000,000 shares of common
stock of the Company, scheduled to vest and become exercisable 33 1/3% of such
shares on September 17, 1998, 33 1/3% of such shares on September 17, 1999, and
33 1/3% of such shares on September 17, 2000. All options granted hereunder
shall be incentive stock options to the extent they may qualify for such
treatment.
Robert P. Wong
Mr. Robert P. Wong became Vice Chairman of the Board and Chief Technology
Officer of the Company effective February 16, 1995. Pursuant to an employment
agreement effective January 1, 1997, and expiring December 31, 1998, unless
renewed, Mr. Wong receives a base salary at a rate of $127,000 per annum subject
to annual increase for increases in the consumer price index. Mr. Wong shall be
entitled to receive a bonus, which amount for the period ending December 31,
1997 shall not exceed $70,000 nor be less than $25,000. The amount of the bonus
for the year ending December 31, 1998 shall be agreed to by Mr. Wong and the
Company by December 31, 1997, and be based upon mutually agreed to objectives
for Mr. Wong. Such amount has not yet been defined. Mr. Wong is also entitled to
participate in any pension plans or bonus plans of the Company or of any
subsidiary, which ever is more beneficial to him, to be included in the
Company's health, disability, life insurance and other benefit plans, and to
receive an allowance for the cost of an automobile.
Mr. Wong received, in addition to his salary and any bonus, (i) options to
purchase at the fair market value on July 21, 1994 an aggregate of 7,500 shares
of common stock of the Company scheduled to vest and become exercisable on July
21, 1995; (ii) options to purchase at fair market value on February 16, 1995 an
aggregate of 200,000 shares of common stock of the Company, scheduled to vest
and become exercisable for 10,000 shares on August 16, 1995, for 51,250 shares
on February 16, 1996, for 51,250 shares on February 16, 1997, for 43,750 shares
on February 16, 1998, and for 43,750 shares on February 16, 1999; (iii) options
to purchase at the fair market value on June 22, 1995 an aggregate of 25,000
shares of common stock of the Company, scheduled to vest and be exercisable for
10,000 shares on June 22, 1995, for 7,500 shares on June 22, 1996, and for 7,500
shares on June 22, 1997; (iv) options to purchase at the fair market value on
July 3, 1995, an aggregate of 267,500 shares of common stock of the Company,
scheduled to vest and be exercisable for 66,875 shares on each of the succeeding
anniversaries of the grant, over four years; and (v) options to purchase at the
fair market value on May 7, 1997, an aggregate of 500,000 shares of common stock
of the Company, scheduled to vest and become exercisable 50% of such shares
immediately and 50% of such shares on January 2, 1998. Subsequently, on
September 17, 1997, he was granted on option to purchase 250,000 shares of
common stock of the Company, scheduled to vest and become exercisable, in equal
amounts on the anniversary of the grant, over three years. All options granted
hereunder shall be incentive stock options to the extent they may qualify for
such treatment.
Norman B. Wright
Mr. Norman B. Wright became Vice Chairman of the Board and President and
Chief Executive Officer of the HumanCAD Systems business in April 1997. Pursuant
to a consulting agreement effective April 7, 1997, and expiring April 7, 1999,
unless renewed, Mr. Wright receives a basic consulting fee at a rate of $125,000
per annum. Mr. Wright is entitled to receive a performance bonus on an annual
basis within 30 days of the end of the Company's fiscal year. The amount of such
bonus shall be fixed by the board of directors of the Company acting upon
recommendations from Management and its Compensation Committee, provided that
the minimum amount of incentive bonus payable to Mr. Wright in respect of each
of the first two years of the engagement will be not less than $25,000. Mr.
Wright is also entitled to receive an allowance for the cost of an automobile,
and will be reimbursed for the costs of maintaining a health plan, including a
term life insurance policy.
Mr. Wright received, in addition to his salary and any bonus, options to
purchase at the fair market value on May 7, 1997, an aggregate of 500,000 shares
of common stock of the Company, scheduled to vest and become exercisable 50% of
such shares immediately and 50% of such shares on April 7, 1998. Subsequently,
on September 17, 1997, he was granted on option to purchase 250,000 shares of
common stock of the Company, scheduled to vest and become exercisable, in equal
amounts on the anniversary of the grant, over three years. All options granted
hereunder shall be incentive stock options to the extent they may qualify for
such treatment
<PAGE>
Notwithstanding the fixed term of the engagement, the Company may
terminate the engagement of Mr. Wright at any time for cause including but not
limited to any material breach of the provisions of the agreement by Mr. Wright.
Limitation of Liability of Directors; Indemnification of Directors and Officers;
Directors and Officers Insurance
Sections 721 through 725 of the New York Business Corporation Law provide
that New York corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in such
actions, suits or proceedings. Article Seventh of the Company's Restated
Certificate of Incorporation provides for indemnification of directors and
officers of the Company generally in accordance with New York law.
Section 721 of the New York Business Corporation Law permits a corporation
to enter into agreements with its directors and officers providing for
indemnification for actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that they
were or are such directors or officers, against expenses incurred in such
actions, suits or proceedings, provided, however, that no such indemnification
may be provided if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Pursuant to such
authority, the Company has entered into an agreement with each of its current
directors indemnifying them to the maximum extent permitted by Section 721. The
agreement provides for the indemnification of these individuals against any and
all civil or criminal actions or proceedings brought as a result of such
individual being a director or officer of the Company and any judgments and
amounts paid in settlement costs and expenses, including reasonable attorneys
fees. No indemnification may be made, however, if a judgment or final
adjudication establishes that the individual committed acts in bad faith or with
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he personally gained financial profit or other advantage to which he was
not legally entitled. Such indemnification shall be made only by the Board
acting with a quorum consisting of directors who are not parties to the action
in question, or by independent legal counsel, or by the stockholders and in all
cases only after a finding that the applicable standard of conduct has been met.
Under Section 722(a), the corporation may indemnify any director or
officer in any action (other than an action by or in the right of the
corporation) brought against him by reason of the fact that he, his testator or
intestate was a director or officer of the corporation, or served another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity at the request of the corporation. Indemnification
may be given for judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, if such director or officer is shown to
have acted in good faith, in furtherance of a purpose believed to be in the best
interests of the corporation, and, in the case of a criminal action or
proceeding, to have had no reason to believe such conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides for permissive
indemnification by the corporation of directors and officers, sued by or in the
right of the corporation, against reasonable expenses including attorney's fees
unless the director or officer is found to have breached his duty to the
corporation under Section 717 or Section 715(h) of the Business Corporation Law,
respectively. Amounts paid under this section may not include amounts paid in
settlement of a threatened or pending action and expenses incurred in defense of
a threatened action or settlement of a pending action without court approval.
Indemnification may be by court order under Section 724 or by approval of
the corporation in the manner set forth in the statute. Under Section 723(a),
success on the merits or otherwise entitles the director or officer to
indemnification under Section 722. If not wholly successful, indemnification
shall be made by the corporation only if a quorum of the board, not including
parties to the action, finds that the standards of Section 722 have been met. If
a quorum cannot be obtained, approval may be by the board upon (i) the opinion
of independent legal counsel or (ii) a determination by the stockholders that
the standards of conduct have been met by the director or officer. Expenses may
be paid in advance if authorized by one of the methods discussed above. Under
Section 724, if the corporation fails to provide indemnification, the director
or officer may apply to the court and may receive indemnification to the extent
authorized under Section 722. Expenses may also be advanced if the court finds
the defendant director or officer to have raised genuine issues of fact or law.
Expenses advanced must be repaid to the corporation if (i) the director or
officer has not met the applicable standard which entitles him to
indemnification or (ii) if he has been paid in excess of the amount to which he
is entitled. Indemnification may not be made if it is inconsistent with the
corporation's certificate, by-laws, board resolutions or agreements or a
condition imposed by the court in approving a settlement.
The New York Business Corporation Law permits a corporation through its
certificate of incorporation to prospectively eliminate or limit the personal
liability of its directors to the corporation or its stockholders for damages
for breach of fiduciary duty
<PAGE>
as a director, with certain exceptions. The exceptions include acts or omissions
in bad faith or which involve intentional misconduct or knowing violations of
law, improper declaration of dividends, and transactions from which the director
personally gained in fact a financial profit or other advantage to which he was
not legally entitled. The Company's Restated Certificate of Incorporation
exonerates its directors from personal liability to the extent permitted by this
statutory provision.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
The Company maintains directors and officers liability insurance.
Stock Option Plans
The Board of Directors and the Shareholders of the Company approved and
adopted the 1995 Stock Option Plan(the "1995 Plan"). Pursuant to the 1995 Plan,
the Company is permitted to issue ISOs and NQOs to employees, directors or
consultants of the Company (ISOs and NQOs are hereinafter collectively referred
to as "Options"). ISOs under the 1995 Plan are intended to qualify for the tax
treatment accorded under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). NQOs are intended to be Options which do not qualify for
the tax treatment accorded under Section 422 of the Code. The purpose of the
1995 Plan is to assist the Company in attracting and retaining the services of
competent employees, directors and consultants. The 1995 Plan replaces all prior
option plans and no further options will be granted under the prior option
plans.
Under the Code, generally, there will be no tax consequences from the
grant or exercise of an ISO under the 1995 Plan. An employee holding (i) an ISO
at least two years from the date of grant and (ii) the Common Stock issued on
exercise for at least one year after the exercise, will have long term capital
gain or loss income tax treatment for the gain or loss recognized on the sale of
the Common Stock. The difference between the fair market value of the Common
Stock at the time the ISO is exercised and the exercise price will be an "item
of adjustment" under Code Section 56(b)(3) for purposes of the Alternative
Minimum Tax under Code Section 55. If an employee disposes of the Common Stock
without meeting these holding period requirements, the employee will realize
ordinary income equal to the difference between the lesser of the fair market
value of the Common Stock on the date of exercise and the exercise price or the
amount realized over the adjusted basis and capital gain treatment for any
excess realized, and the Company will be entitled to a corresponding income tax
deduction, in an amount equal to the ordinary income realized by the employee.
When an employee is entitled to capital gain treatment on the sale of the Common
Stock, there is no taxable event to the Company. The employee also must remain a
Company employee from the time the ISO was granted until three (3) months before
the date of actual exercise, except that disabled employee or a deceased
employee's representative may exercise an ISO twelve (12) months after
termination of employment.
Under the Code, generally, there will be no tax consequences from the
grant of a NQO under the 1995 Plan. An employee, director or consultant holding
a NQO shall be deemed to receive compensation upon exercise of the NQO in an
amount equal to the excess, if any, of the fair market value of the Common Stock
issued on exercise over the exercise price. The employee, director or consultant
will realize ordinary income, and the Company will be entitled to a
corresponding income tax deduction, in an amount equal to such excess. Such
income constitutes "wages" subject to the withholding requirements of the Code.
The basis of the Common Stock acquired pursuant to the NQO will be increased by
the amount of taxable income attributable to the exercise. All gain or loss on
the sale of the Common Stock will be capital gain or loss.
The foregoing is based upon the current Federal tax laws and regulations
and is not a complete description of the tax aspects of the 1995 Plan. In
addition, each optionee may be subject to state and local taxes.
All employees, directors and consultants of the Company, any subsidiary or
any parent of the Company are eligible to participate in the 1995 Plan.
Currently, three officers, three non-officer directors, and all other employees
are eligible to participate. The Board of Directors anticipates that the number
of eligible employees, directors and consultants may increase with the growth of
the Company.
The 1995 Plan is administered by the Board of Directors of the Company,
which to the extent it shall determine may delegate its powers with respect to
the administration of the 1995 Plan to a committee (the "Committee") consisting
of not less than three members, who shall be directors of the Company. To the
extent permitted under the express provisions of the 1995 Plan, the Board of
Directors shall have authority to determine which employees, directors or
consultants are
<PAGE>
eligible to receive Options, the number of shares covered by each grant of an
Option, and otherwise to interpret and administer the 1995 Plan. The Board of
Directors may at any time terminate the 1995 Plan and may, under certain
circumstances, amend the 1995 Plan, provided that no amendment may materially
increase the maximum number of shares subject to the 1995 Plan, materially
increase the maximum benefits accruing under the 1995 Plan, materially modify
the requirements for eligibility, make any change requiring shareholder approval
under the Code or the 1934 Act, or change the terms of an outstanding Option
without the consent of the optionee.
Under the 1995 Plan, ISOs to purchase shares of the Company's Common Stock
shall not be granted with an exercise price less than 100 percent of the fair
market value of the Common Stock on the date the ISO is granted; provided,
however, than an employee that owns more than ten (10%) percent of the voting
power of all classes of the Company's Common Stock shall not be granted an ISO
with an exercise price of less than 110% percent of the fair market value of the
Common Stock on the date of the grant. The option price per share with respect
to each NQO granted under the 1995 Plan shall be determined by the Board of
Directors. The employee, director or consultant shall pay for the Common Stock
acquired on exercise of Options under the 1995 Plan by delivering a check
payable to the order of the Company, or cash, a promissory note, or shares of
Common Stock having a fair market value on the date of delivery equal to
aggregate exercise price for such number of Option shares and any income tax
withholding due. In no event shall the optionee have any right or status as a
shareholder prior to the issuance of the Option shares.
Options under the 1995 Plan shall have a term of not more than ten (10)
years; provided, however, that in no event shall any ISO granted to a person
then owning more than ten (10%) percent of the voting power of all classes of
the Company's Common Stock be exercisable more than five (5) years after the
date the Option is granted. Except for provisions requiring acceleration of
vesting, no Option shall vest or be first exercisable prior to six months from
the date of grant. Any Option granted to an employee under the 1995 Plan shall
terminate three (3) months after termination of employment, except as may be
extended by the Board. Any Option granted to a consultant or non-employee
director shall terminate twelve (12) months after he ceases to be a consultant
or non-employee director, except as may be extended by the Board. Any Option
granted under the 1995 Plan shall terminate (i) on the earlier of the expiration
of the Option or twelve (12) months after the date on which the optionee ceases
to be an employee, a non-employee director, or a consultant if such termination
results from the optionee's permanent and total disability; and (ii) on the
earlier of the expiration of the Option or twelve (12) months after the
optionee's death, if the optionee was an employee, non-employee director or
consultant at death, during which period the optionee's executors or
administrators may exercise any Option not exercised by the optionee during his
lifetime. If the optionee's death occurs within three (3) months after
termination as an employee, a non-employee director or a consultant, the Option
may be exercised until the earlier of twelve (12) months following the date of
the optionee's death or the expiration of the Option. The aggregate fair market
value, determined at the time the ISO is granted, of the Common Stock with
respect to which ISOs are exercisable for the first time by an employee in any
calendar year under the 1995 Plan may not exceed $100,000. Subject to the
foregoing and to the specific limitations set out in the 1995 Plan, any Option
granted pursuant to the 1995 Plan shall contain provisions established by the
Board of Directors setting forth the manner of exercise of such Option.
Pursuant to the terms of the 1995 Plan, the number of shares covered by an
Option and the Option price per share (as well as the maximum number of shares
as to which Options may be granted to any one individual) are subject to
adjustment for stock dividends, stock splits, mergers, consolidations, and other
similar events. Otherwise, the maximum number of shares that can be issued under
the 1995 Plan is 2,000,000.
In the event of a change of control, all Options become fully vested.
Change of control is deemed to occur when (i) any group becomes the owner of at
least 20% of the total voting power of all classes of capital stock of the
Company entitled to vote in an election, (ii) the current directors shall cease
to constitute a majority of the board, (iii) the shareholders approve a certain
plan of liquidation or merger or consolidation of the Company where the
Company's current shareholders do not hold at least a majority of common stock
of the surviving corporation or the Board of Directors immediately prior to the
merger or consolidation would not constitute a majority of the Board of
Directors of the surviving corporation, or the shareholders approve an agreement
providing for the sale or other disposition of substantially all of the
Company's assets.
Unless sooner terminated in accordance with its terms, the 1995 Plan will
expire on the date ten (10) years after the date of its adoption by the Board of
Directors and no Option may be granted after that date.
Prior to the 1995 Plan, the directors of the Company had adopted and the
stockholders of the Company approved the adoption of the 1989 Stock Option Plan
(the "1989 Plan"). In 1992, the Board of Directors adopted and the stockholders
approved the adoption of an amendment to the Plan to (a) increase the total
number of shares with respect to which options
<PAGE>
may be granted by 500,000 to 1,565,957, (b) permit the granting of NQOs at a
price per share less than the fair market value of the Company's Common Stock on
the date of grant and (c) permit options to be exercised up to two years after
termination of employment under certain circumstances.
In 1989, the Company also adopted a Nonstatutory Stock Option Plan ( the
"1989 Nonstatutory Plan") for directors. Under the 1989 Nonstatutory Plan, the
Company could grant options for the purchase of 355,000 shares of common stock
at not less than fair market value at the date of grant.
Pursuant to the terms of the 1995 Plan, no options may be granted under
the 1989 Plan or the 1989 Nonstatutory Plan subsequent to June 22, 1995.
Pursuant to the 1995 Plan, the Board of Directors has granted options to
acquire an aggregate of 1,760,500 shares of Common Stock of the Company (net of
cancellations). The Board of Directors intends such options to be ISOs to the
extent such is allowable under the Code. Any such options granted as ISOs which
exceed such limitation shall be characterized as NQOs. The Board of Directors
has also granted NQOs to acquire an aggregate of 165,000 shares of Common Stock
(net of cancellations) pursuant to the 1995 Plan to various officers and
directors and consultants.
Pursuant to the 1989 Plan, the Board of Directors granted ISOs to acquire
32,000 shares of Common Stock of the Company (net of cancellations). In
addition, the Board of Directors granted NQOs to acquire an aggregate of 400,000
shares of Common Stock of the Company (net of cancellations) to a consultant.
The Board of Directors had also granted NQOs to acquire an aggregate of 100,000
shares of Common Stock (net of cancellations) pursuant to the Non-Statutory Plan
to various officers and directors.
In 1997, the Company issued option grants under the 1995 Plan to purchase
an aggregate of 3,984,000 shares of Common Stock of the Company, approximately
3,764,500 of which were subject to approval by shareholders of an amendment to
the Company's 1995 Plan. The amendment, approved at the 1997 Annual Meeting of
Shareholders in February 1998, increases the number of shares under the 1995
Plan from 2,000,000 to 8,000,000 shares.
All outstanding options are exercisable at prices ranging from $0.922 to
$3.219 per share. The exercise prices of all outstanding options were determined
by the Board to be not less than the fair market value of the Common Stock as of
the date of grant. The options all expire not more than ten years after the date
of grant and by their terms become void if any of the recipients violate any
restrictive covenant or confidentiality agreement executed by them with respect
to the Company.
Director Compensation
Employee-directors receive no compensation for serving on the Board of
Directors other than reimbursement of expenses incurred in attending meetings.
Non-employee directors elected or appointed to the Board of Directors are paid
an annual directors' fee of $5,000 plus $500 for each Board meeting attended and
are reimbursed for expenses incurred in attending meetings. During the Company's
fiscal year ended December 31, 1997, stock options were issued to the following
non-employee directors.
Options to purchase 50,000 shares of Common Stock were issued to Joel L.
Gold. Including these options, Mr. Gold has been granted options to purchase an
aggregate of 107,500 shares of Common Stock at prices ranging from $.75 to $1.68
per share.
Options to purchase 50,000 shares of Common Stock were issued to Glenn F.
Santmire. Subsequent to fiscal year-end, options to purchase an additional
35,000 shares at an exercise price of $1.25 were issued to Mr. Santmire.
Including these options, Mr. Santmire has been granted options to purchase an
aggregate of 85,000 shares of Common Stock at prices ranging from $.75 to
$1.5156 per share.
Options to purchase 50,000 shares of Common Stock were issued to Sandra
Meyer, at an exercise price of $.7813 per share.
Options to purchase 750,000 shares of Common Stock, 690,125 of which are
subject to shareholder approval of the amendment to the 1995 Stock Option Plan
described herein, were issued to Norman B. Wright, at prices ranging from $.75
to $1.5157 per share.
<PAGE>
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF COMMON STOCK AND WARRANTS SPECIFIC TO THIS REGISTRATION
The following table sets forth information regarding the common shares and
warrants (and common shares underlying the warrants) that will be registered
under this registration statement.
Common
shares
Common under
Name of purchaser/holder Amount paid Shares issued warrants
------------------------ ----------- ------------- --------
(a)
Balmore Funds S.A.(c) $ 850,000 841,584 106,250
Austost Anstalt Schaan(c) $ 750,000 742,574 93,750
Beeston Investments Ltd.(c) $ 200,000 198,020 25,000
Manor Investments(c) $ 100,000 99,010 12,500
Ellis Enterprises(c) $ 50,000 49,505 6,250
East Lane Corporation, Ltd.(c) $ 50,000 49,505 6,250
----------- --------- -------
Totals $2,000,000 1,980,198 250,000
Charles G. Schuyler(b) -- 375,000 --
-----------------------------------
Totals $2,000,000 2,355,198 250,000
========== ========= =======
(a) Prior to "repricing", if any, as discussed below and in footnote (a) of
the Prospectus cover page.
(b) Shares not subject to "repricing".
(c) 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 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 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 by approximately
the end of August 1998. 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 refusal
as defined in the agreements.
The $2,000,000 issuance of common stock and warrants triggers the anti-dilution
provisions of the 10%/13% Convertible Notes and the Company's currently
outstanding Class B and Class E warrants. See "Description of Securities" and
Note 7 to Consolidated Financial Statements.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 30, 1998 based on
information obtained from the records of the Company with respect to the
beneficial ownership of shares of Common Stock of the Company by (i) each person
known by the Company to be owners of more than five percent of the outstanding
shares of Common Stock, (ii) each director and nominee and certain executive
officers, and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
Common Stock
------------
Amount and Nature Percentage of Common
Name and Address of Beneficial Owner of Beneficial Ownership(1) Stock Owned
------------------------------------ -------------------------- -----------
<S> <C> <C>
R. Weil & Associates(2) 1,234,500(6) 6.5%
Kirr, Marbach & Company LLC(2) 2,054,500(7) 10.9%
Kirr Marbach Group(2) 2,252,500(8) 11.9%
Austost Anstalt Schaau(3) 2,025,000(9) 10.8%
UFH Endowment Ltd.(3) 2,025,000(9) 10.8%
Impleo, LLC(4) 2,000,000(10) 11.2%
Wexford Management, LLC (4) 2,000,000(11) 11.2%
Wexford Special Situations 1997, LP (4) 1,250,600(12) 7.0%
Michael Strauss(5) 1,266,666(13) 7.1%
Robert P. Wong(5) 528,750(14) 3.1%
Norman B. Wright(5) 250,000(15) 1.5%
Joel L. Gold( 5) 107,500(16) *
Glenn F. Santmire(5) 25,000(17) *
Charles Schuyler(5) 375,000 2.2%
All officers and directors as a group (9 persons) 2,552,916 11.5%
</TABLE>
1) The Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them.
2) Address is 621 Washington Street, Columbus, IN 47201.
3) Address is c/o L.H. Financial Services, 160 Central Park South, New York,
NY 10019.
4) Address is 411 West Putnam Avenue, Greenwich, CT 06830.
5) Address is c/o BCAM International, Inc., 1800 Walt Whitman Road, Melville,
New York 11747
6) Includes 320,000 shares issuable upon exercise of Non-Redeemable Class AA
Warrants being registered herein and 62,000 shares issuable upon exercise
of Non-Redeemable Class DD Warrants not being registered herein.
7) Kirr Marbach & Company LLC, a registered investment advisor and the
managing general partner of the three Limited Partnerships (621 Partners,
Appleton Associates and R. Weil & Associates), has sole voting and
dispositive discretion with respect to securities held by the Limited
Partnerships, which include in the aggregate 700,000 shares issuable upon
exercise of Non-Redeemable Class AA Warrants being registered herein and
122,000 shares issuable upon exercise of Non-Redeemable Class DD Warrants
not being registered herein.
8) Kirr Marbach & Co., LLC (as a general partner of the Limited
Partnerships), David M. Kirr, Terry B. Marbach and Gregg T. Summerville
may be deemed to constitute a group within the meaning of Regulation
13D-G. Beneficial ownership by this group include in the aggregate 700,000
shares issuable upon exercise of Non-Redeemable Class AA Warrants being
registered herein and 320,000 shares issuable upon exercise of
Non-Redeemable Class DD Warrants not being registered herein.
9) Includes 2,000,000 shares of Common Stock issuable upon the conversion of
50 shares of BCA Services, Inc. Preferred Stock being registered herein
and 25,000 shares issuable upon exercise of Non-Redeemable Class BB
Warrants being registered herein.
10) Impleo, LLC was organized for the purpose of investing in the Registrant.
The members of Impleo are Wexford Spectrum Investors, LLC, Wexford Special
Situations 1997, LP and Wexford Special Situations 1997 Institutional, LP.
Impleo has sole voting and dispositive discretion with respect to
securities held by these entities, which include, in the aggregate,
2,000,000 shares of Common Stock issuable upon exercise of Non-Redeemable
Class DD Warrants not being registered herein.
<PAGE>
11) Wexford Management LLC, the manager of Impleo, LLC and Wexford Spectrum
Investors, LLC and the investment manager of Wexford Special Situations
1997, LP and Wexford Special Situations 1997 Institutional, LP, has sole
voting and dispositive discretion with respect to securities held by these
entities, which include, in the aggregate, 2,000,000 shares of Common
Stock issuable upon exercise of Non-Redeemable Class DD Warrants not being
registered herein.
12) Include 1,250,600 shares of Common Stock issuable upon exercise of
Non-Redeemable Class DD Warrants not being registered herein.
13) Includes options to purchase 679,833 shares of Common Stock exercisable
within 60 days of the date hereof, plus options to purchase 586,833 shares
of Common Stock which will be exercisable within 60 days. Does not include
options to purchase 439,917 shares of Common Stock not exercisable within
60 days of the date hereof, and options to purchase 1,293,417 shares of
Common Stock not exercisable within 60 days.
14) Includes options to purchase 308,688 shares of Common Stock exercisable
within 60 days of the date hereof, plus options to purchase 220,062 shares
of Common Stock which will be exercisable within 60 days. Does not include
options to purchase 251,187 shares of Common Stock not exercisable within
60 days of the date hereof, and options to purchase 470,063 shares of
Common Stock not exercisable within 60 days.
15) Includes options to purchase 29,938 shares of Common Stock exercisable
within 60 days of the date hereof, plus options to purchase 220,062 shares
of Common Stock which will be exercisable within 60 days. Does not include
options to purchase 29,937 shares of Common Stock not exercisable within
60 days of the date hereof, and options to purchase 470,063 shares of
Common Stock not exercisable within 60 days of the date hereof.
16) Includes options to purchase 57,500 shares of Common Stock exercisable
within 60 days of the date hereof. Does not include options to purchase
50,000 shares of Common Stock not exercisable within 60 days of the date
hereof.
17) Includes options to purchase 25,000 shares of Common Stock exercisable
within 60 days of the date hereof. Does not include options to purchase
50,000 shares of Common Stock not exercisable within 60 days of the date
hereof.
* Less than 1.0%
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
In June 1995, the Company authorized an increase in its authorized Common
Stock from 20,000,000 shares, $.01 par value per share, to 40,000,000 shares,
$.01 par value per share, of which 17,231,088 shares of Common Stock are issued
and outstanding as of December 23, 1997. In February 1998, at the Annual Meeting
of Shareholders, the shareholders' approved an increase in the number of
authorized share of Common Stock from 40,000,000 to 65,000,000. The holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available theretofore and in such amounts as the Board of
Directors may from time to time determine. See "Dividend Policy." Each
stockholder is entitled to one vote per share of Common Stock held by him. Under
the Company's Restated Certificate of Incorporation the Common Stock is not
subject to redemption. See "Certain Transactions-Redemption." Upon liquidation,
dissolution or winding up of the Company and following provision for the
liquidation preference of all outstanding preferred stock, the assets legally
available for distribution to the holders of Common Stock are distributable
ratably among the holders of the outstanding Common Stock. All outstanding
shares of Common Stock are, and the shares of Common Stock issuable upon
exercise of the Warrants will upon issuance, be fully paid and non-assessable.
In September 1989, the Company authorized and adopted a Restated Certificate of
Incorporation which provided that the Company's Common Stock is not entitled to
any preemptive rights. The Company has received from each of its Pre-IPO
Stockholders waivers of any preemptive rights such stockholders may have been
entitled to with respect to prior issuances of securities by the Company.
Warrants, Options and Convertible Securities
Common shares reserved for future issuance as of March 31, 1998, adjusted
in the case of the 1998 stock option plan for the February 1998 increase to the
shares available under such plan, are approximately as follows:
Units sold in public offering in 1990:
Class B warrants, subject to antidilution (see below).......... 1,292,000
Class E warrants, subject to antidilution (see below).......... 737,000
Unit Options, expired in 1997.................................. 0
Conversion feature of 10%/13% Convertible Notes, subject
to antidilution and "pay in kind" provisions ($0.78, 2002
see Note 6) .................................................. 8,192,000
Third party options (see table below).......................... 1,050,000
1989 Stock Option Plan (see below)............................. 432,000
1989 Nonstatutory Plan (see below)............................. 25,000
1995 Stock Option Plan (as amended in 1998, see below)......... 8,192,000
Warrants issued in private placements:
Class C warrants, expired during 1997......................... 0
Class D warrants, expired during 1997......................... 0
Class AA warrants ($0.65, 2002, see above).................... 975,000
Class BB warrants ($0.72, 2002, see above).................... 100,000
Class CC warrants ($1.03, 2002, see above).................... 10,000
Class DD warrants ($1.72, 2002, see above).................... 2,035,000
Class EE warrants ($0.80, 2002 see below)..................... 500,000
1998 Private Placement warrants ($2.05, 2002, see below)...... 250,000
1998 Consultant warrants ($1.00, 2003, see below)............. 400,000
----------
24,190,000
----------
<PAGE>
Redeemable Class B and Redeemable Class E Warrants.
The Redeemable Class B have been issued pursuant to a warrant agreement,
dated January 17, 1990 (as amended, the "Warrant Agreement"), among the Company,
the Underwriter and North American Transfer Co., as assignee from American Stock
Transfer & Trust Company, warrant agent (the "Warrant Agent"), and are evidenced
by warrant certificates in registered form. The Class E Warrants were issued in
connection with a "Discounted Warrant Plan" offered to holders of the Class A
Warrants (all of which have been exercised or expired) and Class B Warrants
issued in connection with the public offering in 1990. On December 20, 1996, the
Company extended the expiration date of the Company's Redeemable Class B
Warrants and Redeemable Class E Warrants to January 17, 1998 and amended the
exercise price of the Redeemable Class B Warrants to $1.14/share. The Class B
and Class E Warrants are presently exercisable, were due to expire in January
1998, have been extended to October 17, 1998 and are subject to anti-dilution
provisions. As a result of the financings completed in 1997, the anti-dilution
provisions of the warrants were triggered and resulted in the following
revisions to the warrant price and the number of shares subject to warrant:
<TABLE>
<CAPTION>
Exercise price Number of shares Exercise price Number of shares
per warrant per warrant per share subject to warrant
-------------- ---------------- ----------------------------------
<S> <C> <C> <C> <C>
Class B Warrants:
- -----------------
Previous $1.50 1.2 $1.25 969,191
Current $1.14 1.6 $ .71 1,292,254
Class E Warrants:
- -----------------
Previous $1.25 1.1 $1.14 540,747
Current $0.95 1.5 $ .63 737,382
</TABLE>
The 1998 private placement discussed in the following paragraphs may
trigger the operation of antidilution provisions of the Class B and Class E
warrants especially with respect to the additional shares which may be issued
pursuant to the "repricing" provisions of such private placement .
As provided initially in the Warrant Agreement, each Redeemable Class B
Warrant entitled the holder thereof to purchase one share of Common Stock at
exercise prices, ranging from $3.33 to $4.67 per share, subject to adjustment,
at any time commencing upon issuance of the Redeemable Class B Warrants until
the close of business on the expiration date (originally January 17, 1998 and
now October 17, 1998), unless previously redeemed. The Redeemable Class B
Warrants are subject to redemption by the Company at any time on not less than
30 days' prior written notice, at $.03 per Warrant, if (i) the average closing
bid price of the Common Stock exceeds the applicable average closing bid price
for any period of 30 consecutive business days ending within 15 days prior to
the date of the notice of redemption and (ii) the Company has in effect a
current prospectus covering the Common Stock issuable upon exercise of the
Redeemable Class B Warrants.
The exercise price of the Redeemable Class B and E Warrants and the number
and kind of shares of Common Stock or other securities and property to be
obtained upon the exercise of those Warrants are subject to adjustment in
certain circumstances, including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or sale of
Common Stock at less than the market price of the Common Stock, provided that no
adjustment shall be made unless and until the adjustment, or the aggregate of
successive adjustments, would exceed $.25 per share. Additionally, an adjustment
would be made upon the sale of all or substantially all of the assets of the
Company so as to enable those Warrant holders to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable in
such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon exercise of such Warrant. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of those
Warrants.
After giving effect to the foregoing provisions, the exercise prices and
number of shares for the Redeemable Class E and Redeemable Class B Warrants,
have been adjusted to the prices and share conversions set forth in the table
above.
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrant holders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the respective expiration date (or earlier redemption date) of such
Warrants at the offices of the Warrant Agent, with the form of "Election to
Purchase" on the reverse side of the Warrant certificate duly completed and
executed, accompanied by payment of the full exercise price (by certified check
payable to the order of the Warrant Agent) for the number of Warrants being
exercised.
<PAGE>
The terms of the Redeemable Class E Warrants are identical to those of the
Redeemable Class B Warrants, excluding the adjusted exercise prices set forth
above and the adjusted conversion ratio.
Non-Redeemable Class AA Warrants
1,075,000 Non-redeemable Class AA Warrants were issued in 1997 in
connection with a private placement offering for $1,075,000. 1,075,000 shares of
the Company's Common Stock are issuable upon the exercise of the 1,075,000
Warrants at an exercise price of $.65 per share. The Non-Redeemable Class AA
Warrants are exercisable until March 31, 2002. One Warrant is convertible into
one share of the Company's Common Stock. As of the date of this filing, warrants
to purchase 100,000 shares have been exercised and warrants to purchase 975,000
shares of Common Stock are issuable upon exercise of the Warrants.
The terms of the Non-Redeemable Class AA Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above and the conversion ratio and certain more extensive dilution provisions
contained in the Redeemable Class B Warrants, provided that, pursuant to the
terms of the private placement offering, each Non-Redeemable Class AA Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
$.65 per share, subject to adjustment, at any time prior to its expiration on
March 31, 2002.
Non-Redeemable Class BB Warrants
100,000 Non-redeemable Class BB Warrants were issued between the
commencement of a private placement in July 22, 1997 and its conclusion in
September 1997 to two investors in the private placement (25,000 each) and to
the placement agent (50,000).
The terms of the Non-Redeemable Class BB Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above and the conversion ratio, and certain more extensive dilution provisions
contained in the Redeemable Class B Warrants, provided that, pursuant to the
terms of the private placement offering, each Non-Redeemable Class BB Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
$0.72 per share, subject to adjustment, at any time prior to its expiration on
July 22, 2002.
Non-Redeemable Class CC Warrants
The Company completed an offering of $200,000 on September 17, 1997,
which, in part, resulted in the issuance of 10,000 Non-Redeemable Class CC
Warrants to purchase 10,000 shares of Common Stock exercisable at $1.0264 per
share. One Warrant is convertible into one share of the Company's Common Stock.
The Non-Redeemable Class CC Warrants are exercisable until September 17, 2002.
The terms of the Non-Redeemable Class CC Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above, the conversion ratio and certain more extensive dilution provisions
contained in the Redeemable Class B Warrants, provided that, pursuant to the
terms of the private placement offering, each Non-Redeemable Class CC Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
$1.0264 per share, subject to adjustment, at any time prior to its expiration on
September 17, 2002.
Non-Redeemable Class DD and Non-Redeemable Class EE Warrants
On September 19, 1997, the Company issued, as amended in April 1998,
Non-Redeemable Class DD Warrants to purchase 2,034,884 shares of Common Stock at
$1.72 per share (after the operation of antidilution provisions to the shares
issued in the April 1998 private placement), in connection with the issuance of
the 10%/13% Convertible Subordinated Notes as part of the financing for the Drew
Shoe acquisition, and 500,000 Non-Redeemable Class EE Warrants to purchase
500,000 shares of Common Stock at $0.80 per share
The terms of the Non-Redeemable Class DD Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above, the conversion ratio, provided that, pursuant to the terms of the private
placement offering, each Non-Redeemable Class DD Warrant entitles the registered
holder thereof to purchase one share of Common Stock at $1.72 (as adjusted) per
share, subject to adjustment for antidilution, at any time prior to its
expiration on
<PAGE>
September 19, 2002. It is likely that any material "repricing" of the shares to
be issued in the 1998 Private Placement will result in additional antidilution
adjustments.
The terms of the Non-Redeemable Class EE Warrants are identical to those
of the Redeemable Class B Warrants, excluding the exercise prices set forth
above, the conversion ratio and certain more extensive dilution provisions
contained in the Redeemable Class B Warrants, provided that, pursuant to the
terms of the private placement offering, each Non-Redeemable Class EE Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
$.80 per share, subject to adjustment, at any time prior to its expiration on
September 19, 2000.
1998 Private Placement Warrants
In April 1998 in connection with the private placement of common stock and
warrants for aggregate gross proceeds of $2,000,000, the Company issued warrants
to purchase 250,000 shares of its common stock at $2.05 per share prior to April
2003. The terms of the warrants are similar to the Non-Redeemable Class CC
warrants discussed above except for the exercise price and expiration date.
1998 Consultant Warrants
In July 1998, the Company issued warrants to purchase 400,000 shares of
the Company's common stock to a consultant. Such warrants are exercisable at
$1.00 per share through July 2003 and contain piggyback registration rights.
Acquisition Preferred Stock
The Company is authorized to issue 750,000 shares of its Acquisition
Preferred Stock, $.01 par value, none of which are presently issued and
outstanding. The Acquisition Preferred Stock is only permitted to be issued as
consideration pursuant to (i) a statutory merger or consolidation as to which
the Company is the surviving entity, (ii) the acquisition by the Company of
substantially all the assets or business of another entity or (iii) the
acquisition by the Company of 50% or more of the voting securities of another
entity. The Acquisition Preferred Stock is issuable from time to time in one or
more series. The Board of Directors is authorized to fix, before issuance, (i)
the voting powers, if any, and (ii) the designations, preferences and any other
rights, qualifications, limitations and restrictions applicable to each series
of Acquisition Preferred Stock, including, without limitation, dividend rates
and conditions, dividend preferences, conversion and redemption rights and
liquidation preferences. The Board of Directors may without approval of the
holders of the Common Stock issue the Acquisition Preferred Stock with voting
and conversion rights which may adversely affect the rights, including voting
rights, of the holders of the Common Stock.
8% Preferred Stock
The Company is authorized to issue 15,000 shares of its 8% Preferred
Stock, $10.00 par value, none of which are issued and outstanding. Holders of 8%
Preferred Stock do not have any voting rights.
Holders of shares of 8% Preferred Stock are entitled to cumulative cash
dividends at an annual rate of $.80 per share, payable quarterly, as and when
declared by the Board of Directors, before any dividend may be paid or declared
on the Common Stock. The Company may at any time, and within five years after
issuance must, redeem the 8% Preferred Stock, at $10.00 per share, together with
accrued and unpaid dividends, if any. In the event of the liquidation or winding
up of the Company, holders of the 8% Preferred Stock will be entitled to receive
$10.00 per share, together with all accrued and unpaid dividends, before any
amounts may be paid in respect of the Company's Common Stock.
Preferred Stock
The Company is authorized to issue 2,000,000 shares of Preferred Stock
from time to time in one or more series and to fix before issuance with respect
to each series: (a) the designation and the number of shares to constitute each
series, (b) the liquidation rights, if any, (c) the dividend rights and rates,
if any, (d) the rights and terms of redemption, if any, (e) whether the shares
will be subject to the operation of a sinking or retirement fund, if any, (f)
whether the shares are to be convertible or exchangeable into other securities
of the Company or its subsidiaries, and the rates thereof, if any, (g) any
limitations on the payment of dividends on the Common Stock while any such
series is outstanding, if any, (h) the voting power, if any, in addition to the
voting rights provided by law, of the shares, which voting powers may be general
or special, and (i) such other provisions as shall not be inconsistent with the
Certificate of Incorporation. All the shares of any one
<PAGE>
series of the Preferred Stock shall be identical in all respects.
The Board of Directors may without approval of the holders of the Common
Stock issue the Acquisition Preferred Stock with voting and conversion rights
which may adversely affect the rights, including voting rights, of the holders
of the Common Stock.
Preferred Stock of BCA Services
On July 22, 1997 BCA Services, Inc. ("BCA"), previously a wholly-owned
subsidiary of the Company, commenced, and in September 1997 completed, a private
offering to accredited investors (the "Offering") and sold 100 shares of BCA's
Convertible Preferred Stock (the "Preferred Stock") for a total consideration of
$1.0 million.
The Preferred Stock was 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
could not be greater than 100% of the Variable Conversion Price on the first
closing date (the "Fixed Conversion Price"). The Fixed Conversion price was
$0.6563. In July and September 1997, the Company sold 100 shares ($1,000,000) of
Convertible Preferred stock to Austost Anstalt Schaan ($500,000) and UFH
Endowment LTD. ($500,000). Between November 1997 and March 1998, all of the
Convertible Preferred stock issued was converted into common stock of the
Company at an average price of approximately $0.65 per share.
In addition, purchasers of the Convertible Preferred stock received
Non-Redeemable Class BB Warrants to purchase an aggregate 50,000 shares of
Common Stock, exercisable at $0.7219. The warrants have a term of five years and
the Common Stock underlying the warrants contains registration rights.
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 existing fixed conversion feature and certain fees). As a result
of this offering, 20 shares of Preferred Stock (convertible into the Company's
Common Stock at 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. All of the Convertible Preferred Stock issued in this
offering was converted to Common Stock of the Company at an average price of
approximately $0.79 per share prior to December 31, 1997.
The Registrant claims exemption from registration of these two placements
by virtue of Section 4(2) of the Securities Act of 1933.
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 "beneficial" at the date of issuance (such as the
preferred stock described above and the 10%/13% Convertible Notes and Warrants
described below). This accounting results in significant charges to operations
in connection with these financings as further described in Notes 6 and 7 to the
Consolidated Financial Statements.
10%/13% Redeemable 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 to eight investors in the aggregate face amount (after
reflecting interest "paid in kind" on March 19, 1998 of $390,000) of $6,390,000
(the "Convertible Notes"). The Convertible Notes are due, as amended in April
1998 (see "Debt restructuring" below), on April 16, 1999 unless at any time
after September 19, 1998, they are converted, at $.78 per share (after
reflecting antidilution provisions applied to the 1998 Private Placement), into
8,192,308 shares of Common Stock of the Company. The conversion feature is
subject to antidilution in certain circumstances including the issuance of
Common Stock and warrants in the 1998 Private Placement. (See "Recent Events"
and Note 7 to Consolidated Financial Statements). Further, any future material
"repricings" pursuant to the 1998 Private Placement would cause additional
adjustments to the conversion price per share. 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.
In addition, the Company issued to the noteholders Non-Redeemable Class DD
Warrants to purchase, as amended
<PAGE>
in April 1998, 2,034,884 shares of common stock, exercisable at $1.72 per share
(after reflecting antidilution provisions applied to the 1998 Private Placement)
at any time prior to September 19, 2002. Further, any future material
"repricings" pursuant to the 1998 Private Placement would cause additional
adjustments to the exercise price per share and number of shares subject to
warrant.
The market value of the Company's common stock on the Nasdaq SmallCap
market on the date of the transaction was approximately $1.52 and on the March
19,1998 interest payment date was approximately $1.25.
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 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.
See "Non-Redeemable Class DD and Non-Redeemable Class EE Warrants"
regarding the terms of the warrants to purchase, as amended, 2,000,000 shares of
common stock issued in connection with the Convertible Notes. See Risk Factors,
"Secured debt coming due in 1999", and "Charges to Operations Related to Recent
Financings."
Transfer Agent and Warrant Agent
North American Transfer Co., Freeport, New York is the Company's transfer
and warrant agent.
Business Combination Provisions
New York law regulates "business combinations," a term covering a broad
range of transactions, between "resident domestic corporations" (as defined,
which term would include the Company) and an interested stockholder, which is
defined as any person beneficially owning, directly or indirectly, 20% or more
of the outstanding voting stock of the resident domestic corporation or any
affiliate or associate of such owner. However, if the interested stockholder has
owned at least 5% of such outstanding voting stock at all times from October 31,
1985 to the date at which he or it first attains 20% ownership (the "Stock
Acquisition Date"), the proposed business combination is exempt from this
statute. Under the statute, a resident domestic corporation may not engage in
any business combination with any interested stockholder unless (a) if the
business combination is to occur within five years of the date the stockholder
acquired 20% or more ownership, either the business combination or the stock
acquisition must have been previously approved by the board of directors, or (b)
the business combination is approved by a majority of outstanding voting shares
(not including those shares owned by the interested stockholder), which approval
may not be effectively given until approximately five years after the interested
stockholder's Stock Acquisition Date, or (c) the consideration paid to the
non-interested stockholders must meet certain stringent conditions imposed by
the statute. The restrictions imposed by the statute will not apply to a
corporation which amends its by-laws by the affirmative vote of a majority of
its outstanding voting stock (not including those shares held by the interested
stockholders) to "elect out" of the statute; provided that such amendment will
not be effective for 18 months after such vote and will not apply to any
business combination where the Stock Acquisition Date is on or prior to the date
of the amendment.
At this time, the Company will not seek to "elect out" of the statute and,
therefore, the restrictions imposed by the statute will apply to the Company.
The Company does not presently anticipate participating in any business
combination or similar transaction covered by the "business combination" statute
in the foreseeable future and is not actively considering or discussing any such
transaction.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon issuance of all shares of Common Stock registered hereby, the Company
will have 23,200,035 shares of Common Stock outstanding. Additionally, the
Company will have options, warrants and convertible securities that could result
in the issuance of in excess of an additional 25,000,000 share of common stock
PLAN OF DISTRIBUTION
The securities registered hereby and described in this prospectus may by
the owner from time to time through dealers or brokers in transactions on NASDAQ
Over-The-Counter market (Small Cap) at prices then prevailing, or directly to
one or more purchasers in negotiated transactions at negotiated prices, or in a
combination thereof. The Company is not aware of any agreements or arrangements
on the part of any person concerning the sale of any of the securities
registered hereby. The Company, at the request of any person intending to sell
any of the securities registered hereby, will deliver copies of this prospectus,
at no cost or charge, to such persons.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New York.
EXPERTS
The consolidated financial statements of BCAM International, Inc. at
December 31, 1997 and for each of the two years in the period then ended and the
statements of operations and cash flows for the period from January 1, 1997 to
September 22, 1997 of Drew Shoe Corporation ( The Predecessor), appearing in
this Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The statements of operations and cash flows of Drew Shoe Corporation for
the year ended December 31, 1996 have been audited by J.H. Cohn LLP, independent
public accountants, as set forth in their report thereon, which is included
elsewhere herein. Such financial statements are included herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
<PAGE>
Index to Financial Statements
BCAM International, Inc. and subsidiaries (the "Company"):
Audited annual consolidated financial statements -
Report of Independent Auditors ................................. F-1
Consolidated balance sheet -- December 31, 1997 ................ F-2
Consolidated statements of operations-- Years ended December
31, 1997 and 1996 ........................................... F-3
Consolidated statements of common shareholders' equity --
Years ended December 31, 1997 and 1996 ...................... F-4
Consolidated statements of cash flows -- Years ended December
31, 1997 and 1996 ........................................... F-5
Notes to consolidated financial statements ..................... F-6 - F-21
Unaudited interim consolidated condensed financial information -
Condensed Consolidated Balance Sheet - March 31, 1998
(Unaudited) ................................................. F-22
Condensed Consolidated Statements of Operations - Three months
ended March 31, 1998 and 1997 (Unaudited) ................... F-23
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 (Unaudited) ................... F-24
Condensed Consolidated Statement of Changes in Shareholders'
Equity - Three months ended March 31, 1998 (Unaudited) ........ F-25
Notes to Condensed Consolidated Financial Statements- F-26 - F-31
Drew Shoe Corporation (the "Predecessor"):
Audited financial statements -
Report of Independent Auditors -- For the period from January
1, 1997 to September 22, 1997 ............................... F-32
Report of Independent Auditors -- For the year ended December
31, 1996 .................................................... F-33
Statements of Operations -- For the period from January 1, 1997
to September 22, 1997 and for the year ended December 31,
1996 ....................................................... F-34
Statements of Cash Flows -- For the period from January 1, 1997
to September 22, 1997 and for the year ended December 31,
1996 ....................................................... F-35
Notes to Financial Statements .................................. F-36 - F-40
Unaudited Pro-forma Information - Presenting the Company and
the Predecessor:
Introduction to Unaudited Pro-forma Financial Information ........ F-41
Consolidated Pro-forma Statement of Operations (unaudited) ....... F-42 - F-44
F
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
BCAM International, Inc.
We have audited the accompanying consolidated balance sheet of BCAM
International, Inc., as of December 31, 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BCAM International, Inc. at December 31, 1997, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Melville, New York
April 20, 1998
F-1
<PAGE>
BCAM International, Inc. and subsidiaries
Consolidated Balance Sheet
December 31, 1997
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,594,000
Accounts receivable, less allowance for doubtful accounts of
$120,000 1,584,000
Inventory 6,278,000
Prepaid expenses and other current assets 205,000
Current assets of discontinued operations, principally
receivables 253,000
------------
Total current assets 9,914,000
Property, plant and equipment, at cost:
Land and buildings 826,000
Equipment, furniture and fixtures 2,924,000
Leasehold improvements 51,000
------------
3,801,000
Less accumulated depreciation and amortization (832,000)
------------
2,969,000
Deferred finance costs, net 786,000
Other assets 508,000
------------
Total assets $ 14,177,000
============
Current liabilities:
Current portion of long-term debt $ 463,000
Accounts payable 962,000
Accrued expenses and other current liabilities 1,637,000
Current liabilities of discontinued operations,
principally trade payables 136,000
------------
Total current liabilities 3,198,000
Long-term debt and convertible notes, net of current
maturities and unamortized debt discount 7,972,000
Other non-current liabilities 295,000
Minority interest 618,000
Commitments and contingencies
Shareholders' equity:
Acquisition preferred stock, 750,000 authorized shares,
none issued --
Preferred Stock, 2,000,000 authorized, none issued --
Common stock, par value $.01 per share -- 65,000,000 shares
authorized, 18,171,641 shares issued and 17,408,459 shares
outstanding 182,000
Paid-in surplus 26,338,000
Unamortized charge for beneficial debt conversion (4,290,000)
Deficit (19,237,000)
Less 763,182 treasury shares (899,000)
------------
Total shareholders' equity 2,094,000
------------
Total liabilities and shareholders' equity $ 14,177,000
============
See accompanying notes.
F-2
<PAGE>
BCAM International, Inc. and subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Sales $ 3,932,000 $ --
License revenue 27,000 29,000
------------ ------------
Total 3,959,000 29,000
Cost of revenues 2,330,000 (56,000)
------------ ------------
Gross profit 1,629,000 85,000
Selling, general and administrative 2,991,000 1,408,000
Research and development 322,000 --
------------ ------------
Loss from operations (1,684,000) (1,323,000)
------------ ------------
Other Income (Expense)
Interest and financing costs (613,000) --
Charge for beneficial debt conversion (1,635,000) --
Interest income 60,000 54,000
------------ ------------
Total (2,188,000) 54,000
Minority interests charge for beneficial
subsidiaries preferred stock conversion (788,000) --
------------ ------------
Loss from continuing operations (4,660,000) (1,269,000)
Discontinued operations, including estimated loss on
disposal of approximately $50,000 in 1997 (1,376,000) (245,000)
------------ ------------
Net loss $ (6,036,000) $ (1,514,000)
============ ============
Net Loss per share:
Continuing operations $ (0.29) $ (0.08)
Discontinued operations $ (0.09) $ (0.02)
------------ ------------
Net loss per share $ (0.38) $ (0.10)
============ ============
Weighted average shares outstanding 16,071,000 14,868,000
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
BCAM International, Inc. and subsidiaries
Consolidated Statements of Common Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock $.01 par value Unamortized Charge
--------------------------- ----------------------------
Beneficial
Paid-in Debt
Shares Amount Surplus Conversion Deficit
---------- -------- ----------- ------------ -------------
Balance at January 1, 1996 15,620,415 $156,000 $15,034,000 -- $(11,687,000)
Exercise of common stock warrants 22,500 -- 21,000 -- --
Registration and issuance costs -- -- (96,000) -- --
Net loss -- -- -- -- (1,514,000)
---------- -------- ----------- ------------ -------------
Balance at December 31, 1996 15,642,915 156,000 14,959,000 -- (13,201,000)
Shares issued in January 1997 Placement 1,075,000 11,000 1,064,000 -- --
Issuance costs of January 1997 Placement -- -- (46,000) -- --
Beneficial conversion feature of
subsidiary preferred stock -- -- 788,000 -- --
10 % / 13 % Convertible Notes:
Est. fair value of detachable warrants -- -- 1,872,000 -- --
Est. fair value of beneficial conversion 5,925,000 $(5,925,000)
Shares issued in acquisition of Drew Shoe 375,000 4,000 446,000 -- --
Shares issued and options granted in
connection with Drew Shoe acquisition
financing 347,500 3,000 967,000 -- --
Acquisition financing costs -- -- (275,000) -- --
Amortization of beneficial debt conversion -- -- -- 1,635,000 --
Consultant stock options -- -- 175,000 -- --
Conversion of subsidiary preferred 706,226 8,000 435,000 -- --
Exercise of options 25,000 -- 28,000 -- --
Net loss -- -- -- -- (6,036,000)
---------- -------- ----------- ------------ -------------
Balance at December 31, 1997 18,171,641 $182,000 $26,338,000 (4,290,000) $(19,237,000)
========== ======== =========== ============ =============
<CAPTION>
Shares held
Subtotal in Treasury Total
----------- --------- -----------
<S> <C> <C> <C>
Balance at January 1, 1996 $ 3,503,000 $(899,000) $ 2,604,000
Exercise of common stock warrants 21,000 -- 21,000
Registration and issuance costs (96,000) -- (96,000)
Net loss (1,514,000) -- (1,514,000)
----------- --------- -----------
Balance at December 31, 1996 1,914,000 (899,000) 1,015,000
Shares issued in January 1997 Placement 1,075,000 -- 1,075,000
Issuance costs of January 1997 Placement (46,000) -- (46,000)
Beneficial conversion feature of
subsidiary preferred stock 788,000 -- 788,000
10 % / 13 % Convertible Notes:
Est. fair value of detachable warrants 1,872,000 -- 1,872,000
Est. fair value of beneficial conversion
Shares issued in acquisition of Drew Shoe 450,000 -- 450,000
Shares issued and options granted in
connection with Drew Shoe acquisition
financing 970,000 -- 970,000
Acquisition financing costs (275,000) -- (275,000)
Amortization of beneficial debt conversion 1,635,000 -- 1,635,000
Consultant stock options 175,000 -- 175,000
Conversion of subsidiary preferred 443,000 -- 443,000
Exercise of options 28,000 -- 28,000
Net loss (6,036,000) -- (6,036,000)
----------- --------- -----------
Balance at December 31, 1997 $ 2,993,000 $(899,000) $ 2,094,000
=========== ========= ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
BCAM International, Inc. and subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities
Net loss $(6,036,000) $(1,514,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 212,000 190,000
Amortization of unamortized charge for beneficial debt conversion 1,635,000
Amortization of deferred finance costs and debt discount 151,000
Non-cash minority interest charge 788,000
Charge for compensatory consultant stock options 175,000
Changes in operating assets and liabilities:
Accounts receivable 337,000 186,000
Inventory (99,000)
Current assets of discontinued operations (56,000)
Accounts payable, accrued expenses and other current liabilities 248,000 (239,000)
All other operating assets and liabilities (120,000) (18,000)
----------- -----------
Net cash used in operating activities (2,765,000) (1,395,000)
----------- -----------
Investing activities
Cash paid for purchase of shares of Drew Shoe (3,882,000)
Cash paid for costs to acquire Drew Shoe (476,000) (33,000)
Purchases of property, plant and equipment (151,000) (6,000)
Investment in software technology (151,000)
Proceeds from sale of held-to-maturity securities 1,507,000
----------- -----------
Net cash provided by (used in) investing activities (4,509,000) 1,317,000
----------- -----------
Financing activities
Proceeds from sale of common stock and warrants 1,075,000
Proceeds from sale of convertible preferred stock of subsidiary 1,200,000
Proceeds from sale of 10%/13% 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 note payable and drawdown on line of credit 754,000 400,000
Repayment of note payable (450,000) (400,000)
Net proceeds from exercise of stock options 28,000 21,000
Cash paid for deferred finance, stock issuance
and registration costs (555,000) (119,000)
----------- -----------
Net cash provided by (used in) financing activities 8,342,000 (98,000)
----------- -----------
Increase (Decrease) in cash and cash equivalents 1,068,000 (176,000)
Cash and cash equivalents at beginning of year 526,000 702,000
----------- -----------
Cash and cash equivalents at end of year $ 1,594,000 $ 526,000
=========== ===========
Supplemental disclosure:
Cash interest paid $ 110,000 -0-
=========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. 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, major
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 revenues for its year ended
December 31, 1996 of approximately $14.6 million and has been in business for
approximately 125 years.
The Company's revenues have historically 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 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 the HumanCAD Systems division as a result of the
lack of available financing to further the necessary business development
activities of that division on a basis that would enhance shareholder value.
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 strategic focus is on building its presence in the medical
footwear and related industries and on broadening and strengthening the
development and commercialization of the Company's proprietary technologies,
principally Intelligent Surface Technology ("IST") and its proprietary
"microvalve".
Because of the significance of Drew Shoe's operations to the ongoing
operations of the Company, Drew Shoe is considered a "predecessor" of the
Company.
The consolidated financial statements include the accounts of BCAM
International, Inc. and its subsidiaries, principally Drew Shoe (medical
footwear), since September 22, 1997, BCAM Technologies, Inc. (principally IST
and related technologies), BCA Services, Inc. (principally human ergonomics
consulting which has been discontinued), and HumanCAD Systems, Inc. (principally
software development and marketing which has been discontinued).
The Company requires additional capital to fund its activities in 1998 and
made a private placement of its equity securities in April 1998 in order to
satisfy this need (see note 7). In April 1998, the Company and the holders of
its 10%/13% Convertible Notes agreed to a restructuring of the obligation which
accelerates repayment to April 1999, among other matters discussed in Note 6.
2. Summary of Significant Accounting Policies
Cash Equivalents, Financial Instruments and Concentration of Credit Risk
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and trade accounts receivable. The Company
maintains its cash in bank deposit accounts that, at times, may exceed Federally
insured limits. Concentrations of credit risk with respect to trade receivables
are limited due to the large number of customers comprising the Company's
customer base, their dispersion across different geographic areas, and generally
short payment terms. In addition, the Company routinely assesses the financial
strength of its customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes. Actual results could differ from those estimates.
Revenue
Revenue from wholesale medical footwear sales is recognized at the time
products are shipped. Revenue
F-6
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
from retail medical footwear sales through Company-owned retail operations is
recognized at the point of sale. License revenues are recorded when earned under
the related license agreement.
Inventory
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Other Assets
The costs of acquiring or processing (principally professional and
government fees) patents, trademarks and other intellectual properties are
capitalized at cost. This amount is being amortized using the straight-line
method over the estimated useful lives of the underlying assets of approximately
5 years.
Research and Development
Research and development costs are charged to operations in the period incurred.
Income Taxes
The Company accounts for income taxes using Financial Accounting Standards
Board ("FASB") Statement No. 109, "Accounting for Income Taxes." At December 31,
1997, the Company has net operating loss carryforwards of approximately
$15,937,000 for income tax purposes, expiring through 2012.
At December 31, 1997 and 1996, deferred tax assets approximating
$5,886,000 and $4,672,000, respectively, arising from the future potential
availability of net operating loss carryforwards have been offset in full by
valuation allowances in accordance with FASB Statement No. 109.
The utilization of these losses to reduce future income taxes will depend
on the generation of sufficient taxable income prior to the expiration of the
net operating loss carryforwards. Additionally, based on ownership changes which
occurred in 1997 and in prior years, it is expected that the annual utilization
of the otherwise available net operating loss carryforwards will be limited by
the provisions of Sections 382 and 383 of the Internal Revenue Code, as amended.
As such the Company may be restricted as to the utilization of its net operating
loss. The Company believes that significant issuances of additional stock could
trigger an additional change and a new limitation.
Net Loss Per Share
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. There was no effect to the Company's financial statements of
adopting SFAS 128.
Stock-Based Compensation
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the standard, the Company elected to continue
to account for its stock-based compensation under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations (APB 25). Under APB 25, because the exercise price of the
Company's stock options granted equals the market price of the underlying stock
on the date of the grant, no compensation expense is required to be recognized
except in the case of options issued which are subject to shareholder approval
(see Note 7)
F-7
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
Reclassification
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
3. Inventories
Inventories consisted of the following at December 31, 1997:
Raw materials $ 760,000
Work in process 976,000
Finished goods 4,542,000
----------
Total $6,278,000
==========
Inventories at September 22, 1997 (date of acquisition of Drew Shoe) were
approximately $6,175,000.
4. Property and equipment
Property and equipment consists of the following at December 31, 1997 and
were depreciated and amortized utilizing the estimated useful lives indicated
below:
Range of
Estimated December
Useful Lives 31, 1997
------------ ----------
Land $ 100,000
Buildings and improvements 10-35 years 726,000
Equipment, furniture and fixtures 5-10 years 2,924,000
Leasehold improvements 2-5 years 51,000
----------
Total 3,801,000
Less accumulated depreciation 832,000
----------
Total $2,969,000
----------
Approximately $2,839,000, net of accumulated depreciation and
amortization, of the total property and equipment was acquired in September 1997
as part of the acquisition of Drew Shoe.
5. Acquisition of Drew Shoe
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 shareholders of Drew
Shoe of an aggregate of $3,882,000 in cash, promissory notes in the aggregate
principal amount of $400,000 (See Note 6) and by delivery of an aggregate of
375,000 unregistered shares of the Company's Common Stock (valued at
approximately $1.20 per share to reflect a discount for lack of registration).
The promissory notes bear interest at 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 6 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 credit
facility with a commercial bank (guaranteed by the Company) which is further
described in Note 6.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. In addition, Drew Shoe operates 15
retail shoe specialty stores. The Company has accounted for
F-8
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
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 years ended December 31, 1997 and 1996 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 that are discussed in Notes 6 and 7) and the
amortization of fair value adjustments (principally for increased depreciation).
The Company has not included a provision for income taxes because it believes
that it will have sufficiently available net operating losses available to
offset anticipated profits from Drew Shoe. This summary may not be indicative of
what the actual results of operations would have been had the purchase occurred
at the beginning of each period shown.
1997 1996
----------- -----------
Revenues $15,083,000 $14,638,000
=========== ===========
Loss from operations $(1,321,000) $(1,123,000)
=========== ===========
Loss from Continuing Operations (excluding
non-recurring charges in 1997) $(2,905,000) $(2,506,000)
=========== ===========
Net loss (excluding non-recurring charges in
1997) $(4,280,000) $(2,751,000)
=========== ===========
Net loss per share (excluding non recurring
charges in 1997) $ (0.26) $ (0.19)
=========== ===========
6. 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 the date of
the Drew Shoe acquisition, the Company believes there was 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, 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%
(10% at December 31,1997). 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%
(10% at December 31, 1997) and is payable in monthly installments 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
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.
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
F-9
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
"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. Such conversion
feature is subject to antidilution provision in certain circumstances including
the issuance of Common Stock and warrants in 1998 discussed below. 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 additional
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). At December 31, 1997,
the Company was in violation of such covenants. 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 ($6,000,000) in approximately one year or face default
and on the security. It is the Company's intention to refinance or otherwise
restructure this obligation. The Company expects to take a significant charge to
operations in 1998 in connection with the finalization of the restructuring of
the debt.
The Non-Redeemable Class DD Warrants entitle the holders to purchase, as
amended, 2,000,000 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, recorded approximately $1,872,000 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 resulting in a discount to the value
assigned to the Convertible Notes. Such amount is being amortized over the
five-year term of the Convertible Notes.
The private placement of convertible notes and warrants to one investor
group (aggregating $5,000,000 of the total $6,000,000) was made with the
assistance of an investment banker who charged a cash fee of 6% ($300,000) plus
187,500 unregistered shares of common stock (valued at $1.20 per share to
reflect a discount for lack of registration), and Class EE 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 $1,025,000. This amount has been apportioned
between Deferred financing costs, and acquisition costs of Drew Shoe. The
portion allocated to Deferred financing costs (approximately $775,000), 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.
The market value of the Company's common stock on the Nasdaq SmallCap
market on the date of the transaction was approximately $1.50.
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 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 Convertible Preferred Stock of
BCA Services, Inc., a subsidiary of the Company, described in Note 7). 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 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 value of the beneficial debt conversion feature of the
Convertible Notes measured at the date of issuance) to Unamortized Charge for
Beneficial Debt Conversion in the shareholders' equity section of its
Consolidated
F-10
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
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. See, however, the discussion of
the restructuring of this financing above. This charge to operations is
considered a non-recurring charge in the preparation of the summary pro-forma
data contained in Note 5. This charge is in addition to amortization of Deferred
financing costs and the debt discount related to the Convertible Notes
(approximately $1,872,000), over the five-year term of the Convertible Notes.
At December 31, 1997, long term debt consists of the following:
10%/13% Convertible Notes, face amount
$6,000,000, net of approximately $1,767,000 of
unamortized debt discount with interest payable
on March 19 and September 19, due April 16,
1999 unless earlier converted $4,233,000
Revolving credit arrangement with a bank,
payable on September 30, 1999, bearing interest
at prime plus 1.5% 2,618,000
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. 976,000
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 375,000
Amount payable to parties related to former
owners and an officer of Drew Shoe due December
31, 1998, bearing interest at prime 214,000
Other, net 19,000
----------
Total long term debt 8,435,000
less: current portion 463,000
----------
$7,972,000
==========
Principal payment requirements on the above obligations, adjusted for the
debt restructure described above is approximately as follows subsequent to
December 31, 1997:
Years ended Amount
---------- -----------
1998 $ 463,000
1999 9,049,000
2000 690,000
-----------
10,202,000
-----------
Less unamortized debt discount (1,767,000)
-----------
Total Long-term Debt at December 31, 1997 $ 8,435,000
===========
F-11
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
7. Shareholders' Equity
1997 Sale of Convertible Preferred Stock of Subsidiary - On July 22, 1997,
September 8 and September 18, 1997, BCA Services, Inc. ("BCA"), previously
wholly-owned by the Company, sold 120 shares of BCA's Convertible Preferred
Stock (the "Preferred Stock") for an aggregate consideration of $1,200,000 in
two private offerings to accredited investors.
The Preferred Stock is convertible into shares of the Company's common
stock at a price equal to a fixed discount (30%) of the average closing bid
price of the common stock over a period of time ending on the day preceding the
conversion date and subject to a ceiling price.
In addition, for 100 of the shares of Preferred Stock sold, the Company
issued Non-Redeemable Class BB Warrants to purchase 50,000 shares of common
stock at $0.72 per share. For 20 shares of Preferred Stock sold, the Company
issued Non-Redeemable Class CC Warrants to purchase 10,000 shares of common
stock at $1.03 per share. The Class BB and CC Warrants have a term of five years
and the underlying common stock has been registered by the Company.
The two private placements of BCA Preferred Stock were made with the
assistance of a placement agent. The placement agent charged a commission of 8%
in fees and 2% in expenses, plus warrants to purchase 50,000 shares of common
stock of the Company at approximately $0.72 per share for five years, for the
first offering ($1,000,000). The placement agent charged 6% in fees and no
warrants for the second offering ($200,000).
At December 31, 1997, $500,000 of the Preferred Stock had been converted
into 706,226 common shares of the Company at a weighted average conversion price
of approximately $0.71. Subsequent to December 31, 1997, the remaining $700,000
of the Preferred Stock has been converted into 1,066,585 shares of common stock
at $0.66 per share resulting in the transfer of $618,000 of minority interest at
December 31, 1997 into shareholders equity.
See Note 6 for a discussion of 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 interest" in the
consolidated financial statements until its conversion into common stock of the
Company. The "beneficial" conversion feature, therefore, has been charged to
Minority interests (approximately $788,000) in the accompanying Consolidated
Statement of Operations. Such amount is considered a non-recurring charge in
preparation of the summary pro forma data in Note 5.
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 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.
Authorized shares/Shares reserved for future issuance - At the annual
meeting of shareholders on February 19, 1998 (including an adjournment to March
16, 1998), the shareholders of the Corporation approved an increase in the
authorized shares of common stock from 40,000,000 shares to 65,000,000 shares.
Additionally, the shareholders approved the adoption of changes to the bylaws of
the Corporation to, among other matters, permit the Board of Directors to issue
up to 2,000,000 shares of Preferred Stock of the Company on terms to be set by
the Board of Directors.
The Company is also authorized to issue up to 750,000 shares of its
acquisition preferred stock, $.01 par value, none of which are presently issued
and outstanding. The acquisition preferred stock is permitted to be issued
pursuant to (i) a statutory merger or consolidation in which the Company is the
surviving entity, (ii) the acquisition by the Company of substantially all the
assets or business of another entity or (iii) the acquisition by the Company of
50% or more of the voting securities of another entity. The Board of Directors
is authorized to fix, before issuance, the voting powers, designations,
preferences and other rights, qualifications, limitations and restrictions
applicable to each series of acquisition preferred stock.
Common shares reserved for future issuance as of December 31, 1997,
adjusted in the case of the 1998
F-12
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
stock option plan for the February 1998 increase to the shares available under
such plan, are approximately as follows:
Units sold in public offering in 1990:
Class B warrants, subject to antidilution (see below)............ 1,292,000
Class E warrants, subject to antidilution (see below)............ 737,000
Unit Options, expired in 1997.................................... 0
Conversion feature of 10%/13% Convertible Notes, subject
to antidilution and "pay in kind" provisions ($0.80, 2002
see Note 6) .................................................... 7,500,000
Conversion feature of BCA Preferred stock, stated at amount
actually converted in full prior to March 31, 1998, (see
above) ......................................................... 1,067,000
Third party options (see table below)............................ 1,050,000
1989 Stock Option Plan (see below)............................... 432,000
1989 Nonstatutory Plan (see below)............................... 25,000
1995 Stock Option Plan (as amended in 1998, see below)........... 8,000,000
Warrants issued in private placements:
Class C warrants, expired during 1997........................... 0
Class D warrants, expired during 1997........................... 0
Class AA warrants ($0.65, 2002, see above)...................... 1,075,000
Class BB warrants ($0.72, 2002, see above)...................... 100,000
Class CC warrants ($1.03, 2002, see above)...................... 10,000
Class DD warrants ($1.75, 2002, see above)...................... 2,400,000
Class EE warrants ($0.80, 2002 see Note 6)...................... 500,000
----------
24,188,000
----------
Class B and Class E Warrants - The Company's Class B warrants were issued
in connection with a 1990 public offering of securities of the Company. The
Class E Warrants were issued in connection with a "Discounted Warrant Plan"
offered to holders of the Class A Warrants (all of which have been exercised or
expired) and Class B Warrants issued in connection with the public offering in
1990. The Class B and Class E Warrants are presently exercisable, were due to
expire in January 1998, have been extended to October 17, 1998 and are subject
to anti-dilution provisions. As a result of the financings completed in 1997,
the anti-dilution provisions of the warrants were triggered and resulting in the
following revisions to the warrant price and the number of shares subject to
warrant:
<TABLE>
<CAPTION>
Exercise price Number of shares Exercise price Number of shares
per warrant per warrant per share subject to warrant
-------------- ---------------- ----------------------------------
<S> <C> <C> <C> <C>
Class B Warrants:
- -----------------
Previous $1.50 1.2 $1.25 969,191
Current $1.14 1.6 $ .71 1,292,254
Class E Warrants:
- -----------------
Previous $1.25 1.1 $1.14 540,747
Current $0.95 1.5 $ .63 737,382
</TABLE>
The 1998 private placement discussed in the following paragraphs may
trigger the operation of antidilution provisions of the Class B and Class E
warrants and will trigger the operation of the antidilution provisions of the
10%/13% Convertible Notes discussed in Note 6.
F-13
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1998 Private placement of common shares and warrants - Beginning on April
14, 1998, the Company commenced a private offering of its common stock and
warrants. The offering contemplates 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 seven
accredited investors. Through April 16, 1998 the Company issued 1,881,188 shares
of common stock, together with warrants to purchase 237,500 common shares at
$2.05 per share for three years, to private investors in exchange for
$1,900,000, less $475,000 held in escrow pending the Company's filing of a
registration statement covering the shares and shares underlying the warrants
prior to June 13, 1998. 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 is exposed to significant
penalties for failure to have a registration statement declared effective
covering such shares within 130 days, has agreed not to issue certain financings
and has agreed to pay a placement agent a 6.5% fee in connection with the
transaction.
Stock Options
In June 1995, the shareholders of the Company approved the adoption of the
1995 Stock Option Plan (the "1995 Plan"). The 1995 Plan supercedes and closes
all prior option plans and provides for the granting of incentive stock options
("ISOs") and/or nonqualified stock options to employees, directors or
consultants of the Company to purchase an aggregate of 2,000,000 shares of the
Company's common stock. The option price per share for ISOs granted under the
1995 Plan shall not be less than the fair market value of the Company's common
stock on the date of grant. Options vest and are exercisable over various
periods up to ten years from the date of grant. No option may be granted under
the 1995 Plan after June 2005. At December 31, 1996, there were 219,500 shares
available for granting of future options.
In 1997, the Company issued option grants under the 1995 Plan to purchase
an aggregate of 3,984,000 shares of Common Stock of the Company, approximately
3,764,500 of which were subject to approval by shareholders of an amendment to
the Company's 1995 Plan. The amendment, approved at the 1997 Annual Meeting of
Shareholders in February 1998, increases the number of shares under the 1995
Plan from 2,000,000 to 8,000,000 shares.
In 1989, the shareholders of the Company approved the adoption of a 1989
Stock Option Plan (the "1989 Plan"). The 1989 Plan provided for the granting of
incentive stock options and/or nonqualified stock options to key employees and
consultants to purchase shares of the Company's common stock at a price per
share not less than the fair market value on the date of grant. In 1992, the
Plan was amended to: (a) increase the number of shares to 1,565,957, (b) permit
the granting of nonqualified stock options at a price per share less than the
fair market value of the Company's common stock on the date of grant and (c)
permit options to be exercised up to two years after termination of employment
under certain circumstances. Options vest and are exercisable over various
periods up to six years from the date of grant.
In 1989, the Company also adopted a Nonstatutory Stock Option Plan (the
"1989 Nonstatutory Plan") for directors. Under the 1989 Nonstatutory Plan, the
Company could grant options for the purchase of an aggregate of 355,000 shares
of common stock at not less than fair market value at the date of grant.
Pursuant to the terms of the 1995 Plan, no options may be granted under the 1989
Plan or the 1989 Nonstatutory Plan subsequent to June 22, 1995.
Option activity during each of the two years ended December 31, 1997 for
the 1989 Plan and the 1989 Nonstatutory Plan is summarized as follows:
F-14
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
<TABLE>
<CAPTION>
1989 Nonstatutory Plan 1989 Plan
Shares Under Option Shares Under Option
------------------------------------------------------------------
Weighted
Number Average Number
Option price of Option price per Exercise of
per share Shares share Price Shares
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 100,000 452,000
Exercised -- $0.92 (2,500)
Cancelled/expired -- $0.92 to $3.13 $2.18 (17,500)
-------
Balance at December 31, 1996 100,000 $1.94 432,000
Exercised $1.13 (25,000) --
Cancelled/expired $1.10 to $1.13 (50,000) --
------- -------
Balance at December 31, 1997 25,000 $1.94 432,000
======= =======
</TABLE>
Option activity during each of the two years ended December 31, 1997 for the
1995 Plan is summarized as follows:
1995 Plan
Shares Under Option
-------------------------------------------
Weighted Number
Option price per Average of
share Exercise Price shares
-------------------------------------------
Balance at January 1, 1996 $1.04 1,932,500
Granted $0.95 to $1.20 $1.09 193,000
Cancelled/expired $0.92 $1.09 (350,000)
Exercised $0.92 $0.92 (20,000)
---------
Balance at December 31, 1996 $1.04 1,755,500
Granted $0.75 to $1.52 $1.09 3,984,000
Cancelled/expired $0.92 to $1.68 $1.17 (55,000)
---------
Balance at December 31, 1997 5,684,500
=========
Of the options issued in 1997, options to purchase approximately 3,684,500
shares were issued subject to approval of the Company's shareholders. Such
approval was received in February 1998. Generally accepted accounting principles
require that a charge to compensation expense be made if the market value of the
stock on the date of shareholder approval exceeds the market value on the date
of grant. The closing bid price of the Company's common stock on the date of the
shareholder vote was approximately $1.41. Options to purchase approximately 1.8
million shares were granted at prices that, although fair market value at the
time of grant, were lower than $1.41. As a result, the Company will record a
charge to compensation expense of approximately $1,200,000 in the first quarter
of 1998.
Primarily as a result of the acquisition activity of the Company, 550,000
fully vested nonstatutory stock options were granted to eight investment bankers
and other vendors who, as third parties, are outside of the 1995 Plan, as
amended. The options are exercisable for from two to ten years, 375,000 shares
at a price of $0.75 per share and 175,000 shares at a price of $1.52 per share.
During 1996, the Company granted 100,000 fully vested nonstatutory stock
options at fair market value to a third
F-15
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
party, which are exercisable for a period of ten years at a price of $1.17 per
share. In addition, during 1995, the Company granted 300,000 fully vested
nonstatutory stock options at fair market value to a third party, which are
exercisable for a period of eighteen months at a price of $1.05 per share, and
5,000 nonstatutory stock options at fair market value to a third party, which
were cancelled in 1996. Further, in 1994 the Company granted 100,000
nonstatutory stock options at fair market value to a third party, which vest
ratably over two years and are exercisable for a period of five years at a price
of $1.69 per share. At December 31, 1997, 1,050,000 of these options are
outstanding.
The following table summarizes information about the options to third
parties (1,050,000) and warrants not reflected as granted as part of any option
plan.
Options/warrants
Outstanding
-------------------------------------------------------------------------
Weighted Average
Range of Number Outstanding at Remaining Weighted Average
Exercise Price December 31, 1997 Contractual Life Exercise Price
-------------------------------------------------------------------------
$0.65 to $1.00 2,787,382 3.2 years $0.77
$1.01 to $1.75 4,377,254 3.4 years $1.50
=========================================================================
$0.65 to $1.75 7,164,636 3.3 years $1.22
=========================================================================
The Company recorded a charge to selling, general and administrative costs
of approximately $175,000 for the year ended December 31, 1997 related to the
estimated fair value of the options granted to consultants.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based compensation"
which requires that the information be determined as if the Company has
accounted for its stock options granted subsequent to December 31, 1994 under
the fair value method of that statement. The fair value for these options was
estimated at the date of the grant using a Black-Scholes option pricing model.
The Company's pro forma information follows:
December 31, December 31,
1997 1996
------------ ------------
Pro forma net loss:
Continuing operations $(4,995,000) $(1,617,000)
Discontinued operations (1,376,000) (245,000)
----------- -----------
Total $(6,371,000) $(1,862,000)
=========== ===========
Pro forma net loss per share:
Basic
Continuing operations $ (.31) $ (.11)
Discontinued operations $ (.09) $ (.02)
----------- -----------
$ (.40) $ (.13)
----------- -----------
Assuming dilution
Continuing operations $ (.32) $ (.11)
Discontinued operations $ (.09) $ (.02)
----------- -----------
$ (.41) $ (.13)
=========== ===========
The fair value of these options at the date of the grant was estimated
with the following weighted average assumptions for 1997 and 1996: risk free
interest rates ranging from 6.25% to 6.36%, no dividend yield, volatility factor
of the expected market price of the Company's common stock ranging from 49% to
76%, and a weighted average expected life of the options ranging from six to ten
years. Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994 and employee stock options granted vest over a period from one
to four years, its pro forma effect will not be fully reflected in pro forma net
loss.
F-16
<PAGE>
BCAM International, Inc. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
The following table summarizes information about stock options, including
those to third parties, outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ------------------------
Number Weighted Average Weighted Number Weighted
Outstanding at Remaining Average Outstanding at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Price 1997 Life Price 1997 Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.75-$1.00 2,950,500 8.1 years $0.78 1,465,083 $0.78
$1.01-$2.00 4,033,000 7.5 years $1.33 1,614,750 $1.21
$2.01-$3.22 208,000 1.3 years $2.65 207,000 $2.65
- ------------------------------------------------------------------------------------
$0.75-$3.22 7,191,500 7.5 years $1.14 3,286,833 $1.11
====================================================================================
</TABLE>
The weighted average fair value of all stock options granted in 1997 was $.63
per share.
F-17
<PAGE>
8. 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
December 31, 1997, assets of the ECSD were approximately, 155,000, consisting
principally of billed and unbilled receivables, and liabilities were
approximately $76,000 consisting principally of trade payables. 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.
There was no material severance paid in connection with the discontinuance of
the ECSD. Revenues, gross margin and net loss for ECSD are approximately the
following for the years ended December 31, 1997 and 1996:
1997 1996
--------- ---------
Revenues $ 467,000 $ 576,000
Gross Margin $ 183,000 $ 247,000
Net Loss $(356,000) $(245,000)
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 is seeking a strategic or possible management buyer for a majority of
HCAD.
The measurement date for the discontinuance is February 1998, at which
time losses from January 1, 1998 through February 1998 will be recorded and a
provision for discontinued operations (principally severance and non-cancellable
lease costs) will be made. Such amount is expected to exceed $500,000. The
Company has reflected the 1997 operations of HCAD as a discontinued operation in
the December 31, 1997 financial statements. At December 31, 1997, assets of the
HCAD were approximately $98,000 consisting principally of customer receivables,
certain computer and communications equipment, furniture, and inventory.
Liabilities were approximately $60,000 consisting principally of trade payables
and payroll. Revenues, gross margin and net loss for HCAD are approximately the
following for the year ended December 31, 1997 (HCAD did not operate in 1996):
1997
-----------
Revenues $ 135,000
Gross Margin $ 125,000
Net Loss $(1,000,000)
F-18
<PAGE>
9. Commitments and contingencies
Leases - The Company leases its office space for a term extending through
March 31, 2000. In August, 1996, this lease was modified to reflect a reduction
in leased space. Additionally, the Company has entered into various operating
leases for equipment. Future minimum payments under non-cancelable operating
leases for years December 31 are as follows:
1998 $541,000
1999 406,000
2000 256,000
2001 77,000
Thereafter 88,000
Rent expense in 1997 and 1996, under all operating leases, was
approximately $550,000 and $179,000, respectively.
Collective bargaining agreement - Approximately 155 of Drew Shoe's
approximately 255 employees are covered by a collective bargaining agreement
with a union. The contract covering such employees is due to expire in May 1998.
Litigation - In January 1998, a third party filed suit against the
Company's Drew Shoe subsidiary alleging 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.
10. Pension
The Company has two noncontributory, defined benefit pension plans
covering substantially all employees. Benefits under the plan covering nonunion
employees are based on average monthly compensation and years of service.
Benefits under the plan covering union employees are based on years of service.
The Company's policy is to make contributions to the plans sufficient to meet
minimum funding requirements. Effective September 3, 1997, the Company's
non-union plan was frozen and no future benefits will accrue to participants in
the plan. The net pension liability at December 31, 1997 reflects the result of
these plan changes.
F-19
<PAGE>
A summary of the components of net periodic pension cost for the period
from September 22, 1997 to December 31, 1997 is as follows:
Service cost $ 9,000
Interest 33,000
Actual return on plan assets (14,000)
Amortization and deferral (4,000)
--------
Net pension cost $ 24,000
========
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet as of December 31, 1997:
Actuarial present value of benefit obligation:
Vested benefit $1,525,000
Nonvested benefits 70,000
----------
Accumulated and projected benefit obligation 1,595,000
Plan assets at fair market value 1,056,000
----------
Accumulated benefit obligations in excess of
plan assets 539,000
Accrued pension cost $ 539,000
Significant assumptions used in the accounting for the defined benefit plans
were as follows:
Discount rate 7.00%
Expected long-term rate of return on assets 8.25%
The plans assets are invested in an annuity investment fund, certificates
of deposit, insurance contracts and interest bearing cash accounts.
11. Other
Other assets- Other noncurrent assets principally include patent costs of
approximately $147,000 (net of related amortization of approximately $61,000),
and cash surrender value of life insurance (approximately $88,000). Goodwill
(preliminary) in connection with the Drew acquisition is included in other
assets and totals approximately $21,000.
Other non-current liabilities- Other non-current liabilities consist
principally of accrued pension cost and certain non-current obligations under
contracts and commitments in connection with the acquisition of Drew Shoe.
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 elected not to 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 year
ended December 31, 1997.
Charges to fourth quarter operations - Significant charges to operations
in the fourth quarter of 1997 include: (i) approximately $175,000 for the
estimated value of options granted to consultants in May and September 1997,
(ii) accrual of contractual management bonuses for three executives of
approximately $75,000 (including $25,000 related to discontinued operations),
(iii) write off of approximately $75,000 of capitalized software costs no longer
considered realizable (included in discontinued operations) and (iv) costs of
approximately $235,000 related to a collaborative research effort (microvalve)
and certain software development costs.
F-20
<PAGE>
Advertising expense - Advertising expense for Drew Shoe were approximately
$125,000 for the period of inclusion of Drew Shoe in the Company's financial
statements for 1997. Such costs are expensed as incurred.
Significant customer - One customer accounts for approximately 11% of the
Company's revenues for the year ended December 31, 1997. This information is not
meaningful for the year ended December 31, 1996 due to the level of revenue and
the discontinued operations.
F-21
<PAGE>
BCAM International, Inc. and subsidiaries
Condensed Consolidated Balance Sheet (Unaudited)
March 31, 1998
Assets
Current assets:
Cash and cash equivalents $ 656,000
Accounts receivable, less allowance for doubtful accounts of
approximately $90,000 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 $ 573,000
Accounts payable 1,829,000
Accrued expenses and other current liabilities 1,365,000
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 --
Commitments and contingencies --
Shareholders' equity
Acquisition preferred stock, 750,000 shares authorized,
none issued --
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
============
See accompanying notes
F-22
<PAGE>
BCAM International, Inc. and subsidiaries
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) 7,000
------------ ------------
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
F-23
<PAGE>
BCAM International, Inc. and subsidiaries
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 51,000 --
----------- -----------
Net cash (used in) operating activities (907,000) (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 -- --
Drawdown (payment) of revolving credit agreement 171,000 --
Cash paid for deferred financing, stock issuance and registration costs -- (48,000)
----------- -----------
Net cash provided by financing activities 99,000 1,027,000
----------- -----------
(Decrease) increase in cash and cash equivalents (938,000) 385,000
Cash and cash equivalents at beginning of period 1,594,000 527,000
----------- -----------
Cash and cash equivalents at end of period $ 656,000 $ 912,000
=========== ===========
</TABLE>
See accompanying notes
F-24
<PAGE>
BCAM International Inc. and subsidiaries
Condensed Consolidated Statement of Common Shareholders' Equity
<TABLE>
<CAPTION>
Unamortized
Common Stock $.01 par value Charge for
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 (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
in
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
Amortization of beneficial debt conversion 1,493,000 1,493,000
Record compensation element of
stock options 1,144,000 1,144,000
Net loss (4,183,000) (4,183,000)
------------------------------------------
Balance at March 31, 1998 $ 2,065,000 $ (899,000) $ 1,166,000
==========================================
</TABLE>
See accompanying notes.
F-25
<PAGE>
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 Systems Division
("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 historically 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).
F-26
<PAGE>
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 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 $ (228,000)
-----------
Loss from continuing operations,
excluding non-recurring charges $ (593,000)
-----------
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
("revolver") 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, Drew
Shoe had outstanding borrowings of approximately $2,789,000 under the revolver
and believes it had another approximately $311,000 available.
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 May 14, 1998,
requires Drew Shoe to maintain compliance with certain financial covenants,
principally net worth and cash interest coverage, and contains restrictions on
the transfer of cash to the Company.
F-27
<PAGE>
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 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 10%, payable
semi-annually, but the Company, at its discretion, may pay interest in the form
of additional Convertible Notes ("payment in kind") in which case the annual
interest rate becomes 13% with semi-annual compounding.
On March 19, 1998, the Company elected to make the semiannual interest
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 obligation. 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 have been 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 discussed above). 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
F-28
<PAGE>
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 Condensed 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 Condensed 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
September 19, due April 16, 1999 unless earlier converted $4,717,000
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
-----------
F-29
<PAGE>
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 a 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 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
F-30
<PAGE>
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-cancelable
lease costs) has been made. At March 31, 1998, assets of the HCAD were
approximately $90,000 (principally receivables and equipment) and liabilities
(excluding intercompany) were approximately $300,000 consisting principally of
trade payables and payroll.
Revenues and net loss for ECSD and HCAD discontinued operations are
approximately the following for the quarter ended March 31, 1998 and 1997:
1998 1997
---------- ----------
Revenues $ 202,000 $ 71,000
Net Loss $ (803,000) $ (50,000)
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.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholder
Drew Shoe Corporation
We have audited the accompanying statements of operations and cash flows
of DREW SHOE CORPORATION for the period from January 1, 1997 to September 22,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Drew Shoe
Corporation for the period from January 1, 1997 to September 22, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Melville, New York
March 15, 1998
F-32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholder
Drew Shoe Corporation
We have audited the accompanying statements of operations and cash flows
of DREW SHOE CORPORATION for the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Drew Shoe
Corporation for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ J.H. COHN LLP
Roseland, New Jersey
September 26, 1997
F-33
<PAGE>
DREW SHOE CORPORATION
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM
JANUARY 1, 1997 THROUGH SEPTEMBER 22, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
January 1, 1997 through Year Ended
September 22, 1997 December 31, 1996
----------------------- -----------------
Net sales $ 11,124,000 $ 14,609,000
Cost of goods sold 6,657,000 9,147,000
------------ ------------
Gross profit 4,467,000 5,462,000
------------ ------------
Operating expenses:
Selling 2,690,000 3,477,000
General and administrative 1,358,000 1,700,000
------------ ------------
Totals 4,048,000 5,177,000
------------ ------------
Operating income 419,000 285,000
------------ ------------
Interest expense (261,000) (338,000)
Interest and other income 33,000 79,000
------------ ------------
Net income $ 191,000 $ 26,000
============ ============
See Notes to Financial Statements.
F-34
<PAGE>
DREW SHOE CORPORATION
STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM
JANUARY 1, 1997 THROUGH SEPTEMBER 22, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
January 1, 1997 through Year Ended
September 22, 1997 December 31, 1996
----------------------- -----------------
<S> <C> <C>
Operating activities:
Net income $ 191,000 $ 26,000
Adjustments:
Depreciation and amortization 188,000 248,000
Changes in operating assets and liabilities:
Accounts receivable (512,000) 433,000
Inventories 316,000 (712,000)
Prepaid expenses and other (236,000) 25,000
Accounts payable 235,000 26,000
Accrued expenses (104,000) 120,000
--------- ---------
Net cash provided by operating activities 78,000 166,000
--------- ---------
Investing activities:
Purchases of property and equipment (118,000) (266,000)
(Increase) decrease in cash value of life
insurance and other (19,000) 59,000
--------- ---------
Net cash used by investing activities (137,000) (207,000)
--------- ---------
Financing activities:
Net proceeds under revolving note agreement 852,000 218,000
Proceeds from long-term debt -- 24,000
Principal payments on long-term debt (628,000) (146,000)
Distributions to shareholders (60,000) (56,000)
--------- ---------
Net cash provided by financing activities 164,000 40,000
--------- ---------
Net increase (decrease) in cash 105,000 (1,000)
Cash, beginning of period 27,000 28,000
--------- ---------
Cash, end of period $ 132,000 $ 27,000
========= =========
Supplemental disclosure of cash flow data:
Interest paid $ 259,000 $ 329,000
========= =========
Supplemental disclosure of noncash investing
and financing information:
Change in additional pension liability:
Increase (decrease) in intangible pension asset $ 106,000 $(237,000)
Increase in stockholders' equity (51,000) (180,000)
--------- ---------
Totals $ 55,000 $(417,000)
========= =========
</TABLE>
See Notes to Financial Statements.
F-35
<PAGE>
Note 1 - Business and summary of accounting policies:
Business:
Drew Shoe Corporation (the "Company") designs, manufactures, imports,
markets and distributes women's and men's shoes for sale to independent
retailers and through Company-owned retail operations throughout the
United States.
Basis of accounting/Use of estimates:
The accompanying financial statements are prepared on the historical basis
of accounting of the Company prior to its acquisition, on September 22,
1997, by BCAM International, Inc. ("BCAM"). Results of operations and cash
flows on the historical basis of accounting may not be indicative of
future results of operations. This is because, among other factors, the
additional depreciation, amortization or other charges which may result
from the revaluation of the assets and liabilities of the Company in
connection with the acquisition. Further, the recording of other
acquisition adjustments, as well as future events and conditions, may
affect comparisons. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Financial instruments and off-balance-sheet risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
accounts receivable. The Company maintains its cash in bank deposit
accounts that, at times, may exceed Federally insured limits.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base, their dispersion across different geographic areas, and
generally short payment terms. In addition, the Company routinely assesses
the financial strength of its customers.
Inventories:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property and equipment:
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets.
Goodwill:
Goodwill, included in other assets, is amortized on a straight-line basis
over periods ranging from five to twenty years.
Revenue recognition:
Revenue from wholesale product sales is recognized at the time products
are shipped. Revenue from retail product sales through Company-owned
retail operations is recognized at the point of sale.
Income taxes:
F-36
<PAGE>
The Company has elected to be treated as an "S" Corporation under the
applicable sections of the Internal Revenue Code. Under these sections,
corporate income or loss, in general, is allocated to the stockholders for
inclusion in their personal income tax returns. Accordingly, there is no
provision for Federal income taxes in the accompanying financial
statements. The Company has also elected to be treated as an "S"
Corporation in the states in which it files corporate income tax returns.
Accordingly, no provision for state income taxes has been provided in the
accompanying financial statements.
Advertising:
The Company expenses the cost of advertising as incurred. Advertising
costs charged to operations were approximately $321,000 and $364,000 for
the period from January 1, 1997 through September 22, 1997 and for the
year ended December 31, 1996, respectively.
Note 2 - Inventories:
Inventories used in the computation of cost of goods sold were
approximately $6,378,000 and $6,694,000 at September 22, 1997 and December
31, 1996, respectively.
Note 3 - Property and equipment:
Property and equipment consists of the following at September 22, 1997 and
December 31, 1996, respectively, and were amortized utilizing the estimated
useful lives indicated below:
Range of
Estimated September December
Useful Lives 22, 1997 31, 1996
------------ ---------- ---------
Land $ 100,000 $ 100,000
Building and improvements 10-35 years 857,000 865,325
Machinery and equipment 5-13 years 2,742,000 2,614,715
------------ -----------
Total 3,699,000 3,580,040
Less accumulated depreciation 2,397,000 2,229,895
------------ -----------
Total $ 1,302,000 $ 1,350,145
============ ===========
F-37
<PAGE>
Note 4 - Notes payable - and long term debt:
Charges for interest included in the accompanying Statements of Operations
and Cash Flows are based principally upon the following historical
borrowings of the Company:
Approximate
Weighted Average
Borrowings
------------
To September
22, 1997
------------
Revolving credit (prime) and Bankers Acceptance
($500,000 at 7.25%) facility with a Bank $2,164,000
Mortgage Note payable with interest at prime plus .25 375,000
Notes payable to related party with interest at prime 214,000
Debentures payable to related parties with interest
at 10% 845,000
All other 25,000
----------
Total $3,623,000
==========
The Revolving Credit and Banker Acceptance facility, Mortgage Notes and
Debentures were repaid on September 22, 1997 in connection with the
acquisition by BCAM. Interest charged to the Statement of Operations for
related parties approximated $108,000 and $119,000 in the period ended
September 22, 1997 and the year ended December 31, 1996.
Principal payment requirements on the above obligations, as adjusted for
the refinancing discussed in Note 9, in each of the five years subsequent
to December 31, 1997 are as follows:
Year Ending
December 31, Amount
------------ ----------
1998 $ 148,000
1999 2,980,000
2000 694,000
2001 2,000
2002 2,000
Note 5 - Pension plans:
The Company has two noncontributory, defined benefit pension plans
covering substantially all employees. Benefits under the plan covering
nonunion employees are based on average monthly compensation and years of
service. Benefits under the plan covering union employees are based on
years of service. The Company's policy is to make contributions to the
plans sufficient to meet minimum funding requirements. Effective September
3, 1997, the Company's non-union plan was frozen and no future benefits
will accrue to participants in the plan. The net pension liability at
December 31, 1997 reflects the result of these plan changes with no
material curtailment gain or loss.
A summary of the components of net periodic pension cost for the period
from January 1, 1997 to September 22, 1997 and for the year ended December
31, 1996 is as follows:
F-38
<PAGE>
1997 1996
--------- ---------
Service cost $ 28,000 $ 136,000
Interest 100,000 144,000
Actual return on plan assets (40,000) (46,000)
Amortization and deferral (13,000) (13,000)
--------- ---------
Net pension cost $ 75,000 $ 221,000
========= =========
Significant assumptions used in the accounting for the defined benefit
plans were as follows:
Discount rate 7.00%
Expected long-term rate of return on assets 8.25%
Effective September 3, 1997, the accrual of future benefits under the
nonunion defined benefit pension plan was suspended. The effect of the
curtailment of the nonunion plan on the Company's financial statements at
December 31, 1996 cannot currently be determined.
Note 6 - Commitments and other matters:
Lease commitments:
The Company leases retail space and certain machinery and equipment
under operating leases that expire through 2003. Related rent
expense amounted to approximately $269,000 and $369,000 for the
period from January 1, 1997 through September 22, 1997 and for the
year ended December 31, 1996, respectively.
Future minimum rental payments required under the non-cancelable
operating leases in years subsequent to December 31, 1997 are as
follows:
Year Ending
December 31, Amount
------------ --------
1998 $390,000
1999 251,000
2000 100,000
2001 38,000
2002 28,000
Collective bargaining agreement:
At September 22, 1997, approximately 60% of the Company's workforce
is represented under a collective bargaining agreement which expires
May 31, 1998.
Concentrations:
The Company relies to a large extent on medical footwear for sales.
Approximately 60% of the Company's sales are women's shoes. One
customer accounts for more than approximately 11% of the Company's
sales.
Note 7 - Provision for income taxes:
A reconciliation of income taxes based on pre-tax income and the Federal
statutory rate to the Company's effective rate for the period from January
1, 1997 through September 22, 1997 and the year ended December 31, 1996
F-39
<PAGE>
follows:
Period ended Year ended
September December
22, 1997 31, 1996
------------ ----------
Federal statutory income tax rate 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of Federal
tax benefit 7.8 7.0
"S" Corporation income not subject
to Federal or state tax (48.6) (42.7)
Other 6.8 1.7
------------ ----------
Effective rate --% --%
============ ==========
Note 8 - Unaudited proforma income tax information:
Unaudited proforma income tax information as if the Company had been a "C"
Corporation subject to Federal and state income taxes follows:
Period ended Year ended
September December
22, 1997 31, 1996
--------- ---------
Income before income taxes $ 191,000 $ 26,000
Pro forma provision for income taxes (73,000) (10,000)
--------- ---------
Pro forma net income $ 118,000 $ 16,000
========= =========
Note 9 - Subsequent events:
Effective September 22, 1997, the Company's stockholders sold all of the
outstanding common stock of the Company to BCAM International, Inc.
("BCAM"), a publicly-held software technology and consulting company, for
cash and other consideration.
On September 22, 1997, the Company entered into a new $4,500,000 revolving
credit facility and a $1,000,000 term loan with the Bank. Under the terms
of the revolving credit facility, the Company may borrow a maximum of 80%
of eligible accounts receivable, as defined, and 35% of eligible
inventory, as defined. Such borrowings bear interest at the prime rate
plus 1.5%, payable monthly. Principal payments are not required under the
revolving credit facility until expiration on September 30, 1999.
Borrowings under the revolving credit facility and the term loan are
secured by substantially all of the Company's assets and guaranteed by
BCAM.
The agreement contains various restrictive covenants including net worth
requirements, limitations on dividends and distributions, limitations on
transactions with affiliates, as defined, and the maintenance of a debt
service coverage ratio.
F-40
<PAGE>
INTRODUCTION TO UNAUDITED PRO-FORMA
FINANCIAL INFORMATION
On September 22, 1997 the Company acquired Drew Shoe for approximately
$4.7 million plus the assumption of liabilities. The purchase price was paid by
delivery to the two shareholders of Drew Shoe of an aggregate of $3,882,000 in
cash, promissory notes in the aggregate principal amount of $400,000 and by
delivery of an aggregate of 375,000 unregistered shares of the Company's Common
Stock to one seller (valued at approximately $1.20 per share to reflect a
discount for lack of registration). The promissory notes bear an interest rate
of 8% per annum, are due on September 19, 1999, and are payable in twenty-four
(24) equal monthly installments aggregating $8,333.34 (plus interest) with final
payments due in the twenty-fifth (25th) month aggregating $200,000.
Drew Shoe is a designer, manufacturer, marketer and distributor of medical
footwear headquartered in Lancaster, Ohio. In addition Drew Shoe operates retail
shoe specialty stores. The Company has accounted for its acquisition of Drew
Shoe under the purchase method of accounting. Under such method, the purchase
price paid plus costs of the acquisition are allocated to the assets and
liabilities of the acquired company based on the estimated fair value of assets
and liabilities acquired. The remaining amount, if any, is allocated to
goodwill. At December 31, 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 December 31, 1997,
there is not a material amount of goodwill to be recorded in the acquisition of
Drew Shoe.
In order to fund the acquisition of Drew Shoe and provide working capital to the
Company, on September 19, 1997, the Company issued 10%/13% Subordinated
Convertible Notes in the aggregate face amount of $6,000,000 (the "Convertible
Notes"). In March 1998, the Company made an "in kind" interest payment of
$390,000 thereby increasing the total outstanding amount to $6,390,000. The
Convertible Notes are due, as amended in April 1998, on April 16, 1999, unless
at any time after September 19, 1999, they are converted, at $.78 per share (as
adjusted for antidilution provisions relative to the 1998 Private Placement),
into 8,192,308 shares of Common Stock of the Company. The Convertible Notes bear
an interest rate of 10%, payable semi-annually, but the Company, at its
discretion, may pay interest in the form of its convertible notes in which case
the annual interest rate becomes 13% with semi-annual compounding. The pro-forma
financial information has been prepared assuming the payment of cash interest of
10%.
In addition, the Company issued to the noteholders Non-Redeemable Warrants
to purchase, as amended in April 1998, 2,034,884 shares of common stock,
exercisable at $1.72 (as adjusted for antidilution provisions relative to the
1998 Private Placement) per share at any time prior to September 19, 2002.
Further, any future material "repricings" pursuant to the 1998 Private Placement
would cause additional adjustments to the exercise price per share and number of
shares subject to warrant. The Company has recorded 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. Of the amount allocated to the
detachable warrants, approximately $1.3 million has been written off in
connection with the April 1998 debt restructure and the remainder is being
written off ratably over the amended term of the obligation.
Simultaneously with the acquisition, Drew Shoe entered into a secured
credit facility with a commercial bank (guaranteed by the Company) which is
further described in "Note 6 to the Consolidated Financial Statements" of the
Company at December 31, 1997. Approximately $3.7 million is outstanding under
this agreement at June 30, 1998.
The pro-forma financial data set forth below shows the unaudited pro-forma
results of operations assuming that the Company had purchased Drew Shoe as of
January 1, 1997. This information is derived from the audited financial
statements of the Company (consolidated) for the year ended December 31, 1997
and of Drew Shoe for the period from January 1, 1997 to September 22, 1997 (date
of acquisition by the Company) (all, appearing elsewhere in this Prospectus).
This information gives effect to the increased interest and financing costs
(excluding certain material non-recurring charges which are discussed in "Notes
6 and 7 of the Notes to Consolidated Financial Statements" and the amortization
of preliminary fair value adjustments principally for increased depreciation.
The pro-forma information does not reflect the non-recurring charge which
results from the April 1998 restructuring of the 10%/13% Convertible Notes. The
Company has not included a provision for income taxes because it believes that
it will have sufficiently available net operating losses to offset anticipated
profits from Drew Shoe.
F-41
<PAGE>
BCAM International, Inc.
Condensed Consolidated Pro-Forma Statement of Operations (Unaudited)
For the year ending December 31, 1997
<TABLE>
<CAPTION>
Year Ended January 1, 1997
December 31, to September 22,
1997 1997
BCAM DREW Pro-Forma Adjustments Pro-Forma
---- ---- --------------------- ---------
dr. cr.
<S> <C> <C> <C> <C> <C>
Revenues $ 3,959,000 $11,124,000 $ $ $ 15,083,000
Cost of Sales 2,330,000 6,657,000 27,000(h) 9,014,000
------------ ----------- --------- ------------
Gross Profit 1,629,000 4,467,000 27,000 6,069,000
Selling, general and admin 2,991,000 4,048,000 1,000(g) 7,040,000
28,000(h) 28,000
Research and development 322,000 -- 322,000
------------ ----------- --------- ------------
Income (loss) from operations (1,684,000) 419,000 56,000 (1,321,000)
Other income (expense):
Interest and other income 60,000 33,000 93,000
Charge for beneficial conversion (1,635,000) 1,635,000(j)
Interest and financing cost (613,000) (261,000) 275,000(a) 130,000(k) (1,019,000)
120,000(b) (120,000)
24,000(c) (24,000)
437,500(d) (437,500)
21,000(e) (21,000)
55,000(f) (55,000)
------------ ----------- --------- ---------- ------------
Total other (expense) (2,188,000) (228,000) 932,500 1,765,000 (1,583,500)
Minority Interests (788,000) 788,000(l)
------------ ----------- --------- ---------- ------------
Income (loss) from continuing
operations (4,660,000) 191,000 988,500 2,553,000 (2,904,500)
Discontinued operations (1,376,000) (1,376,000)
Provision for taxes (note 3)
Net income (loss) (excluding
non-recurring charges) $ (6,036,000) $ 191,000 $ 988,500 $2,553,000 $ (4,280,500)
============ =========== ========= ========== ============
Weighted average shares 16,598,000(i)
Net loss per share-continuing
operations (excluding non-recurring
charges ($0.18)
Net loss per share-discontinued
operations (excluding non-recurring
charges ($0.08)
Net loss per share (excluding
non-recurring charges) ($0.26)
</TABLE>
F-42
<PAGE>
Pro-forma adjustments:
(a) To amortize deferred financing costs for the value of detachable warrants
issued in connection with convertible notes as follows: $1.872 million
divided by the 5 year term of notes = $375,000 ($275,000 for 8.75 months).
(b) To amortize deferred financing costs for the convertible notes over 5
years; $825,000 divided by 5 = $165,000 ($120,000 for 8.75 months).
(c) To amortize the estimated BankOne financing costs - $100,000 divided by 3
= $33,000 ($24,000 for 8.75 months).
(d) To reflect interest expense on convertible notes - $6,000 times 10% =
$600,000 ($437,500 for 8.75 months).
(e) To reflect interest cost for 8% Notes payable to former Drew Shoe
shareholders (approximately $30,000) ($21,000 for 8.75 months).
(f) To reflect incremental increase in interest rate and borrowings under
BankOne Agreement (approx. $75,000/year - $50,000 for 8.75 months).
(g) To amortize goodwill over 20 years (21,000/20=$1,000)
(h) To reflect the estimated incremental increase in fixed asset depreciation
of approximately $75,000 ($53,000 for 8.75 months).
(i) Weighted average shares outstanding (16,071,000) + investment banker and
consultant shares (187,500 + 160,000) plus shares to seller (375,000)
times 8.75 months-totals 16,598,000.
(j) To eliminate non-recurring charge for beneficial conversion feature of
convertible notes.
(k) To eliminate non-recurring financing charges for financing not completed.
(l) To eliminate non-recurring charge for beneficial subsidiaries preferred
stock conversion.
F-43
<PAGE>
General Notes:
Note 1. The Company has identified certain cost savings and is evaluating other
cost savings measures for implementation at Drew Shoe. The Company has not
reflected any such cost savings in this pro-forma information because the
specific identification of savings, net of new investments, is not yet
finalized.
Note 2. The Company has excluded from this pro forma information non-recurring
charges related to the issuance of the acquisition financing and the preferred
stock issued by a subsidiary (See Notes 6 and 7 to Consolidated Financial
Statements).
Such charges include:
a. Non-recurring charge to Minority Interests for
beneficial subsidiaries preferred stock conversion
recorded in 1997. $ 788,000
b. Non recurring charge to interest and financing costs
as a result of beneficial debt conversion feature of
convertible notes to be amortized over 12 months
ending September 19, 1998, approximately. $5,925,000
c. Non recurring charge to write off costs associated
with proposed financings which the Company decided
not to complete. $ 130,000
Note 3. The Company has not included a pro forma income tax provision because it
will consolidate Drew Shoe for tax purposes and utilize existing net operating
losses of the Company against any anticipated profits of Drew Shoe. While such
net operating losses are subject to limitations as to their usage, the Company
believes that it will have sufficient available net operating losses to offset
the anticipated profits of Drew Shoe in the near term. Also, based on the
existing results of operations and additional cash interest on a recurring
basis, the consolidated company is likely to be generating additional pretax
losses in the near term.
F-44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers. Sections 721 through 725 of
the New York Business Corporation Law provide that New York corporations shall
have the power, under specified circumstances, to indemnify their directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation by
reason of the fact that they were or are such directors, officers, employees or
agents, against expenses incurred in such actions, suits or proceedings. Article
Seventh of the Company's Restated Certificate of Incorporation provides for
indemnification of directors and officers of the Company generally in accordance
with New York law.
Section 721 of the New York Business Corporation Law permits a corporation
to enter into agreements with its directors and officers providing for
indemnification for actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that they
were or are such directors or officers, against expenses incurred in such
actions, suits or proceedings, provided, however, that no such indemnification
may be provided if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Pursuant to such
authority, the Company has entered into an agreement with each of its current
directors indemnifying them to the maximum extent permitted by Section 721. The
agreement provides for the indemnification of these individuals against any and
all civil or criminal actions or proceedings brought as a result of such
individual being a director or officer of the Company and any judgments and
amounts paid in settlement costs and expenses, including reasonable attorneys
fees. No indemnification may be made, however, if a judgment or final
adjudication establishes that the individual committed acts in bad faith or with
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he personally gained financial profit or other advantage to which he was
not legally entitled. Such indemnification shall be made only by the Board
acting with a quorum consisting of directors who are not parties to the action
in question, or by independent legal counsel, or by the stockholders and in all
cases only after a finding that the applicable standard of conduct has been met.
Under Section 722(a), the corporation may indemnify any director or
officer in any action (other than an action by or in the right of the
corporation) brought against him by reason of the fact that he, his testator or
intestate was a director or officer of the corporation, or served another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity at the request of the corporation. Indemnification
may be given for judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, if such director or officer is shown to
have acted in good faith, in furtherance of a purpose believed to be in the best
interests of the corporation, and, in the case of a criminal action or
proceeding, to have had no reason to believe such conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides for permissive
indemnification by the corporation of directors and officers, sued by or in the
right of the corporation, against reasonable expenses including attorney's fees
unless the director or officer is found to have breached his duty to the
corporation under Section 717 or Section 715(h) of the Business Corporation Law,
respectively. Amounts paid under this section may not include amounts paid in
settlement of a threatened or pending action and expenses incurred in defense of
a threatened action or settlement of a pending action without court approval.
Indemnification may be by court order under Section 724 or by approval of
the corporation in the manner set forth in the statute. Under Section 723(a),
success on the merits or otherwise entitles the director or officer to
indemnification under Section 722. If not wholly successful, indemnification
shall be made by the corporation only if a quorum of the board, not including
parties to the action, finds that the standards of Section 722 have been met. If
a quorum cannot be obtained, approval may be by the board upon (i) the opinion
of independent legal counsel or (ii) a determination by the stockholders that
the standards of conduct have been met by the director or officer. Expenses may
be paid in advance if authorized by one of the methods discussed above. Under
Section 724, if the corporation fails to provide indemnification, the director
or officer may apply to the court and may receive indemnification to the extent
authorized under Section 722. Expenses may also be advanced if the court finds
the defendant director or officer to have raised genuine issues of fact or law.
Expenses advanced must be repaid to the corporation if (i) the director or
officer has not met the applicable standard which entitles him to
indemnification or (ii) if he has been paid in excess of the amount to which he
is entitled. Indemnification may not be made if it is inconsistent with the
corporation's certificate, by-laws, board resolutions or agreements or a
condition imposed by the court in approving a settlement.
The New York Business Corporation Law permits a corporation through its
certificate of incorporation to prospectively eliminate or limit the personal
liability of its directors to the corporation or its stockholders for damages
for breach of fiduciary
<PAGE>
duty as a director, with certain exceptions. The exceptions include acts or
omissions in bad faith or which involve intentional misconduct or knowing
violations of law, improper declaration of dividends, and transactions from
which the director personally gained in fact a financial profit or other
advantage to which he was not legally entitled. The Company's Restated
Certificate of Incorporation exonerates its directors from personal liability to
the extent permitted by this statutory provision.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are as follows:
Accounting fees and expenses ............................................$ 7,500
Legal fees and expenses .................................................$10,000
Printing and Miscellaneous expenses .....................................$12,500
-------
TOTAL ...................................................................$30,000
=======
Item 26. Recent Sales of Unregistered Securities
(i) Sale of common stock and warrants ($1,075,000) - Between January 15
and March 28, 1997, in consideration for $1,075,000, the Company sold to
accredited investors an aggregate of 1,075,000 shares of Common Stock at $1.00
per share, and 1,075,000 Non-Redeemable Class AA Warrants to purchase an
additional 1,075,000 shares of Common Stock at an exercise price of $.65 per
share exercisable through March 31, 2002.
The purchasers of the securities are set forth in the following table:
Common shares Common shares
Name of purchaser Amount paid issuable under warrants
- -------------------------- ----------- ------------- --------------
621 Partners $ 260,000 260,000 260,000
Appleton Associates 120,000 120,000 120,000
R. Weil & Associates 320,000 320,000 320,000
Karen Weil 100,000 100,000 100,000
David Latter 25,000 25,000 25,000(a)
Howard Weingrow 50,000 50,000 50,000
Peter Orr 50,000 50,000 50,000
Joseph Offenberger 25,000 25,000 25,000(a)
David Schultz 25,000 25,000 25,000
Howard Seiberman 50,000 50,000 50,000(a)
Joe Schueller 50,000 50,000 50,000
---------- --------- ---------
$1,075,000 1,075,000 1,075,000
---------- --------- ---------
(a) These warrants were exercised by their holders in April 1998.
Kirr Marbach & Company, LLC ("Kirr Marbach") is a general partner of 621
Partners, Appleton Associates and R. Weil & Associates which in the aggregate
are entitled to receive, or to direct the receipt of, dividends from, and the
proceeds from sale of, all of the shares beneficially owned by Kirr Marbach.
The Registrant claims exemption from registration of this placement by
virtue of Section 4(2) of the Securities Act of 1933.
(ii) Convertible Preferred stock of BCA Services, Inc. ("BCA"), a
subsidiary of the Registrant ($1,200,000) - On July 22, 1997 BCA Services, Inc.
("BCA"), previously a 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 $1.5
million in a private offering to accredited investors.
The Preferred Stock was 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
<PAGE>
preceding the conversion date (the "Variable Conversion Price"). The Conversion
Price could not be greater than 100% of the Variable Conversion Price on the
first closing date (the "Fixed Conversion Price"). The Fixed Conversion price
was $0.6563. In July and September 1997, the Company sold 100 shares
($1,000,000) of Convertible Preferred stock to Austost Anstalt Schaan ($500,000)
and UFH Endowment LTD. ($500,000). Between November 1997 and March 1998, all of
the Convertible Preferred stock issued was converted into common stock of the
Company.
In addition, purchasers of the Convertible Preferred stock received
Non-Redeemable Class BB Warrants to purchase 50,000 shares of Common Stock,
exercisable at $0.7219. The warrants have a term of five years and the Common
Stock underlying the warrants contains registration rights.
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 existing fixed conversion feature and certain fees). As a result
of this offering, 20 shares of Preferred Stock (convertible into the Company's
Common Stock at 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. All of the Convertible Preferred Stock issued in this
offering was converted to Common Stock of the Company at an average price of
approximately $0.79 per share prior to December 31, 1997. The Registrant claims
exemption from registration of this placement by virtue of Section 4(2) of the
Securities Act of 1933.
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
50,000 shares of Common Stock of the Registrant at approximately $0.66 per
share, for five years for the first offering and 6% in fees and no warrants for
the second offering.
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 "beneficial" at the date of issuance (such as the
preferred stock described above and the 10%/13% Convertible Notes and Warrants
described below). This accounting results in significant charges to operations
in connection with these financings as further described in Notes 6 and 7 to the
Consolidated Financial Statements.
(iii) 10%/13% Convertible Notes and Warrants ($6,000,000) - In order to
fund the acquisition of Drew Shoe and provide working capital to the Company, on
September 19, 1997, the Company issued subordinated convertible notes to eight
investors in the aggregate amount of $6,000,000 (the "Convertible Notes"). In
March 1998, the Company made an "in kind" interest payment increasing the total
outstanding amount to $6,390,000. The Convertible Notes are due, as amended in
April 1998 (see "Debt restructuring" below), on April 16, 1999 unless at any
time after September 19, 1998, they are converted, at $.78 per share (adjusted
for antidilution provisions related to the 1998 Private Placement), into
8,192,308 shares of Common Stock of the Company. The conversion feature is
subject to antidilution in certain circumstances including the issuance of
Common Stock and warrants in 1998 and possible future dilution through the
operation of the "repricing" provisions of the 1998 Private Placement discussed
below. 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.
In addition, the Company issued to the noteholders Non-Redeemable Class DD
Warrants to purchase, as amended in April 1998, 2,034,884 shares of common
stock, exercisable at $1.72 per share (adjusting for antidilution provisions
related to the 1998 Private Placement) at any time prior to September 19, 2002.
Issuance of materially additional shares under the "repricing" provisions of the
1998 Private Placement would result in further antidilution adjustments.
The market value of the Company's common stock on the Nasdaq SmallCap
market on the date of the transaction was approximately $1.52 and on the date of
the payment of interest in kind was approximately $1.25.
The purchasers of the securities are set forth in the following table:
<PAGE>
<TABLE>
<CAPTION>
Common shares Common shares under
Name of purchaser Amount paid(a) issuable warrants
- -------------------------- -------------- ------------- -------------------
<S> <C> <C> <C>
Impleo, LLC $5,325,000 6,826,923 1,695,737
621 Partners 159,750 204,808 50,872
R. Weil & Associates 165,075 211,634 52,568
David M. Kirr 175,725 225,289 55,959
Terry B. Marbach 175,725 225,289 55,959
Gregg T. Summerville 175,725 225,289 55,959
Ralph Weil 106,500 136,538 33,915
Joseph Schueller 106,500 136,538 33,915
---------- --------- ---------
$6,390,000 8,192,308 2,034,884
---------- --------- ---------
</TABLE>
(a) Including 13% interest paid in kind on March 19, 1998.
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 187,500 shares of
common stock, and warrants to purchase 500,000 shares of common stock, at $0.80
per share, of the Registrant. The remaining $1,000,000 of proceeds was not
subject to a commission.
The Registrant claims exemption from registration of this placement by
virtue of Section 4(2) of the Securities Act of 1933. 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 "beneficial"
at the date of issuance (such as the preferred stock and the 10%/13% Convertible
Notes and Warrants described above). This accounting results in significant
charges to operations in connection with these financings as further described
in Notes 6 and 7 to Consolidated Financial Statements. The Company also has,
under generally accepted accounting principles, recorded approximately
$1,872,000 as the estimated value of the detachable warrants issued in
connection with the Convertible Notes. Reference is made to Note 6 of the
Consolidated Financial Statements of the Company.
(iv) 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 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 1998 in connection with the finalization of the restructuring of
the debt.
(v) Sale of Common Stock and Warrants (April 1998) - - On April 14, 1998
the Company commenced an offering of $2,000,000 of its common stock and warrants
in a private placement to accredited investors. Such offering was completed on
April 22, 1998.
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 as
follows:
<PAGE>
<TABLE>
<CAPTION>
Common Common
Amount paid Shares issued shares
----------- ------------- under
Name of purchaser/holder (a) warrants
------------------------ --------
<S> <C> <C> <C>
Balmore Funds S.A. (c) $ 850,000 841,584 106,250
Austost Anstalt Schaan (c) $ 750,000 742,574 93,750
Beeston Investments Ltd. (c) $ 200,000 198,020 25,000
Manor Investments (c) $ 100,000 99,010 12,500
Ellis Enterprises (c) $ 50,000 49,505 6,250
East Lane Corporation, Ltd. (c) $ 50,000 49,505 6,250
----------- --------- -------
Totals $ 2,000,000 1,980,198 250,000
Charles G. Schuyler (b) -- 375,000 --
----------- --------- -------
Totals $ 2,000,000 2,355,198 250,000
=========== ========= =======
</TABLE>
(a) Prior to "repricing", if any, as discussed below and in footnote (a) of
the Prospectus cover page.
(b) Shares not subject to "repricing".
(c) 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 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 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 by approximately
the end of August 1998. 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 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 triggers the anti-dilution
provisions of the 10%/13% Convertible Notes and the Company's currently
outstanding Class B and Class E warrants. See "Description of Securities" and
Note 7 to Consolidated Financial Statements.
The Registrant claims exemption from registration of this placement by virtue of
Section 4(2) of the Securities Act of 1933.
<PAGE>
Item 27. Exhibits
3.1 Restated Certificate of Incorporation(1)
3.2 Restated and Amended By-Laws(1)
3.3 Amendment to Certificate of Incorporation(12)
3.4 Amendment to Certificate of Incorporation of BCA Services, Inc.(19)
4.1 Underwriter's Unit Purchase Option(4)
4.2 Finder's Unit Purchase Option(4)
4.3 Warrant Agreement(4)
4.4 Form of Senior Secured Convertible Promissory Note(5)
4.5 Form of Class C Common Stock Purchase Warrant(5)
4.6 Form of Class D Common Stock Purchase Warrant(5)
4.7 Revised Form of Amendment No. 1 to Warrant Agreement(7)
4.8 Revised Form of Class E Common Stock Purchase Warrant(7)
5.1 Opinion of Rivkin, Radler & Kremer (14)
5.2 Opinion of Ruskin, Moscou, Evans & Faltischek P.C. (20)
10.1 Stock Redemption Agreement(1)
10.2 1989 Stock Option Plan(1)
10.3 Employment Agreement with Dr. Clifford M. Gross(1)
10.4 Employment Agreement with Arthur Fein (1)
10.5 Bridge Warrant(1)
10.6 Bridge Note and Related Loan Agreement(1)
10.7 Consulting Agreement with Lear Siegler Seating Corporation(1)
10.8 Extension Agreement to Redemption Agreement (Exhibit 10.1)
10.9 Consulting Agreement dated August 1, 1988 with NRC Resources Group,
Inc.(1)
10.10 General Release of NRC Resources Group, Inc.(1)
10.11 Mortgage Note and Related Loan Agreement and Mortgage and Security
Agreement(1)
10.12 Second Extension Agreement to Redemption Agreement(4)
10.13 Merger and Acquisition Agreement with D.H. Blair & Co., Inc.(4)
10.14 1989 Nonstatutory Stock Option Plan(2)
10.15 Consulting Agreement with D.H. Blair & Co., Inc.(4)
10.16 Consulting Agreement with Steelcase, Inc.(2)
10.17 License and Manufacturing Agreement with MicroComputer Accessories,
Inc.(4)
10.18 Employment Agreement with Cynthia Roth(4)
10.19 Employment Agreement with Kenneth Goodman(4)
10.20 Form of Employment Agreement with Ava Stern(4)
10.21 Form of Employment Agreement with William Sirois(4)
10.22 Lease Of Premises at 1800 Walt Whitman Road, Melville, New York(4)
10.23 Consulting Agreement dated as of February 1, 1990 with NRC Resources
Group, Inc.(4)
10.24 Underwriting Agreement (for IPO) with D.H. Blair & Co., Inc.(4)
10.25 Securities Purchase Agreement dated June 25, 1991 among the Company, the
Purchasers and D.H. Blair & Co., Inc.(5)
10.26 Security Agreement dated as of June 25, 1991 between the Company and
D.H. Blair & Co., Inc., as Purchasers' Representative(5)
10.29 Employment Agreement dated as of June 20, 1991 between David A. Deutsch
and the Company(5)
10.30 Letter of Understanding between Kenneth A. Goodman and the Company(5)
10.31 Employment Agreement dated as of August 1, 1991 between Joel Sher and
the Company(5)
10.32 Amendment to 1989 Stock Option Plan(5)
10.33 Distributor Agreement with Techexport, Inc.(3)
10.34 Partnership Agreement dated December 28, 1992 for Ergonomics Solutions
Group (ESG)(8)
<PAGE>
10.35 License Agreement dated December 28, 1992, between the Company and
ESG(8)
10.36 Development and Licensing Agreement dated March 5, 1993 between the
Company and McCord Winn Textron Inc.(8)
10.37 Agreement dated August 22, 1992 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(8)
10.38 Further Amendments to 1989 Stock Option Plan(8)
10.39 Amendment to Development and Licensing Agreement dated October 27, 1993
between the Company and McCord Winn Textron(9)
10.40 Investors Consulting Agreement with Strategic Growth International
Inc.(9)
10.41 Agreement dated December 22, 1993 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(9)
10.42 Agreement dated September 29, 1993 between the Company, McCord Winn
Textron, Inc. and Lear Seating Company(9)
10.43 Development and Licensing Agreement dated January 4, 1994 between the
Company and Reebok International Ltd.(9)
10.44 License Agreement dated September 28, 1994 between the Company and
Lumex, Inc.(10)
10.45 Employment Agreement dated October 13, 1994 between Michael Strauss and
the Company(10)
10.46 Letter Agreement dated February 15, 1996, between the Company and McCord
Winn Textron, Inc. to extend the Development and License Agreement
dated March 5, 1993(13)
10.47 Amendment to Employment Agreement between Michael Strauss and the
Company(12)
10.48 1995 Stock Option Plan(12)
10.49 Amendment letter of agreement dated August 15, 1996 between the Company
and McCord Winn Textron, Inc.(15)
10.50 Letter of agreement terminating the September 28, 1994, Development and
License Agreement between the Company and Lumex, Inc.(15)
10.51 Letter of Agreement with Josephberg & Grosz to provide the Company
investment banking services(15)
10.52 Stock Purchase Agreement between the Company and the owners of Drew Shoe
Corporation(15)
10.53 Private Placement Memorandum dated January 15, 1997(16)
10.54 Registration Rights Agreement dated July 15, 1997(16)
10.55 Consulting agreement with Strategic Growth International dated October
4, 1996(16)
10.56 Consulting agreement with R.J. Falkner & Co.(16)
10.57 Consulting agreement with Deltasite Communications Corp(16)
10.58 Consulting agreement with Imin Kao(16)
10.59 Letters of agreement with Charles Schuyler and Frank Shyjka dated July
23, 1997 extending the deadline for the closing of the Drew Shoe
Acquisition as outlined in the Purchase Agreement dated March 20, 1997
from March 28, 1997 to September 15, 1997(17)
10.60 First Addendum to Stock Purchase Agreement(17)
10.61 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Charles Schuyler(18)
10.62 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Frank Shyjka(18)
10.63 Form of 10%/13% Convertible Subordinated Note(18)
10.64 Form of Warrant Agreement(18)
10.65 Form of Registration Agreement(18)
10.66 Form of Subordination Agreement(18)
10.67 Loan and Security Agreement dated as of September 19, 1997 between Bank
One, National Association and Drew Shoe Corporation.(18)
10.68 Guarantee agreement by BCAM International, Inc. of obligation of Drew
Shoe Corporation to Bank One, National Association.(18)
10.69 Form of Revolving Note Agreement with Bank One, National Association(18)
10.70 Term Loan Agreement with Bank One, National Association(18)
10.71 Employment Agreement dated September 19, 1997 between Charles Schuyler
and the Company(19)
10.72 Employment Agreement dated September 19, 1997 between Frank Shyjka and
the Company(19)
10.73 Employment Agreement dated September 19, 1997 between Larry R. Martin
and the Company(19)
10.74 Form of Subscription Agreement between the Company and investors in the
April 1998 private placement of common stock and warrants.
<PAGE>
10.75 Form of Common Stock Purchase Warrant between the Company and the
investors in the April 1998 private placement of common stock and
warrants.
10.76 Escrow Agreement between the Company, the several investors and Grushko
and Mittman (as escrow agent) in connection with the April 1998 private
placement of common stock and warrants.
10.77 First Amendment, dated as of April 14, 1998, to Note Purchase Agreement
dated September 19, 1997 between the Company and Impleo, LLC.
10.78 First Amendment, dated as of April 14, 1998 to Note Purchase Agreement
dated September 19, 1997 between the Company and the members of the Kirr
Marbach group.
10.79 Security Agreement dated as of April 14, 1998 between Wexford
Management, LLC, as agent for the noteholders, and the Company.
10.80 Stock Pledge Agreement dated as of April 14, 1998 between Wexford
Management, LLC, as agent for the noteholders, and the Company.
21.00 Subsidiaries of the Company(11)
24.1 Consent of Rivkin, Radler & Kremer - included in Exhibit 5.1(14)
24.2 Consent of Ernst & Young LLP(14)
24.3 Consent of Ernst & Young LLP(20)
24.4 Consent of J.H. Cohn LLP(20)
25.1 Power of Attorney executed by Robert P. Wong(14)
25.2 Power of Attorney executed by Julian H. Cherubini(14)
25.3 Power of Attorney executed by Lawrence N. Cohen(14)
25.4 Power of Attorney executed by Joel L. Gold(14)
25.5 Power of Attorney executed by Glenn F. Santmire(14)
- ----------
<PAGE>
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(file no. 33-31282) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (file no. 0-18109) and incorporated
herein by reference thereto.
(3) Filed as part of Item 14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (file no. 0-18109) and
incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1
(file no. 33-38204) and incorporated herein by reference thereto.
(5) Filed as an Exhibit to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(6) Filed as an Exhibit To Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(7) Filed as an Exhibit to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 (file no. 0-18109) and incorporated
herein by reference thereto.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 (file no. 0-18109) and incorporated by
reference thereto.
(10) Filed as an Exhibit to Registrant's Form 10-QSB/A filed December 5, 1994
amending the Form 10-QSB for the quarterly period ended September 30, 1994
(file no. 0-18109) and incorporated by reference thereto.
(11) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 (file no. 0-18109) and incorporated by
reference thereto.
(12) Filed as an Exhibit to Registrant's Form 10-QSB for the quarterly period
ended June 30, 1995 (file no. 0-18109) and incorporated by reference
thereto.
(13) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 (file no. 0-18109) and incorporated by
reference thereto.
(14) Filed as an Exhibit to Post-Effective Amendment No. 7 on Form SB-2 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204) and
incorporated herein by reference thereto.
(15) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 (file no. 0-18109) and incorporated by
reference thereto.
(16) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 13 on
Form SB-2 to Registrant's Registration Statement filed on September 4,
1997 and incorporated herein by reference thereto
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
September 30, 1997 (file no. 0-18109) and incorporated herein by reference
thereto
(18) Filed as an Exhibit to Form 8-K/A filed by the Registrant on October 29,
1997 and incorporated herein by reference thereto.
(19) Filed as an Exhibit to Registrant's Registration Statement on Form S-3/A
filed on October 31, 1997 and incorporated herein by reference thereto.
(20) Filed herewith.
<PAGE>
Item 28. Undertakings. Undertakings Required by Regulation S-B, Item 512 (a):
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)
(3) of the 1933 Act;
(ii) to reflect in the prospectus any facts or events
which, individually or together represent a fundamental
change in the information set forth in the registration
statement; and
(iii) to include any additional or changed material
information on the plan of distribution.
(2) That, for determining liability under the 1933 Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities being registered which remain unsold at the
termination of the offering.
Undertaking Required by Regulation S-B, Item 512 (e):
Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers, and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing an amendment on Form SB-2 and authorized this
amended registration statement to be signed on behalf of the undersigned in the
County of Suffolk, State of New York, on the 7 day of August, 1998.
BCAM INTERNATIONAL, INC.
By: /s/ Michael Strauss
----------------------------------
Michael Strauss
Chairman of the Board, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this amended Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
Principal Executive Officer:
/s/ Michael Strauss Michael Strauss Chairman of the Board, President, Chief August 7, 1998
- ----------------------- Executive Officer and Director
Principal Financial and Accounting Officer:
/s/ Kenneth C. Riscica Kenneth C. Riscica Vice President - Finance, Chief Financial August 7, 1998
- ----------------------- Officer, Treasurer and Secretary
(since October 15, 1997)
Additional Directors:
/s/ Robert P. Wong(1) Robert P. Wong Vice Chairman of the Board, Chief August 7, 1998
- ----------------------- Technology Officer
(Acting Chief Financial Officer, Acting
Secretary, Acting Treasurer until October
15, 1997)
/s/ Norman B. Wright(1) Norman B. Wright Director, Vice Chairman of the Board, and August 7, 1998
- ----------------------- President and CEO of the HumanCAD(R)
division
/s/ Joel L. Gold(1) Joel L. Gold Director August 7, 1998
- -----------------------
/s/ Mark Plaumann(1) Mark Plaumann Director August 7, 1998
- -----------------------
/s/ Glenn F. Santmire(1) Glenn F. Santmire Director August 7, 1998
- -----------------------
/s/ Stephen Savitsky(1) Stephen Savitsky Director August 7, 1998
- -----------------------
/s/ Joseph Jacobs(1) Joseph Jacobs Director August 7, 1998
- -----------------------
</TABLE>
(1) Signed by Michael Strauss as attorney-in-fact for the named Director.
<PAGE>
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation(1)
3.2 Restated and Amended By-Laws(1)
3.3 Amendment to Certificate of Incorporation(12)
3.4 Amendment to Certificate of Incorporation of BCA Services, Inc.(19)
4.1 Underwriter's Unit Purchase Option(4)
4.2 Finder's Unit Purchase Option(4)
4.3 Warrant Agreement(4)
4.4 Form of Senior Secured Convertible Promissory Note(5)
4.5 Form of Class C Common Stock Purchase Warrant(5)
4.6 Form of Class D Common Stock Purchase Warrant(5)
4.7 Revised Form of Amendment No. 1 to Warrant Agreement(7)
4.8 Revised Form of Class E Common Stock Purchase Warrant(7)
5.1 Opinion of Rivkin, Radler & Kremer(14)
5.2 Opinion of Ruskin, Moscou, Evans & Faltischek P.C.(20)
10.1 Stock Redemption Agreement(1)
10.2 1989 Stock Option Plan(1)
10.3 Employment Agreement with Dr. Clifford M. Gross(1)
10.4 Employment Agreement with Arthur Fein (1)
10.5 Bridge Warrant(1)
10.6 Bridge Note and Related Loan Agreement(1)
10.7 Consulting Agreement with Lear Siegler Seating Corporation(1)
10.8 Extension Agreement to Redemption Agreement (Exhibit 10.1)
10.9 Consulting Agreement dated August 1, 1988 with NRC Resources Group,
Inc.(1)
10.10 General Release of NRC Resources Group, Inc.(1)
10.11 Mortgage Note and Related Loan Agreement and Mortgage and Security
Agreement(1)
10.12 Second Extension Agreement to Redemption Agreement(4)
10.13 Merger and Acquisition Agreement with D.H. Blair & Co., Inc.(4)
10.14 1989 Nonstatutory Stock Option Plan(2)
10.15 Consulting Agreement with D.H. Blair & Co., Inc.(4)
10.16 Consulting Agreement with Steelcase, Inc.(2)
10.17 License and Manufacturing Agreement with MicroComputer Accessories,
Inc.(4)
10.18 Employment Agreement with Cynthia Roth(4)
10.19 Employment Agreement with Kenneth Goodman(4)
10.20 Form of Employment Agreement with Ava Stern(4)
10.21 Form of Employment Agreement with William Sirois(4)
10.22 Lease Of Premises at 1800 Walt Whitman Road, Melville, New York(4)
10.23 Consulting Agreement dated as of February 1, 1990 with NRC Resources
Group, Inc.(4)
10.24 Underwriting Agreement (for IPO) with D.H. Blair & Co., Inc.(4)
10.25 Securities Purchase Agreement dated June 25, 1991 among the Company, the
Purchasers and D.H. Blair & Co., Inc.(5)
10.26 Security Agreement dated as of June 25, 1991 between the Company and
D.H. Blair & Co., Inc., as Purchasers' Representative(5)
10.29 Employment Agreement dated as of June 20, 1991 between David A. Deutsch
and the Company(5)
10.30 Letter of Understanding between Kenneth A. Goodman and the Company(5)
10.31 Employment Agreement dated as of August 1, 1991 between Joel Sher and
the Company(5)
10.32 Amendment to 1989 Stock Option Plan(5)
10.33 Distributor Agreement with Techexport, Inc.(3)
10.34 Partnership Agreement dated December 28, 1992 for Ergonomics Solutions
Group (ESG)(8)
<PAGE>
10.35 License Agreement dated December 28, 1992, between the Company and
ESG(8)
10.36 Development and Licensing Agreement dated March 5, 1993 between the
Company and McCord Winn Textron Inc.(8)
10.37 Agreement dated August 22, 1992 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(8)
10.38 Further Amendments to 1989 Stock Option Plan(8)
10.39 Amendment to Development and Licensing Agreement dated October 27, 1993
between the Company and McCord Winn Textron(9)
10.40 Investors Consulting Agreement with Strategic Growth International
Inc.(9)
10.41 Agreement dated December 22, 1993 between the Company and PT Industries
Pesawat Terbang Nusantra (IPTN)(9)
10.42 Agreement dated September 29, 1993 between the Company, McCord Winn
Textron, Inc. and Lear Seating Company(9)
10.43 Development and Licensing Agreement dated January 4, 1994 between the
Company and Reebok International Ltd.(9)
10.44 License Agreement dated September 28, 1994 between the Company and
Lumex, Inc.(10)
10.45 Employment Agreement dated October 13, 1994 between Michael Strauss and
the Company(10)
10.46 Letter Agreement dated February 15, 1996, between the Company and McCord
Winn Textron, Inc. to extend the Development and License Agreement dated
March 5, 1993(13)
10.47 Amendment to Employment Agreement between Michael Strauss and the
Company(12)
10.48 1995 Stock Option Plan(12)
10.49 Amendment letter of agreement dated August 15, 1996 between the Company
and McCord Winn Textron, Inc.(15)
10.50 Letter of agreement terminating the September 28, 1994, Development and
License Agreement between the Company and Lumex, Inc.(15)
10.51 Letter of Agreement with Josephberg & Grosz to provide the Company
investment banking services(15)
10.52 Stock Purchase Agreement between the Company and the owners of Drew Shoe
Corporation(15)
10.53 Private Placement Memorandum dated January 15, 1997(16)
10.54 Registration Rights Agreement dated July 15, 1997(16)
10.55 Consulting agreement with Strategic Growth International dated October
4, 1996(16)
10.56 Consulting agreement with R.J. Falkner & Co.(16)
10.57 Consulting agreement with Deltasite Communications Corp(16)
10.58 Consulting agreement with Imin Kao(16)
10.59 Letters of agreement with Charles Schuyler and Frank Shyjka dated July
23, 1997 extending the deadline for the closing of the Drew Shoe
Acquisition as outlined in the Purchase Agreement dated March 20, 1997
from March 28, 1997 to September 15, 1997(17)
10.60 First Addendum to Stock Purchase Agreement(17)
10.61 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Charles Schuyler(18)
10.62 Non-Negotiable and Non-Assignable Promissory Note dated as of September
19, 1997 by BCAM International, Inc. in favor of Frank Shyjka(18)
10.63 Form of 10%/13% Convertible Subordinated Note(18)
10.64 Form of Warrant Agreement(18)
10.65 Form of Registration Agreement(18)
10.66 Form of Subordination Agreement(18)
10.67 Loan and Security Agreement dated as of September 19, 1997 between Bank
One, National Association and Drew Shoe Corporation.(18)
10.68 Guarantee agreement by BCAM International, Inc. of obligation of Drew
Shoe Corporation to Bank One, National Association.(18)
10.69 Form of Revolving Note Agreement with Bank One, National Association(18)
10.70 Term Loan Agreement with Bank One, National Association(18)
10.71 Employment Agreement dated September 19, 1997 between Charles Schuyler
and the Company(19)
10.72 Employment Agreement dated September 19, 1997 between Frank Shyjka and
the Company(19)
10.73 Employment Agreement dated September 19, 1997 between Larry R. Martin
and the Company(19)
10.74 Form of Subscription Agreement between the Company and investors in the
April 1998 private placement of common stock and warrants.
<PAGE>
10.75 Form of Common Stock Purchase Warrant between the Company and the
investors in the April 1998 private placement of common stock and
warrants.
10.76 Escrow Agreement between the Company, the several investors and Grushko
and Mittman (as escrow agent) in connection with the April 1998 private
placement of common stock and warrants.
10.77 First Amendment, dated as of April 14, 1998, to Note Purchase Agreement
dated September 19, 1997 between the Company and Impleo, LLC.
10.78 First Amendment, dated as of April 14, 1998 to Note Purchase Agreement
dated September 19, 1997 between the Company and the members of the Kirr
Marbach group.
10.79 Security Agreement dated as of April 14, 1998 between Wexford
Management, LLC, as agent for the noteholders, and the Company.
10.80 Stock Pledge Agreement dated as of April 14, 1998 between Wexford
Management, LLC, as agent for the noteholders, and the Company.
21.00 Subsidiaries of the Company(11)
24.1 Consent of Rivkin, Radler & Kremer - included in Exhibit 5.1(14)
24.2 Consent of Ernst & Young LLP(14)
24.3 Consent of Ernst & Young LLP(20)
24.4 Consent of J.H. Cohn LLP(20)
25.1 Power of Attorney executed by Robert P. Wong(14)
25.2 Power of Attorney executed by Julian H. Cherubini(14)
25.3 Power of Attorney executed by Lawrence N. Cohen(14)
25.4 Power of Attorney executed by Joel L. Gold(14)
25.5 Power of Attorney executed by Glenn F. Santmire(14)
- ----------
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(file no. 33-31282) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (file no. 0-18109) and incorporated
herein by reference thereto.
(3) Filed as part of Item 14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (file no. 0-18109) and
incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1
(file no. 33-38204) and incorporated herein by reference thereto.
(5) Filed as an Exhibit to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(6) Filed as an Exhibit To Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(7) Filed as an Exhibit to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 (file no. 0-18109) and incorporated
herein by reference thereto.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 (file no. 0-18109) and incorporated by
reference thereto.
(10) Filed as an Exhibit to Registrant's Form 10-QSB/A filed December 5, 1994
amending the Form 10-QSB for the quarterly period ended September 30, 1994
(file no. 0-18109) and incorporated by reference thereto.
(11) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994 (file no. 0-18109) and incorporated by
reference thereto.
(12) Filed as an Exhibit to Registrant's Form 10-QSB for the quarterly period
ended June 30, 1995 (file no. 0-18109) and incorporated by reference
thereto.
(13) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 (file no. 0-18109) and incorporated by
reference thereto.
(14) Filed as an Exhibit to Post-Effective Amendment No. 7 on Form SB-2 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204) and
incorporated herein by reference thereto.
(15) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 (file no. 0-
<PAGE>
18109) and incorporated by reference thereto.
(16) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 13 on
Form SB-2 to Registrant's Registration Statement filed on September 4,
1997 and incorporated herein by reference thereto
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
September 30, 1997 (file no. 0-18109) and incorporated herein by reference
thereto
(18) Filed as an Exhibit to Form 8-K/A filed by the Registrant on October 29,
1997 and incorporated herein by reference thereto.
(19) Filed as an Exhibit to Registrant's Registration Statement on Form S-3/A
filed on October 31, 1997 and incorporated herein by reference thereto.
(20) Filed herewith.
Exhibit 5.2
RUSKIN, MOSCOU, EVANS & FALTISCHEK P.C.
170 Old Country Road
Mineola, NY 11501
August 11, 1998
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Gentlemen:
You have requested our opinion in connection with Registration Statement
#333-52815 on Form SB-2 to be filed by BCAM International, Inc. (the "Company")
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, (the "Act"), regarding registration under the Act of certain
securities (the "Securities") for sale by the Company and by certain Selling
Shareholders named therein.
As counsel for the Company, we have examined such records, documents and
questions of law as we have deemed appropriate for the purposes of this opinion
and, on the basis thereof, advise you that in our opinion all the Securities
which are currently outstanding are, and which are issuable upon the due and
proper exercise of Securities will be, legally issued and fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Ruskin, Moscou, Evans & Faltischek P.C.
Exhibit 24.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 20, 1998 and March 15, 1998, included in the
Registration Statement (Form SB-2 No. 333-52815) and related Prospectus of BCAM
International, Inc. for the registration of 4,624,000 shares of its common
stock.
/s/ Ernst & Young LLP
Melville, New York
August 11, 1998
Exhibit 24.4
Consent of Independent Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form SB-2) and related Prospectus of BCAM International,
Inc. for the registration of 4,624,000 shares of its common stock and to the
inclusion therein of our report dated September 26, 1997 with respect to the
financial statements of Drew Shoe Corporation, as of December 31, 1996 and for
the year ended December 31, 1996.
/s/ J. H. Cohn LLP
Roseland, New Jersey
August 11, 1998
