-----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, HXkcXTRABG7/6/GdzDqd0OjdjnBUSyxqBfH3n5sSQcFco3n6aPKdhhdzt5i1kZn4 LA1F37oNHkEhYUevwn+4iw== 0001005477-98-003251.txt : 19981118 0001005477-98-003251.hdr.sgml : 19981118 ACCESSION NUMBER: 0001005477-98-003251 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BCAM INTERNATIONAL INC CENTRAL INDEX KEY: 0000856143 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 133228375 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-10420 FILM NUMBER: 98752300 BUSINESS ADDRESS: STREET 1: 1800 WALT WHITMAN RD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5167523550 MAIL ADDRESS: STREET 1: 1800 WALT WHITMAN RD CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: BIOMECHANICS CORP OF AMERICA DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------------------ |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ________________ to ________________ Commission file number 0-18109 ----------------- BCAM INTERNATIONAL, INC. ------------------------ (Exact name of small business issuer as specified in its charter) New York 13-3228375 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1800 Walt Whitman Road, Melville, New York 11747 - -------------------------------------------------------------------------------- (Address of principal executive offices) (516) 752-3550 - -------------------------------------------------------------------------------- (Issuer's telephone number) Not applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes |_| No |_| State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: October 30, 1998: 20,991,289 ---------------------------- Transitional Small Business Disclosure Format (check one): Yes |_| No |X| 1 BCAM INTERNATIONAL, INC. PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheet--September 30, 1998 (Unaudited)........3 Condensed Consolidated Statements of Operations - Three Months and Nine Months ended September 30, 1998 and 1997 (Unaudited).............4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 (Unaudited)...................................5 Condensed Consolidated Statement of Shareholders' Equity - Nine Months Ended September 30, 1998 (Unaudited)..........................6 Notes to Condensed Consolidated Financial Statements - September 30, 1998 (Unaudited)......................................................7 Item 2. Management's Discussion and Analysis or Plan of Operation.............16 PART II. OTHER INFORMATION Item 1. Legal Proceedings.....................................................20 Item 2. Changes in Securities and Use of Proceeds.............................20 Item 6. Exhibits and Reports on Form 8-K......................................21 SIGNATURES....................................................................23 INDEX OF EXHIBITS.............................................................24 2 BCAM International, Inc. Condensed Consolidated Balance Sheet (Unaudited) September 30, 1998
Assets Current assets: Cash and cash equivalents $ 982,000 Prepaid expenses and other current assets 52,000 Assets of discontinued operations - Drew 12,654,000 ------------ Total current assets 13,688,000 Other assets 235,000 ------------ Total assets $ 13,923,000 ============ Liabilities and shareholders' equity Current liabilities: Current portion of long term debt $ 300,000 Accounts payable 244,000 Accrued expenses and other current liabilities 242,000 Liabilities of discontinued operations - Drew: Convertible Notes and accrued interest, net of discount 6,678,000 Bank and other subsidiary debt 4,414,000 Accounts payable, accruals and all other current 2,106,000 Minority interest 587,000 Liabilities of discontinued operations - HCAD and ECSD 131,000 ------------ Total current liabilities 14,702,000 ------------ Other non-current liabilities Commitments and contingencies Shareholders' equity Acquisition preferred stock, par value $.01 per share: 750,000 shares authorized, none issued -- Preferred stock, 2,000,000 shares authorized, none issued -- Common stock, par value $.01 per share; authorized 65,000,000 shares, 21,754,471 shares issued and 20,991,289 shares outstanding 218,000 Paid-in surplus 30,015,000 Deficit (30,113,000) ------------ 120,000 Less 763,182 treasury shares (899,000) ------------ (779,000) ------------ Total liabilities and shareholders' equity $ 13,923,000 ============
See accompanying notes 3 BCAM International, Inc. Condensed Consolidated Statements of Operations (Unaudited)
Three months ended Nine months ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ License Revenue $ 0 $ 0 $ 2,000 $ 19,000 ------------ ------------ ------------ ------------ Costs and expenses: Selling, general and administrative 522,000 419,000 1,438,000 1,476,000 Charge for compensatory element of 1997 options approved in 1998 0 0 858,000 0 Research & development 128,000 23,000 393,000 51,000 ------------ ------------ ------------ ------------ Loss from operations (650,000) (442,000) (2,687,000) (1,508,000) ------------ ------------ ------------ ------------ Other income (expense) Interest and financing costs 0 (1,000) 0 (3,000) Interest income 18,000 4,000 49,000 18,000 ------------ ------------ ------------ ------------ Other income (expense) 18,000 3,000 49,000 15,000 ------------ ------------ ------------ ------------ Minority interests charge for beneficial subsidiaries preferred stock conversion 0 (788,000) 0 (788,000) ------------ ------------ ------------ ------------ Loss from continuing operations $ (632,000) $ (1,227,000) $ (2,638,000) $ (2,281,000) ------------ ------------ ------------ ------------ Discontinued operations - Drew (1,916,000) (385,000) (6,883,000) (385,000) Discontinued operations - HCAD and ECSD, including estimated loss on disposal of HCAD of approximately $250,000 in 1998 0 (321,000) (803,000) (176,000) ------------ ------------ ------------ ------------ Loss before extraordinary item $ (2,548,000) $ (1,933,000) $(10,324,000) $ (2,842,000) ------------ ------------ ------------ ------------ Extraordinary item - charge for April 1998 restructure of debt 0 0 (552,000) 0 ------------ ------------ ------------ ------------ Net Loss $ (2,548,000) $ (1,933,000) $(10,876,000) $ (2,842,000) ------------ ------------ ------------ ------------ Net loss per share: Continuing operations $ 0.03 $ 0.08 $ 0.13 $ 0.15 Discontinued operations $ 0.09 $ 0.04 $ 0.39 $ 0.03 ------------ ------------ ------------ ------------ Loss per share before extraordinary $ 0.12 $ 0.12 $ 0.52 $ 0.18 Extraordinary item $ 0 $ 0 $ 0.03 $ -- ------------ ------------ ------------ ------------ Net loss $ 0.12 $ 0.12 $ 0.55 $ 0.18 ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding 20,790,000 16,052,000 19,650,000 15,807,000 ============ ============ ============ ============
See accompanying notes 4 BCAM International, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30 ------------------------------ 1998 1997 ------------- ------------- Operating activities Net loss $(10,876,000) $ (2,842,000) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 281,000 82,000 Amortization of unamortized charge for beneficial debt conversion 4,509,000 175,000 Amortization of deferred finance cost and debt discount 413,000 17,000 Write-off of deferred finance cost and debt discount 1,651,000 0 Compensation charge for stock options including $286,000 related to discontinued operations 1,144,000 0 Interest paid in kind 795,000 Non-cash minority interest charge (benefit) (35,000) 788,000 Extraordinary item 552,000 Changes in operating assets and liabilities: Accounts receivable (291,000) 33,000 Inventory (403,000) (43,000) All other current assets 202,000 (10,000) Accounts payable, accrued expenses, current liabilities, other (12,000) 553,000 All other, net 100,000 0 ------------ ------------ Net cash (used in) operating activities (1,970,000) (1,247,000) ------------ ------------ Investing activities Cash paid for purchase of shares of Drew 0 (3,882,000) Cash paid for costs to acquire Drew 0 (475,000) Purchase of equipment and software technology (250,000) (207,000) ------------ ------------ Net cash (used in) provided by investing activities (250,000) (4,564,000) ------------ ------------ Financing activities Proceeds from sale of common stock 1,200,000 1,075,000 Proceeds from sale of convertible preferred stock of subsidiary 0 1,200,000 Proceeds from sale of 10%/13% Convertible Notes and Warrants 0 6,000,000 Proceeds, net of new bank financing arrangement at Drew 0 1,135,000 Proceeds from exercise of options and warrants 65,000 Payment of existing debentures due to former Drew shareholders 0 (845,000) Proceeds from short term debt 0 450,000 Payment of notes payable and long term debt 182,000 Drawdown (payment) of revolving credit agreement 311,000 250,000 Payment of stock registration and issuance costs (150,000) (668,000) Other 47,000 ------------ ------------ Net cash provided by financing activities 1,608,000 8,644,000 ------------ ------------ (Decrease) increase in cash and cash equivalents (612,000) 2,833,000 Cash and cash equivalents at beginning of period 1,594,000 464,000 ============ ============ Cash and cash equivalents at end of period $ 982,000 $ 3,297,000 ============ ============
See accompanying notes 5 BCAM International Inc. and subsidiaries Condensed Consolidated Statement of Shareholders' Equity
Unamortized Common Stock $.01 par Charge for value Paid-in Beneficial Debt Shares Amount Surplus Conversion Deficit Subtotal ----------------------------------------------------------------------------------- Balance at January 1, 1998 18,171,641 $182,000 $26,338,000 $(4,290,000) $(19,237,000) $ 2,993,000 ----------------------------------------------------------------------------------- Conversion of subsidiary preferred stock into common stock of the Company 1,066,585 11,000 607,000 -- -- 618,000 Additional beneficial debt conversion from March 1998 payment-in-kind -- -- 219,000 (219,000) -- -- Amortization of beneficial debt conversion -- -- -- 4,509,000 -- 4,509,000 Record compensation for stock options issued in 1997 and approved in 1998 -- -- 1,144,000 -- -- 1,144,000 Exercise of Class AA Warrants 100,000 1,000 64,000 -- -- 65,000 April 1998 offering of common stock (subject to "repricing"-See (a) below and Note 5 and Item 5) and warrants (a) 1,980,198 20,000 1,980,000 -- -- 2,000,000 Stock offering and registration costs -- -- (252,000) -- -- (252,000) Warrants forfeited in debt restructure -- -- (281,000) -- -- (281,000) Issuance of warrants to consultant -- -- 200,000 -- -- 200,000 Shares issued in first "repricing" increment of April 1998 offering in August 1998 436,047 4,000 (4,000) -- -- -- Net loss -- -- -- -- (10,876,000) (10,876,000) ----------------------------------------------------------------------------------- Balance at September 30, 1998 21,754,471(a) $218,000 $30,015,000 $ -- (30,113,000) 120,000 ===================================================================================
Treasury Stock Total ------------------------ Balance at January 1, 1998 $(899,000) $ 2,094,000 ------------------------ Conversion of subsidiary preferred stock into common stock of the Company -- 618,000 Additional beneficial debt conversion from March 1998 payment-in-kind -- -- Amortization of beneficial debt conversion -- 4,509,000 Record compensation for stock options issued in 1997 and approved in 1998 -- 1,144,000 Exercise of Class AA Warrants -- 65,000 April 1998 offering of common stock (subject to "repricing"-See (a) below and Note 5 and Item 5) and warrants (a) -- 2,000,000 Stock offering and registration costs -- (252,000) Warrants forfeited in debt restructure -- (281,000) Issuance of warrants to consultant -- 200,000 Shares issued in first "repricing" increment of April 1998 offering in August 1998 -- -- Net loss -- (10,876,000) ------------------------ Balance at September 30, 1998 $(899,000) (779,000) ======================== (a) Excludes addiditional shares issuable, without additional consideration, pursuant to "repricing" provisions of the April 1998 offering of common stock and warrants. 6 BCAM International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1998 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation have been included. Financial position at September 30, 1998 and results of operations for the three and nine month periods ended September 30, 1998 include the financial position and results of operations of Drew Shoe Corporation ("Drew") as a discontinued operation with a "measurement date" of October 2, 1998. Drew has been owned by the Company since September 22, 1997 (see Note 3) and the results of operations for the three and nine months ended September 30, 1997 partially reflect the results of Drew (because the period before September 22, 1997 precedes the acquisition of Drew). Results of operations for the three and nine month period ended September 30, 1997 have been restated to reflect, as discontinued operations, Drew as well as the Company's Ergonomic Consulting Services Division ("ECSD") and HumanCAD Systems Operations ("HCAD"). Results of operations for the three and nine month period ended September 30, 1998 are not necessarily indicative of results of operations to be expected for the year ending December 31, 1998. For further information, refer to the audited consolidated financial statements and related notes thereto of the Company (at December 31, 1997 and for the two year periods then ended) and the audited statements of operations and cash flows of Drew (for the period from January 1, 1997 to September 22, 1997 and for the year ended December 31, 1996) included in the Company's annual report on Form 10-KSB for the year ended December 31, 1997 and the Form 8-K filed by the Company on November 6, 1998. 2. Description of Business and Principles of Consolidation BCAM International, Inc. and subsidiaries (the "Company") has been primarily a software, technology and consulting company, specializing in providing ergonomic solutions (human factors engineering) to individuals, corporations and government. Through a series of actions over the past year, including the acquisition of Drew and subsequent disposition of approximately 67% of Drew and certain other restructuring activities, the Company is now a technology company focused on commercializing its Intelligent Surface Technology and completing the development of its proprietary "microvalve" technology. The acquisition and restructuring activity has included the following. On September 22, 1997, the Company acquired Drew Shoe Corporation ("Drew") as described in Note 3. In December 1997 the Board of Directors of the Company decided to discontinue the operations of ECSD due to the inability of that business to generate operating profits for the Company. In February 1998, the Board of Directors of the Company decided to discontinue the operations of HCAD as a result of the lack of available financing, on acceptable terms to the Company, to further the necessary business development activities of that division. In April 1998 the Company granted a 10% interest in the common stock of Drew (in addition to 10% of BCAM Technologies, Inc.) to the holders of the Company's 10%13% Convertible Notes. In 7 October 1998, the Company sold an additional 56.7% of Drew and agreed to sell its remaining 33.3% interest in the common stock of Drew subject to shareholders approval. The consolidated financial statements include the accounts of BCAM International, Inc. and its subsidiaries, BCAM Technologies, Inc. (principally IST and related technologies). 3. October 1998 Plan to Sell Drew - On October 2, 1998, the Board of Directors approved a plan to dispose of the Company's interest in Drew (the "Plan"). Pursuant to the Plan, on October 26, 1998, the Company, entered into a Stock Purchase and Restructure Agreement between the Company and Impleo, LLC. ("Impleo") and sold 56.7% of the outstanding shares of its Drew subsidiary to Impleo in exchange for approximately $3,780,000 principal amount of the Company's 10%/13% Secured Convertible Notes ("Notes"). Impleo, which initially owned $5,000,000 principal amount of Notes, purchased the remaining $1,000,000 principal amount (plus accrued interest) of Notes, thereby making it the sole holder of the Notes. After this transaction, the remaining principal balance on the Convertible Notes will be approximately $2,220,000 plus an additional approximately $850,000 of accrued interest as of October 26, 1998. The Notes are secured by all of the assets of the Company and are due in April 1999. Impleo now owns approximately 66.7% of the common stock of Drew. As a condition of the sale of the Drew shares to, and the redemption of the Notes from, Impleo, Michael Strauss, the Chairman, President and Chief Executive Officer of the Company, has become the Chief Executive Officer of Drew Shoe Corporation. Mr. Strauss is obliged to spend no less than 75% of his time on the business of Drew. Mr. Strauss will continue to serve the Company as its Chairman, President and Chief Executive Officer and has agreed to enter into a new employment agreement with the Company. The Company's redemption of approximately $3,780,000 of Notes and cancellation of certain related warrants will eliminate approximately 6.8 million shares of potential dilution to the BCAM common shareholders. This includes the elimination of potential dilution which would result from conversion of the Notes (approximately 5.5 million shares) and exercise of warrants to purchase approximately 1.3 million shares of BCAM common stock. In connection with the Stock Purchase and Restructure Agreement, the Company and Impleo entered into a Second Amendment to the September 1997 Note Purchase agreement which eliminates the requirement for Impleo to have representation of 25% or more on the Company's Board of Directors, among other matters. The Company, Drew and Impleo have entered into a shareholders agreement relative to certain matters including disposition of shares and additional investments in Drew. The Company has entered into a separate Purchase and Sale Agreement with Impleo in which it agreed to promptly submit to its shareholders a proposal to sell the remaining 33.3% of Drew Shoe Corporation to Impleo in exchange for the cancellation of the then remaining principal amount of Notes together with accrued interest thereon (the "Second Sale"). If the BCAM shareholders approve the proposal to sell the remaining 33.3% of Drew common stock, an aggregate of approximately 10.75 million potentially dilutive securities will be eliminated. Impleo is an affiliate of Wexford Management, LLP. In connection with the sale and redemption transaction, the Company has been released from its guarantee of approximately $3.8 million of secured obligations of Drew to a bank. Separately, the Company, under the Plan, has reached agreement with the sellers of Drew to the Company in 1997 to: (i) cancel an employment contract and enter into a consulting agreement with the former president of Drew, (ii) cancel approximately $200,000 of notes payable to the former owners of Drew, (iii) forgive certain purchase price adjustments due from the former owners of Drew and the assumption, by Drew, of certain contingent liabilities in connection with the Ulin & Holland litigation (such litigation is discussed in Item 3 of Form 10-KSB for the year ended December 31, 1997). 8 Because the Company's intention is to divest itself of its entire interest in Drew pursuant to the Plan, the Company has accounted for Drew as a discontinued operation. Because the Company's 33.3% ownership position is viewed as temporary, the equity method of accounting is not appropriate for the Company's investment in Drew. The Company had originally acquired all of the outstanding Common Stock of Drew on September 22, 1997 for approximately $4.7 million plus the assumption of liabilities. Drew is a designer, manufacturer, marketer and distributor of medical footwear headquartered in Lancaster, Ohio. The Company had accounted for its acquisition of Drew under the purchase method of accounting. Under such method, the purchase price paid plus costs of the acquisition were allocated to the assets and liabilities of Drew based on the estimated fair value of assets and liabilities acquired. The purchase price allocation was completed in September 1998 and the remaining amount, approximately $422,000, was allocated to goodwill. The results of operations of Drew had been consolidated with the Company's operations beginning on September 22, 1997. The following summary shows the unaudited selected balance sheet information at September 30, 1998 and the unaudited results of operations for the three and nine month period ended September 30, 1998 and for the period from September 22, 1997 (date of acquisition) to September 30, 1997 for Drew. Drew's assets consist principally of the following at September 30, 1998 (unaudited): Cash $ -- Accounts receivable 1,875,000 Inventory 6,681,000 Other current assets 205,000 ----------- total current assets 8,761,000 Property and equipment, net 3,057,000 Deferred finance costs, net 252,000 Goodwill 422,000 Other assets 162,000 ----------- total assets 12,654,000 ----------- Statement of operations data for Drew (unaudited):
Three months Nine Months ended ended From September 30, September 30, September 1998 1998 22 -30, 1997 ---- -------- ------------ Revenues $ 3,578,000 $11,643,000 $ 353,000 ----------- ----------- --------- Gross profit 1,398,000 4,931,000 125,000 ----------- ----------- --------- Operating profit (10,000) 708,000 (13,000) ----------- ----------- --------- Other income (expense): Interest and financing costs (354,000) (1,279,000) (197,000) Charge for beneficial conversion (1,579,000) (4,663,000) (179,000) Write off of discount and costs -- (1,651,000) 0 Interest income 15,000 37,000 3,000 ----------- ----------- --------- Total (1,918,000) (7,556,000) (373,000) ----------- ----------- --------- Loss before minority interest (1,928,000) (6,848,000) (386,000) Minority interest 12,000 (35,000) 0 ----------- ----------- --------- Net loss (1,916,000) (6,883,000) (386,000) ----------- ----------- ---------
9 4. Long Term Debt and Convertible Notes Secured 10%/13% Convertible Notes and Warrants - In order to fund the acquisition of Drew and provide working capital to the Company, on September 19, 1997, the Company issued convertible notes (the "Convertible Notes"), and Non-Redeemable Class DD Warrants, in the aggregate amount of $6,000,000. The Convertible Notes bear an interest rate of 10%, payable semi-annually, but the Company, at its discretion, may pay interest in the form of additional Convertible Notes ("payment in kind") in which case the annual interest rate becomes 13% with semi-annual compounding. On March 19, 1998 and on September 19, 1998, the Company elected to make the semiannual interest payment in kind. As such, the Company increased the related obligation under the Convertible Notes to $6,805,350. The Convertible Notes are due, as amended, on April 16, 1999, unless at any time after September 19, 1998 they are converted, as amended, at $.78 per share, into 8,192,308 shares of Common Stock of the Company (subject to antidilution provisions). On April 14, 1998, the noteholders and the Company entered into the First Amendment of the Note Purchase Agreement (together with a Stock Pledge Agreement and Security Agreement) in order to restructure the obligation. The key elements of the restructuring are as follows: (1) waiving of the Company's violations of the financial covenants at December 31, 1997 (as well as certain other breaches of the agreement), (2) eliminating the financial covenants through April 16, 1999, (3) securing the obligation with a pledge of all of the assets of the Company (excluding the assets of Drew which are already pledged to a bank), including the stock of the Company's subsidiaries, (4) accelerating the maturity date for the obligation from September 19, 2002 to April 16, 1999, (5) cancellation of Class DD warrants to purchase 400,000 shares of common stock of the Company, (6) issuance to the holders a total of 10% of the common shares of the Company's subsidiaries Drew Shoe Corporation and BCAM Technologies, Inc. As a result of the restructuring, the Company has a significant capital requirement to repay this obligation ($6,805,350 including interest "paid in kind" on March 19, 1998 and September 19, 1998, respectively, and before additional interest payments in cash or in kind subsequent to that date) in approximately six months or face default and foreclosure on the security. The Company's intention has been to refinance or otherwise restructure this obligation prior to its maturity. During the second quarter of 1998 the Company reflected an aggregate of approximately $2.5 million of charges to operations and/or stockholders' equity in connection with the restructuring of the debt. Such charges included: (i) approximately $1,651,000 to write-off interest and finance costs as further described in the second following paragraph, (ii) approximately $552,000 charged to extraordinary item representing the approximate value of the 10% interest in subsidiaries given up and (iii) approximately $281,000 charged to stockholders' equity representing the unamortized portion of the amounts assigned to the value of the 400,000 Class DD warrants given up by the holders of the Convertible Notes. As discussed in Note 3 above, on October 26, 1998, the Company agreed with the holders of the Convertible Notes to redeem $3,780,000 principal amounts of Convertible Notes in exchange for 56.7% of the common stock of Drew. Further, the parties agreed that the remaining approximately $2,220,000 principal amount of Convertible Notes together with accrued interest would be redeemed in exchange for the remaining 33.3% of the common stock of Drew owned by the Company, after receipt of shareholder approval. Should the shareholders not approve such transaction, it is unlikely that the Company would be able to refinance the remaining secured Notes and therefore Impleo would be in a position to foreclose on all of the assets of the Company. See Note 3 and Form 8-K filed on November 6, 1998 for further information. The Company originally allocated approximately $1,872,000 of the $6,000,000 received from the sale of the Convertible Notes and Warrants as the estimated value of the detachable warrants issued in connection with the Convertible Notes resulting in a discount to the value assigned to the Convertible Notes. Additionally, the Company originally recorded approximately $825,000 in deferred financing costs in connection with the issuance of the Convertible Notes. The $1,872,000 in debt discount and $825,000 of deferred finance costs were being charged to interest and financing costs over the 60 month 10 term of the Convertible Notes. As discussed above, in April 1998, the Company and the holders of the Convertible Notes agreed to shorten the maturity of the Convertible Notes from September 2002 to April 1999. Under generally accepted accounting principles the Company recorded a charge to interest and financing costs in the second quarter of 1998 for the amortization of this discount and these costs that would have occurred during the 41 months that have been shortened from the original maturity ($1,651,000). Remaining debt discount and deferred financing costs in connection with the transaction are being amortized over the remaining term of the Convertible Notes. The market value of the Company's common stock on the Nasdaq SmallCap market on September 19, 1997 was approximately $1.50, approximately $1.25 at March 19, 1998 and approximately $0.25 at September 19, 1998 (when additional Convertible Notes were issued as payment in kind for interest). In response to positions recently taken by the Securities and Exchange Commission, Emerging Issues Task Force Statement D-60 has been issued. Statement D-60 requires certain accounting for securities issued which are convertible into common stock at a value which is "beneficial" at the date of issuance (such as the Convertible Notes discussed above). This accounting requires that the beneficial value be charged to operations (based upon the traded market price, without discount, compared to the conversion price) in the case of a convertible note over a period reflecting the shortest period in which the investor has to exercise and under the most favorable terms to the investor. As such, the Company has charged approximately $5,925,000 at September 19, 1997, an additional $219,000 at March 19, 1998 and no additional charge at September 30, 1998, to Unamortized Charge for Beneficial Debt Conversion in the shareholders' equity section of its Condensed Consolidated Balance Sheet. Such amounts represent the value of the beneficial debt conversion feature of the Convertible Notes measured at the date of issuance in September 1997 and for the payment in kind in March 1998. These amounts are being charged to Interest and financing costs in the Condensed Consolidated Statements of Operations at the rate, as adjusted for the March 1998 payment in kind, of approximately $1,600,000 per quarter until September 19, 1998. This charge to operations is considered a non-recurring charge in the preparation of the summary pro-forma data contained in Note 3. Secured bank debt - Simultaneously with the acquisition of Drew, the Company through its wholly-owned subsidiary, Drew, entered into a credit facility with a commercial bank consisting of: (i) a revolving line of credit ("revolver") which is based upon agreed upon percentages of accounts receivable and inventory and (ii) a term loan of $1,000,000. As of June 30, 1998, Drew had outstanding borrowings of approximately $2,929,000 under the revolver. The revolving line of credit matures on September 30, 1999, and calls for current payments of interest at a rate of prime plus 1.5% (9.5 % at September 30, 1998). The term loan portion of the credit facility also bears an interest rate of prime plus 1.5% (9.5 % at September 30, 1998) and is payable in monthly principal installments of $11,905, plus interest, through September 30, 2000 with a payment due at that time of $583,000. Both the revolving line of credit and term loan may be used for general working capital purposes and are guaranteed by the Company. The credit facility with this bank, as amended on May 14, 1998, requires Drew to maintain compliance with certain financial covenants, principally net worth and cash interest coverage, and contains restrictions on the transfer of cash to the Company. Costs incurred in connection with the bank term loan and revolving credit totaling approximately $75,000, are included in Deferred finance cost and are being amortized to Interest and financing cost using the effective interest method over a two year period. 11 At September 30, 1998, including the debt of Drew, long term debt consists of the following: 10%/13% Convertible Notes, $6,805,000 (including interest paid in kind), net of approximately $127,000 of unamortized debt discount, with interest payable on March 19 and September 19, due April 16, 1999 unless earlier converted $ 6,678,000 Revolving credit arrangement of Drew with a bank, payable on September 30, 1999, bearing interest at prime plus 1.5% 2,929,000 Term Loan agreement of Drew with a bank, bearing interest at prime plus 1.5% payable in monthly principal installments of $11,905 plus interest through September 30, 2000 when the final payment of $583,000 is due. 857,000 Notes payable to sellers of Drew bearing interest at 8%, with monthly payments of principal aggregating $8,333 plus interest and balloon payments aggregating $200,000 on September 19, 1999 300,000 All other, principally Drew 628,000 ----------- Total long term debt, considered current 11,392,000 ----------- In connection with the sale of 56.7% of the common stock of Drew and the redemption of $3,780,000 of 10%/13% Convertible Notes in October 1998, the Company was released from its guarantee of the term loan and revolving credit obligations of Drew. Additionally, the Company has been released from liability for the $200,000 balloon payment to the sellers of Drew due on September 19, 1999. See Note 3 and Item 6 (b) 5. Private Placements during the nine months ended September 30, 1998 and 1997 1998 Private placement of common shares and warrants - On April 22, 1998, the Company completed a private offering of its common stock and warrants. The offering raised aggregate proceeds of $2,000,000 for the purchase of 1,980,198 shares of common stock of the Company, subject to increase for "repricing" discussed below, and warrants to purchase 250,000 shares of common stock at $2.05 for three years by six accredited investors. The Company has agreed, to and in August 1998, did register such shares for resale by the investors. The number of shares issuable to these investors will be "repriced" pursuant to a schedule initially in four $300,000 increments and then in four $200,000 increments on eight occasions commencing with the effectiveness of a registration statement covering the shares and again 60 days later and then in 30 day intervals. On such dates, the investor would receive the additional number of shares, if any, that result from the difference between the number of shares actually issued and the number of shares which would have been issued using a 23% discount to the market price, as defined, at that time. The operation of this provision could result in a significantly greater number of shares being issued. For example, the first repricing increment of $300,000 in August 1998 results in the issuance of approximately 436,000 shares in addition to the 297,030 shares originally issued for this portion of the $2,000,000 placement. The scheduled "repricing" on the second occasion, October 1998, would result in the issuance of an additional approximately 1,480,879 shares in addition to the 297,030 originally issued for this portion of the $2,000,000 placement. The investors have agreed not to sell any shares before at 12 least 120 days after the closing. The Company has agreed not to issue certain financings and has agreed to pay a placement agent a 6.5% fee in connection with the transaction. In October 1998, the Company and the representative of the investors agreed, subject to Board approval and completion of documentation, to restructure the "repricing". Under the agreement, the investors will return all "repricing" shares they have received or are due to receive and the original $2,000,000 placement will be "repriced", at the holders option, in new increments of $250,000 per month. Amounts not "repriced" at a scheduled repricing date will be carried over to the next month. 1997 Sale of common stock and warrants of the Company - In January 1997, the Company commenced an offering and ultimately sold 1,075,000 equity units (each consisting of one share of the Company's common stock and one non-redeemable Class AA warrant) for $1,075,000. The Class AA warrants, as amended, entitle the holder to purchase one share of the Company's Common Stock at $0.65 per share until March 31, 2002. In April 1998, warrants to purchase 100,000 shares of common stock were exercised by the holders. 1997 Sale of Convertible Preferred Stock of Subsidiary - On July 22, 1997, September 8 and September 18, 1997, BCA Services, Inc. ("BCA"), previously wholly-owned by the Company, sold 120 shares of BCA's Convertible Preferred Stock (the "Preferred Stock") for an aggregate consideration of $1,200,000 in two private offerings to accredited investors. Between November 1997 and March 1998, the Preferred Stock was converted into 1,772,811 shares of the Company's common stock at a price, pursuant to a formula, that averaged approximately $0.68. In addition, for 100 of the shares of Preferred Stock sold, the Company issued Non-Redeemable Class BB Warrants to purchase 50,000 shares of common stock at $0.72 per share. For 20 shares of Preferred Stock sold, the Company issued Non-Redeemable Class CC Warrants to purchase 10,000 shares of common stock at $1.03 per share. The Class BB and CC Warrants have a term of five years and the underlying common stock has been registered by the Company. The two private placements of BCA Preferred Stock were made with the assistance of a placement agent. The placement agent charged a commission of 8% in fees and 2% in expenses, plus warrants to purchase 50,000 shares of common stock of the Company at approximately $0.72 per share for five years, for the first offering ($1,000,000). The placement agent charged 6% in fees and no warrants for the second offering ($200,000). See Note 6 for a discussion of certain accounting treatment called for by Emerging Issues Task Force Statement D-60. Because the Preferred Stock issued is that of a subsidiary, but is convertible into shares of the Company, the Company had recorded the Preferred Stock of the subsidiary as "Minority interest" in the consolidated financial statements until its conversion into common stock of the Company. The "beneficial" conversion feature, therefore, has been charged to Minority interests (approximately $788,000) in the accompanying Consolidated Statement of Operations. 6. Other Discontinued Operations Ergonomic Consulting Services Division - In December 1997, the Board of Directors of the Company approved a plan to sell the operations of its Ergonomic Consulting Services Division ("ECSD"). ECSD has not generated operating profits and is no longer considered a core asset in light of the Company's current strategy. The plan of disposition involved finding a strategic buyer who would take over the Company's contractual commitments (some of which are long-term) to consulting division customers and liquidating the remaining assets through collection (with respect to receivables) or sale or disposal (with respect to furniture and equipment). On February 9, 1998, the Company closed on the sale of the revenue contract rights and transfer of the obligations for certain related personnel of the ECSD to a third party. Terms of the sale call for the payment of a portion of future revenues of the contracts sold as well as a portion of certain follow-on work, or referrals for work provided by the Company. At September 30, 1998, assets and liabilities of the ECSD were not material. The operations of the ECSD from January 13 1, 1998 through disposal on February 9, 1998 did not generate a loss. Approximately $50,000 was accrued in the December 31, 1997 financial statements as a loss on disposal representing management's estimate of the write-off of furniture and equipment and accrual of certain lease costs. Management believes that the $50,000 accrual recorded in December 1997 continues to be adequate at September 30, 1998. There was no material severance paid in connection with the discontinuance of the ECSD. HumanCAD Systems Operations - During late February 1998, as a result of specific events at the time, the Board of Directors of the Company approved a plan to seek alternative value for the HumanCAD Systems operations ("HCAD") by (i) initially reducing the activity, (ii) seeking a strategic or management buyer for the operation and, if necessary, (iii) closing the operation. In March HCAD was closed and it is currently being liquidated under the bankruptcy laws of Ontario, Canada, where it is based. In December 1997, the Company had reached agreement with a funding source to provide approximately $2.5 million for development and marketing of the Company's existing and planned HCAD ergonomic modeling software products. In January 1998, the Company commenced executing the business plan contemplated by the financing, but in late February 1998 the funding source advised the Company that they were no longer willing to go forward with the planned financing. The Company continues to seek a strategic or possible management buyer for HCAD. The measurement date for the discontinuance is February 1998, at which time losses from January 1, 1998 through February 1998 have been recorded and a provision for discontinued operations (principally severance and non-cancelable lease costs) has been made. At September 30, 1998, assets of the HCAD were minimal and liabilities (excluding intercompany) were approximately $100,000 consisting principally of trade payables and accruals. Revenues and net loss for ECSD and HCAD discontinued operations are approximately the following for the nine months ended September 30, 1998 and 1997: 1998 1997 --------- --------- Revenues $ 169,000 $ 399,000 Net Loss $(803,000) $(176,000) 7. Other Material subsequent events - See Note 3 regarding Drew. Extraordinary item and Minority Interest - In April 1998, the Company granted a 10% minority interest in its subsidiaries, Drew and BCAM Technologies, Inc. The granting of that minority interest is reflected as an extraordinary item in the accompanying Condensed Consolidated Statements of Operations. Minority interest in Drew is reflected in other liabilities of discontinued operations and in results from discontinued operations in the accompanying financial statements. The minority shareholders interest in the net income of Drew is reflected in the Condensed Consolidated Statements of Operations as part of loss from discontinued operations - Drew. Per share data - In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards ("SFAS") No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Net loss per share has been computed on the basis of the weighted average number of common shares outstanding. Common stock equivalents have been excluded because their effect is antidilutive. 14 Income taxes - The Company accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes". The Company has not reflected a benefit for income taxes in the accompanying Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 1998 and 1997, since the future availability of net operating loss carryforwards have been offset in full by valuation allowances in accordance with FASB Statement No. 109. Antidilution adjustments to 10%/13% Convertible Notes and Class B Warrants and Class E Warrants - Principally as a result of the 1998 Private Placement of common stock and warrants in April 1998, the Company believes that the antidilution provisions of the Convertible Notes and the Class B and Class E Warrants were triggered. The calculation of the revised amounts has been reflected in the amounts in Note 4. The effect on the Class B and E warrants was not significant enough to warrant adjustment. Any repricings of the April 1998 private placement which result in the issuance of additional common stock without further consideration discussed in Note 5 above would result in additional antidilution calculations. Expiration of Class B and Class E Warrants - On October 17, 1998, the Company's Class B Warrants and Class E Warrants expired according to their terms. Other - See Note 11 to Consolidated financial statements at December 31, 1997 regarding charges to fourth quarter operations in 1997. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS Except for the historical information contained herein, the following discussion contains forward looking statements that involve risk and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in Factors That May Affect Future Results Overview BCAM International, Inc. and subsidiaries (the "Company") has been primarily a software, technology and consulting company, specializing in providing ergonomic solutions (human factors engineering) to individuals, corporations and government. Through a series of actions over the past year, including the acquisition of Drew and subsequent disposition of approximately 67% of Drew and certain other restructuring activities, the Company is now a technology company focused on commercializing its Intelligent Surface Technology and completing the development of its proprietary "microvalve" technology. The Company has collaborative research and development relationships with the State University of New York at Stony Brook and with MCNC which provide resources in broadening, strengthening and commercializing the Company's technologies. The acquisition and restructuring activity has included the following. On September 22, 1997, the Company acquired Drew Shoe Corporation ("Drew") as described in Note 3. In December 1997 the Board of Directors of the Company decided to discontinue the operations of ECSD due to the inability of that business to generate operating profits for the Company. In February 1998, the Board of Directors of the Company decided to discontinue the operations of HCAD as a result of the lack of available financing, on acceptable terms to the Company, to further the necessary business development activities of that division. In April 1998 the Company granted a 10% interest in the common stock of Drew (in addition to 10% of the common stock of BCAM Technologies, Inc.) to the holders of the Company's 10%13% Convertible Notes. In October 1998, the Company sold 56.7% of Drew and agreed to sell its remaining 33.3% interest in the common stock of Drew subject to shareholders approval. See Liquidity and Capital Resources and Notes to Condensed Consolidated Financial Statements regarding certain secured long-term debt coming due in April 1999. Results of Operations Results of operations for the three and nine months ended September 30, 1998 continue to be significantly impacted by restructuring developments including: (1) the Plan to sell the Company's interest in Drew to the holders of the 10%/13% Convertible Notes ("Notes") in exchange for redemption of the Notes and related interest, (2) the discontinuation of the Ergonomic Consulting Services and HumanCAD Systems divisions, (3) a charge to compensation expense for certain options granted during 1997 which were at exercise prices below the market value when approved by the shareholders in February 1998, (4) charges and extraordinary item related to the April 1998 restructuring of the Company's Notes and (5) charges and costs related to the financing to acquire Drew and other financing during the year. Discontinued operations - As discussed in greater detail in Notes 3 and 6 to the Condensed Consolidated Financial Statements, the Company has recorded the operations of Drew, the Ergonomic Consulting Services Division ("ECSD") and HumanCAD Systems Division ("HCAD") as discontinued operations. Operations of these discontinued businesses in the three and nine months ended September 30, 1998 (including provisions for losses on discontinuance of approximately $250,000 in the nine months) resulted in losses of approximately $1,916,000 and $7,686,000 including very substantial non-cash charges related to certain financing acivities. Additionally, the nine months ended September 30, 1998 includes a charge to discontinued operations for approximately $286,000 for the compensatory element of stock options granted in 1997 and approved by the shareholders in February 1998. The reader is referred for further information regarding the losses generated from these discontinued operations to 16 Notes 3 and 6 to the Condensed Consolidated Financial Statements. Losses from discontinued operations were approximately $706,000 and $561,000, respectively, in the three and nine months ended September 30, 1997. The reduced losses from discontinued operations in 1997 reflect the fact that Drew was only included in the 1997 results for approximately eight days. These divisions were discontinued because: (1) the Company could not service and/or refinance the debt related to the acquisition of Drew, (2) ECSD did not generate operating profits for the Company and (3) HCAD required capital which the Company could not obtain on favorable terms. Ongoing selling, general and administrative costs - Selling, general and administrative costs decreased by approximately $38,000 in the nine months ended September 30, 1998 when compared to the prior year. Such costs increased in the three months ended September 30, 1998 principally as a result as increased corporate costs. Research and development costs - In the three and nine months ended September 30, 1998, research and development costs consist principally of costs associated with the Company's development of a "microvalve" in collaboration with a third party, MCNC, for potential use in its "ISTX" technology. Such costs and related development expenditures increased by approximately $105,000 and $342,000, for the three and nine months ended September 30, 1998, respectively, due to the stage of developments activities at the time. License revenues - License revenues consist principally of revenues received from IST products and have not been significant to date. One Company licensee, Textron, has launched a new product, in September 1997, utilizing IST in an automobile seat. Liquidity and Capital Resources From December 31, 1997 to September 30, 1998, Company's financial position changed as follows: September 30, 1998 December 31, 1997 ------------------ ----------------- Cash $ 982,000 $ 1,594,000 Working capital $(1,014,000) $ 6,716,000 Long-term debt, including current portion $11,092,000 $ 8,435,000 Total Assets $13,923,000 $14,177,000 Shareholders' equity (deficit) $ (779,000) $ 2,094,000 On April 14, 1998, the Company and the holders of the 10%/13% Convertible Notes agreed to restructure the 10%/13% Convertible Notes ("Notes") as discussed in Note 4. As part of the restructuring, the Company agreed to accelerate repayment of the obligation from September 19, 2002 to April 16, 1999, to secure the obligation with all of the assets of the Company and to grant the holders a 10% interest in the Company's Drew and BCAM Technology subsidiaries, among other items. As a result, the Company had a significant capital requirement to repay this obligation ($6,805,000, at September 30, 1998 including interest paid in kind on March 19, 1998 and September 19, 1998 plus interest for the remaining period) in less than one year or face default and possible foreclosure on the security. The Company presently does not have the resources to repay this obligation and has been unsuccessful in its efforts to refinance this obligation. On October 2, 1998, the Board of Directors approved a plan (the "Plan") to resolve the pending maturity of the Notes prior to their due date and probable foreclosure by the Noteholder. Such Plan 17 involves disposition of the Company's interest in Drew in exchange for redemption of the Notes together with related interest. Pursuant to the Plan, on October 26, 1998, the Company, entered into a Stock Purchase and Restructure Agreement between the Company and Impleo, LLC. ("Impleo") and sold 56.7% of the outstanding shares of its Drew subsidiary to Impleo in exchange for approximately $3,780,000 principal amount of the Company's 10%/13% Secured Convertible Notes ("Notes'). After this transaction, the remaining principal balance on the Convertible Notes will be approximately $2,220,000 plus an additional approximately $850,000 of accrued interest as of October 26, 1998. The Notes are secured by all of the assets of the Company and are due in April 1999. As a condition of the sale of the Drew shares to, and the redemption of the Notes from, Impleo, Michael Strauss, the Chairman, President and Chief Executive Officer of the Company, has become the Chief Executive Officer of Drew Shoe Corporation. Mr. Strauss is obliged to spend no less than 75% of his time on the business of Drew. Mr. Strauss will continue to serve the Company as its Chairman, President and Chief Executive Officer and has agreed to enter into a new employment agreement with the Company. The Company's redemption of approximately $3,780,000 of Notes and cancellation of certain related warrants will eliminate approximately 6.8 million shares of potential dilution to the BCAM common shareholders. This includes the elimination of potential dilution which would result from conversion of the Notes (approximately 5.5 million shares) and exercise of warrants to purchase approximately 1.3 million shares of BCAM common stock. The Company does not presently have the liquidity and capital resources to repay the remaining balance of the Notes when they are due in April 1999. The Company has entered into a separate Purchase and Sale Agreement with Impleo in which it agreed to promptly submit to its shareholders a proposal to sell the remaining 33.3% of Drew Shoe Corporation to Impleo in exchange for the cancellation of the then remaining principal amount ($2,220,000) of Notes together with accrued interest thereon (the "Second Sale"). If the BCAM shareholders approve the proposal to sell the remaining 33.3% of Drew common stock, an aggregate of approximately 10.75 million potentially dilutive securities will be eliminated. The Company anticipates that the sale of Drew will result in the recognition of a gain on the transaction. It is the Company's intention to complete the second sale. If the BCAM shareholders should not approve the proposal to sell the remaining 33.3% of Drew common stock, in exchange for the remaining principal amount of, and accrued interest on, the Notes, the Company does not have the resources to repay such Notes and therefore the holder of the Notes would most likely be in a position to foreclose on all of the assets of the Company when the Notes mature in April 1999. Separately, the Company, under the Plan, has reached agreement with the sellers of Drew to the Company in 1997 to: (i) cancel an employment contract and enter into a consulting agreement with the former president of Drew, (ii) cancel approximately $200,000 of notes payable to the former owners of Drew, (iii) forgive certain purchase price adjustments due from the former owners of Drew and the assumption, by Drew, of certain contingent liabilities in connection with the Ulin & Holland litigation (such litigation is discussed in Item 3 of Form 10-KSB for the year ended December 31, 1997). See Notes 3 and 4 to Condensed Consolidated Financial Statements and Items 1 and 6. Other Information. During April 1998, the Company commenced a private placement and raised an aggregate $2,000,000 though the issuance of common stock and warrants (See Item 2 Changes in Securities and Use of Proceeds). Such private placement involves periodic "resets" which result in the issuance of additional shares as described in Note 5 to Condensed Consolidated Financial Statements and in Item 6 (b). In addition to the liquidity and capital needs described above, the Company is in need of additional capital in order to continue its development activites to further commercialize the Intelligent Surface Technology and to develop the "microvalve" technology. The Company believes that its current cash resources can permit it to continue its business plan until approximately the first quarter of 1999, assuming that the Company receives the cooperation of its vendors in deferring certain amonts which are currently due. 18 Factors That May Affect Future Results The Company's future operating results are dependent on the Company's ability to: (i) obtain sufficient capital to fund its development, growth and acquisition plans, (ii) generate profitable growth at Drew, (iii) generate sufficient profits from operations to fund its debt service including significant payments coming due in April 1999, (iv) identify and successfully close potential acquisitions on terms that are favorable to the Company (v) further successful development of IST and increase the number of licensees, and the commercialization of IST by its licensees, (vi) introduction of IST in medical footwear and orthotic products, (vii) successfully develop the "microvalve", (viii) general economic conditions and conditions in the financial and medical footwear markets. 19 PART II. OTHER INFORMATION Item 1. Legal proceedings In January 1998, Ulin & Holland Incorporated ("U & H") filed suit against the Company's Drew subsidiary in United States District Court for the District of Massachusetts. The suit alleges that U & H was retained in 1992 by Drew pursuant to which U & H alleges that it is due a fee of not less than $297,000 in connection with the Company's acquisition of Drew. It is possible that the Company may also be named as a defendant in this lawsuit. Drew disputes this claim and the Company intends to vigorously defend this action. The Company's HumanCAD Systems operations were discontinued in February 1998. In October 1998, the Company's HumanCAD subsidiary filed an assignment in bankruptcy under the laws of Ontario, Canada and Fuller Landau Ltd. (the "Trustee") were appointed as trustee of the estate. The Trustee is in the process of liquidating that business. Various vendors and one customer have threatened litigation for amounts claimed to be due them. One vendor has filed litigation against the Company in connection with a claim of approximately $19,000. There can be no assurance that any threatened litigation will not result in the filing of further actions against the Company or that such action(s) will not result in additional costs beyond those already included in the Company's financial statements. There are no other material legal proceedings pending against the Company. Item 2. Changes in Securities and Use of Proceeds See Item 6. Exhibits and Reports on Form 8-K for a discussion of the redemption of $3,780,000 of 10%/13% Convertible Notes and the resultant elimination of conversion feature and warrants which were derivative into over 6.8 million common shares of the Company. Sale of Common Stock and Warrants in April 1998 - On April 22, 1998 the Company completed an offering of $2,000,000 of its common stock and warrants in a private placement to accredited investors. The offering raised aggregate proceeds of $2,000,000, before expenses, for the purchase of 1,980,198 shares of common stock of the Company, subject to "repricing" as described below, and warrants to purchase 250,000 shares of common stock at $2.05 for three years by six accredited investors as follows: Common Common Shares shares issued before under Name of purchaser Amount paid(b) "repricing"(a) warrants ----------------- -------------- -------------- -------- Balmore Funds S.A. $ 850,000 841,584 106,250 Austost Anstalt Schaan $ 750,000 742,574 93,750 Beeston Investments Ltd. $ 200,000 198,020 25,000 Manor Investments $ 100,000 99,010 12,500 Ellis Enterprises $ 50,000 49,505 6,250 East Lane Corporation, Ltd. $ 50,000 49,505 6,250 ---------- --------- ------- Totals $2,000,000 1,980,198 250,000 ========== ========= ======= Prior to "repricing", discussed below, which has resulted in August 1998 in the commitment to issue an additional approximately 425,000 additional shares, before further repricings, as discussed below. - --------------------- 20 The Company has agreed to, and did in August 1998, register such shares for resale by these investors. The number of shares issuable to these investors will be "repriced" in increments of invested proceeds pursuant to a schedule. The increments are initially four $300,000 increments and then four $200,000 increments on eight occasions. The repricing increments commence with the effectiveness of a registration statement covering the shares (completed in August 1998), then one increment 60 days later and the remaining six increments in 30 day intervals thereafter. On such dates, the investor would receive the additional number of shares, if any, that result from the difference between the number of shares actually issued and the number of shares which would have been issued at 77% of the average closing bid price, as defined, for the five trading days immediately preceeding but not including, the "repricing" date. Each "repricing' calculation is made independent of the other "repricing" calculations. The operation of the "repricing" provision has resulted in the commitment to issue an additional approximately 425,000 shares in August 1998 and could result in significantly greater number of shares being issued in addition to the amounts listed in the above table. The investors have agreed not to sell any shares before at least 120 days after the closing. The Company has agreed not to issue certain financings for 270 days after issuance of all shares under the "repricing" provisions without the consent of the investors and has agreed to a right of first refusal as defined in the agreements. The Company has paid a placement agent a 6.5% fee in connection with the transaction. The $2,000,000 issuance of common stock and warrants has triggered the anti-dilution provisions of the 10%/13% Convertible Notes and the Company's currently outstanding Class B and Class E warrants. Anti-dilution computations have been completed and are reflected in the accompanying Notes to Condensed Consolidated Financial Statements. The Registrant claims exemption from registration of this placement by virtue of Section 4(2) of the Securities Act of 1933. The proceeds of the offering are to be utilized for general working capital purposes. In October 1998, the Company and the representative of the investors agreed, subject to Board approval and completion of documentation, to restructure the "repricing". Under the agreement, the investors will return all "repricing" shares they have received or are due to receive and the original $2,000,000 placement will be "repriced", at the holders option, in new increments of $250,000 per month. Amounts not "repriced" at a scheduled repricing date will be carried over to the next month. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27 Financial Data Schedule. (b) Reports on Form 8-K On November 6, 1998, the Company filed a Form 8-K in order to report that effective October 26, 1998, the Company, pursuant to a Stock Purchase and Restructure Agreement between the Company and Impleo, LLC. ("Impleo"), sold 56.7% of the outstanding shares of its investment in its Drew Shoe Corporation subsidiary ("Drew") to Impleo in exchange for approximately $3,780,000 principal amount of the Company's 10%/13% Secured Convertible Notes (Notes"). Impleo, which initially owned $5,000,000 principal amount of Notes, purchased the remaining $1,000,000 principal amount (plus accrued interest) of Notes, thereby making it the sole holder of the Notes. After 21 this transaction, the remaining principal balance on the Convertible Notes will be approximately $2,220,000 plus an additional approximately $850,000 of accrued interest as of October 26, 1998. The Notes are secured by all of the assets of the Company and are due in April 1999. Impleo now owns approximately 67% of the common stock of Drew. As a condition of the sale of the Drew shares to, and the redemption of the Notes from, Impleo, Michael Strauss, Chairman, President and Chief Executive Officer of BCAM International, Inc. has become the Chief Executive Officer of Drew Shoe Corporation. Mr. Strauss is obliged to spend no less than 75% of his time on the business of Drew. Mr. Strauss will continue to serve BCAM International, Inc. as its Chairman, President and Chief Executive Officer and has agreed to enter into a new employment agreement with the Company. BCAM's redemption of approximately $3,780,000 of Notes and cancellation of certain related warrants will eliminate approximately 6.8 million shares of potential dilution to the BCAM common shareholders. This includes the elimination of potential dilution which would result from conversion of the Notes (approximately 5.5 million shares) and exercise of warrants to purchase approximately 1.3 million shares of BCAM common stock. In connection with the Stock Purchase and Restructure Agreement, the Company and Impleo entered into a Second Amendment to the September 1997 Note Purchase agreement which eliminates the requirement for Impleo to have representation of 25% or more on the Company's Board of Directors, among other matters. In addition, the Company has been released from its guarantee of the secured obligations of Drew to a bank. The Company, Drew and Impleo have entered into a shareholders agreement relative to the certain matters including disposition of shares and additional investments in Drew. The Company has entered into a separate Purchase and Sale Agreement with Impleo in which it agreed to promptly submit to its shareholders a proposal to sell the remaining 33.3% of Drew Shoe Corporation to Impleo in exchange for the cancellation of the then remaining principal amount of Notes together with accrued interest thereon (the "Second Sale"). If the BCAM shareholders approve the proposal to sell the remaining 33.3% of Drew common stock, an aggregate of approximately 10.75 million potentially dilutive securities will be eliminated. Impleo is an affiliate of Wexford Management, LLP. Separately, the Company has reached agreement with Charles G. Schuyler and Frank Shyjka (the sellers of Drew to the Company in 1997) to: (i) cancel Mr. Schulyer's employment contract and enter into a consulting agreement, (ii) cancel approximately $200,000 of notes payable to Messrs. Schuyler and Shyjka, (iii) forgive certain purchase price adjustments due from Messrs. Schuyler and Shyjka and the assumption, by Drew, of certain contingent liabilities in connection with the Ulin & Holland litigation (such litigation is discussed in Item 3 of Form 10-KSB for the year ended December 31, 1997). 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BCAM INTERNATIONAL, INC. Dated: November 16, 1998 By: /s/ Michael Strauss -------------------------------------------- Michael Strauss Chairman of the Board of Directors, President and Chief Executive Officer (principal executive officer) Dated: November 16, 1998 By: /s/ Kenneth C. Riscica -------------------------------------------- Kenneth C. Riscica Vice President - Finance, Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer) 23 INDEX OF EXHIBITS Exhibit No. Exhibit - ----------- ------- 27 Financial Data Schedule 24 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-1-1998 SEP-30-1998 982,000 0 0 0 0 13,688,000 0 0 13,923,000 14,702,000 0 0 0 218,000 (997,000) 13,923,000 0 2,000 0 2,689,000 0 0 (49,000) (10,876,000) 0 (2,638,000) 7,686,000 552,000 0 (10,876,000) (0.55) (0.55)
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