SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from to
Commission file number 0-18109
BCAM INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3228375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 Walt Whitman Road, Melville, New York 11747
(Address of principal executive offices)
(516) 752-3550
(Issuer's telephone number)
Not applicable (Former name,
former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesX
No
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ___ No X
As of November 19, 1999, the Company has 38,904,975 shares of Common Stock,
262,884 shares of Series A Convertible Acquisition Preferred Stock and 79,826
shares of Series B Convertible Acquisition Preferred Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
Part I - Financial Information
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets
September 30, 1999 (Unaudited) and December 31, 1998 F-2
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 1999 and 1998 (Unaudited) F-3
Condensed Consolidated Statement of Stockholders' Deficiency
Nine Months Ended September 30, 1999 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6/14
Item 2. Management's Discussion and Analysis or Plan of Operation 15/17
Part II - Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 19/20
Item 4. Submission of matters to a vote of security holders 21/22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Index of Exhibits 25
</TABLE>
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
September December
ASSETS 30, 1999 31, 1998
------ -------- --------
(Unaudited) (Note 1)
Current assets:
<S> <C> <C>
Cash $ 226,000
Accounts receivable, less allowance for contractual discounts
and doubtful accounts of $56,000 11,000 $ 27,000
Other current assets 1,000 1,000
----------- -----------
Total current assets 238,000 28,000
Equipment, net of accumulated depreciation of $60,000 and $40,000 83,000 103,000
Technology costs, net of accumulated amortization of $294,000 883,000 1,009,000
Debt issuance costs, net of accumulated amortization of $28,000 124,000 124,000
----------- -----------
Totals $ 1,328,000 $ 1,264,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current liabilities:
Notes payable (including obligations in default) $ 913,000 $ 1,971,000
Accounts payable and accrued expenses 367,000 453,000
----------- -----------
Total current liabilities 1,280,000 2,424,000
Long-term debt, net of current portion 350,000
Other liabilities 217,000 64,000
----------- -----------
Total liabilities 1,847,000 2,488,000
----------- -----------
Contingencies
Stockholders' deficiency:
Preferred stock; 2,000,000 shares authorized in 1999; none issued Series A
Acquisition Convertible Preferred Stock, par value $.01
per share; 750,000 shares authorized in 1999; 262,884 shares
issued and outstanding; liquidation preference $4,521,605
($17.20 per share) 3,000
Series B Acquisition Convertible Preferred Stock, par value $.01
per share; 750,000 shares authorized in 1999; 79,826 shares
issued and outstanding 1,000
Series A Convertible Preferred Stock, par value $.001 per share;
3,000,000 shares authorized in 1998; 2,658,511 shares issued
and outstanding 3,000
Common stock, par value $.01 and $.001 per share; 65,000,000 and
10,000,000 shares authorized; 40,846,820 and 3,000,000 shares
issued 408,000 3,000
Stock subscriptions receivable (110,000)
Additional paid-in capital 6,618,000 3,378,000
Accumulated deficit (6,540,000) (4,608,000)
Less treasury stock - 763,182 shares of common stock at cost (899,000)
---------- -----------
Total stockholders' deficiency (519,000) (1,224,000)
---------- -----------
Totals $ 1,328,000 $ 1,264,000
=========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues ........................... $ 18,000 $ 63,000 $ 5,000 $ 22,000
------------ ------------ ------------ ------------
Operating expenses:
Cost of revenues .................. 61,000 275,000 7,000 80,000
Selling, general and administrative
expenses ...................... 1,057,000 1,530,000 453,000 524,000
------------ ------------ ------------ ------------
Totals ...................... 1,118,000 1,805,000 460,000 604,000
------------ ------------ ------------ ------------
Loss from operations ................... (1,100,000) (1,742,000) (455,000) (582,000)
Interest expense ....................... 832,000 144,000 342,000 60,000
------------ ------------ ------------ ------------
Net loss ............................... $ (1,932,000) $ (1,886,000) $ (797,000) $ (642,000)
============ ============ ============ ============
Basic net loss per common share ........ $ (.10) $ (.13) $ (.03) $ (.04)
============ ============ ============ ============
Basic weighted average number of
common shares outstanding ......... 19,637,000 14,831,000 28,323,000 14,831,000
============ ============ ============ ============
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
($000's)
<TABLE>
<CAPTION>
Series A Acq. Series B Acq.
Convertible Convertible Series A Conv.
Pref. Stk Pref. Stk Pref. Stk Common Stk Stock Add'l Treas Stk
--------- --------- --------- ---------- Subscpts Pd-in Accmld ---------
Shares Amt Shares Amt Shares Amt Shares Amt Rcvable Capital Deficit Shares Amt Ttl
------ --- ------ --- ------ --- ------ --- -------- ------- ------- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 2,658,511 $3 3,000,000 $3 $3,378 $(4,608) $(1,224)
Issuance of shares to note-
holder as fee for deferral
of monthly principal 231,848 34 34
payments
Effects of reverse
acquisition and other
concurrent transactions:
Conversion of senior subor-
dinated secured
promissory notes into
common stock 8,333,333 8 1,242 1,250
Conversion of note payable
to stockholder and related
accrued interest into com-
mon stock 4,792,324 5 714 719
Proceeds from issuance of
common stock 6,583,809 7 $(110) 981 878
Issuance of common stock to
consultants 1,279,167 1 179 180
Net issuances of preferred
and common shares in
connection with business
combination, net of
related expenses of
$273,000 262,884 $3 79,826 $1 (2,658,511)(3) 3,501,339 253 221 763,182 $(899) (424)
Shares issued in September
1999 as market price
adjustment pursuant to
terms of acquired
company's private
placement in April 1998 13,125,000 131 (131)
Net loss (1,932) (1,932)
------- -- ------ -- --------- -- ---------- --- ----- ------ ------- ------- ----- -----
Balance, September 30, 1999 262,884 $3 79,826 $1 - $- 40,846,820 $408 $(110) $6,618 $(6,540) 763,182 $(899) $(519)
======= == ====== == ========= == ========== ==== ===== ====== ======= ======= ===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Operating activities:
<S> <C> <C>
Net loss .................................................... $(1,932,000) $(1,886,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of equipment ............................... 20,000 19,000
Amortization of technology costs ........................ 126,000 126,000
Amortization of debt issuance costs and debt discount ... 4,000 4,000
Deferred interest expense ............................... 815,000 72,000
Issuance of preferred stock for consulting services ..... 180,000
Issuance of common stock as fee for deferral of principal
payments on debt ................................... 34,000
Changes in operating assets and liabilities:
Accounts receivable ................................ 16,000 (4,000)
Other current assets ............................... 47,000
Accounts payable and accrued expenses .............. (21,000) (284,000)
Liability under agreement for purchase of technology (1,025,000)
----------- -----------
Net cash used in operating activities .......... (758,000) (2,931,000)
----------- -----------
Investing activities - purchases of equipment .................... (66,000)
-----------
Financing activities:
Proceeds from issuances of notes payable .................... 400,000
Repayments of capital lease obligations ..................... (21,000) (5,000)
Proceeds from issuances of capital stock, net of expenses
of $273,000 in 1999 ..................................... 605,000 152,000
Proceeds from stock subscriptions ........................... 100,000
----------- -----------
Net cash provided by financing activities ...... 984,000 247,000
----------- -----------
Net increase (decrease) in cash .................................. 226,000 (2,750,000)
Cash, beginning of period ........................................ -- 2,839,000
----------- -----------
Cash, end of period .............................................. $ 226,000 $ 89,000
=========== ===========
Supplemental disclosures of cash flow data:
Interest paid ............................................... $ 65,000 $ 72,000
=========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation:
Business and reverse acquisition:
BCAM International, Inc., which was organized in 1984 in the State of New
York, and its subsidiaries ("BCAM") had been primarily a software,
technology and consulting company specializing in providing ergonomic
solutions (human factors engineering) to individuals, corporations and
governments. BCAM's revenues had historically been derived primarily from
ergonomic consulting services. Such businesses were terminated in 1998.
Through a series of transactions effective as of September 22, 1999, (i)
BCAM transferred all of its technology holdings, assigned all of its
licensing agreements and transferred $250,000 to ISTX, Inc. ("ISTX"), its
90%-owned subsidiary; (ii) ISTX agreed to assume substantially all of
BCAM's liabilities (other than the contingent liabilities related to the
pending stockholder derivative action described in Note 7; and (iii) BCAM
spun off its 90% interest in ISTX through the declaration of a dividend of
one share of ISTX for each share of common stock of BCAM held of record on
September 22, 1999 (the "Spinoff"). As a result of the Spinoff, BCAM had
virtually no business operations at the time of the exchange of shares
described below, which was on September 23, 1999, which exchange was based
on an earlier executed merger agreement.
LungCheck Inc. ("LungCheck") was incorporated on January 30, 1997 in the
State of Delaware for the purpose of acquiring, enhancing and marketing
LungCheck(R) diagnostic test technology. The technology is used to provide
a specialized sputum cytology laboratory service. The service includes a
quantitative assessment of the pulmonary health of lung cells based on a
comprehensive review of different cellular and noncellular indicators, as
well as the early identification of cancer and other abnormal cells in the
fluids found in the lungs known as sputum. The results of the assessment
are included in a cytology report which is produced from a database and
specialized software containing comparative pulmonary health information.
As of September 23, 1999, BCAM had, effectively, 40,846,820 shares of
common stock outstanding, with a par value of $.01 per share, including (i)
13,125,000 shares issued in connection with the settlement of rights held
by certain purchasers of its common shares through a private placement in
April 1998 (see Note 5 herein) and (ii) 1,666,667 shares sold, effectively,
as of September 23, 1999 through a private placement for which it received
proceeds of $250,000.
As of September 23, 1999, LungCheck had 2,658,511 shares of Series A
Convertible Preferred Stock outstanding (the "Old Series A Stock"), with a
par value of $.001 per share and, effectively, 24,220,484 shares of common
stock outstanding, with a par value of $.001 per share, including shares
issued, effectively, as of that date as follows: (i) 8,333,333 shares
issued in connection with the conversion of senior subordinated secured
promissory notes in the principal amount of $1,250,000; (ii) 4,792,324
shares issued in connection with the conversion of a note payable and its
liability for accrued interest thereon aggregating $719,000; (iii)
6,583,809 shares sold through a private placement for which it received
proceeds of $878,000; and (iv) 1,279,167 shares issued to consultants for
services in connection with the conversions and sales of shares described
above and of the exchange of shares described below.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (continued):
Business and reverse acquisition (concluded):
As of September 23, 1999, BCAM was authorized to issue 2,000,000 shares of
acquisition preferred stock. In September 1999, BCAM became authorized
to issue up to 1,500,000 shares of acquisition preferred stock with a par
value of $.01 per share of which up to 750,000 shares were designated as
Series A Acquisition Convertible Preferred Stock (the "Series A Stock") and
750,000 shares were designated as Series B Acquisition Convertible
Preferred Stock (the "Series B Stock"). As further explained in Note 6
herein, each share of Series A Stock is convertible into 150 shares of
common stock, subject to certain conditions, and has a preference in
liquidation of $17.20 per share, and each share of Series B Stock is
convertible into 1,500 shares of common stock, but has no preference in
liquidation. In addition, the holders of Series A Stock and Series B Stock
are entitled to cast that number of votes equal to the number of shares of
common stock into which a share of Series A Stock and a share of Series B
Stock is convertible on each matter submitted to BCAM's stockholders for
voting.
On September 23, 1999, the merger agreement became effective and BCAM
became obligated to issue 262,884 shares of Series A Stock to the holders
of LungCheck's Old Series A Stock and 79,826 shares of Series B Stock to
the holders of LungCheck's 24,220,484 shares of common stock that,
effectively, were then outstanding (the "Merger"). As a result of the
Merger, (i) LungCheck became a wholly-owned subsidiary of BCAM; and (ii)
BCAM had the equivalent of 200,018,212 voting shares outstanding, of which
159,171,392 shares, or approximately 80%, were held by the owners of the
preferred and common stock of LungCheck prior to the Merger and 40,846,820
shares, or approximately 20%, were held by the owners of the common stock
of BCAM prior to the Merger.
Since BCAM had no business operations immediately prior to the Merger as a
result of the Spinoff described above, and since the former stockholders of
LungCheck owned 80% of the voting stock of BCAM, the Merger has been
treated effective as of September 23, 1999 as a "purchase business
combination" and a "reverse acquisition" for accounting purposes in which
BCAM was the legal acquirer and LungCheck was the accounting acquirer. As a
result, the assets and liabilities of the accounting acquirer, LungCheck,
continued to be recorded at their historical carrying values as of
September 23, 1999; however, common stock and additional paid-in capital
were adjusted as of September 23, 1999 to reflect the $.01 per share par
value of the shares of the legal acquirer, BCAM. In addition, the
accompanying condensed consolidated financial statements for the periods
prior to September 23, 1999 are comprised, effectively, of the historical
financial statements of LungCheck.
As used herein, the "Company" refers to LungCheck prior to the Merger and
LungCheck together with BCAM subsequent to the Merger.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (continued):
Basis of presentation:
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
Company has generated in significant revenues from the LungCheck(R)
diagnostic test technology that is its principal asset, and its operations
have generated losses and cash flow deficiencies from its inception on
January 30, 1997. The Company has substantial working capital and
stockholders' deficiencies and was in violation of certain of its covenants
in its loan agreement as of September 30, 1999. Management expects that
such losses and cash flow deficiencies will continue through at least
December 31, 2001 while the Company continues to develop markets for its
services. Such matters raise substantial doubts about the Company's ability
to continue as a going concern and realize the carrying value of its
technology unless the Company is able to obtain additional financing within
the next several months and, ultimately, increase revenues and generate
sufficient profits and cash flows to sustain its operations.
During the first nine months of 1999, the Company consummated the Merger
and management began to reorganize the Company's operations. The Company
has engaged a consulting firm specializing in medical sales and marketing
strategies to prepare a business plan and explore strategic alternatives
which include, among other things, other potential sources of financing.
Expenses have been reduced through the outsourcing of certain medical,
sales and marketing positions. The Company has also reduced expenses by
eliminating certain internal personnel costs and other costs of services
through an agreement whereby a medical diagnostic company is processing
LungCheck(R) tests and reporting on their results. In addition, management
believes the Company has developed a more viable marketing strategy. This
strategy focuses on the promotion of prevention programs, instead of
monitoring programs, and on the occupational health and corporate wellness
program markets.
In order to implement its new marketing strategy and enable the Company to
become commercially successful, the Company will need to restructure its
debt and obtain additional debt and/or equity financing. From its inception
through September 30, 1999, the Company obtained financing primarily from
loans from InterEquity Capital Partners ("InterEquity"), a small business
investment company; loans from stockholders and other related parties; the
private placement of convertible bridge notes (which were subsequently
converted into preferred and warrants to purchase common stock) and secured
promissory notes; and the private placement of units of shares of preferred
stock and warrants to purchase common stock. Management is continuing its
efforts to obtain additional debt and/or equity financing for the Company
from financial institutions, other private investors and potential
strategic partnerships, but there is no assurance the same can be obtained.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (concluded):
Basis of presentation (concluded):
Management cannot assure that the Company will be able to develop a
successful marketing strategy or obtain the financing needed to develop
commercially successful operations through any other means. The
accompanying financial statements do not include any adjustments related to
the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue its operations as a going concern.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial
position of the Company as of September 30, 1999, and its results of
operations for the nine and three months ended September 30, 1999 and 1998,
its changes in stockholders' deficiency for the nine months ended September
30, 1999 and its cash flows for the nine months ended September 30, 1999
and 1998.
BCAM previously filed with the Securities and Exchange Commission (the
"SEC"): (i) an annual report on Form 10-KSB (the "Form 10-KSB"), which
included audited consolidated financial statements of BCAM and its
subsidiaries as of December 31, 1998 and for the years ended December 31,
1998 and 1997; and (ii) a report on Form 8-K (the "Form 8-K") as of
September 23, 1999 which included audited financial statements of LungCheck
as of December 31, 1998 and for the year ended December 31, 1998 and the
period from January 30, 1997 (date of inception) to December 31, 1997.
Information included in the consolidated balance sheet as of December 31,
1998 has been derived from the audited balance sheet of LungCheck included
in the Form 8-K. Pursuant to rules and regulations of the SEC, certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted from these financial statements unless
significant changes have taken place since the end of the most recent
fiscal year. Accordingly, these unaudited consolidated financial statements
should be read in conjunction with the financial statements, notes to the
financial statements and the other information included in the Form 10-KSB
and the Form 8-K. The Company's results of operations for the nine months
ended September 30, 1999 are not necessarily indicative of the results of
its operations for the year ending December 31, 1999.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings (loss) per common share pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128"). Basic earnings (loss) per common share is
calculated by dividing net income or loss applicable to common stock (net
income or loss adjusted for preferred dividend requirements, if any) by the
weighted average number of common shares outstanding during each period.
The calculation of diluted earnings (loss) per common share is similar to
that of basic earnings (loss) per common share, except that the denominator
is increased to include the number of additional common shares that would
have been outstanding if all potentially dilutive common shares, such as
those issuable upon the exercise of stock options and warrants and the
conversion of preferred stock, were issued during the period.
As explained in Note 1, each share of common stock issued by LungCheck (the
accounting acquirer in the reverse acquisition) prior to or concurrent with
the Merger on September 23, 1999 was converted into .0032958 shares of
Series B Stock. As explained in Note 6, the shares of Series B Stock do not
have any liquidation preference and have rights to dividends that are
equivalent to those of a share of common stock of BCAM (the legal acquirer
in the reverse acquisition). In addition, each share of Series B Stock is
convertible into 1,500 shares of BCAM common stock. Accordingly, the
Company has computed the weighted average number of common shares
outstanding for the nine months and three months ended September 30, 1999
and 1998 as if a share of LungCheck common stock outstanding prior to the
Merger was equivalent to 4.9437 shares of BCAM common stock and a share of
Series B Stock was equivalent to 1,500 shares of BCAM common stock. The
shares held by the common stockholders of BCAM prior to the Merger have
been included in the computation of the weighted average number of common
shares outstanding for the nine months and three months ended September 30,
1999 from September 23, 1999, the effective date of the Merger.
No diluted per share amounts have been presented in the accompanying
condensed consolidated statements of operations because the assumed effects
of the exercise of options and warrants outstanding at September 30, 1999
and 1998, the assumed exercise of the Series A Stock outstanding at
September 30, 1999 and the Old Series A Stock outstanding at September 30,
1998 would have been anti-dilutive.
Note 3 - Income taxes:
As of September 30, 1999, the Company had net operating loss carryforwards
of approximately $5,832,000 available to reduce future Federal taxable
income which, if not used, will expire at various dates through 2019. The
Company had no other material temporary differences as of that date. Due to
the uncertainties related to, among other things, the changes in the
ownership of the Company, which could subject those loss carryforwards to
substantial annual limitations, and the extent and timing of its future
taxable income, the Company offset the deferred tax assets attributable to
the potential benefits of approximately $1,982,000 from the utilization of
those net operating loss carryforwards by an equivalent valuation allowance
as of September 30, 1999.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Income taxes (concluded):
The Company had also offset the potential benefits from net operating loss
carryforwards by equivalent valuation allowances during 1998. As a result
of the increases in the valuation allowance of $656,000 and $641,000 during
the nine months ended September 30, 1999 and 1998, respectively, no credits
for income taxes are included in the accompanying consolidated statements
of operations.
Note 4 - Long-term debt:
Long-term debt was comprised of the following at September 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
September December
30, 1999 31, 1998
-------- --------
<S> <C> <C>
Note originally payable to InterEquity in monthly installments of $24,057
including interest at 12% through December 31, 2002; net of unamortized
discount of $16,000 and $20,000; secured by a first lien on substantially
all of the Company's assets. The Company was in violation of certain loan
covenants as of September 30, 1999 and, as a result, payments totaling
$696,000 originally due in years subsequent to December 31, 1999 have been
reclassified as current liabilities (A) $ 913,000 $908,000
Note payable to LungCheck Ltd. for the purchase of technology with interest
at 10%; payable on December 30, 2002; secured by the Company's technology
(B) 50,000 350,000
Note payable to stockholder; with interest at 10%; Note and related accrued
interest of $106,000 was satisfied via its conversion into 15,795 shares of
Series B Acquisition Convertible Preferred Stock on September 23, 1999 613,000
Noninterest bearing loan payable to stockholder due on demand (C) _________ 100,000
1,263,000 1,971,000
Less current portion 913,000 1,971,000
--------- ---------
Long-term debt $ 350,000 $ -
=========== =========
</TABLE>
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Long-term debt (concluded):
(A)On January 15, 1999, the loan agreement was amended to allow the Company
to defer any monthly principal payment due in 1999. The Company will be
required to issue the number of shares of its common stock that equals the
principal amount deferred multiplied by 1.5 to InterEquity as a fee for
each payment deferred. LungCheck issued a total of 231,848 shares of common
stock (the equivalent of 764 Series B shares) with an aggregate fair value
of $34,000 as deferral fees during the nine months ended September 30,
1999. The principal balance remaining as of December 31, 1999 is being
amortized through equal monthly payments, including interest at 12%, over
the period from January 1, 2000 through December 31, 2002. Management
expects that the term of the loan plus certain other covenants will be
renegotiated prior to January 1, 2000.
(B) The rights to payments and the interests in the pledged assets are
subordinated to the rights of InterEquity. See Notes 4 and 6 in the Form
8-K.
(C) On January 15, 1999, the $100,000 loan became evidenced by a senior
subordinated promissory note with a principal balance of $250,000. The
discount on the note of $150,000 was amortized to expense over the period
from January 1, 1999 to September 23, 1999. Such note was satisfied via its
conversion into 5,493 shares of Series B Acquisition Convertible Preferred
Stock on September 23, 1999.
Interest expense on loans from related parties totaled approximately
$221,000 and $71,000 for the nine months ended September 30, 1999 and 1998,
respectively.
Management believes that the fair value of the Company's note payable to
InterEquity does not differ materially from their aggregate carrying value
at September 30, 1999 because the note is a short-term obligation with
terms that were recently renegotiated. Because of the relationship between
the Company and its related parties, management believes that there is no
practical method that can be used to determine the fair values of notes and
loans payable to related parties.
Note 5 - Adjustments to number of shares issued through private placement:
Beginning on April 14, 1998, BCAM commenced a private offering of its
common stock and warrants. The offering generated aggregate proceeds of
$2,000,000 from the sale of 1,980,198 shares of common stock and warrants
to purchase 250,000 shares of common stock exercisable at $2.05 per share
for a period of three years subsequent to the date of sale. However, the
number of shares of common stock sold was subject to "repricing
adjustments" based on the market value of the shares at specified dates.
BCAM issued a total of 4,736,729 shares of common stock prior to September
1999 as a result of repricing adjustments and 13,125,000 shares of common
stock in September 1999 pursuant to agreements that canceled its
obligations with respect to the issuance of any additional shares as a
result of repricing adjustments.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Preferred stock:
As of September 30, 1999, the Company was authorized to issue up to 750,000
shares of Series A Stock, of which 262,884 shares were outstanding, and
750,000 shares of Series B Stock, of which 79,826 shares were outstanding
(see Note 1). Each share of Series A Stock has a par value of $.01 per
share and a preference in liquidation of (i) $17.20 per share plus (ii) all
declared but unpaid dividends, or if greater, a portion of the remaining
assets of the Company which are distributable to the holders of the common
stock equal to an amount which would have been distributed if the Series A
Stock had been converted into common stock immediately prior to the date of
such liquidation. Each share of Series A Stock is convertible into 150
shares of common stock, subject to certain conditions. Each share of Series
B Stock has a par value of $.01 per share, no preference in liquidation and
is automatically convertible into 1,500 shares of common stock immediately
after the Company effectuates a 1-for-15 reverse split of its common stock.
In addition, the holders of Series A Stock and Series B Stock are entitled
(i) to cast that number of votes equal to the number of shares of common
stock into which a share of Series A Stock and a share of Series B Stock is
convertible on each matter submitted to BCAM's stockholders for voting and
(ii) to dividends (whether in cash or property or securities, other than
dividends which are paid or intended to be paid in connection with
distributions of the Company's assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company) when declared by the
Company's Board of Directors on the common stock, on an as converted basis,
and before any payment is made to the holders of the common stock.
Note 7 - Contingencies:
On or about February 22, 1999, a stockholder derivative action was filed in
United States District Court for the Eastern District of New York in
connection with certain transactions culminating in the sale by BCAM of its
interest in one of its former subsidiaries, Drew Shoe Corporation ("Drew")
to Impleo, LLC ("Impleo"). The complaint named all of BCAM's then current
directors and several former directors as defendants as well as Impleo and
certain related entities and individuals (collectively, the "Defendants").
The complaint alleges violations of the Federal securities laws and state
law and challenges the Defendants' actions in connection with certain
transactions including but not limited to (i) the April 14, 1998
restructuring of certain convertible notes; (ii) the October 1998 sale of a
56.7% interest in Drew to Impleo and (iii) the sale of BCAM's remaining
33.3% interest in Drew to Impleo on March 4, 1999. In addition to seeking
recovery on behalf of BCAM for certain allegedly wrongful acts on the part
of the Defendants, the complaint seeks, among other things, to enjoin or
set aside any stockholder vote in connection with a proxy statement filed
with the SEC on or about February 1, 1999 (pursuant to which BCAM received
approval of over 67% of its stockholders to sell its remaining 33.3%
interest in Drew) and to block or rescind the sale of any interests in Drew
to Impleo. BCAM's directors deny the allegations concerning any allegedly
wrongful actions.
<PAGE>
BCAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Contingencies (concluded):
In May 1999, the Defendants filed motions to dismiss the complaint. Instead
of responding to these motions, plaintiff filed and served an amended
complaint in July 1999. The amended complaint dropped certain parties as
defendants and raised several new allegations, including, but not limited
to, the alleged failure to make adequate disclosure of the advice rendered
by a consultant to BCAM and the alleged failure to seek separate
stockholder approval for the October 1998 sale. The Company and its
directors deny that they engaged in wrongful conduct and on September 13,
1999 the defendants served motions to dismiss the amended complaint. The
Plaintiff's response is due on November 22, 1999 and the Defendant's reply
papers are due on December 14, 1999.
In connection with the Merger described above, BCAM's liabilities as of
September 23, 1999 were assumed by ISTX except with respect to the
stockholder derivative action described above. However, the assumption of
such liabilities was completed "with recourse." As a result, if ISTX should
default on the liabilities of BCAM it assumed, the Company would be liable
for payment. As of September 30, 1999, the Company was contingently liable
for liabilities assumed by ISTX of approximately $515,000. Management
cannot determine what amount, if any, the Company may have to pay, and the
Company had not accrued any liability for payments, in connection with this
matter.
* * *
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT AND THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND 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
Overview:
LungCheck is a medical technology company whose products identify the presence
of the most common forms of lung irritants and monitor cellular abnormalities in
the lungs thereby assisting physicians with the early detection of disease.
LungCheck provides innovative pathology services in conjunction with its primary
product called LungCheck(R), a quantitative sputum cytology test. The LungCheck
diagnostic test utilizes a patented collection device whereby the patient or
physician collects a sputum specimen and then mails the specimen container to
the Company's contracted laboratories for processing, evaluation and
interpretation. The service includes a quantitative assessment of the sputum
which entails a comprehensive review of several cellular and noncellular
indicators, as well as pre-cancerous and cancerous cells found in the sputum
fluid of the lungs. The technical results of the pathology assessment are
communicated to the physician in a cytology report which is produced using a
cyto-pathology database and specialized computer software developed by the
Company. This software enables the pathology information of an individual to be
compared and benchmarked against a larger population of patients along with the
accompanying demographic and disease specific information.
In addition to seeking to market its products and services to specialty medical
providers, the Company has been seeking to market to large companies within the
occupational health market that are compelled (by governmental or self-imposed
standards) to screen and monitor their employee populations for lung disease.
The Company also offers its products to large corporations and non-corporate
organizations such as unions and the military that are part of the occupational
health market. The Company plans to expand on this strategy by marketing to the
life and health insurance industry for risk assessment screenings as well as to
companies of organized medical service providers. To date, sales have not been
significant.
<PAGE>
Results of Operations
Results of operations for the nine months ended September 30, 1999 and 1998 were
impacted by limitations on resources, primarily financial, which inhibited
marketing activities. In particular, the Company was in negotiations to raise
additional capital from approximately June 1998 through September 1999, at which
time it consummated a series of transactions resulting in a recapitalization and
merger. During this time, the Company was periodically advanced funds by a major
stockholder, a portion of which was converted into capital stock in connection
with the recapitalization.
Revenues decreased from $63,000 and $22,000 in the nine and three months ended
September 30, 1998 to $18,000 and $5,000 for the nine and three months ended
September 30, 1999. This decrease arose from two research programs that were
conducted on behalf of organizations in 1998 that were absent in 1999, and the
decline in revenues from a significant multi-specialty clinic. In addition, the
Company's limited cash resources did not allow for aggressive marketing and
sales activities. To partially offset the declining sales trend, in January
1999, the Company began offering the LungCheck(R) diagnostic test technology to
a major corporation that provides "wellness" testing to its employees.
Costs of revenues declined $214,000 and $73,000, respectively, to $61,000 and
$7,000 for the nine and three months ending September 30, 1999 as compared to
the same periods in 1998 due to the closing, in March 1999, of the Company's
laboratory facility. In conjunction with the laboratory's closure, the Company
entered into an agreement whereby a medical diagnostic company is processing
LungCheck(R) tests and reporting on their results, thereby reducing the high
fixed costs of lab personnel and other lab expenditures.
Selling, general and administrative expenses decreased from $$1,530,000 and
$524,000 in the nine and three months ended September 30, 1998 to $1,057,000 and
$453,000 for the nine and three months ended September 30, 1999. This reduction
arises from the elimination of certain sales and office personnel, decreased
travel expenses, and a decrease in consulting fees.
LIQUIDITY AND CAPITAL RESOURCES
As indicated in the accompanying condensed consolidated financial statements, as
of September 30, 1999, the Company had not generated any significant revenues
from the LungCheck(R) diagnostic test technology that is its principal asset,
and its operations have generated losses and cash flow deficiencies from its
inception on January 30, 1997. The Company has substantial working capital and
stockholders' deficiencies, and was in violation of certain of the covenants in
its loan agreements as of September 30, 1999. Management expects that losses and
cash flow deficiencies will continue through at least December 31, 2001 while
the Company continues to develop markets for its services. Such matters raise
substantial doubt about the Company's ability to continue as a going concern and
realize the carrying value of its technology unless the Company is able
immediately to obtain additional financing and, ultimately, increase revenues
and generate sufficient profits and cash flows to sustain its operations.
On September 23, 1999, the Company completed a merger and recapitalization which
generated proceeds, net of expenses of $605,000. As a result of the consummation
of this transaction, management of the Company believes that the Company has
sufficient cash flow to sustain its activities through November 15, 1999.
The Company anticipates that it will need to raise $1,700,000 immediately to
satisfy its cash requirements for the next twelve months (or a lessor sum to
sustain operations for a shorter period). Although management is continuing its
efforts to obtain additional debt and/or equity financing for the Company from
financial institutions, other private investors and potential strategic
partnerships, it has no arrangements with respect to, or resources of,
additional financing. Accordingly, there can be no assurance that additional
financing will be available to the Company when needed, on commercially
reasonable terms, or at all, which could have a material adverse effect on the
Company's long-term viability, and thus, as to the continuance of the Company.
THE YEAR 2000 ISSUE
At the Company's corporate office, information systems are principally utilized
for general accounting and administration. During 1998, the Company upgraded
such system and currently believes it to be Year 2000 compliant.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
On or about February 22, 1999, a shareholder derivative action was filed in
United States District Court for the Eastern District of New York in connection
with certain transactions culminating in the sale by the Company to Impleo, LLC
of the Company's interest in Drew. The complaint named all of the Company's
current directors and several former directors as defendants as well as Impleo,
LLC and certain related entities and individuals (collectively, the
"Defendants"). The complaint alleged violations of the federal securities laws
and state law and challenge the Defendants' actions in connection with certain
transactions, including but not limited to, (i) the April 14, 1998 restructuring
of certain convertible notes; (ii) the October 1998 sale of 56.7% of Drew to
Impleo, LLC; and (iii) the sale on March 4, 1999 to Impleo, LLC of the Company's
remaining 33.3% interest in the Drew. In addition to seeking recovery on behalf
of the Company for certain allegedly wrongful acts on the part of the
Defendants, the complaint seeks, among other things, to enjoin or set aside any
shareholder vote in connection with a proxy statement filed with the SEC on or
about February 1, 1999 pursuant to which the Company received approval of over
67% of its shareholders to sell its remaining 33.3% interest in Drew and to
block or rescind the sale of any interests in Drew to Impleo, LLC. The current
Directors deny the allegations concerning any allegedly wrongful actions. In May
1999, all defendants filed motions to dismiss the complaint. Instead of
responding to these motions, plaintiff filed and served an amended complaint in
July 1999. The amended complaint dropped certain parties as defendants and
raised several new allegations, including, but not limited to, the alleged
failure to make adequate disclosure of the advice rendered by Mesa Partners to
the Company and the alleged failure to seek separate shareholder approval for
the October 1998 sale. The Company and its directors deny that they engaged in
wrongful conduct and intend to file motions to dismiss the amended complaint. On
September 13, 1999, the Defendants refiled the motion to dismiss the complaint.
The Plaintiffs opposition papers must be served by November 22, 1999 and
Defendants' reply papers must be served by December 14, 1999.
In October 1998, the Company's HumanCAD Systems Inc. subsidiary filed an
assignment in bankruptcy under the laws of the Province of Ontario, Canada and
Fuller Landau Ltd., 151 Bloor St. West, Toronto, Canada, was appointed receiver
and trustee. Certain creditors of the HumanCAD operations have filed or
threatened to file claims against the Company for the debts of HumanCAD. One
such action was filed by Miller Freeman, Inc. in the Civil Court of City of New
York in the amount of approximately $18,000. The Company intends to vigorously
defend itself in such action, however its ability to do so may be limited by its
financial resources which are currently inadequate (See Form 10-KSB for the year
ended December 31, 1998 including; Consolidated Financial Statements, Report of
Independent Public Accountants and Management's Discussion and Analysis or Plan
of Operations).
Item 2. Changes in Securities and Use of Proceeds
On September 23, 1999, BCAM, through its wholly-owned subsidiary, LungCheck
Health, pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated September 15, 1999, acquired LungCheck, in a statutory merger of LungCheck
into LungCheck Health (the "Merger").
The terms of the Merger Agreement provide that each outstanding share of
LungCheck common stock, par value $.001, immediately prior to the Merger shall
be converted into 0.0032958 of a share of BCAM Series B convertible acquisition
preferred stock, par value $.01 per share ("BCAM Series B Preferred"), and that
each share of LungCheck preferred stock, par value $.001 per share shall be
converted into 0.098884 of a share of BCAM Series A convertible acquisition
preferred stock, par value $.01 per share ("BCAM Series A Preferred"). The
Company issued 262,884.229 shares of BCAM Series A Preferred Stock and
79,891.425 shares of BCAM Series B Preferred Stock for this purpose. For a
detailed description of the terms, conditions and preferences of the BCAM Series
A Preferred Stock and BCAM Series B Preferred Stock, see the Company's Report on
Form 8-K and exhibits thereto, filed with the Securities and Exchange Commission
on October 8, 1999. After the completion of the exchange by the LungCheck
stockholders and upon conversion and of the BCAM Series A and B preferred stock
into common stock of the Company, the stockholders of LungCheck will become the
holders of approximately 80% of the total issued and outstanding common stock of
the Company. In addition, the holders of certain options and warrants to
purchase LungCheck common stock will be issued options to purchase up to an
aggregate of 48,332 shares of BCAM Series B Preferred Stock. The securities
described in the above transaction were issued under the exemption from
registration provided by Rule 506 promulgated under the Securities Act of 1933.
Elimination of Repricing Rights
In a transaction related to the Merger, the Company issued 13,125,000
shares of its common stock to the holders of certain shares of common stock (the
"Investors") acquired in a 1997 private placement (as amended in December 1998)
who were granted certain "repricing rights" based upon the market value of the
Company's common stock. Such issuance was in full satisfaction of the "repricing
rights."
New Investment into BCAM
In another transaction with the Investors which was related to the Merger,
the Company issued an aggregate of 10,986 shares of the Company's Series B
Preferred Stock and 1,666,667 shares of the Company's common stock to the
Investors. The price paid by the Investors for each share of the Company's
Series B Preferred Stock was $45.50 and the price per share paid by such
investors for the Company's common stock was $.1499 per share, for an aggregate
consideration of $750,000. The securities described above were issued pursuant
to the exemption from registration provided by Rule 506 as promulgated under the
Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
At September 30, 1999 and the date hereof, the Company was in violation of
certain loan covenants contained in its loan agreement dated as of December
1997, as amended, with Interequity Capital Partners, L.P. ("Interequity") (the
"Loan Agreement"). The Company's obligations under the Loan Agreement are
secured by a first priority lien in favor of Interequity on substantially all of
the Company's assets. See Note 4 to Condensed Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter covered by this Report, the Company has not filed any
reports on Form 8-K. See, however, Form 8-K filed by the Company on October 8,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BCAM INTERNATIONAL, INC.
Dated: November 19, 1999 By: /s/ Michael Strauss
--------------------
Michael Strauss
Chairman of the Board of Directors,
President and Chief Executive Officer
(principal executive officer and acting
principal financial and accounting officer)
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Exhibit
27 Financial Data Schedule
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