<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from________ to________
Commission File Number 1-13886
CAM DESIGNS INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 75-2257039
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 Park Avenue, Suite 1100, New York, New York 10022
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 448-0240
Securities registered under Section 12(b)
of the Exchange Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
- - - Class A Common Stock $.001 par value National Market System of NASDAQ;
The Pacific Stock Exchange
- - - Redeemable Warrants to
Purchase Class A Common Stock National Market System of NASDAQ;
The Pacific Stock Exchange
- - - Units (consisting of 2
shares of Class A Common
Stock and one Warrant)
Securities registered under Section 12(g) of the Exchange Act:
- - - Units (consisting of 2 shares
of Class A Common
Stock and one Warrant) Electronic Bulletin Board of the NASD
- - --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
[Cover page 1 of 2 pages]
<PAGE>
The issuer's revenues for the fiscal year ending May 31, 1996 were
approximately $24,660,000.
As of August 18, 1996, the aggregate market value, based on the average bid
and asked prices of the issuer's voting stock (Class A Common Stock) held by
non-affiliates was approximately $12,960,000. Exclusion of shares held by any
person should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of management or policies
of the issuer, or that such person is controlled by or under common control of
the issuer.
As of August 18, 1996, there were 2,175,000 shares of Class A Common Stock
outstanding.
Documents Incorporated By Reference
None.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
TOTAL PAGES IN THIS REPORT: 32 EXHIBIT INDEX: PAGE 28
---- ----
[Cover page 2 of 2 pages]
<PAGE>
Part I
Item 1. Description of Business.
CAM Designs Inc. (the "Company") consists of a group of United
Kingdom-based entities ("CAM UK") organized between 1979 and 1988 to conduct
business in the fields of automotive and aerospace design and engineering and
the placement of temporary personnel engaged in automotive design and
engineering activities. On September 9, 1994, the Company was organized in the
United States under the laws of the State of Delaware for the purpose of acting
as a holding company for the United Kingdom-based operations, for examining
potential expansion of business activities into the United States, and for
securing additional financing for the enterprise as a whole, as well as
eliminating the preferred shares outstanding in CAM UK.
The closing of the acquisition of shares pursuant to a Stock Purchase
Agreement between the Company and the stockholders of CAM UK took place
simultaneously with the closing of the initial public offering on July 27, 1995
(the date of such closings shall be referred to as the "Effective Date"). Unless
otherwise stated, any reference to the "Company" herein shall, with respect to
periods prior to the Effective Date, mean CAM UK and its subsidiaries.
References to the "Company" in respect of periods after the Effective Date shall
mean CAM UK and its subsidiaries, together with the Company.
On the Effective Date, the Company acquired all of the outstanding shares
of capital stock of CAM UK. CAM UK, in turn, owns all the shares of capital
stock of the enterprises described on the chart below:
<TABLE>
<CAPTION>
----------------------------------------
CAM
Designs Inc.
[the "Company"]
----------------------------------------
----------------------------------------
CAM
Designs Ltd. (formerly
MGA Holdings LTD.)
["CAM UK"]
----------------------------------------
------------------------------------------------------------------------------------------------------------------
MGA MGA MGA Armstrong
Developments Ltd. Recruitment Ltd. Technology Ltd. Designs Ltd.
["MGAD"] ["MGAR"] ["MGAT"] ["ADL"]
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B Main operating company Engineering placement agency Marketing focus for Engineers jigs and tools
U for automotive and in automotive sector. certain aerospace sales. for automotive and
S aerospace sectors. aerospace clients.
I
N
E
S
S
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
The Company's principal business activity is product development within the
automotive and aerospace markets. Product development encompasses such
pre-production disciplines as design/styling, engineering, tooling and
prototyping. The largest market sector is automotive design which, during the
fiscal year ended May 31, 1996, accounted for approximately 74% of the Company's
sales, with aerospace activities accounting for approximately 14.7% and
placement and recruitment activities the remaining 12% balance.
The Company intends to expand its facilities and capabilities to penetrate
further what it considers to be the high added value niche markets in the
automotive and aerospace industries for its services. In that connection, it
intends to aggressively explore and develop the potential for business
activities in the United States and the Asian markets. Any resultant business
from these sources are expected by the Company to continue to be performed at
its facilities in the United Kingdom until such future date as overseas business
generation may warrant the opening of a facility in the United States or
elsewhere.
Automotive Activity
The Company's automobile design and engineering activities are divided into
two different types of projects: one dealing with new vehicle development
programs in which the original equipment manufacturer ("OEM") places a new
design into general production; the other consisting of customizing, on behalf
of the OEM for a specific customer or class of customers, an existing vehicle
for limited production and sale.
The customization of vehicles requires many of the same steps taken in the
vehicle development and design program outlined below. However, time and costs
may be reduced by the fact that the basic vehicle has already been produced and
is available in the Company shop for redesign and evaluation. Further, tooling
for production of a customized vehicle is much simpler since relatively few
customized vehicles are to be reproduced and, accordingly, molds and tooling for
this purpose may be directly produced by the Company rather than subcontracted
out as is done with vehicles undergoing full production programs. In the
parlance of the trade, customized vehicles would require "soft" tooling while
mass production vehicles would require "hard" tooling.
The Company's area of expertise lies in the design and engineering of the
vehicle body (the metal shell of the vehicle, termed "body-in-white" or BIW) for
passenger cars, commercial vehicles and cabs of trucks.
-4-
<PAGE>
Confidentiality
Because of the nature of the work carried out by the Company (new vehicle
design), confidentiality and security are maintained by the Company as follows:
o All employees are required to sign Confidentiality Agreements when
joining the Company;
o An internal electronic access system allows only duly authorized
personnel to enter each area and can be updated to accommodate
specific project requirements;
o An external and internal camera and infra-red security system is in
place 24 hours a day, with external security (including on site
private security personnel) used outside office hours; and
o All projects are code named as appropriate.
Quality Control
The Company services its customers with exemplary quality control standards
through a combination of its experienced skilled personnel, interacting with
each other through various phases of vehicle development, while using advanced
technology.
The Company is able to link component CAD database information with
advanced surface measuring software on its three-dimensional co-ordinate
measuring equipment. This allows computer aided inspection to be performed
directly against the CAD model and produces diagrammatic and co-ordinate color
inspection reports.
Functions
The Company's automotive activities encompass design, engineering, model
and tool production and prototype functions.
o Design -- The design staff is charged with concept design,
packaging, trim and hardware design, clay models and
packaging. It operates in two self-contained studios
and often works closely with the engineering personnel.
o Engineering -- The Company provides professional teams for complete
engineering from concept to prototype. It has the
capabilities of producing niche vehicle engineering and
conversions, engine and vehicle packaging, structural
engineering, chassis engineering, tool and fixture
design, trim and hardware engineering and numerical
control toolpathing. Engineering personnel utilize
computer assisted design engineering and manufacturing
hardware and software in their activities.
-5-
<PAGE>
o Model and
Tooling -- These facilities create, among other things, master
models, all forms of tooling for production of the
ultimate vehicle, jigs and fixtures, stacks and panels.
The Company's modeling shop specializes in the
utilization of advanced technology, such as
computerized numerical controlled milling machines and
other equipment.
o Prototypes -- The Company employs over twenty highly skilled sheet
metal workers who are experts in producing, among other
things, prototype panels, sub-assemblies and complete
vehicle bodies.
The prototype facility produces body-in-white and other
structures from limited initial CAD and manually drawn
instructions. This allows the manufacture of concept
vehicles for testing purposes early in the program,
making possible later stage functions, such as
prototype tooling, to be performed with greater
assurance.
Aerospace Activity
The Company is currently involved in designing certain tooling in two main
aircraft manufacturing technologies:
1. Sheet metal technology. This is the technology of building structures,
airframes, the tail assembly or empennage and engine enclosures or nacelles from
light alloy components. Tooling associated with this technology includes stretch
form tools, hydra-form blocks, chemitech templates, drill and trim jigs as well
as ICY and assembly media. The Company's recent projects include Learjet 45
complete fuselage rib form tooling, IAE V2500 for the MD90 engine nacelle inner
fixed structure, DC8 and DC9 stage II engine hush kit, Embraer 145 outer engine
nacelle and, more recently, the fuselage rib frames for the Bombardier Global
Express and design of tooling for a portion of the Boeing 737-700. A more recent
development associated with sheet metal technology has been the augmentation of
the tooling product with a design capability (for an aerospace tooling
supplier).
2. The composites technology. From electronic data, the Company is retained
to build a master mold often required to resist both high temperatures and
pressures. This master mold is used in the future production of composite
fairing panels (to smooth shape transitions and reduce drag on the airframe), or
load bearing structures with low weight. Composite technology requires a number
of ancillary type tools such as trimming, drill and interchangeability (ICY)
media. In recent times, the Company has been involved with the IBM Merlin/EH101
helicopter gearbox top structures, engine intakes and glazing bar structure,
Learjet 45 main landing gear fairings, Sikorski S76C light weight engine cowl,
Rolls-Royce Trent 700/800 thrust reverser and more recently the Bombardier
Global Express underbelly fairing.
-6-
<PAGE>
With regard to these two technologies, their respective contributions to
the Company's aggregate aerospace sales revenues are as follows:
o sheet metal tooling represents approximately 80% of aerospace sales;
o composite tooling represents approximately 10% of aerospace sales.
Management believes that this percentage will grow as the proportion
of composites used in an aircraft increases, although there can be no
assurance that this will be the case; and
o the remaining 10% of sales includes the design element and specialized
tooling for other aircraft components which are very dependent on
customer requirements.
Personnel Placement Services Activities
CAM UK, through its wholly owned subsidiary, MGAR, is engaged in placing
engineers and similar personnel with third parties, on a part-time or temporary
basis. Such activities are basically focused upon placement of personnel with
OEMs, primarily in the automobile industry. The Company retains such personnel
as independent contractors, pays them an hourly rate and charges the customer
for the services of these persons. An additional benefit of this operation is
that it keeps CAM UK in contact with available personnel in the automotive field
who may be utilized by the Company as part-time employees in its own operations.
The Company's revenues from placement activities during the last several years
have averaged approximately 10% of its aggregate revenues. The predecessor of
this entity was established in 1978 and there are now in excess of 1,000
engineers and other professionals registered with this company. Among other
things, such persons are trained in the disciplines of design, surface
modelling, computer numerical control or "CNC" programming and machining,
drafting, project management, model making, sheetmetal prototyping, as well as
CAD hardware and software applications.
Corporate Strategy
Management believes that there is a strong market for the potential
expansion of its business, both in the United Kingdom and in other geographic
areas, particularly North America, Western Europe and the Far East. Management's
strategy is to expand its activities both within the automotive and aerospace
business, particularly emphasizing aerospace activities (partially as a means of
diversifying its business) and to actively explore North American and Far
Easternbased automobile and truck manufacturers as well as the US aerospace
industry for utilization of the Company's design and engineering services.
(a) Expansion of Facilities in the United Kingdom
The Company has, since August, 1995, leased and outfitted a third new
location in the same geographic area of the United Kingdom in which its
operations are centered for the purpose of establishing a total in-house
capacity to effectuate "Body-in-White" work as well as to expand its hand
crafted modeling capabilities. The Company has also, since the consummation
-7-
<PAGE>
of its public offering, acquired additional CAD workstations and purchased
another computer numerical control machine, thereby expanding the capacity of
its two other locations. This has resulted in (i) a new capacity to totally
perform automotive preproduction work, and (ii) an expansion of existing design,
modeling, prototype and related capabilities.
(b) Expansion of Aerospace Activities in North America
The Company presently has one designated marketing representative in its UK
executive offices, whose prime task is to work with other Company management and
professionals and coordinate the effort of focusing upon the US aerospace
market. The Company has, in the recent past, been retained by UK subcontractors
for American-based aircraft manufacturers, such as the Boeing Company and Lear,
Inc. (now a division of Bombardier, Inc.), to perform services in connection
with aircraft wing design and tooling. Its ability to perform portions of
contracts emanating from such entities had been limited until the consummation
of the Company's public offering in July, 1995 by the need to finance internally
the contract costs until completion, since a number of larger aerospace firms do
not ordinarily provide for progress payments.
In addition, the British Ministry of Defense generally enforces a policy
with respect to British government purchases of military equipment from abroad,
under which the entities making such sales to the British government are
encouraged to purchase an equivalent value of products or services from
companies based in the UK. This policy takes the form of weighing as a factor,
in the Ministry's purchasing decision, whether the supplier will, in turn, make
such a commitment to purchase. As a result of this policy, US entities, such as
the Boeing Company, Lockheed Corporation and the McDonnell Douglas Corp., upon
making a sale of military equipment to the UK, would have an "offset obligation"
to purchase potentially significant amounts of goods or services from firms
based in the UK. The Company anticipates that this policy could lead to the
possibility of significant sources of aerospace business to UK-based entities,
such as the Company.
(c) Expansion of Automotive Business with North American and Far Eastern
Manufacturers
The Western European automobile market is evidencing expanding penetration
by Far East Asian manufacturers, many of which are opening production facilities
in Western Europe to produce cars destined for those markets. In addition, the
market in China, particularly with that country's emphasis on change to a free
market economy and its drive to industrialize and upgrade its technology,
creates a sizable potential for the Company's services. The Company has had past
experience in China by virtue of having created for a Chinese client, on a
turnkey basis, a new model of truck, approximately 6 1/2 years ago. Management
intends to utilize this prior experience in attempting to reinvigorate its
efforts not only in the Chinese market but in neighboring geographic areas as
well.
In addition, approximately 13% of the Company's revenues in Fiscal 1994
were derived from the Company's design of a tractor-trailer cab for a Canadian
truck manufacturer. The Company intends to build upon these and other customer
relationships to attempt to further develop work generated from the North
American market. Should business developments warrant and should the opportunity
of opening or acquiring a North American facility become attractive,
-8-
<PAGE>
the Company will consider this possibility, although it has no present plans to
create or acquire such a facility.
Sales and Marketing
Sales and marketing activities are primarily conducted by in-house
personnel of the Company. Four full time sales persons are employed by the
Company and their activities are supplemented by various of the executive
officers and such other technical personnel as may be appropriate in connection
with any prospective retention by a client. One of such employees specializes in
the aerospace markets. A significant source of business is recurring or new
engagements secured from existing clients. In addition, the Company's marketing
efforts include use of printed color brochures describing its activities and
products, and other customary channels to solicit potential business. Finally,
since some of the Company's activities involve high profile automobile products,
it is the beneficiary of publicity concerning such products in news and magazine
articles.
Markets and Customers
General
The Company's customers are manufacturers in the automotive industry in the
United Kingdom and Western Europe and, to a lesser extent, such automotive
manufacturers in North America and elsewhere, as well as aerospace companies
located in North America which subcontract part of their work to be performed in
the United Kingdom. The Company has, in recent years, depended for significant
portions of its sales upon a relatively small group of manufacturers. During
Fiscal 95, two automotive companies contributed more than 10% of the Company's
revenues, representing 27.2% and 13.2%, respectively, and during Fiscal 96,
three customers accounted for more than 10% of the Company's revenues,
representing 22.1%, 17.3% and 12%, respectively. The reliance on a relatively
small number of continuing customers for contracts which are larger in amount
has had a beneficial effect of giving the Company a more reliable source of
revenue while such contracts are in effect; however, this also has created the
concomitant risk of making the Company more reliant upon a relatively small
number of accounts. Most of the Company's revenues in the automotive and
aerospace fields derive from fixed cost contracts; management of the Company
believes that its personnel are able to estimate actual costs and control the
same in the performance of work by the Company to remove a substantial amount of
the risk that normally is placed upon companies performing fixed cost contracts
rather than contracts based upon time, materials and a profit factor, and that
fixed cost contracts afford it an opportunity to achieve higher profit margins.
Automotive
Britain is one of the world centers for automotive design--designing and
engineering vehicles throughout the world. There are some 5,000 highly qualified
professional engineers and designers employed in the independent vehicle design
sector in Britain. Industry revenues in this sector are some $600 million per
annum, of which approximately two-thirds is derived from
-9-
<PAGE>
outside the UK. Although the three prime automotive markets are the US, Japan
and Europe, substantial growth is being anticipated in previously secondary
production areas, such as Korea, Indonesia and Malaysia. (Source: Society of
Motor Manufacturers and Traders (UK) March 1992 Presentation). In terms of
attempting to exploit non-European markets, the recent completion of a niche
truck program in North America has given the Company a boost in seeking further
opportunities for design work presently being developed. In addition, the
Company is continuing to seek retention in commercial vehicle programs from the
People's Republic of China and other countries in the Pacific Rim.
The Company has historically performed services for a number of OEMs based
in the United Kingdom as well as in the United States and Western Europe. Some
of its earliest efforts were for the Rover Group in the 1980's, primarily with
respect to engine package related engineering. More recently, it has undertaken
styling programs for UK OEMs and has also been involved in continuing work over
a long period of time for Rolls-Royce Motor Cars Ltd., including the
face-lifting of the Bentley Turbo, as well as exterior design programs for Volvo
and various other European auto manufacturers. In addition to the passenger car
programs, a number of truck and bus styling programs for both UK and European
companies have also been entrusted to the Company. Finally, other areas of
involvement include motorbikes, forklift trucks, trains and flight simulators.
Concurrent with the development of the Company's Design Studio, there has
been the substantial growth of the Company's Engineering Department in size and
capability, supported with the recent recruitment of senior BIW engineers and
engineering management.
Aerospace
The Company has been retained in aerospace activities by both manufacturers
of commercial jets, such as U.K subcontractors of the Boeing Company, as well as
manufacturers of corporate planes such as Learjet. The Company is seeking to
increase its participation in, and market share of, services for the aerospace
industry. Trends affecting this market include (a) the emergence of the Far East
and Eastern Europe primarily due to expanding economies and political changes,
respectively as sources for greater utilization of aircraft, including smaller
and medium aircraft, (b) the resurgence of demand for business jets, with
several new planes in development by OEMs in North America, (c) the requirements
with respect to environmental compliance which have led to re-engineering of
older models to increase fuel economy and passenger carrying capabilities, and
reduce engine noise. It is in the increased use of reengineering of existing
models that the Company, especially with its utilization of CAD/CAM technology,
believes that there is potential for increased sales both to manufacturers and
others.
Backlog
The Company's backlog of firm orders existing as at May 31, 1996 and May
31, 1995 was approximately $15,000,000 and $20,000,000, respectively, comprised
of approximately $14,000,000 and $18,200,000 in automotive contracts and
$1,000,000 and $1,800,000 in aerospace contracts. The reduction in backlog as at
May 31, 1996 compared to as at May 31, 1995 is a result of the Company's
progress through advanced stages of two of its long term contracts. However,
backlog is significantly higher than as at May 31, 1994, which was
-10-
<PAGE>
approximately $4,260,000, comprised of $2,900,000 and $1,360,000, for automotive
and aerospace activities, respectively. The increased backlog in automotive
activities since Fiscal 94 is a result of the Company's having been able to
secure several large contracts from automobile manufacturers. Substantially all
these orders and contracts are cancellable by the customer, subject to payment
of all outstanding amounts and identifiable costs incurred by the Company. The
Company believes that this is an indication of its successful efforts to secure
larger and longer term contracts which, among other things, allow it the benefit
of allocating productive resources on an efficient basis among its various
units, even though it may make it somewhat dependent upon a relatively few key
customers.
Competition
The Company competes with a number of firms in the UK and Western Europe
engaged in similar design and engineering functions, some of which firms have
greater financial, personnel and other resources. In addition, most OEMs have
significant in-house capacity to perform many of the same functions with their
own personnel. However, this would require the OEMs to permanently retain a
substantial staff to engage in these programs and would burden these firms with
the cost of carrying surplus personnel when active design and engineering
programs were not underway, or terminating their employment and facing a variety
of cost and other problems as a result.
Historically, the independent design sector has developed due to better
vehicle program control and more cost effective and creative solutions,
supported by a reservoir of design expertise and experience, which may exceed
that possessed by certain OEMs. Accordingly, an OEM will often outsource such
work for these reasons and to enable the OEMs to reduce the fixed cost base of
design and development departments, which are invariably used infrequently over
the medium and long term.
Government Regulations
Although the UK has governmental regulations respecting working conditions,
labor employment, and environmental regulatory matters, management of the
Company believes that these regulations do not impose any undue burden upon the
Company nor place it under any competitive disadvantage. The Company believes
that it is in compliance, in all material respects, with applicable governmental
regulations.
Suppliers
The Company believes there are adequate sources of supply for the goods and
materials used by it in the conduct of its business. It obtains many of the
supplies used in the construction of molds primarily from Otto Bosse Gmbh, but
believes that there are other secondary sources of supply available to it, at no
significant increase in price.
-11-
<PAGE>
Intellectual Property Rights and Technology Protection
The Company relies upon its body of confidential knowledge built up over
years of performing designing and engineering activities for many of the same
customers. It does not have any patent protection, or patent applications, but
relies upon on its proprietary knowledge of the needs and methods of its
clients, together with the experience and creativity of its design and
engineering personnel.
Employees
The Company employs a total of 193 full time employees, all of whom are
based in the United Kingdom, out of which 20 are design personnel, 31 are
engineering personnel, 102 are engaged in metal work and hand crafting of models
and other items, 5 are in sales, 10 are supplementary production persons, 6 are
management and 18 are clerical personnel. In addition, depending on its
requirements, the Company employs approximately 40 part-time or independent
contractors, many of whom are engaged in manual design and/or CAD design
functions.
Financing and Other Significant Transactions
A. Public Offering
On the Effective Date, the Company consummated the public offering of its
securities, consisting of 575,000 units ("Units"). Each Unit was comprised of
two shares of Class A Common Stock ("Class A Common Stock") and one redeemable
Class A Stock Purchase Warrant ("Warrants") exercisable at a price of $8 per
share. The Company received net proceeds of approximately $4,580,000 from the
Offering, after underwriting discounts and commissions and other expenses of the
Offering. It utilized $1,865,461 of such proceeds to pay the cash component of
the purchase price for the balance of the equity securities of CAM UK owned by
NatWest Ventures ("NWV") while acquiring all other equity securities of CAM UK
from its existing stockholders in exchange for shares of the Company's Class B
Stock. On January 26, 1996, all of the shares of the Company Class B Stock were
automatically converted into shares of Class A Common Stock pursuant to the
Company's Certificate of Incorporation and, accordingly, the only shares of
stock presently issued and outstanding are shares of Class A Common Stock.
B. Stock Purchase Agreement
The former shareholders of CAM UK entered into a Stock Purchase Agreement
dated April 7, 1995 with the Company. Pursuant thereto, (a) the ordinary
preferred shares of CAM UK (including accrued dividends, administrative charges
and interest thereon) all of which were held by NWV, were purchased on July 27,
1995 by the Company for a purchase price payable in English Pound Sterling
currency ("Pounds") which, at the April 7, 1995 Exchange Rate, was $2,293,141.
This sum was paid $1,865,461 in cash at closing and the balance, represented by
the Company's promissory note to NWV, is payable in two equal installments, and
(b) the holders of all common shares of CAM UK exchanged such shares for an
aggregate of 785,000 shares of the Company's Common Stock. In addition, on May
31, 1995, the redeemable
-12-
<PAGE>
preferred shares of CAM UK owned by NWV (constituting the balance of the
preferred shares of CAM UK, not covered by the Stock Purchase Agreement) were
redeemed by CAM UK for approximately $108,500, inclusive of accrued dividends
and related charges.
Item 2. Description of Property.
The Company presently leases three facilities for its executive offices and
production requirements. The principal facility, based in Coventry, contains
approximately 66,000 square feet under several leases, with portions thereof on
a short-term renewal basis and others having expiration dates ranging between
March, 2001 to March, 2015; the Company pays annual rent of approximately
$287,000 on the total Coventry facility, together with an annual property tax
flow-through charge. The amounts to be paid as base rent are subject to five
year reviews, with the next review scheduled for March, 2001. The second
facility, located in Oxford, England, was leased by the Company in March, 1995,
and consists of approximately 7,186 square feet at a rent of approximately
$110,000 per annum (plus property tax charges). During Fiscal 96, the Company
entered into a lease for a third facility situated in Warwick, England
(approximately 10 miles from its principal executive offices) wherein it has
installed a new bodyin-white facility and expanded prototype facility. This
facility contains approximately 22,000 square feet, is for an initial lease term
of two and one-half (2 1/2) years, and requires payment of base annual rent of
approximately $150,000 per year (plus real estate property tax additions). A
portion of the gross proceeds received by the Company from its recent initial
public offering was devoted to the refurbishing of, and purchase of capital
equipment for, this facility. Management believes that its three existing
facilities are, and will be, adequate for the conduct of the Company's business,
although it is examing the possibility of consolidating two or more of its
facilities under one roof.
Item 3. Legal Proceedings.
(a) The Company is not engaged in any material litigation.
(b) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended May 31, 1996.
-13-
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Trading in the Company's shares of Class A Common Stock, Warrants, and
Units commenced on July 24, 1995 on the NASDAQ Small Cap Market and on The
Pacific Stock Exchange ("PSE") respectively, under the following symbols:
NASDAQ PSE
------ ---
Units CMDAU CDCU
Class A Stock CMDA CDC
Warrants CMDAW CDCWS
On January 26, 1996, the Company's shares of Class B Common Stock were
automatically converted into shares of Class A Common Stock. On March 18,
1996, the trading market for its shares of Class A Common Stock and the
Warrants was elevated from the Small Capital Market to the National Market
System of NASDAQ.
The following table sets forth the range of high and low sales prices for
the Company's Class A Common Stock for each quarter during the period July
24, 1995 through August 17, 1996, as furnished by the National Association
of Securities Dealers, Inc.:
Fiscal 1996: High Low
------------ ---- ---
7/24/95 - 8/31/95 8.00 6.56
9/01/95 - 11/30/95 8.75 7.25
12/01/95 - 2/29/96 9.69 7.25
3/01/96 - 5/31/96 7.38 6.88
(b) The number of holders of the Company's Class A Common Stock was
approximately 725 on August 17, 1996, computed by the number of record
holders, inclusive of holders for whom shares are being held in the name of
brokerage houses and clearing agencies.
(c) The Company has been paying a cash dividend at the annual rate of $.05 per
share on its Class A Common Stock from the Effective Date through the
period ending May 31, 1996, the close of its most recent fiscal year, and
anticipates continuing to pay cash dividends in the near future.
-14-
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company was organized to (a) acquire the stock of CAM UK and the
English operating entities for which CAM UK acted as the umbrella, (b) obtain
financing for itself and the English operating entities, (c) review business
opportunities for the acquisition of additional contracts emanating, directly or
indirectly, from US aerospace companies, and (d) examine the possibility of
acquiring a US based operating facility, when, as and if business activities in
the US and/or Canada warrant the same. Accordingly, during the period up to the
date of consummation of the initial public offering of its securities on July
27, 1995, the Company had not had any significant business activities, apart
from the foregoing. During this period, the enterprise's operations were being
conducted by CAM UK, all of whose shares were acquired by the Company
simultaneously with its public offering. From and after the Effective Date, the
Company commenced to own the shares of CAM UK as its wholly-owned subsidiary and
the financial statements of the Company from and after that date take account of
the operations of both the Company and CAM UK on a consolidated basis. Reference
to operations of the Company and CAM UK prior to the Effective Date ignore the
actual date of acquisition for accounting comparison purposes.
Fiscal Year Ended May 31, 1996 ("Fiscal 96") as compared to
Fiscal Year Ended May 31, 1995 ("Fiscal 95").
On a historical basis, CAM UK has conducted its operations and reported its
financial results in Pounds; however, its financial statements are set forth in
U.S. Dollars for the years ended May 31, 1996 and 1995, since this is the
currency in which the Company will hereafter make its financial reports.
Summary of Operations
The Company's sales for Fiscal 96 were approximately $24.66 million as
compared with sales of approximately $16.73 million for the prior fiscal year,
constituting an increase of approximately 47%. These sales increases continue to
demonstrate the Company's growth in its sales and customer base and the success
of the new facilities established since the Company's initial public offering in
July, 1995. The order backlog now stands at approximately $15,000,000, a
decrease of approximately 25% from the backlog existing as at the end of Fiscal
95. The reduction in backlog as at May 31, 1996 compared to as at May 31, 1995
is a result of the completion of portions of two large long term contracts.
However, backlog is significantly higher than as at May 31, 1994, which was
approximately $4,260,000.
Net income before taxes increased from $1.49 million in Fiscal 95 to $2.25
million in Fiscal 96, largely as a result of increased sales, which gave the
Company a larger base over which to allocate fixed costs, and the continuing
results of project control and cost-cutting efforts in previous periods. In
Fiscal 96, gross profit margins in the aerospace/aircraft and automotive
segments were approximately 21%, while they were 27% in the personnel segment,
compared to 27% and 17%, respectively, in Fiscal 95. The increase in the
personnel segment margin was due to a large contract's being secured for a
minimum 1 year period which allowed computer
-15-
<PAGE>
equipment recovery costs (on equipment supplied by the Company to such
personnel) to be amortized over a longer period.
The reduction in the gross margin in the automobile and aerospace sectors
was due to (i) increased sub-contracting of non-core activities which were
undertaken as part of a number of large turn-key projects, and (ii) the effect
of the long-term contract accounting treatment which tends to recognize profit
at later stages of a contract's performance.
The recruitment of a number of senior and experienced personnel over the
previous two years has enabled the Company to provide a higher level of
expertise to its customers, which has also helped the Company to secure a number
of large and profitable contracts, both in the automotive and aerospace markets.
Liquidity and Capital Resources
On July 27, 1995, the Company consummated its initial public offering of
securities consisting of 575,000 Units (including the underwriter's
over-allotment option). Each unit consisted of two shares of Class A Common
Stock and one Warrant entitling the holder to purchase one share of Class A
Common Stock at a price of $8.00 per share for a 5 year period.
The Company received net proceeds of approximately $4.5 million from such
offering, after underwriting discounts and commissions and other expenses of the
offering. The Company ultimately utilized approximately $1.9 million of such
proceeds to fund the purchase of a portion of the outstanding securities and
liabilities of its English subsidiary from a principal institutional
stockholder, NatWest Ventures, and has utilized, or is in the process of
utilizing, approximately one million dollars of such proceeds for the expansion
of its facilities and the purchase of additional equipment. The Company
anticipates that the balance of the proceeds of such public offering,
aggregating approximately $1.1 million, together with existing funds generated
from operations, will enable it to fund its operating and capital needs through
at least the current fiscal year and May 31, 1997, the end of its next fiscal
year. Should the Company require additional capital, which is presently
unanticipated, $1.3 million of bank and finance credit lines are in place, none
of which are presently being drawn upon.
On its longer term contracts, the Company may provide for fixed stage
payments wherein agreed amounts are billed to, and paid for, by the customer in
advance of the services being performed, or corresponding costs being incurred,
by the Company. While such amounts are not taken into net sales or profits by
the Company until the corresponding work is performed and/or cost incurred,
these sums are reflected on the Company's balance sheets as part of accounts
receivable and offset by a current liability under caption "billing in excess of
costs and estimated earnings on uncompleted contracts". These sums totalled
$1,283,572 as at May 31, 1995 and decreased to $361,394 as at May 31, 1996.
Initial advance funding has now been reduced as projects have progressed. During
Fiscal 95 and Fiscal 96, these sums had a favorable impact upon the Company's
liquidity and allowed it to finance the cost of performance of the initial
segments of several long term contracts without resort to utilization of its
bank line. Since the Effective Date, the Company has more than sufficient cash
resources for this purpose without the necessity of securing advanced payments.
However, management still considers it
-16-
<PAGE>
prudent, as a business matter, to obtain such payments from customers since the
Company must devote significant resources in anticipation of performance of such
undertakings. The advanced billing and payment situation first arose during
Fiscal '95 when the Company began entering into more significant sized and
longer term contracts and is not expected to continue as a long-term phenomenon
unless additional sizable long-term contracts continue to be secured from
clients willing to abide by such practice.
Bank and other interest costs for Fiscal 96 (including interest on
equipment finance leases) equalled $100,550 as compared to $76,738 in the same
period in 1995, and investment income of approximately $135,167 was earned on
funds in Fiscal 96 as compared with none in Fiscal 95.
Impact of Fluctuation of Currencies on Results of Operation
The Company generally uses the Pound for its pricing and quotations,
including contracts with foreign-based entities. Since the Company receives
payment in Pounds for the overwhelming amount of its contractual revenues, it
does not believe that it presently is or will be under any significant currency
risk in connection with its operations.
Approximately 98% of the Company's revenues in Fiscal 96 was received in
Pounds. To the extent that the Company's revenues will be generated in Pounds
and, for purposes of its reporting its financial position, its operating results
will be converted into US Dollars, a strengthening of the Pound in relation to
the US Dollar will have the effect of increasing its reported revenues and
profits, while a weakening of the Pound will have the opposite effect. Finally,
since the Company generally sets its prices and bids for contracts in Pounds, a
strengthening of the Pound, while increasing the value of its UK assets, might
place the Company at a pricing disadvantage in bidding for work from
manufacturers based overseas.
Effective Corporate Tax Rate
A company in the United Kingdom (UK) pays corporate income tax at a single
rate (currently 33%) on all its profits, whether income or capital gains and
whether distributed or undistributed. Corporate income tax is charged on profits
arising in a single full financial year. The variance in the Company's effective
tax rate is due to the non-deductibility for UK tax purposes of certain
expenses, primarily entertainment.
Where a UK-based company is liable for UK tax on income or gains from
overseas which have already been subjected to foreign tax (including withholding
tax), a credit is available against UK tax for the foreign tax so paid or
withheld. The credit is limited to the amount of the UK tax on the gross amount
of the foreign income. Pursuant to the tax treaties in effect between the UK, on
the one hand, and the US and Canada, respectively, on the other hand, it is
unlikely that the Company will suffer double taxation on profits.
-17-
<PAGE>
VAT
A value added tax ("VAT") is charged on a wide range of goods and services
supplied in the UK, as well as on the importation of taxable goods from outside
the European Community. The standard rate of VAT is 17.5% of the invoice. The UK
subsidiaries of the Company ordinarily pay the VAT on all supplies purchased by
them and then file a claim for a refund. Similarly, these UK subsidiaries add on
the VAT to their invoices for services and products sold to other entities,
collect the VAT, and remit the same to the UK government within thirty days
after the end of each calendar quarter, with the parties paying the VAT being
free to file for a refund to the extent available.
Other
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
Item 7. Financial Statements.
The financial statements required by this Item are set forth at the pages
indicated in Item 13 following page 30 of this Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-18-
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The executive officers and directors of the Company are as follows:
Name Age Positions
- - ---- --- ---------
John R. Davidson 45 Chairman of the Board of Directors, President,
Chief Executive Officer and a director
Robert A. Righton 33 Chief Financial Officer, Secretary and a director
Charles W. Linder 74 Director
David R. James 54 Director
William E. Camplisson 56 Director
Peter D. Horbury 46 Director
Theodore Sall, Ph.D. 68 Director
- - ----------
John R. Davidson is the Chairman of the Board of Directors, President and Chief
Executive Officer of the Company, and Managing Director and Chairman of CAM UK.
Mr. Davidson commenced serving in such positions with the Company upon its
organization. Mr. Davidson is the holder of a Masters of Business Administration
from the City University, London, England, and is a Fellow of the Institute of
Chartered Accountants. He was elected a director and Chief Executive Officer of
the Company on February 16, 1995, after having been elected President on
September 9, 1994. He has been employed by CAM UK since 1985 when he joined as
Finance Director and was appointed Managing Director in September, 1991. Prior
to his employment with CAM UK, Mr. Davidson was Financial Controller for a five
year period with British National Oil Corporation, and, prior to that, held
positions in the finance area with companies involved in the aluminum extrusion
and related businesses.
Robert A. Righton is Chief Financial Officer, Secretary and a Director of the
Company and is Financial Director and Secretary of CAM UK. Mr. Righton commenced
serving in such positions with the Company in April 1995. Mr. Righton is a
member of the Chartered Institute of Management Accountants. Mr. Righton was
first employed by a subsidiary of CAM UK as a management accountant between
1986-1988. He subsequently left CAM UK to take an executive position with Star
Services (London) Ltd. ("Star"), an entity involved in typesetting and desktop
publishing, where he served from July 1988 through July 1991. At that time, Mr.
Righton rejoined CAM UK as Corporate Secretary and as Finance Director of its
MGA Developments subsidiary; in October, 1993 he was appointed to the Board of
CAM UK and designated Finance Director thereto; contemporaneously, in agreement
with and at the direction of Star's secured institutional creditor, Star was
placed into a receivership under which its assets were disposed of and its
business wound up.
Charles W. Linder became a Director of the Company in July 1995. He also is a
consulting engineer for the Company, specializing in the automotive sector, and
has acted in this capacity for approximately the past four years. Before that he
was a consulting engineer to the manufacturer of the Jaguar "S" convertible,
involved in the design and development thereof. Mr. Linder commenced his career
in the Lowesoft Technical College where he took first prize in the
-19-
<PAGE>
competition involving motor body design, was employed by various concerns in
engineering capacities; he later broadened his expertise in management and
consulting endeavors by first studying Management Training at Henley
Administrative Staff College in the United Kingdom and later completing the
special semester Advanced Management Program at the Harvard Business School,
Cambridge, Massachusetts. In addition to acting as a consultant for the Company
and other entities involved in the design and engineering of automobiles, he has
also been employed as a director of body engineering for a major European
motorcar and as general manufacturer of plants manufacturing car bodies and
other parts.
David R. James became a Director of the Company in July, 1995. He is a director
of a number of private U.K. companies in the engineering, leisure time and
health care industries. Between January, 1990 and February, 1993, he was
Chairman and Joint Managing Director of EDL (CAM UK) Limited, an English firm
involved in engineering and metal finishing activities relating to the design
and manufacture of industrial, commercial and hospital lighting fixtures. Prior
thereto he was Vice President--International of AFP Imaging Corp., in which he
acted as Chief Executive Officer of the AFP/Matrix (UK) Limited joint venture in
medical and graphic arts imaging processing equipment. He has also acted as an
executive of various divisions of Syntex, an international pharmaceutical firm,
as well as on behalf of various other entities in connection with initiation,
development and implementation of marketing plans. Mr. James is a graduate of
University College (University of Wales) with a Bachelor of Science Degree and
is a member of the Institute of Marketing and of the British Institute of
Management.
William E. Camplisson became a Director of the Company in July 1995. He is an
international general manager with a long and wide ranging experience in the
automobile industry. At present he is a business consultant specializing in
firms involved in the design, manufacture and marketing of automobile products
which wish to achieve world class standards of financial, organizational and
process effectiveness. Mr. Camplisson was employed by Ford Motor Company from
1961 until December, 1994 in various international management capacities. From
1980-1984 he held Marketing Director positions in Ford of Europe, following
which he directed Ford's large car activities in Europe. Then, through 1988, his
duties expanded to include export programs for North America and the USSR.
Between 1988 and 1991, Mr. Camplisson was co-director of the 50/50 joint venture
between Ford and Volkswagon to design and manufacture a new multi-purpose
vehicle in Portugal. Most recently he was director of Ford of Europe's medium
("C") car programs and subsequently planned the Ford global rationalization of
its future "C" car business in North America, Europe and the Asia Pacific
Region. He hold a Master of Business Science Degree from Stanford University
(A.P. Sloan Scholar). Mr. Camplisson is also employed as an independent business
consultant to the Company.
Peter D. Horbury became a Director of the Company in July 1995. He is a Design
Director of the Volvo Car Corporation, a position he has held since September,
1991. In this capacity, he is responsible for the management of this automaker's
design studios in the United States and Europe. Between 1986 and the date he
assumed his present position with the Volvo Car Corporation, Mr. Horbury was
director of styling and design for the Company's MGA Development subsidiary.
During the prior twelve year period, he held executive design positions with
Volvo, the Ford Motor Company and Chrysler Car Corporation, respectively.
-20-
<PAGE>
Theodore Sall, Ph.D. became a Director of the Company in July 1995. He was an
Adjunct Professor of Clinical Medicine at the University of Medicine and
Dentistry, New Jersey School of Nursing from 1991 until July, 1995. He was a
Professor of Life Sciences at Ramapo College of New Jersey from 1971 until 1991
when he assumed his present position as Professor Emeritus at this college. Dr.
Sall has served as a consultant to hospitals and life science companies. His
doctoral degree is in medical microbiology from the University of Pennsylvania.
Doctor Sall is a director of the following companies whose shares are publicly
traded; International Vitamin Corporation, an entity engaged in the manufacture,
sale and distribution of vitamins and related products; and FluroScan Inc., a
company which is engaged in the development, manufacture and sale of portable
x-ray and fluoroscope equipment. Dr. Sall also served as a director of DUSA
Pharmaceuticals, Inc., a company engaged in chemical acid and photodynamic
therapy for dermatology and other uses from September, 1991 and as a director of
Depranyl Animal Health, Inc., a company engaged in developing pharmaceutical
products for domestic pets from December, 1990 until December, 1993.
Other Significant Personnel - [In Alphabetical Order with ages set forth
following their names]
The following persons, while not executive officers and/or directors of the
Company, perform significant functions and activities on behalf of the Company's
United Kingdom-based subsidiaries:
Mick Berridge--(44)--Mr. Berridge is to be employed by the Company commencing
September 1996 as Operations Director. In such capacity, he will be responsible
for the Company's manufacturing activities in the areas of prototyping, CNC
milling and modeling, CAM and full prototype vehicle build and motorization. Mr.
Berridge was employed by Rover for the past 27 years, most recently holding the
position of General Manager, where he was responsible for all of Rover's
in-house press tool manufacturing.
Alan Holmes--(45)--Mr. Holmes has been employed by the Company for approximately
12 years, most recently being given the post of Manufacturing Director and a
member of the Board of Directors of MGAD in 1991. In such capacity, he is
responsible for manufacturing activities, including those involving computerized
numerical control functions, modelmaking, and inspection facilities. Prior to
his employment by the Company he was employed in various capacities with
industrial patternmakers and modelmakers for several decades.
Nicola Kirkley--(32)--Ms. Kirkley acts as Senior Project Manager for the
Company, with overall responsibility for the Company's major design and
development projects for its customers. Ms. Kirkley is the holder of a Bachelor
of Science in Mechanical Engineering from the University of Bath and is a
chartered engineer and member of the Institute of Mechanical Engineers. Ms.
Kirkley was retained by the Company in January, 1995, after an approximately six
year period of service with another entity involved in vehicle design.
Colin Mason--(48)--Mr. Mason, since 1992, has been acting as a Director and
General Manager of the Company's MGAR subsidiary, engaged in personnel
placement. Prior thereto, for approximately 5 years, Mr. Mason was employed by
RDS (Automotive) Ltd., in connection with cost reduction efforts and design
improvements and engineering matters relating to the Land Rover vehicle, as well
as studies of concept and feasibility involving Jaguar Sport and other
-21-
<PAGE>
vehicles. Mr. Mason is a graduate of North Birmingham Polytechnic, in Birmingham
England, with a degree in mechanical technology.
Ken Norton--(59)--Mr. Norton is Engineering Manager for MGAD and the head of
engineering for the Company and its subsidiaries, charged with the task of
supervising and managing all engineering activities. He has been employed by the
Company since May 1994 and, prior thereto, he was employed by other firms,
including the Austin Rover Group as project manager, and as senior engineer for
various automobile design and engineering entities.
Compliance with Section 16(a) of the Exchange Act.
During the fiscal year ended May 31, 1996, based upon an examination of the
public filings, all of the Company's officers and directors timely filed reports
on Forms 3 and 4.
Item 10. Executive Compensation.
Directors who are not executive officers of the Company are compensated for
their services as such at the rate of approximately $5,000 per annum, plus
direct out-of-pocket reasonable expenses incurred in the course of performance
of their duties. In addition, each non-executive director has received an option
under the Company's 1995 Stock Option Plan to acquire 5,000 shares of Class A
Common Stock, at an exercise price of $5.00 per share, all of which options are
presently exercisable.
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during fiscal years 1996, 1995 and 1994 for (i)
John R. Davidson, who is and was the Chief Executive Officer at the end of those
fiscal years and (ii) Robert Righton who is and was Chief Financial Officer at
the end of those Fiscal years. No other executive officer of the Company
received salary and bonus compensation which exceeded $100,000 in those fiscal
years.
Summary Compensation Table
Annual Compensation(1)
Name and Other Annual
Principal Position Year Salary ($) Compensation ($)
- - ------------------ ---- ---------- ----------------
John R. Davidson ..................... 1996 180,210 55,082(2)
Chief Executive Officer 1995 119,009 32,735(3)
1994 90,459 26,282(4)
Robert Righton ....................... 1996 110,138 23,805(5)
Chief Financial Officer 1995 76,160 18,496(6)
1994 57,767 14,204(7)
- - ----------
(1) Calculated at an exchange rate of $1.52 per Pound for Fiscal 96, $1.587 per
Pound for Fiscal 95 and $1.512 per Pound for Fiscal 94.
(2) Of such amount, $31,986 was a pension contribution and $23,294 was for
provision of a Company car.
(3) Of such amount, $8,330 was a pension contribution and $23,299 was for
provision of a Company car.
(4) Of such amount, $18,960 was for provision of a Company car.
(5) Of such amount, $11,499 was a pension contribution and $11,982 was for
provision of a Company car.
(6) Of such amount, $5,331 was a pension contribution and $12,740 was for
provision of a Company car.
(7) Of such amount, $4,044 was a pension contribution and $9,814 was for
provision of a Company car.
-22-
<PAGE>
Effective June 1, 1995, the two chief officers of the Company, Messrs.
Davidson and Righton, entered into employment agreements with CAM UK, whereby
each of them are employed by that entity and all parents and subsidiaries
thereof. Accordingly, such persons will serve as executive officers and
directors of the Company without added compensation therefor. Until such date,
they were employed by Holdings UK on employment arrangements which, for Mr.
Davidson, is as set forth above in the Executive Compensation Table, and which,
as to Mr. Righton, provided for base compensation at the rate of $60,000 per
annum with additional prerequisites, including automobile and pension,
aggregating approximately $11,800 per annum, and with discretionary bonuses
permitted, in both cases, of up to 20% of base compensation. The Board of
Directors on April 4, 1996 awarded 20% discretionary bonuses for the year ended
May 31, 1996, equalling $31,200 and $19,000, respectively, to Messrs. Davidson
and Righton. In addition, the base annual compensation for future periods was
increased to $187,200 and $105,000, respectively, for Messrs. Davidson and
Righton. The foregoing dollar figures are based upon the exchange rate described
above, since the employment agreements provide for payment determined in Pounds.
John R. Davidson--Employment Agreement
Effective June 1, 1996, Mr. Davidson is employed at an annual compensation
rate of $187,200 per annum, plus a 17% pension contribution, car allowance and
other items having an aggregate value of approximately $30,000 per annum. The
employment agreement has a base term of 5 years, following which it is
automatically renewed for additional periods of one year each, unless either
party transmits to the other party not less than three months written notice of
termination or non-renewal as the case may be, prior to the end of the initial
term or any renewal term thereof. Pursuant to the employment agreement, Mr.
Davidson agrees to serve as Chief Executive Officer and President and Chairman
of the Board of Directors of the Company, as Managing Director of CAM UK, and
Chief Executive Officer of CAM UK and such subsidiaries as the board of
directors of CAM UK may, from time to time, designate. He is required to devote
his full business time during normal business hours to the affairs of the
Company and to use his best efforts to promote the interests of the Company, CAM
UK, and of all affiliated companies. His prime activities are to be carried out
within the United Kingdom and, to the extent he is required to travel outside
the United Kingdom, he shall do so, and be reimbursed his reasonable travel
expenses and be paid in the currency of the country in which is required to
perform such services.
Robert A. Righton--Employment Agreement
The terms of Mr. Righton's employment agreement with CAM UK are
substantially similar to those in the employment agreement between CAM UK and
Mr. Davidson noted above, with the following exceptions:
(a) Mr. Righton's base compensation is $105,000 per annum plus a pension
contribution of 10%, and a car allowance and other benefits,
aggregating approximately $11,800 per annum.
(b) Mr. Righton agrees to serve as Chief Financial Officer, Treasurer,
Secretary and Director of the Company, as Financial Director and a
Director of CAM UK, and as an officer and/or director of such
subsidiaries as may be designated by the board of directors of CAM UK.
-23-
<PAGE>
General Terms
The employment agreements of Messrs. Davidson and Righton also contain
customary provisions for paid vacation, non-competition, and the Company's right
to terminate for breach as well as discretionary bonuses (if authorized by the
Board) of up to 20% of their base compensation. In addition, both Employment
Agreements contain provisions allowing the executive to terminate the same upon
a "change of control" of the Company, whereupon the executive would be entitled
to an accelerated payment of his compensation (plus value of benefits) in the
greater of (a) the balance of the term of the employment agreement, or (b) three
times the annual compensation (plus value of benefits).
1995 STOCK OPTION PLAN
Under the Company's 1995 Stock Option Plan (the "Plan"), officers,
directors and other key employees and independent contractors who perform
services on behalf of the Company may be granted either nonqualified stock
options or incentive stock options for the purchase of up to 500,000 shares of
the Company's Class A Common Stock. Options to purchase 420,000 shares are
outstanding. The Plan also provides for the issuance of stock appreciation
rights in connection with the granting of stock options. Option prices may not
be less than 100% of the fair market value of the Class A Common Stock on the
date of grant and unexercised options expire not more than ten years from date
of grant. The Plan is administered by a Stock Option Committee ("Committee") of
the Board of Directors. Stock options are granted to management and others based
upon a variety of criteria including the position held by such executive,
employee or other person, the responsibilities with which such person is
charged, the person's length of service with the Company, and the necessity and
desirability to the Company of rendering an incentive to such person to continue
his relationship with the Company and to enthusiastically foster the Company's
best interests. Subject to the guidelines of the Plan, the Committee determines
to whom options will be granted, the type of options to be granted, the number
of shares, the option price per share, and the time when the options may be
exercised.
Both incentive stock options and nonstatutory stock options may be granted
under the Plan to eligible participants, at a price to be determined by the
option committee, provided, however, that incentive stock options must be
granted at an exercise price not less than the fair market value of the shares
on the date of the grant. Such exercise price may be payable in cash or, with
the approval of the Committee, by a combination of cash and/or shares. Shares
received upon exercise of options granted under the Plan will be subject to
certain restrictions on sale or transfer. The term of any option may not exceed
ten years from the date of grant. Conditions for the exercise of options, which
must be consistent with the terms of the Plan, are fixed by the Committee. All
options heretofore granted under the Plan to officers, employees or directors
are for a term of five years, are not exercisable until after the first
anniversary of the date of grant, and are thereafter exercisable.
The Plan provides that in the event of the death of the optionee, the
option may be exercised, to the extent that the holder shall have been entitled
to do so at the date of death, by the optionee's executors or administrators, or
by any person who acquired the right to exercise such option by bequest or
inheritance or by reason of the death of the optionee, at any time, or from time
to time, within one year after the date of the optionee's death, but not later
than the
-24-
<PAGE>
expiration of the option. If an optionee's employment by the Company terminates,
whether as a result of termination by the Company or by the employee, normal
retirement, early retirement, or disability retirement, the Plan provides that
the option holder may exercise the option, to the extent that he may be entitled
to do so at the date of the option holder's termination, at any time, or from
time to time, within ninety days of the date of termination of the option
holder's employment, but not later than the expiration of the option.
The Plan also provides for stock appreciation rights, pursuant to which the
optionee may surrender to the Company all or any part of an unexercised option
and receive from the Company in exchange therefor shares of Class A Common Stock
having an aggregate market value equal to the dollar amount obtained by
multiplying (x) the number of shares of Class A Common Stock subject to the
surrendered options by (y) the amount by which the market value per share of
Class A Common Stock at the time of such surrender exceeds the exercise price
per Share of Class A Common Stock of the related option. The Company's
obligation arising from an exercise of stock appreciation rights may also be
settled by the payment of cash, or a combination of cash and shares of Class A
Common Stock. The Board of Directors may at any time terminate or amend or alter
the Plan, subject to certain restrictions.
The following table contains information concerning stock option grants to
the named executive officer during Fiscal 96, and since June 1, 1996,
respectively:
Option Grants Both During and Since Last Fiscal Year
Individual Grants
Fiscal 95
- - ---------
<TABLE>
<CAPTION>
% of Total Options Exercise or
Options Granted to Employees Base Expiration
Name Granted (#) in Fiscal Year Price ($/sh) Date of Grant Date
- - ---- ----------- -------------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
John R. Davidson........ 60,000 80 5.00 July 7, 1995 July 6, 2000
</TABLE>
Item 11. Security Ownership Of Certain Beneficial Owners And Management.
The following table of stock ownership and notes thereto relate as of
August 8, 1996 to the Class A Common Stock of the Company by (i) each person
known to be the beneficial owner of more than 5% of such voting security, (ii)
each director, (iii) each named executive officer and (iv) all executive
officers and directors as a group. The percentages have been calculated by
taking into account all shares of Class A Common Stock owned on such date as
well as all such shares with respect to which such person has the right to
acquire beneficial ownership at such date or within 60 days thereafter. Unless
otherwise indicated, all persons listed below have sole voting and sole
investment power over the shares owned.
-25-
<PAGE>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1)(2) of Class
- - ------------------- --------------- --------
John R. Davidson(3) 467,822(4) 18.9%
Robert A. Righton(3) 129,363(4) 5.2%
Charles W. Linder(3) 5,000(4) *
David R. James(3) 5,000(4) *
William E. Camplisson(3) 10,000(4) *
Peter D. Horbury(3) 5,000(4) *
Theodore Sall, Ph.D.(3) 6,000(4) *
Tech Squared Inc. ("Tech")(5) 200,000 8.0%
9220 James Avenue South
Bloomington, MN 55431
All directors and executive officers
as a group (7 Persons)(4) 628,185 25.3%
- - ----------
(1) Based on a total of 2,175,000 shares of Class A Common Stock issued and
outstanding and options under the Company's stock option plan to acquire
305,000 shares held by officers and directors.
(2) All such ownership is direct unless otherwise stated.
(3) Address is c/o the Company, Birmingham Road, Allesley, Coventry CV59QE,
United Kingdom.
(4) Includes presently exercisable stock options held by officers and directors
covering 305,000 shares, out of which options to acquire 205,000 shares and
75,000 shares, respectively, are held by Messrs. Davidson and Righton, and
options to acquire 5,000 shares are held by each of Messrs. Linder, James,
Camplisson, Horbury and Sall.
(5) Tech may be deemed to be a "founder" of CAM for securities laws purposes.
Neither Tech nor its predecessor corporation has ever participated in the
business or management of the Company, or is currently associated with the
Company.
* Less than 1%
-26-
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Mr. John R. Davidson and Robert A. Righton, executive officers and
directors of the Company, have entered into employment agreements with CAM UK
and have received options under the Plan. The five other persons who became
directors following the Effective Date have each received options to purchase
5,000 shares of Class A Common Stock at a price of $5.00 per share, all of which
options are currently exercisable. One of these persons, Charles W. Linder, is
and has been an independent consulting engineer, who is compensated per
engagement by the Company; another director, William E. Camplisson, was an
independent consultant during Fiscal '96, with compensation at the rate of
approximately $60,000 per annum.
NWV was, until July 27, 1995, a substantial shareholder of CAM UK with
voting power over 49.9% of the shares of CAM UK. Pursuant to the Stock Purchase
Agreement, NWV sold its shares in CAM UK to the Company simultaneously with the
completion of the Company's initial public offering.
-27-
<PAGE>
Item 13. Exhibit and Reports on Form 8-K.
(a) Documents filed as part of this report:
1. Financial Statements:
Independent Auditors' Report
Consolidated Financial Statements of CAM Designs Inc. and subsidiaries
Independent Auditors' Report
Consolidated Balance Sheets--years ended May 31, 1996 and 1995
Consolidated Statements of Income--Years ended May 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity--Years ended May 31, 1996
and 1995
Consolidated Statements of Cash Flows--Years ended May 31, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial Statement schedules have been omitted because the required
information is inapplicable or because the information is presented in the
financial statements or related notes.
3. Exhibits and Index:
The following were filed as exhibits to the Company's Registration
Statement on Form SB-2 (File No. 33-92456) and are hereby incorporated by
reference herein:
-28-
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1996 and 1995
with Independent Auditors' report thereon
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
Contents Page
Independent Auditors' Report 1
Consolidated statements of income 2
Consolidated balance sheets 3
Consolidated statements of cash flows 5
Consolidated statements of stockholders' equity 6
Notes to the consolidated financial statements 7
<PAGE>
[Letterhead of KPMG]
Independent Auditors' Report
The Board of Directors and Stockholders
of CAM Designs Inc
We have audited the accompanying consolidated balance sheet of CAM Designs Inc
and subsidiaries as of May 31, 1996, the balance sheet of CAM Designs Inc as of
May 31, 1995, the related consolidated statement of income, stockholders'
equity, and cash flow for the year ended May 31, 1996 and the consolidated
statement of income, stockholders' equity and cash flows of CAM Designs Limited
for the year ended May 31, 1995 and period to 27 July 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. 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 financial position of CAM Designs Inc and
subsidiaries at May 31, 1996 and CAM Designs Inc at May 31, 1995, and the
results of operations and cash flows of CAM Designs Inc for the year ended May
31, 1996 and the results of operations and cash flows of CAM Designs Limited for
the year ended May 31, 1995 and the period from June 1 to July 27, 1995 in
conformity with generally accepted accounting principles in the United States of
America.
/s/KPMG
KPMG 27 August 1996
Birmingham
England
Chartered Accountants
Registered Auditors
1
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated statements of income
<TABLE>
<CAPTION>
CAM Designs Limited CAM Designs Inc
(Predecessor)
June 1 to June 1 to June 1 to Pro-forma
May 31 July 27 May 31 unaudited
1995 1995 1996 June 1 to
May 31
1996
(note 1b)
$ $ $ $
<S> <C> <C> <C> <C>
Net sales 16,735,959 4,380,344 24,661,145 29,041,489
Cost of goods sold (12,279,480) (3,524,159) (19,225,998) (22,750,157)
----------- ---------- ----------- -----------
Gross profit 4,456,479 856,185 5,435,147 6,291,332
Selling, general and administrative
expenses (2,883,694) (657,559) (3,216,318) (3,873,877)
----------- ---------- ----------- -----------
1,572,785 198,626 2,218,829 2,417,455
----------- ---------- ----------- -----------
Other income/(deduction):
Investment income -- -- 94,839 94,839
Interest expense (76,738) -- (100,550) (100,550)
Interest income -- 2,423 40,764 43,187
----------- ---------- ----------- -----------
(76,738) 2,423 35,053 37,476
----------- ---------- ----------- -----------
Income before income taxes 1,496,047 201,049 2,253,882 2,454,931
Income taxes (note 7) (498,954) (68,186) (743,651) (811,837)
----------- ---------- ----------- -----------
Net income 997,093 132,863 1,510,231 1,643,094
=========== ========== =========== ===========
Primary earnings per share 0.66
=======
</TABLE>
See accompanying notes to consolidated financial statements.
[KMPG Logo] 2
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated balance sheets
May 31, 1996 and 1995
1996 1995
$ $
Assets
Current assets:
Cash and cash equivalents (note 1) 4,432,278 57,453
Contract billings receivable, less allowance
for doubtful accounts of $7,575 5,023,691 --
Inventories (note 5) 356,882 --
Pre-paid expenses 283,161 106,907
Other receivables 31,888 --
----------- -------
Total current assets 10,127,900 164,360
----------- -------
Investment 1,515 83,000
Property, plant and machinery (note 12):
Freehold property 303,433 --
Leasehold property 473,893 --
Plant and machinery 7,139,474 --
Less accumulated depreciation and amortisation (4,592,685) --
----------- -------
Net property, plant and machinery 3,324,115 --
----------- -------
Total 13,453,530 247,360
=========== =======
[KMPG Logo] 3
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated balance sheets
May 31, 1996 and 1995
(continued)
<TABLE>
<CAPTION>
1996 1995
$ $
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current instalments of obligations under bank loan (note 9) 18,085 --
Current instalments of obligations under capital leases (note 6) 482,368 --
Billings in excess of costs and estimated earnings on uncompleted
contracts (note 5) 361,394 --
Trade accounts payable 2,523,485 --
Income taxes payable 1,261,749 --
Accrued expenses 2,006,374 119,093
Promissory notes (note 1) 214,000 83,400
---------- --------
Total current liabilities 6,867,455 202,493
Obligation under bank loan excluding current instalments (note 9) 240,081 --
Obligation under capital leases excluding current instalments (note 6) 851,353 --
Deferred income taxes (note 7) 11,817 --
---------- --------
Total liabilities 7,970,706 202,493
========== ========
Stockholders' equity
Class "A" common stock, $0.001 par value
Authorised 7,000,000: Issued 2,250,000 shares in 1996 and 20,000 in
1995 2,250 20
Class "B" common stock, $0.001 par value
Authorised 1,000,000: Issued 295,000 shares in 1995 -- 295
Additional paid-in capital 4,229,765 112,285
Retained earnings 1,250,809 (67,733)
---------- --------
Total stockholders' equity 5,482,824 44,867
========== ========
Total 13,453,530 247,360
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
[KMPG Logo] 4
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated statements of cash flows
<TABLE>
<CAPTION>
CAM Designs Limited CAM Designs
(Predecessor) Inc
June 1 to June 1 to June 1 to
May 31 July 27 May 31
1995 1995 1996
$ $ $
<S> <C> <C> <C>
Net cash provided by operating activities
(note 10) 1,724,504 70,185 2,917,793
---------- -------- ----------
Cash flows from investing activities
Capital expenditure (492,203) (52,890) (995,097)
Purchase of subsidiary -- -- (1,681,491)
Investment (1,570) -- --
---------- -------- ----------
Net cash used in investing activities (493,773) (52,890) (2,676,588)
---------- -------- ----------
Cash flows from financing activities
Repayment of borrowings -- -- (420,782)
Principal payments under capital lease obligations (388,258) (22,014) (296,683)
Proceeds from issuance of ordinary stock -- -- 4,583,971
Receipt of loan -- -- 270,025
Payments to redeem preference stock (70,650) -- --
Dividends paid (36,402) (229,023) (101,250)
Bank overdraft (515,621) 11,114 10,805
---------- -------- ----------
Net cash (used in)/provided by financing activities (1,010,931) (239,923) 4,046,086
---------- -------- ----------
Net increase/(decrease) in cash and cash equivalents 219,800 (222,628) 4,287,291
Cash and cash equivalents at beginning of year 2,714 224,894 57,453
Exchange gain 2,380 -- 87,534
---------- -------- ----------
Cash and cash equivalents at end of year 224,894 2,266 4,432,278
========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Interest paid for the years ended May 31, 1996 and May 31, 1995 was $100,550 and
$76,738 respectively. The group paid income tax of $30,540 and received income
tax of $4,646 during the years to May 31, 1996 and May 31, 1995 respectively.
[KMPG Logo] 5
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated statements of stockholders' equity
years ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
Cumulative Common Additional Retained Total
convertible stock paid-in earnings stockholders'
participating capital equity
preference
stock
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
CAM Designs Limited (Predecessor)
Balance at May 31, 1994 96,380 83,190 371,527 149,452 700,549
Redemption of redeemable preference stock -- -- 70,650 (70,650) --
Net income -- -- -- 997,093 997,093
Dividends declared:
Common stock -- -- -- (101,907) (101,907)
Convertible preference stock -- -- -- (25,120) (25,120)
Redeemable preference stock -- -- -- (13,246) (13,246)
Exchange difference 3,918 3,383 15,869 14,533 37,703
------- ------ ---------- ---------- ----------
Balance at May 31, 1995 100,298 86,573 458,046 950,155 1,595,072
Net income -- -- -- 132,863 132,863
------- ------ ---------- ---------- ----------
Balance at July 27, 1995 100,298 86,573 458,046 1,083,018 1,727,935
======= ====== ========== ========== ==========
CAM Designs Inc
Balance at May 31, 1995 -- 315 112,285 (67,733) 44,867
Issue of share capital -- 1,935 8,507,036 -- 8,508,971
Net income -- -- -- 1,510,231 1,510,231
Dividends declared -- -- -- (101,250) (101,250)
Purchase price in excess of book value -- -- (4,389,556) -- (4,389,556)
of net assets acquired
Exchange difference -- -- -- (90,439) (90,439)
------- ------ ---------- ---------- ----------
Balance at May 31, 1996 -- 2,250 4,229,765 1,250,809 5,482,824
======= ====== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
[KMPG Logo] 6
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements
(forming part of the consolidated financial statements)
1 Summary of significant accounting policies
Description of business
On September 9, 1994, CAM Designs Inc was incorporated as MGA Holdings Inc.
The company name was changed to CAM Designs Inc ("CAM") on April 18, 1995.
CAM is the holding company and has not engaged in any commercial operations
during the period since incorporation.
In the period prior to May 31, 1995, CAM incurred general administrative
expenses of $66,691 and interest expense of $1,042. During this period, CAM
raised cash from financing activities of $196,000 and used $83,000 on costs
incurred on the proposed acquisition of MGA Holdings Limited and $55,547 to
fund the general administrative expenses.
On July 27, 1995, the shareholders of MGA Holdings Limited ("MGA")
surrendered 100% of the issued shares of MGA (63,200 cumulative convertible
participating preference shares of (pound)1 each, 54,551 ordinary shares of
(pound)1 each) to CAM. As a result, MGA became a wholly owned subsidiary of
CAM. No new basis of accounting was deemed to have arisen and as such, the
difference in book values on acquisition was charged to additional paid-in
capital.
On acquisition of MGA, 785,000 class "B" common shares were issued to
company management in exchange for their shareholding in MGA and $2,030,851
consideration paid to a corporate stockholder for its common stock held in
MGA. The consideration was satisfied by $1,602,851 in cash and
(pound)270,000 promissory notes. The promissory notes were payable in two
instalments, without interest, with the first instalment paid on May 31,
1996 and the second instalment due on May 31, 1997.
On October 4, 1995, MGA Holdings Limited changed its name to CAM Designs
Limited.
The net assets acquired, shown below, were recorded at MGA's book value at
the date of acquisition:
$ (pound)
Assets
Cash 2,266 1,428
Accounts receivable, net 6,458,452 4,069,598
Property and equipment, net 1,806,671 1,138,419
Other current assets 861,024 542,548
Liabilities
Accounts payable and accrued liabilities (7,400,478) (4,663,187)
---------- ---------
Net assets 1,727,935 1,088,806
========== =========
The excess of the recorded value of the consideration over the net assets
acquired has been reflected in the stockholders' equity section of the
accompanying balance sheet as the purchase price in excess of the book vale
of net assets acquired.
[KMPG Logo] 7
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
1 Summary of significant accounting policies (continued)
Description of business (continued)
A pro-forma income statement for the 2 years to May 31, 1996 reflecting the
acquisition at the beginning of each of those years is set out below:
1996 1995
$ $
Net revenue 29,041,489 16,735,959
Expenses (26,586,558) (15,307,645)
----------- -----------
Net income before tax 2,454,931 1,428,314
Taxation (811,837) (498,954)
----------- -----------
Net income 1,643,094 929,360
=========== ===========
CAM Designs Limited (formerly MGA Holdings Limited) and its subsidiaries
operates four sites in the United Kingdom engaged in the provision of
vehicle design and engineering services to the automotive and aerospace
industries. During recent years, a significant proportion of sales has been
to customers in the automotive sector. The company's raw materials are
readily available and the company is not dependent on a single supplier.
(b) Basis of presentation
The consolidated financial statements include the financial statements of
CAM Designs Inc and its five wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated on
consolidation.
The unaudited pro-forma column is presented for information purposes only
and assumes the acquisition date of June 1, 1995. This pro-forma includes
the results of operations for CAM Designs Inc and CAM Designs Limited for
the period June 1, 1995 to May 31, 1996.
(c) Foreign currency translation
All assets and liabilities of operations outside the United States are
translated into U.S. dollars at period end exchange rates and income and
expenses are translated at average rates for the period. Gains and losses
resulting from translation are included in the foreign currency translation
adjustment component of stockholders equity.
[KMPG Logo] 8
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
1 Summary of significant accounting policies (continued)
(d) Revenue recognition
Revenue on short term contracts is accounted for on the completed contract
method and included in income upon substantial completion or shipment to
the customer.
Long term contracts are valued at cost plus attributable profits less
provisions for future losses where appropriate. Attributable profit is
recognised where in the opinion of the directors the outcome of the
contract can be assessed with reasonable certainty and is the difference
between the reported value of work completed in turnover and the costs for
that contract.
(e) Inventories
Raw material and work in progress on contracts are valued at the lower of
cost or market value. Work in progress includes attributable labour and
overheads.
(f) Property, plant and machinery
Property, plant and machinery are stated at cost. Plant and machinery under
capital leases are stated at the equivalent of the present value of minimum
lease payments.
Depreciation on property, plant and machinery is calculated on the straight
line method over the estimated useful lives of the assets. Plant and
machinery held under capital leases and leasehold property are amortised
straight line over the shorter of the lease term or estimated useful life
of the asset.
(g) Income taxes
Under the asset and liability method of FASB Statement 109, deferred tax
assets and liabilities are recognised for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
(h) Pension
The group has a defined contribution pension scheme. Total group
contributions to the scheme during the year ended May 31, 1996 were
$416,710.
(i) Cash and cash equivalents
All highly liquid debt instruments with original maturities of three months
or less are considered to be cash equivalents.
[KMPG Logo] 9
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
1 Summary of significant accounting policies (continued)
(j) Earnings per Share
Primary earnings per share is based on the weighted average shares of
common stock and common equivalent shares (options and warrants)
outstanding during the period.
The number of shares used in the earnings per share computations are as
follows:
1996
Weighted average shares of common stock
outstanding during the year 1,953,934
Common equivalent shares - assumed exercise of
options and warrants 581,809
---------
Total common and common equivalent shares 2,535,743
=========
(k) Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(l) Recently issued accounting standards
In March 1995, the Financial Accounting Standards Board issued SFAS No 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". The statement requires that those assets to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable, and those assets to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell.
The Company is required to first comply with the requirements of SFAS No
121 not later than in its consolidated financial statements for the year
ending May 31, 1997. The Company is currently evaluating the effect that
implementation of the new standard will have on its results of operations
and financial position.
In October 1995, the Financial Accounting Standards Board issued SFAS No
123 "Accounting for Stock-Based Compensation" which allows companies to
adopt a fair value method for recognizing stock-based expense in the
financial statements. The Company is required to first comply with the
requirements of SFAS No 123 not later than in its consolidated financial
statements for the year ending May 31, 1997. The Company is currently
evaluating the effect that implementation of the new standard will have on
its results of operations and financial position.
[KMPG Logo] 10
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
2 Related parties
The non-executive directors, Charles Linder and William Camplissan have
supplied consultancy services to the group during the year ended May 31,
1996 of $22,644 and $43,780 respectively.
3 Concentration of credit risk and major customer information
A significant portion of the group's net sales (74.1% in 1996) has been
derived from customers serving the automotive industry, the largest
customer being 22.1% of net sales in 1996. In 1995, 73% of the sales of the
predecessor, CAM Designs Limited and subsidiaries, were derived from
customers serving the automotive industry, the largest customer being 27.2%
of net sales in 1995.
The group performs ongoing credit evaluations of its customers and
generally does not require collateral. The group maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Major customer information
The company had three major customers in automotive and aerospace
industries accounting for approximately 51 percent of company revenue in
1996. In 1996, the major customers accounted for 22.1 percent, 17.2 percent
and 12 percent of company revenue respectively. No other customer accounted
for 10 percent or more of company revenue in 1996.
In 1995 CAM Designs Limited and subsidiaries had two major customers in
automotive and aerospace industries accounting for approximately 40 percent
of revenue. Two major customers accounted for 27.2 percent and 13.2 percent
of revenue respectively. No other customer accounted for 10 percent or more
of revenue in 1995.
[KMPG Logo] 11
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
4 Industry segment information
Principal financial data by industry segment is as follows:
Predecessor
1996 1995
$ $
Net sales
Automotive industry 18,273,125 12,249,140
Aerospace industry 3,616,792 2,869,720
Placement of personnel 2,771,228 1,617,099
---------- -----------
Total revenues 24,661,145 16,735,959
========== ===========
Operating profit
Automotive industry 1,298,755 1,123,972
Aerospace industry 257,062 263,324
Placement of personnel 663,012 185,489
---------- -----------
Operating profit 2,218,829 1,572,785
Corporate expense 35,053 (76,738)
---------- -----------
Earnings before tax 2,253,882 1,496,047
========== ===========
Identifiable assets at May 31
Automotive industry 9,968,638 4,888,108
Aerospace industry 1,973,088 1,145,182
Placement of personnel 1,511,804 645,315
---------- -----------
Consolidated assets 13,453,530 6,678,605
========== ===========
The analysis of turnover by geographical
area is as follows:
By geographical area:
United Kingdom 23,557,900 14,120,393
Rest of Europe 1,047,697 1,797,666
Canada -- 611,495
Far East 55,548 206,405
---------- -----------
24,661,145 16,735,959
========== ===========
[KMPG Logo] 12
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
5 Inventories
Inventories consist of the following:
1996
$
Cost and estimated earnings in excess of billings
on uncompleted contracts (see below) 227,721
Raw materials and consumables 129,161
-----------
356,882
===========
Uncompleted contracts comprise:
Costs incurred on uncompleted contracts 11,834,347
Estimated earnings 1,434,990
-----------
13,269,337
Less: billings to date (13,403,010)
-----------
(133,673)
===========
Included in accompanying balance sheets under
the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts (included in inventories) 227,721
Billings in excess of costs and estimated earnings
on uncompleted contracts (361,394)
-----------
(133,673)
===========
[KMPG Logo] 13
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
6 Leases
The group is obligated under various capital leases for certain plant and
machinery that expire at various dates during the next five years. At 31
May, 1996, the gross amount of plant and machinery and related accumulated
amortisation recorded under capital leases were as follows:
1996
$
Plant and machinery 2,265,845
Less: Accumulated amortisation (699,097)
---------
1,566,748
=========
Amortisation of assets held under capital leases is included with
depreciation expenses.
Future minimum lease payments under capital leases as of May 31, 1996 are:
1996
$
Year ending May 31
1997 482,368
1998 488,957
1999 and after 362,396
---------
Total minimum lease payments 1,333,721
Less: Current instalments of obligations under capital leases (482,368)
---------
Obligations under capital leases excluding current instalments 851,353
=========
The Company also has several non-cancellable operating leases that expire
over the next one to sixteen years. These leases generally contain renewal
options and require the company to pay all executory costs such as
maintenance and insurance. The Company leases its main facilities in
Coventry, United Kingdom under non-cancellable operating leases which
expire at various dates through to 2015. The Company also leases items of
plant and machinery under non-cancellable operating leases which expire at
various dates through to 1998. Rental expense for operating leases during
the years ended May 31, 1996 were $481,416.
[KMPG Logo] 14
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
6 Leases (continued)
Future minimum lease payments under non-cancellable operating leases at May
31, 1996 are:
Buildings Plant Total
$ $ $
Year ending May 31
1997 465,113 2,566 467,679
1998 306,606 2,566 309,172
1999 270,624 - 270,624
2000 270,624 - 270,624
2001 270,624 - 270,624
Later years through to 2015 2,518,449 - 2,518,449
--------- --------- ---------
Total minimum lease payments 4,102,040 5,132 4,107,172
========= ========= =========
7 Income taxes
Income tax expense attributable to income consists of:
Current Deferred Total
$ $ $
Year ended May 31, 1996 731,834 11,817 743,651
Year ended May 31, 1995 (Predecessor) 500,524 (1,570) 498,954
========= ========= =========
[KMPG Logo] 15
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
7 Income taxes (continued)
Income tax expense attributable to income was $743,651 and $498,954 for the
years ended May 31, 1996 and 1995 respectively and differed from the
amounts computed by applying the statutory United Kingdom rate of 33
percent to pre-tax income as a result of the following:
Predecessor
1996 1995
$ $
Corporate tax at United Kingdom statutory rate 743,651 493,696
Non-deductible expenses - 23,933
Non-deductible expenses in respect of prior years - (18,675)
--------- ---------
743,651 498,954
Provision for income taxes
========= =========
Effective rate 33.0% 33.4%
========= =========
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets at May 31, 1996 and 1995 are presented
below:
Predecessor
1996 1995
$ $
Deferred tax liability/(assets) relating to:
Plant and machinery, principally due to
differences in depreciation 11,817 (23,805)
========= =========
[KMPG Logo] 16
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
8 Bank overdraft
The group has an overdraft facility available from the National Westminster
Bank of (pound)350,000. The overdraft facilities are subject to daily
review by the bank and are granted on terms that they may be at any time
and without prior notice be withdrawn on advice by the Bank. Outstanding
sums are repayable on demand. Interest will be charged at a rate equal to
the Bank's base rate plus 3% per annum (subject to a minimum of 7% per
annum).
The facilities are secured by:
(1) a composite guarantee between the group companies;
(2) legal mortgage debenture from group companies incorporating fixed and
floating charges over the assets;
(3) a mortgage over certain assets included in plant and machinery with an
aggregate net book value of $71,963 at May 31, 1996.
9 Long term debt
Long term debt consisted of the following:
$
Loan from bank-secured 258,166
Less: Current instalment (18,085)
---------
240,081
=========
The bank loan is secured on the freehold property with a net book value of
$303,433 at May 31 1996.
Interest is payable on this loan at a rate of 2% above the UK base bank
lending rate.
The loan is repayable by annual instalment through to the year 2015.
[KMPG Logo] 17
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
10 Reconciliation of net income to net cash provided by operating activities
The reconciliation of net income to net cash provided by operating
activities for the years ended May 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
CAM Designs Limited CAM Designs
(Predecessor) Inc
June 1 to June 1 to June 1 to
May 31 July 27 May 31
1995 1995 1996
$ $ $
<S> <C> <C> <C>
Net income 997,093 132,863 1,510,231
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 467,056 130,134 417,592
Allowance for doubtful debts (31,714) - 24,122
(Increase)/decrease in trade accounts receivable (1,921,498) (2,040,427) 1,138,729
(Increase)/decrease in inventories (35,002) 202,006 (157,025)
Decrease in pre-paid expenses 28,693 (102,676) 27,742
Decrease in other receivables 4,785 14,232 (32,477)
Decrease/(increase) in tax recoverable (12,394) - 61,118
(Decrease)/increase in billings in excess of cost 1,269,824 458,954 (1,326,141)
Increase/(decrease) in trade accounts
payable 166,858 359,137 1,009,759
(Decrease)/increase in accrued expenses 268,040 847,776 (407,512)
Increase in income taxes payable 524,333 68,186 616,475
(Decrease)/increase in deferred income taxes (1,570) - 35,180
---------- ---------- ----------
1,724,504 70,185 2,917,793
========== ========== ==========
</TABLE>
11 Non-cash financing and investing activities
Capital lease obligations of $1,017,871 were incurred in 1996 when the
company entered into leases for new machinery and equipment.
In 1995, CAM Designs Limited incurred capital lease obligations of $276,615
on entering into leases for new machinery and equipment.
[KMPG Logo] 18
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
12 Fixed assets
Freehold Leasehold Plant and Total
property property machinery
$ $ $ $
Cost
At beginning of year - - - -
Additions 303,433 24,240 1,685,295 2,012,968
Purchase of business - 471,023 5,713,387 6,184,410
Exchange adjustment - (21,370) (259,208) (280,578)
---------- --------- --------- ---------
At end of year 303,433 473,893 7,139,474 7,916,800
========== ========= ========= =========
Depreciation
At beginning of year - - - -
Charge in year - 25,716 391,876 417,592
Purchase of business - 304,620 4,073,119 4,377,739
Exchange adjustment - (14,286) (188,360) (202,646)
---------- --------- --------- ---------
At end of year - 316,050 4,276,635 4,592,685
========== ========= ========= =========
Net book value
At May 31, 1996 303,433 157,843 2,862,839 3,324,115
========== ========= ========= =========
Depreciation for the year ended May 31, 1996 was $417,592.
[KMPG Logo] 19
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
13 Stock
The company has three categories of authorised stock as follows:
Authorised
1996 1995
Class 'A' Common stock 9,000,000 7,000,000
Class 'B' Common stock - 2,000,000
Preferred stock 1,000,000 1,000,000
Both Class 'A' and Class 'B' common stock were subject to any express
rights of Preferred Stock. There are no express rights set out in the
constitution, but authority is given to the Board of Directors to issue
Preferred Stock on such rights as they deem fit. No preferred stock has
been issued.
Class 'A' shareholders are entitled to a preference dividend of $0.05 per
share per annum. Other than this dividend all rights attached to Class 'A'
and Class 'B' were identical in the following matters:
1 The holders or common stock are entitled to one vote per share.
2 To receive pro-rata the net assets of the company upon liquidation
after distribution of such amounts to holders of preferred stock and
payment of any accrued dividends to Class 'A' shareholders.
3 Any dividend declared above and beyond the Preference Dividend will be
distributed to Class 'A' and Class 'B' shareholders in equal value per
share.
On 24 January 1996 the Class 'B' stock converted into Class 'A' stock
automatically and without any requirement for action on the part of the
holders thereof, six months from the date of the prospectus for the Public
Offering.
As at May 31, 1996 there are options outstanding to officers, directors,
consultants and employees covering 395,000 shares of Class A stock issued
under the Company's 1995 Stock Option Plan. Options covering 300,000 shares
first become exercisable in April 1996, options covering 105,000 shares
first became exercisable up to July, 1996 and the balance becomes
exercisable in August, 1996, Option prices may not be less than 100% of the
fair market value of the Common Stock on the date of grant. 345,000 options
have an exercise price of $5.00, 10,000 options have an exercise price of
$7.00, 15,000 options have an exercise price of $7.50 and 50,000 options
have an exercise price of $9.50.
14 Public Offering
In July 1995 the Company issued 1,150,000 shares of common stock in an
public offering.
In connection with the offering, an underwriter's option to purchase 50,000
units at an exercise price of $17.50 per unit was issued to the
underwriter. Each unit consists of two shares of class A common stock and
one warrant to purchase one share of class A common stock at a price of
$10.00 per share. The warrants are exercisable for a five year period from
July 1995.
[KMPG Logo] 20
<PAGE>
CAM Designs Inc and subsidiaries
Notes to the consolidated financial statements (continued)
15 Legal Proceedings
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
16 Disclosure about the Fair Value of Financial Instruments
Cash and cash equivalents, contract billings receivable, trade accounts
payable and accrued expenses. The carrying amount approximates fair value
because of the short maturity of these instruments.
Long term debt
The carrying amount approximates fair value as the variable rate (2% above
LIBOR) bank loan has only recently been transacted.
17 Post balance sheet event
On July 8, 1996 the company purchased 50,000 of its issued share capital
for a total consideration of $325,000 and on July 16, 1996 the company
purchased a further 25,000 of its issued share capital for a total
consideration of $150,000. These shares remain uncancelled.
[KMPG Logo] 21
<PAGE>
Exhibit
No. Description
- - ------- -----------
3.1 Restated Certificate of Incorporation of the Registrant.
3.1A Amended Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
3.3 Certificates of Incorporation of English subsidiaries of Registrant.
4.1 Form of Warrant Agreement between the Registrant and American Stock
Transfer & Trust Company, including form of Warrant.
4.2 Specimen Class A Common Stock, Warrant and Unit Certificates.
10.1 1995 Stock Option Plan.
10.2 Employment Agreement between the Registrant's subsidiary, MGA Holdings
Ltd., and Mr. John R. Davidson.
10.3 Employment Agreement between the Registrant's subsidiary, MGA Holdings
Ltd. and Mr. Robert A. Righton.
10.4 Consultancy Agreement with Charles Linder.
10.5 Form of Unit Purchase Option between the Registrant and the Underwriter.
10.6 Form of Overdraft Credit Agreement between National Westminster Bank and
MGA Holdings Ltd.
10.7 Stock Purchase Agreement dated as of April 7, 1995 between the
stockholders of the Company and CAM.
10.8 Terms and conditions of employment in Holdings UK and Form of Secrecy
Agreement with Employees.
10.9 Contract dated April 7, 1995 with Rolls Royce Motor Cars Ltd.
10.10 Lease at Warwick, England.
10.11 Consultancy Agreement with M.H. Meyerson & Co. Inc.
10.12 Consultancy Agreement with William Camplisson.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended May 31,
1996.
-29-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAM DESIGNS INC.
By: s/John R. Davidson
------------------
John R. Davidson
Chairman of the Board, President
and Chief Executive Officer
DATE: August 26, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signatures Title Date
---------- ----- ----
s/John R. Davidson Chairman of the August 26, 1996
- - ----------------------------- Board, President and
John R. Davidson Chief Executive
Officer (Principal
Executive Officer)
s/Robert A. Righton Chief Financial August 26, 1996
- - ----------------------------- Officer, Secretary
Robert A. Righton and Director
(Principal Financial
and Accounting
Officer)
s/Charles W. Linder Director August 26, 1996
- - -----------------------------
Charles W. Linder
s/David R. James Director August 26, 1996
- - -----------------------------
David R. James
s/William E. Camplisson Director August 26, 1996
- - -----------------------------
William E. Camplisson
s/Peter D. Horbury Director August 26, 1996
- - -----------------------------
Peter D. Horbury
s/Theodore Sall, Ph.D Director August 26, 1996
- - -----------------------------
Theodore Sall, Ph.D
-30-
<PAGE>
EXHIBIT A
CAM Designs Inc.
EPS Calculations for period June 1, 1995 to May 31, 1996
Total income as per consolidated accounts 1,510,231
Add: Net assumed interest income for whole period 158,387
----------
Adjusted net income 1,668,618
Net income per total weighted average 1,668,618
----------
2,535,743
= 66 cents per share
