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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended February 28, 1995 Commission file no. 0-10823
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BCT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2358849
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
3000 NE 30th Place, Fifth Floor, Fort Lauderdale, Florida 33306
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 563-1224
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Securities registered pursuant to Section 12 (b) of the Act:
NONE
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, par value $.04 per share
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at May 15 , 1995 was approximately $14,914,198.
The number of shares outstanding of Registrant's Common Stock, par
value $.04 per share, at May 15 , 1995 was 4,778,740.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
----
This document consists of 53 pages.
The Index to exhibits appears on pages 25 through 26.
Item 1. Business
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(a) General
-------
BCT International, Inc. (the "Company") is a holding company with two
wholly-owned subsidiaries: Business Cards Tomorrow, Inc., a Florida corporation
directly owned by the Company ("BCT"); and BCT Delray, Inc., a Florida
corporation directly owned by BCT ("BCT Delray"). BCT operates the Business
Cards Tomorrow system, the world's largest wholesale printing chain. Since its
founding in 1975, the system has grown to include 98 "Business Cards Tomorrow
Plants" (the "Plants") specializing in trade thermography production in 37
states and Canada.
All but two of the Plants are owned by franchisees; one Plant is owned
by BCT Delray, which acquired the Plant in June 1993, and the other Plant is
held by BCT, which acquired the Plant in December 1994. BCT's operations also
include the Pelican Paper Products Division which supplies paper products to the
BCT Plants. The Company operates in a single industry segment: the
franchising, ownership and operation of and sale of paper products to trade
thermography production facilities, i.e., the BCT Plants.
(b) Narrative description of the business
-------------------------------------
Business Cards Tomorrow, Inc.
- -----------------------------
General
-------
The Plants typically operate through the placement of business card
and stationery catalogs with commercial and retail "quick" printers, office
superstores, forms brokers, office supply companies and stationers in the
Plants' trade areas. These catalogs are utilized by printers, office
superstores, forms brokers, office supply companies and stationers to secure
orders from their customers for thermographed printed products. Such orders are
normally picked up daily by the Plants' route drivers, who also deliver products
previously ordered. The Plants specialize in the "fast turnaround" of their
products, delivering some items, such as business cards printed in black ink, in
one business day, with most products being delivered within one week of the date
of order. While most Plants receive at least some orders by mail and fax, this
normally does not constitute a major portion of a Plant's business.
Thermography is a specialized printing process that gives a raised
printing effect similar to engraving and requires specialized equipment and
operating techniques. Most commercial and "quick" printers and office
superstores choose not to invest in this specialized equipment, preferring to
subcontract this type of work to wholesale "trade" printing companies such as
Business Cards Tomorrow Plants that specialize in thermography.
BCT supplies business card, stationery, rubber stamp and wedding
invitation and social stationery catalogs to its Plants and also sells them the
paper products featured in the catalogs through its Pelican Paper Products
division ("PPP").
PPP is a supplier of paper products for the BCT Plants. PPP purchases
raw paper directly from paper mills and paper brokers and utilizes the services
of converters to convert the raw material to finished paper products. PPP
utilizes three public storage facilities located strategically throughout the
United States to house and ship out paper products to the Plants.
BCT markets its franchise operations to potential franchisees through
major business newspapers as well as printing trade publications. The
development of a specific market is determined by a number of different
criteria, including resources available, customer base and operating
efficiencies. In order for BCT to penetrate franchise markets, it has assembled
an experienced staff, certain members of which have expertise in franchise
development. BCT has developed the BCT franchise network primarily through the
sale of franchises to third parties. BCT Delray and BCT each own and operate a
Plant (the "Company Plants"). BCT Plants are located throughout the Continental
U.S. and Hawaii and Canada. As demographics change and develop, the potential
for new markets may expand. As of May 1995, BCT has identified between 30 - 45
franchise markets available for sale.
Page 1
BCT derives revenues from five principal sources: royalties, which
are based on a percentage of sales from the BCT Plants; franchise fees from
newly franchised Plants and resale fees from the resale of operating Plants;
sales of paper products to franchisees; catalog and miscellaneous equipment and
parts sales classified as printing sales; and gross revenue from the Company
Plants.
As of May 1, 1995, 98 BCT Plants are in operation in 37 states and
Canada. The current number of Plants compares with 97 and 92 Plants in
operation on May 1, 1994 and 1993, respectively. Total BCT system sales reached
approximately $80,000,000 for fiscal 1995, an average of $824,000 per franchise,
compared to total and average sales of $74,000,000 and $792,000 for fiscal
1994, and $69,000,000 and $750,000 for fiscal 1993, respectively.
BCT receives either a 5% or 6% royalty fee based on gross BCT Plant
sales for original 15 - 25 year contracts. The royalty fee is dependent on the
initial franchise agreement date. Generally, agreements dated through mid-1986
carry 5% royalties. Thereafter, the 6% royalty applies. Certain franchise
agreements are up for renewal. The Company has developed a renewal royalty
scale for these Plants. See "Franchises" below for a detailed description. For
fiscal years ended 1995, 1994 and 1993, continuing franchise royalties comprised
approximately 34%, 31% and 33% of total revenue, respectively. Pelican Paper
Products sales to the franchisees for fiscal years ended 1995, 1994 and 1993
were approximately 59%, 57% and 55% of total revenue, respectively.
Raw Materials
-------------
The primary raw materials of the BCT Plants are paper products which
are readily available from numerous industry suppliers. It is common practice
within the paper industry to place minimum order levels when ordering specific
materials. In addition, the need to maintain a complete stock of raw materials
for all items listed in BCT's catalogs requires significant continuing inventory
investment. Consequently, PPP frequently carries higher levels of inventory
than what is required according to PPP's customer demands. While BCT, through
PPP, sells paper products to its franchised Plants and the Company Plants, the
Plants are under no obligation to purchase these products from BCT and all such
products are available from other suppliers.
The paper industry does suffer periodic shortages of specific paper
products as well as price fluctuations caused by supply and demand changes, but
these shortages and price fluctuations typically affect all similar types of
printers in an industry such as "trade" thermographers and can generally be
mitigated through the use of alternate supply sources in the industry and
substitution with similar products. Any increases in the cost of paper from the
mills is generally passed on to the Plants. It is not considered by BCT as very
likely that any of its Plants would be out of operation for any significant
period of time due to an unavailability of raw materials resulting from major
supply or price changes in the paper industry.
Franchises
----------
BCT's franchise agreements with individual franchised Plants are
typically for a 15-to-25 year period and are renewable for additional 10-year
periods. The right to renew is contingent upon the franchisee not being in
default under any material term of the franchise agreement. BCT may terminate a
franchise agreement under certain circumstances where the franchisee is in
material default under the franchise agreement and has not cured such default(s)
after notice from BCT. BCT's existing franchise agreements with individual
Plants have an average remaining term of approximately 16 years.
Beginning in fiscal 1996, certain franchise agreements are up for
renewal. There are 16 Plants that come up for renewal in 1996 - 1998, and in
the subsequent 10 years, three Plants come up for renewal. In fiscal 1995,
management established a program to induce early renewal of its franchise
agreements. The Company began negotiating with each renewal candidate as to the
terms of its renewed franchise agreement. The renewal royalty scale that the
Company initiated is as follows:
Gross Sales For Royalty
Each Quarter Percentage
------------ ----------
$0 to $375,000 5.0 %
$375,001 to $500,000 4.5 %
$500,001 to $750,000 4.0 %
$750,001 or more 3.5 %
Page 2
The renewal royalty scale is based on total sales, not incremental
sales. For example, if a Plant increases quarterly sales from $350,000 to
$380,000, its aggregate royalty will decrease from $17,500 ($350,000 x .05) to
$17,100 ($380,000 x .045). This renewal scale is designed to provide a strong
incentive for growth of Plant revenues beyond the $1.5 million annual level.
For the fiscal year ended 1995, average Plant sales were $824,000. It is not
anticipated that this renewal royalty scale will have an adverse effect on the
Company's royalty revenues.
As of February 28, 1995, a new franchisee is required to pay an
initial fee of $85,000, which consists of a $35,000 franchise fee and a $50,000
opening package fee, and an ongoing royalty of 6% of the gross sales of the
franchised Plant. Additionally, a new franchisee must obtain an initial
equipment and furnishings package at a cost of approximately $175,000. This
package may be purchased from BCT or from other sources as long as it meets the
standards of performance established by BCT. Each franchisee is typically
expected to obtain his own financing, but BCT may aid the franchisee in
obtaining such financing. In fiscal 1993, BCT accepted interest-bearing term
notes from franchisees as a condition of the sale of their franchises. BCT did
not finance any sales of franchises in fiscal 1995 and 1994.
Each new BCT franchisee is required to attend a two week training
session at BCT's National Training Center in Fort Lauderdale, Florida. This
training consists of equipment orientation and business management, marketing
and sales techniques required to operate a successful Plant. Upon completion of
the initial training, BCT furnishes a qualified field representative for a
period of ten days to instruct the franchisee in the operation of his Plant,
advise in the hiring of personnel and assist in the establishment of standard
operating procedures.
BCT also provides ongoing support to its franchisees through periodic
regional seminars, annual conventions, and visits from Company management and
field representatives. During fiscal 1993, management strengthened its
operational support of the franchisees by ensuring that each franchisee would
receive operational visits annually. These visits are scheduled on a priority
basis depending on the relative needs of the franchisees. An operational visit
consists of an overview of the Plant's production, sales and marketing efforts
and financial performance.
Wedding Invitations and Social Stationery Catalog
-------------------------------------------------
BCT introduced its Wedding Invitations and Social Stationery Catalog
in February 1993. The introduction of this product line enables the BCT
franchise system to directly compete, product line by product line, with its two
major national competitors. See "competition". BCT is utilizing its Company
Plants and three franchised Plants to refine the implementation of this product
line. The artwork for the designs is proprietary to BCT, which has prevented
competitors from replicating the Catalog. BCT anticipates a staged
implementation of this product line over a three-year period. A thorough
marketing study of the Wedding Invitations and Social Stationery Catalog and its
product line has been initiated by the Company to assist it in repositioning the
Catalog. The Plants will also place the Catalog with commercial and retail
"quick" printers, office superstores, office supply companies and stationers in
the Plants' trade areas. Presently, this represents the Catalog's primary
market. The marketing study will also address the Catalog's existing primary
market and perhaps the expansion of it. Orders will be generated, received,
produced and delivered similarly to the business card and stationery orders.
BCT's decision to enter the wedding and social industry market was
based in large part on the size and growth of this market. According to the
September 2, 1991 issue of Forbes Magazine, the wedding industry is a $32
billion annual business with wedding invitations and ensembles comprising
approximately $700 million annually. The May 1993 issue of Quick Print Magazine
stated that the average printer brokers $7,200 in wedding invitations yearly.
Company Plants
--------------
BCT, through its wholly-owned subsidiary BCT Delray, acquired its
first Company Plant in June 1993, in Delray Beach, Florida, (the Delray Company
Plant). In December 1994, BCT acquired another Company Plant in Honolulu,
Hawaii. BCT intends to make additional acquisitions of franchised Plants in
future years as appropriate opportunities arise. BCT utilizes the Company
Plants as its test sites for the improvement of the BCT operating system as well
as the testing of new products.
Page 3
Rubber Stamps Tomorrow
----------------------
During fiscal 1989, BCT introduced its "Rubber Stamps Tomorrow"
("RST") franchise concept. In January 1990, after 15 months of evaluation, it
was determined that RST could not be developed as a stand alone franchise
concept but was a valuable additional product line for the BCT system. As a
result, BCT entered into an agreement with the company that initially developed
and test marketed the RST concept to purchase all tradename, trademark, service
mark and related rights as they pertain to the Rubber Stamps Tomorrow name.
Effective September 1, 1994, BCT incorporated the RST program into the BCT
operating system, requiring all franchised Plants to implement the RST program
as part of their franchise. Each participating BCT Plant is required to pay an
ongoing royalty of 5% to 6% of the gross sales of rubber stamp products
depending upon the initial franchise agreement date.
Competition
-----------
The Company and its franchisees compete with other franchisors,
franchisees and independent operators in the graphic arts industry, some of whom
may be better established and/or have greater resources than the Company and its
franchisees. While the Company believes that its BCT franchise system is the
leading supplier of thermographed business cards to printers throughout the
United States (supported by the May 1993 Quick Print Magazine "Supply and
Services Survey," indicating a 23% market share in the brokered printing
category for business cards), there can be no assurances that competitors will
not imitate or improve upon the Company's business strategy. BCT's major
national competitors are Regency Thermographers and Carlson Craft; however,
BCT's franchisees also compete with numerous local and regional operations.
BCT's franchisees compete primarily on the basis of turnaround time, quality and
close customer contact.
Trade and Service Marks
-----------------------
The Company has received federal registration of the names "Business
Cards Tomorrow" and "BCT International, Inc." and the BCT commercial logo, as
well as the names and commercial marks for "Typesetting Express", "Engraving
Tomorrow", "Thrift-T-Cards", "Thermo-Rite", and "Rubber Stamps Tomorrow".
Research and Development
------------------------
The Company performs ongoing research and development seeking
improvements in the operating procedures and products of its franchises. These
activities are primarily done at the Delray Company Plant and at the Company's
corporate headquarters. Also, the Company often requests individual
franchisees to perform tests of various equipment, materials or techniques in an
actual production environment.
In fiscal 1993, the Company began a new research and development
project known as Advanced Management Operating System ("AMOS"). In order for
individual BCT Plants to expand to a multi-million dollar sales level, a system
must be created to provide control over the expanded production, thus resulting
in increased profitability. The integral components of the AMOS system are as
follows: composition; verification; computer generated grouping; job tracking;
integration of accounts receivable and collections; and generation of advanced
management reports. The Company has utilized the services of experienced
computer system design consultants; to expedite the completion of the test phase
and make AMOS operational. In March of 1995, the AMOS test phase was completed,
and AMOS is fully operational. The BCT Plants will be leasing the AMOS
software, at a nominal monthly rate from the computer system design consultants.
To date, the Company has incurred expenses totalling $518,000 for the research
and development of AMOS. During fiscal 1995, 1994 and 1993, the Company spent
approximately $279,000, $367,000 and $283,000 on research and development,
respectively.
Government Regulation
---------------------
The Federal Trade Commission has adopted rules relating to the sales
of franchises and disclosure requirements to potential franchise purchasers.
Additionally, various states have adopted laws regulating franchise sales and
operations. As a franchisor, the Company is required to comply with these
federal and state regulations and believes that it is not operating in violation
of any of these regulations.
Page 4
Employees
---------
The Company has 69 employees, all of whom are located at either (i)
the Company's corporate headquarters in Fort Lauderdale, Florida, (ii) the
Company's printing facility in Fort Lauderdale, Florida, or (iii) the Company
Plants in Delray Beach, Florida and Honolulu, Hawaii.
Financial Information Relating to Foreign and Domestic Operations
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February 28, February 28, February 28,
1995 1994 1993
------------ ------------ ------------
Revenue:
Foreign operations $ 779,000 $ 717,000 $ 642,000
Domestic operations $12,765,000 $12,404,000 $10,050,000
Operating Profit:
Foreign operations $ 112,000 $ 103,000 $ 40,000
Domestic operations $ 919,000 $ 665,000 $ 738,000
Identifiable Assets:
Foreign operations $ 251,000 $ 352,000 $ 61,000
Domestic operations $ 9,767,000 $ 7,429,000 $ 5,682,000
Item 2. Properties
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The Company's corporate headquarters are located at 3000 NE 30th Place, Fifth
Floor, Fort Lauderdale, Florida, and occupy approximately 8,200 square feet. The
lease on this facility continues to October 1997 at a monthly rental of
approximately $8,400. In May 1995, PPP leased 1,200 square feet of space on the
Fourth Floor of the same building. The lease on this facility continues to
October 1997 at a monthly rental of approximately $1,200.
A Company Plant is located in Delray Beach, Florida, in a facility containing
approximately 6,000 square feet, which is leased for a monthly rental of $3,000.
The lease on this facility continues through April 2000.
Another Company Plant is located in Honolulu, Hawaii, in a facility containing
approximately 4,200 square feet, which is leased for a monthly rental of $5,000.
The lease on this facility continues through May 1997.
The Company also leases approximately 7,560 square feet of space in Fort
Lauderdale, at a monthly rental of approximately $5,000, for use as a Company
printing and training facility. The lease on this facility continues through
February 1997.
Management believes that the Company's existing facilities are adequate for
the foreseeable future and that additional suitable facilities will be available
at commercially reasonable rates.
Page 5
Item 3. Legal Proceedings
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(a) Varrieur v. BCT International, Inc.
-----------------------------------
On April 28, 1989, Douglas B. Varrieur, a former officer and director of the
Company, filed suit against the Company in the Circuit Court for Hillsborough
County, Florida. Varrieur's complaint was based on the Company's April 19, 1989
termination for cause of his five-year employment agreement with the Company
dated August 4, 1988 (the "Employment Agreement"). The Employment Agreement
provided for an annual salary of $104,000 together with certain other benefits
and was entered into in connection with the Company's acquisition on that date
of a controlling interest in Print Shack International, Inc. ("Print Shack"),
from Varrieur and certain other Print Shack shareholders. Pursuant to the
Employment Agreement, Varrieur served as an executive officer of the Company and
Print Shack. Print Shack generated massive losses for the Company and was shut
down in fiscal 1991.
Varrieur's complaint is based on his allegation that the Company did not have
good cause to terminate his employment and therefore breached the Employment
Agreement. The original complaint contained four counts: Count I sought
unspecified money damages based on the alleged breach of the Employment
Agreement; Count II sought specific performance of the Employment Agreement,
i.e., that Varrieur be reinstated; Count III sought cancellation and rescission
of the August 4, 1988, agreement pursuant to which the Company acquired
Varrieur's 44% interest in Print Shack (the "Stock Purchase Agreement"); and
Count IV sought a declaratory judgment to the effect that the three-year non-
competition covenant of the Employment Agreement is unenforceable.
The court dismissed with prejudice all of Varrieur's initial claims, except
for Count I. In the fall of 1993, Varrieur amended his complaint to assert a
claim (new Count III) for an alleged breach by the Company of its agreement to
indemnify him and his wife against personal liability arising from debts of
Print Shack. This claim was based on a suit filed by a Print Shack creditor
against the Company, the Varrieurs as guarantors and others based on a
promissory note issued by Print Shack. The Company assumed full responsibility
for defending this action and settled it in January 1994, thereby extinguishing
the subject debt. Varrieur is seeking, pursuant to his indemnification claim,
to recover damages in excess of $1,750 in the form of legal fees, together with
unspecified damages allegedly arising from damage to his credit.
Discovery proceedings began in May 1990 and have continued on a sporadic
basis. In November 1994, Varrieur moved to set the case for jury trial. In
March 1995, the court denied Varrieur's motion, finding that he had previously
waived his right to jury trial. In April 1995, Varrieur appealed the court's
decision denying him a jury trial.
The Company intends to vigorously contest Varrieur's claim, including the
pending appeal. Based on the facts available to it and the advice of counsel,
the Company believes that it had good cause for terminating Varrieur, and that
Varrieur's claim is without merit.
It is the opinion of the Company's management and counsel that the likelihood
that Varrieur's claim will have a material adverse effect on the consolidated
financial position and results of operations of the Company is remote.
(b) Garrett v. American Franchise Group, Inc. and William A. Wilkerson.
------------------------------------------------------------------
On July 1, 1992, Michael J. Garrett, the Company's former chief financial
officer, who was terminated in May 1992, filed suit in the Circuit Court for
Broward County, Florida, against the Company and its directors. The complaint
alleged that Garrett was wrongfully discharged in violation of the Florida
Whistle-blowers Act of 1986, Florida Statutes Section 112.3187 (the "Act"). The
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complaint also alleged that the Company owed Garrett $14,580 in back pay accrued
through the date of termination.
On July 21, 1992, the Defendants filed a motion to dismiss Garrett's claim
under the Act with prejudice on the grounds that the Act applied only to public
employees. In addition, the Defendants moved for an award of attorney's fees
pursuant to the Act.
On September 29, 1992, the parties, acting through their respective counsel,
entered into a stipulation of settlement pursuant to which Garrett dismissed
with prejudice his claim under the Act, together with any and all other claims
which he might have arising from the termination of his employment, and the
Defendants dismissed with prejudice their claim for attorney's fees.
Page 6
On December 4, 1992, Garrett, acting through new counsel, served an amended
complaint against the Company and its Chairman and CEO, William A. Wilkerson.
Garrett sought damages in excess of $500,000 from the Company based on his
employment agreement dated January 1, 1986, which he claimed was still in
effect. He also sought unspecified damages against Wilkerson for allegedly
tortiously interfering with his business relationship with the Company by
allegedly making false representations to induce the Company's Board of
Directors to terminate Garrett.
The Company moved to dismiss the amended complaint with prejudice on the
grounds that (i) Garrett's employment agreement expired on January 1, 1991, and
(ii) the stipulation barred Garrett from asserting any further claims arising
from his termination.
At the December 29, 1992 hearing on the Company's motion to dismiss, Garrett's
new counsel argued that Garrett's original counsel did not have authority to
enter into the stipulation. The court dismissed with prejudice Garrett's claim
against the Company based on the employment agreement, finding that the
agreement had expired by its terms in 1991. The court denied the motion to
dismiss with respect to the claim against Wilkerson, indicating that evidence
would need to be taken with respect to the stipulation.
On January 28, 1993, Garrett served a second amended complaint against the
Company and Wilkerson, restating his claims for back pay and tortious
interference and adding two new counts: (i) a count seeking a declaratory
judgment to the effect that the stipulation is unenforceable based on the
alleged lack of authority of Garrett's initial counsel, alleged fraud by the
Company's counsel, and certain procedural grounds; and (ii) a claim for wrongful
discharge under Section 448.102, Florida Statutes, which prohibits the discharge
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of private employees based on their threats to disclose or refusal to
participate in violations of law. Pursuant to this claim, Garrett sought
reinstatement to his former position, together with back pay and benefits and
attorney's fees.
On February 12, 1993, the Company filed its answer denying all of Garrett's
material allegations and further asserting as affirmative defenses (i) that
Garrett had been paid all compensation accrued through the date of termination,
and (ii) that all of Garrett's claims, except for his claim for back pay accrued
through termination, were barred by the stipulation.
On November 8, 1993, the court held a non-jury trial on Garrett's declaratory
judgment count, pursuant to which Garrett sought a judgment to the effect that
the settlement stipulation was unenforceable. On November 15, 1993, the court
entered a final declaratory judgment in favor of the Company and Wilkerson,
holding that the stipulation was enforceable and operated to bar all claims by
Garrett arising from the termination of his employment.
On December 2, 1993, the Company and Wilkerson moved, based on the declaratory
judgment, to dismiss with prejudice Garrett's principal remaining counts, i.e.,
Count III seeking to hold Wilkerson liable for allegedly fraudulently inducing
the Company's Board of Directors to terminate Garrett, and Count IV seeking back
pay and reinstatement based on Section 448.102.
On April 14, 1994, the motion to dismiss by the Company and Wilkerson was
granted, and Counts III and IV of the second amended complaint were dismissed
with prejudice. On May 2, 1994, Garrett filed his notice of appeal of the trial
court's decision. The trial court's decision in favor of the Company and
Wilkerson was affirmed by the appellate court on January 25, 1995.
The Company has paid the undisputed portion of Garrett's back pay claim so
that his claim is now limited to a disputed amount of approximately $7,700. The
Company intends to vigorously contest Garrett's remaining claim for back pay,
which it believes to be without merit and in any event not material.
Item 4. Submission of Matters to a Vote of Securities Holders
- ------- -----------------------------------------------------
No matters were submitted to a vote of securities holders, through the
solicitation of proxies or otherwise, during the fiscal quarter ended February
28, 1995.
Item 5. Market for Registrant's Common Stock and Related Security Holder
- ------- ----------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded in the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") Stock Market's National Market
under the symbol "BCTI".
Page 7
The following table sets forth, for the quarters indicated, the high and low
closing bid prices in the NASDAQ Small Cap Market for a share of common stock as
reported by NASDAQ through February 15, 1995, and the closing price for the
common stock as reported on the NASDAQ National Market since February 15, 1995.
The NASDAQ quotations through February 15, 1995 represent prices between
dealers, do not include retail markups, markdowns or commissions, and may not
represent actual transactions.
Fiscal Quarters High Low
----------------------- ------ ------
1994
First Quarter $3.38 $2.75
Second Quarter $3.50 $2.62
Third Quarter $2.62 $1.87
Fourth Quarter $3.31 $2.00
1995 First Quarter $3.38 $2.50
Second Quarter $3.38 $2.63
Third Quarter $5.63 $3.25
Fourth Quarter $5.38 $4.38
1996
First Quarter
(through May 15, 1995) $5.38 $4.62
On May 15, 1995, the closing price per share of common stock, as reported by
NASDAQ, was $5.00.
There is currently no established public trading market for any securities of
the Company other than the common stock.
The approximate number of holders of record of the Company's common stock as
of May 15, 1995 was 1,023.
During the fiscal years ended February 28, 1995, 1994, and 1993, no cash
dividends were declared on the outstanding Common Stock. The declaration of
dividends on Common Stock was prohibited by the loan covenants with the
Company's bank. The Company's loan with the bank was satisfied in February
1994. The Company has no plans to pay any dividends on the common stock.
Page 8
Item 6. Selected Financial Data 000's
- ------------------------------- omitted
--------
CONTINUING OPERATIONS FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28,
for the fiscal year ended: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
REVENUES:
Continuing Franchisee Fees
and Commissions $ 4,540 $ 4,004 $ 3,517 $2,993 $ 2,675
Paper Sales 7,926 7,537 5,849 5,045 4,713
Printing Sales 508 514 675 574 351
Sales of Franchises 466 957 573 189 328
Interest and Other Income 104 109 78 108 106
------- ------- ------ ------ -------
13,544 13,121 10,692 8,909 8,173
------- ------- ------ ------ -------
EXPENSES:
Cost of Paper Sales 6,512 6,238 5,198 4,457 4,178
Cost of Printing Sales 385 290 338 364 196
Cost of Franchises Sold 326 691 402 122 186
Selling, General and
Administrative 4,664 4,137 3,158 3,501 2,791
Research and Development
Costs 279 367 283 123 68
Depreciation and
Amortization 286 338 239 215 241
Interest and Other 61 292 296 424 237
------- ------- ------ ------ -------
12,513 12,353 9,914 9,206 7,897
------- ------- ------ ------ -------
Subordinated Debenture
Conversion Expense --- --- --- 331 ---
Loss on Disposal of
Rental Properties --- --- --- 75 642
Income tax benefit 124 93 --- --- ---
------- ------- ------ ------ -------
Income (Loss) From
Continuing Operations 1,155 861 778 (703) (366)
Extraordinary Item:
Gain on early
extinguishment of debt --- --- 53 --- ---
DISCONTINUED OPERATIONS:
Loss from Operations of
Discontinued Subsidiary --- --- --- --- (456)(1)
Loss on Disposal of Net
Asset of Subsidiary
including Provision of
$38 for Operating Losses
During Phase Out Period --- --- --- --- (1,258)(1)
------- ------- ------ ------ -------
Net Income (Loss) $ 1,155 $ 861 $ 831 $ (703) $(2,080)
======= ======= ====== ====== =======
(1) During fiscal 1991, the Company disposed of the PrintShack subsidiary.
Page 9
Item 6. Selected Financial Data (continued) 000's omitted (except for per
- ------- -------------------------------------------------
share data)
For the fiscal year ended: FEB. 28, 1995 FEB. 28, 1994 FEB. 28, 1993 FEB. 29, 1992 FEB. 28, 1991
------------- ------------- ------------- ------------- -------------
Earnings (loss) per Common Share:
Income (loss) from
continuing operations
Primary $ .18 $ .17 $ .27 $ (.29) $ (.19)
Fully diluted .18 .10 .19 $ (.29) (.19)
Extraordinary Item:
Primary --- --- .02 --- ---
Fully diluted --- --- .01 --- ---
Discontinued Operations:
Primary --- --- --- --- (.88)
Fully diluted --- --- --- --- (.88)
Net Income (loss)
------- ------ ------ ------ -------
Primary $ .18 $ .17 $ .29 (.29) (1.07)
------- ------ ------ ------ -------
Fully Diluted $ .18 $ .10 $ .20 (.29) (1.07)
======= ====== ====== ====== =======
Total Assets $10,018 $7,781 $5,743 $5,137 $ 5,445
Long-term debt $ 48 $ 459 $2,073 $2,619 $ 3,004
Preferred stock $ 810 $1,622 $ 765 $ --- $ ---
Net Working Capital $ 5,542 $1,067 $1,153 $ 22 $ 11
Stockholders' Equity (2) $ 7,759 $2,290 $1,247 $ 299 $ 24
(2) During the five fiscal years ended February 28, 1995, no cash dividends
have been declared on the common stock outstanding.
Page 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Fiscal 1995 Compared to Fiscal 1994
- -----------------------------------
Total revenue for fiscal 1995 increased by $423,000 or 3% over the
prior fiscal year. Royalty revenue increased by $536,000 or 13%; paper sales
increased by $389,000 or 5%; revenue from the Company Plants increased by
$189,000 or 29%; and revenue from franchise Plant sales decreased by $491,000 or
51%, reflecting the sale of two franchises. The decline in franchise Plant
sales is not indicative of a lack of marketable territories. The Company is
aggressively seeking experienced franchise sales staff to strengthen its
franchise sales department.
Cost of goods sold as a percentage of revenues for fiscal 1995, at
54%, was consistent with the comparable percentage for fiscal 1994. Cost of
goods sold includes a $100,000 reserve for slow-moving inventory related to the
Wedding and Social Stationery Catalog. The Company has engaged a marketing
consultant to assist management in the repositioning of its Wedding and Social
Stationery Catalog and product line. Selling, general, and administrative
expenses represented 34% and 31% of gross revenues in fiscal 1995 and 1994,
respectively. The primary causes of the increase in selling, general and
administrative expenses as a percentage of revenues were the increased expenses
associated with (i) the Company Plants' operations (a $233,000 or 27% increase
over the prior year's level) and (ii) the Company's formalization of its
marketing department. The costs associated with the marketing department in
fiscal 1995 increased by $153,000 (58%) from the prior year's level.
With the retirement of the Company's convertible subordinated
debentures and various notes payable, interest expense decreased by $231,000 or
79%, during fiscal 1995.
The Company had income from continuing operations of $1,155,000 for
fiscal 1995, which compared favorably to income of $861,000 for fiscal 1994.
Fiscal 1994 Compared to Fiscal 1993
- -----------------------------------
Total revenue for fiscal 1994 increased $2,429,000 or 23% over the
prior fiscal year. Royalty revenue increased by $487,000 or 14%; paper sales
increased by $1,037,000 or 18%; revenue from the Company Plant, which opened in
June 1993, totaled $651,000; and revenue from franchise Plant sales increased
by $383,000 or 67%, reflecting the sale of five new franchises and three
additional territories. The revenue growth also reflects the use of the new
business card catalog by 95% of the franchisees, the impact of the Company
obtaining two large national accounts, the purchase of all the Canadian sub-
franchise agreements and the commencement of operations of the Company Plant.
Cost of goods sold as a percentage of revenues for fiscal 1994, at
55%, was consistent with the comparable percentage for fiscal 1993. Selling,
general and administrative expenses represented 31% and 30% of gross revenues in
fiscal 1994 and 1993, respectively. The primary increase in the selling,
general and administrative expenses related to expenses associated with the
operations of the Company Plant. The Company incurred nonrecurring legal
expenses in the amount of approximately $100,000 in fiscal 1994.
In fiscal 1994, the Company continued to expend significant funds for
research and development. The increase in these costs from the prior year was
$84,000 or 30%.
The Company had income from continuing operations of $861,000 for
fiscal 1994, which compared favorably to an income of $778,000 for fiscal 1993.
Page 11
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1994, upon the completion of the Series B convertible
preferred stock private placement, the Company had received net proceeds of
$1,973,000 and issued 2,225,000 shares of the Series B convertible preferred
stock at $1.00 per share. At February 28, 1994, a principal amount of
$1,682,000 was outstanding under the Company's Series A 11% convertible
subordinated debentures (the "Debentures"). A total of $1,180,000 of the
preferred stock proceeds was utilized to pay off the Debentures; $402,000 of the
Debentures were converted to Common Stock, and $100,000 of the Debentures owned
by the Company's Chairman were exchanged for preferred stock. See Item 13:
"Certain Relationships and Related Transactions". The balance of the private
placement proceeds was used for general working capital.
Through February 28, 1995, the Company made capital expenditures of
approximately $261,000, most of which were dedicated to the computerized
automation of the Company's accounting and inventory management system as well
as the networking of the Company's corporate office computer system. The
Company anticipates that it will require an additional $100,000 to complete the
automation program for PPP during fiscal 1995.
The Company's Wedding Invitations and Social Stationery Catalog (The
"Social Catalog") continues to be performing at less than original plan; only
2,823 catalogs ($127,000) have been sold since inception. Because of the slow
implementation of this catalog by its franchisees, during fiscal 1995 the
Company engaged a marketing consultant to perform comprehensive research on the
Social Catalog. To date, two of the three stages of research have been
completed. It is apparent from the research completed to date that the Social
Catalog program needs to be modified. At February 28, 1995, a $100,000 reserve
was recorded for the Social Catalog, the net investment in Social Catalog
inventories at February 28, 1995 approximates $122,000.
In December 1994, the Company, through its demand conversion of the
Series B preferred stock and exercise of the Series B preferred stock warrants,
received a capital infusion of $1,938,000, which is net of a $86,000 commission
to its investment banker and $15,000 in redemption fees to those warrantholders
who did not exercise. These proceeds are being invested in cash equivalents and
marketable equity securities pending utilization for revenue-generating
opportunities.
During fiscal 1995, the Company utilized working capital as well as
investment income to make debt payments totalling $352,000, which satisfied,
among other debts, a $285,000 note due to the Company's bank.
The Company plans to continue to improve its working capital and cash
positions during fiscal 1996 by focusing its efforts on increasing cash
collections and developing new product lines while containing capital
expenditures and keeping inventories at their current levels.
The Company believes that internally generated funds will be
sufficient to satisfy the Company's working capital and capital expenditure
requirements for the foreseeable future; however, there can be no assurance that
external financing will not be needed or that, if needed, it will be available
on commercially reasonable terms.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The financial statements and schedules listed in the accompanying
Index to consolidated financial statements and schedules on page F-1 are filed
as a part of this report.
Item 9. Disagreements on Accounting and Financial Disclosure
- ------- ----------------------------------------------------
None
Page 12
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
Date Elected
Name Age Position Or Appointed
------------ --------- ---------- ------------
William Wilkerson 53 Chairman of the Board and January 1978
Chief Executive Officer
A. George Cann 38 Chief Operating Officer and May 1995
President of BCT
Donna M. Pagano-Leo 34 Chief Financial Officer,
Treasurer and October 1992
Secretary May 1995
Thomas J. Cassady 73 Director April 1988
Robert F. Bond 54 Director May 1980
Raymond J. Kiernan 70 Director December 1983
John N. Galardi 57 Director August 1990
Henry A. Johnson 60 Director February 1975
Bill LeVine 75 Director May 1992
William Wilkerson has been Chairman of the Board and a Director of the
Company since January 1986. In May 1988, he accepted the additional
responsibility of Chief Executive Officer. He was President and Chief Executive
Officer of Business Cards Tomorrow, Inc. (a Florida corporation) from January
1978 to January 1982 and Chairman from January 1982 to January 1986.
A. George Cann was appointed as President of Business Cards Tomorrow,
Inc. in April 1995. Previously, Mr. Cann worked in the Kinko's organization for
13 years in various capacities. Since December 1987, he has been President and
a principal shareholder of Kinko's Grand Rapids, Inc., the owner and operator of
three Kinko's copy center stores in Michigan. Mr. Cann's role with Kinko's
Grand Rapids, Inc., has been limited to that of a passive investor since he
joined the Company. From February 1991 through September 1994, Mr. Cann held
the position of Vice President of Operations and Product Development at Kinko's
Service Corporation, Ventura, California. From June 1990 through February 1991,
he was a Director of Kinko's Service Corporation. From May 1990 through
February 1991, he was Regional Manager in Michigan for K-Graphics, Inc., a
multi-state owner and operator of Kinko's stores.
Donna M. Pagano-Leo joined the Company in August 1992 and became Vice
President/Chief Financial Officer and Treasurer of the Company in October 1992.
In May 1995, Ms. Leo was elected as the Company's secretary. Ms. Leo is a
certified public accountant, a member of the Florida Institute of Certified
Public Accountants and the American Institute of Certified Public Accountants,
and has worked in public accounting since 1983. Prior to joining the Company,
Ms. Leo served as an audit manager with the accounting firm of Price Waterhouse
LLP for seven years and as a staff accountant with the accounting firm of Arthur
Young & Co. for two years.
Thomas J. Cassady became a Director of the Company in April 1988 and
has been a Director of Photo Control Corporation, Minneapolis, Minnesota, since
February 1978. Mr. Cassady is a veteran of more than 30 years in the financial
and securities field, having served as President and Chief Administrative
Officer of Merrill, Lynch, Pierce, Fenner and Smith, Inc., until his retirement
in 1978.
Page 13
Robert F. Bond has been a Director of the Company since May 1980 and
was Secretary/Treasurer from February 1981 to August 1988 and Chairman of the
Board from January 1985 to January 1986. Since 1985, Mr. Bond has been a
principal in First Madison Group, an investment banking firm in Montville, New
Jersey.
Raymond J. Kiernan has been a Director of the Company since December
1983 and has been a Director of Fleet Bank of New York, Fleet Trust Company and
Fleet Trust Company of Florida since 1983. In 1979, Mr. Kiernan retired from
his position as a Vice President and Division Director of Merrill, Lynch,
Pierce, Fenner & Smith, Inc. He is a former Governor of the National Association
of Securities Dealers. In April 1995, he retired his Directorship position of
Fleet Bank of New York.
John N. Galardi became a Director of the Company in August 1990. He
has been a franchisor for more than 30 years and is the Chairman of the Board of
Galardi Group, Inc., a restaurant holding company based in Newport Beach,
California, which operates 350 fast food restaurants. In addition, Mr. Galardi
is an investor in several other private businesses.
Henry A. Johnson, founder of BCT, has been a Director of the Company
since January 1986. From January 1986 until October 1988, he was Senior Vice
President/Operations of the Company. In October 1988, he resigned his position
with the Company and became Senior Vice President/Operations of BCT. In
February 1989, he accepted the additional responsibilities of Executive Vice
President of BCT. Previously, he was Senior Vice President/Operations for
Business Cards Tomorrow, Inc. (a Florida corporation), from January 1978. In
March 1990, he retired from his position with BCT; however, he has continued to
provide consulting services to BCT. Since March 1991, Mr. Johnson has opened
and operated a private printing business, Colorful Copies, located in Las Vegas,
Nevada.
Bill LeVine became a Director of the Company in May 1992. Mr. LeVine
is the pioneer of the quick printing industry. He founded Postal Instant Press
(PIP Printing) in 1967 and served as its Chairman, Chief Executive Officer and
President until January 1988. Since that time, he has focused on private
investments. Since 1992, Mr. LeVine has been a Board of Director of Fast Frame,
Inc. Mr. LeVine has been a Director of First Business Bank, Los Angeles,
California, since 1982, and Rentrak Corporation, formerly National Video,
Portland, Oregon, since 1987.
Compliance with Section 16 (a) of the Exchange Act
The Company has reviewed the Forms 3 and 4 and amendments thereto
furnished to it pursuant to SEC Rule 16a-3(e) during its most recent fiscal year
and Form 5 and amendments thereto furnished to the Company with respect to its
most recent fiscal year. Based solely on such review, the Company has
identified each person who, at any time during the fiscal year, was a director,
officer or beneficial owner of more than 10% of the Company's Common Stock and
failed to file on a timely basis, as disclosed in the above-described Forms,
reports required by the Securities Exchange Act of 1934 during the most recent
fiscal year or prior fiscal years. The following table sets forth for each such
person the number of late reports and the number of transactions that were not
reported on a timely basis. The Company is not aware of any failure to file a
required Form, as all known delinquencies were cured.
NUMBER OF LATE
NAME POSITION NUMBER OF LATE REPORTS REPORTED TRANSACTIONS
- ----------- -------------------- ---------------------- ---------------------
Bond Director 1 2
Wilkerson Chairman of Board 1 1
LeVine Director 1 1
Bronson 10% Beneficial Owner 2 7
Page 14
Item 11. Executive Compensation
- -------- ----------------------
(a) Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors, which is comprised of
non-employee directors, has overall responsibility to review and recommend
broad-based compensation plans for executive officers of the Company and its BCT
subsidiary to the Board of Directors. One of the members of the Compensation
Committee, Mr. LeVine, has invested significant sums of money in the Company.
(See Item 13. "Certain Relationships and Related Transactions"). Pursuant to
recently adopted rules designed to enhance disclosure of companies' policies
toward executive compensation, set forth below is a report submitted by Messrs.
Kiernan, Galardi and LeVine in their capacity as the Board's Compensation
Committee addressing the Company's compensation policies for fiscal 1995 as they
affected Mr. William A. Wilkerson, Chairman of the Board and Chief Executive
Officer and Mr. Peter T. Gaughn, President of BCT, Chief Operating Officer and
Secretary. Mr. Gaughn resigned from the Company in January 1995.
Compensation Policies For Executive Officers
The executive compensation program is based on a philosophy which aligns
compensation with business strategy, Company values and management initiatives.
The principles underlying this compensation philosophy are: the linkage of
executive compensation to the enhancement of shareholder value; maintenance of a
compensation program that will attract, motivate and retain key executives
critical to the long-term success of the Company; creation of a performance
oriented environment by rewarding performance leading to the attainment of the
Company's goals; evaluation of competitiveness of salary and equity incentive
opportunities; and determination of the adequacy and propriety of the annual
bonus plan, including structure and performance measures.
Relationship of Performance Under Compensation Plans
Compensation paid Messrs. Wilkerson and Gaughn in fiscal 1995, as reflected in
the following Tables, consisted of base salary. The Compensation Committee is
awaiting the audited results for fiscal 1995 prior to determining any annual
bonus to Mr. Wilkerson. In addition, as indicated in the Tables, in fiscal 1995
the Compensation Committee awarded stock options to Mr. Wilkerson.
The Company's executive compensation policies are oriented toward utilization
of objective performance criteria. The principal measures of performance that
are utilized by the Compensation Committee are targeted versus actual operating
budget and income growth. Subjective performance criteria are utilized to only
a limited degree.
Annual Bonus Arrangements
The Company's annual bonuses to its executive officers, as indicated above,
are based on both objective and subjective performance criteria. Objective
criteria include actual versus target annual operating budget performance and
actual versus target annual income growth. Target annual income growth and
target annual operating budgets utilized for purposes of evaluating annual
bonuses are based on business plans which have been approved by the Board of
Directors. Subjective performance criteria encompass evaluation of each
officer's initiative and contribution to overall corporate performance, the
officer's managerial ability, and the officer's performance in any special
projects that the officer may have undertaken. Performance under the subjective
criteria was determined at the end of fiscal 1995 after informal discussions
with other members of the Board.
Page 15
Mr. Wilkerson's Fiscal 1995 Compensation
During fiscal 1993, the Compensation Committee approved a seven year
employment contract for Mr. Wilkerson for fiscal years beginning in fiscal 1994.
All of Mr. Wilkerson's fiscal 1995 compensation was paid pursuant to this
contract. The agreement calls for minimum annual remaining salary amounts
during the employment term as follows:
Year Ending February 28/29 Amount
- ---------------------------- --------
1996 $275,000
1997 $300,000
1998 $300,000
1999 $300,000
2000 $300,000
In the event that Mr. Wilkerson is substantially incapacitated during the term
of his employment for a period of 90 days in the aggregate during any twelve
month period, the Company has the right to terminate his employment. Under such
termination, Mr. Wilkerson will receive one-half of his salary in effect on the
date of termination for the remaining term of the agreement. Additionally, in
the event of Mr. Wilkerson's death during his employment, his designated
beneficiary or his estate shall be paid one-half of his salary in effect on the
date of his death for the remaining term of the agreement.
The performance considerations utilized by the Compensation Committee in
determining the terms of Mr. Wilkerson's employment contract were as follows:
. His hiring of a new and successful management team.
. His ability to lead the Company to substantial and increasing profitability.
. His implementation of a new franchisee credit and collection policy achieving
maximum collectibility.
. His development of new and positive investment banking and market maker
relationships.
. His success in maintaining the Company's NASDAQ listing under difficult
circumstances through conversion of subordinated debentures, a preferred
stock offering and increased profitability.
. The Company's overall performance in fiscal 1993 yielding substantial revenue
and income growth and substantially surpassing goals set forth in the
targeted operating budget.
Mr. Wilkerson's fiscal 1995 and 1996 salary was kept at $275,000, which is the
minimum level prescribed for those years in his employment contract.
Mr. Gaughn's Fiscal 1995 Compensation
Mr. Gaughn's fiscal 1995 compensation reflects a cost of living salary
increase of 5%. Mr. Gaughn resigned his position in January 1995.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
RAYMOND J. KIERNAN JOHN N. GALARDI BILL LEVINE
Page 16
(c) Compensation Tables
The following tables set forth the compensation received for services in all
capacities to the Company during its fiscal years ended February 28, 1995, 1994
and 1993, by the two executive officers of the Company as to whom the total
salary and bonus in the most recent year exceeded $100,000.
Page 17
BCT INTERNATIONAL, INC.
-----------------------
SUMMARY COMPENSATION TABLE
--------------------------
FISCAL YEARS 1995, 1994 AND 1993
--------------------------------
000'S OMITTED
-------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- -----------------------------------------------------------------------------------------------------
FORM OF PAYMENT
FISCAL ---------------
NAME POSITION YEAR SALARY BONUS CASH SHARES OPTIONS
- ---- ---------- ------ ------ ------- ------ ------ -------
W.A. Wilkerson Chairman of 1995 $287(1) $ 23(2) $310 --- 200
the Board and 1994 $237(1) $ 2(2) $239(2) --- ---
Chief Executive 1993 $187 $--- $187 --- 2
Officer
P.T. Gaughn Chief Operating 1995 $106 $ 25(3) $131 --- ---
Officer, 1994 $109 $--- $109 --- 10
Secretary 1993 $ 99 $--- $ 99 --- 12
and President
of Subsidiary(4)
(1) Salary for fiscal 1995 and 1994 includes a $12 car allowance.
(2) Bonus for fiscal 1994 of $25 was determined in July 1993, of which $2
was paid in fiscal 1994 and the remainder was paid in fiscal 1995.
(3) Bonus for fiscal 1993 of $25 was determined in July 1993 and was paid
in fiscal 1995.
(4) Mr. Gaughn resigned from his positions with the Company in January of
1995.
Page 18
BCT INTERNATIONAL, INC.
-----------------------
AGGREGATED OPTION EXERCISES AND YEAR-END
----------------------------------------
OPTION VALUES FOR FISCAL 1995
-----------------------------
000'S OMITTED
-------------
NUMBER OF VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 2/28/95 (#) 2/28/95 ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME POSITION EXERCISE # REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ----------- ------------ ------------- -------------
W.A. Wilkerson Chairman of --- $ --- 309 / 0 $813 / 0
the Board and
Chief Executive
Officer
P.T. Gaughn Chief Operating --- $ --- 70 / 0 $102 / 0
Officer,
Secretary
and President
Page 19
BCT INTERNATIONAL, INC.
-----------------------
EXECUTIVE MANAGEMENT COMPENSATION
---------------------------------
OPTION GRANTS IN FISCAL YEAR 1995
---------------------------------
000'S OMITTED
-------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
OPTIONS GRANTED TO EXERCISE EXPIRATION APPRECIATION
NAME POSITION GRANTED EMPLOYEES PRICE DATE FOR OPTION TERM
- ------------------- --------------- ------- ---------- -------- ---------- -----------------
5% ($) 10% ($)
W.A. Wilkerson Chairman of
the Board and
Chief Executive 200 100% $3.375 8/24/04 $1,100/$1,750
Officer
P.T. Gaughn Chief Operating
Officer,
Secretary and --- --- --- --- $ --- /$ ---
President of
Subsidiary
Page 20
(d) Other Compensation Arrangements
Outside directors of the Company receive director's fees of $750 per month
plus $750 for each Board of Directors meeting attended and $500 for each
committee meeting attended.
Item 12. (a) Security Ownership of Certain Beneficial Owners and Management
- ------------ --------------------------------------------------------------
The following table sets forth as of May 15, 1995, information with respect
to the only persons known to the Company to be beneficial owners of more than
5% of the Company's outstanding common stock (excluding treasury stock), as well
as the beneficial ownership of all directors and officers of the Company
individually and all directors and officers as a group. Based on the
information available to the Company, except as set forth in the accompanying
footnotes, each person has sole investment and voting power with respect to the
shares of common stock indicated. At May 15, 1995, 4,778,740 shares of common
stock were outstanding.
Page 21
PERCENT OF
NUMBER OF SHARES OUTSTANDING
NAME BENEFICIALLY OWNED (1) COMMON STOCK
- ---- ---------------------- ------------
Certain Beneficial Owners:
Steven N. Bronson 673,194 (2) 13.44%
Barber & Bronson, Inc.
2101 West Commercial Blvd., Suite 1500
Fort Lauderdale, Florida 33309
Officers and Directors:
William A. Wilkerson 1,327,387 ( 3) 25.90%
Bill LeVine 685,032 ( 4) 13.14%
Henry A. Johnson 151,847 ( 5) 3.15%
Robert F. Bond 101,250 ( 6) 2.07%
Raymond J. Kiernan 81,500 ( 7) 1.68%
Thomas J. Cassady 26,250 ( 8) 0.55%
John N. Galardi 30,062 ( 9) 0.63%
A. George Cann 11,000 (10) 0.23%
Donna M. Pagano-Leo 24,000 (11) 0.50%
Officers and Directors
as a group (9 persons) 2,438,329 (12) 41.57%
- -------------------------
(1) This column sets forth shares of Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13D-3 of
the Securities and Exchange Commission ("SEC").
(2) Includes 228,750 shares covered by currently exercisable warrants.
(3) Includes 346,250 shares covered by currently exercisable stock options and
warrants.
(4) Includes 371,621 shares covered by currently convertible Series A
Convertible Preferred Stock, and 61,250 shares covered by currently
exercisable stock options.
(5) Includes 43,750 shares covered by currently exercisable stock options.
(6) Includes 101,250 shares covered by currently exercisable stock options.
(7) Includes 80,000 shares covered by currently exercisable stock options.
(8) Includes 23,750 shares covered by currently exercisable stock options.
(9) Includes 25,000 shares covered by currently exercisable stock options.
(10) Includes 10,000 shares covered by currently exercisable stock options.
(11) Includes 24,000 shares covered by currently exercisable stock options.
(12) Includes 1,086,871 shares covered by currently exercisable stock options
and warrants and currently convertible Series A Preferred Stock.
Page 22
(b) Security Ownership of Management (Preferred Stock)
--------------------------------------------------
The following table sets forth as of May 15, 1995, information with respect
to each class of equity securities of the Company other than Common Stock
beneficially owned by each of the directors and officers of the Company
individually and all directors and officers as a group.
Name of Number of Shares Percent
Title of Class Beneficial Owner Beneficial Owned of Class
- ---------------------- ---------------- ---------------- ---------
Series A Convertible Bill LeVine 550,000 67.9%
Preferred Stock Director
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
On February 28, 1994, the Company's Chairman and Chief Executive Officer
William A. Wilkerson purchased 75,000 shares of the Company's Series B
Convertible Preferred Stock at a price of $1.00 per share pursuant to the
Company's private placement of such stock. He paid the $75,000 purchase price
by applying the $73,065 balance of a note owed to him by the Company, together
with $1,935 cash. The Series B convertible preferred stock carried a 9% annual
dividend, was scheduled to be redeemed in three years (March 1997) and was
convertible into common stock at a price of $2.25 per share. The conversion
ratio was based on the market price of the Company's common stock at the time
of the commencement of the private placement offering of the Series B
convertible preferred stock. The 75,000 shares of Series B convertible
preferred stock were accompanied by three-year warrants issued to Mr. Wilkerson
entitling him to purchase 33,333 shares of common stock at an exercise price of
$3.00 per share.
On March 31, 1994, Mr. Wilkerson exchanged his $100,000 principal amount of
the Company's 11% convertible subordinated debentures, due March 31, 1994, for
100,000 additional shares of the Series B Preferred Stock, together with 44,444
additional warrants.
In October 1994, the Company executed a commitment letter with a bank for a
$200,000 unsecured line of credit, with an interest rate of prime + 1.5% and an
expiration date of July 1, 1995. Draws against this line of credit are for
capital projects and must be preapproved by the bank. This line of credit is
personally guaranteed by Mr. Wilkerson.
On November 1, 1994, Mr. Wilkerson converted his 175,000 shares of Series B
convertible preferred stock into 77,778 shares of the Company's common stock,
pursuant to the Company's exercise of its option to convert the entire Series
after six months in the event that the common stock traded at or above $3.50 for
20 consecutive trading days. In connection with the conversion of the Series B
convertible preferred stock, the Company exercised its option to redeem 77,778
Series B Warrants held by Mr. Wilkerson for $3,889 ($.05 each) on December 8,
1994.
On August 24, 1994 the Board of Directors awarded Messrs. Wilkerson and
Bond 200,000 and 15,000, respectively, immediately-exercisable non-qualified
stock options, at an exercise price of $3.375 (the market price on the date of
grant).
In March 1991, the Company entered into a consulting agreement with BCT's
founder and Director Henry A. Johnson, who had retired as an officer of the
Company during fiscal 1991. Under this agreement, Mr. Johnson has provided such
consulting services as are requested by the Board and/or the Company's chief
executive officer, in exchange for fees of $50,000 per year, payable in equal
monthly installments. In May 1992, the agreement was formalized pursuant to a
written consulting contract with an expiration date of February 29, 1996.
On May 7, 1992, Mr. LeVine was appointed to the Company's Board of
Directors. On that date, he purchased 550,000 shares of the Company's Series A
convertible preferred stock at a price of $1 per share. The Series A preferred
stock carries a cumulative annual dividend of 12%, is scheduled to be redeemed
in five years (May 1997), and is convertible into common stock at a ratio of
1.48 shares of preferred stock per share of common stock. The conversion ratio
was based on the market price of the common stock at the time of the
transaction. In connection with his appointment to the Board and his purchase
of the Series A preferred stock, Mr. LeVine was granted 10-year options to
purchase 51,250 shares of common stock at a price of $1.48 per share (the market
price on the date of grant).
Page 23
On February 28, 1994, Mr. LeVine purchased 500,000 shares of the Company's
Series B convertible preferred stock at a price of $1 per share. Accompanying
the 500,000 shares were three-year warrants entitling Mr. LeVine to acquire upon
exercise 222,222 shares of the Company's common stock at an exercise price of
$3.00 per share.
On November 1, 1994, Mr. LeVine's 500,000 shares of Series B convertible
preferred stock were forcibly converted by the Company into 222,222 shares of
the Company's common stock. In connection with this conversion, the Company
redeemed 222,222 Series B warrants held by Mr. LeVine for $11,111 ($.05 each) on
December 8, 1994.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------- ---------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules
(1) Financial Statements - beginning on page F-1;
Report of Independent Certified Public Accountants - page F-2
Consolidated Balance Sheets at February 28, 1995 and February 28,
1994 - page F-3
Consolidated Statements of Operations for the fiscal years ended
February 28, 1995, February 28, 1994, and February 28, 1993 -
pages F-4 and F-5.
Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended February 28, 1995, February 28, 1994, and
February 28, 1993 - pages F-6 through F-8
Consolidated Statements of Cash Flows for the fiscal years ended
February 28, 1995, February 28, 1994, and February 28, 1993 -
pages F-9 and F-10
Notes to Consolidated Financial Statements - pages F-11 through
F-23
(2) Financial Statement Schedules
For the Years Ended February 28, 1995, February 28, 1994, and
February 28, 1993:
Schedule VIII - Valuation and Qualifying Accounts - page F-24
Schedule X - Supplementary Income Statement Information page F-25
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements or
notes thereto.
(b) Reports of Form 8-K
The Company did not file any report on Form 8-K during the last
quarter of fiscal 1995.
Page 24
(c) Exhibits
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended, as filed with the SEC as Exhibit
3.1 to the Company's 1984 Registration Statement on Form S-1, are
incorporated herein by reference.
4.1 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock, as filed with the SEC as Exhibit 4.2 to
the Company's report on Form 10-K for the fiscal year ended February
29, 1992, is incorporated herein by reference.
4.2 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock, as filed with the SEC as Exhibit 4.2 to
the Company's report on Form 10-K for the fiscal year ended February
28, 1994, is incorporated herein by reference.
10.1 Agreement dated May 7, 1992, between the Company and Bill LeVine, as
filed with the SEC as Exhibit 10.7 to the Company's report on Form
10-K for the fiscal year ended February 29, 1992, is incorporated
herein by reference.
10.2 Form of March 1994 subscription agreement for Series B Convertible
Preferred Stock as filed with the SEC as Exhibit 10.4 to the
Company's report on Form 10-K for the fiscal year ended February 29,
1994, is incorporated herein by reference.
10.3 Consulting Agreement dated March 1, 1992, between the Company and
Henry A. Johnson, as filed with the SEC as Exhibit 10.10 to the
Company's report on Form 10-K for the fiscal year February 29, 1992,
is incorporated herein by reference.
10.4 Employment Agreement dated March 1, 1993 between the Company and
William A. Wilkerson, as filed with the SEC as Exhibit 10.9 to the
Company's report on Form 10-K for the fiscal year ended February 28,
1993, is incorporated herein by reference.
10.5 Agreement dated January 1, 1993 between Business Cards Tomorrow,
Inc. and Hence/EDP, as filed with the SEC as Exhibit 10.12 to the
Company's report on Form 10-K for the fiscal year ended February 28,
1993, is incorporated herein by reference.
10.6 Note Agreement and Security Agreement dated May 27, 1993 between BCT
Delray, Inc. and Carney Bank, as filed with the SEC as Exhibit 10.19
to the Company's report on Form 10-K for the fiscal year ended
February 28, 1993, is incorporated herein by reference.
10.7 Purchase and Sale Agreement dated April 12, 1993 between Business
Cards Tomorrow, Inc. and David Falk, as filed with the SEC as
Exhibit 10.13 to the Company's report on Form 10-K for the fiscal
year ended February 28, 1993, is incorporated herein by reference.
10.8 Purchase and Sale Agreement dated March 10, 1993 between Business
Cards Tomorrow, Inc. and A.B. & W. H. Enterprises, Inc., as filed
with the SEC as Exhibit 10.14 to the Company's report on Form 10-K
for the fiscal year ended February 28, 1993, is incorporated herein
by reference.
10.9 Assignment of Contract dated May 12, 1993 between Business Cards
Tomorrow, Inc. and T.K.O. Enterprises, Inc., as filed with the SEC
as Exhibit 10.15 to the Company's report on Form 10-K for the fiscal
year ended February 28, 1993, is incorporated herein by reference.
Page 25
10.10 Guaranty dated May 12, 1993 between Business Cards Tomorrow, Inc.
and A.B. & W. H. Enterprises, Inc., as filed with the SEC as
Exhibit 10.16 to the Company's report on Form 10-K for the fiscal
year ended February 28, 1993, is incorporated herein by reference.
10.11 Agreement dated February 1, 1994 between the Company and Barber &
Bronson, Inc. as filed with the SEC as Exhibit 10.18 to the
Company's report on Form 10-K for the fiscal year ended February
28, 1994, is incorporated herein by reference.
10.12 Agreement dated May 24, 1993 between the Company and American
Equipment Leasing, Inc. as filed with the SEC as Exhibit 10.19 to
the Company's report on Form 10-K for the fiscal year ended
February 28, 1994, is incorporated herein by reference.
10.13 Line of Credit Agreement dated October 5, 1994 between the Company
and Intercontinental Bank.
10.14 Employment letter dated March 2, 1995 between the Company and A.
George Cann.
Page 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BCT INTERNATIONAL, INC.
(Registrant)
DATE: May 24, 1995 By: /s/ William Wilkerson
----------------------- -----------------------
William Wilkerson
Chairman of the Board &
Chief Executive Officer
DATE: May 24, 1995 By: /s/ Donna M. Pagano-Leo
------------------------ --------------------------
Donna M. Pagano-Leo
Vice President, Treasurer &
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on behalf
of Registrant and in the capacities and on the dates indicated.
/s/ William Wilkerson /s/ Henry A. Johnson
- -------------------------------- ------------------------
William Wilkerson Henry A. Johnson
Chairman of the Board & Director Director
Date: May 24, 1995 Date: May 24, 1995
/s/ Robert F. Bond /s/ Raymond J. Kiernan
- -------------------------------- ------------------------
Robert F. Bond Raymond J. Kiernan
Director Director
Date: May 24, 1995 Date: May 24, 1995
/s/ Thomas J. Cassady /s/ Bill LeVine
- -------------------------------- ------------------------
Thomas J. Cassady Bill LeVine
Director Director
Date: May 24, 1995 Date: May 24, 1995
/s/ John N. Galardi
- --------------------------------
John N. Galardi
Director
Date: May 24, 1995
Page 27
BCT INTERNATIONAL, INC.
-----------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
--------------------------------------------------------
Financial Statements: Page Numbers
- -------------------- ------------
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at February 28, 1995 and February 28, 1994 F-3
Consolidated Statements of Operations for the fiscal years ended February 28, 1995,
February 28, 1994 and February 28, 1993 F-4 to F-5
Consolidated Statements of Changes in Stockholders' Equity
for the fiscal years ended February 28, 1995,
February 28, 1994 and February 28, 1993 F-6 to F-8
Consolidated Statements of Cash Flows for the fiscal years ended February 28, 1995,
February 28, 1994 and February 28, 1993 F-9 to F-10
Notes to Consolidated Financial Statements F-11 to F-23
Schedules:
- ---------
For the fiscal years ended February 28, 1995, February 28, 1994 and
February 28, 1993:
VIII Valuation and Qualifying Accounts F-24
X Supplementary Income Statement Information F-25
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
F-1
Page 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of BCT International, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of BCT International, Inc. and its subsidiaries at February 28,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended February 28, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
May 15, 1995
F-2
Page 29
BCT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
February 28, 1995 February 28, 1994
---------------------- -----------------------
000's omitted
ASSETS
-------
Current Assets:
Cash and cash equivalents $ 1,299 $ 80
Short-term investments 1,071 ---
Restricted cash --- 738
Accounts and notes receivable, net of
allowance for doubtful
accounts of $337 ($229 in 1994) and
deferred interest of $18
($23 in 1994) 2,305 1,603
Receivables from employees 76 57
Inventory, net of reserve of $105 ($5 in 1994) 1,863 1,867
Assets held for sale 216 ---
Prepaid expense and other current assets 25 51
Net deferred tax asset 88 81
-------- --------
Total current assets 6,943 4,477
-------- --------
Accounts and notes receivable, net of
allowance for doubtful
accounts of $551 ($607 in 1994) 259 483
Property and equipment at cost, net of
accumulated depreciation
and amortization of $313 ($217 in 1994) 640 593
Net deferred tax asset 1,466 1,340
Deposits and other assets 131 136
-------- --------
2,496 2,552
Excess of purchase price over fair
value of net assets acquired,
less accumulated amortization of $1,533 ($1,426 in 1994) --- 108
Trademark, net of accumulated amortization of $24 ($19 in 1994) 170 173
Intangible assets, net of accumulated amortization of $113 ($50 in 1994) 409 471
------- ---------
$10,018 $ 7,781
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------
Current Liabilities:
Accounts payable $ 928 $ 1,236
Notes payable 162 103
Convertible subordinated debentures --- 1,582
Convertible subordinated debentures - related party --- 100
Accrued liabilities 287 276
Accrued payroll 24 113
------- --------
Total current liabilities 1,401 3,410
Notes payable 48 459
-------- --------
Total liabilities 1,449 3,869
-------- --------
Commitments and contingencies (Note 9) --- ---
-------- ---------
Preferred stock, Series A, 12%
cumulative, $1 par value,
mandatorily redeemable, 810 shares
authorized, issued
and outstanding 810 810
Preferred stock, Series B, 9%
cumulative, $1 par value,
mandatorily redeemable, 2,500 shares
authorized, 0
shares issued and outstanding (825 shares in 1994) --- 812
-------- --------
810 1,622
-------- --------
Stockholders' equity:
Common stock, $.04 par value,
authorized 25,000,
issued and outstanding 4,785 shares (3,008 shares in 1994) 191 120
Paid in capital 11,110 6,625
Accumulated deficit (3,054) ( 3,981)
-------- ----------
8,246 2,764
Less: Treasury stock, at cost, 224 shares (219 shares in 1994) (488) ( 474)
-------- ----------
Total stockholders' equity 7,759 2,290
-------- ----------
$10,018 $ 7,781
======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
Page 30
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 1995 February 28, 1994 February 28, 1993
----------------- ----------------- -----------------
000's omitted
-----------------
Revenues:
Continuing franchise fees
and commissions $ 4,540 $ 4,004 $3,517
Paper sales 7,926 7,537 5,849
Printing sales 508 514 675
Sales of franchises 466 957 573
Miscellaneous 104 109 78
------- ------- ------
13,544 13,121 10,692
------- ------- ------
Expenses:
Cost of paper sales 6,512 6,238 5,198
Cost of printing sales 385 290 338
Cost of franchises sold 326 691 402
Goodwill amortization 108 197 180
Selling, general and
administrative 4,664 4,137 3,158
Research and development costs 279 367 283
Depreciation and amortization 178 141 59
Interest 60 270 259
Interest - related party 1 22 37
------- ------- ------
12,513 12,353 9,914
------- ------- ------
Income before income taxes and
extraordinary item 1,031 768 778
Income tax benefit 124 93 ---
------- ------- ------
Income before extraordinary item 1,155 861 778
Extraordinary item:
Gain on early extinguishment
of debt --- --- 53
------- ------- ------
Net income $ 1,155 $ 861 $ 831
======= ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
Page 31
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 1995 February 28, 1994 February 28, 1993
----------------- ----------------- -----------------
000's omitted (except per share data)
- -------------
Primary:
Average number of
shares outstanding 3,410 2,765 2,791
Common stock equivalents 1,661 689 495
------ ------ ------
Totals 5,071 3,454 3,286
====== ====== ======
Fully diluted:
Average number of
shares outstanding 3,410 2,765 2,791
Common stock equivalents
and dilutive securities 3,184 2,312 2,205
------ ------ ------
Totals 6,594 5,077 4,996
====== ====== ======
Earnings per
- ------------
common share:
- -------------
Operations:
Primary $ .18 $ .17 $ .27
Fully diluted .18 .10 .19
Extraordinary item:
Primary --- --- .02
Fully diluted --- --- .01
Net income
Primary $ .18 $ .17 $ .29
====== ====== ======
Fully diluted $ .18 $ .10 $ .20
====== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
Page 32
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
000's omitted
-------------
Common Stock
---------------------
Less: Less:
Number of Par Paid In Accumulated Treasury Notes
Shares Value Capital Deficit Stock Receivable Total
----------- ------- ------- ----------- -------- ---------- --------
Balance March 1, 1992 2,908 $116 $6,293 $ (5,503) $ (449) $ (158) $ 299
Issuance of shares
in lieu of salaries
and bonuses to
employees 73 3 105 --- --- --- 108
Issuance of shares to
the Chairman of the Board
for the exercise of options
in the amount of $81 65 2 79 --- --- --- 81
Purchase of minority
stockholders fractional
shares (4) --- (6) --- --- --- (6)
Cancellation of common
stock for notes
receivable from
stockholders (86) (3) (155) --- --- 158 ---
Issuance of shares
for the exercise of
options in the amount
of $7 2 --- 7 --- --- --- 7
Dividend declared on Series A
Convertible Preferred Stock --- --- --- (73) --- --- (73)
Net income --- --- --- 831 --- --- 831
------- ------- -------- -------- ---------- -------- -------
Balance February 28, 1993 2,958 118 6,323 (4,745) (449) (---) 1,247
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
Page 33
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
000's
omitted
-------
Common Stock
------------------- Less Less:
Number of Par Paid In Accumulated Treasury Notes
Shares Value Capital Deficit Stock Receivable Total
-------- ------ ------- ----------- -------- ---------- -----
Cancellation of common stock for
notes receivable from employees (8) --- --- --- (25) --- (25)
Conversion of $175 of subordinated
convertible debentures with a
conversion rate of $3.00 58 2 173 --- --- --- 175
Tax benefit from exercise of employee
stock options and stock compensation
awards --- --- 76 --- --- --- 76
Issuance of warrants --- --- 53 --- --- --- 53
Dividend declared on Series A
Convertible Preferred Stock --- --- --- (97) --- --- (97)
Net income --- --- --- 861 --- --- 861
------- ------ ----- ------ ----- ------ -----
Balance February 28, 1994 3,008 120 6,625 (3,981) (474) --- 2,290
Cancellation of common stock
for note receivable from an employee (5) --- --- --- (14) --- (14)
Cancellation of common stock
of an employee (59) (2) (15) --- --- --- (17)
Conversion of $252 of subordinated
convertible debentures with a
conversion rate of $3.00 84 3 249 --- --- --- 252
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
Page 34
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
000's
omitted
-------
Common Stock
--------------- Less: Less:
Number of Par Paid In Accumulated Treasury Notes
Shares Value Capital Deficit Stock Receivable Total
--------- ----- ------- ----------- -------- ---------- -----
Conversion of $150 of subordinated
convertible debentures with a
conversion rate $2.27 66 3 147 --- --- --- 150
Exercise of 10 stock options with an
exercise price of $1.25 10 --- 12 --- --- --- 12
Exercise of 6 warrants with an
exercise price of $2.92 3 --- 9 --- --- --- 9
Issuance of warrants --- --- 38 --- --- --- 38
Accretion of commission paid on
Series B convertible preferred stock --- --- (78) --- --- --- (78)
Conversion of 2,225 of Series B convertible
preferred stock to common stock
with a conversion rate of $1.25 989 40 2,185 --- --- --- 2,225
Exercise of 689 Series B convertible preferred stock
warrants with an exercise price of $3.00 689 27 2,039 --- --- --- 2,066
Cost associated with exercise of Series B
convertible preferred stock warrants --- --- (86) --- --- --- (86)
Redemption of 300 Series B convertible
preferred stock warrants with a
redemption price of $.05 --- --- (15) --- --- --- (15)
Net income --- --- --- 1,155 --- --- 1,155
Dividend declared on convertible
preferred stock --- --- --- (228) --- --- (228)
----- ------ ------- ------- ------ ------- ------
Balance February 28, 1995 4,785 $191 $11,110 $(3,054) (488) --- $7,759
===== ====== ======= ======== ====== ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
Page 35
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 1995 February 28, 1994 February 28, 1993
------------------ ------------------ ------------------
000's omitted
------------------
Cash flows from operating activities:
Net income $ 1,155 $ 861 $ 831
Adjustments to reconcile net income
to net cash provided by
operating activities:
Income tax benefit (594) (502) ---
Income tax expense 470 409 ---
Depreciation and amortization 286 338 239
Cost assigned to warrants issued 38 53 ---
Provision for doubtful accounts 352 196 242
Reserve for inventory 100 --- ---
Fair value of shares issued in lieu of salaries --- --- 108
Gain on early extinguishment of debt --- --- (53)
Changes in operating assets and liabilities
(Increase) in accounts and notes receivable (355) (439) (337)
Decrease (increase) in inventory 4 (278) (412)
Decrease (increase) in prepaid expenses and
other assets 20 (7) (67)
(Decrease) increase in accounts payable (308) 413 (184)
(Decrease) increase in other accrued liabilities (78) (62) 29
-------- ------ ------
Net cash provided by operating activities 1,090 982 396
-------- ------ ------
Cash flows from investing activities:
Payment for short-term investments (1,071) --- ---
Capital expenditures for property and equipment (261) (359) (201)
Proceeds from disposition of equipment --- 4 ---
Acquisition of Canadian Master Area Franchise
Agreement --- (120) ---
Acquisition of Company Plant --- (50) ---
-------- ------ ------
Net cash used for investing activities (1,332) (525) (201)
-------- ------ ------
Cash flows from financing activities:
Issuance of Series A Convertible Preferred Stock --- --- 550
Issuance of Series B Convertible Preferred Stock 1,300 738 ---
Investment banker fee associated with Series B
Convertible Preferred Stock (65) --- ---
Restricted cash --- (738) ---
Dividend payments on Series A Preferred Stock (97) (97) (58)
Dividend payments on Series B Preferred Stock (131) --- ---
Exercise of Series B Convertible Preferred Stock 2,066 --- ---
Investment banker fee associated with Series B warrants (86) --- ---
Redemption of nonexercised Series B warrants (15) --- ---
Repurchase of Common Stock --- --- (6)
Exercise of stock options and warrants 21 --- ---
Issuance of Common Stock --- --- 7
Proceeds from borrowings --- 310 ---
Proceeds from borrowings - related party --- --- 23
Repayments on borrowings (352) (584) (437)
Repayments on borrowings - related party --- (89) (106)
Redemption of convertible subordinated debentures (1,180) --- (98)
-------- ------ ------
Net cash provided by (used for) financing activities 1,461 (460) (125)
-------- ------ ------
Net increase (decrease) in cash and cash equivalents 1,219 (3) 70
Cash and cash equivalents at beginning of year 80 83 13
-------- ------ ------
Cash and cash equivalents at end of year $ 1,299 $ 80 $ 83
======== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
Page 36
BCT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
000's omitted
-------------
For the For the For the
Fiscal year ended Fiscal year ended Fiscal year ended
February 28, 1995 February 28, 1994 February 28, 1993
----------------------- ------------------------ -------------------------
Supplemental disclosures:
- -------------------------
Interest paid during the year $85 $278 $299
--- ---- ----
Income taxes paid during the year $18 $ 17 $ -
--- ---- ----
Noncash activities:
- ------------------
In fiscal 1993, the Company issued 73 shares of common stock in lieu of
salaries to certain officers and key employees. The fair value ascribed to the
common stock and additional paid in capital is $3 and $105, respectively.
In fiscal 1993, a major supplier converted $200 of a note payable into $200
of Series A convertible preferred stock.
In fiscal 1993, the Chairman of the Board of the Company exercised stock
options with an aggregate exercise price of $81 by reducing an $81 obligation
due to him from the Company.
In fiscal 1993, notes receivable due from directors in the amount of $158
were satisfied through the cancellation of 86 shares of common stock of the
Company that collateralized these notes receivable. The value ascribed to the
common stock and additional paid in capital is $3 and $155, respectively.
In fiscal 1994, 60 shares of Series A convertible preferred stock were
issued in exchange for assets purchased.
In fiscal 1994, $175 of convertible debentures were converted into 58
shares of common stock.
In fiscal 1994, notes receivable due from employees in the amount of $25
were satisfied through the cancellation of 8 shares of common stock of the
Company that collateralized these notes receivable. The value ascribed to the
common stock and additional paid in capital is $0 and $25, respectively.
In fiscal 1994, the Company issued debt of $300 relating to the acquisition
of BCT Delray and the Canadian Area Master Franchise Agreement.
In fiscal 1994, the Chairman of the Board exchanged $73 of notes payable
into Series B convertible preferred stock.
In fiscal 1995, $252 and $150 of subordinated convertible debentures were
converted into 84 and 66 shares of common stock, respectively.
In fiscal 1995, a note receivable due from an employee in the amount of $17
was satisfied through the return of 5 shares of common stock of the Company
which collateralized this note.
In fiscal 1995, the Chairman of the Board exchanged $100 of convertible
debentures for 100 shares of Series B convertible preferred stock together with
44 additional warrants.
In fiscal 1995, 2,225 shares of Series B convertible preferred stock were
converted into 989 shares of the Company's common stock.
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
Page 37
BCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted)
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -------------------------------------------------------
Business
BCT International Inc. (the Company), franchises wholesale thermography
printing Plants through its wholly-owned subsidiary, Business Cards Tomorrow,
Inc. (BCT), for which it receives initial franchise fees and continuing
royalties. BCT, through its wholly-owned subsidiary BCT Delray, Inc. (BCT
Delray), acquired its first Company Plant in fiscal 1994. A second Company
Plant was acquired by BCT in fiscal 1995. The Company also sells paper stock
and catalogs to its franchisees and the Company Plants. At February 28, 1995,
the Company has 98 thermography printing Plants in operation, 96 of which are
franchised. The total number of Plants was 97 in 1994 and 92 in 1993.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, BCT, and BCT's wholly-owned subsidiary BCT Delray.
All significant intercompany transactions have been eliminated.
Short-Term Investments
Short-term interest bearing investments are those with maturities of less
than one year but greater than three months when purchased and are readily
convertible to cash. The short-term investments are classified as held to
maturity and are stated at amortized cost, which approximates fair value.
Inventory
Inventory, consisting primarily of paper products, printing supplies and
catalogs for sale to its franchisees and the Company Plants, is stated at the
lower of cost (first in, first out method) or market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful life of the asset. Leasehold
improvements are amortized over the lives of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Costs of
major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the life of the assets are expensed.
Upon the sale or disposition of property and equipment, the cost and related
accumulated depreciation is eliminated from the accounts, and any resultant gain
or loss is credited or charged to operations.
Assets Held for Sale
Assets held for sale consist of the net assets of the Company Plant in
Honolulu, Hawaii, and are carried at the lower of cost or market value.
Excess of Purchase Price Over Fair Value of Net Assets Acquired
Excess of purchase price over fair value of net assets acquired from the
reverse acquisition on December 31, 1985 with The Good Taco Corporation was
being amortized over a period of fifteen years through 2001. The excess
purchase price was ascribed to the acquisition of a public company and to the
acquisition of $3,360 of tax net operating loss carryforwards. At February 28,
1995, the asset has been reduced to no value.
F-11
Page 38
Trademark
The trademark is amortized using the straight-line method over 40 years.
Intangible Assets
Intangible assets consist of Canadian franchise rights and goodwill
acquired in fiscal 1994 with the Canadian Master Area Franchise Agreement and
goodwill acquired in fiscal 1994 with the purchase of the Company Plant. The
acquisition of the Canadian Master Area Franchise Agreement enabled the Company
to cancel the area agreement with the seller and purchase all of the Canadian
sub-franchise agreements. The purchase price was $230, of which $120 was paid
in cash at closing, and the remaining $110 was paid in 11 consecutive monthly
installments of $6 with a final balloon payment of $44. The amortization period
for the Canadian acquisition intangible assets is 19 years, which represents the
remaining life of the franchise agreements acquired.
In June 1993, in connection with the strategy of beginning to operate
Company Plants, the Company purchased franchise stores at a net cost of $300.
The goodwill associated with this acquisition totalled $239. The amortization
period for the assets related to the purchase of the Company Plants is 5 years.
Sales of Franchises
Revenue from the sales of individual franchises, including the initial
equipment package, is recognized upon the opening of the related franchise and
when all significant services have been substantially performed. Revenue from
the sale of an area franchise is recognized when all significant services
relating to the sale have been completed.
Continuing Franchise Royalties, Paper and Printing Revenues
Continuing franchise royalties, paper and printing revenues are recognized
monthly when earned. Collectibility of these revenues is assessed on a regular
basis. The allowance for doubtful accounts is established through a provision
for losses charged to selling, general and administrative expense. Accounts
receivable are charged off against the allowance for doubtful accounts when
management believes that collectibility is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses in existing
accounts and notes receivable that may become uncollectible.
Research and Development
Research and development costs include costs for new product development
which are charged to operations as incurred.
Income Taxes
In February 1993, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109 is
---------------------------
an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates. The
change to FAS 109 in 1993 had no significant effect on the fiscal 1993 financial
statements.
F-12
Page 39
Earnings Per Common Share
Primary earnings per common share are calculated by dividing net earnings
applicable to common stock by the weighted average number of Common Stock shares
outstanding and common stock equivalents which consist of stock options and
stock warrants. On a fully-diluted basis, net earnings, weighted average shares
outstanding and common stock equivalents are adjusted to assume the conversion
of convertible subordinated debentures and preferred stock from the date of
issue.
Cash and Cash Equivalents
For the purposes of reporting cash flows, cash and cash equivalents include
investments with maturities of ninety days or less at purchase date.
Presentation and Reclassification
All dollar and share amounts, except amounts related to per share data, are
expressed in thousands of dollars. Certain items in the 1994 and 1993
consolidated financial statements have been reclassified for comparative
purposes.
NOTE 2: SHORT-TERM INVESTMENTS
- ------ ----------------------
Short term investments consist of the following at February 28, 1995:
Carrying
Value Market
U.S. Treasury Bill, face value
of $75, due May 25, 1995 $ 74 $ 74
U.S. Treasury Bill, face value
of $1,000, due June 1, 1995 985 985
------- -------
1,059 1,059
Accrued interest 12 12
------- -------
$ 1,071 $ 1,071
======= =======
F-13
Page 40
NOTE 3: ACCOUNTS AND NOTES RECEIVABLE
- ------- -----------------------------
Accounts and notes receivable consist of the following:
February 28, February 28,
1995 1994
------------- -------------
Continuing franchise fees
receivable $1,231 $ 997
Paper sales receivable
from franchisees 1,147 807
Notes receivable from sale of
franchises, interest at 8 1/2%
to 10%, due in monthly
installments through 1997 148 139
Notes receivable due from franchisees,
interest at 10% to 12 1/2%, payable
in monthly installments through
1998 605 770
Company Plant accounts receivable
from customers 86 88
Miscellaneous 253 144
------ ------
3,470 2,945
Less - allowance for doubtful accounts (888) (836)
and deferred interest (18) (23)
------ ------
2,564 2,086
Less - amount not expected to
be collected within one year,
net of $551 allowance
for doubtful accounts
($607 in 1994) (259) (483)
------ ------
$2,305 $1,603
------ ------
In the normal course of business, to meet the financing needs of its
franchisees, the Company extends credit to its franchisees throughout the United
States and Canada. Although the Company has a diversified receivable portfolio,
a substantial portion of the franchisees' ability to honor their commitments to
the Company is reliant upon the economic stability of the market in the
franchisee's particular geographic area. The Company's exposure to loss in the
event of nonperformance by the franchisees is represented by the contractual
amount of the notes and accounts receivables and the franchise equipment leases
guaranteed by the Company (see Note 9). The Company controls the credit risk of
its receivables through credit approvals, limits and monitoring procedures. The
Company may require collateral or other security to support the receivables with
credit risk.
F-14
Page 41
At February 28, 1995, approximately $170 ($503 in 1994) of accounts and
notes receivable, although currently due, are classified into long term accounts
and notes receivable, based upon historic payment performance of the
franchisees. A significant portion of the allowance for doubtful accounts
relates to these accounts and notes receivable. Amounts included in long term
notes receivable include the following contractual payment terms: 1996 - $112,
1997 - $296, 1998 - $164, 1999 - $180.
Bad debt expense for the years ended February 28, 1995, February 28, 1994
and February 28, 1993, was approximately $352, $196 and $242, respectively.
Interest income is recognized on a cash basis for those accounts and notes
receivables with specific reserves. Interest income for all other accounts and
notes receivable are recognized on an accrual basis.
NOTE 4: PROPERTY AND EQUIPMENT
- ------- ----------------------
Major classifications of property and equipment are as follows:
Estimated
useful
February 28, February 28, lives
1995 1994 (in years)
------------- ------------ ----------
Leasehold improvements $ 53 $ 53 5 - 32
Machinery and equipment 181 141 3 - 20
Dies and artwork 118 118 25
Videos 37 37 5
Furniture, fixtures and other
equipment 104 99 5 - 10
Computers 407 311 5
Franchisee software 48 46 3
Auto 5 5 5
----- -----
953 810
Less - accumulated depreciation
and amortization (313) (217)
----- -----
$ 640 $ 593
===== =====
F-15
Page 42
NOTE 5: CONVERTIBLE SUBORDINATED DEBENTURES AND NOTES PAYABLE
- ------- -----------------------------------------------------
Convertible subordinated debentures and notes payable consist of the
following:
February 28, February 28,
1995 1994
------------- -------------
Series A - 11% convertible subordinated debentures,
interest payable quarterly, due March 31, 1994 $ --- $ 1,682
======== =======
Note payable to bank, secured by receivables, property,
equipment and inventory, monthly principal and
interest payments, interest at 8% --- 285
Note payable to prior owner of Company Plant secured
by equipment, monthly principal and interest payments
of $4, interest at 8% per annum, due May 28, 1998 131 166
Unsecured amount due to Continental Stamps West,
interest imputed at 13%, principal and interest due
in monthly installments of $4 through
February 1997 79 111
-------- -------
210 562
Less - amount due after one year (162) (103)
-------- -------
$ 48 $ 459
======== =======
In October 1994, the Company executed a commitment letter with a bank for a
$200 unsecured line of credit, with an interest rate of prime + 1.5% and an
expiration date of July 1, 1995. Advances against this line of credit are for
capital projects and must be preapproved by the bank. This line of credit is
guaranteed by the Company's Chairman of the Board. No advances were outstanding
under this line of credit at February 28, 1995.
Convertible subordinated debentures
- -----------------------------------
In fiscal 1990, the Company issued $2,580 of Series A 11% convertible
subordinated debentures, $600 of which replaced a $600 note payable to the
Chairman of the Board. The convertible subordinated debentures were due March
31, 1994, interest was payable each calendar quarter, and the debentures were
convertible into common stock at a rate of $3.00 per share. Further, upon
conversion, each share of common stock was to be accompanied by the issuance of
a three-year warrant, with two warrants required to purchase one share of common
stock at an exercise price of $7.00 per share.
During fiscal 1992, to induce the conversion of the debentures, the Company
temporarily reduced the conversion price from $3.00 to $1.25 per share of common
stock. Further, the exercise price for the warrants was reduced from $7.00 to
$2.92 per share. The revised conversion agreement was effective from July 31,
1991 through September 30, 1991. In conjunction with the induced conversion,
$573 of debentures were converted to increase the Company's equity position;
$500 of these debentures were converted by the Company's Chairman of the Board.
This induced conversion resulted in subordinated debenture conversion expense in
the approximate amount of $331. This expense represents the fair value of the
shares transferred in excess of shares issuable pursuant to the original
conversion terms.
On May 15, 1992, $150 of the debentures were redeemed by the Company in a
privately negotiated transaction at an aggregate redemption price of $98.
During fiscal 1994, an additional $175 of debentures were converted pursuant to
the original terms.
At February 28, 1994, $1,682 principal amount of debentures remained
outstanding. Of these debentures, $532 were convertible into 177 common shares
at $3.00 per share plus 177 warrants. In fiscal 1995, $252 of these debentures
were converted into 84 shares of common stock and 84 warrants, and the Chairman
of the Board converted $100 of these debentures into Series B convertible
preferred stock. The remaining $180 of these debentures was satisfied at the
maturity date with proceeds from the private placement of Series B convertible
preferred stock (see Note 6 - Preferred Stock).
F-16
Page 43
The remaining $1,150 of the debentures outstanding at February 28, 1994
were subject to anti-dilutive provisions upon the occurrence of certain events.
The conversion price was subject to reduction for the grant of options and
warrants and the issuance of additional shares of common stock and convertible
securities with a price less than the then current conversion price. As of
February 28, 1994, the conversion price of these debentures had been reduced
from $3.00 to $2.27 per share, resulting in 506 shares of common stock issuable
upon conversion. Furthermore, the warrant exercise price had been reduced from
$7.00 to $4.46 per share. On March 17, 1994, $150 of these debentures were
converted into 66 shares of common stock, together with 66 warrants. The
remaining $1,000 of these debentures were satisfied at the maturity date with
proceeds from the private placement of Series B convertible preferred stock
(See Note 6 - Preferred Stock).
Scheduled maturities after February 28, 1995, for notes payable are as
follows:
Fiscal Notes
Year Payable
------ -------
1996 $ 168
1997 42
-------
$ 210
=======
F-17
Page 44
NOTE 6: PREFERRED STOCK
- ------- ---------------
Effective May 1992, 750 shares of Series A Convertible Preferred Stock,
$1.00 par value, were authorized and issued by the Company. In January 1994,
60 additional shares of Series A preferred stock were authorized and issued,
bringing the total to 810 shares. Dividends on these shares are cumulative and
accrue from the date of original issue at a 12% rate per annum, payable
quarterly on the first day of each January, April, July and October. Dividends
in arrears are non-interest bearing. Dividends must either be fully paid or
declared and aggregated for payment prior to the declaration of dividends on the
common shares. The Series A preferred stock is non-voting except as it relates
to any action affecting the terms of the priority of the preferred stock.
Upon the event of a voluntary or involuntary liquidation, the holders of
the Series A preferred stock will be entitled to receive $1.00 per share plus
all accrued and unpaid dividends. The Series A preferred stock is convertible
into common stock at a ratio of 1.48 shares of preferred stock for each share of
common stock. The Company has the option to require conversion of the preferred
stock beginning two years after the date of issuance if the common stock closing
price or last reported sales price is at least $7.00 per share for 10
consecutive business days. If the preferred stock is not converted within five
years of issuance, the Company must redeem the stock at $1.00 per share plus all
accrued and unpaid dividends.
Effective February 17, 1994, 2,500 shares of Series B convertible preferred
stock, $1.00 par value, were authorized by the Company for sale in a private
placement offering at a $1.00 price per share. A total of 2,225 shares were
sold in the offering. The net proceeds of the offering, which totalled $1,973,
were used by the Company (i) to pay off the outstanding 11% convertible
subordinated debentures due on March 31, 1994 of $1,180 and (ii) for general
working capital. Dividends on the Series B convertible preferred stock were
cumulative and accrued from the date of original issue at a 9% rate per annum,
payable quarterly on the first day of each January, April, July and October.
Total Series B dividends declared and paid to holders were $129.
Upon the event of a voluntary liquidation, the holders of the Series B
preferred stock were entitled to receive $1.00 per share plus all accrued and
unpaid dividends. The Series B preferred stock was convertible into common
stock at a ratio of 2.25 shares of preferred stock per share of common stock.
The Company had the right to require conversion of the Series B preferred stock
into common stock six months after the date of issuance in the event the common
stock's closing bid price or last sale price was at or above $3.50 per share for
20 consecutive trading days. The Company exercised this right on November 1,
1994. As a result, the Series B preferred stock totalling 2,225 shares was
converted into 989 shares of the Company's common stock.
The holders of the Series B convertible preferred stock received one warrant
for each 2.25 shares of preferred stock purchased, entitling the holder to
purchase one share of the Company's common stock for three years from the date
of issuance at an exercise price of $3.00 per share. Contemporaneous with the
Company's forced conversion of the Series B preferred stock into common stock,
the holders were required to either exercise their Series B Warrants or have
them redeemed by the Company. Effective December 8, 1994, 689 warrants were
exercised at $3.00 per warrant and the Company issued 689 shares of its common
stock, yielding gross proceeds to the Company of $2,067. A commission of $86
was paid to an investment banker in connection with the exercise of these
warrants and was offset against additional paid in capital. The Company
redeemed the 300 remaining Series B warrants at a price of $.05 each or $15.
The original commission of $78 paid in connection with the sale of the Series B
preferred stock was fully accreted to additional paid in capital upon the
conversion of Series B preferred stock into common stock.
On February 28, 1994, 825 shares of Series B convertible preferred stock were
issued and outstanding. A commission of $13 was paid with respect to one
investor, and the Chairman of the Board converted the remaining balance of a
note owed to him by the Company in the amount of $73 plus $2 of cash into $75 of
the Series B convertible preferred stock. Consequently, the Company received
$738 of cash (restricted cash on the balance sheet due to escrow of the funds)
in exchange for the 825 preferred shares issued. The $13 commission reduced the
purchase price of the outstanding Series B convertible preferred stock. This
difference was accreted utilizing the interest method and the accreted amount
was offset against additional paid in capital.
In fiscal 1995, an additional 1,400 shares of Series B convertible
preferred stock were issued. The Company received $1,300 in cash for these
shares and the Chairman of the Company exchanged $100 of the 11% convertible
subordinated debentures for 100 shares of Series B convertible preferred stock.
A further commission of $65 was paid to the investment bankers and reduced the
value of the Series B convertible preferred stock. This difference was accreted
utilizing the interest method and the accreted amount was offset against
additional paid in capital.
F-18
Page 45
NOTE 7: STOCKHOLDERS' EQUITY
- ------- --------------------
Common Stock
- ------------
On November 16, 1993, the Company's shareholders voted to increase the
number of shares authorized from 6,250 shares to 25,000 shares.
Stock Options
- -------------
Stock options outstanding, exercisable and exercise price for the three years
ended February 28, 1995 are as follows:
Options
Outstanding Price Range Aggregate
----------- ------------- ---------
At March 1, 1992 689 $1.25 to $3.13 $1,132
Options granted 278 $1.48 to $3.50 630
Options exercised (67) $1.25 to $2.75 (88)
Options cancelled --- --- ---
----- ---------------- ------
At February 28, 1993 900 $1.25 to $3.50 1,674
Options granted 115 $2.38 274
Options exercised --- --- ---
Options cancelled (9) $1.25 to $1.48 (12)
----- ---------------- ------
At February 28, 1994 1,006 $1.25 to $3.50 1,936
Options granted 215 $3.38 727
Options exercised (10) $1.25 (12)
Options cancelled (31) $1.25 to $2.38 (53)
Options expired (16) $3.00 (48)
----- ---------------- ------
At February 28, 1995 1,164 $1.25 to $3.50 $2,550
===== ================ ======
Options exercisable
At February 28, 1995 1,116 $1.25 to $3.50 $2,412
===== ================ ======
F-19
Page 46
Warrants
- --------
As of February 28, 1995, there were outstanding warrants for the purchase
of 694 shares of common stock, 37 of which are held by the Chairman of the
Board. The exercise price and the dates are as follows:
Title of Issue Aggregate Amount Date from which Price at which
Called for of Securities Called Warrants Last Warrants
by Warrants for by Warrants are Exercisable Exercise Date are Exercisable
--------------- -------------------- ---------------- ------------- ---------------
Issued during 1985 merger 31 March 6, 1985 March 5, 1995 $1.32 to $2.75
Issued during 1985 merger 38 September 8, 1986 September 7, 1996 $1.25
Converted Subordinated 175 August 30, 1991 - July 26, 1997 $4.46 to $7.00
Debentures March 31, 1994
Issued to Investment
Banker 150 May 31, 1993 May 31, 1998 $3.13
Issued to Investment
Banker 300 February 1, 1994 February 1, 1999 $2.00 to $4.00
---
Warrants outstanding 694
===
As of February 28, 1995, 289 warrants issued in conjunction with
convertible subordinated debentures had expired and 6 of these warrants were
exercised yielding $9. The 989 warrants issued in conjunction with the Series B
convertible preferred stock were called for exercise at $3.00 per share or
redemption at $.05 each by the Company on November 1, 1994. Of the 989
warrants, 689 were exercised yielding gross proceeds of $2,066, and the
remaining 300 were redeemed by the Company for $15.
As of February 28, 1994, the following warrants were issuable in conjunction
with the convertible subordinated debentures:
Issuable in conjunction with
Convertible Subordinated
Debentures 88 July 26, 1994 July 26, 1997 $7.00
Issuable in conjunction with
Convertible Subordinated
Debentures 89 March 31, 1994 March 31, 1997 $7.00
Issuable in conjunction with
Convertible Subordinated
Debentures 301 March 31, 1994 March 31, 1997 $4.46
Issuable in conjunction with
Investment Banking
agreement dated
February 1, 1994 225 May 1, 1994 November 1, 1999 $2.00 to $4.00
---
703
===
As of February 28, 1995, the above warrants were either issued or
cancelled.
F-20
Page 47
NOTE 8: INCOME TAXES
- ------- ------------
The components of the provision for (benefit from) income taxes for the
years ended February 28, 1995, 1994 and 1993 are as follows:
1995 1994 1993
------ ------ ------
Current Provision:
Federal $ 26 $ 16 $ ---
State --- 20 ---
----- ----- -----
Total current 26 36 ---
Deferred provision (benefit) (150) (205) ---
Tax benefit from exercise of employee stock
options and stock compensation awards
credited to paid in capital --- 76 ---
----- ----- -----
Total (benefit) $(124) $ (93) $ ---
----- ----- -----
The Company's net deferred tax asset is comprised of the following:
February 28, 1995 February 28, 1994 February 28, 1993
------------------ ------------------ -----------------
Deferred Tax Asset - Current:
Bad debt reserve $ 132 $ 175 $ 109
Other 44 27 108
------- -------- --------
Total Deferred Tax Asset 176 202 217
------- -------- --------
Valuation Allowance (88) (121) (217)
------- -------- --------
Deferred Tax Liabilities - Current:
Other --- --- ---
------- -------- --------
Total Deferred Tax Liability --- --- ---
------- -------- --------
Net Deferred Tax Asset - Current $ 88 $ 81 $ ---
======= ======== ========
Deferred Tax Asset - Non-Current:
Bad debt reserve $ 215 $ 151 $ 134
Net operating loss carryovers 2,747 3,213 3,501
Fixed assets --- --- ---
Other 34 22 ---
------- -------- --------
Total Deferred Tax Asset 2,996 3,386 3,635
------- -------- --------
Valuation Allowance (1,466) (2,010) (3,620)
------- -------- -------
Deferred Tax Liabilities - Non-Current:
Fixed assets (64) (36) (15)
------- -------- -------
Total Deferred Tax Liability (64) (36) (15)
------- -------- -------
Net Deferred Tax Asset - Non-Current $ 1,466 $ 1,340 $ ---
======= ======== =======
Net Deferred Tax Asset - Total $ 1,554 $ 1,421 $ ---
======= ======== =======
F-21
Page 48
The net change in the valuation allowance for the deferred tax asset was a
decrease of $577 and $1,706 and $388 for the fiscal years ended February 28,
1995, 1994 and 1993, respectively. For the year ended February 28, 1993, the
reduction in the valuation allowance related primarily to the reduction in the
net deferred tax asset. For fiscal year ended February 28, 1994, $288, of the
reduction in the valuation allowance related to the utilization of acquired net
operating loss carryforwards which reduced goodwill. The remaining reduction in
the valuation allowance of $1,418 relates to management's change in judgment
about the realizability of the related deferred tax asset in future years. Of
this amount, $928 related to the valuation allowance for acquired net operating
losses which reduced goodwill and the remaining decrease of $490 in the
valuation allowance reduced tax expense. For fiscal year ended February 28,
1995, the decrease of $577 in the valuation allowance reduced tax expense of
$577.
Net operating loss carryforwards for Federal income tax purposes total
approximately $7,300 at February 28, 1995. The net operating loss carryforward
includes $540 with certain limitations. Net operating losses expire as follows:
Year of
Expiration Amount
------------ -------
1998 $ 7
2000 1,238
2001 1,723
2002 1,327
2003 294
2005 1,721
2006 962
2007 12
2008 16
------
$7,300
======
For Federal income tax purposes, the Company has approximately $19 of
general business credit carryovers which expire at various dates through 2001.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of carryforward which could be
utilized.
The difference between the statutory and effective tax rates are as
follows:
1995 1994 1993
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ----- ------- ----- ------ ----
Tax at statutory rate $ 351 34% $ 269 35% $283 34%
Non-deductible amortization
of purchase price over
fair value of net assets 37 3
acquired (8) (1) 65 8 61 7
Other --- --- (4) (1) 6 1
State income tax, net of
federal benefit 47 5 51 7 38 4
Alternative minimum tax 26 3 16 2 --- ---
Decrease in Federal and
state valuation allowance (577) (56) (490) (62) (388) (46)
----- --- ---- --- ---- ---
$(124) (12)% $(93) (11)% $ -- --%
===== === ==== === ==== ===
F-22
Page 49
NOTE 9: COMMITMENTS AND CONTINGENCIES
- ------- -----------------------------
The Company is a party to various litigation matters, including a matter
with a prior officer of the Company. In the opinion of management, potential
losses, if any, on the various matters will not have a material impact on the
financial condition or results of operation of the Company.
The Company's corporate offices and office equipment are leased under
noncancellable lease agreements. The leases initially expire at various dates
through 2000, and contain options for renewals. There are provisions in the
leases for rent increases based on cost of living increases under certain
conditions.
The following are the approximate minimum annual noncancellable rentals to
be paid under the provisions of the leases:
Fiscal Year Lease Commitments
------------ -----------------
1996 275
1997 285
1998 128
1999 35
2000 41
----
$764
====
Rental expense amounted to the following approximate amounts for the
corresponding periods:
For the year ended Amount
------------------ ------
February 28, 1995 $193
February 28, 1994 $175
February 28, 1993 $245
At February 28, 1995, the Company has guaranteed the payment of equipment
lease obligations for certain of its franchisees for an aggregate amount of
approximately $1,450.
In March 1993, the Company entered into an employment agreement with the
Chairman of the Board. The term of the employment contract is seven years. The
agreement calls for minimum annual salary amounts during the term of this
contract as follows:
Year Ending February 28, Amount
------------------------ ------
1996 $275
1997 $300
1998 $300
1999 $300
2000 $300
In the event that the Chairman of the Board is substantially incapacitated
during the term of his employment for a period of 90 days in the aggregate
during any twelve month period, the Company has the right to terminate his
employment. Upon termination, the Chairman of the Board will receive one-half
of his salary in effect on the date of termination for the remaining term of the
agreement. Additionally, in the event of the Chairman's death during his
employment, his designated beneficiary or his estate shall be paid one-half of
his salary in effect on the date of his death for the remaining term of the
agreement.
In March 1991, the Company entered into a consulting agreement with a
Director (and founder of BCT), who had retired as an officer of the Company
during fiscal 1991. Under this agreement, consulting services are required in
exchange for fees of $50 per year, payable in equal monthly installments. In
May 1992, this agreement was formalized pursuant to a consulting contract with
an expiration date of February 29, 1996.
F-23
Page 50
BCT INTERNATIONAL, INC.
-----------------------
000's omitted SCHEDULE VIII
- -------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
Column A Column B Column C Column D Column E
Additions
---------------------
Balance at Charged to Balance at
beginning costs and end of
of year expenses Other Deductions year
--------- ---------- -------- ---------- ----------
For the year ended February 28, 1995
Allowance for doubtful accounts $ 836 $352 $ --- $ (300) (1) $ 888
====== ==== ======= ======= ======
Deferred tax assets valuation allowance $2,131 $--- $ --- $ (577) $1,554
====== ==== ======= ======= ======
For the year ended February 28, 1994
Allowance for doubtful accounts $ 647 $196 $ --- $ (7) (1) $ 836
====== ==== ======= ======= ======
Deferred tax assets valuation allowance $3,837 $--- $ --- $(1,706) (3) $2,131
====== ==== ======= ======= ======
For the year ended February 28, 1993
Allowance for doubtful accounts $ 738 $242 $ --- $ (333) (1) $ 647
====== ==== ======= ======= ======
Deferred tax assets valuation allowance $ --- $--- $ 3,837 (2) $ --- $3,837
====== ==== ======= ======= ======
Allowance for doubtful accounts at February 28, 1995 of $888 is comprised of
$337 related to current receivables and $551 to long-term receivables.
(1) Write off of uncollectible receivables.
(2) A deferred tax asset value
(3) The excess of purchase price over fair value of net assets acquired was
reduced by $1,216, of the valuation allowance, since this reduction
represents the utilization of the acquired operating loss carryforwards.
F-24
Page 51
SCHEDULE X
BCT INTERNATIONAL, INC.
-----------------------
000's omitted
-------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
COLUMN A
--------
Item February 28, 1995 February 28, 1994 February 28, 1993
----- ----------------- ----------------- -----------------
Advertising Costs $156 $162 $152
==== ==== ====
Amortization of excess cost over
value of net assets acquired $108 $193 $180
==== ==== ====
Amortization of intangible assets $ 68 $ 22 $---
==== ==== ====
F-25
Page 52