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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, 1997 Commission file No. 0-17038
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: (732) 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 19, 1997 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 $45,561,981.
As of September 19, 1997 the number of shares outstanding
of the Company's Common Stock was 10,880,473.
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DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index -- Page --
Page 1 of
PART I
This report contains certain "forward-looking statements" concerning the
Company's operations, economic performance and financial conditions, which are
subject to inherent uncertainties and risks. Actual results could differ
materially from those anticipated in this report. When used in this report, the
words "estimate," "project," "anticipate," "expect," "intend," "believe" and
similar expressions are intended to identify forward-looking statements.
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 America, three 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 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 PRC. The Company's
objective is to respond to consumer demand 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
The Company sells its products to both United States and foreign customers. In
Fiscal 1997, approximately 43% of the Company's consolidated sales were made to
customers in the United States. Approximately 57% of the Company's consolidated
sales were made to customers outside the United States.
The Company's customers consist of major discount, drugstore and retail chains,
independent retail stores, distributors, accounts which use the cameras as
premiums in connection with their product sales and major original equipment
manufacturers ("OEMs").
In Fiscal 1997, two OEM customers of finished single-use cameras and unassembled
single-use cameras without film and batteries, accounted for 40.4% of the
Company's consolidated sales. Imation (formerly a subsidiary of Minnesota Mining
& Manufacturing Co.) and Agfa-Gevaert AG accounted for 19.8% and 20.6% of
consolidated sales, respectively. The Company believes the loss of such
customers would have a material adverse effect on the Company and its
subsidiaries, taken as a whole. No other customer accounted for 10% or more of
sales.
During the first quarter of Fiscal 1998, the Company executed an agreement with
one of the world's largest film and camera manufacturers, pursuant to which the
Company will produce a lower cost Advanced Photo System camera to be sold and
marketed by this customer as one of its branded products. The Company
anticipates that revenues from the sale of this camera will be approximately $20
million in
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Fiscal 1998. Shipments of this product began in September 1997. In addition, the
Company has completed an agreement with another of the world's leading
specialized film and camera manufacturers to co-develop and exclusively
manufacture for this customer specialized, traditional and single-use cameras.
The Company does not expect to realize any revenues from this agreement until
Fiscal 1999, at which time sales to this new customer are expected to be
substantial. The Company is engaged in negotiations with certain of its existing
OEM customers and with other OEMs which, if successful, in certain instances
could result in other increases 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 1997
were $34,810,000 compared to $30,937,000 for the second six months of the year.
Sales for the first six months of Fiscal 1996 were $35,400,000 compared to
$31,382,000 for the second six months of that year.
Concord Americas. Consolidated sales of the Company's United States, Canadian
and Latin American operations (collectively "Concord Americas") for Fiscal 1997,
1996 and 1995 were approximately $11,629,000, $15,073,000 and $24,951,000,
respectively. Net sales for Fiscal 1995 included OEM sales with point-of-sale
out of the U.S. of approximately $2,225,000 and non-camera revenues of
approximately $2,476,000. If the foregoing sales were eliminated from Concord
Americas operations from Fiscal 1995, it would reflect traditional camera sales
in the Americas for Fiscal 1997, 1996 and 1995 of $11,629,000, $15,073,000 and
$20,250,000, respectively. During Fiscal 1997, 1996 and 1995, Concord Americas'
customers purchased approximately $10,368,000, $11,151,000 and $12,295,000,
respectively from Concord Camera HK Limited ("Concord HK"). These decreases are
due to lower sales of traditional and single-use camera models. The decrease in
traditional camera revenues was anticipated and previously outlined in the
Company's Form 10-K for the fiscal year ended June 30, 1996 in connection with
management's decision to eliminate a number of older motorized and manual
traditional models. [See "Item 1. Products-35 Millimeter Models"].
As part of its continuing effort to reduce worldwide administrative expenses,
the Company shut down its Panamanian operations during Fiscal 1997. The Company
has consolidated certain administrative, accounting and warehousing functions of
the United States, Canadian and Panamanian operations in the United States 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 Europe (formerly Concord Camera UK Limited) ("Concord UK") and
Concord Camera France SARL ("Concord France") and Concord Camera (Hungary) Ltd.
("Concord Hungary"), collectively "Concord
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Europe," were approximately $7,868,000, $9,267,000 and $9,278,000 in Fiscal
1997, 1996 and 1995, respectively. During Fiscal 1997, 1996 and 1995, European
customers purchased approximately $4,873,000, $4,632,000 and $2,491,000,
respectively from Concord HK.
The Company has consolidated certain administrative, accounting and warehousing
functions of the British, German and French operations in the United Kingdom in
order to control costs and improve operations. Concord Europe is now in position
to better service its customers in a growing marketplace and increase its market
shares in this region.
Far East. Sales by Concord HK were approximately $46,249,000, $42,442,000 and
$27,910,000 in Fiscal 1997, 1996 and 1995, respectively. The increase is due to
the continued acceptance of the Company's newer 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, 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's Discussion and Analysis of Financial Position and Results of
Operations - Liquidity and Capital Resources]. 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" tradename 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 $854,000. [See "Note 4" to the Financial Statements]
Licensing Activities. In Fiscal 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.
In Fiscal 1997, the Company executed a license agreement with Britt Allcroft
(Thomas) Limited under which the Company licensed certain trademarks with regard
to "Thomas the Tank Engine & Friends" and certain associated marks, trademarks
and logos for use with single-use cameras, pocket 110 cameras, 35mm cameras,
Advanced Photo System cameras, photograph albums and camera cases. The agreement
expires March 31, 1998. In addition, the Company is seeking to license other
high-profile brands.
Customers. In Fiscal 1997 and 1996, approximately 67.1% and 70.1%, respectively,
of the Company's sales were to its ten 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
4
Fiscal 1997 and 1996 amounted to approximately $26,585,000 (40.4%) and
26,685,000 (40.0%), respectively. The loss of either of these two customers, in
management's opinion, could have a material adverse impact on the Company.
Imation and Agfa-Gevaert AG have renewed agreements with the Company for the
Company to supply single-use cameras as an OEM. Each agreement is for a one-year
term and requires minimum purchases of several million single-use cameras by
each of these customers. In addition, as noted above, the Company has executed
an agreement to supply a low cost Advanced Photo System camera to one of the
world's largest film and camera companies. The Company has also executed an
agreement with another of the world's leading specialized film and camera
companies to co-develop and exclusively manufacture specialized, traditional and
single-use cameras for this new customer.
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 $876,000, $889,000 and
$829,000 in Fiscal 1997, 1996 and 1995, 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 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.
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 "Risk Factors
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 on an OEM basis,
under private labels and under the CONCORD(R), KEYSTONE(R), LE CLIC(R) and
APEX(R) tradenames. Outside the United States and Mexico, the Company's camera
products are also sold under the ARGUS(R) tradename. The Company's cameras carry
suggested United States retail prices ranging from $5.99 to $60. Substantially,
5
all of the Company's revenues have been and continue to be derived from sales of
cameras and camera-related accessories.
Single-use Cameras. In Fiscal 1991, the Company introduced a line of single-use,
35 millimeter point-and-shoot cameras, which include film and carrying retail
prices ranging from $5.99 to $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 Advanced Photo
System single-use cameras to one of its OEM customers, and has also designed its
own single-use Advanced Photo System cameras, both branded and non-branded and
anticipates delivery to customers in Fiscal 1998. 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 67.1% of total sales in Fiscal
1997.
110 Cartridge Models. The Company's pocket 110 cartridge models are simple,
easy-to-use, cartridgeloading 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.
35 Millimeter Models. The Company markets several lines of 35 millimeter cameras
ranging in retail price from $15 to $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. 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.
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.
New Products. The Company's manufactured products are created, designed and
engineered principally in Hong Kong.
In Fiscal 1995, the Company embarked on a design and development program to
create innovative and attractive 35mm and Advanced Photo System single-use and
traditional cameras to replace its aging product line.
In Fiscal 1996, the Company introduced innovative single-use Advanced Photo
System cameras, co- developed with a major OEM customer. In Fiscal 1997, the
Company introduced a new attractive traditional 35mm camera designed for a new
OEM customer. In the first quarter of Fiscal 1998, the Company began delivery of
an innovative new Advanced Photo System traditional camera, co-developed with a
new OEM customer.
6
The Company has designed and will be introducing a number of innovative Advanced
Photo System and 35mm, traditional and single-use cameras in future months.
Management anticipates that the introduction of these new cameras will have a
beneficial impact on sales and profits.
The Company expended approximately $3,130,000, $1,722,000 and $598,000 in Fiscal
1997, 1996 and 1995, respectively, for product design and development. The large
increase in these costs in Fiscal 1997 was due to the significant development
costs incurred with respect to new Advanced Photo System 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
1998 as management continues to develop new products.
Suppliers, Raw Materials and Production
General. The Company owns or leases 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. The Company believes,
however, 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.
Trademarks and Patents
The Company owns trademarks on the CONCORD(R), KEYSTONE(R), Funshooter(R) and LE
CLIC(R), names for cameras sold in the United States and numerous foreign
countries. In addition, the Company owns the trademark ARGUS(R) 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
7
patent protection for a film drive system 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, 1997, the Company had 140 employees: 23 in the United States, 2 in
Germany, 6 in Canada, 95 in Hong Kong and the PRC, 1 in Japan, 2 in France and
11 in the UK. Sixty Company employees are in executive, administrative or
clerical capacities, 15 in direct merchandising and sales, 18 in warehouse and
shipping and 47 in engineering and design. No Company employee is represented by
a union. The PRC Entities currently provide the Company with approximately 2,100
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.
Risk Factors
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
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 the Company's owned facilities in the PRC with labor
supplied by PRC Entities. The PRC Entities currently supply the Company with
approximately 2,100 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 buildings and moved the
manufacturing and assembling operations from the leased assembly plants to the
new factory and existing Company owned buildings. During the first quarter of
Fiscal 1997, the Company completed the conversion of certain production
facilities on the Company leased land. Consequently, the Company no longer
leases 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 two factory buildings and the Company
owned Dormitory aggregate approximately 384,000 square feet.
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 believes that
any tax exposure it may have on account of its operations in the PRC will not 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
8
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 subcontractor 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. 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.
Risk of Expropriation and Restrictions
There is 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, 1997, the net book value of Company assets in the PRC was approximately
$12,299,000. The amount of Company assets in the PRC is expected to increase as
operations in that country continue to grow. The Company maintains property and
casualty insurance covering the cost of assets in its PRC facilities and has
insured those assets against expropriation. 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.
Interruptions as a Result of Political Events
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.
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
Dependence on Key Personnel
The Company is run by a small number of key management personnel, the loss of
certain of whom could have a material adverse impact on the Company. The Company
believes that its future success will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel.
Dependence on OEM Customers
The loss by the Company of any of its major OEM customers could have a material
adverse impact on its revenues and profits.
Competition
The camera and 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 a substantial portion of its administrative, finance,
accounting and sales activities and all of its engineering, design, product
development, purchasing and warehousing activities in Hong Kong. It conducts all
of its manufacturing in the PRC.
Foreign Currencies. 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. There can be no
assurance, however, 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. In addition, the
Company is exposed to currency risks in Japan and various other countries where
it purchases materials for its products or sells those products.
Hong Kong 1997. Effective July 1, 1997 the exercise of sovereignty over Hong
Kong was transferred from the United Kingdom to the PRC pursuant to a
Sino-British Joint Declaration on the Question of Hong Kong (the "Joint
Declaration") signed on December 19, 1984. Hong Kong is now a Special
Administrative Region ("SAR") of the PRC. 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 powers. 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.
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The Joint Declaration provides that the basic policies of the PRC regarding Hong
Kong and the elaboration of these policies in the Joint Declaration will be
stipulated in the Basic Law of the Hong Kong SAR (the "Basic Law"). The Basic
Law was adopted on April 4, 1990 and is now effective. 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."
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, 1998. 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.
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 1997. 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.
11
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 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
12
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 carryforward 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 Europe, 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.
Forward Looking Statements. The statements contained in this report that are not
historical facts are "forward-looking statements" (as such term is defined in
the Private Securities Litigation Reform Act of 1995), which can be identified
by the use of forward-looking terminology such as "estimates," "projects,"
"anticipates," "expects," "intends," "believes," or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Management wishes to caution the
reader that these forward-looking statements, such as statements regarding
development of the Company's business, the Company's anticipated capital
expenditures and other statements contained in this report regarding matters
that are not historical facts, are only estimates or predictions. No assurance
can be given that future results will be achieved; actual events for results may
differ materially as a result of risks facing the Company or actual results
differing from the assumptions underlying such statements. In particular,
expected revenues could be adversely affected by production difficulties or
economic conditions adversely affecting the market for the Company's products.
To obtain the results expected from the introduction of the Company's new
products will require timely completion of development, successful ramp-up of
full-scale production on a timely basis and customer and consumer acceptance of
those products. In addition, the OEM agreements require an ability to meet high
quality and performance standards, successful implementation of production at
greatly increased volumes and an ability to sustain production at greatly
increased volumes, as to all of which there can be no assurance. There also can
be no assurance that products under development will be successfully developed,
or that once developed, such products will be commercially successful.
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 $13,300 per month and
expires in December 1998.
13
Hong Kong. The Company owns one floor and leases three floors constituting
approximately 23,000 square feet of warehouse and business space at Fortei
Building, 98 Texaco Road, Tsuen Wan, New Territories, Hong Kong at a cost of
approximately $15,800 per month, including rent and maintenance.
Other Jurisdictions. The Company leases warehouse and/or office space in France,
Canada, Germany and the UK in connection with the activities of its subsidiaries
in those jurisdictions.
PRC--Operations. Cameras and components are manufactured and assembled at the
Company owned manufacturing facilities located in Baoan County, Shenzhen
Municipal, PRC (the "Company Facility"). The Company leased an employee
dormitory (the "Dormitory") at a cost of approximately $12,800 per month. The
aggregate square footage of the Company Facility and the Dormitory is
approximately 366,000 square feet.
In Fiscal 1996, the Company completed construction of an additional factory
building and in Fiscal 1997 completed the conversion of a 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 incurred costs of approximately $1,929,000.
Such cost will be amortized over the expected useful life of the Addition. If
production requirements continue to increase, the Company may be required to
provide for an additional dormitory.
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 wrongful termination of his
employment and denial of benefits 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.
14
Item 4. Submission of Matters to a Vote of Security Holders.
On April 17, 1997 the Company held its Annual Meeting of Shareholders at which
all of the Company's nominees for directors were elected. The shareholders' vote
electing each of the directors was as follows:
Mr. Ira B. Lampert 9,290,912 for, 1,098,718 withheld;
Mr. Steve Jackel 9,287,811 for, 1,101,819 withheld;
Mr. Eli Arenberg 9,278,751 for, 1,110,879 withheld;
Mr. Morris H. Gindi 9,280,912 for, 1,108,718 withheld;
Mr. Joel Gold 9,290,912 for, 1,098,718 withheld;
Mr. J. David Hakman 9,278,912 for, 1,110,718 withheld;
Mr. Ira J. Hechler 9,288,751 for, 1,100,879 withheld; and
Mr. Kent M. Klineman 9,286,111 for, 1,103,519 withheld
The shareholders also ratified the selection of Ernst & Young LLP as the
Company's independent auditors by a vote of 10,250,773 for, 49,553 against and
89,304 abstain.
The shareholders approved an amendment to the Company's Certificate of
Incorporation (the "Certificate") increasing the authorized Common Stock from
20,000,000 shares to 40,000,000 shares by a vote of 8,924,130 for, 1,383,189
against and 82,311 abstain.
The shareholders did not adopt a proposed amendment to the Company's Certificate
authorizing the Company to issue up to 1,000,000 shares of preferred stock by a
vote of 2,714,215 for, 1,873,146 against and 79,015 abstain. Holders of
5,723,254 shares did not vote on this proposal.
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 19, 1997, there were 10,880,473 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, 1995 6 5/8 4 1/8
December 31, 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
September 30, 1996 3 1/8 1 15/16
December 31, 1996 2 7/16 1 9/16
March 31, 1997 2 13/16 1 21/32
June 30, 1997 2 25/32 1 3/4
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,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands except per share amounts)
STATEMENT OF INCOME DATA:
Net Sales $ 65,747 $66,782 $ 62,139 $54,817 $59,131
-------- -------- ------- ------ -------
Cost of Product sold 48,722 49,293 41,984 37,684 40,081
------- ------ ------- ------ -------
Gross Profit 17,025 17,489 20,155 17,133 19,050
Operating expenses 17,864 19,173 18,685 17,734 26,239
------- ------ ------- ------ -------
(839) (1,684) 1,470 (601) (7,189)
Other (income) expenses, net (123) (30) 154 221 147
------ ----- ---- ---- ----
Income (loss) from operations before income taxes (716) (1,654) 1,316 (822) (7,336)
Income taxes 117 80 107 123 298
---- --- ---- ---- ----
Net income (loss) ($833) ($1,734) $ 1,209 ($945) ($7,634)
======= ======== ======= ======= ========
Earnings (loss) per share ($0.08) ($0.16) $0.12 ($0.09) ($0.99)
======== ======== ====== ======== ========
BALANCE SHEET DATA:
Working Capital $13,994 $16,696 $17,432 $21,115 $14,032
======= ======= ======= ======= =======
Total assets $53,088 $49,850 $50,189 $48,182 $46,718
======= ======= ======= ======= =======
Long-term debt $2,397 $2,379 $ 388 $ 3,998 $ 2,493
====== ====== ===== ======= =======
Total stockholders' equity $29,502 $30,478 $32,264 $31,055 $26,228
======= ======= ======= ======= =======
17
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, 1997, 1996 and
1995:
Year Ended June 30,
1997 1996 1995
Net Sales 100.0% 100.0% 100.0%
Cost of Product Sold 74.1 73.8 67.6
---- ---- ----
Gross Profit 25.9 26.2 32.4
Operating Expenses 27.2 28.7 30.1
Other Expense, net (0.2) 0.0 0.2
---- ---- ----
Income (loss) before income taxes (1.1) (2.5) 2.1
---- ---- ----
Income taxes 0.2 0.1 0.2
---- ---- ----
Net income (loss) (1.3% (2.6%) 1.9%
===== ===== =====
Fiscal 1997 Compared to Fiscal 1996
Revenues. Total revenues for Fiscal 1997 and 1996 were approximately $65,747,000
and $66,782,000, respectively, a decrease of approximately $1,035,000 or 1.5%.
Revenues from OEM sales in Fiscal 1997 increased by approximately $3,606,000 or
13.7% to $29,880,000 in Fiscal 1997 from $26,274,000 in Fiscal 1996, while sales
to other customers decreased by approximately $4,641,000 or 11.5% to $35,867,000
in Fiscal 1997 from $40,508,000 for Fiscal 1996. The increase in OEM sales is
attributable to increased purchases by two preexisting OEM customers together
with purchases by two new OEM customers, offset in part by decreased purchases
by another preexisting customer. The decline in sales to other customers is
attributable to lower sales of traditional and single-use camera models. The
decrease in traditional camera revenues was anticipated and previously outlined
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1996 in connection with management's decision to eliminate a number of older
motorized and manual traditional models.
The Company has signed an agreement with one of the world's largest film and
camera manufacturers pursuant to which the Company will produce a lower cost
Advanced Photo System camera to be sold and marketed by the customer as one of
its own branded products. The Company anticipates revenues from the sale of this
camera will be approximately $20,000,000 in Fiscal 1998. Shipments began in
September 1997. With this additional revenue, the Company anticipates returning
to profitability in Fiscal 1998 and expects net income for Fiscal 1998 to be in
the range of $5 million to $7 million. In addition, the
18
Company has completed an agreement with another of the world's leading
specialized film and camera manufacturers to co-develop and exclusively
manufacture specialized, traditional and single-use cameras for this customer.
The Company does not expect to realize any revenues from this agreement until
Fiscal 1999, at which time sales to this new customer are expected to be
substantial.
Single-use camera sales amounted to approximately $44,108,000 or 67.1% of total
sales in Fiscal 1997 versus $43,553,000 or 65.2% of total sales in Fiscal 1996.
Sales by Concord HK in Fiscal 1997 and 1996 were approximately $46,249,000 and
$42,442,000 respectively, an increase of approximately $3,807,000 or 9.0%. The
increase is due primarily to the continued growth of shipments to OEM customers
by Concord Hong Kong. This trend is expected to continue into Fiscal 1998.
Consolidated sales of Concord Americas for Fiscal 1997 and 1996 were
approximately $11,629,000 and $15,073,000, respectively, a decrease of
$3,444,000 or 22.8%. During Fiscal 1997 and 1996, Concord Americas' customers
purchased approximately $10,368,000 and $11,151,000, respectively from Concord
HK, a decrease of approximately $783,000 or 7.0%. Shipments to Concord Americas
customers by Concord HK and Concord Americas combined, of approximately
$21,997,000 in Fiscal 1997 declined $4,227,000 or 16.1%. The decrease in sales
to Concord Americas resulted from an aging product line of traditional cameras
and intensified competition in the sale of single-use cameras.
Consolidated sales of Concord Europe for Fiscal 1997 and 1996, were
approximately $7,868,000 and $9,278,000, respectively. In addition, certain
European customers purchased merchandise direct from Concord HK on an F.O.B.
basis. During Fiscal 1997 and 1996, European customers purchased approximately
$4,873,000 and $4,632,000, respectively, from Concord HK, an increase of
approximately $241,000 or 5.2%. Combined sales to European customers by Concord
HK and Concord Europe of $12,742,000 in Fiscal 1997 decreased $1,168,000 or 8.4%
from Fiscal 1996 combined sales of $13,910,000. This decrease is primarily
attributable to an aging product line, intensified competition in the sale of
single-use cameras and the effect of a United States dollar that increase in
value relative to European currencies during Fiscal 1997.
Gross Profit. Gross profit, expressed as a percentage of sales, decreased from
26.2% in Fiscal 1996 to 25.9% in Fiscal 1997. This decrease was primarily due to
increased engineering and product development costs of approximately $3,130,000
in Fiscal 1997, an increase of $1,408,000 or 81.8% from 1996 and in part to the
sale of products with lower gross profit margins. Gross Profit in Fiscal 1996
included a provision for inventory and related items of approximately $3,035,000
on certain 35 millimeter camera products and related inventory. The Company
anticipates product development costs to increase in Fiscal 1998 as management
continues to expand Advanced Photo System product lines.
Operating Expenses. Operating expenses, consisting of selling, general and
administrative, financial expenses and litigation and settlement costs,
decreased to $17,864,000 in Fiscal 1997 from $19,173,000 in Fiscal 1996, a
decrease of approximately $1,309,000 or 6.8%. As a percentage of sales,
operating expenses decreased to 27.2% in Fiscal 1997 from 28.7% in Fiscal 1996.
Selling expenses decreased to $6,950,000 or 10.6% of net sales in Fiscal 1997
from $7,571,000 or 11.3% of net sales in Fiscal 1996. The decrease was primarily
attributable to the decreases in royalties and sales commissions due to
decreased volume in the Americas and Europe and benefits from the consolidation
of
19
warehouse and administration facilities undertaken in Fiscal 1996.
General and administrative expenses decreased to $9,247,000 or 14.1% of net
sales in Fiscal 1997 from $9,396,000 or 14.1% of net sales in Fiscal 1996. The
increases in amortization of goodwill ($265,000) and costs associated with new
OEM customer agreements ($511,000) were offset by decreases in bad debt expense
($466,000), cost savings resulting from the consolidations of the American and
European branches ($371,000) and reduced amortization and depreciation
($88,000).
Financial expenses of $1,465,000 or 2.2% of net sales in Fiscal 1997 were
essentially unchanged from $1,489,000 or 2.2% of net sales in Fiscal 1996.
Litigation and settlement costs in Fiscal 1997 and Fiscal 1996 were
approximately $201,000 and $718,000 respectively. In Fiscal 1997, these matters
consisted primarily of the demand for arbitration and other litigation against
Jack C. Benun.
Other (income) expense, Net. Other (income) expense, net includes interest
income, gains and losses from the sale of fixed assets, foreign exchange gains
and losses, 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, French
Francs, Japanese Yen and to a limited extent, Hungarian Forints. 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 1997 included a loss of approximately $92,000.
In Fiscal 1997, the Company's hedging activities were immaterial and at June 30,
1997 there were no forward exchange contracts outstanding.
Income Taxes. As of June 30, 1997, Concord had net operating loss carryforwards
for U.S. tax purposes of approximately $14,394,000 which expire as follows:
$1,054,000 in 2005; $16,000 in 2006; $443,000 in 2007; $6,630,000 in 2008;
$2,770,000 in 2009; and $3,481,000 in 2010. Net operating losses for state tax
purposes began 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 1997 of approximately $117,000 is comprised
of a current tax benefit of approximately $13,000 and a deferred provision of
approximately $130,000. The Company's provision for income taxes for Fiscal 1997
is primarily related to the earnings of the Company's Far East and domestic
operations, net of benefits relating to operating loss carryforwards and
overpayments/refunds on the Company's other 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
20
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.
Net Income (Loss). As a result of the matters described above, the Company had a
net loss of approximately $833,000 in Fiscal 1997, compared to a net loss of
$1,734,000 in Fiscal 1996, a decrease in loss of approximately $901,000.
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
OEMs 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%.
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%.
Approximately $12,307,000 of the increase is due to the successful
implementation of FOB Hong Kong sales programs with the Company's larger
customers and approximately $2,225,000 of the increase is due to 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 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
21
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 marketplace 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, Fiscal 1996 gross profit would have been
approximately 32.4%.
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 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 an 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.
22
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 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.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $13,994,000 as compared to
$16,696,000 at June 30, 1996. Cash flow provided by operating activities was
approximately $2,798,000 for Fiscal 1997 compared to $1,022,000 for Fiscal 1996.
Capital expenditures, excluding assets financed under capital leases, for Fiscal
1997 and Fiscal 1996 were approximately $3,188,000 and $2,531,000, respectively.
The Company's principal funding requirement has been and is expected to continue
to be, the financing of
23
accounts receivable and inventory. Additionally, the combined United States
operation is dependent upon funding received from the foreign operations.
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
(the "BOEA NY Facility"). On September 20, 1995, the Company executed an
amendment to its revolving line of credit with BOEA NY to increase the credit
facility to $3,000,000. The BOEA NY Facility has also been extended to December
19, 1997. 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 8.5% at June 30, 1997. Availability under the BOEA NY
Facility is subject to advance formulas based on eligible accounts receivable
with no minimum borrowing. At June 30, 1997, approximately $3,000,000 was
outstanding and classified as short-term debt under the BOEA NY Facility.
The CIT Group/Credit Finance, Inc ("CIT"). The Company has a $4,500,000 credit
facility with CIT (the "CIT Facility") which expires on May 31, 1999. 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 8.5% at June 30, 1997. Availability under the CIT
Facility is subject to advance formulas based on eligible inventory and accounts
receivable with minimum borrowing of $1,500,000. At June 30, 1997, approximately
$1,143,000 was outstanding and classified as short-term debt under the CIT
Facility.
The Bank of East Asia, Limited -- Hong Kong ("BOEA HK"). Concord HK has a credit
facility (the "BOEA HK Facility") with BOEA HK that provides Concord HK with up
to $6,900,000 of financing as follows: letters of credit and standby letters of
credit of 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 [See
"Note 8 - Long-Term Debt"]. As of June 30, 1997, approximately $5,854,000 was
utilized and approximately $571,000 was available under the BOEA HK Facility.
Approximately $3,427,000 of the total $5,854,000 utilized was in the form of
trade finance, including but not limited to import letters of credit. The BOEA
HK Facility, which is payable on demand, bears interest at 2% above BOEA HK's
prime lending rate for letters of credit and 2.25% above BOEA HK's prime lending
rate for overdraft and packing loans. At June 30, 1997 BOEA HK's prime lending
rate was 8.5%. In connection with the BOEA HK Facility, Concord HK has placed a
$1,199,000 time deposit with BOEA HK, which is included in prepaid and other
current assets at June 30, 1997 and such deposit is pledged as collateral for
the BOEA HK Facility. In addition, all amounts outstanding under the BOEA HK
Facility are guaranteed by Concord.
In the fourth quarter of Fiscal 1997 East Asia Finance Company, a wholly-owned
subsidiary of BOEA HK, extended to Concord HK a five-year equipment leasing
facility in the amount of approximately $1,100,000. At June 30, 1997,
approximately $822,000 was outstanding and classified as capital lease
obligations.
Toronto Dominion Bank ("TDB"). On November 25, 1996, the Company obtained a
$1,090,000 working capital facility with TDB (the "TDB Facility") which expires
on October 31, 1998. The TDB Facility is secured by accounts receivable,
inventory and other related assets of the Company's Canadian operations and
bears interest at 1% above TDB's prime lending rate, which was 4.75% at June 30,
1997. Availability under the TDB Facility is subject to advance formulas based
on eligible accounts receivable and seasonable inventory eligibility with no
minimum borrowings and is subject to monthly covenant requirements. At June 30,
1997, approximately $406,000 was outstanding and classified as short-term debt
and the Company
24
was in compliance with all covenants under the TDB Facility.
Other Arrangements and Future Cash Commitments. Management believes that
anticipated cash flow from operations together with financing from BOEA, CIT and
TDB, 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) 52 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 (2) 61 1996 Chief Operating Officer, President and Director
Eli Arenberg (3) 69 1988 Director
Joel L. Gold (4) 55 1991 Director
Morris H. Gindi (5) 52 1988 Director
J. David Hakman (6) 55 1993 Director
Ira J. Hechler (7) 78 1992 Director
Kent M. Klineman (8) 64 1993 Director
(1) On July 13, 1994 Ira B. Lampert was appointed to the 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 has been 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 from August 1990 through May 1993. 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, Mr. 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 November 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 and in July 1994 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 Fector Detwiler & Co, Inc., an
investment bank. From January 1992 through April 1995, Mr. Gold was
a director at Furman Selz Incorporated, an investment bank. From April
1990 through December 1991, Mr. Gold was a managing director at Bear,
Stearns & Co. Inc., New York, New York. From April 1971 through
February 1990, Mr. Gold was a managing director at Drexel Burnham
Lambert. Mr. Gold is currently a member of the board of directors of
BCAM International, 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 27 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.
(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 has been an attorney and private investor and has
served as a director of several closely-held companies during the past
five years. Mr. Klineman is a director, Secretary and a member of the
Compensation Committee of EIS International, Inc., a director and
treasurer of Sonoma Cutrer Vineyards, Inc. and a director of Dealers
Alliance Credit Corp. and Dealers Alliance Capital Corp. Mr. Klineman's
initial nomination to serve as director of the Company in 1993 was made
by Mr. Hechler. See "Certain Relationships and Related Transactions."
Meetings and Committees
In Fiscal 1997, the Board held six meetings of which two 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 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
27
auditors. The Audit Committee held four meetings in Fiscal 1997.
The Compensation and Stock Option Committee, consisting of Joel L. Gold
(Chairman), Ira J. Hechler and Morris Gindi, was formed to review and make
recommendations to the Board regarding all executive compensation. The
Compensation Committee held three meetings in Fiscal 1997.
The Nominating Committee, consisting of Ira B. Lampert, Joel Gold, Ira Hechler
and Kent Klineman was formed to nominate 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 held one meeting in Fiscal 1997.
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 1997, 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 each non-employee director is
entitled to receive options pursuant to a formula to purchase up to 20,000
Common Shares upon his/her appointment as director. The Incentive Plan also
provides for the grant of an immediately exercisable option to purchase 1,000
Common Shares on the date of the original grant and on each anniversary of the
original grant. Pursuant to this plan each non-employee director received
options to purchase 24,000 Common Shares.
As of December 22, 1996, all outstanding options held by directors of the
company having an exercise price of $4.00 a share or more were revised as
follows:
(a) The number of shares of Common Stock covered by each option was
reduced by 25% (their reduction was applied first on a pro rata basis against
the unvested installments of each option).
(b) The exercise price for 50% of the shares covered by the revised
option has repriced to be $2.00 per share, for 25% was repriced to be $2.50 per
share and for 25% was repriced to be $3.00 per share.
(c) Vesting of the repriced options remained unchanged.
Mr. Arenberg, through a company controlled by him, is a party to a consulting
agreement with the Company.See "Certain Relationships and Related Transactions."
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 Officer Age Positions and Offices with the Company
Eli Shoer 50 Executive Vice President
Brian F. King 44 Vice President of Corporate and Strategic
Development and Secretary; Managing Director
of Concord Camera HK Limited.
Lawrence Pesin 52 Vice President Global Marketing
Barry M. Shereck 55 Vice President and Chief Financial Officer
Harlan I. Press 33 Corporate Controller and Assistant Secretary
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 Secretary of the Company and Managing Director of Concord Camera HK Limited.
He 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.
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 was appointed Corporate Controller and Assistant Secretary of
the Company effective October 1, 1996. Mr. Press joined the Company in April
1994 and has held the position of Chief Accounting Officer 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
29
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 Beneficial Ownership Reporting Compliance
The following officers and directors of the Company filed late reports under
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") relating to Fiscal 1997: (i) Lawrence Pesin, Vice President
Worldwide Marketing and Sales, late filing of a Form 4 due August 10, 1997
reporting the purchase in a private transaction of 10,000 shares of Common Stock
and options to purchase 10,000 shares of Common Stock from a former employee of
the Company pursuant to the management equity provision of the Company's Stock
Incentive Plan and (ii) Brian F. King, Vice President of Corporate and Strategic
Development, reporting the purchase in a private transaction of 10,000 shares of
Common Stock and options to purchase 10,000 shares of Common Stock from a former
employee of the Company pursuant to the management equity provision of the
Company's Stock Incentive Plan. There are no known failures to file a required
Form 3, 4 or 5 and no other known late filings of a required Form 3, 4 or 5
during Fiscal 1997 by any person required to file such forms with respect to the
Company pursuant to Section 16 of the Exchange Act.
30
Item 11.
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Annual Compensation
(a) (b) (c) (d) (e) (g) (h)
Securities All Other
Other Annual Underlying Compen
Fiscal Salary Bonus Compensation Options sation
Name and Principal Position Year ($) ($) ($) (#) ($)
- --------------------------- ------ ----- ----- ----- ----- ----
Ira B. Lampert 1997 $ 545,205 -- $200,141 (1) 695,000 (4) $10,350 (7)
Chief Executive Officer, 1996 551,282 $100,000 (15) 220,432 (2) 245,000 (5) 18,289 (7)
and Chairman 1995 495,515 -- 196,648 (3) 600,000 (6) 11,477 (7)
Steve Jackel 1997 400,000 -- 66,210 (8) 306,250 (4) 26,821 (7)
Chief Operating Officer, 1996 377,346 25,000(15) 36,237 (9) 300,000 (5) 38,631 (7)
and President 1995 87,500 -- 7,500 (10) 100,000 --
Eli Shoer 1997 210,000 -- 75,000 (11) 66,250 (4) 1,600 (7)
Director of Operations 1996 214,039 42,000(15) 75,000 (11) 10,000 (5) --
Concord HK 1995 207,037 -- 66,850 (11) 150,000 (6) --
Brian F. King 1997 170,000 -- 73,000 (12) 147,500 (4) 783 (7)
Vice President of 1996 44,265 -- 3,105 (13) 87,500 (5) --
and Strategic Develop 1995 -- -- -- -- --
ment a Managing Director
of Concord Camera HK Ltd.
Lawrence Pesin 1997 181,250 -- 18,000 (14) 72,500 (4) --
Vice President Worldwide 1996 43,750 -- 4,500 (14) 87,500 (5) --
Marketing Sales 1995 -- -- -- -- --
(1) Includes $38,068, $102,036 and $45,360 paid for and to Mr. Lampert
for auto lease and costs, reimbursement of taxes and partial housing
costs respectively.
(2) 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.
(3) 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.
31
(4) These options include options issued prior to Fiscal 1997 that were
canceled and repriced during Fiscal 1997.
(5) 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. See "Certain Relationships and Related
Transactions" for information regarding substitution of options to
purchase Common Stock for contingent restricted stock awards.
(6) These options include options previously issued, canceled, repriced
and re-issued during Fiscal 1995.
(7) Represents amount paid by the Company for insurance premiums.
(8) Includes $33,825 and $32,385 paid to Mr. Jackel for an auto lease
and costs and tax reimbursement, respectively.
(9) Includes $27,414 and $8,823 paid to Mr. Jackel for an auto lease
and costs and travel expenses reimbursed to Harjac Consulting, (of
which Mr. Jackel was a principle), respectively.
(10) Includes amounts paid to Harjac Consulting for auto expenses.
(11) Represents housing allowance paid to Mr. Shoer for living
arrangements in the Far East.
(12) Includes $18,000 paid to Mr. King for auto allowances and $55,000
for housing allowance paid to Mr. King for living arrangements in
the Far East.
(13) Represents auto allowances paid to Mr. King.
(14) Represents auto allowances paid to Mr. Pesin.
(15) Represents bonus determined and paid by the Company in Fiscal 1996
on account of Fiscal 1995 performance.
32
II. OPTION GRANTS IN FISCAL 1997
Individual Grants
(a) (b) (c) (d) (e) (f) (g) (h)
Potential Realizable
Annual Value at
Market assumed Rates of
Price of Stock Price
Number % Common Appreciation for
of of Stock Option Term
Securi- Total On
ties Options Date
Under Granted Exer- Of
Lying to Emp. cise Grant Expir-
Name of Exec. Options in Price ($/sh) ation
Officer Granted 1997 (1) ($/Sh) (2) Date
-------- -------- ------ ------ ----
5% ($) 10%($)
------ ------
Ira B. Lampert 127,500 7.98% $2.000 -- Jul 31, 2003 160,368 406,404
(3) 97,500 6.10% $2.000 -- Sep 30, 2004 122,634 310,780
63,750 3.99% $2.500 -- Jul 31, 2003 100,230 254,003
48,750 3.05% $2.500 -- Sep 30, 2004 76,647 194,237
63,750 3.99% $3.000 -- Jul 31, 2003 120,276 304,803
48,750 3.05% $3.000 -- Sep 30, 2004 91,976 233,085
245,000 15.34% $1.813 -- Dec 21, 2006 279,269 707,721
Steve Jackel 28,125 1.76% $2.000 -- May 01, 2005 35,375 89,648
(3) 14,063 0.88% $2.500 -- May 01, 2005 22,110 56,032
14,062 0.88% $3.000 -- May 01, 2005 26,531 67,234
75,000 4.70% $2.000 -- Feb 15, 2005 94,334 239,061
37,500 2.35% $2.500 -- Feb 15, 2005 58,959 149,413
37,500 2.35% $3.000 -- Feb 15, 2005 70,751 179,296
100,000 6.26% $1.813 -- Dec 21, 2006 113,987 288,866
Eli Shoer 28,125 1.76% $2.000 -- Sep 30, 2004 35,375 89,648
(3) 14,062 0.88% $2.500 -- Sep 30, 2004 22,109 56,028
14,063 0.88% $3.000 -- Sep 30, 2004 26,532 67,238
10,000 0.63% $1.813 -- Dec 21, 2006 11,399 28,887
Brian F. King 22,500 1.41% $2.000 -- May 07, 2006 28,300 71,718
(3) (4) 11,250 0.70% $2.500 -- May 07, 2006 17,688 44,824
11,250 0.70% $3.000 -- May 07, 2006 21,225 53,789
27,500 1.72% $1.813 -- Dec 21, 2006 31,346 79,438
25,000 1.57% $2.500 -- Apr 28, 2007 39,306 99,609
25,000 1.57% $2.750 -- Apr 28, 2007 43,237 109,570
25,000 1.57% $3.000 -- Apr 28, 2007 47,167 119,531
Lawrence Pesin 22,500 1.41% $2.000 -- May 07, 2006 28,300 71,718
(3) (4) 11,250 0.70% $2.500 -- May 07, 2006 17,688 44,824
11,250 0.70% $3.000 -- May 07, 2006 21,225 53,789
27,500 1.72% $1.813 -- Dec 21, 2006 31,346 79,438
(1) The Company granted incentive stock options under the Company's
Incentive Plan to purchase an aggregate of 986,000 shares and the
Company granted incentive stock options under the Lampert Plan,
Jackel Plan, King Plan and Shereck Plan to purchase an aggregate
255,000 shares, 206,250 shares, 45,000 shares, 45,000 shares and
60,000 shares, respectively.
(2) The market price on the date of grant was either above or equal to
the option price on the date of the grant.
(3) These options include options issued prior to Fiscal 1997 that were
canceled and repriced during Fiscal 1997.
(4) Excludes a stock option for 10,000 Common Shares at $1.813 purchased
in a private transaction from a former employee of the Company
pursuant to the management equity provision of the Company's Stock
Incentive Plan.
33
III. AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END
OPTION VALUES
(a) (b) (c) (d) (e)
Shares Number of Securities Value of Unexercised In-the-
Acquired Underlying Unexercised Money Options at FY End
on Value Options at FY End (#) ($)(1)
-- ----- --------------------- ------
Exercise Realized
-------- --------
Name (#) ($)
Exercisable Unexercisable Exercisable Unexercisable
Ira B. Lampert -- -- 468,917 226,083 -- --
Steve Jackel -- -- 225,333 105,917 -- --
Eli Shoer -- -- 135,083 6,167 -- --
Lawrence Pesin -- -- 29,375 53,125 -- --
Brian F. King -- -- 54,375 103,125 -- --
(1) The closing price of the Company's Common Stock at 1997 Fiscal Year End
was $2.50.
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 May 1, 1997 (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 the term of employment to be automatically extended for one
additional day for each day of the term of employment that elapses in the event
that neither party notifies the other at any time during the term of employment
that it does not want the term of employment extended.
Under the Lampert Agreement, Mr. Lampert has been granted two sets of Common
Stock options. The first, an option to purchase 340,000 Common Shares was
amended and restated to 127,500 Common Shares at an exercise price of $2.00 per
share, 63,750 Common Shares at an exercise price of $2.50 per share and 63,750
Common Shares at an exercise price of $3.00 per share. This option is currently
exercisable as to 217,500 Common Shares and is exercisable as to the balance in
allotments of 9,375 Common Shares 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 options have anti-dilution provisions and is exercisable through
July 2003. The second option, an option to purchase 260,000 Common Shares was
amended and restated to 97,500 Common Shares at an exercise price of $2.00 per
share, 48,750 Common Shares at an exercise price of $2.50 per share and 48,750
Common shares at an exercise price of $3.00 per share. This option is currently
exercisable as to 157,500 Common Shares exercisable as to the balance in
allotments of 9,375 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
options also have anti-dilution provisions and are exercisable through September
2004.
34
In the Lampert Agreement, the Company agreed to adopt a supplemental executive
retirement plan (the "SERP") for the benefit of Mr. Lampert and shall cause to
be credited to this account $14,167 each month ("Monthly Credit") for the
benefit of Mr. Lampert. The balance in the SERP account will always be 100%
vested and non-forfeitable. Each time the Company credits a monthly credit to
the SERP account, the Company will also simultaneously contribute an amount
equal to such credit to a trust established for the purpose of accumulating
funds to satisfy the obligations incurred by the Company pursuant to the
establishment of the SERP. The Lampert Agreement prohibits Mr. Lampert from
competing with the Company for a one-year period upon expiration of the Lampert
Agreement.
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, which
were subsequently repriced - [See "Item 13 - Certain Relationships and Related
Transactions"]. This agreement supersedes the July 1, 1993 agreement between Mr.
Shoer and the Company. Upon the completion of Mr. Shoer's amended employment
agreement, Mr. Shoer has agreed to continue his employment with the Company as
Executive Vice President of Product Development on an at will basis.
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. The Jackel Agreement prohibits Mr.
Jackel from competing with the Company for at least one year following the
termination of Mr. Jackel's employment.
Under the Jackel Agreement, Mr. Jackel has been granted Common Stock options.
The option to purchase 300,000 Common Shares was amended and restated to 103,125
shares of the Company's Common Stock at an exercise price of $2.00 per share,
51,562 shares of the Company's Common Stock at an exercise price of $2.50 per
share and 76,563 shares of the Company's Common Stock of an exercise price of
$3.00 per share of which 187,000 were exercisable as of September 19, 1997 with
the balance becoming exercisable in equal allotments of 750 Common Shares on the
Thursday of each successive week after September 19, 1997 through and including
December 31, 1998, as of which date such options shall be exercisable. These
options to acquire a total of 231,250 shares of Common Stock were not granted
pursuant to the Company's Incentive Plan. The options contain anti-dilution
provisions and are exercisable through February 15, 2006.
35
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 19, 1997 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) the Company's directors and executive officers as a
group:
Amount and Nature of Percent
Name and Address of 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%
Burlingame, California 94010
Deltec Asset Management...................................... 684,025 6.3%
535 Madison Avenue
New York, New York 10022
(ii) Directors and Nominees of the Company
Ira B. Lampert............................................... . 1,486,533(2)(3) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Steve Jackel................................................ 1,486,533(2)(4) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Eli Arenberg................................................ 72,750(5) *
9578 Harbour Lake Circle
Boynton Beach, Florida 33437
Joel L. Gold................................................ 15,750(6) *
L.T. Lawrence & Co. Inc.
------------------------
3 New York Plaza
----------------
New York, New York 10004
Morris Gindi................................................ 15,750(7) *
Notra Trading, Inc.
One Woodbridge Center
Woodbridge, NJ 07095
J. David Hakman............................................. 45,750(8) *
Hakman & Co., Inc.
Suite 300
1350 Bayshore Highway
Burlingame, CA 94010
Ira J. Hechler.............................................. 461,750(9) 4.2%
Ira J. Hechler and Associates
45 Rockefeller Plaza
New York, New York 10111
36
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
Kent M. Klineman............................................ 124,000(10) 1.1%
c/o Klineman Assoc., Inc.
1270 Avenue of the Americas
New York, NY 10020
(iii) Executive Officers
Eli Shoer.................................................. 1,486,533(2)(11) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Brian F. King.............................................. 1,486,533(2)(12) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Lawrence Pesin............................................ 1,486,533(2)(13) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Keith Lampert............................................ 1,486,533(2)(14) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Arthur Zawodny............................................ 1,486,533(2)(15) 13.7%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
(iv) All executive officers and directors as a group (13 Persons) 2,232,783 20.5%
* Indicates less than 1%.
(1) All information is as of September 19, 1997 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 19, 1997, the Company had issued and
outstanding 10,880,473 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) Represents the total number of shares which are beneficially owned by a
group comprising Ira B. Lampert, Steve Jackel, Eli Shoer, Brian F. King,
Lawrence Pesin, Keith Lampert and Arthur Zawodny as a result of the terms
of an Amended and Restated Voting Agreement, dated as of February 28,
1997 (the "Voting Agreement"), pursuant to which each party to the Voting
Agreement agreed to vote any purchased shares or option shares acquired
by such party under the Company's Incentive Plan in accordance with the
will of the holders of a majority of all the shares issued under the
Company's Incentive Plan.
(3) Includes 53,850 shares purchased in the open market, 245,000 shares
purchased pursuant to a purchase agreement with the Company and 486,917
shares underlying stock options, as to all of which such person has sole
dispositive power. Excludes 226,083 shares underlying options which will
not become exercisable within
37
60 days of September 19, 1997.
(4) Includes 100,000 shares purchased pursuant to a purchase agreement with
the Company and 225,333 shares underlying stock options, as to all of
which such person has sole dispositive power. Excludes 105,917 shares
underlying options which will not become exercisable within 60 days of
September 19, 1997.
(5) Represents 28,000 shares purchased in the open market and 44,750 shares
underlying stock options. Excludes 8,000 shares underlying options which
will not become exercisable within 60 days of September 19, 1997.
(6) Represents 10,500 shares purchased in the open market and 15,750 shares
underlying stock options. Excludes 3,000 shares underlying options which
will not become exercisable within 60 days of September 19, 1997.
(7) Represents shares underlying stock options. Excludes 3,000 shares
underlying options which will not become exercisable within 60 days of
September 19, 1997.
(8) Includes 30,000 shares purchased in the open market and 15,750 shares
underlying stock options. Excludes 3,000 shares underlying option which
will not become exercisable within 60 days of September 19, 1997.
(9) Represents 446,000 shares purchased in the open market and 15,750 shares
underlying stock options. Excludes 3,000 shares underlying options which
will not become exercisable within 60 days of September 19, 1997.
(10) Represents 108,250 shares purchased in the open market and 15,750 shares
underlying stock options. Excludes 3,000 shares underlying options which
will not become exercisable within 60 days of September 19, 1997.
(11) Includes 10,000 shares purchased pursuant to a purchase agreement with
the Company and 135,083 shares underlying stock options, as to all of
which such person has sole dispositive power. Excludes 6,167 shares
underlying options which will not become exercisable within 60 days of
September 19, 1997.
(12) Includes 27,500 shares purchased pursuant to a purchase agreement with
the Company, 10,000 shares purchased in a private transaction from a
former employee of the Company pursuant to the Management Equity
provision of the Company's Stock Incentive Plan and 54,375 shares
underlying stock options, as to all of which such person has sole
dispositive power. Excludes 103,125 shares underlying options which will
not become exercisable within 60 days of September 19, 1997
(13) Includes 27,500 shares purchased pursuant to a purchase agreement with
the Company, 10,000 shares purchased in a private transaction from a
former employee of the Company pursuant to the Management Equity
provision of the Company's Stock Incentive Plan and 54,375 shares
underlying stock options, as to all of which such person has sole
dispositive power. Excludes 103,125 shares underlying options which will
not become exercisable within 60 days of September 19, 1997.
(14) Includes 20,000 shares purchased in the open market, 5,000 shares
purchased in a private transaction from a former employee of the Company
pursuant to the Management Equity provision of the Company's Stock
Incentive Plan and 30,917 shares underlying stock options, as to all of
which such person has sole dispositive power. Excludes 29,083 shares
underlying options which will not become exercisable within 60 days of
September 19, 1997.
(15) Includes 7,000 shares pursuant to a purchase agreement with the Company
and 26,683 shares underlying stock options, as to all of which such
person has sole dispositive power. Excludes 22,317 shares underlying
options which will not become exercisable within 60 days of September 19,
1997.
Item 13. Certain Relationships and Related Transactions
At June 30, 1997 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 1997 in
connection with the loans from Mr. Benun and suspended payment of the loans. The
Company believes that any amounts which may otherwise have been due Mr. Benun
will be offset by the amounts which Mr. Benun 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, 1994 and April 6, 1994 to secure the prompt payment of any liability
to the Company that Mr. Benun may incur
38
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. Selling expenses include $48,000 and $26,000
for such consulting services and related expenses during the fiscal years ended
June 30, 1997 and 1996, respectively.
During the fiscal year end June 30, 1996, the Company paid consulting fees and
expenses of approximately $218,000 to a firm, the president of which was
appointed Chief Operating Officer and President of the Company in January 1996.
On August 23, 1995, the Compensation Committee of the Board approved stock
purchase awards under the Company's Incentive Plan pursuant to which 500,000
Common Shares were made available for purchase by senior management of the
Company at a price per share equal to $5.375 per share (the closing price of the
Common Stock on August 23, 1995) pursuant to binding commitments to be made by
such persons by August 31, 1995. The Company received commitments for the
purchase of 444,000 of such shares. Each purchaser was also granted the right to
receive a contingent restricted stock award covering a number of shares equal to
the number of shares purchased by such purchaser. The contingent restricted
stock was to be issued based upon attainment of increases in shareholder value
in accordance with the Incentive Plan as follows:
Percentage of Restricted Stock Fair Market Value Latest Attainment Date
331/3% $10.00 August 31, 1997
662/3% $15.00 February 28, 1999
100% $20.00 August 31, 2000
----- ------ ---------------
If issued, such contingent restricted shares were to vest over a three-year
period and were subject to forfeiture prior to vesting under certain conditions.
Pursuant to purchase agreements (the "Purchase Agreements"), members of the
Company's senior management purchased shares of Common Stock (the "Purchased
Shares") pursuant to the terms of the Management Equity Provisions of the
Company's Incentive Plan. As payment for such shares, each purchaser executed a
full recourse note for the purchase price of such shares (each a "Note";
collectively, the "Notes") and pledged the Purchased Shares as security for the
payment of the Note. The Notes mature five years from the date of purchase (May
7, 1996 in the case of Notes executed by Brian F. King and Lawrence Pesin and
November 7, 1995 in the case of Notes executed by all other purchasers) and bear
interest at 6%.
39
Concurrently with the execution of their respective Purchase Agreements and
Notes, each purchaser entered into a Voting Agreement pursuant to which each
purchaser agreed to vote all of his Purchased Shares and contingent restricted
stock in accordance with the determination of the holders of a majority of all
of the Purchased Shares and contingent restricted stock held by the purchasers.
To effect the foregoing, each of the purchasers delivered to Mr. Lampert an
irrevocable proxy and agreed that prior to any transfer of Purchased Shares and
contingent restricted stock, such purchaser will cause the transferee (A) to
agree in writing with Mr. Lampert to be bound by the provisions of the Voting
Agreement and (B) to execute and deliver to Mr. Lampert an irrevocable proxy.
Pursuant to Amendments to each of the Purchase Agreements, dated February 28,
1997 (the "Amendments"), the Company was relieved of its obligation to issue any
contingent restricted stock. Instead, each member of the Company's senior
management received, as of December 22, 1996, options to purchase that number of
shares of Common Stock (the "Option Shares") equal to the number of Purchased
Shares purchased by such person. The options vested as to 20% of the Option
Shares covered thereby as of December 22, 1996 and the balance of the shares
covered thereby vest beginning December 31, 1996 in equal monthly installments
over a four-year period during the term of employment or consultancy. The
unvested portion will immediately become vested in the event that the average
closing price of the Common Stock for any consecutive 90 trading day period is
at least $5.00. The unvested portion is cancelable upon any termination of
employment or consultancy (except for death, disability or retirement).
Concurrently with the Amendments, the Voting Agreement and the irrevocable
proxies were amended and restated to include the Option Shares and to delete the
contingent restricted stock.
As of December 22, 1996, all outstanding options held by senior management and
directors of the Company that previously had an exercise price of up to $3.99
per share remained unchanged. All such options having an exercise price at $4.00
a share or above (excluding those granted to ELA Enterprises, Inc.) were revised
as follows:
(a) The number of shares of Common Stock covered by each
option was reduced by 25% (the reduction was applied on a pro rata
basis first against the unvested installments of each option).
(b) The exercise price for 50% of the shares covered by the
revised option were repriced to be $2.00 per share, 25% were repriced
to be $2.50 per share and 25% to be $3.00 per share.
(c) Vesting of the repriced options remained unchanged.
40
The following tables detail the above changes in options held by senior
management exclusive of the options granted in lieu of the contingent restricted
stock awards discussed above and exclusive of the options described in Item 11
Table II (Option Grants in Fiscal 1997), which were granted subsequent to
December 22, 1996:
OPTIONS HELD PRIOR TO CHANGES OF 12/22/96(1) TERMS OF ORIGINAL GRANT
---------------------------------------------- ---------------------------
# OF END OF
----- -----
UNDERLYING OPTION VESTED UNVESTED GRANT VESTING VESTING
SHARES PRICE ($) SHARES SHARES DATE PERIOD METHOD
-------- ------- ------ -------- ----- ------- ------
Ira B. Lampert 260,000 4.0000 172,500 87,500 9/30/94 8/31/98 quarterly
340,000 4.0000 252,500 87,500 7/1/93 8/31/97 quarterly
Steve Jackel 25,000 3.0000 25,000 0 5/1/95 12/31/95 100%
75,000 4.0000 75,000 0 5/1/95 4/30/96 100%
200,000 4.0000 95,000 105,000 2/15/95 12/31/98 weekly
Eli Shoer 75,000 4.0000 50,000 25,000 10/1/94 9/30/97 annual
75,000 3.2500 75,000 0 10/4/94 10/4/94 annual
Brian F. King (2) 60,000 4.0000 0 60,000 5/7/96 5/7/99 annual
Lawrence Pesin (2) 60,000 4.0000 0 60,000 5/7/96 5/7/99 annual
Arthur Zawodny 12,000 3.2500 12,000 0 10/21/94 10/21/94 annual
8,000 3.2500 4,000 4,000 10/21/94 5/31/98 annual
12,000 2.8125 6,000 6,000 5/15/96 5/15/97 annual
(1) For each person listed, excludes contingent restricted stock awards.
(2) Excludes a stock option for $10,000 Common Shares at $1.81 purchased in
a private transaction for a former employee of the Company pursuant to
the management equity provision of the Company's Stock Incentive Plan.
41
OPTIONS HELD AFTER 12/22/96 OPTIONS HELD AFTER 12/22/96 WITH
ORIGINAL EXERCISE PRICE
# OF NUMBER
OPTIONS OF SHARES SHARES
CANCELED SHARES VESTED UNVESTED PRICE ($) VESTED UNVESTED
-------- ------ ------ -------- --------- ------ --------
Ira B. Lampert (65,000) 195,000 129,375 65,625 4.0000 0 0
(85,000) 255,000 189,375 65,625 4.0000 0 0
Steve Jackel 0 25,000 25,000 0 3.0000 25,000 0
(18,750) 56,250 56,250 0 4.0000 0 0
(50,000) 150,000 71,250 78,750 4.0000 0 0
Eli Shoer (18,750) 56,250 37,500 18,750 4.0000 0 0
0 75,000 75,000 0 3.2500 75,000 0
Brian F. King (2) (15,000) 45,000 0 45,000 4.0000 0 0
Lawrence Pesin (2) (15,000) 45,000 0 45,000 4.0000 0 0
Arthur Zawodny 0 12,000 12,000 0 3.2500 12,000 0
0 8,000 4,000 4,000 3.2500 4,000
0 12,000 6,000 6,000 2.8125 6,000 6,000
OPTIONS HELD AFTER 12/22/96 WITH NEW EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------
$2.00 PRICE $2.50 PRICE $3.00 PRICE TOTAL OUTSTANDING
VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED
- -------------- -------- ------------ --------- ---------- -------- ----------- --------- -----------
Ira B. Lampert 64,687 32,813 32,344 16,406 32,344 16,406 129,375 65,625
94,687 32,813 47,344 16,406 47,344 16,406 189,375 65,625
Steve Jackel 0 0 0 0 0 0 25,000 0
28,125 0 14,062 0 14,063 0 56,250 0
35,625 39,375 17,812 19,688 17,813 19,687 71,250 78,750
Eli Shoer 18,750 9,375 9,375 4,687 9,375 4,688 37,500 18,750
0 0 0 0 0 0 75,000 0
Brian F. King (2) 0 22,500 0 11,250 0 11,250 0 45,000
Lawrence Pesin (2) 0 22,500 0 11,250 0 11,250 0 45,000
Arthur Zawodny 0 0 0 0 0 0 12,000 0
0 0 0 0 0 0 4,000 4,000
0 0 0 0 0 0 6,000 6,000
The following executive officers of the Company are indebted to the Company for
amounts in excess of $60,000 as a result of purchases pursuant to the Purchase
Agreements:
Ira B. Lampert............................................$1,455,819.49
Steve Jackel................................................$590,602.15
Lawrence Pesin..............................................$216,806.15
Brian F. King...............................................$216,806.15
42
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' Report............................................ F-1
Consolidated Balance Sheets at June 30, 1997 and 1996................... F-2
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995........................................... F-3
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995........................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1997, 1996 and 1995...................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves............. F-23
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 Amendment No. 5 to Certificate of Incorporation of the Company....
3.5 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, Steve Jackel, George Erfurt
Arthur Zawodny, Brian F. King and Lawrence Pesin(16)..............
9.2 Agreement dated as of July 18, 1997, by and among Brian F. King,
Lawrence Pesin and Keith Lampert (17).............................
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).....................................
43
Exh. No. Page
10.3 Employment Agreement between Concord France and Jean Louis Vinant
dated as of July 1, 1994(11)...................................
10.4 Employment Agreement between the Company and Hans Dieter Kuehn
dated as of April 1, 1993(6) ..................................
10.5 Employment Agreement between the Company and Eli Shoer dated as of
July 1, 1993(6) ..............................................
10.6 Pledge Agreement between the Company and Benun dated as of
March 7, 1994(10).............................................
10.7 Pledge Agreement between the Company and Benun dated as of
April 6, 1994(10) ............................................
10.8 Compensation Trade Agreement between Concord HK and Shenzhen Baoan
Contat Camera Factory and translation dated November 23, 1993(7)..
10.9 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) .................................
10.10 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).............................
10.11 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) .....................
10.12 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)................................
10.13 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
on September 12, 1985 and translation(1) ......................
10.14 Notice Concerning the Approval of Import Projects issued by the
Foreign Economic Relations Office, Baoan County, Shenzhen on
September 12, 1985 and translation(1)..........................
10.15 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)..............
10.16 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)................
44
Exh. No. Page
10.17 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)...............................
10.18 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) ..............................
10.19 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) ..............................
10.20 Processing and Assembly Contract between Dialbright Company Limited
and Baoan County Foreign Trade Company and Dialbright Electronic
Factory, Henggang, Baoan County and translation(1).
10.21 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)...............................................
10.22 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)....................................
10.23 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).............................
10.24 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) ..................................
10.25 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) .............
10.26 Agreement between Dialbright and Development Corporation,
Baoan County, dated September 23, 1988(2)...................
10.27 Agreement between Dialbright and Henggang Economic Development
Corporation, dated September 23, 1988 and translation(2)....
10.28 Construction Works Contract between Concord Factory Henggang
and Henggang Economic Development Corporation dated
February 25, 1989 and translation(2).......................
10.29 Agreement between Concord HK and Baoan Henggang Joint Stock
Investment Company, Ltd., dated February 15, 1993 and
translation(4)
45
Exh. No. Page
10.30 Contract for the Utilization of Land in Factory Construction
between Concord HK and Henggang Investment Holdings Limited
dated June 20, 1994 and translation.........................
10.31 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 .................
10.32 Loan and Security Agreement between the Company,
Concord-Keystone Sales Corp. and CIT dated March 30, 1994(9)...
10.33 Loan Agreement between Concord HK and BOEA dated June 15, 1993(6)..
10.34 Amendment to Loan Agreement between Concord HK and BOEA dated
January 11, 1994(8)...........................................
10.35 Incentive Plan, effective November 29, 1993(13) ...............
10.36 Amended and Restated 1988 Stock Option Plan(4) ...............
10.27 Third Extension and Amendment of Lease dated April 18, 1994 by
and between Howard H. Gelb and Eunice Gelb and the Company(11).
10.38 Employment Agreement between the Company and Eli Shoer dated
as of October 1, 1994(12).....................................
10.39 Employment Agreement between the Company and Gary Kaess
dated as of November 1994(12) ................................
10.40 Amended and Restated Employment Agreement between Concord
Camera HK Limited and Arthur Zawodny dated as of October 21,
1994(12).....................................................
10.41 Consulting Agreement between the Company and Harjac Consulting,
Inc., dated as of May 1, 1995(13)..............................
10.42 First Amendment to Revolving Line of Credit and Security
Agreement between the Company and the Bank of East Asia Limited,
New York Branch (14) .........................
10.43 Employment Agreement between the Company and Steve Jackel
dated as of January 1, 1996. (15). . . . . . . . . . . . .. . .
10.44 Amended and Restated Employment Agreement between the Company
and Ira B. Lampert dated as of May 1, 1997 . . ................
21 List of Subsidiaries of Company(6) ...........................
23. Consent of Experts............................................
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
46
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.
(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 Amendment No.1
filed on March 4, 1997.
(17) This document has been previously filed with the Securities and
Exchange Commission as an exhibit to a Schedule 13D Amendment No.2
filed on July 14, 1997.
47
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Concord Camera Corp.
Avenel, New Jersey
We have audited the accompanying consolidated balance sheets of Concord
Camera Corp. and subsidiaries as of June 30, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. Our audits also
included the financial statement schedule listed in the Index in Item 14(a)(2).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules 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, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, 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
August 15, 1997
F - 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp.
Consolidated Balance Sheets
June 30,
ASSETS 1997 1996
Current Assets:
Cash 5,297,820 $ 4,996,770
Accounts receivable, net 9,866,962 7,550,408
Inventories 15,752,402 17,491,615
Prepaid expenses and other current assets 3,091,669 2,540,802
--------- ------------
Total current assets 34,008,853 32,579,595
Plant and equipment, net 13,865,777 11,708,736
Goodwill, net 1,089,217 1,510,197
Other assets 4,124,396 4,051,268
---------- ------------
Total assets 53,088,243 $49,849,796
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 7,976,315 $ 6,368,972
Current portion of long-term debt 33,349 29,552
Current obligations under capital leases 790,426 570,899
Accounts payable 8,665,622 6,000,328
Accrued expenses 2,232,289 2,172,863
Income taxes payable 2,831 79,050
Other current liabilities 313,965 661,735
------------ ------------
Total current liabilities 20,014,797 15,883,399
Deferred income taxes 572,492 442,889
Long-term debt 396,570 430,589
Obligations under capital leases 2,000,002 1,948,443
Other long-term liabilities 602,549 666,791
------- ------------
Total liabilities 23,586,410 19,372,111
---------- -----------
COMMITMENT AND CONTINGENCIES
Stockholders' Equity:
Common stock, no par value,
40,000,000 and 20,000,000
authorized as of June 30,1997 and 1996,
respectively and 10,944,026,
issued as of June 30, 1997 and 1996. 39,361,893 39,361,893
Paid in capital 850,786 850,786
Deficit (7,635,654) (6,802,992)
Notes receivable arising from common stock
purchase agreements (2,622,273) (2,479,083)
----------- ------------
29,954,752 30,930,604
Less: treasury stock, at cost; 63,553 shares (452,919) (452,919)
--------- ----------
Total stockholders' equity 29,501,833 30,477,685
---------- -----------
Total liabilities and stockholders' equity $53,088,243 $49,849,796
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
Concord Camera Corp.
Consolidated Statements of Operations
For the year ended June 30,
1997 1996 1995
Net sales $65,747,433 $66,781,851 $62,139,346
Cost of products sold 48,722,416 49,292,625 41,983,967
---------- ------------ ----------
Gross profit 17,025,017 17,489,226 20,155,379
Selling expenses 6,949,600 7,570,658 7,298,038
General and administrative expenses 9,247,489 9,395,677 8,109,667
Financial expenses 1,465,169 1,488,672 1,412,947
Other (income) expense, net (122,513) (29,764) 154,534
Legal expenses and settlement costs 200,810 718,359 1,864,183
------- ----------- ---------
(Loss) income from operations before income taxes (715,538) (1,654,376) 1,316,010
Provision for income taxes 117,124 79,820 106,990
------- ------------ -------
Net (loss) income ($832,662) $ (1,734,196) $1,209,020
========== ============ ==========
(Loss) earnings per common and common equivalent
share ($0.08) ($0.16) $0.12
======= ========== =====
Weighted average number of common and common 10,880,473 10,813,224 10,426,973
========== ========== ==========
equivalent shares outstanding
See accompanying notes to consolidated financial statements.
F - 3
Concord Camera Corp.
Consolidated Statements of Cash Flows
For the year ended June 30,
1997 1996 1995
Cash flows from operating activities:
Net (loss) income ($832,662) ($1,734,196) $ 1,209,020
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 3,151,144 3,023,209 2,260,673
Net (gain) loss on sale of property & equipment -- 19,881 (5,027)
Interest income on notes receivable arising from common stock purchase (143,190) (92,583) --
agreements
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,316,554) 1,039,382 (100,129)
Decrease in inventories 1,739,213 1,373,708 241,695
(Increase) in prepaid expenses and other current assets (555,245) (111,474) 45,507
(Increase) in other assets (610,414) (1,538,316) (1,026,238)
Increase (decrease) in accounts payable 2,665,294 (993,529) 1,556,925
Increase (decrease) in accrued expenses 59,426 (729,419) 954,761
Increase (decrease) in income taxes payable (76,219) (215,534) 110,113
Increase (decrease) in other current liabilities (347,770) 356,560 (2,159)
Increase (decrease) in deferred income taxes 129,603 (41,953) (24,348)
Increase (decrease) in other long-term liabilities (64,242) 666,143 (132,363)
-------- ---------- ---------
Total adjustments 3,631,046 2,756,075 3,879,410
--------- ---------- ---------
Net cash provided by operating activities 2,798,384 1,021,879 5,088,430
--------- ---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,188,424) (2,531,327) (2,260,503)
Proceeds from sale of long-term assets - 2,004,150 30,176
Decrease in investment in and advances to joint ventures - 91,984 76,650
----------- ---------- ----------
Net cash (used in) investing activities (3,188,424) (435,193) (2,153,677)
----------- ---------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under short-term debt agreements 1,607,343 626,909 (985,825)
Net borrowings (repayments) of long-term debt (30,222) 170,873 --
Principal payments under capital lease obligations (886,031) (961,133) (810,370)
Net proceeds from issuance of common stock - 40,219 --
----------- ---------- ----------
Net cash provided by (used in) financing activities 691,090 (123,132) (1,796,195)
----------- ---------- ----------
Net increase in cash 301,050 463,554 1,138,558
Cash at beginning of period 4,996,770 4,533,216 3,394,658
---------- ---------- ----------
Cash at end of period $5,297,820 $4,996,770 $4,533,216
========== ========== ==========
See accompanying notes to consolidated financial statements. See note 17
Supplemental disclosure of cash flow information.
F - 4
Concord Camera Corp.
Consolidated Statements of Stockholders' Equity
Common Stock Treasury stock
Notes
receivable
arising from
Issued Common stock
shares Paid in purchase
Stated Value capital (Deficit) agreements Shares Cost Total
------------ -------- ----------- ---------- ------ ------ ------
Balance as of June 30, 1994 10,490,526 $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 10,490,526 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 as of June 30, 1996 10,944,026 39,361,893 $850,786 (6,802,992) (2,479,083) 63,553 (452,919) 30,477,685
Interest on notes receivable
arising from Common Stock
purchase agreements -- -- -- -- (143,190) -- -- (143,190)
Net (loss) -- -- -- (832,662) -- -- -- (832,662)
---------- ----------- -------- ----------- ---------- ------- ---------- ----------
Balance as of June 30, 1997 10,944,026 $39,361,893 $850,786 ($7,635,654) ($2,622,273) 63,553 ($452,919) $29,501,833
========== =========== ======== ============ =========== ====== ========== ===========
See accompanying notes to consolidated financial statements
F - 5
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 Europe Ltd. (formerly Concord Camera UK Ltd)
("Concord UK"), 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") 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 Concord Camera Canada Corp., Concord
Hungary and Concord Panama during June 1995, December 1995 and March 1997,
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, Hungary and Latin America through Concord Canada,
Concord UK and Concord Keystone, 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"). As a
result, the Company's operations could be adversely affected by political
instability in the PRC. Consolidated sales to the Company's two largest
customers in Fiscal 1997, 1996 and 1995 amounted to approximately $26,585,000
(40.4%), $26,685,000 (40.0%) and $15,759,000 (25.4%) 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, 1997, 1996 and
1995.
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 - 6
Cash and Cash Equivalents
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis. Inventories are reviewed quarterly for both
obsolescence and lower of cost or market issues, at which time, valuation
allowances, if required, are established. In determining lower of cost or
market, the Company reviews current sales prices, sales projections and market
conditions to ensure inventory is not stated above net realizable value.
Earnings (Loss) Per Share
The net earnings (loss) per Common Share is computed using the weighted average
number of common shares and dilutive common share equivalents outstanding. The
amount of dilution, where appropriate, is computed by application of the
treasury stock method. Common stock equivalents were not included in the
calculation of earnings (loss) per share for the Fiscal years ended June 30,
1997, 1996 and 1995 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 and for 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 effect on Company of adopting
Statement 121 in the first quarter of Fiscal 1997 was not 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 is included in depreciation and amortization
expense.
Intangible Assets
Cost in excess of net assets acquired (goodwill) was being amortized on a
straight-line basis over its estimated life of fifteen years. During Fiscal
1997, the Company revised the estimated life of certain goodwill to three
remaining years and is amortizing the balance of this goodwill over this period.
Accumulated amortization at June 30, 1997 and 1996 for such intangible asset is
approximately $1,405,000 and $984,000, respectively.
F - 7
Other Assets
Other assets include 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 approximately $876,000,
$889,000 and $829,000 in Fiscal 1997, 1996 and 1995, respectively.
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, 1997, 1996 and
1995, consolidated other (income) expense, net includes approximately $192,000,
($103,000) and $57,000, respectively, of net foreign currency (gains) losses
from remeasurement.
Forward Exchange Contracts
During the Fiscal years ended June 30, 1997, 1996 and 1995, the Company's
hedging activities were immaterial and, as of June 30, 1997, 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
Deferred tax assets and liabilities are determined based on the difference
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce preferred tax assets to the amount expected to be realized.
Stock Based Compensation
As permitted by FASB Statement No.123, "Accounting for Stock-Based Compensation"
(FASB 123), the Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock
F - 8
Issued to Employees" ("APB 25") and related interpretations in accounting for
its employee stock option plans. Under APB 25, compensation expense is
calculated at the time of option grant based upon the difference between the
exercise price of the option and the fair market value of the Company's common
stock at the date of grant, recognized over the vesting period.
Revenue Recognition
Revenues are recorded when the product is shipped to a customer, net of
appropriate reserves for returns.
NOTE 2 -- ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
June 30
1997 1996
---- ----
Trade accounts receivable $10,869,435 $8,943,993
Less: Allowances for doubtful
accounts, discounts and allowances (1,002,473) (1,393,585)
------------ -----------
$ 9,866,962 $7,550,408
============ ==========
NOTE 3 -- INVENTORIES:
Inventories are comprised of the following:
June 30
1997 1996
Raw materials and components $10,517,322 $ 7,743,884
Finished goods 5,235,080 9,747,731
--------- -----------
$15,752,402 $17,491,615
=========== ===========
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, 1997 and 1996 is a note receivable for
approximately $854,000 and $462,000, respectively, from Shenzhen Baoan Contat
Camera Factory, a Chinese Company in settlement of an account receivable. The
note is denominated in Chinese Renminbi and is due in June 2000 and bears
interest at 4% per annum.
F - 9
NOTE 5 -- PLANT AND EQUIPMENT:
Plant and equipment consist of the following:
June 30,
1997 1996
Building and building under capital lease $ 5,288,671 $ 4,654,000
Equipment and equipment under capital lease 15,907,081 12,822,689
Office furniture and equipment 3,990,970 3,501,996
Automobiles 310,588 273,363
Leasehold improvements 944,799 842,331
------------ -----------
26,442,309 22,094,379
------------ -----------
Less: Accumulated depreciation and amortization (12,576,532) (10,385,643)
------------ -----------
$13,865,777 $11,708,736
============ ===========
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, 1997 and 1996, there were no active joint ventures.
NOTE 7 -- SHORT-TERM DEBT:
Short-term debt is comprised of:
June 30,
1997 1996
The Bank of East Asia Limited - NY $3,000,000 $1,696,000
The CIT Group/Credit Finance, Inc. 1,143,000 1,853,000
The Bank of East Asia Limited - HK 3,427,000 2,820,000
Toronto Dominion Bank 406,000 --
----------- ---------
$7,976,000 $6,369,000
========== ==========
F - 10
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 (the "BOEA NY Facility). On September 20, 1995, the
Company executed an amendment to its revolving line of credit with BOEA NY to
increase the credit facility to $3,000,000. The BOEA NY Facility has also been
extended to December 19, 1997. 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 8.5% at June 30, 1997.
Availability under the BOEA NY Facility is subject to advance formulas based on
eligible accounts receivable with no minimum borrowing. At June 30, 1997,
approximately $3,000,000 was outstanding and classified as short-term debt under
the BOEA NY Facility.
The CIT Group/Credit Finance, Inc ("CIT")
The Company has a $4,500,000 credit facility with CIT (the "CIT Facility") which
expires on May 31, 1999. 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 8.5% at June 30,
1997. Availability under the CIT Facility is subject to advance formulas based
on eligible inventory and accounts receivable with minimum borrowing of
$1,500,000. At June 30, 1997, approximately $1,143,000 was outstanding and
classified as short-term debt under the CIT Facility.
The Bank of East Asia, Limited -- Hong Kong ("BOEA HK")
Concord HK has a credit facility (the "BOEA HK Facility") with BOEA HK that
provides Concord HK with up to $6,900,000 of financing as follows: letters of
credit and standby letters of credit of 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 [See "Note 8 - Long-term Debt"]. As of June 30, 1997,
approximately $5,854,000 was utilized and approximately $571,000 was available
under the BOEA HK Facility. Approximately $3,427,000 of the total $5,854,000
utilized was in the form of trade finance, including but not limited to import
letters of credit. The BOEA HK Facility, which is payable on demand, bears
interest at 2% above BOEA HK's prime lending rate for letters of credit and
2.25% above BOEA HK's prime lending rate for overdraft and packing loans. At
June 30, 1997 BOEA HK's prime lending rate was 8.5%. In connection with the BOEA
HK Facility, Concord HK has placed a $1,199,000 time deposit with BOEA HK, which
is included in prepaid and other current assets at June 30, 1997 and such
deposit is pledged as collateral for the BOEA HK Facility. In addition, all
amounts outstanding under the BOEA HK Facility are guaranteed by Concord.
In the fourth quarter of Fiscal 1997 East Asia Finance Company, a wholly-owned
subsidiary of BOEA HK, extended to Concord HK a five-year equipment leasing
facility in the amount of approximately $1,100,000. At June 30, 1997,
approximately $822,000 was outstanding and classified as capital lease
obligations.
Toronto Dominion Bank ("TDB")
On November 25, 1996, the Company obtained a $1,090,000 working capital facility
with TDB (the "TDB Facility") which expires on October 31, 1998. The TDB
Facility is secured by accounts
F - 11
receivable, inventory and other related assets of the Company's Canadian
operations and bears interest at 1% above the TDB's prime lending rate, which
was 4.75% at June 30, 1997. Availability under the TDB Facility is subject to
advance formulas based on eligible accounts receivable and seasonable inventory
eligibility with no minimum borrowings and is subject to monthly covenant
requirements. At June 30, 1997, approximately $406,000 was outstanding and
classified as short-term debt and the Company was in compliance with all
covenants under the TDB Facility.
The weighted average interest rate on the Company's short-term borrowings was
approximately 10.4% at June 30, 1997 and 1996.
Due to the short-term nature of these debt instruments, the Company believes
that the carrying amount approximates its fair value.
NOTE 8 -- LONG-TERM DEBT:
Long-term debt consists of the following:
June 30,
1997 1996
Mortgage with the Bank of East Asia Limited, Hong Kong 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"] $429,919 $460,141
-------- --------
429,919 460,141
Current portion of long-term debt (33,349) (29,552)
-------- --------
Long-term portion $396,570 $430,589
======== ========
The carrying value of the Company's long-term borrowings approximate cost.
Future maturities of long-term debt, exclusive of capital lease obligations, are
as follows: Fiscal year:
1998............................... 33,349
1999............................... 36,662
2000............................... 40,950
2001............................... 45,915
2002............................ 51,305
Thereafter......................... 221,738
$429,919
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,
F - 12
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, 1994 801,250 $1.63 - $9.50
Canceled (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
Canceled (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
Canceled (1,181,900) $1.81 - $8.31
Granted 986,000 $1.75 - $3.00
Exercised -- --
-------- ---------
Outstanding June 30, 1997 1,372,450 $1.75 - $9.00
========= =============
At June 30, 1997, 275,000 shares are available for future grants.
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 obligors. The notes mature five years from the
date of purchase and bear interest at 6%. Interest on this Note is payable in
cash, except that so long as Obligor remains an employee of
F - 13
the Company or any subsidiary thereof or performs consulting activities for any
thereof, Obligor may (i) apply the shares of the Company's Common Stock pledged
to the Company as provided below in payment of interest, by delivering to the
Company a letter in form and substance reasonably satisfactory to the Company
instructing it to apply the requisite number of such shares to the payment of
such interest (whereupon the number of shares required for such payment shall be
canceled), it being understood that for this purpose such shares shall be valued
at the Fair Market Value (as defined below) thereof on the date on which such
letter is so delivered to the Company, or (ii) deliver, as payment of interest,
a secured promissory note dated the date of payment of interest in the principal
amount of such interest payment and having substantially the same terms as this
Note. Interest on this note may also be payable in any combination of cash,
shares of the Company's Common Stock or a secured promissory note, all on the
terms described in the preceding paragraph. Each senior management purchaser was
granted a restricted stock award covering a number of shares equal to the number
of shares purchased by such purchase. The restricted stock was to be issued
based upon attainment of increase in shareholder value in accordance with the
Incentive Plan. Pursuant to Amendments to each of the Purchase Agreements, dated
February 28, 1997 (the "Amendments"), the Company was relieved of its obligation
to issue any Restricted Shares. Instead, each participant received, as of
December 22, 1996, options to purchase that number of shares of Common Stock
(the "Option Shares") equal to the number of Purchased Shares purchased by such
participant. The options vested as to 20% of the Option Shares covered thereby
as of December 22, 1996 and the balance of the shares covered thereby began
vesting December 31, 1996 in equal monthly installments over a four-year period
during the term of employment or consultancy. The unvested portion will
immediately become vested in the event that the average closing price of the
Common Stock for any consecutive 90 trading day period is at least $5.00. The
unvested portion is cancelable upon any termination of employment or consultancy
(except for death, disability or retirement).
In Fiscal 1997, certain executive's option agreements were canceled and repriced
as follows (the market price on the date of grant was either above or equal to
the option price on the date of grant):
Pursuant to his amended employment agreement, 225,000, 112,500, 112,500 shares
of the Company's common stock are subject to options which were granted to Ira
B. Lampert, Chairman and Chief Executive Officer, at an exercise price of $2.00,
$2.50 and $3.00 per share, respectively.
Pursuant to his amended employment agreement, 28,125, 14,062 and 14,063 shares
of the Company's Common Stock are subject to options which were granted to Eli
Shoer, Executive Vice President, at an exercise price of $2.00, $2.50 and $3.00
per share, respectively.
Pursuant to his employment agreement, 115,625, 57,813 and 57,812 shares of the
Company's Common Stock are subject to options which were granted to Steve
Jackel, Chief Operating Officer and President, at an exercise price of $2.00,
$2.50 and $3.00 per share, respectively.
Pursuant to terms of his employment, 22,500, 11,250 and 11,250 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 $2.00, $2.50 and
$3.00 per share, respectively.
Pursuant to terms of his employment, 22,500, 11,250 and 11,250 shares of the
Company's common stock are subject to options which were granted to Brian F.
King, Vice President Corporate & Strategic Development, at an exercise price of
$2.00, $2.50 and $3.00 per share, respectively.
F - 14
As of June 30, 1997, a total of 2,283,700 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 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 1997 or 1996.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company has accounted for its employee stock options and
warrants ("equity awards") under the fair value method of FAS 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997 and 1996 and 1995 respectively: risk-free interest rates of
between 5.58% and 6.1%; expected volatility of .612; expected option life of 5
to 7.5 years and an expected dividend yield of 0.0% The weighted average grant
date fair value of the options granted during Fiscal 1997 and 1996 was $1.44 and
$1.65, respectively.
For the purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options vesting period. The
Company's pro forma information is as follows:
1997 1996 1995
---- ---- ----
Pro forma net (loss) income ($1,319,335) ($2,104,883) $ 925,996
============ ============ =========
Pro forma net (loss) income per share of common stock ($.12) ($.19) $ .09
============ =========== =========
NOTE 11 -- INCOME TAXES:
For financial reporting purposes, pre-tax income (loss) consists of the
following:
June 30,
1997 1996 1995
---- ---- ---
United States 532 979 ($ 4,024)
Foreign (1,248) (2,633) 5,340
------- -------- --------
$ (716) ($ 1,654) $ 1,316
========= ========= ========
F - 15
The provision for income taxes, principally related to foreign operations is
comprised of the following:
June 30,
1997 1996 1995
---- ---- ----
Current ($12,479) $ 121,773 $ 94,475
Deferred 129,603 (41,953) 12,515
--------- -------- --------
$ 117,124 $79,820 $106,990
========= ======== ========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's net
deferred tax liability as of June 30, 1997 are as follows:
Deferred Tax Liabilities:
Domestic Foreign Total
Difference between book and tax basis of property ($ 34,920) ($513,489) ($548,409)
Other deferred liabilities - (24,083) (24,083)
--------- -------- ---------
Total deferred tax liabilities ($ 34,920) ($537,572) ($572,492)
========== ========== ========
Deferred Tax Assets:
Operating loss carry forwards $5,566,523 - $5,566,523
Reserves not currently deductible 84,905 - 84,905
Difference between book and tax basis of foreign
subsidiaries 328,366 - 328,366
Difference between book and tax basis of property 167,703 - 167,703
Tax credits 40,837 - 40,837
Contributions Carryover 43,484 - 43,484
Other deferred tax assets 92,659 - 92,659
------- ---------- --------
Total deferred tax assets 6,324,477 - 6,324,477
Valuation allowance 6,324,477 - 6,324,477
---------- ---------- ---------
Total deferred tax assets after valuation allowance $ - $ - $ -
========== ========== =========
Net long-term deferred tax liability ($ 34,920) ($537,572) ($572,492)
========== ========== ==========
F - 16
The tax effects of significant items comprising the Company's net deferred tax
liability as of June 30, 1996 were as follows:
Domestic Foreign Total
Deferred Tax Liabilities:
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 tax liabilities ($62,045) ($380,844) ($442,889)
========= ========== ==========
Deferred Tax Assets:
Operating loss carryforwards $5,840,563 -- $5,840,563
Reserves not currently deductible 289,974 -- 289,974
Difference between book and tax basis of foreign 344,936 -- 344,936
subsidiaries
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)
========= ========== ==========
In May 1992, the Hong Kong Inland Revenue Department notified Concord HK 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 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 $12.7 million as
of June 30, 1997. 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, 1997, Concord
had net operating loss carryforwards for U.S. tax purposes of approximately
$14,394,000 which expire as follows: $1,054,000 in 2005; $16,000 in 2006;
$443,000 in 2007; $6,630,000 in 2008 $2,770,000 in 2009 and $3,481,000 in 2010.
Losses for state tax purposes began to expire in 1997.
F - 17
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 follows:
June 30,
1997 1996 1995
---- ---- ----
Computed tax (benefits) at statutory U.S. federal tax rates ($243,283) ($ 562,483) $ 447,443
Utilization of operating loss carryforward (217,592) (332,730) --
Earnings of foreign subsidiaries subject to a different tax rate (306,705) -- (1,784,278)
Refund of prior years' income taxes paid by foreign subsidiary
-- (4,456)
Losses producing no current tax benefit 834,171 950,733 1,525,818
Other 50,532 24,300 (77,537)
------- --------- ---------
$117,123 $ 79,820 $ 106,990
========= ========== ==========
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 $3,130,000,
$1,722,000 and $598,000, during the Fiscal years ended June 30, 1997, 1996 and
1995, respectively, for product design and development (including redesign and
redevelopment). The large increase in Fiscal 1997 is due to the significant
development costs incurred with respect to the Company's new Advanced Photo
System 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 the Company to pay the
related real estate taxes. The Company also leases warehouse and/or office space
in France, Canada, Germany and the UK. 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 2002. Monthly payments on those
leases range from approximately $300 to $50,000.
F - 18
The following is a summary of assets under capitalized leases:
June 30,
1997 1996
Assets under capitalized leases $6,808,988 $5,537,349
Less: accumulated amortization (3,425,828) (2,936,885)
----------- -----------
$3,383,160 $ 2,600,464
========== ===========
Future minimum rental payments are as follows:
Operating Capital
Leases Leases
Fiscal year:
1998 $822,075 $1,037,232
1999 $572,721 988,383
2000 $324,233 911,657
2001 $174,798 215,870
2002 $162,000 185,018
Thereafter $221,422 --
---------
3,338,160
Total minimum payments $2,351,671
Less: amount representing interest (547,732)
Present value of net minimum lease payments $2,790,428
The effective interest rates on capital leases range from approximately 12% to
14%. Rental expense for operating leases of approximately $986,000, $1,121,000
and $1,033,000 was incurred for Fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
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 2001. Under the terms of such employment arrangements, the
Company is committed to pay annual salaries of approximately $1,346,000,
$1,073,000, $786,000 and $574,000 for the Fiscal years ending June 30, 1998,
1999 and 2000, 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
F - 19
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.
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,
1997 1996 1995
---- ---- ----
Current assets $36,315 $ 33,427 $32,814
Non-current assets 15,869 13,885 13,576
------ -------- -------
Total assets 52,184 47,312 46,390
Liabilities 37,331 30,922 27,325
------ -------- -------
Equity $14,852 $ 16,390 $19,065
======= ======== =======
Net sales (including intercompany sales) $67,064 $ 73,595 $61,560
Costs and expenses 68,393 76,266 56,599
------ -------- -------
Net income (loss) ($1,329) ($ 2,671) $ 4,961
======= ======== =======
Significant financial information regarding the Company's operations, which
includes the effect of the elimination of intercompany transactions, is as
follows (in 000's):
Year Ended June 30,
1997 1996 1995
Sales made to unaffiliated customers:
United States $6,245 $ 8,954 $20,161
Canada 4,746 4,270 2,966
Central America 639 1,849 1,824
Hong Kong/People's Republic of China 46,249 42,442 27,910
Federal Republic of Germany 1,915 3,161 3,509
United Kingdom 3,764 3,896 3,573
France 2,189 2,199 1,817
Hungary -- 11 379
------- ------- -------
$65,747 $66,782 $62,139
======= ======= =======
F - 20
Sales to unaffiliated customers exclude intercompany sales (in 000's) of
approximately $12,877, $16,000 and $19,757 for Fiscal Years 1997, 1996 and 1995,
respectively. The basis of accounting for intercompany sales is cost plus a
manufacturing profit.
Year Ended June 30,
1997 1996 1995
Income (loss) before income taxes:
United States $ 740 $ 1,330 ($4,827)
Canada (208) (351) (384)
Central America (403) (156) (134)
Hong Kong/People's Republic of China 1,205 (1,153) 6,776
Federal Republic of Germany (785) (509) 131
United Kingdom (1,083) (748) (371)
France (182) (27) 125
Hungary -- (40) --
-------- ------------ --------
($ 716) ($ 1.654) $ 1,316
======= ========= =======
June 30,
1997 1996 1995
---- ---- ----
Identifiable assets:
United States $ 6,209 $ 8,088 $ 9,563
Canada 1,357 1,690 1,366
Central America 280 1,075 1,594
Hong Kong/People's Republic of China 39,210 32,445 30,128
Federal Republic of Germany 1,537 2,990 3,939
United Kingdom 3,245 2,265 1,968
France 1,250 1,297 1,318
Hungary -- -- 313
---- ---- ----
$53,088 $49,850 $50,189
======== ======= =======
NOTE 16 -- RELATED PARTY TRANSACTIONS:
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 $48,000 and $56,000 for such consulting services and
related expenses during the Fiscal years ended June 30, 1997 and 1996,
respectively.
During the Fiscal year ended June 30, 1996, the Company paid consulting fees and
expenses of approximately $218,000 to a firm, the president of which was
appointed Chief Operating Officer and President of the Company in January 1996.
F - 21
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
June 30,
1997 1996 1995
Cash paid for interest $1,067,000 $ 882,000 $820,000
========== ========= ========
Cash paid for taxes $ 146,000 $ 329,000 $ 88,000
========== ========= =========
During the Fiscal years ended June 30, 1997 and 1996, capital lease obligations
of approximately $1,157,000 and $2,569,000 were incurred when the Company
entered into leases for new equipment.
NOTE 18 -- OTHER (INCOME) EXPENSES -- NET:
June 30,
--------
1997 1996 1995
---- ---- ----
(Gain) loss on sales of long-term assets -- $ 20,000 ($ 5,000)
Other interest (income) ($403,000) (271,000) (135,000)
Other (income) expense, net 55,000 200,000 27,000
Directors' fees 133,000 128,000 173,000
Foreign exchange (gain) loss, net 92,000 (107,000) 95,000
------ --------- --------
($123,000) ($ 30,000) $155,000
========== ========= ========
F - 22
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 of costs and other Balance at end
Description period expenses accounts Deductions of period
Reserve for doubtful accounts, discounts and allowances
Fiscal Year:
1995 1,634,174 218,496 -- 810,899 1,041,771
1996 1,041,771 584,497 -- 232,683 1,393,585
1997 1,393,585 118,072 -- 509,184 1,002,473
Inventory Reserves and provisions
Fiscal Year:
1995 1,284,579 148,669 -- 396,547 1,036,701
1996 1,036,701 3,034,604 -- 839,200 3,232,105
1997 3,232,105 644,192 -- 2,103,522 1,772,775
F - 23
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: __________________________
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 19, 1997
- ---------------------------------------
Ira B. Lampert Chief Executive Officer
/s/ Steve Jackel Director, Chief Operating September 19, 1997
- -----------------------------------------
Steve Jackel Officer and President
/s/ Barry M. Shereck Chief Financial Officer September 19, 1997
- -------------------------------------
Barry M. Shereck
/s/ Harlan I. Press Corporate Controller September 19, 1997
- ---------------------------------------
Harlan I. Press
/s/ Eli Arenberg Director September 19, 1997
- ----------------------------------------
Eli Arenberg
/s/ Morris Gindi Director September 19, 1997
- ---------------------------------------
Morris Gindi
/s/ Joel L. Gold Director September 19, 1997
- ----------------------------------------
Joel L. Gold
/s/ J. David Hakman Director September 19, 1997
- ------------------------------------
J. David Hakman
/s/ Ira J. Hechler Director September 19, 1997
- ----------------------------------------
Ira J. Hechler
/s/ Kent M. Klineman Director September 19, 1997
- -----------------------------------
Kent M. Klineman
F - 25