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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
For the fiscal year ended MAY 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
Commission File Number 1-13886
CAM DESIGNS INC.
(Name of small business issuer in its charter)
Delaware 75-2257039
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Birmingham Road, Allesley, Coventry CV59QE, ENGLAND
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 011-44-1-203-407-700
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
Title of each class Name of each exchange on which registered
- - Class A Common Stock $.001 Small Capitalization Market of NASDAQ
par value
- - Redeemable Warrants to Purchase Small Capitalization Market of NASDAQ
Class A Common Stock
Securities registered under
Section 12(g) of the Exchange Act:
- - Units (consisting of 2 shares Electronic Bulletin Board of
of Class A Common Stock the NASD
and one Warrant)
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-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, 1998 were
approximately $25,100,000.
As of September 11, 1998, 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 $1,497,019. 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, 1998, there were 2,669,053 shares of Class A Common
Stock outstanding.
Forward Looking Statements: This Rport contains, or incorporates by reference,
certain statements that may be deemed "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements, other than statements of historical facts, that address
activities, events or developments that the Company intends, expects, projects,
believes or anticipates will or may occur in the future are forward-looking
statements. Such statements are based on certain assumptions and assessments
made by management of the Company in light of its experience and its perception
of historical trends, current conditions, expected future developments and other
factors it believes to be appropriate. The forward-looking statements included
in this Report are also subject to a number of material risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting the Company's operations, markets, services and
prices, and other factors discussed in the Company's filings under the
Securities Act and the Exchange Act. Stockholders and prospective investors are
cautioned that such forward-looking statements are not guarantees of future
performance and that actual results, developments and business decisions may
differ from those envisaged by such forward-looking statements.
Documents Incorporated By Reference
None.
Transitional Small Business Disclosure Format:
Yes /X/ No / /
[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:
CAM
DESIGNS INC.
[THE "COMPANY"]
CAM
DESIGNS LTD. (FORMERLY
MGA HOLDINGS LTD.)
["CAM UK"]
<TABLE>
<CAPTION>
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MGA MGA MGA Armstrong
Developments Ltd. Recruitment Ltd. Technology Ltd. Designs Ltd.
["MGAD"] ["MGAR"] ["MGAT"] ["ADL"]
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<S> <C> <C> <C> <C>
B Main operating company Engineering placement agency Marketing focus for Engineers jigs and tools
U for automotive and in automotive sector. certain aerospace sales. for automotive and
S aerospace sectors. aerospace clients.
I
N
E
S
S
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</TABLE>
Ruecker, International
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Engineering placement agency
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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 and placement which,
during the fiscal year ended May 31, 1998, accounted for approximately 90% of
the Company's sales, with aerospace activities accounting for approximately 10%
(with the auto placement and recruitment activities constituting 23.67% of
the auto component).
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. The Company engages in
certain of its placement operations under the name Ruecker and recently sold the
business of its Ruecker Michigan Ltd. subsidiary, which operated in the U.S.;
however, it continues to place automotive engineers in the Pacific Rim Area,
operating under the Ruecker name.
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.
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 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%, and during Fiscal 98 four customers, representing 17.5%, 11.2%, 10.5% and
10% of revenues, were the only customers accounting for 10% or more 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 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.
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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).
The Company has historically performed services for a number of OEMs
based in the United Kingdom as well as in the United States and Western Europe.
Some of its earliest efforts were for the Rover Group in the 1980's, primarily
with respect to engine package related engineering. More recently, it has
undertaken styling programs for UK OEMs and has also been involved in continuing
work over a long period of time for Rolls-Royce Motor Cars Ltd., including the
face-lifting of the Bentley Turbo, as well as exterior design programs for Volvo
and various other European auto manufacturers. In addition to the passenger car
programs, a number of truck and bus styling programs for both UK and European
companies have also been entrusted to the Company. Finally, other areas of
involvement include motorbikes, forklift trucks, trains and flight simulators.
Concurrent with the development of the Company's Design Studio, there
has been the substantial growth of the Company's Engineering Department in size
and capability, supported with the recent recruitment of senior BIW engineers
and engineering management.
Aerospace
The Company has been retained in aerospace activities by both
manufacturers of commercial jets, such as U.K subcontractors of the Boeing
Company, as well as manufacturers of corporate planes such as Learjet. The
Company is seeking to increase its participation in, and market share of,
services for the aerospace industry. Trends affecting this market include (a)
the emergence of the Far East and Eastern Europe primarily due to expanding
economies and political changes, respectively as sources for greater utilization
of aircraft, including smaller and medium aircraft, (b) the resurgence of demand
for business jets, with several new planes in development by OEMs in North
America, (c) the requirements with respect to environmental compliance which
have led to re-engineering of older models to increase fuel economy and
passenger carrying capabilities, and reduce engine noise. It is in the increased
use of 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, 1998 and
May 31, 1997 was approximately $14,100,000 and $12,170,000, respectively,
comprised of approximately
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$14,000,000 and $11,800,000 in automotive contracts and $100,000 and $333,000 in
aerospace contracts. As at September 1, 1998, the Company's backlog has
increased to approximately $15,600,000, of which approximately $15,400,000
consists of automotive contracts. The increase in backlog as at May 31, 1998
compared to as at May 31, 1997 is a result of the Company's recent contracts
from Rover and a Middle East-based company. Substantially all these orders and
contracts are cancellable by the customer, subject to payment of all outstanding
amounts and identifiable costs incurred by the Company. The Company believes
that this is an indication of its successful efforts to secure larger and longer
term contracts which, among other things, allow it the benefit of allocating
productive resources on an efficient basis among its various units, even though
it may make it somewhat dependent upon a relatively few key customers.
COMPETITION
The Company competes with a number of firms in the UK and Western
Europe engaged in similar design and engineering functions, some of which firms
have greater financial, personnel and other resources. In addition, most OEMs
have significant in-house capacity to perform many of the same functions with
their own personnel. However, this would require the OEMs to permanently retain
a substantial staff to engage in these programs and would burden these firms
with the cost of carrying surplus personnel when active design and engineering
programs were not underway, or terminating their employment and facing a variety
of cost and other problems as a result.
Historically, the independent design sector has developed due to better
vehicle program control and more cost effective and creative solutions,
supported by a reservoir of design expertise and experience, which may exceed
that possessed by certain OEMs. Accordingly, an OEM will often outsource such
work for these reasons and to enable the OEMs to reduce the fixed cost base of
design and development departments, which are invariably used infrequently over
the medium and long term.
GOVERNMENT REGULATIONS
Although the UK has governmental regulations respecting working
conditions, labor employment, and environmental regulatory matters, management
of the Company believes that these regulations do not impose any undue burden
upon the Company nor place it under any competitive disadvantage. The Company
believes that it is in compliance, in all material respects, with applicable
governmental regulations.
SUPPLIERS
The Company believes there are adequate sources of supply for the goods
and materials used by it in the conduct of its business. It obtains many of the
supplies used in the construction of molds primarily from Otto Bosse Gmbh, but
believes that there are other secondary sources of supply available to it, at no
significant increase in price.
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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 134 full time employees, substantially
all of whom are based in the United Kingdom, out of which 8 are design
personnel, 35 are engineering personnel, 64 are engaged in niche vehicle build
and hand crafting of models and other items, 5 are in sales, 5 are supplementary
production persons, 6 are management and 11 are clerical personnel. In addition,
depending on its requirements, the Company employs approximately 80 part-time or
independent contractors who are engaged in engineering.
Item 2. DESCRIPTION OF PROPERTY.
The Company presently leases two 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). Management believes that its
existing facilities are, and will be, adequate for the conduct of the Company's
business.
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, 1998.
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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 and Warrants
presently takes place on the small capitalization market of NASDAQ,
under the following symbols:
Class A Stock CMDA
Warrants CMDAW
The following table sets forth the range of high and low sales prices
for the Company's Class A Common Stock for the Company's two most
recent fiscal years:
Fiscal 1998: High Low
6/01/97 - 8/31/97 $ 5.25 $ 3.38
9/01/97 - 11/30/97 3.97 3.33
12/01/97 - 2/29/98 4.00 3.38
3/01/98 - 5/31/98 4.31 2.75
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
The closing price of the Class A Common Stock on September 11, 1998 was $.625.
(b) The number of holders of the Company's Class A Common Stock was
approximately 640 on August 12, 1998, 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 paid a cash dividend at the annual rate of $.05 per
share on its Class A Common Stock from July, 1996 through the period
ending April 11, 1997, but has not paid dividends since that date.
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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, 1998 ("FISCAL 98") AS COMPARED TO
FISCAL YEAR ENDED MAY 31, 1997 ("FISCAL 97").
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, 1998 and 1997, since this is the currency
in which the Company will make its financial reports.
SUMMARY OF OPERATIONS
Revenues for Fiscal 98 totaled approximately $25.1 million compared to
$25.9 million in Fiscal 97, despite generally poor economic and commercial
conditions in the Company's areas of business in the United Kingdom and
elsewhere. As in prior years, the overwhelming segment of the Company's sales
occurred in the automotive design and placement field, with aerospace
engineering placement accounting for approximately 10%.
Gross margins on sales improved during Fiscal 98 compared to Fiscal 97
by virtue of the fact that the cost overruns which the Company experienced in
Fiscal 97 were largely absent. However, margins of profit in general continued
to be adversely impacted, both as a result of highly competitive conditions in
the Company's markets as well as the shift to a greater percentage of design and
engineering services in the Company's automotive contracts (which generate a
lower profit margin) over the manufacturing and tooling operations which, both
in aerospace and automotive activities, have historically given the Company
higher profit margins. In an effort to control costs and its attempt to restore
profitability, the Company, among other things, has:
. Terminated its operations at the Warwick plant, which were
focused upon manufacturing and tooling operations;
. Derived annualized cost savings of approximately $2 million
per year as a result of the reduction of unprofitable
operations (including Warwick) and other personnel and
operating costs.
However, despite these cost savings, the Company incurred a pre-tax
loss of approximately $3.7 million compared to a Fiscal 97 loss of approximately
$4.6 million, the Fiscal 98 loss being exacerbated by more than $1 million of
charges emanating from labor and compensation costs to personnel previously
involved in operations now closed.
The Company's fixed cost base has been reduced to approximately
$700,000 per month and the Company is reviewing additional options but believes
that it must concentrate on increasing revenues rather than attempting to
further reduce fixed costs, in order to maintain the Company's business
operations and capacity intact.
In the latter part of Fiscal 98, the Company also encountered a number
of extraordinary and/or unexpected circumstances which adversely affected its
operations. These were:
(i) the sale of Rolls Royce Motors, which resulted in a deferral
of a number of projected programs for which the Company had
reserved capacity;
(ii) the delay in the start of the EFA and Nimrod military
aerospace programs due to European political considerations;
and
(iii) the Far East economic problems caused major delays and
reductions in expected and on-going programs in which the
Company was interested.
Interest expense increased to $600,000 during Fiscal 98, reflecting the
high level of bank and other debt incurred during the period. The strength of
the U.S. Dollar has continued to adversely impact upon the Company's reported
operations, since the majority of the Company's revenues are Sterling
denominated.
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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; 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 our
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 2% in Fiscal 96, but management is confident margins can be
increased, with a goal of returning to Fiscal 96 margins during Fiscal '98.
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 o niche vehicle development and
aerospace composite tooling, which will hopefully lead to significant new
opportunities in Fiscal 98; some such opportunities are already 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
-14-
<PAGE>
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 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 personal 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 new contracts secured as a result of the new
facilities and a general improvement in the aerospace and automotive markets.
Liquidity and Capital Resources
Fiscal 98:
The Group has been meeting its day to day working capital requirements through
bank overdraft facilities which are repayable on demand. Continuation of the
facilities at their present level is unlikely.
The directors have considered the future working capital requirements of the
Group and have concluded that agreement will need to be reached with the Group's
bankers regarding continuing facilities and an injection of additional funds
will be required in the immediate future, if the Group is to continue to operate
as a going concern. Preliminary discussions are currently taking place with a
consortium of potential investors. No assurance can be given that either new
investor funds or continuing bank facilities will materialise.
In the event that the Group is unable to secure appropriate funding, or is
otherwise unable to trade, adjustments would have to be made to reduce the value
of assets to their recoverable amount, to provide for any further liabilities
that might arise and to reclassify fixed assets and long term liabilities as
current assets and liabilities.
-15-
<PAGE>
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 capital and loan repayments of $0.5 million,
share repurchases of $475,000 and Capital expenditure of $1. Million including
project tooling finance of $600,000 (which is recoverable over the length of the
project).
The Group currently has bank lines totalling approximately $2 million
in respect of working capital, and together with recovery 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 $162,254 is a result of the use of bank
facilities in the UK, compared to net interest income of $35,053 in Fiscal 96.
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 98 was received
in Pounds. To the extent that the Company's revenues will be generated in Pounds
and, for purposes of its reporting its financial position, its operating results
will be converted into US Dollars, a strengthening of the Pound in relation to
the US Dollar will have the effect of increasing its reported revenues and
profits, while a weakening of the Pound will have the opposite effect. Finally,
since the Company generally sets its prices and bids for contracts in Pounds, a
strengthening of the Pound, while increasing the value of its UK assets, might
place the Company at a pricing disadvantage in bidding for work from
manufacturers based overseas.
Effective Corporate Tax Rate
A company in the United Kingdom (UK) pays corporate income tax at a
single rate (currently 33%) on all its profits, whether income or capital gains
and whether distributed or undistributed. Corporate income tax is charged on
profits arising in a single full financial year. The variance in the Company's
effective tax rate is due to the non-deductibility for UK tax purposes of
certain expenses, primarily entertainment.
Where a UK-based company is liable for UK tax on income or gains from
overseas which have already been subjected to foreign tax (including withholding
tax), a credit is available against UK tax for the foreign tax so paid or
withheld. The credit is limited to the amount of the UK tax
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<PAGE>
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.
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.
Year 2000 Compliance
The Company has organized a special team of employees in its computer
technology section to examine year 2000 considerations. The preliminary report
of this group is that year 2000 issues will not be significant or material to
the operations of the Company since substantially all of the computer software
being utilized is upgradable to easily eliminate any timing issues and the cost
of upgrads is covered by existing contracts with the respective software
vendors. The computer hardware equipment is generally free of any year 2000
issues except for a server operating on Novell software, which is easily
upgradable. Much of the Company's computer originated data relates to CAD and
CAM technology which is not time sensitive and, accordingly, is not subject to
year 2000 considerations. Moreover, the Company does not believe that any issues
that customers or suppliers may encounter with their own year 2000 consideration
will be relevant to the Company's operations or to its interaction with such
persons or firms since, once again, the Company's basic computer information
interchange relates to CAD and/or CAM material.
Common Market
The effect on the Company of the European Common Market, and the
unified European Currency which is presently anticipated to be effected among
the German Republic, France and other European entities (but not the UK) cannot
now be predicted. However, this is being reviewed by management on an ongoing
basis.
-17-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by this Item are set forth at the
pages indicated in Item 13 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 47 Chairman of the Board of Directors,
President,
Chief Executive Officer and a director
Robert A. Righton 35 Chief Financial Officer, Secretary and
a director
Peter D. Horbury 48 Director
Theodore Sall, Ph.D. 70 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.
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
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<PAGE>
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.
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:
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.
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 4 years was Chairman
of the Ultra Hydraulics Group - a position he was invited to fill at the request
of the Venture Capital Investors. He is also currently a Director of the Morgan
Motor Company Ltd.
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<PAGE>
PAUL GRINDLEY-- Mr. Grindley is General Manager of MGA Technology Ltd. ("MGAT").
Mr. Grindley holds a Bachelors Degree from Liverpool University. He joined MGAT
in March 1998. Prior to this he was European Commercial Director of the U.S.
publicly traded Kroll O'Gara company having previously been director of Sales
and Marketing for Pilkington Aerospace Limited, the aerospace subsidiary of
Pilkington PLC (the UK based Multi-National). Previous employers have also
included Price Waterhouse Coopers. These roles have given Mr. Grindley
experience in both the aerospace and automotive sectors, MGAT's prime target
market sectors.
COLIN MASON--Mr. Mason, since 1992, has been acting as a Director and General
Manager of the Company's MGAR subsidiary, engaged in personnel placement. Prior
thereto, for approximately 5 years, Mr. Mason was employed by RDS (Automotive)
Ltd., in connection with cost reduction efforts and design improvements and
engineering matters relating to the Land Rover vehicle, as well as studies of
concept and feasibility involving Jaguar Sport and other 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--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, 1998, based upon an examination of
the public filings, all of the Company's officers and directors timely filed
reports on Forms 3 and 4.
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<PAGE>
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 1998, 1997, and 1996 for (i)
John R. Davidson, who is and was the Chief Executive Officer at the end of those
fiscal years and (ii) Robert Righton who is and was Chief Financial Officer at
the end of those Fiscal years. No other executive officer of the Company
received salary and bonus compensation which exceeded $100,000 in those fiscal
years.
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
<TABLE>
<CAPTION>
Name and Other Annual
Principal Position Year Salary ($) Compensation ($)
- ------------------ ---- ---------- ----------------
<S> <C> <C> <C>
John R. Davidson............................ 1998 202,544 78,695(4)
Chief Executive Officer 1997 202,665 68,415(2)
1996 180,210 55,082(3)
Robert Righton.............................. 1998 79,820(8) 26,606(7)
Chief Financial Officer 1997 114,187 26,278(5)
1996 110,138 23,805(6)
</TABLE>
- -----------------------------------------------------
(1) Calculated at an exchange rate of $1.65 per Pound for Fiscal 1998, $1.64
per Pound for Fiscal 97, and $1.52 per Pound for Fiscal 96.
(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, $34,462 was a pension contribution and $40,503 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, $7,983 was a pension contribution and $15,817 was for
provision of a Company car.
(8) Represents pro-rata payment of annual salary due since parties have agreed
that Mr. Righton may work on a less than full-time basis.
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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.
JOHN R. DAVIDSON--EMPLOYMENT AGREEMENT
Effective June 1, 1998, Mr. Davidson is employed at an annual
compensation rate of $202,544 per annum, plus a 17% pension contribution, car
allowance and other items. 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 $114,000 per annum plus a
pension contribution of 10%, and a car allowance and other
benefits.
(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.
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)
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<PAGE>
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 417,500 shares are
outstanding. The Plan also provides for the issuance of stock appreciation
rights in connection with the granting of stock options. Option prices may not
be less than 100% of the fair market value of the Class A Common Stock on the
date of grant and unexercised options expire not more than ten years from date
of grant. The Plan is administered by a Stock Option Committee ("Committee") of
the Board of Directors. Stock options are granted to management and others based
upon a variety of criteria including the position held by such executive,
employee or other person, the responsibilities with which such person is
charged, the person's length of service with the Company, and the necessity and
desirability to the Company of rendering an incentive to such person to continue
his relationship with the Company and to enthusiastically foster the Company's
best interests. Subject to the guidelines of the Plan, the Committee determines
to whom options will be granted, the type of options to be granted, the number
of shares, the option price per share, and the time when the options may be
exercised.
Both incentive stock options and nonstatutory stock options may be
granted under the Plan to eligible participants, at a price to be determined by
the option committee, provided, however, that incentive stock options must be
granted at an exercise price not less than the fair market value of the shares
on the date of the grant. Such exercise price may be payable in cash or, with
the approval of the Committee, by a combination of cash and/or shares. Shares
received upon exercise of options granted under the Plan will be subject to
certain restrictions on sale or transfer. The term of any option may not exceed
ten years from the date of grant. Conditions for the exercise of options, which
must be consistent with the terms of the Plan, are fixed by the Committee. All
options heretofore granted under the Plan to officers, employees or directors
are for a term of five years, are not exercisable until after the first
anniversary of the date of grant, and are thereafter exercisable.
The Plan provides that in the event of the death of the optionee, the
option may be exercised, to the extent that the holder shall have been entitled
to do so at the date of death, by the optionee's executors or administrators, or
by any person who acquired the right to exercise such option by bequest or
inheritance or by reason of the death of the optionee, at any time, or from time
to time, within one year after the date of the optionee's death, but not later
than the 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.
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<PAGE>
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.
There were no stock option grants to the named executive officers
during Fiscal 98, and since June 1, 1998, respectively.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table of stock ownership and notes thereto relate as of
September 1, 1998 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.
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<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1)(2) of Class
- ------------------- --------------- --------
<S> <C> <C>
John R. Davidson(3) 478,822(4) 16.7%
Robert A. Righton(3) 129,363(4) 4.7%
Peter D. Horbury(3) 5,000(4) *
Theodore Sall, Ph.D.(3) 5,000(4) *
All directors and executive officers
as a group (4 Persons) 618,185(4) 20.9%
</TABLE>
- ---------------------------------------------------
(1) Based on a total of 2,287,000 shares of Class A Common Stock issued and
outstanding and options under the Company's stock option plan to acquire
290,000 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 290,000 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. Horbury and
Sall.
* Less than 1%
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
N/A
ITEM 13. EXHIBITS 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, 1998 and 1997 Consolidated
Statements of Income--Years ended May 31, 1998 and 1997 Consolidated
Statements of Stockholders' Equity--Years ended May 31, 1998 and 1997
Consolidated Statements of Cash Flows--Years ended May 31, 1998 and 1997
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:
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<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.
10.11 Consultancy Agreement with M.H. Meyerson & Co. Inc.
10.12 Consultancy Agreement with William Camplisson.
(b) Reports on Form 8-K:
The only reports on Form 8-K filed during the quarter ended May 31,
1998 were an 8-K and 8-K/A dated as of April 13, 1998.
-28-
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 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 6
Notes to the consolidated financial statements 6
1
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 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, 1998 and 1997 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, 1998 and 1997, 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.
The accompanying consolidated financial statements have been prepared assuming
that the Group will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Group has suffered recurring losses
from operations and that raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG
KPMG 14 September 1998
Chartered Accountants
Registered Auditors
Birmingham
England
2
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Consolidated statements of income
Years ended May 31, 1998 and 1997
1998 1997
Net sales $25,127,804 $25,952,371
Cost of goods sold (22,636,747) (26,119,469)
------ -----
Gross profit/(loss) 2,491,057 (167,098)
Selling, general and administrative expenses (5,619,248) (4,298,533)
------ -----
(3,128,191) (4,465,631)
------ -----
Other income/(deduction):
Investment income 23,191 80,321
Interest expense (614,735) (247,575)
------ -----
(591,544) (167,254)
------ -----
Loss before income taxes (3,719,735) (4,632,885)
Income taxes (note 8) (2,783) 1,420,000
------ -----
Net loss $(3,722,518) $(3,212,885)
====== =====
Basic and diluted net loss per ordinary share (1.63) (1.47)
====== =====
Weighted average number of ordinary shares
outstanding used in computing basic
and diluted net loss per share 2,285,181 2,183,356
====== =====
See accompanying notes to consolidated financial statements.
3
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Consolidated balance sheets
May 31, 1998 and 1997
1998 1997
Assets
Current assets:
Cash and cash equivalents (note 1) $3,065 $545,515
Contract billings receivable, less allowance for
doubtful accounts of $176,040
(1997: $48,196) 2,626,267 4,289,450
Inventories (note 6) 704,918 562,401
Pre-paid expenses 171,304 361,408
Other receivables 42,993 28,503
Income taxes receivable 31,000 346,448
------ -----
Total current assets 3,579,547 6,133,725
------ -----
Investment 1,708 1,721
Property, plant and machinery (note 13):
Freehold property 326,465 328,218
Leasehold property 535,945 538,822
Plant and machinery 10,558,872 9,392,186
Less accumulated depreciation and amortisation (6,482,240) (5,881,455)
------ -----
Net property, plant and machinery 4,939,042 4,377,771
------ -----
Goodwill, less accumulated amortisation 46,555 74,488
Deferred tax asset (note 8) 65,498 205,501
------ -----
Total $8,632,350 $10,793,206
====== =====
See accompanying notes to consolidated financial statements.
4
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Consolidated balance sheets
May 31, 1998 and 1997
(continued)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $1,846,708 $350,606
Current instalments of obligations under bank loan (note 10) 19,361 19,465
Current instalments of obligations under capital leases (note 7) 845,209 648,353
Current instalment of obligations under loan 199,988 147,656
Billings in excess of costs and estimated earnings on uncompleted contracts
(note 6) - 510,072
Trade accounts payable 1,710,078 3,229,899
Accrued expenses 3,109,355 3,007,975
Promissory notes (note 1) - 214,000
------ ------
Total current liabilities 7,730,699 8,128,026
Obligation under bank loan excluding current instalments (note 10) 213,603 228,981
Obligation under capital leases excluding current instalments (note 7) 364,135 468,833
------ ------
Total liabilities 8,308,437 8,825,840
====== ======
Stockholders' equity
Class "A" common stock, $0.001 par value
Authorised 9,000,000: Issued 2,642,859 shares in 1998 and 2,250,000 shares in
1997 2,643 2,250
Class "A" Convertible Preferred Stock $0.001 par value
Authorised 1,000,000 issued 800 shares in 1998 1 -
Additional paid-in capital 6,242,375 4,229,765
Currency translation adjustment 237,283 171,222
Accumulated deficit (5,683,389) (1,960,871)
Treasury stock: 75,000 common shares at cost (475,000) (475,000)
------ ------
Total stockholders' equity 323,913 1,967,366
====== ======
Total $8,632,350 $10,793,206
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Consolidated statements of cash flows
Years ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net cash used in operating activities (note 11) $(2,717,998) $(2,212,879)
------- -------
Cash flows from investing activities
Capital expenditure (1,122,884) (1,517,144)
Purchase of subsidiary (net of cash acquired) - 185,450
Investment - (80)
------- -------
Net cash used in investing activities (1,122,884) (1,331,774)
------- -------
Cash flows from financing activities
Repayment of borrowings (14,407) (30,031)
Principal payments under capital lease obligations (79,517) (422,376)
Proceeds from issuance of ordinary stock 1,213,004 -
Proceeds from issuance of preference shares 800,000 -
Receipt of loan 54,065 144,296
Payments to redeem stock - (475,000)
Dividends paid - (89,234)
Bank overdraft 1,523,890 342,850
Repayment of promissory note (214,000) -
------- -------
Net cash provided/(used in) by financing activities 3,283,035 (529,495)
------- -------
Net decrease in cash and cash equivalents (557,847) (4,074,148)
Cash and cash equivalents at beginning of year 545,515 4,432,278
Exchange gain 15,397 187,384
------- -------
Cash and cash equivalents at end of year $3,065 $545,515
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Interest paid for the years ended May 31, 1998 and May 31, 1997 was $556,916 and
$247,575 respectively. The group received income tax of $486,000 during the year
to May 31, 1998 and paid income tax of $520,530 during the year to May 31, 1997
respectively.
6
<PAGE>
Consolidated statements of stockholders' equity
years ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Convertible Additional Currency Accumulated Treasury Total
stock preferred paid-in translation deficit stock stockholders'
stock capital adjustment equity
<S> <C> <C> <C> <C> <C> <C> <C>
$
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, $2,250 - $4,229,765 $171,222 $(1,960,871) ($475,000) $1,967,366
1997 ------ ------ ---------- -------- ------------ ---------- ----------
Net loss - - - - $(3,722,518) - $(3,722,518)
Issue of share 393 1 2,012,610 - - - 2,013,004
capital
Exchange difference - - - 66,061 - - 66,061
------ ------ ---------- -------- ------------ ---------- --------
Balance at May 31, $2,643 $1 $6,242,375 $237,283 $(5,683,389) $(475,000) $323,913
1998 ====== ====== ========== ======== ============ ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Notes to the consolidated financial statements
(forming part of the consolidated financial statements)
1 Summary of significant accounting policies
(a) Basis of presentation
For the year to 31 May 1998, the group's cashflow was insufficient to
cover its working capital requirements. The principal reason for the
net cash outflow was the runout of the significant loss making
contracts, which had commenced in prior financial years, costs incurred
in respect of the closure of the sheet metal division, including the
termination of a lease on the premises at Warwick and redundancy costs
for a number of employees previously employed at this division, and,
the generally poor market conditions in the United Kingdom. Whilst the
volume of business has been similar to last year, the margin of the
contracts has been significantly lower than previously experienced.
This in turn has resulted in a contribution, which as shown from the
results for the year, was not sufficient to cover the reduced level of
fixed costs of the business. As a result of the working capital
deficit, the continuing losses and insufficient cashflow, the ability
of the group to continue as a going concern is in doubt.
The financial statements are prepared on a going concern basis which
the directors believe to be appropriate for the following reasons:
The group has been meeting its day to day working capital requirements
through bank overdraft facilities which are repayable on demand.
Continuation of the facilities at their present level is unlikely.
The directors have considered the future working capital requirements
of the Group and have concluded that agreement will need to be reached
with the Group's bankers regarding continuing facilities and an
injection of additional funds will be required in the immediate future,
if the Group is to continue to operate as a going concern. Preliminary
discussions are currently taking place with a consortium of potential
investors. No assurance can be given that either new investor funds or
continuing bank facilties will materialise.
In the event that the Group is unable to secure appropriate funding, or
is otherwise unable to trade, adjustments would have to be made to
reduce the value of assets to their recoverable amount, to provide for
any further liabilities that might arise and to reclassify fixed assets
and long term liabilities as current assets and liabilities.
(b) 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.
8
<PAGE>
CAM Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
1 Summary of significant accounting policies (continued)
CAM Designs Limited (formerly MGA Holdings Limited) and its
subsidiaries operates three 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.
(c) Basis of consolidation
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.
(d) Foreign currency translation
All assets and liabilities of operations outside the United States are
translated into US 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.
(e) 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.
(f) 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.
(g) Property, plant and machinery
Property, plant and machinery are stated at cost. Plant and machinery
held under capital leases is stated at the equivalent of the present
value of minimum lease payments.
Depreciation on property, plant and machinery is calculated on the
straight line method over the estimated useful lives of the assets.
Plant and machinery held under capital leases and leasehold property
are amortised straight line over the shorter of the lease term or
estimated useful life of the asset.
(h) 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.
(i) 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.
9
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
1 Summary of significant accounting policies (continued)
(j) Pension
The group has a defined contribution pension scheme. Total group
contributions to the scheme during the year ended May 31, 1998 were
$330,333 (1997: $512.877).
(k) Cash and cash equivalents
All highly liquid debt instruments with original maturities of three
months or less are considered to be cash equivalents.
(l) Loss per share
Loss 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>
1998 1997
<S> <C> <C>
Weighted average shares of common stock outstanding during the year 2,285,181 2,183,356
========= ==========
</TABLE>
The company has adopted the provisions of SFAS No 128 "Earnings per
Share" for the financial year ended 31 May 1998. As at 31 May 1998
the company has outstanding options and warrants of 417,500 and
1,395,500 respectively, which have not been included in the loss per
share computation.
(m) 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.
(n) Impact of new accounting standards adopted
SFAS No 130 "Reporting Comprehensive Income" was issued in June 1997
and is effective for fiscal years beginning after 15 December 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. It requires that all items that
are required to be recognised under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. It requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. The Company is currently reviewing the likely impact on the
classification of items included in stockholders' equity.
SFAS No 131 "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997 and is effective for fiscal
years beginning after December 15 1997. In the initial year of
application comparative information for earlier years is to be
restated. It requires that companies disclose segment data based on
how management makes decisions about allocating resources to segments
and measuring their performance. It also requires entity-wide
disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and
its major customers. The Company is currently reviewing the likely
impact on the level of disclosure currently provided in its financial
statements.
In June 1998, the Financial Accounting Standards Board issued
Statement No 133 Accounting for Derivative Instruments and Hedging
Activities ("SFAS No 133"). SFAS No 133 establishes accounting and
reporting standards for derivative instruments and hedging activities
and is effective for the Company for the three months ending 31
August 2000. The company currently has no derivative instruments or
hedging activities.
10
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
1 Summary of significant accounting policies (continued)
During January 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 98-1 Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use
("SOP 98-1"). SOP 98-1 becomes effective for all fiscal years
beginning after December 15 1998. The Company does not expect the
adoption of SOP 98-1 to have a material impact on Company's financial
statements.
The AICPA issued Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities ("SOP 98-5") in April 1998 and is effective
for fiscal periods beginning after December 15 1998. SOP 98-5
provides guidance on the financial reporting of start-up costs and
organisation costs. It requires cost of start-up activities and
organisation costs to be expensed as incurred. The Company is
evaluating the effect of the pronouncement, however does not expect
the statement to have a material effect on the Financial Statements.
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:
<TABLE>
<CAPTION>
<S> <C>
Cash $347,031
Plant and equipment 5,225
Goodwill 83,799
Net current liabilities (74,474)
Long term loan (200,000)
---------
$161,581
=========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
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, 1998 of $Nil
(1997: $36,456)..
11
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 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, 67% in 1998 and (70%
in 1997) has been derived from customers serving the automotive
industry, the largest customer being 17.5% (1997: 29.7%) of net sales
in 1998.
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 four major customers in automotive and aerospace
industries accounting for approximately 49 per cent of Company
revenue. In 1998, the major customers accounted for 17.5 per cent,
11.2 per cent, 10.5 per cent and 10 per cent of Company revenue
respectively. No other customer accounted for 10 percent or more of
Company revenue in 1998.
In 1997 the Company had two major customers in automotive and
aerospace industries accounting for approximately 43 percent of
Company revenue. 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.
As shown by the results set out on page 3, the Company suffered a
substantial trading loss in 1997. 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.
12
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
5 Industry segment information
Principal financial data by industry segment is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net sales
Automotive industry 16,767,064 18,041,602
Aerospace industry 2,426,040 2,588,356
Placement of personnel 5,934,700 5,322,413
----------- -----------
Total revenues $25,127,804 $25,952,371
=========== ===========
Operating (loss)/profit
Automotive industry (2,903,229) (4,464,666)
Aerospace industry (400,775) (640,528)
Placement of personnel 175,813 639,563
----------- -----------
Operating loss (3,128,191) (4,465,631)
Corporate expense (591,544) (167,254)
----------- -----------
Loss before tax $(3,719,735) $(4,632,885)
============ ===========
Identifiable assets at May 31
Automotive industry 5,760,123 7,503,234
Aerospace industry 833,436 1,076,458
Placement of personnel 2,038,791 2,213,514
----------- -----------
Consolidated assets $8,632,350 $10,793,206
========== ===========
The analysis of turnover by geographical area is as follows:
By geographical area:
United Kingdom 22,698,028 23,387,152
Rest of Europe 841,699 780,525
United States of America 1,036,558 798,883
Far East and Australia 551,519 985,811
----------- -----------
$25,127,804 $25,952,371
=========== ===========
</TABLE>
13
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
6 Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cost and estimated earnings in excess of billings on uncompleted contracts (see 539,517 425,134
below)
Raw materials and consumables 165,401 137,267
------- -------
$704,918 $562,401
======== ========
Uncompleted contracts comprise:
Costs incurred on uncompleted contracts 2,287,373 23,184,206
Estimated earnings 346,896 1,891,040
------- ----------
2,634,269 25,075,246
Less: billings to date (2,094,752) (25,360,184)
----------- -----------
$539,517 $(284,938)
======== =========
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts
(included in inventories) 539,517 425,134
Billings in excess of costs and estimated earnings on uncompleted contracts - (510,072)
Provision for contract losses included in accrued expenses - (200,000)
-------- ---------
$539,517 $(284,938)
======== =========
</TABLE>
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, 1998, the gross amount of plant and machinery and
related accumulated amortisation recorded under capital leases were
as follows:
<TABLE>
<CAPTION>
1998
<S> <C>
Plant and machinery 2,474,739
Less: Accumulated amortisation (684,960)
---------
1,789,779
=========
</TABLE>
Amortisation of assets held under capital leases is included with
depreciation expenses.
14
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
7 Leases (continued)
Future minimum lease payments under capital leases as of May 31, 1998
are:
<TABLE>
<CAPTION>
1998
<S> <C>
Year ending May 31
1999 845,209
2000 364,135
---- -------
Total minimum lease payments 1,209,344
Less: Current instalments of obligations under capital leases (845,209)
--------
Obligations under capital leases excluding current instalments $364,135
========
</TABLE>
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, 1998 were $419,528 (1997: $462,317).
Future minimum lease payments under non-cancellable operating leases
at May 31, 1998 are:
<TABLE>
<CAPTION>
Buildings
<S> <C>
Year ending May 31
1999 340,067
2000 291,167
2001 291,167
2002 291,167
Later years through to 2015 2,466,542
---------
Total minimum lease payments $3,680,110
==========
</TABLE>
8 Income taxes
Income tax income/(expense) attributable to income consists of:
<TABLE>
<CAPTION>
Current Deferred Total
$ $ $
<S> <C> <C> <C>
Year ended May 31, 1998 137,220 (140,003) (2,783)
Year ended May 31, 1997 1,202,682 217,318 1,420,000
========= ======= =========
</TABLE>
15
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
8 Income taxes (continued)
Income tax expense/(income) attributable to loss was $(2,783) and
$1,420,000 for the years ended May 31, 1998 and 1997 respectively and
differed from the amounts computed by applying the statutory United
Kingdom rate of 31% to pre-tax (loss)/income as a result of the
following:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Corporate tax at United Kingdom statutory rate 1,174,926 1,513,563
Non-deductible expenses (46,500) (56,771)
Non-deductible expenses in respect of prior years - (36,792)
Taxable losses not recorded (1,131,209) -
---------- ---------
(2,783) 1,420,000
====== =========
Provision for income taxes
Effective rate 0% 30.7%
====== =========
</TABLE>
The tax effects of temporary differences that gave rise to
significant portions of the deferred tax asset at May 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Deferred tax assets relating to:
Short term timing differences - 170,184
Taxable losses available net of liabilities for future profits 1,196,707 35,317
Valuation allowance (1,131,209) -
---------- -------
65,498 205,501
====== =======
</TABLE>
9 Bank overdraft
The group has an overdraft facility available from the National
Westminster Bank of (pound)1,050,000. 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;
In addition, the group has an overdraft facility available from DG
Bank Deutsche Genossenschaftsbank of (pound)250,000 and a further
$250,000 credit line with Michigan National Bank. 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..
The facility with DG Bank Deutsche Genossenschaftsbank is secured by
a composite guarantee between certain group companies.
16
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
10 Long term debt
<TABLE>
<CAPTION>
Long term debt consisted of the following:
1998 1997
<S> <C> <C>
Loan (secured) 232,964 248,446
Less: Current instalment (19,361) (19,465)
------- -------
$213,603 $228,981
======== ========
</TABLE>
The bank loan is secured on the freehold property with a net book
value of $326,465 at May 31 1998 (1997: $328,218).
Interest is payable on this loan at a rate of 2 1/2% above the UK
base bank lending rate.
The loan is repayable by annual instalment through to the year 2015.
11 Reconciliation of net loss to net cash used in operating activities
The reconciliation of net loss to net cash used in operating
activities for the years ended May 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net loss $(3,722,518) $(3,212,885)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 666,864 861,549
Changes in current assets and liabilities
Allowance for doubtful debts 130,381 39,117
Trade accounts receivable 1,538,037 1,013,957
Inventories (148,109) (172,466)
Pre-paid expenses 190,841 (58,646)
Other receivables (14,676) 236,427
Tax recoverable 371,287 (361,161)
Billings in excess of cost (516,375) 116,523
Trade accounts payable (1,526,926) 378,268
Accrued expenses 162,730 476,000
Income taxes payable - (1,314,084)
Deferred income taxes 150,466 (215,478)
----------- -----------
$(2,717,998) $(2,212,879)
=========== ===========
</TABLE>
12 Non-cash financing and investing activities
Capital lease obligations of $176,252 were incurred in 1998 (1997:
$225,590) when the Company entered into leases for new machinery and
equipment.
17
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
<TABLE>
<CAPTION>
13 Fixed assets
Freehold Leasehold Plant and Total
property property machinery
$ $ $ $
<S> <C> <C> <C> <C>
Cost
At beginning of year 328,218 538,822 9,392,186 10,259,226
Additions - - 1,254,486 1,254,486
Disposals - - (37,853) (37,853)
Exchange adjustment (1,753) (2,877) (49,947) (54,577)
------ ------ ------- -------
At end of year 326,465 535,945 10,558,872 11,421,282
======= ======= ========== ==========
Depreciation
At beginning of year - 374,641 5,506,814 5,881,455
Charge in year - 34,230 632,634 666,864
Disposals - - (35,034) (35,034)
Exchange adjustment - (2,000) (29,045) (31,045)
------ ------ ------- -------
At end of year - 406,871 6,075,369 6,482,240
======= ======= ========== ==========
Net book value
At May 31, 1998 326,465 129,074 4,483,503 4,939,042
======= ======= ========== ==========
At May 31, 1997 328,218 164,181 3,885,372 4,377,771
======= ======= ========== ==========
</TABLE>
Depreciation for the year ended May 31, 1998 was $666,864 (1997: $881,010).
14 Goodwill
<TABLE>
<CAPTION>
$
<S> <C>
Cost
At beginning and end of year 83,799
======
Amortisation
At beginning of year 9,311
Additions 27,933
------
End of year 37,244
------
Net book value 46,555
======
</TABLE>
18
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
15 Stock
The Company has two categories of authorised stock as follows:
<TABLE>
<CAPTION>
Authorised
1998 1997
<S> <C> <C>
Class `A' Common stock 9,000,000 9,000,000
Preferred stock 1,000,000 1,000,000
</TABLE>
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.
During the year, the Company issued 392,859 Class `A' common stock
for a net consideration of $1,213,004. The consideration is shown net
of expenses of $298,000.
During the year, the Company issued 800 shares of the Company's
Series A Convertible Preferred Stock, par value $0.001 per share, for
a total consideration of $800,000.
Each share of the Series A Convertible Preferred Stock is convertible
into shares of Common Stock based on the following formula:
The issue price of $1,000 of each Preferred Stock (as such value is
increased by an annual premium of 7%) is divided by the then current
conversion price of the Series A Common Stock. The current conversion
price is determined, generally, by reference to 80 per cent of the
average of the two lowest sales prices of the Common Stock during the
thirty consecutive trading days immediately preceding the date of
determination. Based on a conversion price of $2.75 per share, the
800 shares issued of Convertible Preferred Stock would be convertible
into approximately 704,000 shares of Common Stock at maturity.
In addition, an additional 250,000 shares of Common Stock are
issuable under the terms of the Certificate of Description in the
event of certain failures of the Company to comply with various
provisions. The Company has reserved 954,000 shares of Common Stock
following the issuance of the 800 shares of Convertible Preferred
Stock.
No dividends are payable on the Series A Preferred Stock, and the
holders of the Series A Preferred Stock shall have no voting rights.
All shares of the Series A Preferred Stock shall rank prior to the
Common Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or
involuntary.
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.
19
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
15 Stock (continued)
The company has the following warrants all of which are hold over the
Common Shares of the Company, outstanding as at May 31 1998:
Number of warrants Price at which warrants are exercisable
500,000 $3.50
150,000 $4.00
100,000 $6.00
587,500 $8.00
56,000 110% of market price
---------
1,393,500
========
All of the above warrants are exercisable from their immediate date
of issue for an indefinite period.
16 Fixed stock option plan
As at May 31, 1998 there are options outstanding to officers,
directors, and employees covering 418,000 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. 30,000 options have an exercise price of $4,
320,000 options have an exercise price of $5.00, 10,000 options have
an exercise price of $7.00, 7,500 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 1998 and 31 May 1997 and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1998 1998 1997 1997
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 $5.67 420 $5.67
Lapsed (2) $7.50 - -
-- -----
Outstanding at end of year 418 $5.56 420 $5.67
=== ===== === =====
Options exercisable at year end 418 420
=== ===
</TABLE>
20
<PAGE>
Cam Designs Inc and subsidiaries
Consolidated financial statements
May 31, 1998 and 1997 with Independent Auditors' report thereon
Notes (continued)
16 Fixed stock option plan (continued)
The following table summarises information about fixed stock options
outstanding at 31 May 1998.
<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
1998 price 1998 price
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
$4 30 $4.00 30 $4.00
$5 320 $5.00 320 $5.00
$7 10 $7.00 10 $7.00
$7.50 8 $7.50 8 $7.50
$9 50 $9.50 50 $9.50
-- --
418 418
=== ===
</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.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CAM DESIGNS INC.
By: /s/ John R. Davidson
------------------------------------------
John R. Davidson
Chairman of the Board, President
and Chief Executive Officer
Date: September 14, 1998
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/ John R. Davidson Chairman of the Board, President and Chief September 14, 1998
- ---------------------------------------------- Executive Officer (Principal Executive Officer)
John R. Davidson
/s/ Robert A. Righton Chief Financial Officer, Secretary and Director September 14, 1998
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert A. Righton
/s/ Peter D. Horbury Director September 14, 1998
- ----------------------------------------------
Peter D. Horbury
/s/ Theodore Sall Director September 14, 1998
- ----------------------------------------------
Theodore Sall, Ph.D
</TABLE>
<PAGE>
EXHIBIT 11
CAM DESIGNS INC.
EPS CALCULATIONS FOR PERIOD June 1, 1997 TO MAY 31, 1998
- --------------------------------------------------------------------
Basic ($1.63)
Diluted ($1.63)
=
EPS CALCULATIONS FOR THE PERIOD June 1, 1996 TO MAY 31, 1997
- -------------------------------------------------------------------
Basic ($1.47)
Diluted ($1.47)
=
<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-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 3,065
<SECURITIES> 0
<RECEIVABLES> 2,802,307
<ALLOWANCES> 176,040
<INVENTORY> 704,918
<CURRENT-ASSETS> 3,579,547
<PP&E> 11,421,282
<DEPRECIATION> 6,482,240
<TOTAL-ASSETS> 8,632,350
<CURRENT-LIABILITIES> 7,730,699
<BONDS> 0
<COMMON> 2,643
0
1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 323,913
<SALES> 25,127,804
<TOTAL-REVENUES> 25,127,804
<CGS> 22,636,747
<TOTAL-COSTS> 22,636,747
<OTHER-EXPENSES> 5,619,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614,735
<INCOME-PRETAX> (3,719,735)
<INCOME-TAX> (2,783)
<INCOME-CONTINUING> (3,719,735)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,719,735)
<EPS-PRIMARY> ($1.63)
<EPS-DILUTED> ($1.63)
</TABLE>
