-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ep0B/wgMzqFzLnKgmChwiKPPf3SiADY78RIySTadm1oaVGiwstD9RFmRNw3oe1oi Ds0ztEwFWpkB0X4g29vGoA== 0000928385-96-000649.txt : 19960529 0000928385-96-000649.hdr.sgml : 19960529 ACCESSION NUMBER: 0000928385-96-000649 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960528 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BCT INTERNATIONAL INC / CENTRAL INDEX KEY: 0000351541 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 222358849 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10823 FILM NUMBER: 96572862 BUSINESS ADDRESS: STREET 1: 3000 NE 30TH PL 5TH FL CITY: FT LAUDERDALE STATE: FL ZIP: 33306 BUSINESS PHONE: 3055631224 MAIL ADDRESS: STREET 1: 3000 NE 30TH PL STREET 2: 5TH FL CITY: FORT LAUDERDALE STATE: FL ZIP: 33306 FORMER COMPANY: FORMER CONFORMED NAME: BUSINESS CARDS TOMORROW INC DATE OF NAME CHANGE: 19881017 FORMER COMPANY: FORMER CONFORMED NAME: GOOD TACO CORP DATE OF NAME CHANGE: 19860318 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 29, 1996 Commission file no. 0-10823 ----------------- ------- BCT INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-2358849 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation of organization) 3000 NE 30th Place, Fifth Floor, Fort Lauderdale, Florida 33306 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (305) 563-1224 -------------- Securities registered pursuant to Section 12 (b) of the Act: NONE ---- Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, par value $.04 per share -------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 [_]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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. [_] The aggregate market value of Registrant's voting stock held by non- affiliates of Registrant, at May 17, 1996 was approximately $10,546,213. The number of shares outstanding of Registrant's Common Stock, par value $.04 per share, at May 17, 1996 was 4,975,385. DOCUMENTS INCORPORATED BY REFERENCE NONE ---- This document consists of 51 pages. The Index to exhibits appears on page 25. Item 1. Business - ------- -------- (a) General BCT International, Inc. (the "Company") is a holding company with one direct wholly-owned subsidiary: Business Cards Tomorrow, Inc., a Florida corporation ("BCT"). BCT operates the Business Cards Tomorrow system, the world's largest wholesale printing chain. Since its founding in 1975, the system has grown to include 100 "Business Cards Tomorrow Plants" (the "Plants") specializing in trade thermography production in 38 states and Canada. Four of the Plants -- located in Delray Beach, Florida; Newbury Park, California; Riverside, California; and Marietta, Georgia -- are indirectly owned by BCT through wholly-owned subsidiaries. An indirect subsidiary of BCT owns 70% of the Louisville, Kentucky, Plant and the remaining 30% is owned by third parties. BCT's operations also include the Pelican Paper Products Division ("PPP") which supplies paper products to the BCT Plants. The Company operates in a single industry segment: the franchising, ownership and operation of and sale of paper products to trade thermography production facilities, i.e., the BCT Plants. (b) Narrative description of the business Business Cards Tomorrow, Inc. - ----------------------------- General ------- The Plants typically operate through the placement of business card and stationery catalogs with commercial and retail "quick" printers, office superstores, forms brokers, office supply companies and stationers in the Plants' trade areas (collectively, "Dealers"). These catalogs are utilized by the Dealers to secure orders from their customers for thermographed printed products. Such orders are normally picked up daily by the Plants' route drivers, who also deliver products previously ordered. The Plants specialize in the "fast turnaround" of their products, delivering some items, such as business cards printed in black ink, in one business day, with most products being delivered within one week of the date of order. While most Plants receive at least some orders by mail and fax, this normally does not constitute a major portion of a Plant's business. Thermography is a specialized printing process that gives a raised printing effect similar to engraving and requires specialized equipment and operating techniques. Most commercial and "quick" printers and office superstores and other Dealers choose not to invest in this specialized equipment, preferring to subcontract this type of work to wholesale "trade" printing companies such as Business Cards Tomorrow Plants that specialize in thermography. BCT supplies business card, stationery, rubber stamp and wedding invitation and social stationery catalogs to its Plants and also sells them the paper products featured in the catalogs through PPP. PPP is a supplier of paper products for the BCT Plants. PPP purchases raw paper directly from paper mills and paper brokers and utilizes the services of converters to convert the raw material to finished paper products. In November 1995, PPP purchased conversion equipment and began to perform certain conversion functions "in house". PPP utilizes three public storage facilities located strategically throughout the United States to house and ship out paper products to the Plants. BCT markets its franchise operations to potential franchisees through major business newspapers as well as printing trade publications. The development of a specific market is determined by a number of different criteria, including resources available, customer base and operating efficiencies. In order for BCT to penetrate franchise markets, it has assembled an experienced staff, certain members of which have expertise in franchise development. BCT has developed the BCT network primarily through the sale of franchises to third parties. BCT indirectly owns and operates five Plants listed in Item 1(a) above (the "Company Plants"). BCT Plants are located throughout the Continental U.S., Hawaii and Canada. As demographics change and develop, the potential for new markets may expand. As of May 1996, BCT has identified approximately 20 franchise markets available for sale. Page 1 During the second quarter of fiscal 1996, BCT began offering for sale to existing franchisees additional exclusive territories, known as "Facilities", which do not require the opening of a Plant. The franchisee purchasing a Facility is required to open a sales office in the territory and send all work orders to the franchisee's Plant located in a neighboring territory. Once the Facility's territory develops demographically to support approximately 500 Dealers, BCT has the right to require the franchisee to open a Plant in the territory. BCT is offering the Facilities at a price of $35,000 each. As of May 1, 1996, one Facility has been sold (in August 1995). As of May 1, 1996, BCT has identified approximately 10 Facilities available for sale. Additionally, BCT may from time to time sell to existing franchisees additional territories which are not expected to become able to support a Plant, (each a "Territory"). The price of a Territory is currently set at $35,000. As of May 1, 1996, two Territories have been sold in Colorado and Massachusetts. BCT derives revenues from six principal sources: (i) royalties, which are based on a percentage of sales from the BCT Plants; (ii) franchise fees from newly franchised Plants and resale fees from the resale of operating Plants; (iii) sales of paper products to franchisees; (iv) catalog and miscellaneous equipment and parts sales classified as printing sales; (v) gross revenue from the Company Plants; and (vi) sales of additional Territories and Facilities to existing franchisees. As of May 1, 1996, 100 BCT Plants are in operation in 38 states and Canada. The current number of Plants compares with 98 and 97 Plants in operation on May 1, 1995 and 1994, respectively. Total BCT system sales reached approximately $84,000,000 for fiscal 1996, an average of $853,000 per franchise, compared to total and average sales of $80,000,000 and $824,000 for fiscal 1995 and $74,000,000 and $792,000 for fiscal 1994, respectively. BCT receives either a 5% or 6% royalty fee based on gross BCT Plant sales for original 15 - 25 year contracts. The royalty fee is dependent on the initial franchise agreement date. Generally, agreements dated through mid-1986 carry 5% royalties. Thereafter, the 6% royalty applies. Certain franchise agreements are up for renewal. The Company has developed a renewal royalty scale for these Plants. See "Franchises" below for a detailed description. For fiscal years ended 1996, 1995 and 1994, continuing franchise royalties comprised approximately 27%, 34% and 31% of total revenue, respectively. Pelican Paper Products sales to the franchisees for fiscal years ended 1996, 1995 and 1994 were approximately 47%, 52% and 52% of total revenue, respectively. Raw Materials ------------- The primary raw materials of the BCT Plants are paper products which are readily available from numerous industry suppliers. It is common practice within the paper industry to place minimum order levels when ordering specific materials. In addition, the need to maintain a complete stock of raw materials for all items listed in BCT's catalogs requires significant continuing inventory investment. Consequently, PPP frequently carries higher levels of inventory than what is required according to PPP's customer demands. While BCT, through PPP, sells paper products to its franchised Plants and the Company Plants, the Plants are under no obligation to purchase these products from BCT and all such products are available from other suppliers. The paper industry does suffer periodic shortages of specific paper products as well as price fluctuations caused by supply and demand changes, but these shortages and price fluctuations typically affect all similar types of printers in an industry such as "trade" thermographers and can generally be mitigated through the use of alternate supply sources in the industry and substitution with similar products. Any increases in the cost of paper from the mills is generally passed on to the Plants. It is not considered by BCT as very likely that any of its Plants would be out of operation for any significant period of time due to an unavailability of raw materials resulting from major supply or price changes in the paper industry. Franchises ---------- BCT's franchise agreements with individual franchised Plants are typically for a 15-to-25 year period and are renewable for additional 10-year periods. The right to renew is contingent upon the franchisee not being in default under any material term of the franchise agreement. BCT may terminate a franchise agreement under certain circumstances where the franchisee is in material default under the franchise agreement and has not cured such default(s) after notice from BCT. BCT's existing franchise agreements with individual Plants have an average remaining term of approximately 18 years. Page 2 Franchise agreements for 16 Plants come up for renewal in fiscal years 1996 - 98, and in the subsequent 10 years, three Plants come up for renewal. As of May 1, 1996, six of these Plants have renewed their franchise agreements for 10-year terms and two Plants scheduled for renewal elected not to renew. In fiscal 1995, management established a program to induce early renewal of its franchise agreements. The Company began negotiating with each renewal candidate as to the terms of its renewed franchise agreement. The renewal royalty scale that the Company initiated is as follows:
Gross Sales For Royalty Each Quarter Percentage -------------------- ---------- $0 to $375,000 5.0% $375,001 to $500,000 4.5% $500,001 to $750,000 4.0% $750,001 or more 3.5%
The renewal royalty scale is based on total sales, not incremental sales. For example, if a Plant increases quarterly sales from $350,000 to $380,000, its aggregate royalty will decrease from $17,500 ($350,000 x .05) to $17,100 ($380,000 x .045). This renewal scale is designed to provide a strong incentive for growth of Plant revenues beyond the $1.5 million annual level. For the fiscal year ended 1996, average Plant sales were $853,000. It is not anticipated that this renewal royalty scale will have an adverse effect on the Company's royalty revenues. As of February 29, 1996, a new franchisee is required to pay an initial fee of $85,000, which consists of a $35,000 franchise fee and a $50,000 opening package fee, and an ongoing royalty of 6% of the gross sales of the franchised Plant. Additionally, a new franchisee must obtain an initial equipment and furnishings package at a cost of approximately $175,000. This package may be purchased from BCT or from other sources as long as it meets the standards of performance established by BCT. Each franchisee is typically expected to obtain his own financing, but BCT may aid the franchisee in obtaining such financing. In fiscal 1993, BCT began accepting interest-bearing term notes from franchisees as a condition of the purchase of their franchises. BCT financed one sale in fiscal 1996 and none in fiscal 1995 or 1994. Each new BCT franchisee is required to attend a two week training session at BCT's National Training Center in Fort Lauderdale, Florida. This training consists of equipment orientation and business management, marketing and sales techniques required to operate a successful Plant. Upon completion of the initial training, BCT furnishes a qualified field representative for a period of ten days to instruct the franchisee in the operation of his Plant, advise in the hiring of personnel and assist in the establishment of standard operating procedures. BCT also provides ongoing support to its franchisees through periodic regional seminars, annual conventions, and visits from Company management and field representatives. Operational visits at its franchise plants are scheduled on a priority basis depending on the relative needs of the franchisees. An operational visit consists of an overview of the Plant's production, sales and marketing efforts and financial performance. To expedite the sale of the approximately 20 franchise markets available for sale, BCT has developed its Guaranteed Sales Program ("GSP"). The GSP program is designed to convey BCT's confidence in the profitability and soundness of owning a BCT franchise. Within the first six months after execution of a franchise agreement, a dissatisfied franchisee may notify BCT of its intent to sell the Plant's assets back to BCT. The franchisee must pay all of its outstanding obligations to third parties, exclusive of the leases on equipment and the premises, and pay all monies owed to BCT for royalties, PPP paper and miscellaneous items. BCT will acquire the equipment under lease, all inventory, all accounts receivable and all customer files, books, records, and other documents pertaining to all transactions. In the asset purchase transaction, BCT will pay the fair market value of the equipment and fixtures, or if leased, assume the lease, and will assume the lease of the Plant's premises. Revenue from a GSP sale will not be recognized until the six month period lapses and all conditions relating to the sale have been substantially performed. Wedding Invitations and Social Stationery Catalog ------------------------------------------------- BCT introduced its Wedding Invitations and Social Stationery Catalog in February 1993. The introduction of this product line enables the BCT franchise system to directly compete, product line by product line, with its two major national competitors. See "Competition". BCT is utilizing its Company Plants and four franchised Plants in an attempt to refine the implementation of this product line. Due to disappointing results thus far, BCT is re-evaluating the long term potential of this product line. Page 3 Company Plants -------------- BCT, through its wholly-owned subsidiary BCT Delray, acquired its first Company Plant in June 1993, in Delray Beach, Florida. In December 1994, BCT acquired another Company Plant in Honolulu, Hawaii. The Honolulu Plant was sold in fiscal 1996. During fiscal 1996, BCT, through its wholly-owned subsidiaries, acquired or repossessed five Company Plants in the following locations: Boston, Massachusetts; Marietta, Georgia; Louisville, Kentucky; Newbury Park, California; and Riverside, California. The Boston Plant was sold in February 1996; however, due to active continuing involvement by management of BCT, the recognition of this sale has been deferred. BCT intends to make additional acquisitions of franchised Plants as appropriate opportunities arise. BCT utilizes its Company Plants as its test sites for the improvement of the BCT operating system, as well as the testing of new products. In addition to the testing function, BCT uses its Company Plant subsidiaries for three basic purposes which are designed to enhance the Company's long term growth and profitability: (i) to acquire and manage well- run, profitable or potentially profitable Plants situated in strategic locations; (ii) to acquire independent thermographers and convert their businesses into Plants for resale; and (iii) to repossess underperforming Plants which are in default under their franchise agreements and upgrade them for resale. As of May 1, 1996, BCT has acquired two Company Plants which it intends to hold for long-term growth: the Delray Beach and Louisville Plants. In addition, as of May 1, 1996, BCT, acting jointly with two BCT franchisees, has acquired one independent thermography business. Portions of the acquired business' assets and customer base were allocated to the BCT franchisees, and the balance was utilized to create the Marietta, Georgia, Company Plant, which is currently held for sale. Also, BCT acquired an existing Plant in Riverside, California, which is currently held for sale. BCT has identified underperforming Plants throughout the network. As of May 1, 1996, BCT has repossessed three underperforming Plants. Since the Plants' repossessions, BCT has sold two of these Plants: Honolulu, Hawaii, and Boston, Massachusetts. BCT presently holds for sale and operates a repossessed Company Plant in Newbury Park, California. Rubber Stamps Tomorrow ---------------------- In January 1990 BCT determined that "Rubber Stamps Tomorrow" ("RST") was a valuable additional product line for the BCT system. As a result, BCT entered into an agreement with the company that initially developed and test marketed the RST concept to purchase all tradename, trademark, service mark and related rights as they pertain to the Rubber Stamps Tomorrow name. Effective September 1, 1994, BCT incorporated the RST program into the BCT operating system, requiring all franchised Plants to implement the RST program as part of their franchise. Each participating BCT Plant is required to pay an ongoing royalty of 5% to 6% of the gross sales of rubber stamp products depending upon the initial franchise agreement date. Competition ----------- The Company and its franchisees compete with other franchisors, franchisees and independent operators in the graphic arts industry, some of whom may be better established and/or have greater resources than the Company and its franchisees. While the Company believes that its BCT franchise system is the leading supplier of thermographed business cards to printers throughout the United States (supported by the May 1993 Quick Print Magazine "Supply and Services Survey," indicating a 23% market share in the brokered printing category for business cards), there can be no assurance that competitors will not imitate or improve upon the Company's business strategy. BCT's major national competitors are Regency Thermographers and Carlson Craft; however, BCT's franchisees also compete with numerous local and regional operations. BCT's franchisees compete primarily on the basis of turnaround time, quality and close customer contact. Trade and Service Marks ----------------------- The Company has received federal registration of the names "Business Cards Tomorrow" and "BCT International, Inc." and the BCT commercial logo, as well as the names and commercial marks for "Typesetting Express", "Engraving Tomorrow", "Thrift-T-Cards", "Thermo-Rite", and "Rubber Stamps Tomorrow". Page 4 Research and Development ------------------------ The Company performs ongoing research and development, seeking improvements in the operating procedures and products of its franchises. These activities are primarily done at the Company Plants and at the Company's corporate headquarters. Also, the Company often requests individual franchisees to perform tests of various equipment, materials or techniques in an actual production environment. In fiscal 1993, the Company began a new research and development project known as Advanced Management Operating System ("AMOS"). The Company believes that, in order for individual BCT Plants to expand to a multi-million dollar sales level, a system must be created to provide control over the expanded production, thus resulting in increased profitability. The integral components of the AMOS system are as follows: composition; verification; computer generated grouping; job tracking; integration of accounts receivable and collections; and generation of advanced management reports. The Company utilized the services of experienced computer system design consultants to expedite the completion of the test phase and make AMOS operational. In March 1995, the AMOS test phase was completed, and AMOS is fully operational. The BCT Plants lease the AMOS software at a nominal monthly rate from the computer system design consultants. To date, the Company has incurred expenses totalling $540,000 for the research and development of AMOS. During fiscal 1996, 1995 and 1994, the Company spent approximately $421,000, $279,000, and $367,000 on research and development, respectively. Government Regulation --------------------- The Federal Trade Commission has adopted rules relating to the sales of franchises and disclosure requirements to potential franchise purchasers. Additionally, various states have adopted laws regulating franchise sales and operations. As a franchisor, the Company is required to comply with these federal and state regulations and believes that it is not operating in violation of any of these regulations. Employees --------- The Company has 136 employees, all of whom are located at either (i) the Company's corporate headquarters in Fort Lauderdale, Florida, (ii) the Company's printing facility in Fort Lauderdale, Florida, or (iii) the Company Plants in Delray Beach, Florida; Newbury Park, California; Riverside, California; Louisville, Kentucky and Marietta, Georgia. Financial Information Relating to Foreign and Domestic Operations -----------------------------------------------------------------
February 29, February 28, February 28, 1996 1995 1994 ------------ ------------ ------------ Revenue: Foreign operations $ 922,000 $ 779,000 $ 717,000 Domestic operations $16,668,000 $12,794,000 $12,404,000 Operating Profit: Foreign operations $ 123,000 $ 112,000 $ 103,000 Domestic operations $ 823,000 $ 919,000 $ 665,000 Identifiable Assets: Foreign operations $ 312,000 $ 251,000 $ 352,000 Domestic operations $10,426,000 $ 9,767,000 $ 7,429,000
Page 5 Item 2. Properties - ------- ---------- The Company's corporate headquarters are located at 3000 NE 30th Place, Fifth Floor, Fort Lauderdale, Florida, and occupy approximately 8,200 square feet. The lease on this facility continues to October 1997 at a monthly rental of approximately $9,000. In May 1995, PPP leased 1,200 square feet of space on the Fourth Floor of the same building. The lease on this facility continues to October 1997 at a monthly rental of approximately $1,300. The Company leases approximately 7,600 square feet of space in Fort Lauderdale, at a monthly rental of approximately $5,200, for use as a Company printing and training facility. The lease on this facility continues through February 1997. The Delray Beach, Florida, Company Plant utilizes a 6,000 square foot facility, which is leased for a monthly rental of $3,500. The lease on this facility continues through April 2000. The Louisville, Kentucky, Company Plant utilizes a 5,000 square foot facility, which is leased for a monthly rental of $1,200. The lease on this facility continues through September 1999. The Marietta, Georgia, Company Plant occupies a 5,700 square foot facility, which is leased for a monthly rental of $2,700. The lease on this facility continues through October 2000. The Riverside, California, Company Plant rents a 3,400 square foot facility, which is leased for a monthly rental of $1,800. The lease on this facility continues through November 2000. The Newbury Park, California, Company Plant leases a 4,000 square foot facility, which is leased for a monthly rental of $2,700. The lease on this facility continues through November 1996. Management is working with a real estate broker to obtain additional space for the Company's corporate facilities. Management believes that an expansion to approximately 14,000 square feet will be needed by fiscal 1998. All other existing facilities are adequate for the foreseeable future. Management believes that additional suitable facilities will be available at commercially reasonable rates. Page 6 Item 3. Legal Proceedings - ------- ----------------- Varrieur v. BCT International, Inc. On April 28, 1989, Douglas B. Varrieur, a former officer and director of the Company, filed suit against the Company in the Circuit Court for Hillsborough County, Florida. Varrieur's complaint was based on the Company's April 19, 1989 termination for cause of his five-year employment agreement with the Company dated August 4, 1988 (the "Employment Agreement"). The Employment Agreement provided for an annual salary of $104,000 together with certain other benefits and was entered into in connection with the Company's acquisition on that date of a controlling interest in Print Shack International, Inc. ("Print Shack"), from Varrieur and certain other Print Shack shareholders. Pursuant to the Employment Agreement, Varrieur served as an executive officer of the Company and Print Shack. Print Shack generated massive losses for the Company and was shut down in fiscal 1991. Varrieur's complaint is based on his allegation that the Company did not have good cause to terminate his employment and therefore breached the Employment Agreement. The original complaint contained four counts: Count I sought unspecified money damages based on the alleged breach of the Employment Agreement; Count II sought specific performance of the Employment Agreement, i.e., that Varrieur be reinstated; Count III sought cancellation and rescission of the August 4, 1988, agreement pursuant to which the Company acquired Varrieur's 44% interest in Print Shack (the "Stock Purchase Agreement"); and Count IV sought a declaratory judgment to the effect that the three-year non- competition covenant of the Employment Agreement is unenforceable. The court dismissed with prejudice all of Varrieur's initial claims, except for Count I. In the fall of 1993, Varrieur amended his complaint to assert a claim (new Count III) for an alleged breach by the Company of its agreement to indemnify him and his wife against personal liability arising from debts of Print Shack. This claim was based on a suit filed by a Print Shack creditor against the Company, the Varrieurs as guarantors and others based on a promissory note issued by Print Shack. The Company assumed full responsibility for defending this action and settled it in January 1994, thereby extinguishing the subject debt. Varrieur is seeking, pursuant to his indemnification claim, to recover damages in excess of $1,750 in the form of legal fees, together with unspecified damages allegedly arising from damage to his credit. Discovery proceedings began in May 1990 and have continued on a sporadic basis. In November 1994, Varrieur moved to set the case for jury trial. In March 1995, the court denied Varrieur's motion, finding that he had previously waived his right to jury trial. In April 1995, Varrieur appealed the court's decision denying him a jury trial. In July 1995, the appellate court affirmed the trial courts decision denying Varrieur's motion. A non-jury trial has been set for September 1996. The Company intends to vigorously contest Varrieur's claim. Based on the facts available to it and the advice of counsel, the Company believes that it had good cause for terminating Varrieur and that Varrieur's claim is without merit. It is the opinion of the Company's management and counsel that the likelihood that Varrieur's claim will have a material adverse effect on the consolidated financial position and results of operations of the Company is remote. Item 4. Submission of Matters to a Vote of Securities Holders - ------- ----------------------------------------------------- No matters were submitted to a vote of securities holders, through the solicitation of proxies or otherwise, during the fiscal quarter ended February 29, 1996. Page 7 Item 5. Market for Registrant's Common Stock and Related Security --------------------------------------------------------- Holder Matters -------------- The Company's Common Stock is traded on the National Market tier of the Nasdaq Stock Market under the symbol "BCTI". The following table sets forth, for the quarters indicated, the high and low closing bid prices in the Nasdaq Small Cap Market for a share of Common Stock through February 15, 1995, and the closing price for the Common Stock as reported on the Nasdaq National Market since February 15, 1995. The quotations through February 15, 1995, represent prices between dealers, do not include retail markups, markdowns or commissions, and may not represent actual transactions.
Fiscal Quarters High Low --------------- ------ ------ 1995 First Quarter $3.38 $2.50 Second Quarter $3.38 $2.63 Third Quarter $5.63 $3.25 Fourth Quarter $5.38 $4.38 1996 First Quarter $5.38 $4.62 Second Quarter $6.00 $4.75 Third Quarter $5.62 $4.25 Fourth Quarter $4.62 $3.50 1997 First Quarter (through May 17, 1996) $4.38 $3.25
On May 17, 1996, the closing price per share of common stock, as reported by NASDAQ, was $3.38. There is currently no established public trading market for any securities of the Company other than the common stock. The approximate number of holders of record of the Company's common stock as of May 17, 1996 was 917. During the fiscal years ended February 29, 1996, February 28, 1995, and 1994, no cash dividends were declared on the outstanding Common Stock. The declaration of dividends on Common Stock was prohibited by the loan covenants with the Company's bank. The Company's loan with the bank was satisfied in February 1994. The Company has no plans to pay any dividends on the common stock. Page 8
Item 6. Selected Financial Data 000's omitted - ------ ----------------------- ------------- OPERATIONS for the fiscal year ended: FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994 FEB. 29, 1993 FEB. 29, 1992 ------------- ------------- ------------- ------------- ------------- REVENUES: Continuing Franchisee Fees and Commissions $ 4,820 $ 4,540 $ 4,004 $ 3,517 $2,993 Paper Sales 8,241 7,077 6,886 5,849 5,045 Printing Sales 918 508 514 675 574 Company Plants 1,054 760 651 --- --- Company Plants Held for Sale 1,251 92 --- --- --- Sales of Franchises 870 466 957 573 189 Interest and Other Income 436 130 109 78 108 ------- ------- ------- ------- ------ 17,590 13,573 13,121 10,692 8,909 ------- ------- ------- ------- ------ EXPENSES: Cost of Paper Sales 7,368 6,272 6,086 5,198 4,457 Cost of Printing Sales 428 385 290 338 364 Cost of Franchises Sold 521 326 691 402 122 Expenses of Company Plants 1,563 1,030 802 --- --- Expenses of Company Plants Held for Sale 1,734 90 --- --- --- Selling, General and Administrative 4,450 3,905 3,487 3,158 3,501 Research and Development Costs 421 279 367 283 123 Depreciation and Amortization 170 227 338 239 215 Interest and Other 9 28 292 296 424 Minority Interest (20) --- --- --- --- ------- ------- ------- ------- ------ 16,644 12,542 12,353 9,914 9,206 ------- ------- ------- ------- ------ Subordinated Debenture Conversion Expense --- --- --- --- 331 Loss on Disposal of Rental Properties --- --- --- --- 75 Income tax benefit 195 124 93 --- --- ------- ------- ------- ------- ------ Income (Loss) From Continuing Operations 1,141 1,155 861 778 (703) Extraordinary Item: Gain on Early Extinguishment of Debt --- --- --- 53 --- ------- ------- ------- ------- ------ Net Income (Loss) $ 1,141 $ 1,155 $ 861 $ 831 $ (703) ======= ======= ======= ======= ======
Page 9 Item 6. Selected Financial Data (continued) 000's omitted - ------- ------------------------------------------------- (except for per share data)
For the fiscal year ended: FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994 FEB. 29, 1993 FEB. 29, 1992 ------------- ------------- ------------- ------------- -------------- Earnings (Loss) per Common Share: Income (Loss) from Operations Primary $ .19 $ .18 $ .17 $ .27 $ (.29) Fully Diluted .19 .18 .10 .19 (.29) Extraordinary Item: Primary --- --- --- .02 --- Fully Diluted --- --- --- .01 --- Net Income (Loss) ------- ------- ------ ------ ------ Primary $ .19 $ .18 $ .17 $ .29 $ (.29) ------- ------- ------ ------ ------ Fully Diluted $ .19 $ .18 $ .10 $ .20 $ (.29) ======= ======= ====== ====== ====== Total Assets $10,738 $10,018 $7,781 $5,743 $5,137 Long-term Debt $ 5 $ 48 $ 459 $2,073 $2,619 Preferred Stock $ 260 $ 810 $1,622 $ 765 $ --- Net Working Capital $ 4,633 $ 5,542 $1,067 $1,153 $ 22 Stockholders' Equity (1) $ 9,374 $ 7,759 $2,290 $1,247 $ 299
(1) During the five fiscal years ended February 29, 1996, no cash dividends have been declared on the common stock outstanding. Page 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------- ----------------------------------------------------------------------- of Operations ------------- Fiscal 1996 Compared to Fiscal 1995 - ----------------------------------- Total revenue for fiscal 1996 increased by $4,017,000 or 30% over the prior fiscal year. Royalty revenue increased by $280,000 or 6%; paper sales increased by $1,164,000 or 16%; revenue from Company Plants increased by $294,000 or 39%; revenue from Company Plants held for sale increased by $1,159,000 or 1,260%; revenue from printing sales increased by $410,000 or 81%; revenue from the sales of franchises increased by $404,000 or 87% and interest and other income increased by $306,000 or 235%. The revenue growth reflects the use of the new business card catalog by 95% of the franchisees and the sales of two franchises, a Facility, two Territories and a Company Plant. Also, revenue from Company Plants held for sale includes revenue from five Plants in fiscal 1996 versus one in the prior year. Cost of goods sold as a percentage of revenue was 47% and 51%, respectively, for fiscal years ended 1996 and 1995. Although the percentage generally remains stable, it does fluctuate due to periodic changes in the revenue mix. Selling, general and administrative expenses represented 25% and 29% of gross revenues in fiscal 1996 and 1995, respectively. In fiscal 1996, management focused on cost containment as it related to BCT operations. In fiscal 1996, significant losses were incurred by both the Company Plants and the Company Plants held for sale of $509,000 and $483,000, respectively. The majority of the Company Plants' losses have been generated by the Delray Beach, Florida, and Newbury Park, California, Plants. Due to the continuing operating losses and negative cash flow of the Delray Beach Plant, the goodwill associated with the acquisition of this Plant was accelerated and fully amortized in the amount of $155,000 during fiscal 1996. The Company had net income of $1,141,000 for fiscal 1996, compared to net income of $1,155,000 for fiscal 1995. Fiscal 1995 Compared to Fiscal 1994 - ----------------------------------- Total revenue for fiscal 1995 increased by $452,000 or 3% over the prior fiscal year. Royalty revenue increased by $536,000 or 13%; paper sales increased by $191,000 or 3%; revenue from the Company Plants increased by $109,000 or 17%; and revenue from franchise Plant sales decreased by $491,000 or 51%, reflecting the sale of two franchises. The decline in franchise Plant sales is not indicative of a lack of marketable territories. The Company is aggressively seeking experienced franchise sales staff to strengthen its franchise sales department. Cost of goods sold as a percentage of revenues for fiscal 1995, at 51%, was consistent with the comparable percentage for fiscal 1994. Cost of goods sold includes a $100,000 reserve for slow-moving inventory related to the Wedding and Social Stationery Catalog. The Company has engaged a marketing consultant to assist management in the repositioning of its Wedding and Social Stationery Catalog and product line. Selling, general, and administrative expenses represented 29% and 27% of gross revenues in fiscal 1995 and 1994, respectively. The primary cause of the increase in selling, general and administrative expenses as a percentage of revenues was the increased expenses associated with the Company's formalization of its marketing department. The costs associated with the marketing department in fiscal 1995 increased by $153,000 (58%) from the prior year's level. With the retirement of the Company's convertible subordinated debentures and various notes payable, interest expense decreased by $231,000 or 79%, during fiscal 1995. The Company had net income of $1,155,000 for fiscal 1995, which compared favorably to net income of $861,000 for fiscal 1994. Page 11 Liquidity and Capital Resources - ------------------------------- As of May 1, 1996, the Company has utilized $852,000 of the $1,938,000 net proceeds from the fiscal 1995 exercise of the Series B preferred stock warrants, to fund operating losses of its Company Plants. As previously discussed, the Company Plants incurred aggregate operating losses of $992,000 during fiscal 1996. These operating losses stem from two principal sources: the Delray Beach, Florida, Plant and the Newbury Park, California, Plant. The Delray Beach Plant, which is held for long-term growth, was responsible for $456,000 of the losses. This location had two business purposes: to operate and earn income as a traditional Plant and to be the alpha site for all research and development products for the BCT network. Management believes that these dual functions significantly impaired the Plant's ability to actively seek out traditional business for this location and operate in accordance with the franchise system. Due to its operating losses and negative cash flow, the goodwill associated with the acquisition of this Plant was accelerated by $108,000 and fully amortized at February 29, 1996 in the amount of $155,000. In an attempt to cut this Plant's operating losses, its research and development function was significantly curtailed and its manager was replaced in the fourth quarter of fiscal 1996. In fiscal 1996, operating losses of $483,000 were generated by the Company Plants held for sale, $232,000 of which was generated by the Newbury Park Plant. Upon repossession and/or acquisition of each of these plants, the Company must refurbish the actual facility as well as rebuild its customer base. Consequently, the Company incurs substantial losses initially. Once a repossessed and/or acquired Plant is satisfactorily upgraded, usually six months after repossession and/or acquisition, the Plant is sold. Due to the adverse results thus far from the Company Plants held for sale, management is evaluating alternatives to repossession of troubled Plants. During fiscal 1996, the Company utilized working capital to make debt payments totalling $214,000. Through February 29, 1996, the Company made capital expenditures of approximately $917,000, most of which were dedicated to office equipment, computer software and equipment, furniture and fixtures, and other machinery and equipment. The Company intends to improve its working capital and cash positions during fiscal 1997 by focusing its efforts on the turnaround of the Company Plant subsidiaries, on increasing cash collections and on developing new product lines while containing capital expenditures and keeping inventories at their current levels. The Company believes that internally generated funds will be sufficient to satisfy the Company's working capital and capital expenditure requirements for the foreseeable future; however, there can be no assurance that external financing will not be needed or that, if needed, it will be available on commercially reasonable terms. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The financial statements and schedules listed in the accompanying Index to consolidated financial statements and schedules on page F-1 are filed as a part of this report. Item 9. Disagreements on Accounting and Financial Disclosure - ------- ---------------------------------------------------- None Page 12
Item 10. Directors and Executive Officers of the Registrant - ----------------------------------------------------------- Date Elected Name Age Position Or Appointed - ---- --- -------- ------------ William Wilkerson 54 Chairman of the Board and January 1978 Chief Executive Officer A. George Cann 39 Chief Operating Officer and May 1995 President of BCT Donna M. Pagano-Leo 35 Chief Financial Officer, October 1992 Treasurer and May 1995 Secretary Michael R. Hull 42 Chief Financial Officer May 1996 and Treasurer Thomas J. Cassady 74 Director April 1988 Robert F. Bond 55 Director May 1980 Raymond J. Kiernan 71 Director December 1983 Henry A. Johnson 61 Director February 1975 Bill LeVine 76 Director May 1992
William Wilkerson has been Chairman of the Board and a Director of the Company since January 1986. In May 1988, he accepted the additional responsibility of Chief Executive Officer. He was President and Chief Executive Officer of Business Cards Tomorrow, Inc. (a Florida corporation) from January 1978 to January 1982 and Chairman from January 1982 to January 1986. A. George Cann was appointed as President of Business Cards Tomorrow, Inc. in April 1995. Previously, Mr. Cann worked in the Kinko's organization for 13 years in various capacities. Since December 1987, he has been President and a principal shareholder of Kinko's Grand Rapids, Inc., and the owner and operator of three Kinko's copy center stores in Michigan. Mr. Cann's role with Kinko's Grand Rapids, Inc., has been limited to that of a passive investor since he joined the Company. From February 1991 through September 1994, Mr. Cann held the position of Vice President of Operations and Product Development at Kinko's Service Corporation, Ventura, California. From June 1990 through February 1991, he was a Director of Kinko's Service Corporation. From May 1990 through February 1991, he was Regional Manager in Michigan for K-Graphics, Inc., a multi-state owner and operator of Kinko's stores. Donna M. Pagano-Leo joined the Company in August 1992 and became Vice President/Chief Financial Officer and Treasurer of the Company in October 1992. In May 1995, Ms. Leo was elected as the Company's secretary. Ms. Leo is a certified public accountant, a member of the Florida Institute of Certified Public Accountants and the American Institute of Certified Public Accountants, and has worked in public accounting since 1983. Prior to joining the Company, Ms. Leo served as an audit manager with the accounting firm of Price Waterhouse LLP for seven years and as a staff accountant with the accounting firm of Arthur Young & Co. for two years. Ms. Leo has resigned from the Company effective May 30, 1996; however, she has informed the Company that she will remain available to provide financial consulting services as requested by the Company. Michael R. Hull joined the Company in May 1996 and will serve as Vice President/Chief Financial Officer and Treasurer beginning May 31, 1996 . Mr. Hull is a certified public accountant, a member of the Florida Institute of Certified Public Accountants and the American Institute of Certified Public Accountants and has worked in public accounting since 1985. Prior to joining the Company, Mr. Hull served as an audit senior manager with the accounting firm of Price Waterhouse LLP for three years. Page 13 Thomas J. Cassady became a Director of the Company in April 1988 and has been a Director of Photo Control Corporation, Minneapolis, Minnesota, since February 1978. Mr. Cassady is a veteran of more than 30 years in the financial and securities field, having served as President and Chief Administrative Officer of Merrill, Lynch, Pierce, Fenner and Smith, Inc., until his retirement in 1978. Robert F. Bond has been a Director of the Company since May 1980 and was Secretary/Treasurer from February 1981 to August 1988 and Chairman of the Board from January 1985 to January 1986. Since 1985, Mr. Bond has been a principal in First Madison Group, an investment banking firm in Montville, New Jersey. Raymond J. Kiernan has been a Director of the Company since December 1983 and has been a Director of Fleet Trust Company and Fleet Trust Company of Florida since 1983. In 1979, Mr. Kiernan retired from his position as a Vice President and Division Director of Merrill, Lynch, Pierce, Fenner & Smith, Inc. He is a former Governor of the National Association of Securities Dealers. Henry A. Johnson, founder of BCT, has been a Director of the Company since January 1986. From January 1986 until October 1988, he was Senior Vice President/Operations of the Company. In October 1988, he resigned his position with the Company and became Senior Vice President/Operations of BCT. In February 1989, he accepted the additional responsibilities of Executive Vice President of BCT. Previously, he was Senior Vice President/Operations for Business Cards Tomorrow, Inc. (a Florida corporation), from January 1978. In March 1990, he retired from his position with BCT; however, he has continued to provide consulting services to BCT. Since March 1991, Mr. Johnson has owned and operated a private printing business, Colorful Copies, located in Las Vegas, Nevada. Bill LeVine became a Director of the Company in May 1992. Mr. LeVine is the pioneer of the quick printing industry. He founded Postal Instant Press (PIP Printing) in 1967 and served as its Chairman, Chief Executive Officer and President until January 1988. Since that time, he has focused on private investments. Since 1992, Mr. LeVine has been a Director of Fast Frame, Inc. Mr. LeVine has been a Director of First Business Bank, Los Angeles, California, since 1982, and Rentrak Corporation, formerly National Video, Portland, Oregon, since 1987. Compliance with Section 16 (a) of the Exchange Act The Company has reviewed the Forms 3 and 4 and amendments thereto furnished to it pursuant to SEC Rule 16a-3(e) during its most recent fiscal year and Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year. Based solely on such review, the Company has identified each person who, at any time during the fiscal year, was a director, officer or beneficial owner of more than 10% of the Company's Common Stock and failed to file on a timely basis, as disclosed in the above-described Forms, reports required by the Securities Exchange Act of 1934 during the most recent fiscal year or prior fiscal years. The following table sets forth for each such person the number of late reports and the number of transactions that were not reported on a timely basis. The Company is not aware of any failure to file a required Form, as all known delinquencies were cured. NUMBER OF LATE NAME POSITION NUMBER OF LATE REPORTS REPORTED TRANSACTIONS - ---- -------- ---------------------- --------------------- Bronson 10% Beneficial Owner 5 9 Page 14 Item 11. Executive Compensation - -------- ---------------------- (a) Board Compensation Committee Report on Executive Compensation The Compensation Committee of the Board of Directors, which is comprised of non-employee directors, has overall responsibility to review and recommend broad-based compensation plans for executive officers of the Company and its BCT subsidiary to the Board of Directors. One of the members of the Compensation Committee, Mr. LeVine, has invested significant sums of money in the Company. (See Item 13. "Certain Relationships and Related Transactions"). Pursuant to recently adopted rules designed to enhance disclosure of companies' policies toward executive compensation, set forth below is a report submitted by Messrs. Kiernan, and LeVine in their capacity as the Board's Compensation Committee addressing the Company's compensation policies for fiscal 1996 as they affected Mr. William A. Wilkerson, Chairman of the Board and Chief Executive Officer, and Mr. A. George Cann, President of BCT and Chief Operating Officer. Compensation Policies For Executive Officers The executive compensation program is based on a philosophy which aligns compensation with business strategy, Company values and management initiatives. The principles underlying this compensation philosophy are: the linkage of executive compensation to the enhancement of shareholder value; maintenance of a compensation program that will attract, motivate and retain key executives critical to the long-term success of the Company; creation of a performance oriented environment by rewarding performance leading to the attainment of the Company's goals; evaluation of competitiveness of salary and equity incentive opportunities; and determination of the adequacy and propriety of the annual bonus plan, including structure and performance measures. Relationship of Performance Under Compensation Plans Compensation paid Messrs. Wilkerson and Cann in fiscal 1996, as reflected in the following Tables, consisted of base salary. The Compensation Committee is awaiting the audited results for fiscal 1996 prior to determining any annual bonus to Messrs. Wilkerson and Cann. In addition, as indicated in the Tables, in fiscal 1996 the Compensation Committee awarded stock options to Mr. Cann. The Company's executive compensation policies are oriented toward utilization of objective performance criteria. The principal measures of performance that are utilized by the Compensation Committee are targeted versus actual operating budget and income growth. Subjective performance criteria are utilized to only a limited degree. Annual Bonus Arrangements The Company's annual bonuses to its executive officers, as indicated above, are based on both objective and subjective performance criteria. Objective criteria include actual versus target annual operating budget performance and actual versus target annual income growth. Target annual income growth and target annual operating budgets utilized for purposes of evaluating annual bonuses are based on business plans which have been approved by the Board of Directors. Subjective performance criteria encompass evaluation of each officer's initiative and contribution to overall corporate performance, the officer's managerial ability, and the officer's performance in any special projects that the officer may have undertaken. Performance under the subjective criteria was determined at the end of fiscal 1996 after informal discussions with other members of the Board. Page 15 Mr. Wilkerson's Fiscal 1996 Compensation During fiscal 1993, the Compensation Committee approved a seven year employment contract for Mr. Wilkerson for fiscal years beginning in fiscal 1994. All of Mr. Wilkerson's fiscal 1996 compensation was paid pursuant to this contract. The agreement calls for minimum annual remaining salary amounts during the employment term as follows:
Year Ending February 28/29 Amount -------------------------- ------ 1997 $300,000 1998 $300,000 1999 $300,000 2000 $300,000
In the event that Mr. Wilkerson is substantially incapacitated during the term of his employment for a period of 90 days in the aggregate during any twelve month period, the Company has the right to terminate his employment. Under such termination, Mr. Wilkerson will receive one-half of his salary in effect on the date of termination for the remaining term of the agreement. Additionally, in the event of Mr. Wilkerson's death during his employment, his designated beneficiary or his estate shall be paid one-half of his salary in effect on the date of his death for the remaining term of the agreement. The performance considerations utilized by the Compensation Committee in determining the terms of Mr. Wilkerson's employment contract were as follows: . His hiring of a new and successful management team. . His ability to lead the Company to substantial and increasing profitability. . His implementation of a new franchisee credit and collection policy achieving maximum collectibility. . His development of new and positive investment banking and market maker relationships. . His success in maintaining the Company's NASDAQ listing under difficult circumstances through conversion of subordinated debentures, a preferred stock offering and increased profitability. . The Company's overall performance in fiscal 1993 yielding substantial revenue and income growth and substantially surpassing goals set forth in the targeted operating budget. Mr. Wilkerson's fiscal 1996 and 1997 salary was kept at $275,000 and $300,000 respectively, which is the minimum level prescribed for those years in his employment contract. Mr. Cann's Fiscal 1996 Compensation During fiscal 1996, the Compensation Committee approved the terms of Mr. Cann's employment. Mr. Cann may be terminated by the Company at will; however, under his agreement with the Company, if he is terminated during the first three years of his employment, he is entitled to receive six months of severance pay. Mr. Cann's fiscal 1997 compensation reflects a cost of living salary increase of 5%. SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS: RAYMOND J. KIERNAN BILL LEVINE Page 16 (c) Compensation Tables The following tables set forth the compensation received for services in all capacities to the Company during its fiscal years ended February 29, 1996, and February 28, 1995, and 1994, by the two executive officers of the Company as to whom the total salary and bonus in the most recent year exceeded $100,000. Page 17 BCT INTERNATIONAL, INC. ----------------------- SUMMARY COMPENSATION TABLE -------------------------- FISCAL YEARS 1996, 1995 AND 1994 -------------------------------- 000'S OMITTED -------------
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS - ----------------------------------------------------------------------------- ------------------- FORM OF PAYMENT FISCAL --------------- NAME POSITION YEAR SALARY BONUS CASH SHARES OPTIONS - ---- -------- ------ ------ ----- ---- ------ ------- W.A. Wilkerson Chairman of 1996 $287(1) $10 $297 -- -- the Board and 1995 $287(1) $23(2) $310 -- 200 Chief Executive 1994 $237(1) $ 2(2) $239(2) -- -- Officer A. G. Cann Chief Operating 1996 $109 $-- $109 -- 40(3) Officer and President of Subsidiary
(1) Salary for fiscal 1996, 1995 and 1994 includes a $12 car allowance. (2) Bonus for fiscal 1994 of $25 was determined in July 1993, of which $2 was paid in fiscal 1994 and the remainder was paid in fiscal 1995. (3) Options granted in fiscal 1996 were 40 of which 10 immediately vested and the remainder are scheduled to vest over a three year period ending in fiscal 1999. Page 18 BCT INTERNATIONAL, INC. ----------------------- AGGREGATED OPTION EXERCISES AND YEAR-END ---------------------------------------- OPTION VALUES FOR FISCAL 1996 ----------------------------- 000'S OMITTED -------------
NUMBER OF VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES 2/29/96 (#) 2/29/96 ($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME POSITION EXERCISE # REALIZED ($) UNEXERCISABLE UNEXERCISABLE - ---- -------- ---------- ------------ ------------- ------------- W.A. Wilkerson Chairman of the Board and Chief Executive Officer --- $ --- 346 / 0 $859 / 0 A. G. Cann Chief Operating Officer and --- $ --- 10 / 30 $ 0 / 0 President
Page 19 BCT INTERNATIONAL, INC. ----------------------- EXECUTIVE MANAGEMENT COMPENSATION --------------------------------- OPTION GRANTS IN FISCAL YEAR 1996 --------------------------------- 000'S OMITTED -------------
POTENTIAL REALIZABLE VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF OPTIONS STOCK PRICE OPTIONS GRANTED TO EXERCISE EXPIRATION APPRECIATION NAME POSITION GRANTED EMPLOYEES PRICE DATE FOR OPTION TERM - ---- -------- ------- --------- ----- ---- --------------- 5% ($) 10% ($) W.A. Wilkerson Chairman of the Board and Chief Executive Officer --- --- --- --- $ --- / $ --- A. G. Cann Chief Operating Officer and President of Subsidiary 40 62% $4.94 3/15/05 $ 322 / $ 513
Page 20 (d) Other Compensation Arrangements Outside directors of the Company receive director's fees of $750 per month plus $750 for each Board of Directors meeting attended and $500 for each committee meeting attended. Item 12. (a) Security Ownership of Certain Beneficial Owners and Management - ------------ -------------------------------------------------------------- The following table sets forth as of May 17, 1996, information with respect to the only persons known to the Company to be beneficial owners of more than 5% of the Company's outstanding Common Stock (excluding treasury stock), as well as the beneficial ownership of all directors and officers of the Company individually and all directors and officers as a group. Based on the information available to the Company, except as set forth in the accompanying footnotes, each person has sole investment and voting power with respect to the shares of common stock indicated. At May 17, 1996, 4,975,385 shares of Common Stock were outstanding. Page 21
PERCENT OF NUMBER OF SHARES OUTSTANDING NAME BENEFICIALLY OWNED (1) COMMON STOCK - ---- ---------------------- ------------- Certain Beneficial Owners: Steven N. Bronson 635,320 (2) 12.21% Barber & Bronson, Inc. 2101 West Commercial Blvd., Suite 1500 Fort Lauderdale, Florida 33309 Officers and Directors: William A. Wilkerson 1,278,886 (3) 24.03% Bill LeVine 685,032 (4) 13.60% Henry A. Johnson 141,847 (5) 2.83% Robert F. Bond 101,250 (6) 1.99% Raymond J. Kiernan 81,500 (7) 1.61% Thomas J. Cassady 26,250 (8) 0.53% A. George Cann 11,000 (9) 0.22% Donna M. Pagano-Leo 3,667 (10) 0.07% Officers and Directors as a group (8 persons) 2,329,432 (11) 41.26%
- --------------------------------- (1) This column sets forth shares of Common Stock which are deemed to be "beneficially owned" by the persons named in the table under Rule 13D-3 of the Securities and Exchange Commission ("SEC"). (2) Includes 228,750 shares covered by currently exercisable warrants. (3) Includes 346,250 shares covered by currently exercisable stock options and warrants. (4) Includes 61,250 shares covered by currently exercisable stock options. (5) Includes 43,750 shares covered by currently exercisable stock options. (6) Includes 101,250 shares covered by currently exercisable stock options. (7) Includes 80,000 shares covered by currently exercisable stock options. (8) Includes 23,750 shares covered by currently exercisable stock options. (9) Includes 10,000 shares covered by currently exercisable stock options. (10) Includes 3,667 shares covered by currently exercisable stock options. (11) Includes 669,917 shares covered by currently exercisable stock options and warrants. Page 22 Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- In February 1996, a company of which Mr. Wilkerson, the Chairman of the Board, is a 50% shareholder, purchased the Honolulu, Hawaii, Company Plant for a total purchase price of $400,000 plus accounts receivable and inventory. The purchase price is payable pursuant to a $325,000 promissory note, representing an assumption of the prior franchisee's debt to the Company, and a $108,000 promissory note representing the value of the inventory and accounts receivable acquired. The $325,000 note bears interest at 8% per year and requires equal monthly payments of principal and interest for 10 years based on a 15-year amortization, with a balloon payment due at the end of 10 years. The $108,000 note bears interest at 8% per year and is payable in five years pursuant to equal monthly payments of principal and interest. These notes are secured by pledges of substantially all of the assets of the Hawaii Plant. On May 7, 1992, Mr. LeVine was appointed to the Company's Board of Directors. On that date, he purchased 550,000 shares of the Company's Series A convertible preferred stock at a price of $1 per share. The Series A preferred stock carried a cumulative annual dividend of 12%, was scheduled to be redeemed in five years (May 1997), and was convertible into common stock at a ratio of 1.48 shares of preferred stock per share of common stock. The conversion ratio was based on the market price of the common stock at the time of the transaction. In connection with his appointment to the Board and his purchase of the Series A preferred stock, Mr. LeVine was granted 10-year options to purchase 51,250 shares of common stock at a price of $1.48 per share (the market price on the date of grant). On October 1, 1995, Mr. LeVine voluntarily converted his 550,000 shares of the Series A preferred stock into 371,622 shares of the Company's Common Stock. Page 23 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------- --------------------------------------------------------------- (a) Financial Statements and Financial Statement Schedules (1) Financial Statements - beginning on page F-1; Report of Independent Certified Public Accountants - page F-2 Consolidated Balance Sheets at February 29, 1996 and February 28, 1995- page F-3 Consolidated Statements of Operations for the fiscal years ended February 29, 1996, February 28, 1995, and February 28, 1994 - pages F-4 and F-5. Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended February 29, 1996, February 28, 1995, and February 28, 1994 - pages F-6 through F-8 Consolidated Statements of Cash Flows for the fiscal years ended February 29, 1996, February 28, 1995, and February 28, 1994 - pages F-9 through F-10 (2) Notes to Consolidated Financial Statements - pages F-11 through F-22 Financial Statement Schedules For the Years Ended February 29, 1996, February 28, 1995, and February 28, 1994: Schedule VIII - Valuation and Qualifying Accounts - page F-23 Schedule X - Supplementary Income Statement Information page F-24 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Reports of Form 8-K The Company did not file any report on Form 8-K during the last quarter of fiscal 1996. Page 24 (c) Exhibits 3.1 Certificate of Incorporation of the Company, as amended, as filed with the SEC as Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference. 3.2 By-Laws of the Company, as filed with the SEC as Exhibit 3.2 to the Company's report on Form 10-K for the fiscal year ended February 28, incorporated herein by reference. 4.1 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, as filed with the SEC as Exhibit 4.1 to the Company's report on Form 10-K for the fiscal year ended February 29, 1995, is incorporated reference. 4.2 Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock, as filed with the SEC as Exhibit 4.2 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference. 10.1 Agreement dated May 7, 1992, between the Company and Bill LeVine, as filed with the SEC as Exhibit 10.1 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference. 10.2 Consulting Agreement dated March 1, 1992, between the Company and Henry A. Johnson, as filed with the SEC as Exhibit 10.3 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference . 10.3 Employment Agreement dated March 1, 1993 between the Company and William A. Wilkerson, as filed with the SEC as Exhibit 10.4 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference. 10.4 Agreement dated January 1, 1993 between Business Cards Tomorrow, filed with the SEC as Exhibit Inc. and Hence/EDP, as 10.5 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference . 10.5 Agreement dated February 1, 1994 between the Company and Barber & Bronson, Inc. as filed with the SEC as Exhibit 10.11 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference. 10.6 Agreement dated May 24, 1993 between the Company and American Equipment Leasing, Inc. as filed with the SEC as Exhibit 10.12 to the Company's report on Form 10-K for the fiscal year ended February 28, 1995, is incorporated herein by reference. 10.7 Line of Credit Agreement dated October 5, 1994 between the Company and Intercontinental Bank, as filed with the SEC as Exhibit 10.13 to the Company's report on Form 10-K for the year ended February 28, 1995, is incorporated herein by reference. 10.8 Employment letter dated March 2, 1995 between the Company and A. George Cann, as filed with the SEC as Exhibit 10.14 to the Company's report on Form 10-K for the year ended February 28, 1995 is incorporated herein by reference. 10.9 Asset Purchase Agreement dated February 23, 1996, between BCT and E.V. Antrim, Rosemary R. Antrim and William A. Wilkerson. 27 Financial Data Schedule Page 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BCT INTERNATIONAL, INC. (Registrant) DATE: MAY 23, 1996 By: WILLIAM WILKERSON ------------------------- --------------------------- William Wilkerson Chairman of the Board & Chief Executive Officer DATE: MAY 23, 1996 By: DONNA M. PAGANO-LEO ------------------------- --------------------------- Donna M. Pagano-Leo Vice President, Treasurer & Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. WILLIAM WILKERSON HENRY A. JOHNSON - -------------------------------- -------------------------------- William Wilkerson Henry A. Johnson Chairman of the Board & Director Director Date: May 23, 1996 Date: May 23, 1996 ROBERT F. BOND RAYMOND J. KIERNAN - -------------------------------- -------------------------------- Robert F. Bond Raymond J. Kiernan Director Director Date: May 23, 1996 Date: May 23, 1996 THOMAS J. CASSADY BILL LeVINE - -------------------------------- -------------------------------- Thomas J. Cassady Bill LeVine Director Director Date: May 23, 1996 Date: May 23, 1996 Page 26 BCT INTERNATIONAL, INC. ----------------------- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES --------------------------------------------------------
Financial Statements: Page Numbers - -------------------- ------------ Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets at February 29, 1996 and February 28, 1995 F-3 Consolidated Statements of Operations for the fiscal years ended February 29, 1996, February 28, 1995 and February 28, 1994 F-4 to F-5 Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended February 29, 1996, February 28, 1995 and February 28, 1994 F-6 to F-8 Consolidated Statements of Cash Flows for the fiscal years ended February 29, 1996, February 28, 1995 and February 28, 1994 F-9 Notes to Consolidated Financial Statements F-11 to F-22 Schedules: - --------- For the fiscal years ended February 29, 1996, February 28, 1995 and February 28, 1994: VIII Valuation and Qualifying Accounts F-23 X Supplementary Income Statement Information F-24
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. F-1 Page 27 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- To the Board of Directors and Stockholders of BCT International, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of BCT International, Inc. and its subsidiaries at February 29, 1996 and February 28, 1995, and the results of their operations and their cash flows for each of the three years in the period ended February 29, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Fort Lauderdale, Florida May 23, 1996 F-2 Page 28
BCT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS February 29, 1996 February 28, 1995 ----------------- ----------------- 000's omitted ASSETS ------ Current Assets: Cash and cash equivalents $ 923 $ 1,299 Short-term investments 50 1,071 Accounts and notes receivable, net of allowance for doubtful accounts of $408 ($337 in 1995) and deferred interest of $0 ($18 in 1995) 2,023 2,305 Receivables from employees 5 76 Inventory, net of reserve of $105 ($105 in 1995) 2,201 1,863 Assets held for sale, net 281 216 Prepaid expense and other current assets 58 25 Net deferred tax asset 211 88 ------- ------- Total current assets 5,752 6,943 ------- ------- Accounts and notes receivable, net of allowance for doubtful accounts of $505 ($551 in 1995) 1,597 259 Property and equipment at cost, net of accumulated depreciation and amortization of $500 ($313 in 1995) 1,014 640 Net deferred tax asset 1,604 1,466 Deposits and other assets 118 131 ------- ------- 4,333 2,496 Trademark, net of accumulated amortization of $29 ($24 in 1995) 165 170 Intangible assets, net of accumulated amortization of $283 ($113 in 1995) 488 409 ------- ------- $10,738 $10,018 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Accounts payable $ 687 $ 928 Notes payable 64 162 Accrued liabilities 181 238 Deferred revenue 187 49 Accrued payroll --- 24 ------- ------- Total current liabilities 1,119 1,401 Notes payable 5 48 ------- ------- Total liabilities 1,124 1,449 ------- ------- Commitments and contingencies (Note 10) --- --- ------- ------- Minority stockholder interest ( 20) --- ------- ------- Preferred stock, Series A, 12% cumulative, $1 par value, mandatorily redeemable, 810 shares authorized, 260 shares issued and outstanding 260 810 ------- ------- Stockholders' equity: Common stock, $.04 par value, authorized 25,000, issued and outstanding 5,164 shares (4,785 shares in 1995) 207 191 Paid in capital 11,659 11,110 Accumulated deficit (1,991) (3,054) ------- ------- 9,875 8,247 Less: Treasury stock, at cost, 226 shares (224 shares in 1995) (501) (488) ------- ------- Total stockholders' equity 9,374 7,759 ------- ------- $10,738 $10,018 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 Page 29 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the For the Fiscal year ended Fiscal year ended Fiscal year ended February 29, 1996 February 28, 1995 February 28, 1994 ------------------ ----------------- ----------------- 000's omitted ----------------- Revenues: Continuing franchise fees and commissions $ 4,820 $ 4,540 $ 4,004 Paper sales 8,241 7,077 6,886 Printing sales 918 508 514 Company Plants 1,054 760 651 Company Plants held for sale 1,251 92 --- Sales of franchises 870 466 957 Interest and other income 436 130 109 ------- ------- ------- 17,590 13,573 13,121 ------- ------- ------- Expenses: Cost of paper sales 7,368 6,272 6,086 Cost of printing sales 428 385 290 Cost of Company Plants 1,563 1,030 802 Cost of Company Plants held for sale 1,734 90 --- Cost of franchises sold 521 326 691 Selling, general and administrative 4,450 3,905 3,487 Research and development costs 421 279 367 Depreciation and amortization 170 227 338 Interest 9 27 270 Interest - related party -- 1 22 Minority interest (20) -- -- ------- ------- ------- 16,644 12,542 12,353 ------- ------- ------- Income before income taxes 946 1,031 768 Income tax benefit 195 124 93 ------- ------- ------- Net income $ 1,141 $ 1,155 $ 861 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 Page 30 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the For the For the Fiscal year ended Fiscal year ended Fiscal year ended February 29, 1996 February 28, 1995 February 28, 1994 ----------------- ----------------- ----------------- 000's omitted (except per share data) - -------------------------------------- Primary: Average number of shares outstanding 4,721 3,410 2,765 Common stock equivalents 898 1,661 689 ----- ----- ----- Totals 5,619 5,071 3,454 ===== ===== ===== Fully diluted: Average number of shares outstanding 4,721 3,410 2,765 Common stock equivalents and dilutive securities 1,291 3,184 2,312 ----- ----- ----- Totals 6,012 6,594 5,077 ===== ===== ===== Earnings per - ------------ common share: - ------------ Net income Primary $ .19 $ .18 $ .17 ===== ===== ===== Fully diluted $ .19 $ .18 $ .10 ===== ===== =====
The accompanying notes are an integral part of these consolidated financial statements. F-5 Page 31 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock ------------------- Less: 000's omitted Number of Par Paid In Accumulated Treasury ------------- Shares Value Capital Deficit Stock Total -------------------------------------------------------------------------- Balance March 1, 1993 2,958 $118 $6,323 $(4,745) $(449) $1,247 Cancellation of common stock for notes receivable from employees (8) --- --- --- (25) (25) Conversion of $175 of subordinated convertible debentures with a conversion rate of $3.00 58 2 173 --- --- 175 Tax benefit from exercise of employee stock options and stock compensation awards --- --- 76 --- --- 76 Issuance of warrants --- --- 53 --- --- 53 Dividend declared on Series A Convertible Preferred Stock --- --- --- (97) --- (97) Net income --- --- --- 861 --- 861 ----- ---- ------ ------- ------ ------ Balance February 28, 1994 3,008 120 6,625 (3,981) (474) 2,290 Cancellation of common stock for note receivable from an employee (5) --- --- --- (14) (14) Cancellation of common stock of an employee (59) (2) (15) --- --- (17) Conversion of $252 of subordinated convertible debentures with a conversion rate of $3.00 84 3 249 --- --- 252
The accompanying notes are an integral part of these consolidated financial statements. F-6 Page 32 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
000's omitted ------------- Common Stock ---------------- Less: Number of Par Paid In Accumulated Treasury Shares Value Capital Deficit Stock Total ------------------------------------------------------------- Conversion of $150 of subordinated convertible debentures with a conversion rate $2.27 66 3 147 --- --- 150 Exercise of 10 stock options with an exercise price of $1.25 10 --- 12 --- --- 12 Exercise of 6 warrants with an exercise price of $2.92 3 --- 9 --- --- 9 Issuance of warrants --- --- 38 --- --- 38 Accretion of commission paid on Series B convertible preferred stock --- --- (78) --- --- (78) Conversion of 2,225 of Series B convertible preferred stock to common stock with a conversion rate of $1.25 989 40 2,185 --- --- 2,225 Exercise of 689 Series B convertible preferred stock warrants with an exercise price of $3.00 689 27 2,039 --- --- 2,066 Cost associated with exercise of Series B convertible preferred stock warrants --- --- (86) --- --- (86) Redemption of 300 Series B convertible preferred stock warrants with a redemption price of $.05 --- --- (15) --- --- (15) Net income --- --- --- 1,155 --- 1,155 Dividend declared on convertible preferred stock --- --- --- (228) --- (228) ----- --- ----- ------- ---- ----- Balance February 28, 1995 4,785 191 11,110 (3,054) (488) 7,759
The accompanying notes are an integral part of these consolidated financial statements. F-7 Page 33 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
000's omitted ------------- Common Stock ------------------ Less: Number of Par Paid In Accumulated Treasury Shares Value Capital Deficit Stock Total ----------------------------------------------------------------- Exercise of 9 warrants 7 1 13 -- (13) 1 Issuance of warrants -- -- 38 -- -- 38 Conversion of 550 shares of Series A Preferred Stock at a conversion ratio of $1.48 372 15 535 -- -- 550 Registration costs -- -- (37) -- -- (37) Net income -- -- -- 1,141 -- 1,141 Dividend declared on convertible preferred stock -- -- -- (78) -- (78) ----- ---- ------- ------ ----- ------ Balance February 29, 1996 5,164 $207 $11,659 (1,991) $(501) $9,374 ===== ==== ======= ====== ===== ======
F-8 Page 34 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the For the Fiscal year ended Fiscal year ended Fiscal year ended February 29, 1996 February 28, 1995 February 28, 1994 ----------------- ----------------- ----------------- 000's omitted ------------- Cash flows from operating activities: Net income $1,141 $ 1,155 $ 861 Adjustments to reconcile net income to net cash (used by) provided by operating activities: Income tax benefit (778) (594) (502) Income tax expense 583 470 409 Depreciation and amortization 381 286 338 Cost assigned to warrants issued 38 38 53 Provision for doubtful accounts 435 352 196 Reserve for inventory -- 100 -- Minority interest (20) -- -- Changes in operating assets and liabilities (Increase) in accounts and notes receivable (985) (355) (439) (Increase) decrease in inventory (338) 4 (278) (Increase) in assets held for sale (367) -- -- (Increase) decrease in prepaid expenses and other assets (18) 20 (7) (Decrease) increase in accounts payable (241) (308) 413 Increase (decrease) in other accrued liabilities 57 (78) (62) ------ -------- ------ Net cash (used by) provided by operating activities (112) 1,090 982 ------ -------- ------ Cash flows from investing activities: Maturity (purchase) of for short-term investments 1,021 (1,071) -- Capital expenditures for property and equipment (917) (261) (359) Proceeds from disposition of equipment -- -- 4 Acquisition of Canadian Master Area Franchise Agreement -- -- (120) Acquisition of Company Plants (100) -- (50) ------ -------- ------ Net cash provided by (used for) investing activities 4 (1,332) (525) ------ -------- ------ Cash flows from financing activities: Issuance of Series B Convertible Preferred Stock -- 1,300 738 Investment banker fee associated with Series B Convertible Preferred Stock -- (65) -- Restricted cash -- -- (738) Dividend payments on Series A Preferred Stock (81) (97) (97) Dividend payments on Series B Preferred Stock -- (131) -- Exercise of Series B Convertible Preferred Stock -- 2,066 -- Investment banker fee associated with Series B warrants -- (86) -- Redemption of nonexercised Series B warrants -- (15) -- Exercise of stock options and warrants -- 21 -- Proceeds from borrowings -- -- 310 Repayments on borrowings (187) (352) (584) Repayments on borrowings - related party -- -- (89) Redemption of convertible subordinated debentures -- (1,180) -- ------ -------- ------ Net cash (used for) provided by financing activities (268) 1,461 (460) ------ -------- ------ Net (decrease) increase in cash and cash equivalents (376) 1,219 (3) Cash and cash equivalents at beginning of year 1,299 80 83 ------ -------- ------ Cash and cash equivalents at end of year $ 923 $ 1,299 $ 80 ====== ======== ====== The accompanying notes are an integral part of these consolidated financial statements.
F-9 Page 35 BCT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) 000's omitted -------------
For the For the For the Fiscal year ended Fiscal year ended Fiscal year ended February 29, 1996 February 28, 1995 February 28, 1994 ----------------- ----------------- ----------------- Supplemental disclosures: - ------------------------- Interest paid during the year $ 27 $ 85 $ 278 ====== ====== ====== Income taxes paid during the year $ 71 $ 18 $ 17 ====== ====== ======
Noncash activities: - ------------------ In fiscal 1996, $550 of convertible Series A preferred stock was converted into 372 shares of common stock. In fiscal 1996, the Company repossessed two existing franchisee plants and acquired $50 in tangible assets in exchange for funds owed the Company. In fiscal 1996, 9 warrants were exercised by the warrant holder for 3 shares of the Company's common stock. In fiscal 1995, $252 and $150 of subordinated convertible debentures were converted into 84 and 66 shares of common stock, respectively. In fiscal 1995, a note receivable due from an employee in the amount of $17 was satisfied through the return of 5 shares of common stock of the Company which collateralized this note. In fiscal 1995, the Chairman of the Board exchanged $100 of convertible debentures for 100 shares of Series B convertible preferred stock together with 44 additional warrants. In fiscal 1995, 2,225 shares of Series B convertible preferred stock were converted into 989 shares of the Company's common stock. In fiscal 1994, 60 shares of Series A convertible preferred stock were issued in exchange for assets purchased. In fiscal 1994, $175 of convertible debentures were converted into 58 shares of common stock. In fiscal 1994, notes receivable due from employees in the amount of $25 were satisfied through the cancellation of 8 shares of common stock of the Company that collateralized these notes receivable. The value ascribed to the common stock and additional paid in capital is $0 and $25, respectively. In fiscal 1994, the Company issued debt of $300 relating to the acquisition of BCT Delray and the Canadian Area Master Franchise Agreement. In fiscal 1994, the Chairman of the Board exchanged $73 of notes payable into Series B convertible preferred stock. The accompanying notes are an integral part of these consolidated financial statements. F-10 Page 36 BCT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's omitted) NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------- ------------------------------------------------------- Business BCT International Inc. (the Company), franchises wholesale thermography printing Plants through its wholly-owned subsidiary, Business Cards Tomorrow, Inc. (BCT), for which it receives initial franchise fees and continuing royalties. At February 29, 1996, BCT, through its wholly-owned subsidiary BCT Enterprises, Inc. and subsidiaries of BCT Enterprises, Inc., owns five Company Plants of which three are held for sale. BCT's ownership interest in one of the Company Plants is 70%. The Company also sells paper stock and catalogs to its franchisees and the Company Plants. At February 29, 1996, the Company has 100 thermography printing Plants in operation, 95 of which are franchised. The total number of Plants was 98 at February 28, 1995 and 97 at February 28, 1994. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and its 70% owned subsidiary. All significant intercompany transactions have been eliminated. The minority interest held by third parties in the majority owned subsidiary is separately stated. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates made by management in the accompanying financial statements relate to accounts receivable allowances and the tax valuation allowance. Actual results could differ from those estimates. Short-Term Investments Short-term interest bearing investments are those with maturities of less than one year but greater than three months when purchased and are readily convertible to cash. The short-term investments are classified as held to maturity and are stated at amortized cost, which approximates fair value. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, short-term investments, trade receivables, accounts payable, and notes payable approximate fair value as of February 29, 1996. Inventory Inventory, consisting primarily of paper products, printing supplies and catalogs for sale to its franchisees and the Company Plants, is stated at the lower of cost (first in, first out method) or market. Property and Equipment Property and equipment is recorded at cost. Depreciation is provided on the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs of major additions and improvements are capitalized and expenditures for maintenance and repairs which do not extend the life of the assets are expensed. Upon the sale or disposition of property and equipment, the cost and related accumulated depreciation is eliminated from the accounts, and any resultant gain or loss is credited or charged to operations. F-11 Page 37 Repossessions of Franchises Franchises are repossessed when management determines that the franchisees are in default under their franchise agreements and are unable to properly operate the business, meet their financial obligations, and their business actions are detrimental to the franchise network. Prior to repossession, amounts due to the Company are fully secured and fully reserved in the allowance for doubtful accounts. Upon takeover, the Company owns all assets of the Plant in forgiveness of the amounts due to it. The receivables owed to the Company are written off through the allowance for doubtful accounts. All assets acquired and the lease obligations assumed are recorded at fair value. The Company does not value any of the existing revenue stream of the repossessed Plants. The Company repossessed two Plants in 1996 (one in 1995). Acquisitions of Plants All acquisitions of Company Plants have been accounted for as purchases; operations of the businesses acquired have been included in the accompanying consolidated statements of operations from their respective dates of acquisition. The excess of the purchase price over fair value of the net assets acquired is included in goodwill. The Company acquired three Plants in 1996 (none in 1995). Assets Held for Sale Assets held for sale consist of the net assets of the Company Plants in Marietta, Georgia; Newbury Park, California and Riverside, California, and are carried at the lower of cost or market value. Trademark The trademark is amortized using the straight-line method over 40 years. Intangible Assets Intangible assets consist of the excess purchase price over the fair value of the net assets acquired relating primarily to the acquisition of Company Plants in fiscal 1994 and 1996, and the Canadian franchise rights in fiscal 1994. The amortization period for the Company Plants is 5 years and the Canadian acquisition intangible asset is being amortized over 19 years, which represents the remaining life of the franchise agreement acquired. Impairment of Long-Lived Assets and Identifiable Intangibles On March 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets To Be Disposed Of". Upon adoption, the goodwill associated with the Delray Beach, Florida Company Plant was accelerated by $108 and fully amortized at February 29, 1996. The Company reviews long-lived assets, identifiable intangibles and goodwill and will reserve for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. F-12 Page 38 Sales of Franchises Revenue from the sales of individual franchises, including the initial equipment package, is recognized upon the opening of the related franchise and when all significant services or conditions relating to the sale have been substantially performed. When these criteria have not been met, then the net profit from the sale has been deferred and characterized as deferred revenue. Revenue from the sale of an area franchise is recognized when all significant services relating to the sale have been completed. Continuing Franchise Royalties, Paper and Printing Revenues Continuing franchise royalties and paper and printing revenues are recognized monthly when earned. Collectibility of these revenues is assessed on a regular basis. The allowance for doubtful accounts is established through a provision for losses charged to selling, general and administrative expense. Accounts receivable are charged off against the allowance for doubtful accounts when management believes that collectibility is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses in existing accounts and notes receivable that may become uncollectible. Accounting for Stock Based Compensation In October 1995, the FASB issued Statement No. 123, (SFAS 123) "Accounting and Disclosure of Stock-Based Compensation," which encourages but does not require companies to recognize stock awards based on their fair value at the date of grant. The Company currently follows, and expects to follow, the provisions of APB No. 25 and related interpretations in accounting for its employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Although the Company is permitted to continue to follow the provisions of APB No. 25 under SFAS 123, certain pro forma disclosure will be required beginning in fiscal 1997 as if the Company had accounted for its stock options under the SFAS 123 fair value method. Research and Development Research and development costs include costs for new product development which are charged to operations as incurred. Income Taxes The Company utilizes an asset and liability approach to accounting for income taxes that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law or rates. Earnings Per Common Share Primary earnings per common share are calculated by dividing net earnings applicable to common stock by the weighted average number of common stock shares outstanding and common stock equivalents which consist of stock options and stock warrants. On a fully-diluted basis, net earnings, weighted average shares outstanding and common stock equivalents are adjusted to assume the conversion of convertible subordinated debentures and preferred stock from the date of issue. Cash and Cash Equivalents For the purposes of reporting cash flows, cash and cash equivalents include investments with maturities of ninety days or less at purchase date. Presentation and Reclassification All dollar and share amounts, except amounts related to per share data, are expressed in thousands of dollars. Certain items in the 1995 and 1994 consolidated financial statements have been reclassified for comparative purposes. F-13 Page 39 NOTE 2: SHORT-TERM INVESTMENTS - ------ ---------------------- Short term investments consist of the following:
February 29, 1996 February 28, 1995 ---------------------- -------------------- Carrying Carying Value Market Value Market U.S. Treasury Bill, face value of $50, due May 2, 1996 $49 $49 $ -- $ -- U.S. Treasury Bill, face value of $75, due May 25, 1995 -- -- 74 74 U.S. Treasury Bill, face value of $1,000, due June 1, 1995 -- -- 985 985 --- --- ------ ------ 49 49 1,059 1,059 Accrued interest 1 1 12 12 --- --- ------ ------ $50 $50 $1,071 $1,071 === === ====== ======
NOTE 3: ACCOUNTS AND NOTES RECEIVABLE - ------- ----------------------------- Accounts and notes receivable consist of the following:
February 29, February 28, 1996 1995 ------------- ------------- Continuing franchise fees receivable $ 902 $1,231 Paper sales receivable from franchisees 958 1,147 Notes receivable from sale of franchises, interest at 8% to 12%, due in monthly installments through 2006 773 148 Notes receivable due from franchisees, interest at 8% to 14%, payable in monthly installments through 2005 1,380 605 Company Plant accounts receivable from customers 187 86 Miscellaneous 333 253 ------- ------ 4,533 3,470 Less - allowance for doubtful accounts (913) (888) and deferred interest -- (18) ------- ------ 3,620 2,564 Less - amount not expected to be collected within one year, net of $505 allowance for doubtful accounts ($551 in 1995) (1,597) (259) ------- ------ $ 2,023 $2,305 ======= ======
F-14 Page 40 In the normal course of business, to meet the financing needs of its franchisees, the Company extends credit to its franchisees throughout the United States and Canada. Although the Company has a diversified receivable portfolio, a substantial portion of the franchisees' ability to honor their commitments to the Company is reliant upon the economic stability of the market in the franchisee's particular geographic area. The Company's exposure to loss in the event of nonperformance by the franchisees is represented by the contractual amount of the notes and accounts receivables and the franchise equipment leases guaranteed by the Company (see Note 10). The Company controls the credit risk of its receivables through credit approvals, limits and monitoring procedures. The Company may require collateral or other security to support the receivables with credit risk. At February 29, 1996, approximately $416 ($170 in 1995) of accounts receivable, although currently due, are classified into long term accounts and notes receivable, based upon historic payment performance of the franchisees. A significant portion of the allowance for doubtful accounts relates to these accounts and notes receivable. Amounts included in long term accounts and notes receivable include the following contractual payment terms: 1998 - $366, 1999- $230, 2000 and thereafter - $1,090. At February 29, 1996, $433 of notes receivable, with an 8% interest rate per annum, related to the purchase of the Honolulu, Hawaii Company Plant by South Pacific Wholesale Printers, Inc. The Chairman of the Board of the Company owns 50% of South Pacific Wholesale Printers, Inc. Bad debt expense for the years ended February 29, 1996, February 28, 1995 and February 28, 1994, was approximately $504, $352 and $196, respectively. Interest income is recognized on a cash basis for those accounts and notes receivable with specific reserves. Interest income for all other accounts and notes receivable are recognized on an accrual basis. NOTE 4: ACQUISITIONS - ------- ------------ On October 9, 1995, the Company acquired certain assets and liabilities from a franchisee plant located in Riverside, California for $335. This acquisition has been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the assets acquired (approximately $115) based on the estimated fair values at the date of acquisition. The purchase price associated with the acquisition exceeded the net assets acquired by approximately $220, which was recorded as an intangible asset. The operating results associated with this business acquisition are included in the Company's consolidated results of operations from October 9, 1995. On November 1, 1995 the Company entered into an agreement with a franchisee plant located in Louisville, Kentucky, in which it acquired 70% of all the assets and related liabilities for $276. The original owners of the franchise plant are maintaining a 30% minority interest. This acquisition has been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the assets acquired based on the estimated fair values at the date of acquisition. The purchase price associated with the acquisition exceeded the net assets acquired by approximately $276, which was recorded as an intangible asset. The operating results associated with this business acquisition are included in the Company's consolidated results of operations from November 1, 1995. On December 1, 1995, the Company acquired certain assets from United Impressions, Inc. for $365 relating to its store operations. This acquisition has been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the assets acquired (approximately $158) based on the estimated fair values at the date of acquisition. The purchase price associated with the acquisition exceeded the net assets acquired by approximately $207, which was recorded as an intangible asset. The operating results associated with this business acquisition are included in the Company's consolidated results of operations from December 1, 1995. The pro forma unaudited results of operations for the years ended February 29, 1996 and February 28, 1995, assuming these acquisitions had been consummated as of March 1, 1994 are as follows:
February 29, 1996 February 28, 1995 ----------------- ----------------- Revenues and other income $18,647 $15,267 Net income $ 949 $ 932 Earnings per common share $ .17 $ .18 ======= =======
F-15 Page 41 NOTE 5: PROPERTY AND EQUIPMENT - ------- ---------------------- Major classifications of property and equipment are as follows:
Estimated useful February 29, February 28, lives 1996 1995 (in years) ------------- ------------- ---------- Leasehold improvements $ 78 $ 53 5 - 32 Machinery and equipment 450 181 3 - 20 Dies and artwork 130 118 25 Videos 37 37 5 Furniture, fixtures and other equipment 160 104 5 - 10 Computers 606 407 5 Franchisee software 48 48 3 Auto 5 5 5 ------ ----- 1,514 953 Less - accumulated depreciation and amortization (500) (313) ------ ----- $1,014 $ 640 ====== =====
NOTE 6: NOTES PAYABLE - ------- ------------- Notes payable consist of the following:
February 29, February 28, 1996 1995 ------------ ------------ Note payable to prior owner of Company Plant secured by equipment, monthly principal and interest payments of $4, interest at 8% per annum, due May 28, 1998 $ -- $ 131 Unsecured amount due to Continental Stamps West, interest imputed at 13%, principal and interest due in monthly installments of $4 through February 1997 42 79 Note payable to prior owner of Company Plant assumed in acquisition, monthly principal and interest due in monthly installments of $2 through May 1997 27 -- ----- ----- 69 210 Less - amount due after one year (5) (162) ----- ----- $ 64 $ 48 ===== =====
F-16 Page 42 Scheduled maturities after February 29, 1996 for notes payable are as follows: Fiscal Note Year Payable ------ ------- 1997 $ 64 1998 $ 5 ----- $ 69 ===== NOTE 7: PREFERRED STOCK - ------- ---------------- Effective May 1992 750 shares of Series A Convertible Preferred Stock, $1.00 par value, were authorized and issued by the Company. In January 1994, 60 additional shares of Series A preferred stock were authorized and issued, bringing the total to 810 shares. Dividends on preferred stock are cumulative and accrue from the date of original issue at a 12% rate per annum, payable quarterly on the first day of each January, April, July and October. Dividends in arrears are non-interest bearing. Dividends must either be fully paid or declared and aggregated for payment prior to the declaration of dividends on the common shares. The Series A preferred stock is non-voting except as it relates to any action affecting the terms of the priority of the preferred stock. Upon the event of a voluntary or involuntary liquidation, the holders of the Series A preferred stock will be entitled to receive $1.00 per share plus all accrued and unpaid dividends. The Series A preferred stock is convertible into common stock at a ratio of 1.48 shares of preferred stock for each share of common stock. The Company has the option to require conversion of the preferred stock beginning two years after the date of issuance if the common stock closing price or last reported sales price is at least $7.00 per share for 10 consecutive business days. If the preferred stock is not converted within five years of issuance, the Company must redeem the stock at $1.00 per share plus all accrued and unpaid dividends. On October 1, 1995, 550 shares of Series A preferred stock were voluntarily converted, at a ratio of 1.48 shares, into 372 shares of common stock. At February 29, 1996, 260 shares of Series A preferred stock remain outstanding. Effective February 17, 1994, 2,500 shares of Series B convertible preferred stock, $1.00 par value, were authorized by the Company for sale in a private placement offering at a $1.00 price per share. A total of 2,225 shares were sold in the offering. The net proceeds of the offering, which totalled $1,973, were used by the Company (i) to pay off the outstanding 11% convertible subordinated debentures due on March 31, 1994 of $1,180 and (ii) for general working capital. Dividends on the Series B convertible preferred stock were cumulative and accrued from the date of original issue at a 9% rate per annum, payable quarterly on the first day of each January, April, July and October. Total Series B dividends declared and paid to holders were $129 in fiscal 1995. The Company exercised its right to require conversion of the Series B preferred stock into common stock on November 1, 1994. As a result, the Series B preferred stock totalling 2,225 shares was converted into 989 shares of the Company's common stock. The holders of the Series B convertible preferred stock received one warrant for each 2.25 shares of preferred stock purchased, entitling the holder to purchase one share of the Company's common stock for three years from the date of issuance at an exercise price of $3.00 per share. Contemporaneous with the Company's forced conversion of the Series B preferred stock into common stock, the holders were required to either exercise their Series B Warrants or have them redeemed by the Company. Effective December 8, 1994, 689 warrants were exercised at $3.00 per warrant and the Company issued 689 shares of its common stock, yielding gross proceeds to the Company of $2,067. A commission of $86 was paid to an investment banker in connection with the exercise of these warrants and was offset against additional paid in capital. The Company redeemed the 300 remaining Series B warrants at a price of $.05 each or $15. The original commission of $78 paid in connection with the sale of the Series B preferred stock was fully accreted to additional paid in capital upon the conversion of Series B preferred stock into common stock. F-17 Page 43 NOTE 8: STOCKHOLDERS' EQUITY - ------- -------------------- Stock Options - ------------- Stock options outstanding, exercisable and exercise price for the three years ended February 29, 1996 are as follows:
Options Outstanding Price Range Aggregate ----------- --------------- --------- At March 1, 1993 900 $1.25 to $3.50 $1,674 Options granted 115 $2.38 274 Options exercised -- -- -- Options cancelled (9) $1.25 to $1.48 (12) ----- -------------- ------ At February 28, 1994 1,006 $1.25 to $3.50 1,936 Options granted 215 $3.38 727 Options exercised (10) $1.25 (12) Options cancelled (31) $1.25 to $2.38 (53) Options expired (16) $3.00 (48) ----- -------------- ------ At February 28, 1995 1,164 $1.25 to $3.50 2,550 Options granted 65 $4.94 to $5.00 323 Options exercised -- -- -- Options cancelled (16) $2.38 to $5.00 (64) Options expired -- -- -- ----- -------------- ------ At February 29, 1996 1,213 $1.25 to $5.00 $2,809 ===== ============== ====== Options exercisable at February 29, 1996 1,131 $1.25 to $5.00 $2,491 ===== ============== ======
F-18 Page 44 Warrants - -------- As of February 29, 1996 and February 28, 1995, there were respectively, outstanding warrants for the purchase of 721 and 694 shares of common stock, respectively, 37 of which are held by the Chairman of the Board. During fiscal 1996, 9 warrants were exercised and paid for in-kind 22 warrants expired and 58 warrants were issued. The exercise price and the dates are as follows:
Title of Issue Aggregate Amount Date from which Price at which Called for of Securities Called Warrants Last Warrants by Warrants for by Warrants are Exercisable Exercise Date are Exercisable - -------------- -------------------- ----------------- ----------------- --------------- Issued during 1985 merger 38 September 8, 1986 September 7, 1996 $1.25 Converted Subordinated Debentures 175 August 30, 1991 - March 31, 1997 $3.50 to $4.46 March 31, 1994 Issued to Investment Banker 208 May 31, 1993 May 31, 1998 $2.25 Issued to Investment Banker 300 February 1, 1994 February 1, 1999 $2.00 to $4.00 --- Warrants outstanding 721 ===
As of February 28, 1995, 289 warrants issued in conjunction with convertible subordinated debentures had expired and 6 of these warrants were exercised yielding $9. The 989 warrants issued in conjunction with the Series B convertible preferred stock were called for exercise at $3.00 per share or redemption at $.05 each by the Company on November 1, 1994. Of the 989 warrants, 689 were exercised yielding gross proceeds of $2,066, and the remaining 300 were redeemed by the Company for $15. F-19 Page 45 NOTE 9: INCOME TAXES - ------- ------------ The components of the provision for (benefit from) income taxes for the years ended February 28, 1996, 1995 and 1994 are as follows:
1996 1995 1994 -------- --------- -------- Current Provision: Federal $ 32 $ 26 $ 16 State 52 -- 20 ------ ------ ------ Total current 84 26 36 Deferred provision (benefit) (279) (150) (205) Tax benefit from exercise of employee stock options and stock compensation awards credited to paid in capital -- -- 76 ------ ------ ------ Total (benefit) $ (195) $ (124) $ (93) ====== ====== ======
The Company's net deferred tax asset is comprised of the following:
February 29, 1996 February 28, 1995 February 28, 1994 ----------------- ----------------- ----------------- Deferred Tax Asset - Current: Bad debt reserve $ 159 $ 132 $ 175 Other 41 44 27 Capitalization of inventory cost 102 -- -- -------- -------- -------- Total Deferred Tax Asset 302 176 202 -------- -------- -------- Valuation Allowance (91) (88) (121) -------- -------- -------- Net Deferred Tax Asset - Current $ 211 $ 88 $ 81 ======== ======== ======== Deferred Tax Asset - Non-Current: Bad debt reserve $ 193 $ 215 $ 151 Net operating loss carryovers 2,052 2,747 3,213 Other 135 34 22 -------- -------- -------- Total Deferred Tax Asset 2,380 2,996 3,386 -------- -------- -------- Valuation Allowance (685) (1,466) (2,010) -------- -------- -------- Deferred Tax Liabilities - Non-Current: Fixed assets (91) (64) (36) -------- -------- -------- Total Deferred Tax Liability (91) (64) (36) -------- -------- -------- Net Deferred Tax Asset - Non-Current $ 1,604 $ 1,466 $ 1,340 ======== ======== ======== Net Deferred Tax Asset - Total $ 1,815 $ 1,554 $ 1,421 ======== ======== ========
F-20 Page 46 The net change in the valuation allowance for the deferred tax asset was a decrease of $778, $577 and $1,706 for the fiscal years ended February 29, 1996, February 28, 1995 and 1994, respectively. For fiscal year ended February 28, 1994, $288, of the reduction in the valuation allowance related to the utilization of acquired net operating loss carryforwards which reduced goodwill. The remaining reduction in the valuation allowance of $1,418 relates to management's change in judgment about the realizability of the related deferred tax asset in future years. Of this amount, $928 related to the valuation allowance for acquired net operating losses which reduced goodwill and the remaining decrease of $490 in the valuation allowance reduced tax expense. For fiscal year ended February 29, 1996 and February 28, 1995, the decrease of $778 and $577 in the valuation allowance reduced tax expense of $583 and $577, respectively. Net operating loss carryforwards for Federal income tax purposes total approximately $5,452 at February 29, 1996. The net operating loss carryforward includes $540 with certain limitations. Net operating losses expire as follows:
Year of Expiration Amount ---------- ------ 1998 $ 7 2000 11 2001 1,102 2002 1,327 2003 294 2005 1,721 2006 962 2007 12 2008 16 ------ $5,452 ======
For Federal income tax purposes, the Company has approximately $19 of general business credit carryovers which expire at various dates through 2001. If certain substantial changes in the Company's ownership should occur, there would be an annual limitation on the amount of carryforward which could be utilized. The difference between the statutory and effective tax rates are as follows:
1996 1995 1994 ---- ---- ---- Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- Tax at statutory rate $ 321 34% $ 351 34% $ 269 35% Non-deductible amortization of purchase price over fair value of net assets acquired -- -- 37 3 65 8 Other 178 19 (8) (1) (4) (1) State income tax, net of federal benefit 52 6 47 5 51 7 Alternative minimum tax 32 3 26 3 16 2 Decrease in Federal and state valuation allowance (778) (82) (577) (56) (490) (62) ------ ---- ------ ---- ------ ---- $(195) (20)% $(124) (12)% $ (93) (11)% ====== ==== ====== ==== ====== ====
F-21 Page 47 NOTE 10: COMMITMENTS AND CONTINGENCIES - -------- ----------------------------- The Company is a party to various litigation matters, including a matter with a prior officer of the Company. In the opinion of management, potential losses, if any, on the various matters will not have a material impact on the financial condition or results of operation of the Company. The Company's corporate offices and office equipment are leased under noncancellable lease agreements. The leases initially expire at various dates through 2000, and contain options for renewals. There are provisions in the leases for rent increases based on cost of living increases under certain conditions. During the Company's operation of the Hawaii Company Plant, a lease was executed with a lessor for its facilities. Upon sale of the Hawaii Plant, the Company entered into a sublease agreement with its new franchisee. The commitment of the Company is through May 1997 with minimum monthly payments of $5. As part of the terms of the Hawaii Company Plant sale, the buyer is obligated to reimburse the Company in full for the monthly lease cost for the lease term. The following are the approximate minimum annual noncancellable rentals to be paid under the provisions of the leases:
Fiscal Year Lease Commitments ----------- ----------------- 1997 $321 1998 197 1999 123 2000 119 2001 53 ---- $813 ====
Rental expense amounted to the following approximate amounts for the corresponding periods:
For the year ended Amount ------------------ ------ February 29, 1996 $295 February 28, 1995 $193 February 28, 1994 $175
At February 29, 1996, the Company has guaranteed the payment of equipment lease obligations for certain of its franchisees for an aggregate amount of approximately $765. In March 1993, the Company entered into an employment agreement with the Chairman of the Board. The term of the employment contract is seven years. The agreement calls for minimum annual salary amounts during the term of this contract as follows:
Year Ending February 28, Amount ----------------------- ------ 1997 $300 1998 $300 1999 $300 2000 $300
In the event that the Chairman of the Board is substantially incapacitated during the term of his employment for a period of 90 days in the aggregate during any twelve month period, the Company has the right to terminate his employment. Upon termination, the Chairman of the Board will receive one-half of his salary in effect on the date of termination for the remaining term of the agreement. Additionally, in the event of the Chairman's death during his employment, his designated beneficiary or his estate shall be paid one-half of his salary in effect on the date of his death for the remaining term of the agreement. In March 1995 the Company entered into an employment contract with the President of BCT. The President may be terminated by the Company at will; however, under his agreement with the Company, if he is terminated during the first three years of his employment, he is entitled to receive six months of severance pay. The President was granted 40 options of which 10 immediately vested and the remainder are scheduled to vest over a three year period ending in fiscal 1999. F-22 Page 48 BCT INTERNATIONAL, INC. ----------------------- 000's omitted SCHEDULE VIII - ------------- VALUATION AND QUALIFYING ACCOUNTS ---------------------------------
Column A Column B Column C Column D Column E Additions ----------------- Balance at Charged to Balance at beginning costs and end of of year expenses Other Deductions year --------- ---------- ----- ---------- ---------- For the year ended February 29, 1996 Allowance for doubtful accounts $ 888 $504 $ -- $ (479)(1) $ 913 ------ ---- ---- ------- ------ Deferred tax assets valuation allowance $1,554 $ -- -- $ (778) $ 776(2) ------ ---- ---- ------- ------ For the year ended February 28, 1995 Allowance for doubtful accounts $ 836 $352 $ -- $ (300)(1) $ 888 ------ ---- ---- ------- ------ Deferred tax assets valuation allowance $2,131 $ -- $ -- $ (577) $1,554(2) ------ ---- ---- ------- ------ For the year ended February 28, 1994 Allowance for doubtful accounts $ 647 $196 $ -- $ (7)(1) $ 836 ------ ---- ---- ------- ------ Deferred tax assets valuation allowance $3,837 $ -- $ -- $(1,706)(3) $2,131(2) ------ ---- ---- ------- ------
Allowance for doubtful accounts at February 29, 1996 of $913 is comprised of $408 related to current receivables and $505 to long-term receivables. (1) Write off of uncollectible receivables. (2) A deferred tax asset value. (3) The excess of purchase price over fair value of net assets acquired was reduced by $1,216 of the valuation allowance, since this reduction represents the utilization of the acquired operating loss carryforwards. F-23 Page 49 SCHEDULE X BCT INTERNATIONAL, INC. ----------------------- 000's omitted ------------- SUPPLEMENTARY INCOME STATEMENT INFORMATION ------------------------------------------
COLUMN A - -------- Item February 29, 1996 February 28, 1995 February 28, 1994 ---- ----------------- ----------------- ----------------- Advertising Costs $210 $156 $162 ==== ==== ==== Amortization of excess cost over value of net assets acquired $ -- $108 $193 ==== ==== ==== Amortization of intangible assets $182 $ 68 $ 22 ==== ==== ====
F-24 Page 50 EX-10.9 2 EXHIBIT 10.9 Exhibit 10.9 ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT (the "AGREEMENT") made and entered into this 23rd day of February, 1996, by and between BUSINESS CARDS TOMORROW, INC., (BCT), a Florida Corporation, hereinafter referred to as the "SELLER", and E. V. ANTRIM, ROSEMARY R. ANTRIM and WILLIAM A. WILKERSON, jointly & severally, hereinafter referred to as the "BUYERS". W I T N E S S E T H : That in consideration of the mutual covenants, conditions and agreements herein contained, the Parties do hereby agree as follows: 1. ASSETS TO BE PURCHASED. The SELLER agrees to sell and the BUYERS agree to buy, upon the terms and conditions hereinafter set forth, the following described assets (the "ASSETS") of the Business owned and operated by SELLER known as BCT, located at 801 Moowaa Street, Building A, Honolulu, Hawaii, 96817, to-wit: Certain leasehold improvements, existing Lease Agreement, furniture, fixtures, transferable licenses, equipment, trade name, customer list, accounts receivable and goodwill of the going Business known as BCT HAWAII (#3045), located at 801 Moowaa Street, Building A, Honolulu, Hawaii, 96817. A list of said furniture, fixtures, and equipment is attached hereto as Exhibit "A", and the allocation of the Purchase Price between the aforedescribed ASSETS shall be as follows: A. Furnishings, fixtures and equipment $145,000.00 B. Goodwill, trade name and customer list $138,000.00 C. Inventory $ 25,000.00 D. Accounts Receivable $ 50,000.00 E. Leasehold and leasehold improvements $ 42,000.00 TOTAL $400,000.00 =========== The purchase price will be adjusted at closing to reflect the actual value of the inventory and accounts receivable. 2. PURCHASE PRICE: The Purchase Price for the sale, conveyance and delivery of the ASSETS described in paragraph 1 shall be Four Hundred Thousand Dollars ($400,000.00), and payment shall be as follows: A. Upon the CLOSING of this transaction, BUYERS shall execute and deliver a Promissory Note ("NOTE 1") in favor of SELLER in the principal sum of Three Hundred, Twenty-Five Thousand Dollars ($325,000.00), bearing interest at the rate of eight percent (8%) per annum, with principal and interest being payable in equal monthly installments with a fifteen (15) year amortization and a ten (10) year balloon commencing one (1) month from the date of CLOSING.(*) NOTE 1 shall be secured by a Security Agreement as provided in paragraph 4 below. 3. INVENTORY AND ACCOUNTS RECEIVABLE. At CLOSING, BUYERS shall purchase SELLER's paper stock inventory, supplies, inventory and accounts receivable, which shall be taken and verified by the Parties on the date prior to CLOSING. BUYERS shall execute and deliver a Promissory Note ("NOTE 2") to SELLER for the SELLER's cost of the paper stock inventory, supplies and accounts receivable as shown on SELLER's books. The agreed value of SELLER's accounts receivable shall be determined as follows: A. 100% of accounts billed less than 45 days. B. 90% of accounts billed 45 days or more but less than 90 days. C. 80% of accounts billed 60 days or more but less than 90 days. D. 0% of accounts billed 90 days or more. NOTE 2 will bear interest at the rate of eight percent (8%) per annum, with principal and interest being payable in equal monthly installments over five (5) years commencing one (1) month from the date of CLOSING and shall be secured by a Security Agreement as provided in paragraph 4 below. 4. SECURITY DOCUMENTS. At CLOSING, NOTE 1 and NOTE 2 will be secured by the following described documents: A. Security Agreement (the "SECURITY AGREEMENT"). B. Collateral Assignment of Lease Agreement (the "COLLATERAL ASSIGNMENT"). C. Uniform Commercial Code Financing Statement (the "UCC-1"). The aforedescribed Agreements (the 'SECURITY DOCUMENTS") provide certain collateral for the payment of NOTE 1 and Note 2 to SELLER as hereinabove specifically described. The SECURITY DOCUMENTS and all related documents described or contemplated therein as determined to be appropriate by counsel for SELLER, shall encumber the ASSETS being transferred herein during such time any amounts remain outstanding on NOTE 1 or NOTE 2. The SECURITY DOCUMENTS shall prohibit the transfer of the ASSETS by BUYERS during the term thereof, and shall not be assumable by any third party. The aforedescribed SECURITY DOCUMENTS shall contain such other additional terms and provisions as shall be approved by counsel for SELLER. 5. CONVEYANCE OF ASSETS. Upon the CLOSING of this transaction as hereinafter described, SELLER shall deliver to BUYERS all such bills of sale, endorsements, assignments, acknowledgments, certificates and other good and sufficient instruments of transfer as shall be effective to vest in BUYERS good title to the ASSETS and rights described in Paragraph 1 above as approved by counsel for BUYERS. In addition, at CLOSING, BUYERS shall execute and deliver to SELLER the standard form of Franchise Agreement and related documents (the "FRANCHISE AGREEMENT") currently in use by SELLER in connection with its BUSINESS CARDS TOMORROW franchise operations. BUYERS acknowledge having previously received SELLER's Uniform Franchise Offering Circular and hereby consent to and approve the FRANCHISE AGREEMENT. 6. ASSUMPTION OF TRADE DEBT. Except as otherwise provided herein, it is hereby agreed between the Parties that BUYERS are not assuming any trade obligations or non-trade obligations of SELLER which exist at the time of the CLOSING of this transaction. All accounts payable as shall accrue before the effective date hereof shall belong to, and be the responsibility of, SELLER. The Parties acknowledge that certain adjustments of expense must be made between them subsequent to CLOSING, for items of income and expense which will have accrued as of the effective date, but not able to be reduced to a liquidated sum by the date of CLOSING. The Parties agree to adjust such items of income and expense between themselves within thirty (30) days subsequent to CLOSING. 7. REPRESENTATIONS BY SELLER. The SELLER makes the following representations and warranties to the BUYERS, all of which shall survive the CLOSING: A. That SELLER is a corporation duly organized and existing in good standing under the laws of the State of Florida. The Board of Directors of said corporation have approved the sale described hereunder and have authorized the officers executing this AGREEMENT to do so. SELLER agrees to deliver a Corporate Resolution to BUYERS at closing reflecting approval by the Board of Directors of this transaction. B. That SELLER is the owner of, and has good and marketable title to, the ASSETS described in Paragraph 1 above, free and clear of all debts and encumbrances, except as otherwise reflected in this AGREEMENT. C. That SELLER has entered into no contract materially restricting the ASSETS described in Paragraph 1 above. D. That there are no judgments, liens, actions or proceedings pending against SELLER which adversely affect the ASSETS and that SELLER has complied with all laws, rules regulations imposed by and governmental authority or otherwise relating to the ASSETS. 8. REPRESENTATIONS BY BUYERS: The BUYERS make the following representations and warranties to the SELLER, all of which shall survive the CLOSING: A. BUYERS have all requisite power and authority to own all of their properties and to carry on their business as contemplated by this AGREEMENT and the BUYERS have unrestricted power and authority to execute and deliver this AGREEMENT and to perform the transactions contemplated hereby. B. This AGREEMENT and all other agreements, documents and instruments executed by the BUYERS pursuant hereto are and will be the legal, valid and binding obligations of the BUYERS enforceable in accordance with their terms. C. The execution and delivery of this AGREEMENT do not, and the consummation of the transactions contemplated hereby will not constitute a violation of, and are not, and will not be, a default under or conflict with the terms of any contract, lease, indenture, agreement, order, judgment or decree to which BUYERS are a party or by which they are bound or to which any of their assets are subject and do not, and will not, violate or constitute a default under any statute, rule, regulation, order or ordinance of any governmental, judicial or arbitral body. D. There is no suit, action or legal, administrative, arbitration or other proceeding of any nature pending, or, to the knowledge of the BUYERS, threatened, against them which might affect the legality or validity of this AGREEMENT, or the transactions contemplated hereby, and there is no factual basis known to BUYERS for any such suit, action or proceeding. 9. UNIFORM COMMERCIAL CODE BULK TRANSFER COMPLIANCE. The Parties acknowledge that this transaction shall be closed in accordance with any applicable Uniform Commercial Code (the "U.C.C.") provisions in effect in the State of Hawaii, and the Parties agree to take all such action as may be required to protect BUYERS in compliance with the U.C.C. 10. CLOSING. The closing and transfer of the title of the ASSETS being purchased herein (the "CLOSING") shall take place on or before February 29, 1996 at the offices of SELLER, 3000 N.E. 30th Place, 5th Floor, Fort Lauderdale, Florida 33306. Each of the Parties will execute and deliver at the CLOSING, or as soon thereafter as reasonably practicable, all instruments reasonably required to carry out the terms of this AGREEMENT, and all bills of sale, endorsements, assignments, promissory notes, SECURITY DOCUMENTS, UCC-1 financing statements and other good and sufficient instruments to effectively transfer to the BUYERS full title to the ASSETS and rights as described herein, and to secure the lien of SELLER therein. The Parties shall provide the customary and necessary corporate resolutions and approvals, properly executed, authorizing this transaction. Possession of the ASSETS described in Paragraph 1 above shall be delivered to BUYERS at CLOSING. 11. PRORATIONS. The Parties agree that upon the CLOSING of this transaction, all rents, security deposits, insurance policies, utilities, utility deposits, and any and all items of income and expense, of a proratable nature, shall be prorated, and a schedule of same included in the Closing Statement. 12. FURTHER ASSURANCES. The parties hereby agree that at any time, and from time to time after the CLOSING, at the request of the other party, and without further consideration, each party will execute, acknowledge and deliver such other instruments of conveyance, transfer or which may be required to establish liens, and take such other action as the other party reasonably might require to more effectively convey to, transfer to and vest in the other party, any or all of the ASSETS, properties, liens, rights and goodwill being conveyed and delivered hereunder. 13. CONDUCT OF BUSINESS PRIOR TO CLOSING. SELLER hereby agrees that, subsequent to the execution of this AGREEMENT and prior to CLOSING, except as otherwise consented to by BUYERS in writing: A. Ordinary Course. SELLER's Business described in paragraph 1 above shall be conducted only in ordinary course and in the normal and regular manner. The SELLER will not violate the terms of any contracts or other obligations of the Business. The SELLER will not remove or cause to be removed any inventory or stock-in-trade except as it may be consumed in the regular course of trade. B. Changes in Compensation. No extraordinary increase (exceeding 20 percent increase per year) will be made in the compensation or employee benefits payable or to become payable to any employee or agent of BCT HAWAII, except as may be approved by SELLER in writing. C. Preservation of Organization. SELLER will use its best efforts to preserve the BCT HAWAII (#3045) organization intact, and make no material changes therein. D. Maintenance. SELLER will maintain its property and in substantially its present order and condition subject to normal wear and tear or replacement. 14. DEFAULT. If any Party fails to perform any of the covenants of this AGREEMENT, the other Party shall be entitled to all remedies at law and in equity, including the appointment of a Receiver and specific performance. 15. LITIGATION. In the event of a dispute arising out of this AGREEMENT, the prevailing Party shall be entitled to recover its reasonable costs and attorney's fees including, but not limited to, such fees incurred prior to the institution of litigation, or in litigation, from the non-prevailing Party. 16. NON-WAIVER. The failure of either Party to require the performance of any terms of this AGREEMENT, or the waiver by either Party of any breach of this AGREEMENT, shall not prevent a subsequent enforcement of this term or be deemed a waiver of any subsequent breach. 17. NOTICES. All notices given under the provision of this Agreement shall be deemed given when sent by Certified Mail, Return Receipt Requested, to the following addresses: For SELLER: Mr. A. George Cann, President Business Cards Tomorrow, Inc. 3000 NE 30th Place, 5th Floor Fort Lauderdale, FL 33306 For BUYERS: E. V. Antrim Rosemary F. Antrim 2171 Executive Drive, Suite 300 Addison, Il 60101 William A. Wilkerson 321 Sunset Drive, #3 Fort Lauderdale, FL 33301 18. BROKER: SELLER and BUYERS each represent that neither of them have had any discussions or negotiations with any broker concerning the subject matter of this AGREEMENT. Each Party agrees to indemnify the other Party against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith including, without limitation, reasonable attorney's fees and expenses, for any breach of the foregoing representation. 19. ASSIGNMENT. This AGREEMENT shall not be assigned by BUYERS to anyone without the prior written consent of the SELLER. SELLER may assign this AGREEMENT, or any portion thereof, at its option. 20. BENEFIT. This AGREEMENT shall be binding upon the respective Parties, their successors, heirs, personal representatives, nominees or assigns. All words used herein in the singular number shall extend to and include the plural number, and all words used herein in the plural number shall extend to and include the singular number, when the context or facts require same. All words used herein in any gender shall extend to and include all genders and any pronoun will be taken to refer to the person or persons intended, regardless of number or gender. 21. CONSTRUCTION. This AGREEMENT shall be construed without regard to any presumption or other rule of law requiring construction against the Party causing this AGREEMENT to be drafted. 22. APPLICABLE LAW. Any questions or matters arising under this AGREEMENT as to validity, construction, performance or otherwise, shall be governed, interpreted and enforced in accordance with the law of the State of Florida. In the event of a dispute arising out of this AGREEMENT, venue shall lie in the Circuit Court of Broward County, Florida, or the U.S. District Court for the Southern District of Florida. 23. INVALIDITY OF ANY PROVISION. In case any one or more of the provisions contained in this AGREEMENT shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 24. BINDING AGREEMENT. This AGREEMENT constitutes the entire and complete AGREEMENT between the Parties hereto and supersedes all prior correspondence, discussions, agreements and understandings between the Parties hereto relating to the sale and purchase of the ASSETS. Neither this AGREEMENT nor any term or provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the Parties, including the same formalities with which this instrument has been executed. 25. CAPTIONS. Paragraph headings shall not be deemed to be a part of the provisions of such paragraph or have any effect upon the construction thereof, but the same are inserted for purposes of reference only. 26. COUNTERPARTS. This AGREEMENT may be executed in counterparts, each of which shall have the effect of being an original AGREEMENT. IN WITNESS WHEREOF, the Parties hereto have hereunto set their hands and seals the day and year first above written. Signed, sealed and delivered in the presence of: Kerry Kabza E.V. Antrim - ------------------------------ -------------------------------- E.V. Antrim Kerry Kabza Rosemary F. Antrim - ------------------------------ -------------------------------- Rosemary F. Antrim Sharon Crowder William A. Wilkerson - ------------------------------ -------------------------------- William A. Wilkerson BUSINESS CARDS TOMORROW, INC. a Florida Corporation Sharon Crowder By: A. George Cann, President - ------------------------------ ---------------------------- A. George Cann, President - ------------------------------ As to SELLER ADDENDUM to Asset Purchase Agreement for E. V. ANTRIM, ROSEMARY R. ANTRIM and WILLIAM A. WILKERSON: (*)Note 1 represents Buyers' assumption of the indebtedness of Kevin J. Old and Maria L. Old to BCT with respect to the Business pursuant to their $325,000 promissory note to BCT dated June 8, 1995. ANNETTE FEDUS E.V. Antrim - ------------------------------ -------------------------------- E.V. Antrim ANNETTE FEDUS Rosemary F. Antrim - ------------------------------ -------------------------------- Rosemary F. Antrim Sharon Crowder William A. Wilkerson - ------------------------------ -------------------------------- William A. Wilkerson BUSINESS CARDS TOMORROW, INC. a Florida Corporation BETH CARLSON By: DONNA PAGANO - LEO - ------------------------------ ---------------------------- Donna Pagano-Leo, V. President Treasurer & Chief Financial - ------------------------------ Officer As to SELLER EX-27 3 FINANCIAL DATA SCHEDULE
5 0000351541 BCT INTERNATIONAL, INC. 1,000 YEAR FEB-29-1996 MAR-01-1995 FEB-29-1996 0 50 4,533 913 2,201 5,752 1,514 500 10,738 1,119 5 207 260 0 9,668 10,738 12,229 17,590 8,891 9,194 0 504 9 946 (195) 1,141 0 0 0 1,141 .19 .19
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