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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1997
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
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CAM DESIGNS INC.
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(Name of small business issuer in its charter)
Delaware 75-2257039
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Birmingham Road, Allesley, Coventry CV59QE, ENGLAND
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 011-44-1-203-407-700
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Securities registered under Section 12(b) of the Exchange Act:
- --------------------------------------------------------------
Title of each class Name of each exchange on which registered
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- - Class A Common Stock $.001 par value National Market System of NASDAQ
- - Redeemable Warrants to Purchase Class A Common Stock National Market System of NASDAQ
- - 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)
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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
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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-K or any
amendment to this Form 10-K. [X]
[Cover page 1 of 2 pages]
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The issuer's revenues for the fiscal year ending May 31, 1997 were
approximately $25,952,371.
As of September 10, 1997, 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 $5,500,000. 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 September 10, 1997, there were 2,175,000 shares of Class A Common
Stock outstanding.
Forward Looking Statements: This report contains certain forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, which are intended to be covered by the safe harbors
created thereby. Although the Company believes that the assumptions underlying
the forward looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward looking statements contained in this report will prove to be
accurate. Factors that could cause actual results to differ from the results
specifically discussed in the forward looking statements include, but are not
limited to, the absence of anticipated contracts or higher than historical
costs incurred in performance of contracts or in conducting other activities.
Documents Incorporated By Reference
None.
Transitional Small Business Disclosure Format:
Yes No X
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TOTAL PAGES IN THIS REPORT: 38 EXHIBIT INDEX: PAGE 36
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[Cover page 2 of 2 pages]
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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>
<S> <C> <C> <C> <C>
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| CAM |
| Designs Inc. |
| [the "Company"] |
--------------------------
|
--------------------------
| CAM |
| Designs Ltd. (formerly |
| MGA Holdings LTD.) |
| ["CAM UK"] |
--------------------------
|
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| MGA | MGA | MGA | Armstrong |
| Developments Ltd. | Recruitment Ltd. | Technology Ltd. | Designs Ltd. |
| ["MGAD"] | ["MGAR"] | ["MGAT"] | ["ADL"] |
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|| 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 || | | | |
============---------------------------------------------------------------------------------------------------------------------
|
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| Ruecker, International |
----------------------------------
| Engineering placement agency |
----------------------------------
</TABLE>
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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.
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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.
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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, chemi-tech 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.
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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.
During the fiscal year the Group acquired Ruecker Michigan Ltd. And
Ruecker Asia Pacific Ltd. The former company was acquired since it establishes
a foothold in the largest automotive design sector in the world - USA. This
company presently places automotive engineers into a number of OEM's which
activity can be supported from the UK with other products e.g., tooling to
provide a full line service. In addition, service to our existing customer will
improve by serving them in different geographical regions. This strategy also
applies to Ruecker Asia Pacific which places automotive engineers in the
Pacific Rim area reinforcing our existing marketing.
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
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a means of diversifying its business) and to actively explore North American
and Far Eastern- based 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 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
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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, 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,
during Fiscal 96, three customers accounted for more than 10% of the Company's
revenues, representing 22.1%, 17.3% and 12%, respectively, while during Fiscal
97 two customers, Rolls Royce and Rover, accounting for approximately 30% and
13%, respectively of revenues were the only two customers accounting for more
than 10% of revenues. 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
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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
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
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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 re-
engineering 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, 1997 and
May 31, 1996 was approximately $12,170,000 and $15,000,000, respectively,
comprised of approximately $11,800,000 and $14,000,000 in automotive contracts
and $333,000 and $1,000,000 in aerospace contracts. As at September 1, 1997,
the Company's backlog has increased to approximately $22,570,000, of which
approximately $22,300,000 consists of automotive contracts; this signifiant
increase over the May 31, 1997 backlog is due to the receipt of two major
automotive contracts since the end of the most recent fiscal year. The
reduction in backlog as at May 31, 1997 compared to as at May 31, 1996 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 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
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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.
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, substantially
all of whom are based in the United Kingdom, out of which 10 are design
personnel, 40 are engineering personnel, 111 are engaged in metal work and hand
crafting of models and other items, 6 are in sales, 6 are supplementary
production persons, 7 are management and 13 are clerical personnel. In
addition, depending on its requirements, the Company employs approximately 89
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
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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 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 body-in-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
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 examining the possibility of consolidating two or more
of its facilities under one roof.
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<PAGE>
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, 1997.
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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, and, shortly thereafter, the Company
applied for and secured permission to delist its securities from
trading on the PSE.
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, 1997, 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
Fiscal 1997: High Low
------------ ---- ---
6/01/96 - 8/31/96 $8.125 $ 6.00
9/01/96 - 11/30/96 7.75 4.50
12/01/96 - 2/28/97 5.125 3.50
3/01/97 - 5/31/97 4.875 2.75
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<PAGE>
(b) The number of holders of the Company's Class A Common Stock was
approximately 534 on August 12, 1997, 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 April 11, 1997, the close of its most recent fiscal
year.
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<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, 1997 ("Fiscal 97") as compared to
Fiscal Year Ended May 31, 1996 ("Fiscal 96").
- -----------------------------------------------------------
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 US Dollars for years ended May 31, 1997 and 1996, since this is
the currency in which the Company will make its financial reports.
Summary of Operations
The Company's sales for Fiscal 97 were approximately $26 million and
is comparable to Fiscal 96 sales of approximately $24.7 million for the 10 month
prior fiscal year; however, due to significant cost over-runs on two projects,
due to development problems in the engineering of these technically advanced
projects, an after-tax loss of $3.2 million has been incurred compared with an
after tax profit of $1.5 million in the prior period.
Subsequent to the Third Quarter, expectations with regard to the
continuing work on the two contracts referred to above were not realized, this
resulting in additional costs not previously foreseen. In accordance with
accounting policy, full provision for losses on these contracts has been made
and no provisions for cost recoveries have been made, and in the event
discussions result in a recovery, this will be reflected in the period realized.
Provision for these cost overruns meant that margins deteriorated
from Fiscal 96's 22% to a gross loss in Fiscal 97, but management is confident
margins can be increased, with a goal of returning to Fiscal 96 margins during
Fiscal '98.
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<PAGE>
Overruns calculated on a full margin basis over the life of these
two projects total approximately $4 million and, if the opportunity cost of the
capacity utilized on these projects and, therefore, not available for other
work is added, would total approximately $5 million, and is the main factor
which has resulted in the reported $3.2 million trading loss.
Despite the financial outcome of these two projects, management is
confident that the technical and operational advances made during the execution
of these projects has resulted in CAM establishing considerable goodwill and
competitive edge in the highly specialized areas of niche vehicle development
and aerospace composite tooling, which will hopefully lead to significant new
opportunities in Fiscal 98; some such opportunities are already being
discussed with customers.
Additional new facilities have also been established to enable low
volume production work to be undertaken which is currently being utilized on a
new recently announced vehicle conversion project.
Recently a full review of the Company's UK operations has been
carried out, resulting in a restructuring program being implemented in
September 1997, which is estimated will realize labor fixed cost savings of
approximately $2 million per annum. The subsequent reduced capacity levels will
be replenished by the use of external outsourcing capacity as and when required
to fill sales orders. This will focus operations into smaller yet more
accountable defined business units, which are planned to operate at overall
higher profit margins, than the current consolidated operation.
The three units will now focus on (1) Design and Engineering
(including personnel placement) (2) Aerospace Tooling and Manufacturing and (3)
Special Vehicle Build and Prototype Development.
The acquisition of Ruecker was also completed in Fiscal 97, and is
expected to add approximately $5 million revenues at gross margins of
approximately 10% in Fiscal 98.
Growth of over 90% in the personnel segment has been encouraging and
now totals $5.3 million as compared to $2.8 million in Fiscal 96. Due to
reduced activity, Aerospace sales totaled $2.6 million compared to $3.6 million
in Fiscal 96, but general growth in the U.S. aerospace market has resulted in
significant further opportunities for CAM, which will hopefully result in
increased revenues for Fiscal 1998.
The results were also adversely affected by the strength of the
Dollar which averaged $1.64 to the Pound throughout the period, and as the
majority of the Company's operations are currently UK based, currency
fluctuations have increased the amount in dollars. Further the tax credit
assumed is only 31% compared to a 33% charge last year which is principally due
to increased disallowable costs.
The Order Backlog as at August 31 totaled a potential $27 million
over the next 3 years, an increase of approximately 60% on the Fiscal 96 period
end, and which represents significant
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<PAGE>
new contracts secured as a result of the new facilities and a general
improvement in the aerospace and automotive markets.
Fiscal Year Ended May 31, 1996 ("Fiscal 96") as compared to
Fiscal Year Ended May 31, 1995 ("Fiscal 95").
- -----------------------------------------------------------
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 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
Fiscal 97:
Liquidity within the Group deteriorated in the period, again due to
the project losses incurred and as at May 31, 1997, net cash balances amounted
to $194,909, although this is after
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capital and loan repayments of $0.5 million, share repurchases of $475,000 and
Capital expenditure of $1.5 Million including project tooling finance of
$600,000 (which is recoverable over the length of the project). Tax refunds of
approximately $0.3 million are expected during Fiscal 98 for losses incurred.
The Group currently has bank lines totalling expected approximately
$2 million in respect of working capital, and together with recovery of a
portion of project losses, management considers that sufficient current working
capital requirements are available to support projected operational activities.
Management continues to exercise tight cost controls and to negotiate stage
payments on all significant contracts to minimize working capital requirements.
Net Bank and interest costs of $167,254 is a result of the use of
bank facilities in the UK, compared to net interest income of $35,053 in Fiscal
96.
Fiscal 96:
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
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<PAGE>
Date, the Company has more than sufficient cash resources for this purpose
without the necessity of securing advanced payments. However, management still
considers it 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 and Fiscal
97 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 31%) 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.
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<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 34 of this Report.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
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<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 46 Chairman of the Board of Directors, President,
Chief Executive Officer and a director
Robert A. Righton 34 Chief Financial Officer, Secretary and a director
William E. Camplisson 57 Director
Peter D. Horbury 47 Director
Theodore Sall, Ph.D. 69 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.
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
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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 Volkswagen 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.
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.
Messrs. Charles W. Linder and David R. James were members of a Board
of Directors of a company from July 1995 until the Annual Meeting of
Shareholders on November 4, 1996; they did not stand for re-election at such
Annual Meeting, and, accordingly their terms of office expired on that date.
Other Significant Personnel - [In Alphabetical Order]
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:
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<PAGE>
Paul B. Archer--Mr. Archer has been employed since November 1, 1996 as
Aerospace Commercial Manager responsible for general tooling sales and the
development of new Aerospace business. Mr. Archer has extensive experience
within the Aerospace industry commencing with a toolmaking apprenticeship,
leading onto further engineering. Mr. Archer progressed through various
supervisory roles into project engineering, project management and other
general managerial positions. Customers have included Boeing, Rolls-Royce,
Shorts, British Aerospace, Fokker, SABCA, Dunlop Aviation and Israel Aircraft
Industries amongst others. Mr. Archer has specialized in the design and
manufacture of composite and associated Aerospace tooling and taken
responsibility for leading internal training schemes plus workshops and
technology transfer programs at customers own facilities spanning the U.S.,
Europe and the Middle East. This practical knowledge of the world's aerospace
companies and customer focus has developed into a sales and marketing function
for both MGA and his previous employer.
Mick Berridge --(45)-- Mr. Berridge commenced 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 G. Garnett--is a Fellow of the Institute of Directors and a Non-Executive
Director of CAM Designs UK. Following a career as a jet pilot in the Fleet Air
Arm, Mr. Garnett spent several years as a business advisor to many European and
American businesses. Since 1982 Mr. Garnett has been Chairman and Chief
Executive of Tudor Webasto - the UK's largest OEM car sunroof supplier. Mr.
Garnett is an Advisor to the DG Bank in London and for the past 4 years has
been Chairman of the Ultra Hydraulics Group - a position he was invited to fill
at the request of the Venture Capital Investors.
Mike Hyatt--Mr. Hyatt, Managing Director MGA Developments, charged with the
task of developing and growing the organization. Mr. Hyatt is an Automotive
mechanical Engineer with 38 years of experience in the automotive industry,
having considerable medium and executive management experience in the design
services industry. Playing a leading role in building and establishing
organizations, an internationally recognized Mr. Hyatt has been responsible for
quoting and negotiating programs initiating the management control and
implementation of programs.
Alan Holmes--(46)--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.
Colin Mason--(49)--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
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<PAGE>
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 vehicles. Mr. Mason is a graduate of North
Birmingham Polytechnic, in Birmingham England, with a degree in mechanical
technology.
Michael P. Mullen--Mr. Mullen is a Director of Cam Special Vehicles, a position
which he has held since its establishment in April 1997. He is responsible for
all business and technical activities relating to the production manufacture of
automotive vehicles. He has been employed by CAM Designs since October 1995 and
has undertaken the roles of Manufacturing Engineering Manger at MGA
Developments and General Manager of CAM Special Vehicles. Prior to joining CAM
Designs, Mr. Mullen was employed for 10 years by another major automotive
design and manufacturing house as Manufacturing Engineering Manager on various
projects in the U.K. and overseas. He has extensive knowledge of high and low
volume manufacturing processes within the automotive and aerospace industries.
Ken Norton--(60)--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.
Terry Wolkind--Mr. Wolkind, Senior Manager with Ruccker, which labor leases
engineers to the Far East and U.S. Mr. Wolkind individually specializes in
marketing and, in addition to the above, he supports MGA's sales activities in
Europe. Terry has extensive experience for a number of major automotive
manufacturers in Europe, supplemented by knowledge in an automotive design
house in the U.S. and aircraft manufacturers. He is an automotive body engineer
with appropriate qualifications and commenced his career with Ford.
Compliance with Section 16(a) of the Exchange Act.
During the fiscal year ended May 31, 1997, 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 1997, 1996, and 1995 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
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<PAGE>
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............... 1997 202,665 68,415(2)
Chief Executive Officer 1996 180,210 55,082(3)
1995 119,009 32,735(4)
Robert Righton................. 1997 114,187 26,278(5)
Chief Financial Officer 1996 110,138 23,805(6)
1995 76,160 18,496(7)
- -------------------------------
(1) Calculated at an exchange rate of $1.64 per Pound for Fiscal 97, $1.52
per Pound for Fiscal 96, and $1.587 per Pound for Fiscal 95.
(2) Of such amount, $34,451 was a pension contribution and $32,467 was for
provision of a Company car.
(3) Of such amount, $31,986 was a pension contribution and $23,294 was for
provision of a Company car.
(4) Of such amount, $8,330 was a pension contribution and $23,299 was for
provision of a Company car.
(5) Of such amount, $11,419 was a pension contribution and $13,878 was for
provision of a Company car.
(6) Of such amount, $11,499 was a pension contribution and $11,982 was for
provision of a Company car.
(7) Of such amount, $5,331 was a pension contribution and $12,740 was for
provision of a Company car.
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<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.
-28-
<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
-29-
<PAGE>
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 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 97, and since June 1, 1997,
respectively:
Option Grants Both During and Since Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Fiscal 95
% 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 12, 1997 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.
-30-
<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%
William E. Camplisson(3) 10,000(4) *
Peter D. Horbury(3) 5,000(4) *
Theodore Sall, Ph.D.(3) 6,000(4) *
All directors and executive officers
as a group (7 Persons)(4) 317,815 24.2%
- ---------------------------------------------------
(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.
* Less than 1%
-31-
<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.
-32-
<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, 1997 and 1996
Consolidated Statements of Income--Years ended May 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity--Years ended May 31, 1997
and 1996
Consolidated Statements of Cash Flows--Years ended May 31, 1997 and 1996
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:
-33-
<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, 1997.
-34-
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Directors' report and financial statements
Contents
Independent Auditors' Report 2
Consolidated statements of income 3
Consolidated balance sheets 4
Consolidated statements of cash flows 6
Consolidated statements of stockholders' equity 7
Notes to the consolidated financial statements 8
1
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Independent Auditors' Report
The Board of Directors and Stockholders of CAM Designs Inc
We have audited the accompanying consolidated balance sheets of CAM Designs Inc
and subsidiaries as of May 31, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. 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, 1997 and 1996, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles in the United States of America.
KPMG 12 September 1997
Chartered Accountants
Registered Auditors
Birmingham
England
2
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Consolidated statements of income
Years ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $ 25,952,371 $ 24,661,145
Cost of goods sold (26,119,469) (19,225,998)
------------ ------------
Gross (loss)/profit (167,098) 5,435,147
Selling, general and administrative expenses (4,298,533) (3,216,318)
------------ ------------
(4,465,631) 2,218,829
------------ ------------
Other income/(deduction):
Investment income 80,321 94,839
Interest expense (247,575) (100,550)
Interest income -- 40,764
------------ ------------
(167,254) 35,053
------------ ------------
(Loss)/Income before income taxes (4,632,885) 2,253,882
Income taxes (note 8) 1,420,000 (743,651)
------------ ------------
Net (loss)/income $ (3,212,885) $ 1,510,231
============ ============
(Loss)/earnings per share (1.24) 0.66
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Consolidated balance sheets
May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (note 1) $ 545,515 $ 4,432,278
Contract billings receivable, less allowance for
doubtful accounts of $48,196 (1996: $7,575) 4,289,450 5,023,691
Inventories (note 6) 562,401 356,882
Pre-paid expenses 361,408 283,161
Other receivables 28,503 31,888
Income taxes receivable 346,448 --
------------ ------------
Total current assets 6,133,725 10,127,900
------------ ------------
Investment 1,721 1,515
Property, plant and machinery (note 13):
Freehold property 328,218 303,433
Leasehold property 538,822 473,893
Plant and machinery 9,392,186 7,139,474
Less accumulated depreciation and amortisation (5,881,455) (4,592,685)
------------ ------------
Net property, plant and machinery 4,377,771 3,324,115
------------ ------------
Goodwill, less accumulated amortisation 74,488 --
Deferred tax asset (note 8) 205,501 --
------------ ------------
Total $ 10,793,206 $ 13,453,530
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Consolidated balance sheets
May 31, 1997 and 1996
(continued)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 350,606 --
Current instalments of obligations under bank loan (note 10) 19,465 18,085
Current instalments of obligations under capital leases (note 7) 648,353 482,368
Current instalment of obligations under loan 147,656 --
Billings in excess of costs and estimated earnings on uncompleted contracts (note 6) 510,072 361,394
Trade accounts payable 3,229,899 2,523,485
Income taxes payable -- 1,261,749
Accrued expenses 3,007,975 2,006,374
Promissory notes (note 1) 214,000 214,000
------------ ------------
Total current liabilities 8,128,026 6,867,455
Obligation under bank loan excluding current instalments (note 10) 228,981 240,081
Obligation under capital leases excluding current instalments (note 7) 468,833 851,353
Deferred income taxes (note 8) -- 11,817
------------ ------------
Total liabilities 8,825,840 7,970,706
============ ============
Stockholders' equity
Class "A" common stock, $0.001 par value
Authorised 9,000,000: Issued 2,250,000 shares in 1997 and 1996 2,250 2,250
Additional paid-in capital 4,229,765 4,229,765
Currency translation adjustment 171,222 (90,439)
(Accumulated deficit)/retained earnings (1,960,871) 1,341,248
Treasury stock: 75,000 common shares in 1997 at cost (475,000) --
------------ ------------
Total stockholders' equity 1,967,366 5,482,824
============ ============
Total $ 10,793,206 $ 13,453,530
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Consolidated statements of cash flows
Years ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net cash (used in)/provided by operating activities (note 11) ($2,212,879) $ 2,917,793
----------- -----------
Cash flows from investing activities
Capital expenditure (1,517,144) (995,097)
Purchase of subsidiary (net of cash acquired) 185,450 (1,681,491)
Investment (80) --
----------- -----------
Net cash used in investing activities (1,331,774) (2,676,588)
----------- -----------
Cash flows from financing activities
Repayment of borrowings (30,031) (420,782)
Principal payments under capital lease obligations (422,376) (296,683)
Proceeds from issuance of ordinary stock -- 4,583,971
Receipt of loan 144,296 270,025
Payments to redeem stock (475,000) --
Dividends paid (89,234) (101,250)
Bank overdraft 342,850 10,805
----------- -----------
Net cash (used in)/provided by financing activities (529,495) 4,046,086
----------- -----------
Net (decrease)/increase in cash and cash equivalents (4,074,148) 4,287,291
Cash and cash equivalents at beginning of year 4,432,278 57,453
Exchange gain 187,384 87,534
----------- -----------
Cash and cash equivalents at end of year $ 545,515 $ 4,432,278
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Interest paid for the years ended May 31, 1997 and May 31, 1996 was $247,575
and $100,550 respectively. The group paid income tax of $520,530 and $30,540
during the years to May 31, 1997 and May 31, 1996 respectively.
6
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Consolidated statements of stockholders' equity
years ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Additional Currency (Accumulated Treasury Total
stock paid-in translation deficit) stock stockholders'
capital adjustment retained equity
earnings
<S> <C> <C> <C> <C> <C> <C>
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 -- (4,389,556) -- -- -- (4,389,556)
book value of net assets
acquired
Exchange difference -- -- (90,439) -- -- (90,439)
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1996 $ 2,250 $ 4,229,765 $ (90,439) $ 1,341,248 -- $ 5,482,824
----------- ----------- ----------- ----------- ----------- -----------
Net loss -- -- -- $(3,212,885) -- (3,212,885)
Dividends declared -- -- -- (89,234) -- (89,234)
Acquisition of 75,000 common
shares -- -- -- -- (475,000) (475,000)
Exchange difference -- -- 261,661 -- -- 261,661
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1997 $ 2,250 $ 4,229,765 $ 171,222 $(1,960,871) ($ 475,000) $ 1,967,366
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
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, 1996. CAM is
the holding Company and has not engaged in any commercial operations during the
period since incorporation.
On October 4, 1995, MGA Holdings Limited changed its name to CAM Designs
Limited.
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.
The net assets acquired, shown below, were recorded at MGA's book value at the
date of acquisition:
Assets
Cash $2,266 (pound)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 (pound)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 value of
net assets acquired.
8
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
1 Summary of significant accounting policies (continued)
A pro-forma income statement for the two 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 nine wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated on consolidation.
(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.
(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.
9
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
1 Summary of significant accounting policies (continued)
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) Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortised on a straight-line basis over the expected
periods to be benefited. The Company assesses the recoverability of this
intangible asset by determining whether the amortisation of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds.
(h) 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.
(i) Pension
The group has a defined contribution pension scheme. Total group contributions
to the scheme during the year ended May 31, 1997 were $512,877 (1996:
$416,710)..
(j) Cash and cash equivalents
All highly liquid debt instruments with original maturities of three months or
less are considered to be cash equivalents.
(k) (Loss)/earnings per Share
(Loss)/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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Weighted average shares of common stock outstanding during the year 2,183,356 1,953,934
Common equivalent shares - assumed exercise of options and warrants 341,182 581,809
--------- ---------
Total common and common equivalent shares 2,524,538 2,535,743
========= =========
</TABLE>
(l) 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.
10
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
1 Summary of significant accounting policies (continued)
(m) Impact of new accounting standards adopted
Impairment of long-lived assets: Effective January 1, 1996 the Group adopted
FASB Statement of Financial Accounting Standards ("SFAS") 121 - "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121) for the purposes of presenting CAM's results for the period and
shareholders' interest as adjusted to accord with US GAAP. The adoption of SFAS
121 had no material impact on the CAM's results of operations or financial
position as adjusted to accord with US generally accepted accounting principles
("GAAP").
Accounting and disclosure of stock-based compensation: SFAS No 123 - Accounting
for Stock-Based Compensation" which establishes financial accounting and
reporting standards for stock-based employee compensation plans, was effective
for accounting periods beginning after December 15, 1995. The Statement
provides the option to continue under the accounting provisions of Accounting
Principles Board Opinion 25, `Accounting for Stock Issued to Employees' (APB
25) providing that proforma footnote disclosures of the effects on net income
and earnings per share, calculated as if the new method had been implemented
are included. CAM has adopted the disclosure requirements of SFAS 123 but
continues to recognise compensation expense in accordance with APB 25.
SFAS 125 - Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities: SFAS 125 was issued in June 1996. The standard
establishes, amount other things, new criteria for determining whether a
transfer of financial assets in exchange for cash or other consideration should
be accounted for as a sale or as a pledge of collateral in a secured borrowing.
SFAS 125 also establishes new accounting requirements for pledged collateral.
As issued SFAS 125 is effective for all transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. In
December 1996, SFAS 127. Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125 was issued SFAS 127 defers for one year the effective
date of certain requirements of SFAS 125. This statement has not had an impact
on CAM's financial position or results of operations since its date of adoption
on 1 January 1997.
(n) New accounting standards issued but not yet adopted
Statement of Position No 96-1 ("SOP 96-1") - Environmental Remediation
Liabilities: SOP 96-1 was issued in October 1996. The statement provides
authoritative guidance on specific accounting issues that are present in the
recognition, measurement, display and disclosure of environmental liabilities.
The provisions of the statement are effective for fiscal years beginning after
December 15, 1996. SOP 96-1 is not expected to have a material impact on the
financial position of operations of the Group presented under US GAAP.
SFAS 128 - Earnings per share. SFAS 128 was issued in February 1997. The
provisions of this accounting standard must be adopted for both interim and
annual accounting periods ending after December 15, 1997. Earlier adoption is
not permitted. SFAS 128 simplifies the standards for computing earnings per
share ("EPS") previously found in APB Opinion No 15 "Earnings per Share" ("APB
15") with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. SFAS 128 is not expected to have any material
impact on the EPS amounts disclosed.
Derivative financial instruments: In January 1997 the Securities and Exchange
Commission issued rules which, inter alia, expand the disclosure requirements
regarding accounting policies for derivatives. The new accounting policy
disclosures are effective for accounting periods ending after June 15, 1997
including interim periods.
11
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
2 Acquisitions
On February 17, 1997, the Company acquired all of the outstanding shares of
common stock of Ruecker Engineering (Michigan) Limited and Ruecker Asia Pacific
Limited for a cash price of $81,626. Ruecker Engineering (Michigan) Limited is
incorporated in US and located in Detroit, Michigan. It provides technical
personnel resources to the automotive industry. Ruecker Asia Pacific Limited is
incorporated in United Kingdom and also provides technical personnel resources.
The Ruecker acquisitions were recorded under the purchase method of accounting,
and accordingly, the results of the operations form February 17, 1997 are
included in the accompanying consolidated financial statements being the date
the consideration was transferred. The purchase price has been allocated to the
assets purchased and liabilities assumed based upon the fair values on the date
of acquisition as follows:
Cash $347,031
Plant and equipment 5,225
Goodwill 83,799
Net current liabilities (74,474)
Long term loan (200,000)
--------
$161,581
========
An unaudited pro-forma statement of net revenue, net income and (loss)/earnings
per share for the two years to 31 May 1997 reflecting the acquisition at the
beginning of each of those years is set out below:
1997 1996
Net revenue $33,333,385 $31,432,021
=========== ===========
Net (loss)/income $(3,383,965) $1,258,454
=========== ===========
(Loss)/earnings per share $(1.30) $0.49
=========== ===========
Such pro-forma amounts are not necessarily indicative of what the actual
consolidated results of operations would have been if the acquisitions had been
effective at the beginning of fiscal 1996. The pro-forma figures have been
calculated from the financial statements of Ruecker for the year to 31 December
combined with the results of the Company for the year to 31 May. Using results
for Ruecker for the year to 31 May would not have produced materially different
results.
3 Related parties
A non-executive director, William Camplissan has supplied consultancy services
to the group during the year ended May 31, 1997 of $36,456 (1996: $43,780)..
12
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
4 Concentration of credit risk and major customer information
A significant portion of the group's net sales, 70% in 1997 and (74.1% in 1996)
has been derived from customers serving the automotive industry, the largest
customer being 29.7% (1996: 22.1%) of net sales in 1997.
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 two major customers in automotive and aerospace industries
accounting for approximately 43 percent of Company revenue in 1997. In 1997,
the major customers accounted for 29.7 percent and 12.8 percent of Company
revenue respectively. No other customer accounted for 10 percent or more of
Company revenue in 1997.
In 1996 the Company had three major customers in automotive and aerospace
industries accounting for approximately 51 percent of revenue. Three major
customers accounted for 22.1 percent, 17.2 percent and 12 percent of revenue
respectively. No other customer accounted for 10 percent or more of revenue in
1996.
As shown by the results set out on page 2, the Company suffered a substantial
trading loss in the current year. This loss was due principally to two long
term contracts, which accounted for approximately 40% of the revenue.
Substantial cost overruns have been borne by CAM on the two contracts for which
full recovery from the customers was not received. In addition to the actual
loss recorded on these contracts, a large percentage of the capacity available
was dedicated to these contracts, thus restricting the company's ability to
perform other work.
13
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
5 Industry segment information
Principal financial data by industry segment is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales
Automotive industry 18,041,602 18,273,125
Aerospace industry 2,588,356 3,616,792
Placement of personnel 5,322,413 2,771,228
------------ ------------
Total revenues $ 25,952,371 $ 24,661,145
============ ============
Operating (loss)/ profit
Automotive industry (4,464,666) 1,298,755
Aerospace industry (640,528) 257,062
Placement of personnel 639,563 663,012
------------ ------------
Operating (loss)/profit (4,465,631) 2,218,829
Corporate expense (167,254) 35,053
------------ ------------
(Loss)/earnings before tax ($ 4,632,885) $ 2,253,882
============ ============
Identifiable assets at May 31
Automotive industry 7,503,234 9,968,638
Aerospace industry 1,076,458 1,973,088
Placement of personnel 2,213,514 1,511,804
------------ ------------
Consolidated assets $ 10,793,206 $ 13,453,530
============ ============
The analysis of turnover by geographical area is as follows:
By geographical area:
United Kingdom 23,387,152 23,557,900
Rest of Europe 780,525 1,047,697
United States of America 798,883 --
Far East and Australia 985,811 55,548
------------ ------------
$ 25,952,371 $ 24,661,145
============ ============
</TABLE>
14
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
6 Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cost and estimated earnings in excess of billings on uncompleted contracts (see below) 425,134 227,721
Raw materials and consumables 137,267 129,161
------------ ------------
$ 562,401 $ 356,882
============ ============
Uncompleted contracts comprise:
Costs incurred on uncompleted contracts 23,184,206 11,834,347
Estimated earnings 1,891,040 1,434,990
------------ ------------
25,075,246 13,269,337
Less: billings to date (25,360,184) (13,403,010)
------------ ------------
$ (284,938) $ (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) 425,134 227,721
Billings in excess of costs and estimated earnings on uncompleted contracts (510,072) (361,394)
Provision for contract losses included in accrued expenses (200,000) --
------------ ------------
$ (284,938) $ (133,673)
============ ============
</TABLE>
The table above highlights the low value estimated earnings on the uncompleted
contracts, namely the two signficant loss making contracts. As illustrated the
company has incurred cost overruns on these contracts for which no recovery is
recorded in the financial statements.
7 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,
1997, the gross amount of plant and machinery and related accumulated
amortisation recorded under capital leases were as follows:
1997
Plant and machinery 1,884,186
Less: Accumulated amortisation (338,208)
----------
$1,545,978
==========
Amortisation of assets held under capital leases is included with depreciation
expenses.
15
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
7 Leases (continued)
Future minimum lease payments under capital leases as of May 31, 1997 are:
1997
Year ending May 31
1998 648,353
1999 423,454
2000 45,379
---------
Total minimum lease payments 1,117,186
Less: Current instalments of obligations under capital leases (648,353)
---------
Obligations under capital leases excluding current instalments $468,833
=========
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, 1997 were
$462,317 (1996: $481,416).
Future minimum lease payments under non-cancellable operating leases at May 31,
1997 are:
Buildings
Year ending May 31
1998 331,650
1999 292,730
2000 292,730
2001 292,730
2002 292,730
Later years through to 2015 2,479,783
----------
Total minimum lease payments $3,982,353
==========
8 Income taxes
Income tax income/(expense) attributable to income consists of:
Current Deferred Total
$ $ $
Year ended May 31, 1997 1,202,682 217,318 1,420,000
Year ended May 31, 1996 (731,834) (11,817) (743,651)
========= ========= =========
16
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
8 Income taxes (continued)
Income tax income/(expense) attributable to (loss)/income was $1,420,000 and
$743,651 for the years ended May 31, 1997 and 1996 respectively and differed
from the amounts computed by applying the statutory United Kingdom rate of
32.67 percent to pre-tax (loss)/income as a result of the following:
1997 1996
$ $
Corporate tax at United Kingdom statutory rate 1,513,563 (743,651)
Non-deductible expenses (56,771) --
Non-deductible expenses in respect of prior years (36,792) --
---------- ---------
1,420,000 (743,651)
========== =========
Provision for income taxes
Effective rate 30.7% 33.0%
========== =========
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax asset/(liability) at May 31, 1997 and 1996 are presented
below:
<TABLE>
<CAPTION>
1997 1996
$ $
<S> <C> <C>
Deferred tax (liability)/assets relating to:
Plant and machinery, principally due to differences in depreciation (56,127) (11,817)
Short term timing differences 170,184 --
Taxable losses available for future profits 91,444 --
-------- --------
205,501 (11,817)
======== ========
</TABLE>
9 Bank overdraft
The group has an overdraft facility available from the National Westminster
Bank of (pound)750,000. 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 2.5% per annum.
The facilities are secured by:
(1) a composite guarantee between certain group companies;
(2) legal mortgage debenture from certain 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 $Nil at May 31, 1997.
In addition, the group has an overdraft facility available from DG Bank
Deutsche Genossenschaftsbank (pound)250,000. The terms and conditions are
similar to those noted in respect of the overdraft facility available from the
National Westminster Bank, however, interest will be charged at a rate equal to
the Bank's base rate plus 2% per annum.. This facility is secured by a
composite guarantee between certain group companies.
17
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
10 Long term debt
Long term debt consisted of the following:
1997 1996
Loan (secured) 248,446 258,166
Less: Current instalment (19,465) (18,085)
-------- --------
$228,981 $240,081
======== ========
The bank loan is secured on the freehold property with a net book value of
$328,218 at May 31 1997 (1996: $303,433).
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.
For the year to 31 May 1997, the group's cashflow was insufficient to cover its
working capital requirements. The principal reason for the net cash outflow was
two significant loss making contracts, where the group did not receive
sufficient monies to recover costs.
The group meets its day to day working capital requirements through overdraft
facilities which are repayable on demand. The directors have prepared projected
cash flow information for the year ending 31 May 1998 and have considered the
position for a further period of twelve months from that date. The cash flow
information assumes the group will undergo a restructuring aimed at reducing
the level of fixed costs. On the basis of the cash flow information and
discussions with the group's bankers, the directors consider that the group
will continue to operate within the facility currently agreed and within that
which they expect to be agreed in November 1997 when the group's bankers are
due to consider renewing the facilities for a further year.
In addition to the overdraft facilities available to the group as detailed in
note 9, the group has a bank credit facility of $250,000 with the Michigan
National Bank. This facility is available to certain group companies to fund
working capital requirements. The facility is currently available until 10
January 1998.
18
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
11 Reconciliation of net income to net cash (used in)/provided by
operating activities
The reconciliation of net income to net cash (used in)/provided by operating
activities for the years ended May 31, 1997 and 1996 is as follows:
1997 1996
Net (loss)/income $(3,212,885) $ 1,510,231
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 861,549 417,592
Changes in current assets and liabilities
Allowance for doubtful debts 39,117 24,122
Trade accounts receivable 1,013,957 1,138,729
Inventories (172,466) (157,025)
Pre-paid expenses (58,646) 27,742
Other receivables 236,427 (32,477)
Tax recoverable (361,161) 61,118
Billings in excess of cost 116,523 (1,326,141)
Trade accounts payable 378,268 1,009,759
Accrued expenses 476,000 (407,512)
Income taxes payable (1,314,084) 616,475
Deferred income taxes (215,478) 35,180
----------- -----------
($2,212,879) $ 2,917,793
=========== ===========
12 Non-cash financing and investing activities
Capital lease obligations of $225,590 were incurred in 1997 (1996: $1,017,871)
when the Company entered into leases for new machinery and equipment.
19
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
13 Fixed assets
<TABLE>
<CAPTION>
Freehold Leasehold Plant and Total
property property machinery
$ $ $ $
<S> <C> <C> <C> <C>
Cost
At beginning of year 303,433 473,893 7,139,474 7,916,800
Additions -- 26,220 1,631,697 1,657,917
Purchase of business -- -- 37,840 37,840
Exchange adjustment 24,785 38,709 583,175 646,669
---------- ---------- ---------- ----------
At end of year 328,218 538,822 9,392,186 10,259,226
========== ========== ========== ==========
Depreciation
At beginning of year -- 316,050 4,276,635 4,592,685
Charge in year -- 32,775 848,235 881,010
Purchase of business -- -- 32,615 32,615
Exchange adjustment -- 25,816 349,329 375,145
---------- ---------- ---------- ----------
At end of year -- 374,641 5,506,814 5,881,455
========== ========== ========== ==========
Net book value
At May 31, 1997 328,218 164,181 3,885,372 4,377,771
========== ========== ========== ==========
At May 31, 1996 303,433 157,843 2,862,839 3,324,115
========== ========== ========== ==========
</TABLE>
Depreciation for the year ended May 31, 1997 was $881,010 (1996: $417,592).
14 Goodwill
$
Cost
Additions 83,799
-------
End of year 83,799
-------
Amortisation
Additions 9,311
-------
End of year 9,311
-------
Net book value 74,488
=======
20
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
15 Stock
The Company has three categories of authorised stock as follows:
Authorised
1997 1996
Class 'A' Common stock 9,000,000 9,000,000
Preferred stock 1,000,000 1,000,000
Class 'A' common stock was 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.
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.
16 Fixed stock option plan
As at May 31, 1997 there are options outstanding to officers, directors,
consultants and employees covering 420,000 shares of Class A stock issued under
the Company's 1995 Stock Option Plan. 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.
A summary of the status of the Company' s fixed stock option plan as of 31 May
1997 and 31 May 1996 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1997 1996 1996
Shares Weighted Shares Weighted
average average
exercise price exercise price
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
Fixed options
Outstanding at beginning of year 420,000 $5.67 -- --
Granted -- -- 420,000 $5.67
------- ----- ------- -----
Outstanding at end of year 420,000 $5.67 420,000 $5.67
======= ===== ======= =====
Options exercisable at year end 420,000 387,500
======= =======
</TABLE>
21
<PAGE>
CAM Designs Inc and subsidiaries
Directors' report and financial statements
May 31, 1997 and 1996 with Independent Auditors' report thereon
Notes (continued)
16 Fixed stock option plan (continued)
The following table summarises information about fixed stock options
outstanding at May 31 1997.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Range of exercise prices Number of Weighted Number Weighted
outstanding average exercisable average
at 31 May exercise at 31 May exercise
price price
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
$5 345 $5.00 345 $5.00
$7 10 $7.00 10 $7.00
$7.50 15 $7.50 15 $7.50
$9 50 $.9.50 50 $9.50
------ ------
420 420
====== ======
</TABLE>
17 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.
18 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 interest rate is variable
(2% above LIBOR), and is in line with rates currently achievable by the
Company.
22
<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
Chairman of the Board, President
and Chief Executive Officer
DATE: September 11, 1997
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:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Chairman of the Board, President and Chief September 11, 1997
- ------------------------------------------------ Executive Officer (Principal Executive Officer)
John R. Davidson
/s/ Chief Financial Officer, Secretary and Director September 11, 1997
- ------------------------------------------------ (Principal Financial and Accounting Officer)
Robert A. Righton
/s/ Director September 11, 1997
- ------------------------------------------------
William E. Camplisson
Director August __, 1997
- ------------------------------------------------
Peter D. Horbury
/s/ Director September 11, 1997
- ------------------------------------------------
Theodore Sall, Ph.D
</TABLE>
-35-
<PAGE>
Exhibit 11
<TABLE>
<S> <C>
CAM Designs Inc.
EPS Calculations for period March 7, 1996 to May 31, 1997
Total loss as per unaudited interim accounts (3,224,609)
Add: Net assumed interest income for the whole period --
----------
Adjusted net loss (3,244,609)
Net loss per total weighted average (3,224,609)
----------
2,175,000
= $ (1.48) / share
EPS Calculations for the period June 1, 1996 to May 31, 1997
Total loss as per audited consolidated accounts (3,212,885)
Add: Net assumed interest income for whole period 88,503
----------
Adjusted net loss (3,124,382)
Net income per total weighted average (3,124,382)
----------
2,524,538
= $ (1.24 / share
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 545,515
<SECURITIES> 0
<RECEIVABLES> 4,337,646
<ALLOWANCES> 48,196
<INVENTORY> 562,401
<CURRENT-ASSETS> 6,133,725
<PP&E> 10,259,226
<DEPRECIATION> 5,881,455
<TOTAL-ASSETS> 10,793,206
<CURRENT-LIABILITIES> 8,128,026
<BONDS> 0
<COMMON> 3,757,015
0
0
<OTHER-SE> (1,789,649)
<TOTAL-LIABILITY-AND-EQUITY> 10,793,206
<SALES> 25,952,371
<TOTAL-REVENUES> 25,952,371
<CGS> (26,119,469)
<TOTAL-COSTS> 30,418,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,575
<INCOME-PRETAX> (4,632,885)
<INCOME-TAX> (1,420,000)
<INCOME-CONTINUING> (3,212,885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,212,885)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
