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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 June 30, 1996 Commission file No. 33-21156
Concord Camera Corp.
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
35 Mileed Way, Avenel, New Jersey 07001
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (908) 499-8280 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)
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. |X|
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. o
As of September 13, 1996 the aggregate market value of the Common Stock (based
upon the high and low trading prices) held by non-affiliates of the Company was
approximately $25,650,060.
As of September 13, 1996 the number of shares outstanding of the Company's
Common Stock was 10,944,026.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index -- Page --
Page 1 of
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PART I
Item 1. Business.
General. The Company was incorporated in New Jersey on September 30, 1982 and
consummated its initial public offering in July 1988. Its principal offices and
administrative headquarters are located at 35 Mileed Way, Avenel, New Jersey,
07001. The Company's manufacturing facilities are located in the People's
Republic of China ("PRC"). The Company has two distribution subsidiaries in
North and Central America, two in Europe and one in Hong Kong. Unless the
context indicates otherwise, when used in this report the word "Company" refers
to Concord Camera Corp. and its subsidiaries and unless otherwise indicated, any
twelve month period ending or ended on June 30, will be referred to as "Fiscal"
with the appropriate year specified.
The Company's principal business has been and is the design, manufacture,
marketing, distribution and sale of popularly-priced, easy-to-use conventional
and single-use 35 millimeter and Advanced Photo System cameras and 110 film
cartridge cameras which it manufactures and assembles in the People's Republic
of China ("PRC"). The Company's objective is to respond to consumer demands for
popularly-priced cameras with contemporary design and modern technology. The
Company currently produces numerous product lines with suggested United States
retail sales prices ranging from $5.99 to $60.
Domestic and Foreign Sales, Markets and Marketing
In Fiscal 1996, sales by the Company to United States customers, including sales
made by the Company's Hong Kong subsidiary, constituted approximately 49.6% of
total sales. Such sales were primarily to major discount, drugstore and retail
chains, including Wal-Mart Stores, Target Stores, Walgreens, K-Mart, Family
Dollar, Ames Department Store, Meijer and Thrifty Drug Store. The Company also
sells its products to distributors, through direct mail, and to accounts which
use cameras as premiums in connection with their product sales. Approximately
50.4% of total sales in Fiscal 1996 were made by the Company's foreign
subsidiaries to customers outside the United States.
A substantial portion of the Company's business (approximately 40% of total
sales for Fiscal 1996) is represented by both finished single-use cameras and
unassembled single-use cameras without film and batteries sold on an original
equipment manufacturer ("OEM") basis to Imation (formerly a subsidiary of the
Minnesota Mining & Manufacturing Co.) and Agfa-Gevaert AG. The Company is
engaged in negotiations with other original equipment manufacturers which, if
successful, in certain instances could result in a substantial increase in sales
of the Company's products on an OEM basis. There can be no assurance that such
negotiations will be successfully consummated.
The Company's sales are somewhat seasonal resulting in a higher sales volume
during its first and second fiscal quarters. Increased volume is attributable to
purchases for the holiday season. Sales for the first six months of Fiscal 1996
were $35,400,000 compared to $31,382,000 for the second six months of the year.
Sales for the first six months of Fiscal 1995 were $33,272,000 compared to
$28,867,000 for the second six months of that year.
Concord Americas. Consolidated sales of the Company's United States, Canadian,
and Panamanian operations, collectively "Concord Americas," for Fiscal 1996,
1995 and 1994 were approximately, $15,073,000, $24,951,000, and $34,672,000,
respectively. Net sales for Fiscal 1995 and 1994 included
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OEM sales with point of sale out of the U.S. of approximately $2,225,000 and
$6,648,000, respectively, non-camera revenues of approximately $2,476,000 and
$4,561,000, respectively, and revenues from a one time promotional sale in
Fiscal 1994 of $2,900,000. If the foregoing sales were eliminated from Concord
Americas operations from each of Fiscal 1995 and 1994 it would reflect
traditional camera sales in the Americas for Fiscal 1996, 1995, and 1994 of
$15,073,000, $20,250,000, and $20,563,000, respectively. During Fiscal 1996,
1995, and 1994 Americas customers purchased approximately $11,151,000,
$12,295,000, and $7,801,000, respectively from Concord HK. These decreases in
traditional camera sales reflect a slower retail environment in the Americas and
an aging product line for certain 35 millimeter models which is expected to be
replaced during Fiscal 1997[See "Item 1. Products 35 millimeter models"]. The
Company is in the process of centralizing certain administrative, accounting and
warehousing functions of the United States, Canadian and Panamanian operations
in order to control costs and improve operations.
A large portion of the Company's United States sales are made by in-house sales
personnel with the assistance of approximately 21 non-affiliated representative
organizations that operate as selling agents in geographic areas specified by
agreements. Sales representatives receive commissions at rates ranging from 1%
to 5% of net sales and the Company believes this type of arrangement is
prevalent in its industry. Certain of the sales representatives act as selling
agents for manufacturers and distributors of other products. The loss by the
Company of any of its sales representatives would not, in the Company's opinion,
have a materially adverse impact upon sales because the Company believes that
its in-house sales staff alone, or in conjunction with the services of other of
its representatives, could provide the services now provided.
Concord Europe. Consolidated sales of Concord Camera GmbH ("Concord Germany"),
Concord Camera UK Limited ("Concord UK"), Concord Camera France SARL ("Concord
France"), and Concord Camera (Hungary) Ltd. ("Concord Hungary") collectively
"Concord Europe", were approximately $9,267,000, $9,278,000, and $6,856,000, in
Fiscal 1996, 1995 and 1994, respectively. In addition, certain European
customers increased merchandise purchases on an F.O.B. Hong Kong basis from
Concord HK. During Fiscal 1996, 1995, and 1994 European customers purchased
approximately $4,632,000, $2,491,000, and $1,886,000 respectively, from Concord
HK. Sales to European customers would have increased by 18.1% if this increase
were added to 1996 European sales. This increase is primarily attributable to
sales to new customers by the Company's expanded European sales and marketing
force.
During the first quarter of Fiscal 1994, the Company formed Concord Hungary
which commenced operations in that quarter. In an effort to decrease worldwide
administrative expenses during the first quarter of Fiscal 1996, the Company
decided to transition its sales activities in Hungary to an independent sales
representative. During the fourth quarter of Fiscal 1994, the Company formed
Concord France which commenced operations on July 1, 1994.
The Company is in the process of centralizing certain administrative, accounting
and warehousing functions of the British, German and French operations in order
to control costs and improve operations. Concord Europe is now in position to
better service their customers in a growing market place and increase their
market shares in this region.
Far East. Sales by Concord Camera HK Limited ("Concord HK") were approximately
$42,442,000, $27,910,000 and $13,288,000, in Fiscal 1996, 1995 and 1994,
respectively. The increase is due to the continued acceptance of the Company's
newer products, principally the single-use and slim-line camera
3
models, and the successful implementation of FOB Hong Kong sales programs with
the Company's larger customers, accompanied by a change in the point of sale
from the United States to Hong Kong during the quarter ended December 31, 1994.
The Company effectuated a change in the OEM point of sale in order to secure an
additional working capital line from the Bank of East Asia, New York [See "Bank
of East Asia, New York" under Management Discussion and Analysis of Financial
Position, Liquidity]. The Company believes that sales in the Far East will
continue to represent a significant percentage of total sales.
During the quarter ended December 31, 1993, Concord HK signed a twenty year
agreement with Shenzhen Baoan Contat Camera Factory of the PRC ("Contat"), a
joint venture between Longhua Economic Development Company and Shenzhen Santat
Enterprise Development Company. Under the terms of that agreement, Concord HK
will sell camera components to Contat, make available certain equipment, provide
management assistance and technical advisors and supervise the technical quality
of Contat's products. Contat will market and sell the camera products it
produces in the PRC under the "Concord" trade name and trademark, under a
sublicense from the Company. The joint venture has not yet resulted in any
significant camera sales in the PRC, and there can be no assurance that it will
be successful. Included in other assets is a note receivable from Contat for
approximately $462,000. [See "Note 4" to the Financial Statements]
Licensing Activities. In May 1995, the Company executed a license agreement with
Hallmark Licensing, Inc., as agent for Binney & Smith Properties, Inc. ("Binney
& Smith") under which the Company licensed certain Binney & Smith trademarks
with regard to Crayola and certain associated marks, tradenames, and logos for
use with single-use cameras, pocket 110 cameras and 35 millimeter cameras. The
agreement expires December 31, 1997 but the Company may renew the agreement for
an additional one year term if actual royalties payable under the agreement
exceed a pre-determined minimum level.
Customers. In Fiscal 1996 and 1995, approximately 70.1% and 56.9%, respectively,
of the Company's sales were to its 10 largest customers. The consolidated sales
to the Company's two largest customers Imation (formerly a subsidiary of the
Minnesota Mining & Manufacturing Co.) and Agfa-Gevaert AG in Fiscal 1996
amounted to approximately $26,685,000 (40.0%). The consolidated sales to the two
largest customers (The Minnesota Mining & Manufacturing Company and Wal-Mart
Stores, Inc.) in Fiscal 1995 amounted to approximately $15,759,000 (25.4%). The
loss of any of these customers, in management's opinion, could have a material
adverse impact on the Company. The Company has executed agreements for the
supply of single-use cameras as an original equipment manufacturer with each of
Minnesota Mining & Manufacturing Co. and Agfa-Gevaert AG. Each agreement is for
a one year term and requires each of those entities to purchase several million
single-use cameras.
Advertising. The Company engages in a limited amount of advertising and in the
past has given allowances to customers who advertise its products. Advertising
allowances and other discounts were approximately $889,000, $829,000, and
$587,000 in Fiscal 1996, 1995, and 1994 respectively.
Manufacturing
General. The Company's operations and profitability are substantially dependent
upon its manufacturing and assembly activities, all of which are conducted in
the PRC. The Company conducts engineering, design, purchasing and certain
distribution and warehouse activities in Hong Kong. The Company's manufacturing
activities in the PRC are conducted pursuant to the PRC agreements (the "PRC
Agreements") with various local municipal and government agencies and
sub-divisions located in Baoan
4
County, Shenzhen Municipality, PRC (collectively, the "PRC Entities"). The
Company's initial agreement in Baoan County was approved on September 12, 1985
by the local Foreign Economic Relations Office ("FERO") which was necessary to
assure the validity and enforceability of the PRC Agreements. The Company's most
recent PRC Agreement covering its manufacturing activities was approved by the
PRC Entities and FERO in 1993 and expires in 2002. The Company intends to
continue to expand its operations in the PRC, although there can be no assurance
that it will be able to do so.
The Company did not experience any interruption in its manufacturing or other
operations as a result of political events (Tiananmen Square) in the PRC in June
1989, other than a brief interruption of deliveries between Hong Kong and the
PRC. There can be no assurance that similar events will not occur in the PRC in
the future and, if they do occur, that they will not result in material
interruption of the Company's manufacturing or other operations.
Although in the past the Company has contract manufactured non-photographic
products in the PRC, at present the Company is not performing any contract
manufacturing but continues to explore opportunities related thereto. The
Company continues to explore the possibility of contract manufacturing of
non-photographic products in the PRC in cases where manufacturing is labor
intensive and requires the application of manufacturing processes and techniques
similar to those currently employed by the Company. [See "Dependence on
Agreements with the PRC." and "Item 2. Properties."]
Supply arrangements. The Company purchases raw materials and certain components
used in the manufacture of its products from numerous non-affiliated suppliers,
including substantially all of its film, batteries, glass lenses, plastic
resins, metal and electronic component parts.
Products
General. The Company's camera products are manufactured and sold principally
under the CONCORD, KEYSTONE, LE CLIC and APEX trade names, on an OEM basis, and
under private labels. Outside the United States and Mexico, the Company's camera
products are also sold under the ARGUS trade name. The Company's cameras carry
suggested United States retail prices ranging from $5.99-$60. Substantially all
of the Company's revenues have been and continue to be derived from sales of
cameras and camera-related accessories.
New Products. In Fiscal 1995, the Company began design and development efforts
on cameras intended to meet the new Advanced Photo System ("APS") film standard,
as well as the design of new standard 35 millimeter cameras to meet changing
consumer demand. In Fiscal 1996, the Company began delivery of certain APS
single-use cameras to one of its OEM customers, and has also introduced its own
single-use and conventional APS cameras, both branded and non-branded, and
anticipates delivery to customers in the spring and summer of 1997.
Single Use Cameras. In Fiscal 1991, the Company introduced a line of single use,
35 millimeter point-and-shoot cameras, which include film, carrying retail
prices ranging from $5.99-$17.95. In Fiscal 1992, the Company introduced several
additional single use camera models, a large number of which are sold under
private labels. Full distribution of the new models began in Fiscal 1993.
Following the execution of a license agreement with Binney & Smith in May 1995,
the Company introduced a line of single-use cameras utilizing the Crayola brand
name. In Fiscal 1996, the Company began delivery of certain APS single-use
cameras to one of its OEM customers, and has also introduced its own single-use
5
APS cameras, both branded and non-branded, and anticipates delivery to customers
in the spring and summer of 1997. The single-use line consists of a basic
daylight camera suitable for outdoor use, a panorama version for extra wide
angle shots, a version with a built-in flash for indoor and outdoor photographs,
and a daylight version with underwater capability. Sales of single use cameras
represented approximately 65.2% of total sales in Fiscal 1996 and the Company
expects that its sales of single use cameras will represent the largest area of
its growth in Fiscal 1997.
110 Cartridge Models. The Company's pocket 110 cartridge models are simple, easy
to use, cartridge loading point-and-shoot cameras. Certain of the 110 models
have a built-in electronic flash and/or telephoto lens. The Company markets five
models of 110 cartridge cameras which are available in popular colors. United
States retail prices for those models range from $4 to $20. Following the
execution of a license agreement with Hallmark Licensing, Inc. in May, 1995, the
Company introduced a line of 110 cartridge cameras utilizing the Crayola brand
name.
35 Millimeter Models. The Company markets several lines of 35 millimeter cameras
ranging in retail price from $15-$60. The lower priced models are
point-and-shoot and have manual film transport. The more expensive models have
additional features such as date-back and panorama adapters. The newest of those
lines is the Slim Line ultra-compact camera. In Fiscal 1996, Following the
introduction of a line of 110 cartridge cameras utilizing the Crayola brand name
under the license agreement with Hallmark Licensing, Inc. the Company introduced
a line of 35 millimeter cameras utilizing the Crayola brand name. During the
fourth quarter of Fiscal 1996, the Company recorded provisions totaling
approximately $3,035,000 on certain 35 millimeter cameras and related inventory.
Due to an aging product line, the Company has suspended production on certain 35
millimeter conventional camera models that it produced in the past and
anticipated producing in the future.
Slim Line Cameras. In Fiscal 1992, the Company introduced its Slim Line cameras,
which are compact 35 millimeter, motorized and manual film advance models. These
cameras have a contemporary design and are popularly priced. In Fiscal 1992, the
Company also introduced its switchable panorama cameras which offer a standard
size or a wide angle stretch type print. In that year, the Company also
developed a patented system for printing a date or a message directly on each
photo taken by its cameras. In Fiscal 1993, a complete line of Photo Date and
Photo Message cameras were introduced.
The Company's medium-priced lines of 35 millimeter point-and-shoot cameras carry
retail prices ranging from $20-$50. Each camera in these lines are fully
motorized and has more sophisticated features than the lower priced lines,
including a telephoto lens, data back, automatic flash, red-eye reduction and
automatic film loading. These cameras are also sold in the Slim Line version.
The Company's most sophisticated line of point-and-shoot 35 millimeter cameras
carry retail prices ranging from $30-$60. In addition to features present in its
less expensive lines, these cameras have a two-step auto focus lens (the lens
automatically focuses in one of two settings) and several additional features,
including motor drive, automatic film loading, automatic flash, data back, twin
lenses, mid-roll switchable panorama/normal format and red-eye reduction.
Private Label. The Company manufactures, to customer specifications, 110 and 35
millimeter cameras (including single use cameras) under the private label brands
of its customers.
Accessories. The Company purchases and resells photographic accessories,
including flashes, vinyl pouches and carrying cases for its cameras.
Design. The Company's manufactured products, other than those acquired from
Keystone, are created, designed and engineered principally in Hong Kong. In
addition, during the fourth quarter of Fiscal 1995, the Company opened a
contract design studio in Japan. The Company expended approximately $1,722,000,
$598,000, and $1,021,000 in Fiscal 1996, 1995, and 1994, respectively, for
product design and development. The large increase in these costs in Fiscal 1996
was due to the significant development costs incurred with respect to new APS
single-use and conventional cameras, as well as new 35 millimeter single-use
cameras. The Company anticipates product development costs to continue to
increase in Fiscal 1997 as management continues to expand APS product lines.
Other Products. In Fiscal 1994, the Company ceased manufacturing certain
computer peripheral equipment manufactured on an OEM basis; however, revenues
from this arrangement were not significant in that year. In Fiscal 1995 the
Company discontinued the sale of certain non-camera products, with sales of
approximately $2,476,000 and $4,561,000 in Fiscal 1995 and 1994, respectively.
Suppliers, Raw Materials and Production
General. The Company owns or is the lessee under equipment finance leases of
substantially all the tools and equipment necessary to manufacture most of the
components used in its cameras. Numerous manufacturers and suppliers in the Far
East and other parts of the world supply the Company with components, materials
and film it does not manufacture.
Sourcing. From time to time, the Company purchases finished products from third
party manufacturers. The Company depends on non-affiliated suppliers for its
required glass lenses, motors, film and certain electronic components, such as
transistors and diodes. In the past, the Company has experienced, and may in the
future experience, difficulties in obtaining in a timely manner certain
components and film necessary for its finished products; however, the Company
believes that it is not dependent on any single supplier for any component or
film and that it could find alternate sources on relatively short notice at
prices competitive with those it currently pays.
Advance Commitments. To secure adequate production materials, components and
film, the Company must make substantial advance commitments to suppliers ranging
from one to six months prior to the receipt of firm orders from customers.
However, many of these commitments are subject to changes in numbers,
assortments or delivery dates. Although from time to time the Company has
experienced difficulties obtaining needed materials, components and film on a
timely basis, it has been able to operate under such conditions. The Company
believes these conditions to be standard in its industry.
Quality Control. The Company devotes substantial effort to quality control,
including testing components and raw materials when purchased or produced,
testing during the assembly process and final quality control testing of
finished products. The Company's terms with all of its United States customers
include the right to return defective merchandise for credit. Foreign customers
are permitted to exchange defective merchandise for the same product and the
Company believes those practices to be standard in its industry.
Dependence on Agreements with the PRC
General. The Company manufactures a majority of the components used in its
cameras and assembles all of its manufactured finished products in the PRC
7
pursuant to the PRC Agreements. FERO approval is required on all of the PRC
Agreements to ensure their enforceability. [See "Manufacturing--General."]
Operating Practices. The Company's PRC Agreements provide for the production and
manufacture of cameras at certain facilities in the PRC with labor supplied by
PRC Entities. The PRC Entities currently supply the Company with the use of two
assembly plants and approximately 1,800 workers to manufacture and assemble
cameras. During Fiscal 1996 the Company completed construction of a new factory
building on the Company leased land next to the other Company owned building,
and moved the manufacturing and assembling operations from the leased assembly
plants to the new factory and existing Company owned buildings. During Fiscal
1997 the Company anticipates completing the conversion of certain production
facilities in the Company leased land whereby the Company will no longer lease
manufacturing facilities from the PRC entity. [See "Item 2. Properties"].
Although a substantial number of the Company's workers are employees of the PRC
Entities, the Company is responsible for their food and housing and
substantially all of them live in Company maintained dormitories. The current
average cost per production line worker is approximately $85 per month including
room and board and the Company's payments to the PRC Entities allocable to the
provision of those workers. If any worker fails to work efficiently or to
improve after instruction, the Company has the right to request that the PRC
Entities replace that individual. The three facilities aggregate approximately
384,000 square feet. [See
8
"Manufacturing."]
PRC Taxes and Import/Export Duties. The Company has never paid any income or
turnover tax to the PRC on account of its business activities in the PRC.
Existing PRC statutes can be construed as providing for a minimum of 10% to 15%
income tax and a 3% turnover tax on the Company's business activities; however,
the PRC has never attempted to enforce such statutes. The Company has been
advised that the PRC's State Tax Bureau is reviewing the applicability of those
statutes to processing activities similar to those engaged in by the Company,
but it has not yet announced any final decisions as to the taxability of such
activities. After consultation with its tax advisors, the Company does not
believe that any tax exposure it may have on account of its operations in the
PRC will be material to its financial condition. The Company does not pay
import/export duties to the PRC but, as with any tax, there can be no assurance
that the Company will not be required to pay such duties in the future.
Other PRC Risks. If the PRC Entities fail to honor the PRC Agreements, the
Company believes that within a six month period it could resume production
activities elsewhere in the PRC through the use of sub contractor agreements
with other third party manufacturers. The Company is not able to estimate the
amount of time required to enter into a new PRC Agreement. In order to minimize
this risk, the Company obtained a land use certificate for the land on which the
Company owned plant is situated and to which it has obtained title. The Company
intends to expand operations on that property in Fiscal 1997 . [See "Item 2.
Properties"]. However, in addition to lost assets and revenues attributable to
the discontinuance of its operations at the Baoan County facilities, the Company
would likely experience some loss on account of such interruption, depending
upon where, and under what arrangements, the Company was able to resume
production. If, for any reason, the Company could not continue production in its
existing PRC locations, all manufacturing activities would cease for at least
six months until the Company was able to resume production elsewhere. If the
Company were required to move its production operations from the PRC, the
Company's profitability would be substantially impaired, its competitiveness and
market position would be materially jeopardized and there could be no assurance
that it would be able to profitably manufacture and distribute its products.
There is also a risk of expropriation of the Company's assets by the PRC and the
imposition of restrictions or embargoes on the export of finished products, or
the import of components and materials used in the Company's PRC operations. At
June 30, 1996, the net book value of Company assets in the PRC was approximately
$10,221,000. Such assets are insured against expropriation. The amount of
Company assets in the PRC is expected to increase as operations in that country
continues to grow. The Company maintains property and casualty insurance
covering the cost of Company owned and certain leased assets in its PRC
facilities. The Company also maintains political risk insurance on certain
equipment up to $4,000,000. If the Company were required to relocate and could
not remove the assets it owns or leases in the PRC, the cost of replacement of
such assets would be significantly higher than their book value.
Backlog
The Company's general practice is to fill orders within delivery dates required
by customers. Substantially all of the Company's cameras are produced in
accordance with specifications and production schedules determined by the
Company on the basis of projected sales and orders placed by its primary
customers. Production schedules for sales are determined in accordance with
customers' orders, and the Company's anticipation of the demand for its
products. The amount of unfilled orders at a particular time is affected by a
number of factors, including availability of finished inventory, manufacturing
and assembly capability and product shipments. Accordingly, the amount of
unfilled orders from period to period is not necessarily meaningful and may not
be indicative of actual shipments to be made to customers in any period.
9
Competition
The photographic products industry is highly competitive. As a manufacturer and
distributor of inexpensive cameras, the Company encounters substantial
competition from a number of firms, many of which have longer operating
histories, established markets and more extensive facilities. Many of the
Company's competitors have greater resources than the Company has or may
reasonably be expected to have in the foreseeable future. The Company considers
Vivitar, Ansco Photo Optical Products Corporation ("Ansco"), and the Achiever
Group as its chief competitors in United States markets. W. Haking Enterprises
Limited, the parent of Ansco, the Achiever Group, and several small Taiwanese
and Hong Kong companies are the Company's chief competitors in worldwide markets
other than the United States. The Company also competes with certain major film
manufacturers (including Eastman Kodak, Fuji and Konica) in the single use
camera market, primarily on the basis of product cost and responsiveness to
customer needs. The Company's competitive position is dependent upon its ability
to continue to produce in the PRC. [See "Dependence on Agreements with the
PRC."]
Considerations Relating to the Company's Business Outside of the United States
The Company conducts engineering, design, purchasing and certain distribution
and warehousing activities in Hong Kong.
Hong Kong Currency
Since 1983, the Hong Kong dollar has been pegged to the United States dollar at
an approximate rate of U.S.$1 = HK$7.73; however, there can be no assurance that
the exchange rate of the Hong Kong dollar will not fluctuate in the future.
Certain obligations under the PRC Agreements and the Company's Hong Kong
suppliers are paid in Hong Kong dollars.
Hong Kong 1997
The United Kingdom and Northern Ireland (the "United Kingdom") and the PRC have
agreed that effective July 1, 1997 the exercise of sovereignty over Hong Kong
will be transferred from the United Kingdom to the PRC. This agreement is
embodied in the Sino-British Joint Declaration on the Question of Hong Kong (the
"Joint Declaration") signed on December 19, 1984 which has been ratified by both
governments. Hong Kong is scheduled to become a Special Administrative Region
("SAR") of the PRC on July 1, 1997. The Joint Declaration provides that the Hong
Kong SAR shall be directly under the authority of the PRC, shall enjoy a high
degree of autonomy, except in foreign and defense affairs, and shall be vested
with executive, legislative and independent judicial power. It also provides
that the current social and economic systems in Hong Kong shall remain unchanged
for 50 years after June 30, 1997 and that Hong Kong shall retain its status as
an international financial center.
The Joint Declaration provides that the basic policies of the PRC regarding Hong
Kong and the elaboration of these policies in the Joint Declarations will be
stipulated in a Basic Law of the Hong Kong SAR (the "Basic Law"). The Basic Law
was adopted on April 4, 1990 by the PRC and is scheduled to take effect on July
1, 1997. It provides, in part, that "the socialist system and policies shall not
be practiced in the Hong Kong SAR, and the previous capitalist system and way of
life shall remain unchanged for 50 years."
In October 1992, Hong Kong Governor Christopher Patten announced a plan for
expanding democracy in Hong
10
Kong through electoral reforms prior to July 1, 1997 to ensure the "high degree
of autonomy" promised in the Joint Declaration. Representatives of the PRC
Government subsequently issued public statements that protested Governor
Patten's proposals. After more than a year of protest from PRC leaders, Hong
Kong's Legislative Council voted to adopt Governor Patten's proposals on June
30, 1994. In response, on August 31, 1994 the PRC issued a regulation to abolish
Patten's reform package immediately upon taking control of Hong Kong in July
1997.
On July 26, 1995, the Legislative Council voted to adopt legislation
establishing a new Court of Final Appeal in Hong Kong as the supreme judicial
body after the July 1997 reversion. While this tribunal may help insure the
stability of Hong Kong's commercial environment, the ultimate independence and
authority of this tribunal is uncertain. In addition, the PRC stated in August
1994 that it will abolish the Legislative Council once it takes control of Hong
Kong. In 1995, the PRC established a Preparatory Committee to serve as a
provisional legislature before the transfer. In June 1996, PRC officials
reiterated their pledge not to change Hong Kong's currency and financial system.
The Company cannot predict how the PRC will interpret and implement the Basic
Law and Joint Declaration, what actions the PRC may take in the future regarding
Hong Kong, and the effect any such action may have on the Company's business
activities in Hong Kong, or its operations or financial condition in general.
Importation of Products and Tax Considerations
The importation of camera products into the United States and other
jurisdictions in which Company products are sold is subject to numerous risks,
including non-Company related labor strikes, shipping delays, fluctuation in
currency exchange rates and import duties. There can be no assurance that the
United States, the PRC, Hong Kong or other countries will not in the future
impose trade restrictions which could adversely affect the Company's operations.
The United States duty on imported cameras of the type that the Company sells
from countries of origin which enjoy United States most favorable nation ("MFN")
status range from 3 to 4%. There are currently no United States import quotas on
the type of products manufactured and distributed by the Company. MFN status
entitles imports from the PRC to enter the United States subject to the same
rate of duty which applies to imports from other MFN countries. The PRC's
current MFN status expires on July 3, 1997. The President may recommend that MFN
status for the PRC be extended for successive 12 month periods, but the Company
can give no assurances or can make no predictions as to what actions the
President may take regarding the PRC's MFN status.
On May 20, 1996, the President announced his decision to renew the PRC's MFN
status until July 3, 1997. In addition, he reiterated his policy, first
announced in 1994, of separating MFN treatment for the PRC from most human
rights issues. However, the President noted that statutory requirements
concerning free emigration would continue to apply as a prerequisite for MFN
status for the PRC. In addition, the ban imposed by the President in 1994 on the
importation of munitions from the PRC and existing U.S. sanctions imposed in
view of continuing human rights abuses in that country remain in effect. None of
the extended U.S. sanctions relates to the importation of commercial products
from the PRC.
Under current law, within 60 days after an extension of MFN status takes effect,
Congress may disapprove the extension through the adoption of and transmittal of
a joint resolution. The President may veto such resolution subject to provisions
contained in the Trade Act of 1974 (the "Trade Act"). No such resolution was
passed by Congress in 1996. However, the House of Representatives passed a
Resolution that was highly critical of some Chinese practices, and several other
provisions critical of the PRC were added to other legislative measures. None of
theses measures has been adopted by Congress as legislation. Moreover, neither
the Resolution nor the
11
provisions would affect the importation of products from the PRC. The
Administration has pledged to work with like-minded members of Congress to
extend MFN permanently to the PRC. The Company cannot predict whether MFN status
for the PRC will remain in effect or whether MFN renewal will continue to be
reconsidered annually.
As a result of trade disputes between the United States and the PRC, the United
States Trade Representative ("USTR") has published lists of products imported
from the PRC that are potentially subject to increased tariffs in the event the
trade dispute is not resolved. At the present time, there are no pending trade
disputes in connection with which such lists have been published. The United
States has published such a list (which list did not include cameras) in
connection with a dispute over intellectual property rights protection in the
PRC, but the two sides settled that dispute on February 26, 1995 by reaching a
comprehensive agreement designed to ensure greater protection for U.S.
intellectual property in the PRC. The United States revisited the intellectual
property rights issue in 1996, publishing a proposed retaliation list which
focused on PRC textile exports and did not include cameras, before reaching an
accord on June 17, 1996, to strengthen enforcement of the 1995 agreement.
In addition, the United States is currently monitoring various PRC practices,
including trade, investment, and government procurement, as well as the PRC's
compliance with various multilateral and bilateral agreements. The Company
cannot predict whether the Untied States will take future trade actions against
the PRC that may result in increased tariffs against PRC products, including
products imported by the Company.
The PRC is currently engaged in talks concerning its possible accession to the
World Trade Organization ("WTO"). Successful conclusion of these talks could
result in the application of comprehensive rules to the PRC's trade with other
WTO members, including the United States. However, the Company cannot predict
when such talks may conclude, or when such rules may come into effect.
Furthermore, PRC accession to the WTO would not necessarily eliminate the need
for successive yearly determinations by the United States regarding the PRC's
MFN status.
Possible United States Taxation of Foreign Earnings
Concord HK. Concord HK is a controlled foreign corporation ("CFC") for United
States tax purposes. Under certain circumstances, a United States shareholder of
a CFC is required to include some or all of the CFC's earnings in its own
taxable income as if the CFC had distributed those earnings as a dividend. The
possibility of deferring inclusion of Concord HK's earnings in the Company's
taxable income depends on the ability of the Company and Concord HK to meet the
requirements of several provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as on the absence of adverse future tax
legislation. The Company believes it has met the requirements of the Code which
permit it to defer taxation on Concord HK's past earnings. United States
taxation of Concord HK's future earnings is dependent, among other things, upon
the nature of Concord HK's operations and the sources of its earnings in the
periods in which such earnings are realized.
Certain provisions of the Code would tax the Company currently on Concord HK's
"foreign base company income" if such income is equal to or greater than the
lesser of $1,000,000 or 5% (the "De Minimis Amount") of Concord HK's gross
income. "Foreign base company income" is defined to include income derived from
certain types of activities, including "foreign personal holding company income"
and "foreign base company sales income." Although Concord HK does not believe
that it earns foreign base company sales income, it is possible that a portion
of its earnings might be attributable to selling activities, as opposed to
manufacturing or production activities, and thereby result in some foreign base
company sales income. Although Concord HK probably would have foreign base
company income in excess of the De Minimis Amount, the Company does not believe
that the
12
United States income tax on such income (even if it also includes some foreign
base company sales income) in excess of available foreign tax credits would
represent a substantial percentage of its total income.
Another provision of the Code would tax the Company currently if Concord HK
makes certain investments in United States property, as specifically defined. An
investment in such property includes, among other things, ownership of tangible
property in the United States, or stock or obligations of United States persons,
or a guarantee of an obligation of a United States person. There is an exception
to the rule treating obligations of United States persons as constructive
dividends for obligations arising in connection with the sale of property, such
as trade accounts payable, if the amount of the obligation is not commercially
excessive by reference to transactions between unrelated persons. The Company
does not believe that the Company's obligations to Concord HK arising from the
purchase of Concord HK products are in an amount or on terms such as would cause
such obligations to be deemed commercially excessive, and the Company will
attempt to secure financing without requiring Concord HK to guarantee it.
If Concord HK's earnings are taxed to the Company as deemed dividends prior to
the time that the earnings actually are remitted to the Company as dividends,
the Company generally can claim a foreign tax credit on the deemed dividends
just as if actual dividends had been paid. If and to the extent the Company is
subjected to United States income tax on such deemed dividends, Concord HK may
subsequently distribute an amount equal to such previously taxed income without
additional tax consequences to the Company.
If Concord HK distributes a portion of its earnings to the Company in excess of
the earnings, if any, that have already been taxed to the Company as deemed
dividends, such dividends will constitute taxable income. If it so elects, the
Company generally will be entitled to a foreign tax credit to the extent that
the distributed earnings have borne an income tax in Hong Kong.
The Company's net operating losses (and a carry forward of net operating losses)
will be applied to reduce the Company's current taxable income and the federal
income tax on any remaining taxable income will be reduced by foreign tax
credits, subject to statutory limitations on such credits.
Other Subsidiaries. Concord Canada, Concord UK, Concord France, Concord Germany
and Concord Panama are also CFC's to which the United States tax laws as
discussed above are applicable. Due to the nature of their operations, some of
those CFC's may earn or generate foreign base company income above the De
Minimis Amount. However, the Company does not believe that the United States tax
on foreign base company income generated by the Company's CFC's in excess of
available foreign tax credits would represent a substantial percentage of its
total income. It is not expected that those foreign subsidiaries will make
investments in United States property and no United States taxes have been
provided on the earnings of those subsidiaries since management intends to
permanently reinvest such earnings abroad.
Trademarks and Patents
The Company owns trademarks on the CONCORD, KEYSTONE, Funshooter, and LE CLIC,
names for cameras sold in the United States and numerous foreign countries. In
addition, the Company owns the trademark ARGUS in numerous countries other than
in the United States and Mexico. As part of its acquisition of Keystone, the
Company purchased several patents used in its Keystone cameras. In addition, the
Company was granted a United States patent for its data imprinting system and it
has applied for United States and Japanese patent protection for certain camera
related processes and anticipates filing for patent protection on those
processes in other countries. Concord HK has applied for United States and
foreign patent protection for a film drive system
13
used in certain cameras it produces. The Company believes that its
competitiveness and market share are not dependent on the ultimate disposition
of its patent applications.
Employees
On June 30, 1996, the Company had 136 employees, 29 in the United States, 5 in
Germany, 6 in Canada, 76 in Hong Kong and the PRC, 1 in Japan, 2 in France, 10
in the UK, and 7 in Panama. Sixty one Company employees are in executive,
administrative or clerical capacities, 15 in direct merchandising and sales, 20
in warehouse and shipping and 40 in engineering and design. No Company employee
is represented by a union. The PRC Entities currently provide the Company with
approximately 1,800 workers at its PRC facilities. To date, the Company has not
had any of its operations interrupted due to labor disputes and it considers its
working relationship with employees and workers to be good.
Item 2. Properties.
United States Offices and Warehouses. The Company's principal offices containing
the Company's domestic warehouse and administrative offices are in a 35,000
square foot facility located at 35 Mileed Way, Avenel, N.J. The Company's lease
on this facility provides for a rent of approximately $13,000 per month and
expires in December of 1997.
Hong Kong. The Company owns one floor and leases one floor constituting
approximately 13,000 square feet of warehouse and business space at Fortei
Building, 98 Texaco Road, Tsuen Wan, New Territories, Hong Kong at a cost of
approximately $6,600 per month, including rent and maintenance.
Other Jurisdictions. The Company leases warehouse and/or office space in France,
Canada, Germany, UK, Hungary and Panama in connection with the activities of its
subsidiaries in those jurisdictions.
PRC--Operations. Cameras and components are manufactured and assembled at three
manufacturing facilities located in Baoan County, Shenzhen Municipal, PRC. Two
of the manufacturing facilities are leased from a PRC Entity (the "Leased
Facilities") for which the Company pays rent of approximately $21,000 per month.
The other manufacturing facility is owned by the Company (the "Company
Facility"). The Leased Facilities and the Company Facility each have a related
employee dormitory (the "Related Dormitory"). The aggregate square footage of
the Leased Facilities, Company Facility and their respective Related Dormitories
is approximately 384,000 square feet.
In Fiscal 1996, the Company completed construction of an additional factory
building and commenced the conversion of the Company owned dormitory to office,
administrative space, engineering facilities, factory space for pilot runs, and
living quarters for foreign employees on the same plot of land as the current
Company facility (the "Addition") to accommodate increased production and to
facilitate the consolidation of the Leased Facilities into the Company Facility.
The Company also completed certain improvements to the new leased dormitory in
Fiscal 1996. In connection with these construction activities in China, the
Company anticipated incurring costs of approximately $1,850,000. At June 30,
1996, approximately $1,294,000 of that amount had been incurred. The Company
anticipates incurring approximately $556,000 of additional construction costs in
Fiscal 1997 for the completion of the Addition and the conversion of the current
Company owned dormitory to office, administrative space, engineering facilities,
factory space for pilot runs, and living quarters for foreign employees. Such
cost will be amortized over the expected useful life of the Addition once
completed and placed in service, which is expected to be during Fiscal 1997. If
production requirements continue to increase, the Company may be required to
provide for an additional dormitory.
14
The Company has Land Use Agreements (the "Land Use Agreements") with PRC
Entities for the use of PRC Land (the "PRC Land") for the Company Facility and
the Addition. Under the Land Use Agreements, which have FERO approval, the
Company obtained land use rights for approximately 8 acres of land from a PRC
Entity for the Company Facilities, the Addition and construction of factories,
dormitories and other ancillary buildings. The Company has the right to use the
PRC Land through 2042 (the "Term"). Under the Land Use Agreements, the Company
paid approximately $825,000 in fees and related expenses to obtain the Land Use
Rights Certificate from the PRC Entity. The Company is responsible for
stipulated land management fees and for the installation of certain utilities.
The Land Use Agreements permit the Company to transfer, lease or mortgage its
rights under the Land Use Agreements and in the buildings developed thereunder
during the Term. At the end of the Term, all facilities on the PRC Land will
belong to the PRC Entity and the Company shall have the right to lease the PRC
Land and facilities thereon at the prevailing rent under regular lease terms.
Item 3. Legal Proceedings.
Jack C. Benun. On November 18, 1994 the Company filed a demand for arbitration
in New Jersey, for money damages in excess of $1.5 million, against Jack C.
Benun ("Benun"), its former chief executive officer who was discharged for cause
in Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company including the misappropriation of funds from the Company. Benun has
submitted a counterclaim in which he alleges among other things a wrongful
termination of his employment by the Company. The Company is vigorously pursuing
its action as well as defending the counterclaim. The matter is currently in
discovery. The Company has reserved its rights under any other claims it may
have against Mr. Benun. [See below "Purported Class Action"]
Purported Class Action. On February 22, 1995, the Company was served with a
complaint purporting to be a class action on behalf of purchasers of the
Company's common stock. On September 5, 1995, plaintiffs in response to motions
to dismiss by the Company and the individual defendants, filed a motion to file
an amended complaint. The complaint and the amended complaint were predicated
upon the wrongdoing of Benun and the failure of the Company and the individual
members of the Board of Directors to properly address such actions. By order
dated April 1, 1996 the matter was dismissed for lack of diligent prosecution.
Fuji. On October 19, 1995, the Company was served with a summons and complaint
in an action styled Fuji Photo Film Co., Ltd. ("Fuji") v. Concord Camera Corp.,
filed in the United States District Court for the Southern District of New York.
The action was for patent infringement in connection with certain of the
Company's single-use cameras. The Company answered the complaint and served its
counter-claim seeking a declaratory judgement that the Fuji patents are invalid,
unenforceable and not infringed by the Company. Fuji and the Company entered
into a License Agreement effective January 1, 1996, which had no material affect
on the Company's business. A Stipulation and Order of Dismissal was entered on
July 15, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
15
PART II
Item 5. Market for Company's Common Equity and Related Shareholder Matters.
The Company's common stock, no par value per share ("Common Stock"), is traded
on the NASDAQ National Market System under the symbol LENS. The approximate high
and low bid prices for the shares tabulated below, are as reported by the NASDAQ
National Market System and represent interdealer quotations which do not include
retail mark-ups, mark-downs or commissions. They do not necessarily represent
actual transactions. As of September 13, 1996, there were 10,944,026 shares of
Common Stock ("Common Shares") outstanding, held by 1,225 record holders. There
are in excess of 3,300 beneficial holders of the Company's Common Stock.
Period Bid Price
- -------- ---------
Quarter Ended High Low
- ------------- ---- ---
September 30, 1994 4 5/8 2 1/4
December 30, 1994 3 1/2 1 7/8
March 31, 1995 3 3/4 2 1/8
June 30, 1995 4 1/2 2 1/2
September 30, 1995 6 5/8 4 1/8
December 30, 1995 6 3/8 3 5/16
March 31, 1996 5 1/16 3 1/16
June 30, 1996 3 11/16 2 5/8
The Company has never paid cash dividends and has no present intention to pay
cash dividends.
16
Item 6. Selected Financial Data.
Twelve Months Ended June 30,
1996 1995 1994 1993 1992
(Dollars in thousands except per share amounts)
STATEMENT OF INCOME DATA:
Net Sales $66,782 $62,139 $54,817 $59,131 $57,372
------- ------- ------- ------- -------
Cost of Product sold 49,293 41,984 37,684 40,081 37,797
------ ------ ------- ------- -------
Gross Profit 17,489 20,155 17,133 19,050 19,575
Operating expenses 19,173 18,685 17,734 26,239 22,592
------ ------ ------- ------- -------
1,684 1,470 (601) (7,189) (3,017)
Other (income) expenses, net (30) 154 221 147 (498)
----- ---- ---- ---- ------
Income (loss) from operations before income ta(1,654) 1,316 (822) (7,336) (2,519)
Inco me taxes 80 107 123 298 140
--- ---- ---- ---- ----
Net income (loss) (1,734) 1,209 (945) (7,634) (2,659)
======= ===== ====== ======== =======
Earnings (loss) per share ($0.16) 0.12 (0.09) (0.99) (0.44)
======= ==== ====== ======= ======
BALANCE SHEET DATA:
Working Capital $16,696 $17,432 $21,115 $14,032 $ 5,201
======= ======= ======== ======= =======
Total assets $49,850 $50,189 $48,182 $46,718 $49,724
======= ======= ======= ======= =======
Long-term debt $2,379 $ 388 $ 3,998 $ 2,493 $ 4,129
====== ===== ======= ======= =======
Total stockholders' equity $30,478 $32,264 $31,055 $26,228 $17,590
======= ======= ======= ======== =======
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto presented
elsewhere in this Report.
Results of Operations
The following table sets forth the relationship between total sales and certain
expenses and earnings items for the three years ended June 30, 1996, 1995 and
1994.
17
Year Ended June 30,
1996 1995 1994
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Product Sold 73.8 67.6 68.7
---- ----- ----
Gross Profit 26.2 32.4 31.3
Operating Expenses 28.7 30.1 32.4
Other Expense, net .0 .2 .4
------ -------- -------
Income (loss) before income taxes (2.5) 2.1 (1.5)
----- --- --------
Income taxes 0.1 .2 .2
--------- -------- -------
Net income (loss) (2.6%) 1.9% (1.7%)
========== ======= ========
Fiscal 1996 Compared to Fiscal 1995
Revenues
Total revenues for Fiscal 1996 and 1995 were approximately $66,782,000 and
$62,139,000, respectively, an increase of approximately $4,643,000 or 7.5%. The
increase, which is net of decreases in non-camera revenues and traditional
camera revenues is principally due to the growth in sales of single-use camera
models and an increase in OEM revenues. Revenues from OEM sales in Fiscal 1996
increased by approximately $12,677,000 or 93.2% to $26,274,000 in Fiscal 1996
from $13,597,000 in Fiscal 1995, while sales to other customers decreased by
approximately $5,559,000 or 12.1% to $40,508,000 in Fiscal 1996 from $46,067,000
for Fiscal 1995. In Fiscal 1996 there were no non-camera revenues compared to
approximately $2,475,000 of such sales in Fiscal 1995. The increase in OEM sales
is attributable to increased purchases from the Company's one new and two
preexisting OEM customers. The Company is engaged in negotiations with other
original equipment manufacturers which, if successful, in certain instances
could result in a substantial increase in sales of the Company's products on an
OEM basis. There can be no assurance that such negotiations will be successfully
consummated.
Fiscal 1996 sales included sales of approximately $43,553,000 or 65.2% of total
sales of the Company's single use camera product line, as compared to
$27,107,000 or 43.6% in Fiscal 1995, an increase of $16,446,000 or 60.7%. The
Company believes that sales of its single use camera product line will continue
to grow in Fiscal 1997.
Sales by Concord HK in Fiscal 1996 and 1995 were approximately $42,442,000 and
$27,910,000, respectively, an increase of approximately $14,532,000 or 52.1%.
The increase is due to the successful implementation of FOB Hong Kong sales
programs with the Company's larger customers and a change in the point of sale
from the United States to Hong Kong during the quarter ended December 31, 1994
for one of the Company's customers. The Company believes that sales in the Far
East will continue to represent a significant percentage of total sales.
Consolidated sales of Concord Americas for Fiscal 1996 and 1995 were
approximately, $15,073,000 and $24,951,000, respectively, a decrease of
approximately $9,878,000 or 39.6%. Net sales for Fiscal 1995 included
18
OEM sales with point of sale out of the U.S. of approximately $2,225,000 and
non-camera revenues of approximately $2,475,000. If the foregoing sales were
eliminated from Fiscal 1995 sales, comparative traditional camera sales in the
Americas for Fiscal 1996 and 1995 would have been $15,073,000 and $20,250,000,
respectively, a decrease of approximately $5,178,000 or 25.6%. In addition,
certain Concord Americas customers decreased merchandise purchases on an FOB
Hong Kong basis from Concord HK, which merchandise was previously purchased from
Concord Americas. During Fiscal 1996 and 1995, Concord Americas customers
purchased approximately $11,151,000 and $12,295,000, respectively, from Concord
HK, a decrease of approximately $1,144,000 or 9.3%. Sales to Concord Americas
customers would have decreased by 19.4%, if this decrease were added to Fiscal
1996 Concord Americas sales. This decrease in traditional camera sales reflects
a slower retail environment in the Americas, a reduction in shipments to certain
customers that, in managements opinion, were not financially stable in Fiscal
1996, and an aging product line of certain 35 mm models. [See "Item 1. Products
35 millimeter models"]
Consolidated sales of Concord Europe for Fiscal 1996 and 1995, were
approximately $9,267,000 and $9,278,000, respectively. In addition, certain
European customers increased merchandise purchases on an F.O.B. Hong Kong basis
from Concord HK. During Fiscal 1996 and 1995 European customers purchased
approximately $4,632,000 and $2,491,000, respectively, from Concord HK, an
increase of approximately $2,141,000 or 86.0%. Sales to European customers would
have increased by 18.1% if this increase were added to 1996 European sales. This
increase is primarily attributable to sales to new customers by the Company's
expanded European sales and marketing force. Concord Europe is now in a position
to better service its customers in a growing market place and increase its
market shares in Europe.
Gross Profit
Gross profit, expressed as a percentage of sales, decreased to 26.2% For Fiscal
1996 from 32.4% for Fiscal 1995. This decrease was primarily due to provisions
for inventory and related items of approximately $3,035,000 on certain 35
millimeter camera products and related inventory, an increase in product
development costs of approximately $1,124,000 to approximately $1,722,000 in
Fiscal 1996 from approximately $598,000 in Fiscal 1995, and in part to the sale
of products with lower gross profit margins, partially offset by improved
manufacturing efficiencies. Absent this provision and the increase in product
development costs, 1996 gross profit would have been approximately 32.4%. The
Company anticipates product development costs to continue to increase in Fiscal
1997 as management continues to expand Advanced Photo System product lines.
Operating Expenses
Operating expenses, consisting of selling, general and administrative and
financial expenses, increased to $19,173,000 in Fiscal 1996 from $18,685,000 in
Fiscal 1995, an increase of approximately $488,000 or 2.6%. As a percentage of
sales, operating expenses decreased to 28.7% in Fiscal 1996 from 30.1% in Fiscal
1995.
Selling expenses increased to $7,571,000 or 11.3% of net sales in Fiscal 1996
from $7,298,000 or 11.7% of net sales in Fiscal 1995. The increase was primarily
attributable to the Company's increased sales volume and increases in freight
costs, royalty expenses, and promotion allowances, net of decreases in
compensation, commission and marketing expenses.
General and Administrative expenses increased to $9,396,000 or 14.1% of net
sales in Fiscal 1996 from $8,110,000 or 13.1% of net sales in Fiscal 1995. The
increase is primarily attributable to the termination of joint ventures in
Hungary and Russia, increases in the provision for doubtful accounts of
approximately $585,000 as a result of the bankruptcy filings of major retailers
in the Americas and the financial instability of certain
19
customers in Europe, and increases in costs associated with building the
necessary infrastructure to support the growth in volume.
Financial expenses increased to $1,489,000 or 2.2% of net sales in Fiscal 1996
from $1,413,000 or 2.3% of net sales in Fiscal 1995. Such increase was primarily
the result of a increase in interest rates and average debt outstanding during
Fiscal 1996, net of a reduction in loan costs and guarantee fees.
Litigation and settlement costs in Fiscal 1996 and 1995 were approximately
$718,000 and $1,864,000, respectively. In Fiscal 1996, these matters consisted
primarily of the demand for arbitration and other litigation against Jack C.
Benun, a purported class action, and legal fees related to a litigation in Hong
Kong.
Other (income) expense, Net
Other (income) expense, net, includes interest income, gains and losses from the
sale of fixed assets, and foreign exchange gains and losses, net of directors
fees and certain public relations costs.
With respect to foreign exchange gains and losses, the Company operates on a
worldwide basis and its results may be adversely or positively affected by
fluctuations of various foreign currencies against the U.S. Dollar,
specifically, the Canadian Dollar, German Mark, British Pound Sterling,
Hungarian Forints, French Francs, and Japanese Yen. Each of the Company's
foreign subsidiaries purchases its inventories in U.S. Dollars and sells them in
local currency, thereby creating an exposure to fluctuations in foreign currency
exchange rates. Certain components needed to manufacture cameras are priced in
Japanese Yen. The translation from the applicable currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The impact of foreign exchange
transactions is reflected in the profit and loss statement, which in Fiscal 1996
included a gain of approximately $107,000.
In Fiscal 1996, the Company's hedging activities were immaterial and, at June
30, 1996 there were no forward exchange contracts outstanding.
Income Taxes
As of June 30, 1996, Concord had net operating loss carry forwards for U.S. tax
purposes of approximately $14,653,000 which expire as follows: $644,000 in 2005;
$ 16,000 in 2006; $ 444,000 in 2007; $6,630,000 in 2008; $2,770,000 in 2009; and
$4,149,000 in 2010. Net operating losses for state tax purposes begin to expire
in 1997. Net operating loss carryforwards cannot be used to offset certain
alternative minimum tax elements under the Internal Revenue Code.
The income tax provision for Fiscal 1996 of approximately $80,000 is comprised
of a deferred tax benefit of approximately ($42,000) and a current provision of
approximately $122,000. The Company's provision for income taxes for Fiscal 1996
is primarily related to the earnings of the Company's United States operations
and the settlement of certain German tax matters, net of benefits relating to
net operating loss carryforwards and overpayments/refunds on the Company's other
foreign subsidiaries.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate
20
taxable income in these jurisdictions is more certain.
Net Income (Loss)
As a result of the matters described above, the Company had a net loss of
approximately $1,734,000 in Fiscal 1996, compared to net income of approximately
$1,209,000 in Fiscal 1995, a decrease of approximately $2,943,000.
Fiscal 1995 Compared to Fiscal 1994
Revenues
Total revenues for Fiscal 1995 and 1994 were approximately $62,139,000 and
$54,817,000, respectively, an increase of approximately $7,322,000 or 13.4%. The
increase, which is net of decreases in non-camera revenues and revenues from
promotional sales, is due to the Company's European expansion, continued
acceptance of the company's new products, principally the single-use and
slim-line camera models, and an increase in OEM revenues. Revenues from
traditional camera sales and OEM sales increased by approximately $5,359,000 or
13.2% and $6,948,000 or 104.5%, respectively, for Fiscal 1995 to $46,067,000 and
$13,596,000, respectively, from $40,708,000 and $6,648,000, respectively, for
Fiscal 1994. Included in net sales during Fiscal 1995 were approximately
$2,476,000 of non-camera sales and no revenues from one time promotional sales
compared to approximately $4,561,000 and $2,900,000, respectively, of such sales
in Fiscal 1994. Non-camera sales were substantially discontinued by the Company
as of the end of the quarter ended September 30, 1994. The increase in OEM sales
is attributable to contract obligations and increased purchases from the
Company's preexisting OEM customer and from sales to a new OEM customer.
Fiscal 1995 sales included sales of approximately $27,107,000 or 43.6% of total
sales of the Company's single use camera product line, as compared to
$19,541,000 or 35.6% in Fiscal 1994, an increase of $7,566,000 or 38.7%. The
Company believes that sales of its single use camera product line will continue
to grow in Fiscal 1996.
Sales by Concord HK in Fiscal 1995 and 1994 were approximately $27,910,000 and
$13,289,000, respectively, an increase of approximately $14,621,000 or 110.0%.
The increase is due to the continued acceptance of the Company's new products,
principally the single-use and slim-line camera models and the successful
implementation of FOB Hong Kong sales programs with the Company's larger
customers and a change in the point of sale from the United States to Hong Kong
during the quarter ended December 31, 1994. The Company effectuated a change in
the OEM point of sale in order to secure an additional working capital line from
the Bank of East Asia, New York [See "Bank of East Asia, New York"]. Payment of
FOB sales are primarily by letter of credit.
Sales by the Company's United States operation in Fiscal 1995 and 1994 were
approximately $20,161,000 and $29,014,000, respectively, a decrease of
approximately $8,853,000 or 30.5%. United States net sales for Fiscal 1995 and
1994 included OEM sales with point of sale out of U.S. of approximately
$2,225,000 and $6,648,000, respectively, a decrease of approximately $4,423,000
or 66.5%; non-camera revenues of approximately $2,476,000 and $4,561,000,
respectively, a decrease of approximately $2,085,000 or 45.7%; and no revenues
from a one time promotional sale in Fiscal 1995 as compared to $2,900,000 for
Fiscal 1994. If the foregoing sales were eliminated from U.S. operations from
each of Fiscal 1995 and Fiscal 1994 it would reflect an increase in traditional
camera sales in the United States for Fiscal 1995 of approximately $555,000 or
3.7% over such sales for Fiscal 1994. In addition, certain United States
customers increased merchandise purchases on an FOB
21
Hong Kong basis from Concord HK, which merchandise was previously purchased from
Concord in the United States. During Fiscal 1995 and 1994, United States
customers purchased approximately $11,914,000 and $7,478,000, respectively, from
Concord HK, an increase of approximately $4,436,000 or 59.3%. If this increase
were added to Fiscal 1995 U.S. sales, sales to U.S. customers would have
increased by 22.3%.
Sales by Concord Panama into select areas of Central and South American markets
for Fiscal 1995 and 1994 were approximately $1,824,000 and $1,957,000,
respectively, representing a decrease of approximately $133,000 or 6.8%.
Sales by Concord Canada for Fiscal 1995 and 1994 were approximately $2,966,000
and $3,701,000, respectively, representing a decrease of approximately $735,000
or 19.9%. The decrease was primarily a result of the reduction of non-camera
revenues, the successful implementation of certain sales programs with the
Company's larger customers which are on an FOB Hong Kong basis, and the
depressed economic conditions of the Canadian market.
Consolidated sales of Concord Europe, for Fiscal 1995 and 1994, were
approximately $9,278,000 and $6,856,000, respectively, an increase of
approximately $2,422,000 or 35.3%. In addition, certain European customers
increased merchandise purchases on an F.O.B. Hong Kong basis from Concord HK.
During Fiscal 1995 and 1994 European customers purchased approximately
$2,491,000 and $1,886,000, respectively, from Concord HK, an increase of
approximately $605,000 or 32.1%. If this increase were added to 1995 European
sales, sales to European customers would have increased by 34.6%. During the
first quarter of Fiscal 1994, the Company formed Concord Hungary which had sales
of approximately $105,000 in the fourth quarter of Fiscal 1994. During the
quarter ended June 30, 1994, the Company formed Concord France which commenced
operations on July 1, 1994. Sales by Concord Hungary and Concord France were
$379,000 and $1,817,000, respectively, during Fiscal 1995. After giving effect
to the sales by the new subsidiaries, sales by Concord Europe increased by
approximately $331,000 or 4.8%. This increase is primarily attributable to sales
to new customers by the Company's increased European Sales and Marketing force.
Sales in this region are improving, but are still affected by the sluggish
economic conditions in the Region.
Gross Profit
Gross profit, expressed as a percentage of sales, increased to 32.4% for Fiscal
1995 from 31.3% for Fiscal 1994. This increase was primarily due to improved
control over costs, production and inventory levels during the past fiscal year.
Operating Expenses
Operating expenses, consisting of selling, general and administrative and
financial expenses, increased to $18,685,000 in Fiscal 1995 from $17,734,000 in
Fiscal 1994, an increase of $951,000 or 5.4%. As a percentage of sales,
operating expenses decreased to 30.1% in Fiscal 1995 from 32.4% in Fiscal 1994.
Selling expenses increased to $7,298,000 or 11.7% of net sales in Fiscal 1995
from $5,569,000 or 10.2% of net sales in Fiscal 1994. The increase was primarily
attributable to the Company's expansion and enhancement of the worldwide sales
force including increases in sales salaries, sales commissions, co-operative
advertising expenses, marketing and trade show related expenses.
General and Administrative expenses decreased to $8,110,000 or 13.1% of net
sales in Fiscal 1995 from $9,123,000 or 16.6% of net sales in Fiscal 1994. The
decrease is primarily due to cost control on a worldwide
22
basis, which includes but is not limited to, a reduction in officer salaries and
bonuses, administrative salaries, related payroll expenses, rent and engineering
expenses, net of approximately $250,000 in increased expenses attributable to
opening the two new subsidiaries. [See "Revenues"]
Financial expenses decreased to $1,413,000 or 2.3% of net sales in Fiscal 1995
from $1,889,000 or 3.5% of net sales in Fiscal 1994. Such decrease was primarily
a result of a reduction in average debt outstanding during Fiscal 1995, and a
reduction in loan costs and guarantee fees.
Litigation and settlement costs in Fiscal 1995 and 1994 were approximately
$1,864,000 and $1,153,000, respectively. The Company incurred significant legal
expenses and settlement costs in connection with non-operating matters,
primarily the demand for arbitration against Jack Benun, the Purported Class
Action, the Roland Kohl litigation, the Argus Settlement, and the SEC
Investigation. [See "Item 3. Legal Proceedings."
above]
Other Expense, Net
Other expense, net includes directors fees, certain public relations costs, and
foreign exchange gains and losses net of interest income and gains from the sale
of fixed assets.
With respect to foreign exchange gains and losses, the Company operates on a
worldwide basis and its results may be adversely or positively affected by
fluctuations of various foreign currencies against the U.S. Dollar,
specifically, the Canadian Dollar, German Mark, British Pound Sterling,
Hungarian Forints, French Francs, and Japanese Yen. Each of the Company's
foreign subsidiaries purchases its inventories in U.S. Dollars and sells them in
local currency, thereby creating an exposure to fluctuations in foreign currency
exchange rates. Certain components needed to manufacture cameras are priced in
Japanese Yen. The translation from the applicable currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The impact of foreign exchange
transactions is reflected in the profit and loss statement which in Fiscal 1995
included a loss of approximately $95,000.
In Fiscal 1995, the Company's hedging activities were immaterial and, at June
30, 1995 there were no forward exchange contracts outstanding.
Income Taxes
The income tax provision for Fiscal 1995 of $106,990 is comprised of deferred
taxes of $12,515 and a current provision of $94,475. The Company's provision for
income taxes for Fiscal 1995 is primarily related to the earnings of the
Company's Far East operations, net of benefits relating to overpayments/refunds
on the Company's other foreign Subsidiaries.
As of June 30, 1995, Concord had net operating loss carry forwards for U.S. tax
purposes of approximately $14,732,000 which expire as follows: $1,586,000 in
2005; $16,000 in 2006; $444,000 in 2007; $6,630,000 in 2008 and $2,770,000 in
2009, and $3,280,000 in 2010. Losses for state tax purposes begin to expire in
1997.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate
23
taxable income in these jurisdictions is more certain.
Net Income (Loss)
As a result of matters described above, the Company had net income of
approximately $1,209,000 in Fiscal 1995, compared to a net loss of approximately
$945,000 in Fiscal 1994, a turnaround in net income of $2,154,000.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of $16,696,000 as compared to
$17,432,000 at June 30, 1995. Cash flow provided by operating activities was
approximately $1,022,000 for the fiscal year ended June 30, 1996 compared to
$5,088,000 for the fiscal year ended June 30, 1995. Capital expenditures,
excluding assets financed under capital leases, for the fiscal year ended June
30, 1996 and 1995 were approximately $2,531,000 and $2,261,000, respectively.
The Company's principal funding requirement has been, and is expected to
continue to be, the financing of accounts receivable and inventory.
The Bank of East Asia, Limited New York ("BOEA NY")
On December 20, 1994, the Company obtained a one year, $1,500,000 revolving
credit facility with BOEA NY. On September 20, 1995, the Company executed an
amendment to its revolving line of credit with the BOEA NY to increase the
credit facility to $3,000,000. The facility has also been extended to December
19, 1996. The BOEA NY Facility is secured by certain accounts receivable of the
Company's Hong Kong operations and bears interest at 2% above BOEA NY's prime
lending rate, which was 8.25% at June 30, 1996. Availability under the BOEA NY
Facility is subject to advance formulas based on eligible accounts receivable
with no minimum borrowing. At June 30, 1996, approximately $1,696,000 was
outstanding and classified as short-term debt under the BOEA NY Facility.
The CIT Group/Credit Finance, Inc ("CIT")
The Company has a $5,000,000 credit facility with CIT (the "CIT Facility") which
expires on May 31, 1997. The CIT Facility is secured by accounts receivable,
inventory and other related assets of the Company's United States operations and
bears interest at 2% above CIT's prime lending rate, which was 8.25% at June 30,
1996. Availability under the CIT Facility is subject to advance formulas based
on eligible inventory and accounts receivable with minimum borrowing of
$2,000,000. At June 30, 1996, approximately $1,853,000 was outstanding and
classified as short-term debt under the CIT Facility.
Bank of East Asia, Limited ("BOEA")--Hong Kong
Concord HK has a credit facility (the "BOEA Facility") with BOEA that provides
Concord HK with up to $6,900,000 of financing as follows: letters of credit and
standby letters of credit up to $2,825,000, overdraft and packing loans of up to
$3,600,000 and an installment loan of $475,000. The installment loan was
utilized in part to repay the outstanding mortgage obligation on the Hong Kong
office property to the Bank of China. [See "Note 8 - Long-term Debt"] As of June
30, 1996, approximately $5,338,000 was utilized and approximately $1,087,000 was
available under the BOEA Facility. Approximately $2,820,000 of the total
$5,338,000 utilized, was in the form of trade finance, including but not limited
to import letters of credit. The BOEA Facility, which is payable on demand,
bears interest at 2% above BOEA's prime lending rate for letters of credit and
2.25%
24
above BOEA's prime lending rate for overdraft and packing loans. At June 30,
1996 BOEA's prime lending rate was 8.25%. In connection with the BOEA Facility,
Concord HK has placed a $1,138,000 time deposit with BOEA, which is included in
prepaid and other current assets at June 30, 1996 and such deposit is pledged as
collateral for the BOEA facility. In addition, all amounts outstanding under the
BOEA Facility are guaranteed by Concord.
In the fourth quarter of Fiscal 1995, East Asia Finance Company, a wholly-owned
subsidiary of BOEA, extended to Concord HK a five year equipment leasing
facility in the amount of approximately one million dollars. At June 30, 1996,
approximately $442,000 was outstanding and classified as capital lease
obligations.
Other arrangements and future cash commitments
In connection with the upgrading of its worldwide information systems, the
Company has committed to purchase hardware and software and incur other costs of
approximately $670,000 for its United States and Far East operations; at June
30, 1996, approximately $516,000 of that amount had been paid. The Company
anticipates incurring approximately $154,000 of additional costs for hardware,
software and other related items for the balance of the Company's worldwide
operations.
In connection with its construction activities in China, the Company anticipated
incurring costs of approximately $1,850,000. At June 30, 1996, approximately
$1,294,000 of that amount had been incurred. The Company anticipates incurring
approximately $556,000 of additional construction costs in Fiscal 1997 for the
completion of its additional factory building and the conversion of the current
Company owned dormitory into office and administrative space, engineering
facility, a small factory space for pilot runs, and living quarters for foreign
employees. [See "Item 2. Properties"]
Management believes that anticipated cash flow from operations together with
financing from BOEA and CIT or replacement facilities will be sufficient to fund
its operating cash needs over the next twelve months.
Item 8. Financial Data and Supplemental Data.
The financial statements listed in Item 14(a) (1) and (2) are included in this
Report beginning on page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None
25
Part III
Item 10. Directors and Executive Officers of the Company.
Year First
Elected/
Nominated
Name of Directors Age Director Positions and Offices with the Company
Ira B. Lampert (1) 51 1993 Chairman, Chief Executive Officer and Director;
Director of Concord Camera HK Limited,
Concord Camera GmbH, Concord Camera UK
Limited and Concord Camera France.
Steve Jackel 60 1996 Chief Operating Officer, President, and Director
Eli Arenberg (2) 68 1988 Director
Joel L. Gold (3) 54 1991 Director
Morris H. Gindi (4) 51 1988 Director
J. David Hakman (5) 54 1993 Director
Ira J. Hechler (6) 77 1992 Director
Kent M. Klineman (7) 63 1993 Director
(1) On July 13, 1994 Ira B. Lampert was appointed to the additional positions
of Chairman and Chief Executive Officer of the Company. Mr. Lampert was
President and Chief Operating Officer from June 1, 1993 through January 1,
1996, and a Director of the Company since June 29, 1993. Mr. Lampert is
also a director of Concord HK, Concord UK, Concord Germany and Concord
France. From April 1992 through May 30, 1993, Mr. Lampert's services were
made available to the Company under various consulting agreements with
Whitehall Enterprises Inc. ("WEI"), an investment banking company for the
middle-market, of which Mr. Lampert was the President since August 1990.
During the 1980's through the early 1990's, Mr. Lampert also served as a
director and/or officer of Summit Ventures, Inc., and related entities
which developed and managed Ascutney Mountain Resort, a year-round
destination resort located in Vermont. Mr. Lampert is a Board Member of
the Queens College Foundation which is part of the City University of New
York and is the Treasurer of the Boys Brotherhood Republic, a non-profit
organization for underprivileged children in the New York City area.
(2) Effective January 1, 1996, Steve Jackel was appointed President, Chief
Operating Officer, and Director of the Company. From May 1, 1995 to
December 31, 1995, Steve Jackel's services were rendered to the Company
pursuant to a consulting agreement dated May 1, 1995 between the Company
and Harjac Consulting Corp., a corporation owned by Mr. Jackel. From
February 1993 to 1994 Mr. Jackel was President of McCrory's Corporation
and Chairman of McCrory Stores. From June 1992 through February 1993 he
was Co-President of McCrory Stores. From February 1991 through June 1992
he was Executive Vice President Specialty Operation for McCrory Stores.
Prior to that time Mr. Jackel was an Independent Management Consultant.
26
(3) Eli Arenberg joined the Company in April 1984 as Vice President of Sales and Marketing and in
September 1989 was promoted to Senior Vice President of Sales. In February 1992 Mr. Arenberg retired
from such positions. In July 1994 Mr. Arenberg made his services available to the Company under a
consulting agreement with ELA Enterprises, Inc. (the "ELA Enterprises Consulting Agreement"), a
Florida corporation wholly-owned by Mr. Arenberg.
(4) Joel L. Gold is currently an Executive Vice President at L.T. Lawrence & Co. Inc., an investment bank.
From April 1995 through March 1996, Mr. Gold was a managing director at Fechtor Detwiler & Co.,
Inc. an investment bank. From January 1992 through April 1995 Mr. Gold was a managing director at
Furman Selz Incorporated, an investment bank. Mr. Gold is currently a member of the board of directors
of BCAM International, Action Industries, Inc., Life Medical Sciences and Sterling Vision.
(5) Morris H. Gindi is the Chief Executive Officer of Notra Trading Inc., located in Woodbridge, New
Jersey, and has served in such capacity since 1983. Notra Trading Inc. is an import agent in the
housewares and domestics industry. Mr. Gindi has over 26 years experience in importing.
(6) J. David Hakman is the owner and Chief Executive Officer of Hakman and Company Inc. a merchant
banking concern, and a member of the National Association of Securities Dealers, Inc. Mr. Hakman has
been a director since 1989 and a member of the Audit and Nominating Committees since 1991 of
Hanover Direct, Inc., a firm engaged in the direct marketing business. Mr. Hakman was the Chairman
and a director of AFD Acquisition Corporation which filed for protection under Chapter 11 of the U.S.
Bankruptcy Laws in June 1991 and emerged from Chapter 11 in September 1993.
(7) Ira J. Hechler is a partner and a director of the investment firm Ira J. Hechler & Associates located in
New York, New York. Mr. Hechler has been associated with such firm since June 1987. The firm's
principal business is holding stock, partnership interests and other property for investment purposes. Mr.
Hechler is currently a member of the board of directors of The Leslie Fay Companies, Inc. and United
States Banknote Corporation.
(8) Kent M. Klineman is an attorney and private investor and serves as a director of several closely-held
companies. He is also a general partner of ConArb Partners, L.P., a securities dealer engaged in arbitrage
and trading of convertible securities for its own account. Mr. Klineman is a director, Secretary and a
member of the Compensation Committee of EIS International, Inc. [See "Certain Relationships and
Related Trans-actions."]
Meetings and Committees
In Fiscal 1996, the Board held four meetings of which none were telephonic. The
Board has an Audit Committee, a Compensation Committee, a Stock Option
Committee, an Executive Committee, an Ad Hoc Committee and a Nominating
Committee.
The Audit Committee, consisting of Kent M. Klineman (Chairman), J. David Hakman
and Eli Arenberg, reviews and reports to the Board with respect to various
auditing and accounting matters, including the recommendations to the Board as
to the selection of the Company's independent auditors, the scope of audit
procedures, general accounting policy matters and the performance of the
Company's independent auditors. The Audit Committee held four meetings in Fiscal
1996.
The Compensation and Stock Option Committee, consisting of Joel L. Gold
(Chairman), Ira J. Hechler, and
27
Morris Gindi, was formed to review and make recommendations to the Board
regarding all executive compensation. The Compensation Committee held three
meetings in Fiscal 1996.
The Executive Committee, consisting of Ira B. Lampert, Kent Klineman and Ira J.
Hechler, has the full power of the Board when the Board is not in session.
The Recision Committee, consisting of Ira B. Lampert, Morris Gindi and Gary
Simon, was formed to review and make recommendations to the Board regarding
private placements and common stock offerings.
The Benun Litigation Committee, consisting of Ira B. Lampert and Joel Gold, was
formed to review and make recommendations to the Board regarding the Benun
litigation.
The Marketing Committee, consisting of Eli Arenberg and Morris Gindi, was formed
to review and make recommendations to the Board regarding sales and marketing.
The Marketing Committee held one meeting in Fiscal 1996.
On November 10, 1994 the Board established a Nominating Committee for the
purpose of nominating those persons who shall be invited to stand for election
to the Board of Directors as management nominees at any and all ensuing meetings
of the shareholders of the Company or pursuant to any actions with respect to
the election of directors to be taken by written consent of the shareholders.
The Nominating Committee consists of Ira B. Lampert, Joel Gold, Ira J. Hechler
and Kent Klineman. Shareholder suggestions of one or more nominees for election
to the Board may be sent in writing to the Nominating Committee, Attention:
Chairman, C/O the Company, 35 Mileed Way, Avenel, New Jersey 07001.
In Fiscal 1996, all of the directors attended at least 75% of the aggregate of
the total number of meetings of the Board and committees of which they were
members.
Directors Compensation
Non-employee members of the Board receive (i) an annual fee of $10,000, (ii) a
$2,500 annual fee for serving on each committee of the Board with the Chairman
thereof receiving a $3,500 annual fee, and (iii) a meeting fee of $750 for each
meeting attended in person and $250 for each meeting attended telephonically. In
addition, under the Company's Incentive Plan non-employee directors each
received options pursuant to a formula with certain vesting requirements to
purchase up to 22,000 Common Shares. The Incentive Plan also provides for the
grant of an immediately exercisable option to purchase 1,000 Common Shares on
each anniversary of the original grant.
28
EXECUTIVE OFFICERS
The names of the current executive officers of the Company together with certain
biographical information for each of them (other than Mr. Lampert and Mr. Jackel
for whom biographical information is provided above) is set forth below:
Name of Executive Offcer Age Positions and Offices with the Company
Eli Shoer 49 Executive Vice President of the Company
Brian F. King 43 Vice President of Corporate and Strategic
Development and Managing Director of
Concord Camera HK Limited.
Lawrence Pesin 51 Vice President Global Marketing
Len Easterbrook 64 Managing Director, Europe
Joseph R. Fusco 40 Vice President North American Sales
George Erfurt 52 Vice President National Account Manager
Barry M. Shereck 54 Vice President and Chief Financial Officer
Harlan I. Press 32 Chief Accounting Officer
Eli Shoer is Executive Vice President of the Company and has held such position
since August 1995. From April 1991 to August 1994 Mr. Shoer was Director of
Operations of Concord HK and managed the Company's manufacturing facilities in
the Far East. Mr. Shoer worked as Senior Vice President for Operations of
Keystone Camera Corporation from November 1990 through February 1991.
Brian F. King is currently Vice President of Corporate and Strategic Development
and Managing Director of Concord Camera HK Limited and has held such positions
since August 1996. Mr. King joined the Company in March 1996 as Vice President
of Corporate and Strategic Development. From June 1991 through February 1996,
Mr. King was Managing General Partner of Cripple Creek Associates, a partnership
that built and operated two casinos in Cripple Creek, Colorado.
Lawrence Pesin was appointed Vice President Global Marketing in February 1996.
From December 1993 to January 1996 Mr. Pesin was Executive Vice President of
Pavion, Ltd., a cosmetics and fragrances manufacturer. From April 1992 to
December 1993 Mr. Pesin was Chief Executive Officer of Alfin Inc., an American
Stock Exchange listed manufacturer of cosmetics and fragrances. From December
1983 to April 1992, Mr. Pesin was Chief Executive Officer of Colonia Inc. an
international fragrance and cosmetics company.
Len Easterbrook is Managing Director/General Manager-European Operations and has
held such position since July 1995. Mr. Easterbrook joined the Company in 1990
as Managing Director of Concord (UK) Ltd. and held such position until 1993.
From 1993 until July 1995, Mr. Easterbrook was Managing Director of Trade Quota
Ltd., a specialist marketing company dealing with Eastern Europe.
Joseph R. Fusco was appointed Vice President North American Sales in July 1996.
From August 1993 to June 1996 Mr. Fusco was Director of Sales for Sansui USA,
Inc., the American consumer sales and marketing division
29
of Sansui International, a distributor of consumer electronic products. From
August 1991 to August 1993, Mr. Fusco was Vice President of Sales and Marketing
at Avenues, a manufacturer and importer of leather cases and business planners.
George Erfurt is Vice President National Accounts Manager, a position which he
assumed in July 1996. Mr. Erfurt joined the Company in 1991 and has held
several management positions with the Company. Including Managing
Director/General Manager-Americas. Prior to joining the Company, he was
Executive Vice President of Sales and Marketing for Keystone Camera Corp.
Barry M. Shereck was appointed Vice President and Chief Financial Officer of the
Company effective August 5, 1996. From August 1995 to August 1996, Mr. Shereck
was a Managing Director of Spring Investment Corporation, a private management
company and a director of Greater China Corporation, its major client company.
From February 1992 to August 1995, Mr. Shereck was Vice President and Chief
Financial Officer of Tyco Playtime, Inc., a subsidiary of Tyco Toys, Inc.
Harlan I. Press is Chief Accounting Officer and has held this position since
November 1994. Mr. Press was a Senior Field Examiner for the CIT Group from
April 1993 through April 1994. From December 1991 through April 1993, Mr. Press
served as the Production Manager and Inventory Controller for Sandberg and
Sikorski Diamond Corp., a jewelry manufacturer. Prior to then Mr. Press was a
Senior Accountant in BDO Seidman's Audit Division.
Section 16. Reporting Obligations
The following officers and directors of the Company filed late reports under
Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange
Act") during the period July 1, 1995 through June 30, 1996: (i) Lawrence Pesin,
Vice President-Global Marketing, late filing of a Form 5 due August 15, 1996,
reporting a grant of options to purchase 60,000 shares of the Company's Common
Stock; (ii) Brian King, Vice President, late filing of a Form 5 due August 15,
1996, reporting a grant of options to purchase 60,000 shares of the Company's
Common Stock; and (iii) Steve Jackel, President and Chief Operating Officer,
late filing of a Form 5 due August 15, 1996, reporting a grant of 100,000 shares
of restricted stock which was not reported on Mr. Jackel's Form 3. There are no
known failures to file a required report for any of the Company's reporting
persons during such time period.
30
Item 11.
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
Annual Compensation
(a) (b) (c) (d) (e) (g) (i)
Securities
Other Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Year ($) ($) ($) (#) ($)
Position
Ira B. Lampert 1996 $551,282 $100,000 $220,432 (1) 245,000 (13) $18,289(6)
Chief Executive
Officer, and Chairman
1995 495,515 -- 196,648 (2) 600,000 (4)(5)11,477 (6)
1994 475,000 -- 78,475 (3) 340,000 47,200 (7)
Steve Jackel 1996 377,346 25,000 36,237 (8) 300,000 (13) 38,631 (6)
Chief Operating
Officer, President
1995 87,500 -- 7,500 (8) 100,000 --
1994 -- -- -- -- --
Eli Shoer 1996 214,039 42,000 75,000 (9) 10,000 (13) --
Director of Operations
Concord HK
1995 207,037 -- 66,850 (9) 150,000 (4) --
1994 200,000 -- 60,000 (9) 25,000 --
Gary M. Simon (11) 1996 205,288 26,250 -- -- 2,261 (6)
Chief Financial Officer,
Secretary and Treasurer
1995 175,000 -- 16,800 (10) 190,000 (4) 2,260 (6)
1994 151,923 37,500 -- -- 2,260 (6)
George Erfurt 1996 175,657 (12) -- -- -- --
Managing Director-
Americas
1995 208,184 (12) 20,000 4,800 (10) -- --
1994 178,692 (12) -- 4,800 (10) -- --
(1) Includes $35,012, $122,775 and $54,461 paid for and to Mr. Lampert for an
auto lease and costs, reimbursement of taxes and partial housing costs
respectively.
(2) Includes $46,558, $102,740 and $47,350 paid for and to Mr. Lampert for an
auto lease and costs, reimbursement of taxes and partial housing costs
respectively.
(3) Includes $24,260, $25,179 and $22,210 paid for and to Mr. Lampert for an
auto lease and costs, reimbursement of taxes and partial housing costs
respectively.
(4) These options include options previously issued, canceled, repriced and
re-issued during Fiscal 1995.
(5) Does not include 150,000 options contingent upon the consummation of an
acquisition described in Mr. Lampert's employment agreement.
(6) Represents amount paid by the Company for insurance premiums.
(7) Includes $25,208 paid by the Company for insurance premiums and $21,992
paid to Mr. Lampert for consulting fees and expenses in connection with
consulting services provided by Mr. Lampert pursuant to the Company's
consulting agreement with WEI, which terminated upon Mr. Lampert's
employment with the Company.
(8) Represents $27,414 and $8,823 paid to Mr. Jackel for an auto lease and
costs and travel expenses reimbursed to Harjac Consulting respectively.
For 1995, represents amounts paid to Harjac for auto expenses.
(9) Represents housing allowance paid to Mr. Shoer for living arrangements in
the Far East.
(10) Represents payment for auto allowances.
(11) Mr. Simon resigned from the Company effective July 31, 1996.
(12) Includes sales commissions of $51,233 in fiscal 1996, $118,184 in 1995 and
$88,692 in 1994.
(13) Includes shares purchased from the Company for $5.375 per share by a loan
from the Company and evidenced by full recourse promissory note secured
by the Common Stock, and does not include an equal number of shares
underlying a contingent restricted stock award ("restricted stock
award") which vest as follows:
33 1/3% upon the Common Stock reaching a market price of $10.00 by August
31, 1997; 66 2/3% upon the Common Stock reaching a market price of $15.00
by February 28, 1999; and 100% upon the Common Stock reaching a market
price of $20.00 by August 31, 2000.
II. OPTION GRANTS IN FISCAL 1996
Individual Grants
(a) (b) (c) (d) (e) (f) (g) (h)
Potential Realizable
Annual Value at
assumed Rates of Stock
Price Appreciation for
Option Term
-----------
Number of % of Total
Securities Options Market Price of
Underlying Granted to Exercise Common Stock
Name of Executive Options Employees in Price On Date of GranExpiration
Officer Granted 1996 (1) ($/Sh) ($/sh) (2) Date 5% ($) 10%($)
Ira B. Lampert 245,000 (4) 25.51% $5.375 -- Aug. 23, 2006 828,176 2,098,760
- -------------- ----------- ------ ------ ---- ------------- ------- ---------
Steve Jackel 200,000 (3) $4.00 -- Feb. 15, 2006 503,116 1,274,994
- ------------ ------- ---- ----- ---- ------------- ------- ---------
100,000 (4) 10.41% $5.375 -- Aug. 23, 2006 338,031 856,637
Eli Shoer 10,000 (4) 1.04% $5.375 -- Aug. 23, 2006 33,803 85,664
Gary M. Simon (5) 25,000 (4) 2.60% $5.375 -- Aug. 23, 2006 84,508 214,159
George Erfurt 2,000 (4) 0.21% $5.375 -- Aug. 23, 2006 6,761 17,133
(1) The Company granted incentive stock options under the Company's Incentive
Plan to purchase an aggregate of 960,500 shares.
(2) The market price on date of grant was either above or equal to the option
price on the date of the grant.
32
(3) Mr. Jackel's grant of stock options is under separate plan and is not
issued under the Company's Incentive Plan.
(4) Represents shares purchased for $5.375 per share by a loan from the
Company and evidenced by a full recourse promissory note secured by the
common stock, and does not include an equal number of shares underlying a
restricted stock award.
(5) Mr. Simon resigned from the Company effective July 31, 1996.
III. AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END
OPTION VALUES
(a) (b) (c) (d) (e)
Shares Number of Securities Value of Unexercised In-the-
Acquired Underlying Unexercised Money Options at FY End
on Value Options at FY End (#) ($)(1)
Exercise Realized
-------- --------
Name (#) ($) Exercisalbe Unexercisable Exercisable Unexercisable
Ira B. Lampert -- -- 400,000 595,000 (2) -- --
Steve Jackel -- -- 82,224 317,776 3,125 --
Eli Shoer -- -- 150,000 10,000 -- --
Gary M. Simon -- -- 142,000 48,000 -- --
George Erfurt -- -- 25,000 2,000 -- --
(1) The closing price of the Company's Common Stock at 1996 Fiscal Year end
was $3.125.
(2) Mr. Lampert's grants of stock options include a grant of 150,000 shares at
$6.00 that is contingent upon the consummation of an acquisition described
in Mr. Lampert's employment agreement.
(3) Mr. Simon resigned from the Company effective July 31, 1996.
Executive Employment Contracts, Termination of Employment and Change in Contract
Arrangements
The employment agreement between the Company and Ira B. Lampert effective July
1, 1993 was amended and restated as of September 1, 1994 (the "Lampert
Agreement"). The Lampert Agreement provides that Mr. Lampert serve in the
additional capacities of Chairman and Chief Executive Officer of the Company.
The Lampert Agreement provides for an annual salary of $500,000, has a term of
four years and provides for automatic one year renewals, unless prior written
notice is given by either party. Under the Lampert Agreement, Mr. Lampert's
grant of an option to purchase 340,000 Common Shares was amended and restated to
an exercise price of $4.00 per share, of which 240,000 are presently exercisable
with the balance exercisable in allotments of 12,500 on each November 30,
February 28 (or February 29 as the case may be), May 31 and August 31 until
exercisable as to the entire amount. Such shares have anti-dilution provisions
and are exercisable through July 2003. In addition, the Lampert Agreement
granted Mr. Lampert an additional option to purchase 260,000 Common Shares at an
exercise price of $4.00 per share, of which 160,000 are presently exercisable
with the balance exercisable in allotments of 12,500 on each November 30,
33
February 28 (or February 29 as the case may be), May 31 and August 31 until
exercisable as to the entire amount. Such shares also have anti-dilution
provisions and are exercisable through September 2004. The Lampert Agreement
prohibits Mr. Lampert from competing with the Company for a one year period upon
expiration of the Lampert Agreement. The Lampert Agreement also provides that if
the Company consummates an acquisition identified in the Lampert Agreement
during Mr. Lampert's term of employment with the Company, Mr. Lampert will
receive a cash bonus of $300,000 and will be granted an option to purchase
150,000 Common Shares at an exercise price of $6.00 per share.
Effective October 1, 1994, the Company entered into an employment agreement with
Eli Shoer, whereby Mr. Shoer is employed as Managing Director of Operations of
the Company's Far East operations and as Senior Vice President of the Company.
The employment agreement has a term of three years and provides for an annual
salary of $210,000. In addition, Mr. Shoer receives an annual housing allowance
of $75,000. Mr. Shoer's employment agreement prohibits Mr. Shoer from competing
with the Company for a one year period upon termination of such employment
agreement. The agreement also provides that previous stock option agreements for
an aggregate of 145,000 shares at varying prices ranging from a high of $8.875
to a low of $4.4375 are relinquished by Mr. Shoer. In lieu of such options he
was granted options for 75,000 shares at $3.25 and 75,000 shares at $4.00. This
agreement supersedes the July 1, 1993 agreement between Mr. Shoer and the
Company.
Effective June 1, 1994, the Company entered into an employment agreement with
Gary M. Simon whereby Mr. Simon was employed as Chief Financial Officer and
Treasurer of the Company. The Agreement is for a term of three years and
provided for an annual salary of $175,000. Under the Agreement Mr. Simon was
granted an option to purchase 30,000 Common Shares at an exercise price of $3.00
per share, 7,500 of which were presently exercisable with the balance
exercisable in allotments of 7,500 after the completion of the first, second and
third years of his term of employment. In addition, Mr. Simon was granted a
presently exercisable option to purchase 40,000 Common Shares at $3.00 per
share; and 120,000 Common Shares at an exercise price of $4.00 per share which
options vest as follows: 24,000 on June 1, 1995; 48,000 on June 1, 1996; and
48,000 on June 1, 1997. Options to purchase 50,000 Common Shares granted to Mr.
Simon prior to June 1, 1994 were canceled. Mr. Simon's employment agreement
prohibits Mr. Simon from competing with the Company for a one year period upon
termination of such employment agreement. Mr. Simon resigned from the Company
effective July 31, 1996. In accordance with Mr. Simon's employment agreement all
outstanding options will be canceled 90 days from the effective date of his
termination.
As of January 1, 1996, the Company and Steve Jackel entered into an Employment
Agreement, (the "Jackel Agreement"), whereby Mr. Jackel is employed as President
and Chief Operating Officer of the Company. Prior to entering into the Jackel
Agreement, Mr. Jackel rendered consulting services to the Company pursuant to a
Consulting Agreement, dated May 1, 1995, between the Company and Harjac
Consulting Corp., a corporation owned by Mr. Jackel, which agreement was
terminated upon the effective date of the Jackel Agreement. The Jackel Agreement
provides for an annual salary of $400,000, has a term of three years commencing
on January 1, 1996 and provides for automatic one-year renewals unless prior
written notice is given by either party. Pursuant to the Jackel Agreement, Mr.
Jackel was granted stock options to purchase 200,000 shares of the Company's
Common stock at an exercise price of $4.00 per share, of which approximately
82,224 were exercisable as of September 26, 1996, with the balance becoming
exercisable in equal allotments on the Thursday of each successive week after
September 26, 1996, through and including December 31, 1998, as of which date
such options shall be exercisable as to the entire 200,000 shares. The options
contain anti-dilution provisions and are exercisable through February 15, 2006.
The options were granted pursuant to an Option Agreement between Steve Jackel
and the Company, dated as of February 15, 1996, and were not granted pursuant to
the Company's Incentive Plan. The Jackel Agreement prohibits Mr.
34
Jackel from competing with the Company for at least one year following the
termination of Mr. Jackel's employment.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 16, 1996 with
respect to (i) those persons or groups known to the Company to beneficially own
more than 5% of the Common Stock, (ii) each of the directors and nominees of the
Company, (iii) the Company's executive officers named in the summary
compensation table, and (iv) for the Company's directors and executive officers
as a group:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(1)
(i) Beneficial Owners of More than 5%
of the Common Shares
Theodore H. Kruttschnitt.................. 1,205,000 11.1%
- ------------------------ --------- -----
1350 Bayshore Blvd Suite 850
Burlingame, California 94010
VC Holdings, Inc. (2)..................... 927,306 8.5%
- --------------------- ------- ----
250 Park Avenue
New York, New York 10017
Jack Silver (3)........................... 785,333(3) 7.2%
- --------------- ---------- ----
c/o Silverman, Collura & Chernis, P.L.
381 Park Avenue South
New York, New York 10016
Deltec Asset Management................... 639,025 5.9%
- ----------------------- ------- ----
535 Madison Avenue
New York, New York 10022
(ii) Directors and Nominees of the Company
Ira B. Lampert............................ 1,270,000(4) 11.7%
- -------------- ------------ -----
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Steve Jackel.............................. 500,000(5) 4.6%
- ------------ ------------ ----
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1)of Class(1)
Eli Arenberg.............................. 54,500(7) *
- ------------ --------- -
9578 Harbour Lake Circle
Boynton Beach, Florida 33437
Joel L. Gold.............................. 32,500(6) *
- ------------ --------- -
L.T. Lawrence & Co. Inc.
- ------------------------
3 New York Plaza
35
New York, New York 10004
Morris Gindi.............................. 22,000(7) *
- ------------ --------- -
Notra Trading, Inc.
One Woodbridge Center
Woodbridge, NJ 07095
J. David Hakman........................... 22,000(7) *
- --------------- --------- -
Hakman & Co., Inc.
Suite 300
1350 Bayshore Highway
Burlingame, CA 94010
Ira. J. Hechler........................... 468,000 4.3%
- --------------- -------- ----
Ira J. Hechler and Associates
45 Rockefeller Plaza
New York, New York 10111
Kent M. Klineman.......................... 94,400(6) *
- ---------------- --------- -
c/o Klineman Assoc., Inc.
1270 Avenue of the Americas
New York, NY 10020
(iii) Executive Officers
Gary M. Simon............................. 190,000(7) 1.7%
- ------------- ---------- ----
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Eli Shoer................................. 170,000(8) 1.6%
- --------- ---------- ----
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Brian F. King............................. 115,000(9) 1.1%
- ------------- ---------- ----
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Lawrence Pesin............................ 115,000(9) 1.1%
- -------------- ---------- ----
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1)of Class(1)
Barry M. Shereck.......................... 60,000(7) *
- ---------------- ---------- -
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Joseph R. Fusco........................... 60,000(7) *
- --------------- ---------- -
Concord Camera Corp.
36
35 Mileed Way
Avenel, New Jersey 07001
George Erfurt............................. 40,000(10) *
- ------------- ----------- -
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Harlan Press.............................. 10,000(7) *
- ------------ --------- -
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07711
(iv) All executive officers and
directors as a group (14 Persons)....... 3,223,400 29.6%
- ----------------------------------- --------- -----
*Indicates less than 1%.
(1) All information is as of September 16, 1996 and was determined in
accordance with Rule 13d-3 under the Exchange Act based upon information
furnished by the persons listed or contained in filings made by them with
the Commission. As of September 16, 1996, the Company had issued and
outstanding 10,882,973 Common Shares, the Company's only class of voting
securities outstanding. Unless otherwise indicated, beneficial ownership
disclosed consists of sole voting and dispositive power.
(2) VC Holding, Inc. is the sole manager and holds 100% of the voting
interests of Venture Capital Equities, L.L.C. Dominion Capital, Inc.
contributed all of its interests in a specified portfolio of investments,
including the above described Company securities to Venture Capital,L.L.C.
(3) Mr. Silver's holdings include shares held by Mr. Silver or his wife for
the benefit of his children and 426,000 shares held by Siar Money Purchase
Plan. In addition, Mr. Silver holds warrants to purchase 58,333 shares of
the Company's common stock.
(4) Represents 30,000 shares purchased in the open market, 245,000 shares
purchased for $5.375 per share by a loan from the Company and evidenced by
a full recourse promissory note secured by the common stock, 245,000
shares underlying a restricted stock award, 600,000 shares underlying
stock options, and 150,000 shares underlying contingent stock options.
(5) Represents 100,000 shares purchased for $5.375 per share by a loan from
the Company and evidenced by a full recourse promissory note secured by
the common stock, 100,000 shares underlying a restricted stock award, and
300,000 shares underlying stock options.
(6) Represents Common shares purchased in the open market, and 22,000 shares
underlying stock options.
(7) Represents Common shares underlying stock options.
(8) Represents 10,000 shares purchased for $5.375 per share by a loan from the
Company and evidenced by a full recourse promissory note secured by the
common stock, 10,000 shares underlying a restricted stock award, and
150,000 shares underlying stock options.
(9) Represents 27,500 shares purchased for $5.375 per share by a loan from the
Company and evidenced
37
by a full recourse promissory note secured by the common stock, 27,500
shares underlying a restricted stock award, and 60,000 shares underlying
stock options.
(10) Represents 1,000 shares purchased in the open market, 2,000 shares
purchased for $5.375 per share by a loan from the Company and evidenced by
a full recourse promissory note secured by the common stock, 2,000 shares
underlying a restricted stock award, and 25,000 shares underlying stock
options.
Item 13. Certain Relationships and Related Transactions
In connection with Ira J. Hechler's purchase of Common Shares in a private
placement completed on December 31, 1992 (the "Private Placement"), the Company,
Mr. Benun and Mr. Hechler entered into a certain Management Agreement, dated
December 31, 1992 (the "Management Agreement"), which provided among other
matters that (i) Mr. Benun would retain, on and after the closing of a proposed
loan facility with a new lender, his position as Chairman and Chief Executive
Officer of the Company (Mr. Benun's employment with the Company was terminated
on July 13, 1994), (ii) Mr. Benun would propose, at any Meetings to elect
directors, a slate consisting of nominees for director chosen by Mr. Hechler
(the "Hechler Nominees"), Mr. Benun and other members of whom a majority would,
to the extent practical, be new "unaffiliated" or "independent" members of the
Board, (iii) Mr. Benun would vote all Common Shares over which he had sole
voting power on the date of the Management Agreement or acquired thereafter in
favor of the Hechler Nominees for election to the Board at all Meetings to Elect
Directors, (iv) Mr. Hechler would vote or cause to be voted all Common Shares
over which he has sole voting power on the date of the Management Agreement or
acquired thereafter and all Common Shares purchased by him or his designee in
the Private Placement in favor of Mr. Benun's nominees at all meetings to elect
directors, (v) neither Mr. Benun nor Mr. Hechler, Hechler & Associates or any of
their respective affiliates (the "Hechler Group"), without the consent of
two-thirds of the Board, from December 31, 1992 through December 1, 1994 would
(a) solicit proxies with respect to securities of the Company or become a
"participant" in any "election contest" relating to the election of directors of
the Company (as such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act), or seek to advise or influence any person or entity with respect
to the voting of any voting securities of the Company, (b) make any public
announcement with respect to, or submit a formal proposal for a transaction
between any member of the Hechler Group and the Company or any of its securities
holders except proposals recommending transactions in the ordinary course of the
Company's business, (c) act to seek control of management, Board or policies of
the Company except in any such person's capacity as a director, or (d) form,
join or participate in a group for purposes of any transactions referred to in
(a), (b), or (c) above, and (vi) the Warrant be amended (a) to extend the
exercise period of the Warrant until December 1, 1993, (b) to eliminate the
mandatory exercise and early termination provisions of the Warrant and (c)
provide that the purchase by all purchasers in the Private Placement will not
trigger the anti-dilution provisions of the Warrant. The Company believes that
Mr. Benun no longer has any rights under the Management Agreement to nominate
directors of the Company. Mr. Benun has asserted that he continues to have such
rights and intends to enforce them. An action brought by Benun in Fiscal 1995 to
enforce such rights was dismissed in Fiscal 1996.
At June 30, 1996 the Company was indebted to Mr. Benun for certain loans made by
him to the Company in the principal amount of $100,000, which amount bears
interest at a rate per annum equal to 2% over CIT's prime lending rate. The
Company incurred approximately $11,000 in interest expense in Fiscal 1996 in
connection with the loans from Mr. Benun and suspended payment of the loans
because the Company believes that it has valid claims against Mr. Benun vastly
in excess of said loans. The Company believes that any amounts which may
otherwise have been due Mr. Benun will be offset by the amounts which Mr. Benun
38
will be found to owe the Company when all claims by the Company against Mr.
Benun are finally arbitrated or adjudicated. [See "Litigation"]
The Company and Mr. Benun entered into and executed a Pledge Agreement on each
of March 7, and April 6, 1994 to secure the prompt payment of any liability to
the Company that Mr. Benun may incur as a result of the matters then under
investigation. Mr. Benun was terminated as Chief Executive Officer on July 14,
1994. The Company holds 30,770 shares of the Company's Common Stock owned by Mr.
Benun and pledged to the Company in connection with the Pledge Agreement.
On August 1, 1994 ELA Enterprises, Inc., a Company owned by Eli Arenberg, was
granted an option under the Company's Incentive Plan to purchase 10,000 Common
Shares at an exercise price of $3.00 per share, 10,000 Common Shares at an
exercise price of $4.00 per share, and 10,000 Common Shares at an exercise price
of $5.00 per share, in connection with consulting services provided by Mr.
Arenberg to the Company pursuant to the ELA Enterprises, Inc. Consulting
Agreement. All options previously granted to Mr. Arenberg were canceled. In
addition, ELA Enterprises, Inc. will be paid at an hourly rate for consulting
services provided to the Company.
39
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The following consolidated financial statements of the Company and the notes
thereto, the related reports thereon of the certified public accountants, and
financial statement schedule, are filed under Item 8 of this Report:
(a) (1) Financial Statements
Page
Independent Auditors' Reports................................. F-1
Consolidated Balance Sheets at June 30, 1996 and 1995......... F-3
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995 and 1994................................. F-4
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994................................. F-5
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1996, 1995 and 1994.................... F-6
Notes to Consolidated Financial Statements.................... F-7
(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves... F-26
All other financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the instructions to Item 8 or are inapplicable, and therefore
have been omitted.
(3) Exhibits:
Exh. No. Page
3.1 Certificate of Incorporation of the Company(1)................
3.2 Amendments to Certificate of Incorporation of the Company(1)..
3.3 Amendment No. 4 to Certificate of Incorporation of the Company(3)
3.4 Restated By-Laws of the Company ..............................
4.1 Form of Common Stock Certificate(1) ..........................
9.1 Voting Agreement, dated as of November 7, 1995, as amended,
among Ira B. Lampert, Eli Shoer, George Erfurt, Steve Jackel,
Arthur Zawodny, Brian King, and Lawrence Pesin(16)............
10.1 Settlement Agreement between the Company and the Commission
effective September 1, 1994(11)..............................
10.2 Employment Agreement between the Company and Ira B. Lampert,
dated as of July 15, 1993(6).................................
10.3 Employment Agreement between the Company and Gary M. Simon
dated as of June 1, 1994(11).................................
10.4 Employment Agreement between Concord France and Jean Louis Vinant
dated as of July 1, 1994(11).................................
40
Exh. No. Page
10.5 Employment Agreement between Concord UK and Mark Easterbrook
dated as of January 1, 1994(10)..............................
10.6 Employment Agreement between the Company and Mark Welland
dated as of March 1, 1993(5) ................................
10.7 Employment Agreement between the Company and Hans Dieter Kuehn
dated as of April 1, 1993(6) ................................
10.8 Employment Agreement between the Company and Eli Shoer dated as of
July 1, 1993(6) 10.9 Pledge Agreement between the Company and Benun
dated as of March 7, 1994(10)................................
10.10 Pledge Agreement between the Company and Benun dated as of
April 6, 1994 (10) ..........................................
10.11 Compensation Trade Agreement between Concord HK and Shenzhen Baoan
Contat Camera Factory and translation dated November 23, 1993(7)
10.12 Processing Trade Agreement, dated October 28, 1986, between Concord
Camera Enterprises Company Ltd. and Baoan County Foreign Trade Company
and Concord Electronic Factory Henggang, Baoan County and
translation(1)...............................................
10.13 Filing Certificate for Joint Venture, Cooperative Venture,
Compensation Trade and Foreign-Related Processing and
Assembly Agreements (Contracts) issued by the Foreign economic
Relations Office People's Government of Baoan County, Shenzhen
November 1, 1986 and translation(1)..........................
10.14 Processing and Assembly Contract, dated July 25, 1987, between
Concord Camera Enterprises Company Ltd. and Baoan County
Foreign Trade Company and Concord Electronic Factory,
Henggang, Baoan County and translation(1) ...................
10.15 Processing Trade Agreement, dated September 6, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1)..............................
10.16 Filing Certificate for Joint Venture, Cooperative Venture,
Compensation Trade and Foreign-Related Processing and Assembly
Agreements (Contracts) issued by the Foreign Economic Relations
Office, People's Government of Baoan County, Shenzhen
on September 12, 1985 and translation(1) ....................
10.17 Notice Concerning the Approval of Import Projects issued by the
Foreign Economic Relations Office, Baoan County, Shenzhen on
September 12, 1985 and translation(1)........................
10.18 Supplementary Agreement, dated September 27, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade Company
and Dialbright Electronic Factory, Henggang, Baoan County and
translation(1)
10.19 Notice Concerning the Approval of Supplementary Agreement dated
September 27, 1985 issued by the Foreign Economic Relations Office, Baoan
County on October 4, 1985 and translation(1).................
10.20 Processing and Assembly Contract, dated September 27, 1985,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1)..............................
41
Exh. No. Page
10.21 Supplementary Agreement, dated October 30, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) .............................
10.22 Processing and Assembly Contract, dated December 17, 1985,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) .............................
10.23 Processing and Assembly Contract between Dialbright Company
Limited and Baoan County Foreign Trade Company and Dialbright
Electronic Factory, Henggang, Baoan County and translation(1)
10.24 Supplementary Agreement, dated July 9, 1986, between Dialbright
Company Limited and Baoan County Foreign Trade Company and
Dialbright Electronic Factory, Henggang, Baoan County and
translation(1)...............................................
10.25 Processing and Assembly Contract, dated July 11, 1986, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan
County and translation(1)....................................
10.26 Processing and Assembly Contract, dated August 14, 1986,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1)..............................
10.27 Supplementary Agreement, dated August 26, 1986, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan
County and translation(1) ...................................
10.28 Agreement for the Provision of Land, Management Services
and Labor between Company and Wan Kong Economic Development
Corporation of Baoan County, dated July 10, 1988 (English
Translation with Chinese Original attached)(2) ..............
10.29 Agreement between Dialbright and Development Corporation,
Baoan County, dated September 23, 1988(2)....................
10.30 Agreement between Dialbright and Henggang Economic Development
Corporation, dated September 23, 1988 and translation(2).....
10.31 Construction Works Contract between Concord Factory Henggang
and Henggang Economic Development Corporation dated
February 25, 1989 and translation(2).........................
10.32 Agreement between Concord HK and Baoan Henggang Joint Stock
Investment Company, Ltd., dated February 15, 1993 and translation(4)
10.33 Contract for the Utilization of Land in Factory Construction between
Concord HK and Henggang Investment Holdings Limited
dated June 20, 1994 and translation..........................
10.34 Supplemental Agreement to the Contract for the Utilization of Land in
Factory Construction between Concord HK and Henggang Investment Holdings
Limited dated June 20, 1994 and translation
42
Exh. No. Page
10.35 Loan and Security Agreement between the Company,
Concord-Keystone Sales Corp. and CIT dated March 30, 1994(9).
10.36 Loan Agreement between Concord HK and BOEA dated June 15, 1993(6)
10.37 Amendment to Loan Agreement between Concord HK and BOEA dated
January 11, 1994(8)..........................................
10.38 Incentive Plan, effective November 29, 1993(13) ..............
10.39 Amended and restated 1988 Stock Option Plan(4) ...............
10.40 Third Extension and Amendment of Lease dated April 18, 1994 by and
between Howard H. Gelb and Eunice Gelb and the Company(11)...........
10.41 Employment Agreement between the Company and Eli Shoer dated
as of October 1, 1994(12)....................................
10.42 Employment Agreement between the Company and Gary Kaess
dated as of November 1994(12) ...............................
10.43 Amended and Restated Employment Agreement between Concord
Camera HK Limited and Arthur Zawodny dated as of October 21,
1994(12).....................................................
10.44 Consulting Agreement between the Company and Harjac Consulting, Inc.,
dated as of May 1, 1995(13)..................................
10.45 First Amendment to Revolving Line of Credit and Security Agreement
between the Company and the Bank of East Asia Limited, New York Branch
(14) ..............
10.46 Employment Agreement between the Company and Steve Jackel dated as of
January 1, 1996. (15) .......................................
21. List of Subsidiaries of Company(6) ...........................
27. Financial Data schedule ......................................
The Financial Statement Schedules required to be filed pursuant to this Item
14(d) are listed above.
(1) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's Registration Statement on Form S-18
(No. 33-21156), declared effective July 12, 1988, and is incorporated
herein by reference.
(2) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's annual report on Form 10-K for the
fiscal year ended June 30, 1989 and is incorporated herein by reference.
(3) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's interim report on Form 8-K dated May
29, 1992 and is incorporated herein by reference.
(4) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's Registration Statement on Form
S-1 (33-59398), filed with the Commission on March 11, 1993, and is
incorporated herein by reference.
(5) This document has been previously filed as Exhibit 10.46 to Amendment No.
2 to the Company's Registration Statement on Form S-1, filed June 1, 1993,
and is incorporated herein by reference.
(6) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1993 and is incorporated herein by
reference.
(7) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's interim report on Form 8-K dated
November 23, 1993 and is incorporated herein by reference.
43
(8) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended December 31, 1993 and is incorporated herein
by reference.
(9) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's interim report on Form 8-K dated
March 30, 1994 and is incorporated herein by reference.
(10) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended March 31, 1994 and is incorporated herein by
reference.
(11) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-K for
the Fiscal Year ended June 30, 1994 and is incorporated herein by
reference.
(12) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's quarterly report on Form 10-Q
for the Fiscal period ended March 31, 1995 and is incorporated herein by
reference.
(13) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-K for
the Fiscal Year ended June 30, 1995 and is incorporated herein by
reference.
(14) This document has been previously filed with the Securities and Exchange
Commission as a Form 10- Q for the Fiscal period ended September 30, 1995
and is incorporated herein by reference.
(15) This document has been previously filed with the Securities and Exchange
Commission as a Form 10- Q for the Fiscal period ended March 31, 1996 and
is incorporated herein by reference.
(16) This document has been previously filed with the Securities and Exchange
Commission as an exhibit to a Schedule 13D filed on November 17, 1995.
44
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Concord Camera Corp.
Avenel, New Jersey
We have audited the consolidated balance sheets of Concord Camera Corp.
and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. Our audits also included the financial statement schedule listed in
the Index in Item 14(a)(2). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Concord Camera Corp. and subsidiaries as of June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Ernst & Young LLP
MetroPark, New Jersey
September 12, 1996
F - 1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Concord Camera Corp.
Avenel, New Jersey
We have audited the accompanying consolidated statement of operations of
Concord Camera Corp. and subsidiaries and the related consolidated statements of
stockholders' equity and cash flows for the year ended June 30, 1994. Our audit
also included the financial statement schedule listed in the Index in Item 14.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated results of operations of Concord Camera
Corp. and its subsidiaries and their cash flows for the year ended June 30, 1994
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Parsippany, New Jersey
September 23, 1994
F - 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp.
Consolidated Balance Sheets
June 30,
ASSETS 1996 1995
Current Assets:
Cash $ 4,996,770 $ 4,533,216
Accounts receivable, net 7,550,408 8,589,790
Inventories 17,491,615 18,865,323
Prepaid expenses and other current assets 2,540,802 2,494,559
------------ -----------
Total current assets 32,579,595 34,482,888
Plant and equipment, net 11,708,736 10,802,688
Goodwill, net 1,510,197 1,678,629
Investment in joint ventures -- 91,984
Other assets 4,051,268 3,132,566
------------ -----------
Total assets $49,849,796 $50,188,755
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 6,368,972 $ 5,742,063
Current portion of long-term debt 29,552 24,836
Current obligations under capital leases 570,899 788,165
Accounts payable 6,000,328 6,993,857
Accrued expenses 2,172,863 2,902,282
Income taxes payable 79,050 294,584
Other current liabilities 661,735 305,175
------------ ----------
Total current liabilities 15,883,399 17,050,962
Deferred income taxes 442,889 484,842
Long-term debt 430,589 264,432
Obligations under capital leases 1,948,443 123,626
Other long-term liabilities 666,791 648
------------ -----------
Total liabilities 19,372,111 17,924,510
------------ -----------
COMMITMENT AND CONTINGENCIES
F - 3
Stockholders' Equity:
Common stock, no par value, 20,000,000 authorized; 10,944,026 a39,361,89352636,935,174 of June 30,
1996 and 1995
Paid in capital 850,786 850,786
Deficit (6,802,992) (5,068,796)
Notes receivable arising from common stock purchase agreements(2,479,083) --
30,930,604 32,717,164
Less: treasury stock, at cost; 63,553 shares (452,919) (452,919)
------------- -----------
Total stockholders' equity 30,477,685 32,264,245
------------- -----------
Total liabilities and stockholders' equity $49,849,796 $50,188,755
============= ============
See accompanying notes to consolidated financial statements.
F - 4
CONCORD CAMERA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended June 30,
1996 1995 1994
Net sales $66,781,851 $62,139,346 $54,817,409
Cost of products sold 49,292,625 41,983,967 37,683,699
------------ ------------ ------------
Gross profit 17,489,226 20,155,379 17,133,710
Selling expenses 7,570,658 7,298,038 5,569,292
General and administrative expenses 9,395,677 8,109,667 9,123,238
Financial expenses 1,488,672 1,412,947 1,889,004
Other (income) expense, net (29,764) 154,534 220,866
Litigation and settlement costs 718,359 1,864,183 1,153,011
------------ ------------ ------------
Income (loss) before income taxes (1,654,376) 1,316,010 (821,701)
Provision for income taxes 79,820 106,990 123,050
------------ ------------ ------------
Net income (loss) $ (1,734,196) $ 1,209,020 ($ 944,751)
============= ============ ==============
Income (loss) per common share ($0.1) $0.12 ($0.09)
Weighted average number of common shares
outstanding 10,813,224 10,426,973 10,044,049
============ ============ ==============
See accompanying notes to consolidated financial statements.
F - 4
Concord Camera Corp.
Consolidated Statements of Cash Flows
For the year ended June 30,
1996 1995 1994
Cash flows from operating activities:
Net income (loss) ($1,734,196) $ 1,209,02 ($ 944,751)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,023,209 2,260,673 2,256,832
Undistributed earnings of joint venture -- -- (65,997)
Net (gain) loss on sale of property & equipment 19,881 (5,027) (243,137)
Interest income on notes receivable arising from common
stock purchase agreements (92,583) -- --
Change in assets and liabilities:
(Increase) decrease in accounts receivable 1,039,382 (100,129) (792,939)
Decrease in inventories 1,373,708 241,695 1,391,971
(Increase) decrease in prepaid expenses and other current assets (111,474) 45,507 (617,964)
(Increase) in other assets (1,538,316) (1,026,238) (727,051)
Increase (decrease) in accounts payable (993,529) 1,556,925)(1,545,695)
Increase (decrease) in accrued expenses (729,419) 954,761 (846,628)
(Decrease) in payable to joint ventures -- -- (24,344)
Increase (decrease) in income taxes payable (215,534) 110,113 53,065
Increase (decrease) in other current liabilities 356,560 (2,159) (85,928)
Increase (decrease) in deferred income taxes (41,953) (24,348) 172,401
Increase (decrease) in other long-term liabilities 666,143 (132,363) (145,267)
Total adjustments 2,756,075 3,879,410 (1,220,681)
----------- ------------ -----------
Net cash provided by (used in) operating activities 1,021,879 5,088,430 (2,165,432)
------------ ------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,531,327) (2,260,503)(1,689,821)
Purchase of certificate of deposit -- -- (1,000,000)
Proceeds from certificate of deposit -- -- 1,000,000
F - 5
Proceeds from sale of long-term assets 2,004,150 30,176 268,189
Decrease in investment in and advances to joint ventures 91,984 76,650 28,012
------------ -------------- --------
Net cash (used in) investing activities (435,193) (2,153,677)(1,393,620)
------------- ------------- ----------
Cash flows from financing activities:
Net borrowings (repayments) under short-term debt agreements 626,909 (985,82)(1,361,420)
Proceeds from issuance of long-term debt -- -- 3,000,000
Net borrowings (repayments) of long-term debt 170,873 -- (33,283)
Principal payments under capital lease obligations (961,133) (810,370)(2,230,602)
Net repayments to shareholder -- -- (305,170)
Net proceeds from issuance of common stock 40,219 -- 5,771,896
Net cash provided by (used in) financing activities (123,132) (1,796,195) 4,841,421
------------- ------------- ---------
Net increase in cash 463,554 1,138,558 1,282,369
Cash at beginning of period 4,533,216 3,394,658 2,112,289
------------ ------------- ---------
Cash at end of year $4,996,770 $4,533,216 $3,394,658
========== ============ ==========
See accompanying notes to consolidated financial statements. See note 17 -
Supplemental disclosure of cash flow information.
F - 6
CONCORD CAMERA CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury stock
Notes
receivable
arising from
Common
Issued and stock
Outstanding Stated Paid in purchase
shares Value capital (Deficit) agreements Shares Cost Total
Balance as of June 30, 1993 9,455,518 $31,146,67 $867,389 ($5,333,065) -- 63,553 ($452,919) $26,228,080
Issuance of stock 918,655 5,464,486 (16,603) -- -- -- -- 5,447,883
Exercise of stock options 52,800 324,013 -- -- -- -- -- 324,013
Net (loss) -- -- -- (944,751) -- -- -- (944,751)
Balance as of June 30, 1994 10,426,973 36,935,174 850,786 (6,277,816) -- 63,553 (452,919) 31,055,225
Net income -- -- -- 1,209,020 -- -- 1,209,020
Balance as of June 30, 1995 10,426,973 36,935,174 850,786 (5,068,796) -- 63,553 (452,919) 32,264,245
Exercise of stock options 453,500 2,426,719 -- -- (2,386,500) -- -- 40,219
Interest on notes receivable
arising from Common Stock
purchase agreements -- -- -- -- (92,583) -- -- (92,583)
Net (loss) -- -- -- (1,734,196) -- -- -- (1,734,196)
Balance of June 30, 1996 10,880,473 $39,361,89 $850,786 ($6,802,992) ($2,479,083) 63,553 ($452,919) $30,477,685
See accompanying notes to consolidated financial statements
F - 6
CONCORD CAMERA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Concord Camera Corp. ("Concord") and its wholly-owned subsidiaries, Concord
Camera HK Limited ("Concord HK") a Hong Kong corporation, Concord Camera GmbH
("Concord GmbH"), Concord Camera UK Ltd. ("Concord UK"), Starprint Corporation
("Starprint"), Concord-Keystone Sales Corporation ("Concord Keystone"), Concord
Holding Corp. ("Concord Holding"), Concord Camera Canada a division of Concord
Camera Illinois Corp. ("Concord Canada"), Concord Camera (Panama) Corp.
("Concord Panama"), Concord Camera (Hungary) ("Concord Hungary") commencing
operations 1994, and Concord Camera France SARL ("France") commencing operations
1995 (collectively, the "Company"). All material intercompany balances and
transactions have been eliminated.
The Company terminated the operations of Starprint, Concord Camera Canada Corp.,
and Concord Hungary during February of 1992, June 1995 and December 1995,
respectively as part of its plan to consolidate its worldwide operations and
focus more closely on its core business. The Company will continue to service
customers throughout Canada and Hungary through Concord Canada and Concord UK,
respectively.
Nature of Business
The Company is engaged in the design, manufacture, marketing and worldwide
distribution of cameras and related accessories. Substantially all of the
Company's products are assembled in the People's Republic of China ("PRC").
Consolidated sales to the Company's two largest customers in Fiscal 1996, 1995
and 1994 amounted to approximately $26,685,000 (40%), $15,759,000 (25.4%) and
$12,176,000 (22.2%) respectively. The Company believes that the loss of such
customers would have a material effect on the Company and its subsidiaries taken
as a whole. No other customer accounted for 10% or more of consolidated sales
during the years ended June 30, 1996, 1995, and 1994.
Reclassifications
Certain amounts have been reclassified to conform with current year
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F - 7
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis.
Earnings (Loss) Per Share
Common stock equivalents were not included in the calculation of income (loss)
per share for the fiscal years ended June 30, 1996, 1995, and 1994 because their
effect was either anti-dilutive or immaterial.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets to Be Disposed of", which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of Fiscal 1997 and, based
on current circumstances, does not believe the effect of adoption will be
material.
Plant and Equipment
Plant and equipment is stated at cost. Depreciation and amortization are
computed based upon the estimated useful lives of the respective assets, using
accelerated methods for income tax purposes and the straight-line method for
financial reporting purposes. Small tools and accessories used in production in
the PRC are charged to operations when purchased. Amortization of Assets
recorded under Capital Leases are included in depreciation and Amortization
expense.
Intangible Assets
Cost in excess of net assets acquired (goodwill) is being amortized on a
straight-line basis over fifteen years. Accumulated amortization at June 30,
1996 and 1995 for such intangible asset is approximately $984,000 and $816,000,
respectively.
Other Assets
Other Assets includes trademarks, patents, licensing fees, deposits, capitalized
costs, and non current receivables Trademarks, patents, licensing fees and
capitalized costs are amortized on a straight line basis over their estimated
useful lives.
Advertising
Advertising costs are expensed as incurred and included in Selling Expenses.
Advertising allowances and other discounts totaled $889,000, $829,000, and
$587,000 in Fiscal 1996, 1995 and 1994, respectively.
F - 8
Foreign Currency Remeasurement
The Company operates on a worldwide basis and its results may be adversely or
positively affected by fluctuations of various foreign currencies against the
U.S. Dollar, specifically, the Canadian Dollar, German Mark, British Pound
Sterling, Hungarian Forints, French Francs, and Japanese Yen. Each of the
Company's foreign subsidiaries purchases its inventories in U.S. Dollars and
sells them in local currency, thereby creating an exposure to fluctuations in
foreign currency exchange rates. Certain components needed to manufacture
cameras are priced in Japanese Yen. The translation from the applicable
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. Translation
adjustments are not material. Gains or losses resulting from foreign currency
transactions are included in "Other (income) expense, net" in the Consolidated
Statements of Operations. For the fiscal years ended June 30, 1996, 1995, and
1994, consolidated other (income) expense, net includes approximately
($103,000),$57,000, and $22,000, respectively, of net foreign currency (gains)
losses from remeasurement.
Forward Exchange Contracts
During the fiscal years ended June 30, 1996, 1995 and 1994, the Company's
hedging activities were immaterial and, as of June 30, 1996, there were no
forward exchange contracts outstanding. The Company continues to analyze the
benefits and costs associated with hedging against foreign currency
fluctuations.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Revenue Recognition
Revenues are recorded when the product is shipped to a customer, net of
appropriate reserves for returns.
F - 9
NOTE 2 -- ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
June 30,
1996 1995
Trade accounts receivable $8,943,993 $9,631,561
Less: Allowances for doubtful
accounts, discounts and allowances (1,393,585) (1,041,771)
----------- -----------
$7,550,408 $8,589,790
NOTE 3 -- INVENTORIES:
Inventories are comprised of the following:
June 30,
1996 1995
Raw materials and components $ 7,743,884 $ 7,162,899
Finished goods 9,747,731 11,702,424
----------- ----------
$17,491,615 $18,865,323
During the fourth quarter of Fiscal 1996, the Company recorded inventory
provisions totaling $3,035,000 on certain 35 millimeter camera products and
related inventory. The Company has suspended production of certain 35 millimeter
conventional camera models that it produced in the past and anticipate producing
in the future. As a consequence, provisions for certain components as well as
certain inventory related items for those models were recorded in order to
reduce their carrying value to net realizable value.
NOTE 4 -- NOTE RECEIVABLE:
Included in other assets as of June 30, 1996 and 1995 is a note receivable for
approximately $462,000 and $431,000, respectively, from Shenzhen Baoan Contat
Camera Factory, a Chinese Company in settlement of an account receivable. The
note is denominated in Chinese Renminbi payable in and is equal annual
installments over five years and bears interest at 4% per annum.
F - 10
NOTE 5 -- PLANT AND EQUIPMENT:
Plant and equipment consist of the following:
June 30,
1996 1995
Building and building under capital lease $ 4,654,000 $ 2,685,278
Equipment and equipment under capital lease 12,822,689 12,371,625
Office furniture and equipment 3,501,996 2,449,385
Automobiles 273,363 110,486
Leasehold improvements 842,331 1,382,089
----------- -----------
22,094,379 18,998,864
Less: Accumulated depreciation and amortization (10,385,643) (8,196,176)
$11,708,736 $10,802,688
NOTE 6 -- INVESTMENT IN JOINT VENTURES:
During the fiscal years 1991 through 1993, Concord HK maintained a 50% ownership
interest in as many as eight joint ventures (the "Ventures"), the operations of
which were based in the PRC and/or Hong Kong. Such Ventures provided various
production materials and/or services to Concord HK. The Company has over the
past several fiscal years, purchased the remaining ownership interest of the
joint ventures whose operations were most significant to the Company's
manufacturing process. In addition, over the past several fiscal years, the
Company has sold or liquidated, or is in the process of liquidating, the other
joint ventures. [See "Note 9 -- Asset Acquisitions and Dispositions"] The
acquisition or disposition of such joint ventures is consistent with the
Company's objective to consolidate its manufacturing operations in the PRC in
order to better control manufacturing costs and quality of component parts
produced. As of June 30, 1996, there were no active joint ventures.
Concord maintains a 50% ownership interest in a joint venture in Budapest,
Hungary. During the quarter ended March 31, 1994 and because of the financial
instability of the Company's joint venture partners, the joint venture ceased
its operations. The remaining assets and liabilities of this joint venture are
being liquidated. The Company has recorded provisions for any losses it may
sustain as a result of the liquidation.
The Company continued its activities in Hungary through a wholly-owned
subsidiary from the fourth quarter of Fiscal 1994 through the first quarter of
Fiscal 1996. The Company currently utilizes an independent sales representative
to service Hungary. The Company has recorded provisions for any losses it may
sustain as a result of the liquidation.
F - 11
Summarized combined financial information for unconsolidated joint ventures is
as follows (in 000's):
June 30,
1996 1995 1994
Balance sheet:
Assets $127 $127 $178
Liabilities 102 102 134
For the year ended
1996 1995 1994
Income Statement:
Gross revenues -- $ 2 $270
Gross profit -- 1 167
Net income (loss) -- ($ 11) $ 50
NOTE 7 -- SHORT-TERM DEBT:
Short term debt is comprised of:
June 30,
(in 000's)
1996 1995
The Bank of East Asia - NY $1,696 $ 547
The CIT Group/Credit Finance 1,853 2,214
The Bank of East Asia - HK 2,820 2,841
Other -- 140
------ ------
$6,369 $ 5,742
====== =======
The Bank of East Asia, Limited New York ("BOEA NY")
On December 20, 1994, the Company obtained a one year, $1,500,000 revolving
credit facility with BOEA NY. On September 20, 1995, the Company executed an
amendment to its revolving line of credit with the BOEA NY to increase the
credit facility to $3,000,000. The facility has also been extended to December
19, 1996. The BOEA NY Facility is secured by certain accounts receivable of the
Company's Hong Kong operations and bears interest at 2% above BOEA NY's prime
lending rate,
F - 12
which was 8.25% at June 30, 1996. Availability under the BOEA NY Facility is
subject to advance formulas based on eligible accounts receivable with no
minimum borrowing.
The CIT Group/Credit Finance, Inc ("CIT")
The Company has a $5,000,000 credit facility with CIT (the "CIT Facility") which
expires on May 31, 1997. The CIT Facility is secured by accounts receivable,
inventory and other related assets of the Company's United States operations and
bears interest at 2% above CIT's prime lending rate, which was 8.25% at June 30,
1996. Availability under the CIT Facility is subject to advance formulas based
on eligible inventory and accounts receivable with minimum borrowing of
$2,000,000.
Bank of East Asia, Limited ("BOEA") -- Hong Kong
Concord HK has a credit facility (the "BOEA Facility") with BOEA that provides
Concord HK with up to $6,900,000 of financing as follows: letters of credit and
standby letters of credit up to $2,825,000, overdraft and packing loans of up to
$3,600,000 and an installment loan of $475,000. The installment loan was
utilized in part to repay the outstanding mortgage obligation on the Hong Kong
office property to the Bank of China [See "Note 8 - Long-term Debt".] As of June
30, 1996, approximately $5,338,000 was utilized and approximately $1,087,000 was
available under the BOEA Facility. Approximately $2,820,000 of the total
$5,813,000 utilized was in the form of trade finance, including but not limited
to import letters of credit. The BOEA Facility, which is payable on demand,
bears interest at 2% above BOEA's prime lending rate for letters of credit and
2.25% above BOEA's prime lending rate for overdraft and packing loans. At June
30, 1996 BOEA's prime lending rate was 8.25%. In connection with the BOEA
Facility, Concord HK has placed a $1,138,000 time deposit with BOEA, which is
included in prepaid and other current assets at June 30, 1996 and such deposit
is pledged as collateral for the BOEA facility. In addition, all amounts
outstanding under the BOEA Facility are guaranteed by Concord.
In the fourth quarter of Fiscal 1995, East Asia Finance Company, a wholly-owned
subsidiary of BOEA, extended to Concord HK a five year equipment leasing
facility in the amount of approximately one million dollars. At June 30, 1996,
approximately $442,000 was outstanding and classified as capital lease
obligations.
Due to the short-term nature of these debt instruments, the Company believes
that the carrying amount approximates its fair value.
F - 13
NOTE 8 -- LONG-TERM DEBT:
Long-term debt consists of the following:
June 30,
1996 1995
Mortgage with the Bank of China, payable through May
2004, monthly payments of $2,100, plus interest at
bank's prime lending rate(9.0% at June 30, 1995), plus
1% -- $289,268
Mortgage with the Bank of East Asia, payable through
October 2005, monthly principal and interest
(at 10.75% per annum) payments of $6,658.
Outstanding balance is guaranteed by Concord
[See "Note 7 - Short-term Debt"] $460,141 --
460,141 289,268
Current portion of long-term debt (29,552) (24,836)
--------- --------
Long-term portion $430,589 $264,432
======== ========
Future maturities of long-term debt, exclusive of capital lease obligations, are
as follows:
Fiscal year:
1997...............................................$ 29,552
1998............................................... 32,776
1999............................................... 36,662
2000............................................... 40,950
2001............................................... 45,915
Thereafter......................................... 274,286
$460,141
F - 14
NOTE 9 -- ASSET ACQUISITIONS AND DISPOSITIONS:
During Fiscal 1994, Concord HK sold its 60% interest in a joint venture for
approximately $381,000 to its former joint venture partner. Of the total
consideration paid, approximately $180,000 was in the form of lens making
machinery and the balance in cash. The Company will continue to manufacture, at
its production facility in the PRC, the hybrid and plastic lenses previously
supplied by this joint venture. During the fiscal years 1994 and 1995, the
Company has recorded provisions for losses and costs associated with the
liquidation of the inactive subsidiaries and joint ventures in Hong Kong.
NOTE 10 -- COMMON STOCK:
The Company's Incentive Plan permits the Compensation Committee of the Company's
Board of Directors to grant a variety of common stock awards and provides for a
formula plan for annual grants to non-employee directors. The maximum number of
shares of common stock available for awards under the Incentive Plan is
2,000,000. Upon the adoption of the Incentive Plan, the Company's 1988 Stock
Option Plan was terminated except with respect to any unexercised options
outstanding thereunder.
Stock option activity is as follows:
Number of Shares Option price per share
Outstanding June 30, 1993 628,225 $1.63 - $9.50
Canceled (45,125) $4.50 - $8.88
Granted 270,950 $3.88 - $7.69
Exercised (52,800) $5.56 - $8.44
---------- -------------
Outstanding June 30, 1994 801,250 $1.63 - $9.50
Cancelled (426,100) $1.63 - $9.50
Granted 809,450 $2.13 - $5.00
Exercised -- --
---------- ------------
Outstanding June 30, 1995 1,184,600 $1.69 - $9.00
Cancelled (120,750) $2.19 - $8.31
Granted 960,500 $2.19 - $5.50
Exercised (456,000) $1.69 - $5.38
----------- -------------
Outstanding June 30, 1996 1,568,350 $2.13 - $9.00
========= =============
At June 30, 1996, 127,050 shares are available for future grants.
An aggregate of 1,000,000 shares of the Company's common stock are subject to
options which were granted under the Company's stock option plan for Jack C.
Benun, formerly Chairman and Chief Executive Officer, (the "Benun Plan") at
prices ranging from $5.00 - $12.00. On July 14, 1994, all of
F - 15
such options were canceled in connection with Benun's termination.
[See "Note 14 - Litigation and Settlements."]
For financial reporting purposes, 444,000 shares of Common Stock, which were
issued in exchange for notes of $2,386,500 pursuant to the Company's Senior
Management Common Stock Purchase Award Provisions, forming a part of the
Company's Incentive Plan, have been treated as outstanding since August 23,
1995, the date upon which commitments for the purchase of such shares were made
by the purchasers. Definitive agreements and the related notes for such
purchases were executed on November 7, 1995 when the shares were issued. The
purchase price was paid by a loan from the Company to the participating senior
executives and evidenced by a full recourse promissory note secured by the
common stock purchased by the executives. The notes mature five years from the
date of purchase and bear interest at 6%. Each senior management purchaser has
been granted a restricted stock award covering a number of shares equal to the
number of shares purchased by such purchase. The restricted stock will only be
issued based upon attainment of increases in shareholder value in accordance
with the Incentive Plan.
As of June 30, 1996, the Company had the following additional options and
warrants outstanding:
Warrants to purchase 58,333 shares of the Company's common stock at an exercise
prices of $6.00 per share, were issued in connection with certain consulting
services provided to the Company by Jack Silver. The warrants expire on March
31, 1997.
Pursuant to his amended employment agreement, 340,000 shares of the Company's
common stock are subject to options which were granted to Ira B. Lampert,
Chairman and Chief Executive Officer, ("Lampert") at an exercise price of $4.00
per share. An additional 150,000 shares of the Company's common stock are
subject to options which will only be granted to Lampert contingent upon the
consummation of an acquisition described in Mr. Lampert's amended employment
agreement at an exercise price of $6.00 per share.
Pursuant to his employment agreement, 25,000 and 275,000 shares of the Company's
common stock are subject to options which were granted to Steve Jackel, Chief
Operating Officer, at an exercise price of $3.00 and $4.00 per share,
respectively.
Pursuant to terms of his employment agreement, 60,000 shares of the Company's
common stock are subject to options which were granted to Lawrence Pesin, Vice
President Global Marketing, at an exercise price of $4.00 per share.
Pursuant to terms of his employment agreement, 60,000 shares of the Company's
common stock are subject to options which were granted to Brian King, Vice
President Corporate Development & Strategy, at an exercise price of $4.00 per
share.
As of June 30, 1996, a total of 2,670,400 shares of common stock have been
reserved for issuance.
At the Board of Directors meeting of August 23, 1995, a Management Incentive
Compensation Program was approved for the 1995 Fiscal year and for subsequent
periods. The Plan was enacted in order to foster increased efforts by senior
executives on behalf of the Company by giving them a direct financial interest
in the Company's performance and to encourage key employees to remain with the
Company
F - 16
as well as to provide an incentive in the recruitment of senior management. The
incentive pool is to be earned if the Company achieves certain return on equity
goals. The goals are reviewable each year by the Board and may be amended. If
the goals are achieved, an Inventive Fund is to be established of up to 10% of
earnings after taxes and any unawarded portion of an Incentive fund from
previous years. Included in general and administrative expenses in Fiscal 1995
is an accrual of $350,000 allocated to the Incentive Fund for Fiscal 1995
incentive compensation payments. No accrual was made in Fiscal 1996.
NOTE 11 -- INCOME TAXES:
For financial reporting purposes, pre-tax income (loss) consists of the
following:
June 30,
1996 1995 1994
(In 000's)
United States $ 979 $ (4,024) $ (4,141)
Foreign (2,633) 5,340 3,320
----------- -------- -----------
$ (1,654) $ 1,316 $ (821)
========== ========= ===========
The provision for income taxes, principally related to foreign operations is
comprised of the following:
June 30,
1996 1995 1994
Current $ 121,773 $ 94,475 $ (62,894)
Deferred (41,953) 12,515 185,944
------------ --------- ----------
$79,820 $106,990 $123,050
=========== ======== =========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carry forwards. The tax effects of significant items comprising the Company's
net deferred tax liability as of June 30, 1996 are as follows:
F - 17
Deferred Tax Liabilities:
Domestic Foreign Total
Difference between book and tax basis of property ($ 3,458) ($341,345) ($344,803)
Other deferred liabilities (58,587) (39,499) (98,086)
-------- -------- --------
Total deferred liabilities ($ 62,045) ($380,844) ($442,889)
========== ========== ==========
Deferred Tax Assets:
Operating loss carry forwards $5,840,563 $5,840,563
Reserves not currently deductible 289,974 289,974
Difference between book and tax basis of foreign subsidiaries 344,936 344,936
Difference between book and tax basis of property 101,306 101,306
Tax credits 34,882 34,882
Contributions Carryover 28,572 28,572
Other deferred tax assets 75,478 75,478
------- ------
Total deferred tax assets 6,715,711 -- 6,715,711
Valuation allowance 6,715,711 -- 6,715,711
---------- ---------- -----------
Total deferred tax assets after valuation allowance -- -- --
======== ========== ===========
Net long-term deferred tax liability ($ 62,045) ($380,844) ($442,889)
============= ========== ==========
F - 18
The tax effects of significant items comprising the Company's net deferred tax
liability as of June 30, 1995 were as follows:
Domestic Foreign Total
Deferred Tax Liabilities
Difference between book and tax basis of property $ (3,458) $(464,446) $(467,904)
Other deferred liabilities -- (20,396) (20,396)
Total deferred tax liabilities $ (3,458) $(484,842) $ (488,300)
Deferred Tax Assets
Operating loss carryforwards $5,884,128 $ -- $5,884,128
Reserves not currently deductible 237,446 -- 237,446
Difference between book and tax basis of foreign subsidiaries 393,183 -- 393,183
Difference between book and tax basis of joint ventur 66,201 -- 66,201
Difference between book and tax basis of property 92,219 -- 92,219
Tax credits 69,764 -- 69,764
Contributions carryover 27,261 -- 27,261
Other deferred tax assets 222,867 -- 222,867
Total deferred tax assets 6,993,069 -- 6,993,069
Valuation allowance (6,989,611) (6,989,611)
----------- ------------ -----------
Total deferred tax assets after valuation
allownce $ 3,45 $-- 3,458
============ =========== ==========
Net long-term deferred tax liability $ ($ -484,842) ($484,842)
============ =========== ==========
In May 1992, the Hong Kong Inland Revenue Department notified Concord HK that
its annual tax rate had been reduced from 16.5% to 8.25% from April 1, 1990 to
June 30, 1992 and that its annual tax rate commencing July 1, 1992 will be
8.75%. The Company currently does not pay taxes or import/export duties in the
PRC, but there can be no assurance that the Company will not be required to pay
such taxes or duties in the future.
The Company has never paid any income or turnover tax to the PRC on account of
its business activities in the PRC. Existing PRC statutes can be construed as
providing for a minimum of 10% to 15% income tax and a 3% turnover tax on the
Company's business activities; however, the PRC has never attempted to enforce
those statutes. The Company has been advised that the PRC's State Tax Bureau is
reviewing the applicability of those statutes to processing activities of the
type engaged in by the Company, but it has not yet announced any final decisions
as to the taxability of those activities. After consultation with its tax
advisors, the Company does not believe that any tax exposure it may have on
account of its
F - 19
operations in the PRC will be material to its financial condition.
The Company does not provide U.S. Federal income taxes on undistributed earnings
of its foreign subsidiaries as it intends to permanently reinvest such earnings.
Undistributed earnings of its foreign subsidiaries approximated $14 million
dollars as of June 30, 1996. It is not practicable to estimate the amount of tax
that might be payable on the eventual remittance of such earnings. Upon eventual
remittance, no withholding taxes will be payable. As of June 30, 1996, Concord
had net operating loss carry forwards for U.S. tax purposes of approximately
$14,653,000 which expire as follows: $644,000 in 2005; $16,000 in 2006; $444,000
in 2007; $6,630,000 in 2008 and $2,770,000 in 2009, and $4,149,000 in 2010.
Losses for state tax purposes begin to expire in 1997.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate taxable income
in these jurisdictions is more certain.
A reconciliation of income tax expense computed at the statutory U.S. Federal
rate to the actual provision for income taxes is as follow:
June 30,
1996 1995 1994
Computed tax (benefits) at statutory U.S. Fede $ (562,483) $ 447,443 ($279,000)
Utilization of operating loss carryforward (332,730) -- --
Earnings of foreign subsidiaries subject to a
differenc tax rate -- (1,784,278) (624,000)
Refund of prior year's income taxes paid by foreign
subsidiary -- (4,456) (63,000)
Losses producing no current tax benefit 950,733 1,525,818 1,095,000
Other 24,300 (77,537) (5,950)
$ 79,820 $ 106,990 $ 123,050
============= ========== =========
NOTE 12 -- RESEARCH AND DEVELOPMENT:
The Company's products are created, designed and engineered principally by its
own engineers in Hong Kong. The Company expended approximately $1,722,000,
$598,000, and $1,021,000, during the fiscal years ended June 30, 1996, 1995, and
1994, respectively, for product design and development (including redesign and
redevelopment). The large increase in Fiscal 1996 is due to the significant
development costs incurred with respect to the Company's new APS single use and
traditional cameras.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES:
Concord leases its corporate office and warehouse facilities which, under the
current lease terms, expires in December 1997. The lease requires monthly
payments of approximately $13,300 and also requires
F - 20
the Company to pay the related real estate taxes. The Company is currently
reviewing its requirements for both administrative and warehouse space.
The Company also leases various fixed assets which have been classified as
capital leases. The initial terms of such capital leases range from three to
five years and expire at various times through 2000. Monthly payments on those
leases range from approximately $300 to $50,000.
The following is a summary of assets under capitalized leases:
June 30,
1996 1995
Assets under capitalized leases $5,537,349 $4,436,392
Less: accumulated amortization (2,936,885) (1,009,398)
------------ ----------
$ 2,600,464 $3,426,994
=========== ==========
Future minimum rental payments are as follows:
Operating Capital
Leases Leases
Fiscal year:
1997 $ 754,145 $ 797,462
1998 424,379 776,329
1999 204,944 752,668
2000 156,816 689,053
2001 26,268 --
Thereafter 74,400 --
----------- -----------
3,015,512
Total minimum payments $1,640,952
==========
Less: amount representing interest (496,170)
-----------
Present value of net minimum lease payments $2,519,342
==========
The effective interest rates on capital leases range from approximately 12% to
14%. Rental expense for operating leases of approximately $1,121,000,
$1,033,000, and $1,004,000 was incurred for fiscal years ended June 30, 1996,
1995 and 1994, respectively.
F - 21
The Company has employment agreements with certain of its key employees. The
agreements are for periods of one to four years and expire at various dates
through fiscal 1999. Under the terms of such employment arrangements, the
Company is committed to pay annual salaries of approximately $1,346,000,
$1,073,000, and $308,000 for the fiscal year ending June 30, 1997, 1998 and
1999, respectively. Certain of the agreements also provide for other incentives
which are based on the operating performance of the Company.
The Company has License and Royalty Agreements which require the payment of
Royalties based on the manufacture and or sale of certain products which expire
at various dates through Fiscal 2008.
NOTE 14 -- LITIGATION AND SETTLEMENTS
Jack C. Benun. On November 18, 1994 the Company filed a demand for arbitration
in New Jersey, for money damages in excess of $1.5 million, against Jack C.
Benun ("Benun"), former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company including the misappropriation of funds from the Company. Mr. Benun
has submitted a counterclaim in which he alleges among other things a wrongful
termination by the Company. The Company is vigorously pursuing its action as
well as defending the counterclaim. The matter is currently in discovery. The
Company has reserved its rights under any other claims it may have against Mr.
Benun. [See below "Purported Class Action"]
Purported Class Action. On February 22, 1995, the Company was served with a
complaint purporting to be a class action on behalf of purchasers of the
Company's common stock. On September 5, 1995, plaintiffs in response to motions
to dismiss by the Company and the individual defendants, filed a motion to file
an amended complaint. The complaint and the amended complaint were predicated
upon the wrongdoing of Benun and the failure of the Company and the individual
members of the Board of Directors to properly address such actions. By order
dated April 1, 1996 the matter was dismissed for lack of diligent prosecution.
Fuji. On October 19, 1995, the Company was served with a summons and complaint
in an action styled Fuji Photo Film Co., Ltd. ("Fuji") v. Concord Camera Corp.,
filed in the United States District Court for the Southern District of New York.
The action was for patent infringement in connection with certain of the
Company's single-use cameras. The Company answered the complaint and served its
counter-claim seeking a declaratory judgement that the Fuji patents are invalid,
unenforceable and not infringed by the Company. Fuji and the Company entered
into a License Agreement effective January 1, 1996. A Stipulation and Order of
Dismissal was entered on July 15, 1996.
F - 22
NOTE 15 -- FOREIGN OPERATIONS:
Set forth below is a summary of significant financial information regarding the
Company's foreign operations (in 000's):
June 30,
1996 1995 1994
Current assets $ 33,427 $32,814 $ 31,428
Noncurrent assets 13,885 13,576 12,598
--------- -------- ---------
Total assets 47,312 46,390 44,026
Liabilities 30,922 27,325 33,102
--------- -------- ---------
Equity $ 16,390 $19,065 $ 10,924
======== ======= ========
Net sales (including intercompany sales) $ 73,595 $61,560 $ 51,574
Costs and expenses 76,266 56,599 50,666
--------- -------- ---------
Net income (loss) ($ 2,671) $ 4,961 $ 908
========= ======== ==========
Significant financial information regarding the Company's operations, which
includes the effect of the elimination of intercompany transactions, is as
follows (in 000's):
June 30,
1996 1995 1994
Sales made to unaffiliated customers:
United States $ 8,954 $20,161 $29,014
Canada 4,270 2,966 3,701
Central America 1,849 1,824 1,957
Hong Kong/People's Republic of China 42,442 27,910 13,288
Federal Republic of Germany 3,161 3,509 3,853
United Kingdom 3,896 3,573 2,898
France 2,199 1,817 --
Hungary 11 379 106
-------- --------- ----------
$66,782 $62,139 $54,817
======= ======= =======
Sales to unaffiliated customers exclude intercompany sales (in 000's) of
approximately $16,000, $19,757, and $27,400 for fiscal years 1996, 1995 and
1994, respectively. The basis of accounting for
F - 23
intercompany sales is cost plus a manufacturing profit.
June 30,
1996 1995 1994
Income (loss) before income taxes:
United States $ 1,330 ($4,827) ($2,822)
Canada (351) (384) (1,228)
Central America (156) (134) 64
Hong Kong/People's Republic of China (1,153) 6,776 3,217
Federal Republic of Germany (509) 131 ( 11)
United Kingdom (748) (371) ( 50)
France (27) 125 --
Hungary (40) -- 8
-----------------------------------
($ 1.654) $ 1,316 ($ 822)
========= ======== =========
June 30,
1996 1995 1994
Identifiable assets:
United States $ 8,088 $ 9,563 $15,805
Canada 1,690 1,366 1,516
Central America 1,075 1,594 1,701
Hong Kong/People's Republic of China 32,445 30,128 22,842
Federal Republic of Germany 2,990 3,939 4,422
United Kingdom 2,265 1,968 1,687
France 1,297 1,318 --
Hungary -- 313 210
----- ----- -----
$49,850 $50,189 $48,183
======== ======= =======
F - 24
NOTE 16 -- RELATED PARTY TRANSACTIONS:
During the fiscal years ended June 30, 1996 and 1995, the Company paid
consulting fees and expenses of approximately $218,000 and $95,000, respectively
to a firm, the President of which was appointed Chief Operating Officer and
President of the Company in January 1996.
During the first quarter of fiscal 1995, the Company entered into an agreement
with a member of the Board to provide sales and marketing consulting services.
Selling expenses include $56,000 and $63,000 for such consulting services and
related expenses during the fiscal years ended June 30, 1996, and 1995,
respectively.
During the fiscal year ended June 30, 1994, the Company paid consulting fees and
expenses of approximately $22,000 to a firm, the President of which was
appointed Chairman and Chief Executive Officer in July 1994.
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
June 30,
1996 1995 1994
Cash paid for interest $ 882,000 $820,000 $1,126,000
========= ======== ==========
Cash paid for taxes $ 329,000 $ 88,000 $ 86,000
========= ========= ============
During the fiscal year ended June 30, 1996 and 1995, capital lease obligations
of approximately $2,569,000 and $130,000 were incurred when the Company entered
into leases for new equipment.
NOTE 18 -- OTHER (INCOME) EXPENSES -- NET
June 30,
1996 1995 1994
(Gain) loss on sales of long term assets $ 20,000 ($ 5,000) ($ 229,000)
Other interest income (271,000) (135,000) (74,000)
Settlements from legal proceedings -- -- (447,000)
Other (income) expense, net 200,000 27,000 (17,000)
Directors fees 128,000 173,000 212,000
Foreign exchange (gain) loss, net (107,000) 95,000 776,000
------------- ------- -------
($ 30,000) $155,000 $221,000
============ ======== ========
F - 25
Schedule II
CONCORD CAMERA CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to
beginning costs and other Balance at
Description of period expenses accounts Deductions end of period
Reserve for doubtful accounts, discounts and allowances
Fiscal Year:
1994 2,161,525 613,353 -- 1,140,704 1,634,174
1995 1,634,174 218,496 -- 810,899 1,041,771
1996 1,041,771 584,497 -- 232,683 1,393,585
Inventory Reserves and provisions
Fiscal Year:
1994 1,829,121 -- -- 544,542 1,284,579
1995 1,284,579 148,669 -- 396,547 1,036,701
1996 1,036,701 3,034,604 -- 839,200 3,232,105
F - 26
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONCORD CAMERA CORP.
By
Ira B. Lampert, Chairman and Chief Executive Officer
Date: September 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title Date
_____________________________ Director, Chairman and September 25, 1996
Ira B. Lampert Chief Executive Officer
_____________________________ Director, Chief Operating September 25, 1996
Steve Jackel Officer and President
____________________________ Chief Accounting Officer September 25, 1996
Harlan I. Press
___________________________ Director September 25, 1996
Eli Arenberg
__________________________ Director September 25, 1996
Morris Gindi
_________________________ Director September 25, 1996
Joel L. Gold
_________________________ Director September 25, 1996
J. David Hakman
_________________________ Director September 25, 1996
Ira J. Hechler
_________________________ Director September 25, 1996
Kent M. Klineman
F - 27
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONCORD CAMERA CORP.
By /s/ Ira B. Lampert
Ira B. Lampert, Chairman and Chief Executive Officer
Date: September 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title Date
/s/ Ira B. Lampert Director, Chairman and September 25, 1996
Ira B. Lampert Chief Executive Officer
/s/ Steve Jackel Director, Chief Operating September 25, 1996
Steve Jackel Officer and President
/s/ Harlan I. Press Chief Accounting Officer September 25, 1996
Harlan I. Press
/s/ Eli Arenberg Director September 25, 1996
Eli Arenberg
/s/ Morris Gindi Director September 25, 1996
Morris Gindi
/s/ Joel L. Gold Director September 25, 1996
Joel L. Gold
/s/ J. David Hakman Director September 25, 1996
J. David Hakman
/s/ Ira J. Hechler Director September 25, 1996
Ira J. Hechler
/s/ Kent M. Klineman Director September 25, 1996
Kent M. Klineman
F - 28