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 June 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from ------- to ----------
Commission file number 0-18109
CELLMETRIX, 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)
(631) 752-3550
(Issuer's telephone number)
BCAM International, Inc.
(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 X No
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: June 30, 2000: 10,939,502
Transitional Small Business Disclosure Format (check one): Yes ____ No X
CellMetrix, Inc. and Subsidiaries
(Formerly BCAM International, Inc. and Subsidiaries)
PAGE
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
June 30, 2000 (Unaudited) F-2
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2000 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6/18
Item 2. Management's Discussion and Analysis or Plan of Operation F-19/22
Part II - Other Information
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23/25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of matters to a vote of security holders 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Index of Exhibits 27
F-1
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
June 30, 2000
(Unaudited)
Assets
------
Current assets:
Cash $ 9,000
Accounts receivable, less allowance for contractual discounts
and doubtful accounts of $15,000 7,000
Other current assets 43,000
-----------
Total current assets 59,000
Equipment, net of accumulated depreciation of $13,000 15,000
Technology costs, net of accumulated amortization of $421,000 757,000
Debt issuance costs, net of accumulated amortization of $548,000 1,750,000
Licensing costs 4,084,000
Investment in nonmarketable debentures 393,000
-----------
Total $ 7,058,000
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes currently payable (including obligations in default) $ 828,000
Payments received for preferred stock prior to issuance 323,000
Accounts payable 480,000
Accrued expenses 714,000
Estimated value of obligations for purchase of license 3,497,000
-----------
Total current liabilities 5,842,000
Other notes payable 350,000
-----------
Total liabilities 6,192,000
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized:
Series A Acquisition Convertible Preferred Stock, par value $.01 per
share; 750,000 shares authorized; 262,884 shares issued and
outstanding; liquidation preference $4,521,605
($17.20 per share) 3,000
Series C Convertible Preferred Stock, par value $.01 per share;
120,000 shares authorized; 107,667 shares issued and
outstanding; liquidation preference $10,376,300 ($100 per share) 1,000
Series D Convertible Preferred Stock, par value $.01 per share;
150,000 shares authorized; 132,000 shares issued and
outstanding; liquidation preference $1,212,000 ($10 per share) 1,000
Common stock, par value $.01 per share; 200,000,000 shares
authorized; 10,939,502 shares issued 1,635,000
Additional paid-in capital 11,564,000
Unearned compensation (630,000)
Accumulated deficit (10,809,000)
Less treasury stock - 50,879 shares of common stock at cost (899,000)
-----------
Total stockholders' equity 866,000
-----------
Total $ 7,058,000
===========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
F-2
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 2000 and 1999
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -----------
Net revenues $ 20,000 $ 13,000 $ 10,000 $ 5,000
------------- ------------- ------------ -----------
Operating expenses:
Cost of revenues 9,000 50,000 1,000 9,000
Selling, general and administrative
expenses 1,428,000 574,000 630,000 228,000
------------ ------------- ------------ ----------
Totals 1,437,000 624,000 631,000 237,000
------------ ------------- ------------ ----------
Loss from operations (1,417,000) (611,000) (621,000) (232,000)
Interest expense 416,000 491,000 214,000 241,000
------------- ------------- ------------ ----------
Net loss $(1,833,000) $(1,102,000) $(835,000) $(473,000)
=========== =========== ============ ==========
Basic net loss per common share $(.17) $(1.11) $(.08) $(.48)
===== ====== ===== =====
Basic weighted average number of
common shares outstanding 10,863,623 988,740 10,878,623 988,740
========== ======= ========== =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
F-3
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000
(Unaudited)
Series A Series B
Acquisition Acquisition Series C Series D
Convertible Convertible Convertible Convertible
Preferred Preferred Preferred Preferred Common Stock
Stock Stock Stock Stock Shares Amount
----- ----- ----- ----- ------ ------
Balance, January 1, 2000 $3,000 $1,000 40,680,153 $407,000
Proceeds from issuance of
107,667 shares of Series
C and 132,000 shares of
Series D Preferred Stock
through private placements,
net of expenses $1,000 $1,000
Issuance of stock options and
warrants to directors, con-
sultants and noteholders
Adjustment to unearned com-
pensation related to issu-
ance of stock options to
director in 1999
Amortization of unearned
compensation
Conversion of 81,875 shares
of Series B Preferred Stock
into common stock (1,000) 122,812,380 1,228,000
Effect of 1 for 15 reverse
split (152,593,031)
Issuance of common stock to
noteholders 40,000
Net loss
------ ---------- ------ ------ ---------- ----------
Balance, June 30, 2000 $3,000 $ - $1,000 $1,000 10,939,502 $1,635,000
====== ========== ====== ====== ========== ==========
F-4
Additional Unearned Accum-
Paid-In Compen- ulated Treasury Stock
Capital sation Deficit Shares Amount Total
------- ------ ------- ------ ------ -----
Balance, January 1, 2000 $13,229,000 $(2,818,000) $(8,976,000) 763,182 $(899,000) $ 947,000
Proceeds from issuance of
107,667 shares of Series
C and 132,000 shares of
Series D Preferred Stock
through private placements,
net of expenses 1,488,000 1,490,000
Issuance of stock options and
warrants to directors, con-
sultants and noteholders 184,000 184,000
Adjustment to unearned com-
pensation related to issu-
ance of stock options to
director in 1999 (2,224,000) 2,113,000 (111,000)
Amortization of unearned
compensation 75,000 75,000
Conversion of 81,875 shares
of Series B Preferred Stock
into common stock (1,227,000)
Effect of 1 for 15 reverse
split (712,303)
Issuance of common stock to
noteholders 114,000 114,000
Net loss (1,833,000) (1,833,000)
----------- --------- ----------- ------ --------- -----------
Balance, June 30, 2000 $11,564,000 (630,000) $(10,809,000) 50,879 $(899,000) $ 866,000
=========== ========= ============ ====== ========= ===========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
F-4 (continued)
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Operating activities:
Net loss $(1,833,000) $(1,102,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of equipment 6,000 14,000
Amortization of technology costs 84,000 84,000
Amortization of debt issuance costs and debt discount 335,000
Net reversal of amortization of unearned compensation (36,000)
Deferred interest expense 17,000 420,000
Service and interest expense paid through issuances
of stock options and warrants 184,000
Changes in operating assets and liabilities:
Accounts receivable 11,000 18,000
Other current assets 4,000
Accounts payable 189,000 326,000
Accrued expenses 555,000 (304,000)
Other liabilities (70,000)
------------ ------------
Net cash used in operating activities (554,000) (544,000)
------------ ------------
Investing activities:
Costs of acquiring license agreement (587,000)
Purchase of investment in nonmarketable debentures (393,000)
Payments of capital lease obligations (6,000)
------------- ------------
Net cash used in operating activities (980,000) (6,000)
------------- ------------
Financing activities:
Advance from stockholder 150,000
Proceeds from issuances of notes payable 400,000
Repayments of notes payable (118,000)
Payments received for preferred stock prior to issuance 323,000
Proceeds from issuances of preferred stock, net of expenses
of $20,000 and cash received in 1999 of $220,000 1,270,000
------------ ----------
Net cash provided by financing activities 1,475,000 550,000
------------ ----------
Net increase (decrease) in cash (59,000) -
Cash, beginning of period 68,000 -
------------ ----------
Cash, end of period $ 9,000 $ -
============== ==========
Supplemental disclosures of cash flow data:
Interest paid $ 36,000 $ 55,000
============= ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
F-5
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation:
Interim financial statements:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of CellMetrix, Inc. (formerly BCAM
International, Inc.) and its subsidiaries reflect all adjustments,
consisting of normal recurring accruals, necessary to present fairly
their financial position as of June 30, 2000, and their results of
operations for the six and three months ended June 30, 2000 and 1999,
changes in stockholders' equity for the six months ended June 30, 2000
and cash flows for the six months ended June 30, 2000 and 1999.
Pursuant to rules and regulations of the Securities and Exchange
Commission (the "SEC"), certain information and disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from
these condensed consolidated financial statements unless significant
changes have taken place since the end of the most recent fiscal year.
Accordingly, these unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements, notes to consolidated financial statements and
the other information in the Annual Report on Form 10-KSB for the year
ended December 31, 1999 (the "10-KSB") previously filed by CellMetrix,
Inc. ("CellMetrix ") with the SEC.
The results of operations for the six and three months ended June 30,
2000 are not necessarily indicative of the results of operations for
the full year ending December 31, 2000.
Business and certain transactions:
As one of the results of a series of transactions consummated
effective as of September 22, 1999 that are further explained in Note
1 of the notes to the consolidated financial statements in the 10-KSB,
CellMetrix became an inactive holding company when it transferred its
software, technology and consulting operations to, and spun off its
interest in, its 90%-owned subsidiary, ISTX, Inc. ("ISTX"). CellMetrix
also became the legal acquirer of LungCheck Inc. ("LungCheck") through
a merger (the "Merger") in which it exchanged shares of preferred and
common stock for 100% of the outstanding common stock of LungCheck.
LungCheck has been in the business of enhancing and marketing
technology used to provide cytology laboratory services that include
the quantitative assessment of pulmonary specimens, as well as the
early identification of cancer and other abnormalities detectable from
sputum cytology specimens.
F-6
CellMetrix International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (continued):
Business and certain transactions (concluded):
As a result of the exchange of shares, the former stockholders of
LungCheck became the owners of approximately 80% of the voting shares
of CellMetrix that were outstanding on the date the Merger was
consummated. Since CellMetrix had no business operations immediately
prior to the Merger as a result of the spinoff described above, and
since the former stockholders of LungCheck owned 80% of the voting
stock of CellMetrix, the Merger was treated effective as of September
23, 1999 as a "purchase" business combination and a "reverse
acquisition" for accounting purposes in which CellMetrix was the legal
acquirer and LungCheck was the accounting acquirer. Pursuant to the
purchase method of accounting, the assets and liabilities of the
accounting acquirer continue to be recorded at their historical
values, and financial statements for periods prior to the date of
acquisition only include the results of operations of the accounting
acquirer. Accordingly, the accompanying condensed consolidated
financial statements for the six and three months ended June 30, 1999
only reflect the results of operations and cash flows of LungCheck.
As used herein, the "Company" refers to CellMetrix, which is a holding
company, its principal operating subsidiary, LungCheck, and its other
subsidiaries.
The Company is a medical technology company that is aiming to become
the premier provider of cost-effective cell and tissue analysis
systems. These systems are being designed to provide healthcare
professionals with valuable information to improve patient outcomes
through early disease detection and improved patient management. The
Company is currently focused on developing novel clinical tests for
early-stage lung cancer. In April 2000, the Company entered into a
patent and license agreement with AccuMed International, Inc.
("AccuMed") for the right to use AccuMed's image cytometry technology
and AccuMed's proprietary analytical imaging instruments and systems
(see Note 2 herein). The Company is in the process of integrating the
LungCheck and AccuMed technologies and using its resources and the
resources of its strategic partners to develop a more complete line of
sputum preparation and analysis systems. It has temporarily suspended
marketing efforts related to the sputum cytology-based testing product
for early lung cancer detection that had been the primary source of
its revenues during fiscal 1999 and the six months ended June 30,
2000.
F-7
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (continued):
Basis of presentation:
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
The Company has not generated significant revenues on a sustained
basis from its principal operating assets, the technology LungCheck
acquired at, and has been developing since, its inception on January
30, 1997 and the rights to the technology that it acquired from
AccuMed. The Company's operations have generated losses and cash flow
deficiencies from its inception. Although the losses reflect
substantial noncash charges resulting from the issuance of shares of
preferred and common stock, stock options and warrants to pay for
service, compensation and interest expense, the Company had a
substantial working capital deficiency and was in violation of certain
of its covenants in its loan agreements as of June 30, 2000.
Management expects that such losses and cash flow deficiencies will
continue through at least June 30, 2001 while the Company continues to
develop its technology and the markets for its services. Such matters
raise substantial doubts about the Company's ability to continue as a
going concern and realize the carrying value of its technology,
license costs and other assets unless the Company is able to obtain
additional financing and, ultimately, increase revenues and generate
sufficient profits and cash flows to sustain its operations.
From its inception through June 30, 2000, the Company obtained
financing primarily from loans from InterEquity Capital Partners
("InterEquity"), a small business investment company; loans from
stockholders and other related parties; the private placement of
convertible bridge notes (which were subsequently converted into
preferred and common stock) and secured promissory notes; and the
private placement of shares and units of shares of preferred stock and
warrants to purchase preferred and common stock.
The Company did not have any significant cash resources as of June 30,
2000. Although the Company received $195,000 in July 2000 as an
additional deposit related to the proposed sale of preferred stock
through a subsequent proposed private placement (see Note 4 herein),
management anticipates that the Company will still need to raise
approximately $4,000,000 to satisfy its cash requirements through June
30, 2001. Management is continuing its efforts to obtain additional
debt and/or equity financing for the Company from financial
institutions, other private investors and potential strategic
partnerships. On February 1, 2000, the Company entered into an
agreement with an investment banking institution which is acting as
its investment advisor with respect to its efforts to raise capital.
However, there is no assurance that the Company will be able to obtain
the financing it will require for its operations through June 30,
2001.
F-8
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (concluded):
Basis of presentation (concluded):
During the year ended December 31, 1999, the Company consummated the
Merger and management began to reorganize the Company's operations.
The Company had engaged a consulting firm with expertise in medical
sales and marketing strategies to assist its own personnel in the
preparation of a business plan and exploration of strategic
alternatives which include, among other things, potential business
combinations, strategic alliances and other potential sources of
financing (the consulting firm suspended the provision of services in
July 2000 pending the receipt of certain payments). Cash payments for
expenses have been reduced through the outsourcing of certain
laboratory, sales and marketing positions. The Company has also
reduced expenses by eliminating certain internal personnel costs and
other costs of services.
In addition, management believes the Company has developed a more
viable marketing strategy as explained above. In order to implement
its new marketing strategy and enable the Company to become
commercially successful, the Company has commenced negotiations with
several parties which, if successful, would add key technologies for
development of the aforementioned laboratory systems.
Management cannot assure that the Company will be able to develop a
successful marketing strategy or obtain the financing needed to
develop commercially successful operations through any other means.
The accompanying condensed consolidated financial statements do not
include any adjustments related to the recoverability and
classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue its operations as a going concern.
Note 2 - Licensing costs:
On April 4, 2000, the Company entered into a patent and license agreement
(the "License Agreement") with AccuMed for the right to use AccuMed's
morphological, cytochemical, cytogenetic and quantitative sputum cytology
technology. AccuMed's technology is used in laboratory analyses for early
lung cancer detection, screening, diagnosis, prognosis and/or therapeutic
monitoring. The License Agreement will expire on April 4, 2020, except
under certain conditions specified therein.
The Company agreed to pay AccuMed (i) a license fee of $1,000,000 in
various installments (with interest at 10%) through December 1, 2000; (ii)
royalty fees based on specified terms; (iii) either $1,000,000 in cash, or
shares of the Company's common stock with an equivalent value, on the first
anniversary of the License Agreement based on an election to be made by
AccuMed; and (iv) shares of the Company's common stock equal to 10% of the
total number of shares of its common stock outstanding or issuable upon the
exercise or conversion of certain specified options, warrants and preferred
shares on the first anniversary.
F-9
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Licensing costs (concluded):
The Company recorded total licensing costs of $4,048,000 as of June 30,
2000, which was comprised of (i) the $1,000,000 payable in installments
through December 1, 2000 (of which $750,000 remained unpaid at June 30,
2000); (ii) the $1,000,000 payable in cash or shares on the first
anniversary of the License Agreement; (iii) $1,747,000 estimated based on
10% of the total number of shares of the Company's common stock outstanding
or issuable upon the exercise or conversion of options, warrants and
preferred shares and the fair value of those shares as of June 30, 2000
(the estimate will be revised based on the actual number of shares that
become issuable and the fair market value of those shares on the first
anniversary); and (iv) $337,000 of fees incurred in connection with the
License Agreement. The Company will amortize the cost of the license using
the straight-line method over an estimated useful life of seven years from
the date it commences the commercial use of AccuMed's technology.
Management expects that such use will commence during 2001. The purchase of
the license through, effectively, installment payments and shares issuable
was a noncash transaction that is not reflected in the accompanying
condensed consolidated statement of cash flows for the six months ended
June 30, 2000.
Note 3 - Investment in nonmarketable debentures:
During April 2000, the Company purchased secured claims against Intelligent
Medical Imaging, Inc. ("IMI"), a manufacturer of automated microscopy
systems used worldwide in hospitals and large clinical laboratories that
filed for Chapter 11 bankruptcy protection in November 1999. The secured
claims are for the payment of debentures issued by IMI with an aggregate
principal balance of approximately $535,000, stated interest rates ranging
from 10% to 12% and originally scheduled maturity dates ranging from
October 2, 1998 to May 10, 1999. The debentures are not publicly traded.
Due to the uncertainties related to the fair value of the debentures and
the ability of IMI to pay principal and/or interest, the Company is
carrying its investment at cost and will account for IMI's payments, if
any, of principal and/or interest on a cost recovery basis.
Note 4 - Stockholders' equity:
The information that follows relates primarily to the Company's capital
stock and stockholders' equity at June 30, 2000 and the changes in its
capital stock and stockholders' equity during the six months then ended.
Such information should be read in conjunction with the consolidated
financial statements and the notes to the consolidated financial statements
included in the 10-KSB, particularly Notes 1, 2, 6, 7, 8 and 11.
F-10
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Stockholders' equity (continued):
On April 18, 2000, the Company's stockholders approved, among other
matters, (i) an increase in the number of authorized shares of the
Company's preferred stock from 2,000,000 shares to 5,000,000 shares, (ii)
an increase in the number of authorized shares of the Company's common
stock from 65,000,000 shares to 200,000,000 shares and (iii) a 1 for 15
reverse split of the Company's common stock. All references to shares of
common stock and prices per share of common stock have been retroactively
adjusted herein for the effects of the 1 for 15 reverse split.
As of December 31, 1999, the Company was authorized to issue up to 750,000
shares of preferred stock as Series A Acquisition Convertible Preferred
Stock (the "Series A Stock") and 750,000 shares of preferred stock as
Series B Acquisition Convertible Preferred Stock (the "Series B Stock"),
both of which had a par value of $.01 per share. A total of 262,884 shares
of Series A Stock, 81,875 shares of Series B Stock and 2,661,131 shares of
common stock were, effectively, issued and outstanding as of December 31,
1999.
Each share of Series A Stock is convertible into ten shares of common stock
at the option of the holder, subject to certain conditions, and has a
preference in liquidation of $17.20 per share. Holders of Series A Stock
are entitled to cast that number of votes equal to the number of shares of
common stock into which a share of Series A Stock is convertible. There
were no changes in the number of shares of Series A Stock outstanding
during the six months ended June 30, 2000 and, accordingly, a total of
2,628,840 shares of common stock were reserved for issuance upon their
conversion.
Each share of Series B Stock was convertible into 100 shares of common
stock at the option of the holder, but had no preference in liquidation. In
addition, the holders of Series B Stock were also entitled to cast that
number of votes equal to the number of shares of common stock into which a
share of Series B Stock was convertible. The 81,875 shares of Series B
Stock outstanding as of December 31, 1999 were automatically converted into
8,187,500 shares of common stock as a result of the approval of the 1 for
15 reverse split on April 18, 2000 and the conversion has been
retroactively reflected, where appropriate, in the accompanying condensed
consolidated financial statements and these notes.
F-11
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Stockholders' equity (continued):
As further explained in Note 11 in the 10-KSB, subsequent to December 31,
1999, the Company became authorized to issue up to 120,000 shares of Series
C Convertible Preferred Stock (the "Series C Stock") and 150,000 shares of
Series D Convertible Preferred Stock (the "Series D Stock"), both of which
have a par value of $.01 per share. Each share of Series C Stock is
convertible into 6.67 shares of common stock at the option of the holder,
subject to certain conditions, and has a preference in liquidation of $100
per share. Each share of Series D Stock is convertible into 16.67 shares of
common stock at the option of the holder, subject to certain conditions,
and has a preference in liquidation of $10 per share. In addition, the
holders of Series C Stock and Series D Stock are entitled to cast that
number of votes equal to the number of shares of common stock into which a
share of Series C Stock and a share of Series D Stock is convertible.
During January 2000, the Company sold 103,330 shares of Series C Stock and
688,867 warrants to purchase shares of common stock pursuant to a private
placement intended to be exempt from registration under the Securities Act
of 1933 (the "Act"). Each warrant is exercisable for the purchase of one
share of common stock at $.495 per share through January 12, 2005. The
Company received proceeds from this private placement of $310,000, net of
related costs and expenses of $8,000. The Company also issued 4,337 shares
of Series C Stock and 57,773 warrants, each of which is exercisable for the
purchase of one share of common stock at $.45 to $.495 per share, to an
investment banker in connection with this private placement. Accordingly, a
total of 717,780 shares of common stock were reserved for issuance upon the
conversion of Series C Stock at June 30, 2000.
During February 2000, the Company sold 120,000 shares of Series D Stock and
2,000,000 warrants to purchase shares of common stock pursuant to a private
placement intended to be exempt from registration under the Act. Each
warrant is exercisable for the purchase of one share of common stock at
$1.20 per share through March 2005. The Company received proceeds from this
private placement of $1,200,000, net of related costs and expenses of
$12,000. The Company also issued 12,000 shares of Series D Stock and
400,000 warrants, each of which is exercisable for the purchase of one
share of common stock at $.60 to $1.20 per share, to an investment banker
in connection with this private placement. Accordingly, a total of
2,200,000 shares of common stock were reserved for issuance upon the
conversion of Series D Stock at June 30, 2000.
F-12
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Stockholders' equity (concluded):
The balance of notes currently payable as of June 30, 2000 includes
approximately $828,000 attributable to the carrying value of a note
originally payable to InterEquity in monthly installments through December
31, 2002 (see Note 4 in the 10-KSB). The Company was in violation of
certain loan covenants as of June 30, 2000 and, accordingly, the entire
balance has been classified as a current liability as of that date. In
connection with certain waivers obtained during the six months ended June
30, 2000, the Company agreed to issue 20,000 shares of common stock to
InterEquity on April 1, 2000, and 10,000 shares of common stock for each
month thereafter until the note is paid in full. As a result, the Company
issued 40,000 shares of common stock to InterEquity during the six months
ended June 30, 2000 with an approximate aggregate fair value of $114,000
which has been included in debt issuance costs and is being amortized over
the remaining term of the note. The issuance of the shares was a noncash
transaction that is not reflected in the accompanying condensed
consolidated statement of cash flows for the six months ended June 30,
2000.
During the six months ended June 30, 2000, the Company received
unrestricted cash payments of $323,000 from investors for the purchase,
pursuant to a proposed private placement exempt from registration under the
Act, of shares of convertible preferred stock to be designated as Series E
Convertible Preferred Stock (the "Series E Stock") and warrants to purchase
shares of the Company's common stock. During July 2000, the Company
received additional unrestricted cash payments of $195,000 for the purchase
of Series E Stock and warrants. The purchase price for the shares would be
50% of the average price for a specified period prior to the closing of a
proposed private placement of shares of Series E Stock with a minimum
selling price of $1,000,000 and a maximum selling price of $5,000,000. Each
share of Series E Stock would be convertible at any time by the holder into
one share of common stock. Investors will receive one warrant to purchase
one share of common stock for each share of Series E Stock purchased. Each
warrant will be exercisable for the purchase of one share of common stock
during the three year period subsequent to the closing of the private
placement. However, management cannot assure that the Company will be able
to consummate the proposed private placement or that the Company will not
have to return amounts paid by the investors prior to consummation.
Note 5 - Warrants and options:
In addition to the warrants issued in connection with the private
placements of preferred stock described in Note 4 herein, the Company
issued warrants to purchase a total of 86,079 shares of common stock to pay
for various services and interest expense during the six months ended June
30, 2000. The warrants are exercisable at prices ranging from $.45 to $1.65
per share and expire at various dates through February 1, 2006.
F-13
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Warrants and options (continued):
As of December 31, 1999, the Company had warrants to purchase 3,233,496
shares of common stock outstanding at prices ranging from $.75 to $1.65 per
share, as adjusted for the 1 for 15 reverse split in April 2000 (see Note 7
in the 10-KSB). No warrants were exercised or cancelled during the six
months ended June 30, 2000. As a result, of the issuances of warrants
during the six months ended June 30, 2000, the Company had warrants to
purchase 6,466,211 shares of common stock outstanding at June 30, 2000 with
exercise prices and expiration dates as shown in the table below:
Shares Subject
to Warrants Exercise Price Expiration Date
----------- -------------- ---------------
749,100 $ .83 August 14, 2002
1,064,928 1.65 December 29, 2002
473,222 .75 December 29, 2002
538,000 1.65 December 31, 2002
68,242 1.65 March 22, 2003
340,000 .75 September 15, 2004
16,479 .75 January 1, 2005
717,753 .495 January 10, 2005
28,887 .45 January 10, 2005
66,667 .60 January 31, 2005
2,200,000 1.20 February 18, 2005
200,000 .60 February 18, 2005
2,933 1.65 February 1, 2006
- ---------
6,466,211
=========
As of December 31, 1999, the Company had options to purchase 3,963,297 shares of
common stock outstanding at prices ranging from $.003 to $25.35 per share, as
adjusted for the 1 for 15 reverse split in April 2000 (see Note 8 in the
10-KSB). The table that follows summarizes the status of the shares of the
Company's common stock that are subject to issuance upon the exercise of stock
options outstanding as of June 30, 2000 and changes in outstanding options
during the six months then ended:
F-14
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Warrants and options (concluded):
Number of Range of
Shares Exercise Prices
------ ---------------
Outstanding, at beginning of period 3,963,297 $.003-$25.35
Adjustments to options outstanding at beginning
of period (1,483,110) .45
---------
Outstanding, at beginning of period as adjusted 2,480,187 .003-25.35
Granted 16,479 .45
Canceled/expired (42,659) 13.83-25.35
---------
Outstanding, at end of period 2,454,007 .003-1.65
=========
Options exercisable at end of period 2,013,469
=========
The Company initially reported that it had granted options to purchase 1,977,480
shares of common stock to an executive officer during 1999 at an exercise price
of $.45 per share which was less than the fair market value of the shares on the
date of grant. The Company had charged $2,966,000 to unearned compensation and
additional paid-in capital in 1999 based on the number of shares that were
subject to the options and the excess of the fair market value over the exercise
price for each share. A total of $148,000 of the unearned compensation had been
amortized in 1999. However, the Company actually granted options to purchase
494,370 shares to the executive officer during 1999. As a result, the initial
charge to unearned compensation should have been $742,000 of which $37,000
should have been amortized in 1999. Accordingly, in addition to reducing the
number of shares subject to options outstanding by 1,483,110 shares as shown in
the table above, the Company reduced total unearned compensation by $2,113,000
and reduced amortization expense by $111,000 during the six months ended June
30, 2000.
The Company also issued options to purchase a total of 16,479 shares of common
stock to pay for various services during the six months ended June 30, 2000. The
options are exercisable at $.45 per share and expire at various dates through
September 2004.
The Company valued the costs of the services and interest expense paid through
issuances of warrants to purchase 86,079 shares of common stock and options to
purchase 16,479 shares of common stock during the six months ended June 30, 2000
described above at $184,000 based on the estimated fair value of the options
determined using methods required by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation."
F-15
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 - Net earnings (loss) per common share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings per common share pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per
Share." Basic earnings (loss) per common share is calculated by dividing
net income or loss applicable to common stock (net income or loss adjusted
for preferred dividend requirements, if any) by the weighted average number
of common shares outstanding during each period. The calculation of diluted
earnings per common share is similar to that of basic earnings per common
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable upon the
exercise of stock options and warrants and the conversion of preferred
stock, were issued during the period.
As explained in Note 4 herein and/or Note 6 in the 10-KSB, shares of Series
B Stock had no preference in liquidation and their holders had conversion,
voting and other rights that made each share the equivalent of 100 shares
of common stock. Accordingly, the 10,863,623 and 10,878,623 weighted
average common shares outstanding used in computing basic net loss per
common share for the six and three months ended June 30, 2000,
respectively, were based on the weighted average of the shares of the
Company's common stock actually outstanding during each period, adjusted
retroactively to include the weighted average effects of the 8,187,500
shares of common stock that were issued upon the conversion of the Series B
Stock on April 18, 2000. The 988,740 weighted average common shares
outstanding used in computing basic net loss per common share for the six
and three months ended June 30, 1999 was comprised of the number of shares
of common stock of LungCheck (the accounting acquirer in the reverse
acquisition) actually outstanding during that period, adjusted
retroactively for the effects of their conversion into shares of Series B
Stock in connection with the Merger and their conversion into shares of the
Company's common stock in April 2000.
No diluted per share amounts have been presented in the accompanying
condensed consolidated statements of operations because the Company had a
net loss for the six and three months ended June 30, 2000 and 1999 and,
accordingly, the assumed effects of the conversion of convertible preferred
shares that were not equivalent to common shares and the exercise of
options and warrants would have been anti-dilutive.
Note 7 - Income taxes:
As of June 30, 2000, the Company had net operating loss carryforwards of
approximately $9,326,000 available to reduce future Federal taxable income
which, if not used, will expire at various dates through 2019. Due to the
uncertainties related to, among other things, the extent and timing of its
future taxable income, the Company offset the deferred tax assets
attributable to the potential benefits of approximately $3,171,000 from the
utilization of those net operating loss carryforwards by an equivalent
valuation allowance as of June 30, 2000.
F-16
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 - Income taxes (concluded):
The Company had also offset the potential benefits from its deferred tax
assets by an equivalent valuation allowance during 1999. As a result of the
increases in the valuation allowance of $1,275,000 and $375,000 during the
six months ended June 30, 2000 and 1999, respectively, and $297,000 and
$161,000 during the three months ended June 30, 2000 and 1999,
respectively, no credits for income taxes are included in the accompanying
condensed consolidated statements of operations.
The Company's deferred tax assets as of June 30, 2000 consisted of the
effects of temporary differences attributable to the following:
Services, compensation and interest expense paid
through the issuance of preferred and common
stock and stock options and warrants $ 614,000
Unearned compensation 38,000
Net operating loss carryforwards 3,171,000
-----------
3,823,000
Less valuation allowance (3,823,000)
Totals $ --
===========
Note 8 - Commitments and contingencies:
Litigation:
On or about February 22, 1999, a purported stockholder derivative
action was filed in United States District Court for the Eastern
District of New York in connection with certain transactions prior to
the Merger culminating in the sale by CellMetrix of its interest in
one of its former subsidiaries, Drew Shoe Corporation ("Drew") to
Impleo, LLC ("Impleo"). The complaint named all of CellMetrix's then
current directors and several former directors as defendants (the
"CellMetrix Defendants") as well as Impleo and certain related
entities and individuals (collectively, the "Defendants"). The
complaint alleged violations of the Federal securities laws and state
law and challenged the Defendants' actions in connection with certain
transactions including but not limited to (i) the April 14, 1998
restructuring of certain convertible notes; (ii) the October 1998 sale
of a 56.7% interest in Drew to Impleo and (iii) the sale of
CellMetrix's remaining 33.3% interest in Drew to Impleo on March 4,
1999. In addition to seeking recovery on behalf of CellMetrix for
certain allegedly wrongful acts on the part of the Defendants, the
complaint sought, among other things, to enjoin or set aside any
stockholder vote in connection with a proxy statement filed with the
SEC on or about February 1, 1999 (pursuant to which CellMetrix
received approval of over 66.7% of its stockholders to sell its
remaining 33.3% interest in Drew) and to block or rescind the sale of
any interests in Drew to Impleo. CellMetrix's directors denied the
allegations concerning any allegedly wrongful actions.
F-17
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Commitments and contingencies (concluded):
Litigation (concluded):
In May 1999, the Defendants filed motions to dismiss the complaint. Instead
of responding to these motions, plaintiff filed and served an amended
complaint in July 1999. The amended complaint dropped certain parties as
Defendants and raised several new allegations, including, but not limited
to, the alleged failure to make adequate disclosure of the advice rendered
by a consultant to CellMetrix and the alleged failure to seek separate
stockholder approval for the October 1998 sale. The Company and its
directors denied that they engaged in wrongful conduct and on September 13,
1999 the Defendants served motions to dismiss the amended complaint.
After further motions, the parties agreed to settle the case and, on
February 19, 2000, executed a settlement agreement which required court
approval. The court approved the settlement on July 21, 2000. The principal
terms of the settlement require the CellMetrix Defendants to pay $229,500
plus legal fees not to exceed $85,000, and the remaining Defendants to pay
$25,000 plus legal fees not to exceed $7,500. The Company's insurer has
agreed to pay the obligations of the CellMetrix Defendants arising from the
settlement.
Reserve for loss on contingent liabilities:
In connection with the spin off on September 22, 1999 (see Note 1 in the
10-KSB), ISTX assumed all of the liabilities arising from CellMetrix's
software, technology and consulting operations. However, the liabilities
were assumed with "recourse" and, accordingly, the Company is contingently
liable for their payment. The management of the Company has determined that
ISTX does not have the resources to pay all of its remaining liabilities
and, as a result, the Company recorded a charge of $193,000 that is
included in general and administrative expenses in the accompanying
condensed consolidated statement of operations for the six months ended
June 30, 2000.
* * *
F-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT AND THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND 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:
CellMetrix, Inc. and Subsidiaries (formerly BCAM International, Inc. and
Subsidiaries) (the "Company") has been primarily a technology pioneer in the
field of Intelligent Surface Technology blending biomechanics and ergonomics
with innovative electronic systems and software. On September 23, 1999, the
Company completed a merger and recapitalization and acquired LungCheck, Inc.
("LungCheck") (see Item 1, Description of Business). Since CellMetrix had no
business operations immediately prior to the merger, a new medical diagnostics
business model was created using the LungCheck(R) sputum cytology product and
additional technologies that were licensed by the Company. The merger was
treated as a "purchase business combination" and a "reverse acquisition" for
accounting purposes in which BCAM was the legal acquirer and LungCheck was the
accounting acquirer.
The Company is a medical technology company that aims to become the premier
provider of cost-effective cell and tissue analysis systems. These systems will
provide healthcare professionals with valuable information to improve patient
outcomes through early disease detection and improved patient management. The
Company is currently focused on developing novel clinical tests for early stage
lung cancer. In April 2000, the Company entered into a patent and license
agreement with AccuMed International, Inc. ("AccuMed") for the right to use
AccuMed's image cytometry technology and AccuMed's proprietary analytical
imaging instruments and systems. The Company is in the process of integrating
the LungCheck and AccuMed technologies and using its resources and the resources
of its strategic partners to develop a more complete line of sputum preparation
and analysis systems. It has temporarily suspended marketing efforts related to
the sputum cytology-based testing product for early lung cancer detection that
had been the primary source of its revenues during fiscal 1999 and the six
months ended June 30, 2000.
The Company's business strategy is to fully develop laboratory systems that
provide highly sensitive (using genetic and molecular marker and probe
technology) testing capabilities through automated screening technology and to
simultaneously develop numerous clinical applications that test for various
forms of cancer or other serious medical conditions and are able to be run on
the Company's laboratory systems. The Company will market, through various
channels, the use of its testing applications to medical providers who in turn
will order the tests that are then run on the laboratory systems that the
Company provides to certain large reference and hospital laboratories. The
Company believes that the placement of its systems coupled with the increased
utilization of its testing applications by providers will result in significant
recurring revenue to the laboratories that use its systems as well as to the
Company and the physicians that collect specimens for testing. The Company plans
to charge the laboratory on a per-test or per-use basis and it is contemplated
that the Company will place its systems and receive on-going leasing revenue
from these systems as well as from fees associated with sales of its proprietary
testing kits and proprietary testing reagents.
As previously discussed, in April 2000, the Company executed an exclusive
worldwide license agreement with AccuMed for the computer-aided and quantitative
microscopy platforms (i.e., analytical instruments) needed to process large
numbers of sputum specimens cost-effectively (i.e., rapidly and without
significant human labor costs). Additional technology-based partnerships are
being pursued in sputum specimen preparation (e.g., automated homogenization,
fixation, cell deposition, slide staining, and coverslipping). The Company fully
anticipates that its program for building and testing these medical applications
and systems will continue on an on-going basis for the foreseeable future. At
this time, there are no revenues associated with the sale of any medical testing
instruments and/or testing products to date other than those from the
LungCheck(R) Test.
Management believes that access to the market will be created, in part, through
increased consumer awareness of the benefits of early lung cancer detection to
patient outcomes. Also, the market will be expanded as third-party payers
increase their reimbursement rates for sputum tests and establish new CPT codes
for new early lung cancer detection and diagnostic tests. The Company is in
active discussions with developers and suppliers of the genetic and molecular
reagents to establish proprietary supply chains and distribution channels for
the CellMetrix Lung Cancer Panel Test.
Through its merger with LungCheck, the Company acquired the TrendCytoGram(TM)
which has served until recently as the Company's only sputum cytology based
testing product for lung cancer early detection. Management has concluded that
rather than to continue its efforts to market this test, it will aim to build
consensus in the marketplace behind the Company's future testing methodologies
that are based upon the latest research of molecular marker and probe sciences.
Management has therefore suspended its marketing and sales efforts of the Trend
CytoGram(TM) in order to complete its aforementioned business milestones over
the next several months. The Company anticipates launching an enhanced early
lung cancer detection and diagnosis Panel Test in 2001.
Results of Operations
Results of operations for the six months ended June 30, 2000 and 1999 were
impacted by limitations on resources, primarily financial, which inhibited
marketing activities. In particular, the Company was in negotiations to raise
additional capital from approximately June 1998 through June 2000. In September
1999 it consummated a series of transactions resulting in a recapitalization and
merger. Through September 1999, the Company was periodically advanced funds by a
major stockholder, a portion of which was converted into capital stock in
connection with the recapitalization. During the six month period from January
1, through June 30, 2000, the Company raised $1,510,000 through private
placements and $323,000 through a proposed private placement.
Revenues increased from $13,000 and $5,000 in the six and three months ended
June 30, 1999, respectively, to $20,000 and $10,000 for the six and three months
ended June 30, 2000, respectively. The Company's limited cash resources did not
allow for aggressive marketing and sales activities.
Costs of revenues declined from $50,000 and $9,000 in the six and three months
ended June 30, 1999, respectively, to $9,000 and $1,000 for the six and three
months ended June 30, 2000, respectively. The Company's laboratory facility
closed in March 1999. In conjunction with the laboratory's closure, the Company
entered into an agreement whereby a medical provider of laboratory services is
processing LungCheck(R) tests and reporting on their results, thereby reducing
the high fixed costs of lab personnel and other lab expenditures.
Selling, general and administrative expenses increased from $574,000 and
$228,000 in the six and three months ended June 30, 1999, respectively, to
$1,428,000 and $630,000 for the six and three months ended June 30, 2000,
respectively. This increase is primarily due to noncash consulting and
compensation charges related to the issuance of stock options, offset by
reductions in certain medical, sales and marketing expenses.
LIQUIDITY AND CAPITAL RESOURCES
As indicated in the accompanying condensed consolidated financial statements, as
of June 30, 2000, the Company has not generated any significant revenues from
the LungCheck(R) test technology that is its principal operating asset, and its
operations have generated losses and cash flow deficiencies from its inception
on January 30, 1997. Although the losses reflect substantial noncash charges
resulting from the issuance of shares of preferred and common stock, stock
options and warrants to pay for service, compensation and interest expense, the
Company had a substantial working capital deficiency and was in violation of
certain of its covenants in its loan agreement as of June 30, 2000. Management
expects that such losses and cash flow deficiencies will continue through at
least June 30, 2001 while the Company continues to develop its technology and
the markets for its services. Such matters raise substantial doubts about the
Company's ability to continue as a going concern and realize the carrying value
of its technology, license costs and other assets unless the Company is able to
obtain additional financing and, ultimately, increase revenues and generate
sufficient profits and cash flows to sustain its operations.
The Company received additional unrestricted cash payments of $195,000 in July
2000 as an additional deposit related to the proposed sale of preferred stock
through a subsequent proposed private placement. The Company anticipates that,
in addition, it will need to raise approximately $4,000,000 to satisfy its cash
requirements through June 30, 2001. Management is continuing its efforts to
obtain additional debt and/or equity financing for the Company from financial
institutions, other private investors and potential strategic partnerships.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
On or about February 22, 1999, a purported shareholder derivative action
was filed in United States District Court for the Eastern District of New York
in connection with certain transactions culminating in the sale by the Company
to Impleo, LLC of the Company's interest in Drew. The complaint named all of the
Company's current directors and several former directors as defendants as well
as Impleo, LLC and certain related entities and individuals (collectively, the
"Defendants"). The complaint alleged violations of the federal securities laws
and state law and challenge the Defendants' actions in connection with certain
transactions, including but not limited to, (i) the April 14, 1998 restructuring
of certain convertible notes; (ii) the October 1998 sale of 56.7% of Drew to
Impleo, LLC; and (iii) the sale on March 4, 1999 to Impleo, LLC of the Company's
remaining 33.3% interest in the Drew. In addition to seeking recovery on behalf
of the Company for certain allegedly wrongful acts on the part of the
Defendants, the complaint seeks, among other things, to enjoin or set aside any
shareholder vote in connection with a proxy statement filed with the SEC on or
about February 1, 1999 pursuant to which the Company received approval of over
67% of its shareholders to sell its remaining 33.3% interest in Drew and to
block or rescind the sale of any interests in Drew to Impleo, LLC. The current
Directors deny the allegations concerning any allegedly wrongful actions. In May
1999, all defendants filed motions to dismiss the complaint. Instead of
responding to these motions, plaintiff filed and served an amended complaint in
July 1999. The amended complaint dropped certain parties as defendants and
raised several new allegations, including, but not limited to, the alleged
failure to make adequate disclosure of the advice rendered by Mesa Partners to
the Company and the alleged failure to seek separate shareholder approval for
the October 1998 sale. The Company and its directors deny that they engaged in
wrongful conduct and intend to file motions to dismiss the amended complaint. On
September 13, 1999, the Defendants refiled the motion to dismiss the complaint.
After further motions, the parties agreed to settle the case and, on February
19, 2000, executed a settlement agreement which requires court approval. The
court approved the settlement on July 21, 2000. The principal terms of the
settlement require the CellMetrix Defendants to pay $229,500 plus legal fees not
to exceed $85,000, and the remaining Defendants to pay $25,000 plus legal fees
not to exceed $7,500. The Company's insurer has agreed to pay the obligations of
the CellMetrix Defendants arising from the settlement.
In October 1998, the Company's HumanCAD Systems Inc. subsidiary filed an
assignment in bankruptcy under the laws of the Province of Ontario, Canada and
Fuller Landau Ltd., 151 Bloor St. West, Toronto, Canada, was appointed receiver
and trustee. Certain creditors of the HumanCAD operations have filed or
threatened to file claims against the Company for the debts of HumanCAD. One
such action was filed by Miller Freeman, Inc. in the Civil Court of City of New
York in the amount of approximately $18,000. The Company intends to vigorously
defend itself in such action, however its ability to do so may be limited by its
financial resources which are currently inadequate (See Form 10-KSB for the year
ended December 31, 1998 including; Consolidated Financial Statements, Report of
Independent Public Accountants and Management's Discussion and Analysis or Plan
of Operations).
Item 2. Changes in Securities and Use of Proceeds
On September 23, 1999, BCAM International, Inc., through its wholly-owned
subsidiary, LungCheck Health, Inc., a Delaware corporation, ("BCAM," or the
"Company"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated September 15, 1999, acquired LungCheck, Inc. ("LungCheck"), a Delaware
corporation, in a statutory merger of LungCheck, Inc. into LungCheck Health,
Inc. (the "Merger").
The terms of the Merger Agreement provide that each outstanding share of
LungCheck common stock, par value $.001, immediately prior to the Merger shall
be converted into 0.0032958 of a share of BCAM Series B convertible acquisition
preferred stock, par value $.01 per share ("BCAM Series B Preferred"), and that
each share of LungCheck preferred stock, par value $.001 per share shall be
converted into 0.098884 of a share of BCAM Series A convertible acquisition
preferred stock, par value $.01 per share ("BCAM Series A Preferred"). The
Company issued 262,884.229 shares of BCAM Series A Preferred Stock and
79,891.425 shares of BCAM Series B Preferred Stock for this purpose. For a
detailed description of the terms, conditions and preferences of the BCAM Series
A Preferred Stock and BCAM Series B Preferred Stock, see the Company's Report on
Form 8-K and exhibits thereto, filed with the Securities and Exchange Commission
on October 8, 1999. After the completion of the exchange by the LungCheck
stockholders and upon conversion and of the BCAM Series A and B preferred stock
into common stock of the Company, the stockholders of LungCheck will become the
holders of approximately 80% of the total issued and outstanding common stock of
the Company. In addition, the holders of certain options and warrants to
purchase LungCheck common stock will be issued options to purchase up to an
aggregate of 48,332 shares of BCAM Series B Preferred Stock. The securities
described in the above transaction were issued under the exemption from
registration provided by Rule 506 promulgated under the Securities Act of 1933.
On April 18, 2000, the Company's stockholders approved a 1 for 15 reverse
split of the Company's common stock. See Item 6 below.
Elimination of Repricing Rights
In a transaction related to the Merger, the Company issued 13,125,000
shares of its common stock to the holders of certain shares of common stock (the
"Investors") acquired in a 1997 private placement (as amended in December 1998)
who were granted certain "repricing rights" based upon the market value of the
Company's common stock. Such issuance was in full satisfaction of the "repricing
rights."
New Investment into BCAM
In another transaction with the Investors which was related to the Merger,
the Company issued an aggregate of 10,986 shares of the Company's Series B
Preferred Stock and 1,666,667 shares of the Company's common stock to the
Investors. The price paid by the Investors for each share of the Company's
Series B Preferred Stock was $45.50 and the price per share paid by such
investors for the Company's common stock was $.1499 per share, for an aggregate
consideration of $750,000. The securities described above were issued pursuant
to the exemption from registration provided by Rule 506 as promulgated under the
Securities Act of 1933.
During January 2000, the Company sold 103,330 shares of Series C Stock and
688,867 warrants to purchase shares of common stock pursuant to a private
placement intended to be exempt from registration under the Securities Act of
1933 (the "Act"). Each warrant is exercisable for the purchase of one share of
common stock at $.495 per share through January 12, 2005. The Company received
proceeds from this private placement of $310,000, net of related costs and
expenses of $8,000. The Company also issued 4,333 shares of Series C Stock and
57,773 warrants, each of which is exercisable for the purchase of one share of
common stock at $.45 to $.495 per share, to an investment banker in connection
with this private placement. Accordingly, a total of 717,753 shares of common
stock were reserved for issuance upon the conversion of Series C Stock at March
31, 2000.
During February 2000, the Company sold 120,000 shares of Series D Stock and
2,000,000 warrants to purchase shares of common stock pursuant to a private
placement intended to be exempt from registration under the Act. Each warrant is
exercisable for the purchase of one share of common stock at $1.20 per share
through March 2005. The Company received proceeds from this private placement of
$1,200,000, net of related costs and expenses of $12,000. The Company also
issued 12,000 shares of Series D Stock and 400,000 warrants, each of which is
exercisable for the purpose of one share of common stock at $.60 to $1.20 per
share, to an investment banker in connection with this private placement.
Accordingly, a total of 2,200,000 shares of common stock were reserved for
issuance upon the conversion of Series D Stock at March 31, 2000.
The Company issued 40,000 shares of common stock to Interequity Capital
Partners, L.P. ("Interequity") during the six months ended June 30, 2000 with an
approximate aggregate fair value of $114,000 in connection with being in
violation of a certain loan agreement entered into with Interequity. See Note 4
to Condensed Consolidated Financial Statements.
The Company issued warrants to purchase a total of 86,079 shares of common
stock to pay for various services and interest expense during the six months
ended June 30, 2000. The warrants are exercisable at prices ranging from $.45 to
$1.65 per share and expire at various dates through February 1, 2006.
Item 3. Defaults Upon Senior Securities
The Company was in violation of certain loan covenants contained in its
loan agreement dated as of December 1997, as amended, with Interequity (the
"Loan Agreement"). The Company's obligations under the Loan Agreement are
secured by a first priority lien in favor of Interequity on substantially all of
the Company's assets. See Note 4 to Condensed Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
On April 18, 2000, the Company's stockholders approved, among other
matters, (i) an increase in the number of authorized shares of the Company's
preferred stock from 2,000,000 shares to 5,000,000 shares, (ii) an increase in
the number of authorized shares of the Company's common stock from 65,000,000
shares to 200,000,000 shares and (iii) a 1 for 15 reverse split of the Company's
common stock. All references to shares of common stock and prices per share of
common stock have been retroactively adjusted herein for the effects of the 1
for 15 reverse split.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter covered by this Report, the Company has not filed any
reports on Form 8-K. See, however, Form 8-K filed by the Company on October
8, 1999.
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: August 17, 2000 By: /s/ Michael Strauss
--------------------
Michael Strauss
Chairman of the Board of Directors,
President and Chief Executive Officer
(principal executive officer and acting
principal financial and accounting officer)