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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, 1995 Commission file No. 33-21156
Concord Camera Corp.
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
35 Mileed Way, Avenel, New Jersey 07001
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (908) 499-8280
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ x ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 15, 1995, 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 $65,609,538.
As of September 15, 1995, the number of shares outstanding of the Company's
Common Stock was 10,497,526.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index -- Page -
Page 1 of
Item 1. Business.
General. The Company was incorporated in New Jersey on September 30, 1982
and consummated its initial public offering in July 1988. Its principal offices
and administrative headquarters are located at 35 Mileed Way, Avenel, New
Jersey, 07001. The Company's manufacturing facilities are located in the
People's Republic of China ("PRC"). The Company has two distribution
subsidiaries in North and Central America, four in Europe and one in Hong Kong.
Unless the context indicates otherwise, when used in this report the word
"Company" refers to Concord Camera Corp. and its subsidiaries and unless
otherwise indicated, any twelve month period ending or ended on June 30, will be
referred to as "Fiscal" with the appropriate year specified.
The Company's principal business has been and is the design, manufacture,
marketing, distribution and sale of popularly-priced, easy to use 110 film
cartridge and traditional and single use 35 millimeter cameras. The Company's
objective is to respond to consumer demands for popularly-priced cameras with
contemporary design and modern technology. To this end, the Company designs and
manufactures various models of cameras in popular colors. The Company currently
produces numerous series of 110 film cartridge and 35 millimeter (including
single use) cameras with suggested United States retail sales prices ranging
from $5.99 to $60.
Domestic and Foreign Sales, Markets and Marketing
In Fiscal 1995, sales by the Company to United States customers, including
sales made by the Company's Hong Kong subsidiary, constituted approximately
58.4% of total sales. Such sales were primarily to major discount, drugstore and
retail chains, including Wal-Mart Stores, Target Stores, Walgreens, Eckerd
Drugs, Family Dollar, and Toys-R-Us and to distributors and through direct mail
and accounts which use cameras as premiums in connection with products sales.
Approximately 41.6% of total sales in Fiscal 1995 were made by the Company's
foreign subsidiaries to customers outside the United States. The Company also
manufactured and sold, on an OEM basis, both finished single-use cameras and
unassembled single-use cameras without film and batteries to The Minnesota
Mining & Manufacturing Co. and Agfa-Gevaert AG.
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. Company's sales for the first
six months of Fiscal 1995 were $33,272,000 compared to $28,867,000 for the
second six months of that year. Sales for the first six months of Fiscal 1994
were $29,800,000 compared to $25,017,000 for the second six months of that year.
[See Consolidated Financial Statements]
United States. A large portion of the Company's United States sales are
made by its own 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
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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 own
sales staff alone, or in conjunction with the services of other of its
representatives, could provide the services now provided.
Canada. In Fiscal 1995, 1994 and 1993 sales by Concord Camera Canada Corp.
("Concord Canada") accounted for approximately 4.8%,6.8%,and 13.7% respectively
of the Company's total sales for those fiscal years. The decrease in Canadian
sales from Fiscal 1993 to Fiscal 1995 was primarily attributable to the
reduction in non-camera revenues, the successful implementation of certain sales
programs with the Company's larger customers which are on an FOB Hong Kong
basis, and the depressed economic conditions of the Canadian market.
Panama. In February 1992, the Company formed Concord Camera (Panama) Corp.
("Concord Panama") to market products in Central and South America. Concord
Panama accounted for approximately 3.6%, 3.6%, and 2.1% of the Company's total
sales for Fiscal 1995, 1994 and 1993, respectively.
Concord Americas. The United States, Canada, and Panama (collectively
"Concord Americas") are now in position to better service their customers in a
growing market place and increase their market shares in the Americas. The
Company is in the process of of centralizing certain administrative, accounting
and warehousing functions of the United States, Canadian and Panamanian
operations in order to control costs and improve operations.
Europe. Consolidated sales of Concord Camera GmbH ("Concord Germany"),
Concord Camera UK Limited ("Concord UK"), Concord Camera France SARL ("Concord
France"), and Concord Camera (Hungary) Ltd. ("Concord Hungary), accounted for
approximately 14.9%, 12.5%, and 10.6% of the Company's total sales in Fiscal
1995, 1994 and 1993, respectively. Sales in those regions continued to improve
in Fiscal 1995 and are expected to continue to improve in the near future.
During the first quarter of Fiscal 1994, the Company formed Concord Hungary
which commenced operations in that quarter. In an effort to decrease worldwide
administrative expenses during the first quarter of Fiscal 1996, the Company
decided to transition its sales activities in Hungary to an independent sales
representative. During the fourth quarter of Fiscal 1994, the Company formed
Concord France which commenced operations on July 1, 1994.
Concord Germany, Concord UK, and Concord France (collectively "Concord
Europe") are now in position to better service their customers in a growing
market place and increase their market shares in Europe. The Company intends to
continue to centralize certain administrative, accounting and warehousing
functions in Concord Europe in order to reduce the costs associated with those
functions.
Far East. Sales by Concord Camera HK Limited ("Concord HK") accounted for
approximately 44.9%, 24.2%, and 26.3% of the Company's total sales for Fiscal
1995, 1994 and 1993 respectively. Concord HK's sales were made throughout the
Far East, including Japan, and to other worldwide customers who purchase on an
FOB Hong Kong basis. The Company believes that sales in the Far East will
continue to represent a significant percentage of total sales.
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During the quarter ended December 31, 1993, Concord HK signed a twenty year
agreement with Shenzhen Baoan Contat Camera Factory of the PRC ("Contat"), a
joint venture between Longhua Economic Development Company and Shenzhen Santat
Enterprise Development Company. Under the terms of that agreement, Concord HK
will sell camera components to Contat, make available certain equipment, provide
management assistance and technical advisors and supervise the technical quality
of Contat's products. Contat will market and sell the camera products it
produces in the PRC under the "Concord" trade name and trademark, under a
sublicense from the Company. Included in other assets is a note receivable from
Contat for approximately $431,000. [See Note 5 to the Financial Statements]
Hungary. In Fiscal 1990, the Company formed a joint venture with Hungarian
Optical Works, Fine Mechanical and Optical Ltd. and the Hungarian Credit Bank
Ltd. to manufacture and assemble cameras in Hungary for distribution in that
country and in other Eastern Bloc countries. Because of the financial
instability of the Company's joint venture partners, the joint venture is being
liquidated which is anticipated to be completed in Fiscal 1996. The Company had
intended to continue its activities in Hungary and the former Eastern Bloc
Countries through a wholly owned subsidiary, however, in the first quarter of
Fiscal 1996 the Company transferred its sales activities for Hungary and certain
of the former Eastern Bloc Countries to an independent sales representative.
[See Consolidated Financial Statements]
Licensing Activities. In May 1995, the Company executed a license agreement
with Hallmark Licensing, Inc., as agent for Binney & Smith Properties, Inc.
("Binney & Smith") under which the Company licensed certain Binney & Smith
trademarks with regard to Crayola(R) and certain associated marks, tradenames,
and logos for use with single-use cameras, pocket 110 cameras and 35 millimeter
cameras. The agreement expires December 31, 1997 but the Company may renew the
agreement for an additional one year term if actual royalties payable under the
agreement exceed a pre-determined minimum level.
Customers. In Fiscal 1995 and 1994, approximately 56.9% and 51.9% of
Company's sales were to its 10 largest customers. The consolidated sales to two
customers (The Minnesota Mining & Manufacturing Company and Wal-Mart Stores,
Inc.)in Fiscal 1995 and 1994 amounted to approximately $15,759,000 (25.4%) and
$12,176,000 (22.2%), respectively. The loss of either of these customers could
have a material impact on the Company. The Company has executed agreements for
the supply of single-use cameras as an original equipment manufacturers with
each of Minnesota
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Mining & Manufacturing Co. and Agfa-Gevaert AG. Each agreement is for a one
year term and requires each of those entities to purchase several million
single-use cameras.
Advertising. The Company engages in a limited amount of advertising and in
the past has given allowances to customers who advertise its products.
Advertising allowances and other discounts were approximately $829,000.
$587,000, and $858,000 in Fiscal 1995, 1994, and 1993 respectively.
Manufacturing
General. The Company's operations and profitability are substantially
dependent on its manufacturing and assembly activities, all of which are
conducted in the PRC. The Company currently 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") and FERO approval is necessary to assure the validity
and enforceability of the PRC Agreements. The Company's most recent PRC
Agreement covering its manufacturing activities was approved by the PRC Entities
and FERO in 1993 and expires in 2002. The Company intends to continue to expand
its operations in the PRC, although there can be no assurance that it will be
able to do so.
The Company did not experience any interruption in its manufacturing or
other operations as a result of political events (Tiananmen Square) in the PRC
in June 1989, other than a brief interruption of deliveries between Hong Kong
and the PRC. There can be no assurance that similar events will not occur in the
PRC in the future and, if they do occur, that they will not result in material
interruption of manufacturing or other operations.
Although in the past the Company has contract manufactured non-
photographic products in the PRC, at present the Company is not performing any
contract manufacturing but continues to explore opportunities related thereto.
The Company continues to explore the possibility of contract manufacturing of
non-photographic products in the PRC in cases where manufacturing is labor
intensive and requires the application of manufacturing processes and techniques
similar to those currently employed by the Company. See "Dependence on
Agreements with the PRC." and "Item 2. Properties."
Supply arrangements. The Company purchases raw materials and certain
components used in the manufacture of its products from numerous non-affiliated
suppliers, including substantially all of its film, batteries, glass lenses,
plastic resins, metal and electronic component parts.
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Products
General. Company camera products are manufactured and sold principally
under the CONCORD, KEYSTONE, and LE CLIC trade names and private labels. Outside
the United States and Mexico, the Company's camera products are sold under the
ARGUS trade name. The Company's cameras carry suggested United States retail
prices ranging from $5.99 - $60. Cameras sold under the CONCORD name are
generally the lowest-priced cameras in the Company's lines, cameras sold under
the KEYSTONE name are generally the highest-priced camera in its lines except
for a limited number of cameras sold under the ARGUS trade name in Canada.
Substantially 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, including film, carrying retail
prices ranging from $5.99-$12.95. 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. 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 43.6% of total
sales in Fiscal 1995 and the Company expects that its sales of single use
cameras will represent the largest area of its growth in Fiscal 1996. 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(R) brand
name.
Slim Line Cameras. In Fiscal 1992, the Company introduced its Slim Line
cameras, which are compact 35 millimeter, motorized and manual film advance
models. These cameras have a contemporary design and are popularly priced. In
Fiscal 1992, the Company also introduced its switchable panorama cameras which
offer a standard size or a wide angle stretch type print. In that year, the
Company also developed a patented system for printing a date or a message
directly on each photo taken by its cameras. In Fiscal 1993, a complete line of
Photo Date and Photo Message cameras were introduced.
New Products. In Fiscal 1995, the Company began design and development
efforts on cameras intended to meet the new Advanced Photo System film standard,
as well as the design of new standard 35 millimeter cameras to meet changing
consumer demand.
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110 Cartridge Models. The Company's pocket 110 cartridge models are simple,
easy to use, cartridge loading point-and-shoot cameras. Certain of the 110
models have a built-in electronic flash and/or telephoto lens. The Company
markets five models of 110 cartridge cameras which are available in popular
colors. United States retail prices for those models range from $4 to $20.
Following the execution of a license agreement with Hallmark Licensing, Inc. in
May, 1995, the Company introduced a line of 110 cartridge cameras utilizing the
Crayola(R) brand name.
35 Millimeter Models. The Company markets several lines of 35 millimeter
cameras ranging in retail price from $15 - $60. The lower priced models are
point-and-shoot and have manual film transport. The more expensive models have
additional features such as date-back and panorama adapters. The newest of those
lines is the Slim Line ultra-compact camera.
The Company's medium-priced lines of 35 millimeter point-and-shoot cameras
carry retail prices ranging from $25 - $50. Each camera in those lines is fully
motorized and has more sophisticated features than the lower priced lines,
including a telephoto lens, data back, automatic flash, red-eye reduction and
automatic film loading. Those cameras are also sold in the Slim Line version.
The Company's most sophisticated line of point-and-shoot 35 millimeter
cameras carry retail prices ranging from $40 - $60. In addition to features
present in its less expensive lines, those cameras have a two-step auto focus
lens (the lens automatically focuses in one of two settings) and several
additional features, including motor drive, automatic film loading, automatic
flash, data back, twin lenses, mid-roll switchable panorama/normal format and
red-eye reduction.
Private Label. The Company manufactures, to customer specifications, 110
and 35 millimeter cameras (including single use cameras) under the private label
brands of its customers.
Accessories. The Company purchases and resells, photographic accessories,
including flashes, vinyl pouches and carrying cases for its cameras.
Design. Company manufactured products, other than those that it acquired
from Keystone, are created, designed and engineered principally in Hong Kong. In
addition during the fourth quarter of Fiscal 1995, the Company opened a contract
design studio, in Japan. The Company expended approximately $598,000,
$1,021,000, and $2,100,000 in Fiscal 1995, 1994, and 1993, respectively, for
product design and development and tooling. The large increase in those costs in
Fiscal 1993 was due to the significant
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development costs incurred with respect to new single use and traditional
35 millimeter cameras. In Fiscal 1992, the Company designed, developed and
initiated production of its Slim Line and panorama cameras. Although those
product lines were introduced in Fiscal 1992, the Company made additional design
and redevelopment changes and thereby incurred additional development expenses
related to those lines in Fiscal 1993. In Fiscal 1992, the Company also designed
and initiated production of an additional model in its 110 series of cameras and
initiated its single use line of cameras. In addition, in Fiscal 1992 the
Company developed and patented imaging and data back processes which it began to
market in Fiscal 1993. In Fiscal 1993, the Company also designed and placed in
service production fixtures, test jigs and equipment and implemented packaging
styles and materials for cameras packaged to specific customer orders and made
cosmetic revision to its cameras.
Other Products. In Fiscal 1994, the Company ceased manufacturing certain
computer peripheral equipment manufactured on an OEM basis; however, revenues
from this arrangement were not significant in that year. In Fiscal 1995 the
Company discontinued the sale of certain non-camera products, which sales
accounted for approximately $2,476,000, $4,561,000 and $6,949,000 in Fiscal
1995, 1994 and 1993, respectively.
Suppliers, Raw Materials and Production
General. The Company owns or has financed the purchase through equipment
finance leases of substantially all the tools and equipment necessary to
manufacture certain components used in its cameras. In connection with its
acquisition of certain tools and equipment for the manufacture of electronic and
optic components used in the Company's cameras, the Company sold those assets to
and leased them back from EDS Financial Corporation ("EDS"), a division of
Electronic Data Systems Corporation. Upon the making of the final payment in
Fiscal 1996, the Company will take ownership of the equipment. In Fiscal 1992,
the Company moved those assets to its manufacturing facilities in the PRC.
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 product from
third party manufacturers. The Company previously sourced many of the component
items that it now produces from several affiliated joint ventures. Over the last
several years, the Company purchased the interests of its joint venture partners
in substantially all of those ventures. The Company depends on non-affiliated
suppliers for its required glass lenses, motors and certain electronic
components, such as transistors and diodes and film. In the past, the Company
has experienced, and may in the future experience, difficulties in obtaining in
a timely manner certain components and film necessary for its finished products;
however, the Company believes that it is not dependent on any single supplier
for any component or film and that it could find alternate sources on relatively
short notice at prices competitive with those it currently pays.
Advance Commitments. To secure adequate production materials, components
and film, the Company must make substantial advance commitments to suppliers
ranging from one to six months prior to the receipt of firm orders from
customers. However, many of those 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 those conditions. The Company
believes these conditions to be standard in its industry.
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Quality Control. The Company devotes substantial effort to quality control,
including testing components and raw materials when purchased or produced,
testing during the assembly process and final quality control testing of
finished products. The Company's terms with all of its United States customers
include the right to return defective merchandise for credit. Foreign customers
are permitted to exchange defective merchandise for the same product and the
Company believes those practices to be standard in its industry.
Dependence on Agreements with the PRC
General. The Company manufactures a majority of the components used in its
cameras and assembles all of its manufactured finished products in the PRC
pursuant to the PRC Agreements. FERO approval is required on all of the PRC
Agreements to ensure their enforceability. See "Manufacturing -- General."
Operating Practices. The Company's PRC Agreements provide for the
production and manufacture of cameras at certain facilities in the PRC with
labor supplied by PRC Entities. The PRC Entities currently supply the Company
with the use of two assembly plants and approximately 2,000 workers to
manufacture and assemble cameras. A third plant is owned by the Company.
Although a substantial number of the Company's workers are employees of the PRC
Entities, the Company is responsible for their food and housing and
substantially all of them live in Company maintained dormitories. The current
average cost per production line worker is approximately $85 per month including
room and board and the Company's payments to the PRC Entities allocable to the
provision of those workers. If any worker fails to work efficiently or to
improve after instruction, the Company has the right to request that the PRC
Entities replace that individual. The three facilities aggregate approximately
384,000 square feet. See "Manufacturing."
PRC Taxes and Import/Export Duties. The Company has never paid any income
or turnover tax to the PRC on account of its business activities in the PRC.
Existing PRC statutes can be construed as providing for a minimum of 10% to 15%
income tax and a 3% turnover tax on the Company's business activities; however,
the PRC has never attempted to enforce 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 pay
import/export duties to the PRC but, as with any tax, there can be no assurance
that the Company will not be required to pay such duties in the future.
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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. In order to minimize this risk, the Company
obtained a land use certificate for the land on which the Company owned plant is
situated and to which it has obtained title. The Company intends to expand
operations on that property. However, in addition to lost assets and revenues
attributable to the discontinuance of its operations at the Baoan County
facilities, the Company would likely experience some loss on account of such
interruption, depending upon where, and under what arrangements, the Company was
able to resume production. If, for any reason, the Company could not continue
production in its existing PRC locations, all manufacturing activities would
cease for at least six months until the Company was able to resume production
elsewhere. If the Company were required to move its production operations from
the PRC, the Company's profitability would be substantially impaired, its
competitiveness and market position would be materially jeopardized and there
could be no assurance that it would be able to profitably manufacture and
distribute its products.
There is also a risk of expropriation of the Company's assets by the PRC
and the imposition of restrictions or embargoes on the export of finished
product, or the import of components and materials used in the Company's PRC
operations. At June 30, 1995, the net book value of Company assets in the PRC
was approximately $9,225,000 and such assets are insured against expropriation.
The amount of Company assets in the PRC is expected to increase as operations in
that country grow. The Company maintains property and casualty insurance
covering the cost of Company owned and certain leased assets in its PRC
facilities. The Company also maintains political risk insurance on certain
equipment up to $4,000,000. If the Company were required to relocate and could
not remove the assets it owns or leases in the PRC, the cost of replacement of
such assets would be significantly higher than their book value.
Backlog
The Company's general practice is to fill orders within delivery dates
required by customers. Substantially all of the Company's cameras are produced
in accordance with specifications and production schedules determined by the
Company on the basis of projected sales and orders placed by its primary
customers. Production schedules for sales are determined in accordance with
customers orders, and the Company's anticipation of the demand for its products.
The amount of unfilled orders at a particular time is affected by a number of
factors, including availability of finished inventory, manufacturing and
assembly capability and product shipments. Accordingly, the amount of unfilled
orders from period to period is not necessarily meaningful and may not be
indicative of actual shipments to be made to customers in any period.
Competition
The photographic products industry is highly competitive. As a manufacturer
and distributor of inexpensive cameras, the Company encounters substantial
competition from a number of firms, many of which have longer operating
histories, established markets and more extensive facilities. Many of the
Company's competitors have greater resources than the Company has or may
reasonably be expected to have in the foreseeable future. The Company considers
Vivitar, Ansco Photo Optical Products Corporation
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("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 Company's Business Outside of the United States
The Company conducts engineering, design, purchasing and certain
distribution and warehousing activities in Hong Kong.
Hong Kong Currency
Since 1983, the Hong Kong dollar has been pegged to the United States
dollar at an approximate rate of US$1 = HK$7.73; however, there can be no
assurance that the exchange rate of the Hong Kong dollar will not fluctuate in
the future. Certain obligations under the PRC Agreements and the Company's Hong
Kong suppliers are paid in Hong Kong dollars.
Hong Kong 1997
The United Kingdom and Northern Ireland (the "United Kingdom") and the PRC
have agreed that effective July 1, 1997 the exercise of sovereignty over Hong
Kong will be transferred from the United Kingdom to the PRC. This agreement is
embodied in the Sino-British Joint Declaration on the Question of Hong Kong (the
"Joint Declaration") signed on December 19, 1984 and it has been ratified by
both governments. Hong Kong is scheduled to become a Special Administrative
Region ("SAR") of the PRC on July 1, 1997. The Joint Declaration provides that
the Hong Kong SAR shall be directly under the authority of the PRC, shall enjoy
a high degree of autonomy, except in foreign and defense affairs, and shall be
vested with executive, legislative and independent judicial power. It also
provides that the current social and economic systems in Hong Kong shall remain
unchanged for 50 years after June 30, 1997 and that Hong Kong shall retain its
status as an international financial center.
The Joint Declaration provides that the basic policies of the PRC regarding
Hong Kong and the elaboration of these policies in the Joint Declarations will
be stipulated in a Basic Law of the Hong Kong SAR (the "Basic Law"). The Basic
Law was adopted on April 4, 1990 by the PRC and is scheduled to take effect on
July 1, 1997. It provides, in part, that "the socialist system and policies
shall not be practiced in the Hong Kong SAR, and the previous capitalist system
and way of life shall remain unchanged for 50 years."
In October 1992, Hong Kong Governor Christopher Patten announced a plan for
expanding democracy in Hong Kong through electoral reforms prior
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to July 1, 1997 to ensure the "high degree of autonomy" promised in the
Joint Declaration. Representatives of the PRC Government subsequently issued
public statements that protested Governor Patten's proposals. On March 12, 1993,
Governor Patten published his reform proposal, the first step for consideration
by the Hong Kong Legislative Council. In April 1993, representatives of the
United Kingdom and the PRC began meetings to discuss the reform proposals and
the future of Hong Kong. After more than a year of protest from PRC leaders,
Hong Kong's Legislative Council voted to adopt Governor Patten's proposals on
June 30, 1994. In response, on August 31, 1994 the PRC issued a regulation to
abolish Patten's reform package immediately upon taking control of Hong Kong in
July 1997.
On July 26, 1995, the Legislative Council voted to adopt legislation
establishing a new Court of Final Appeal in Hong Kong as the supreme judicial
body after the July 1997 reversion. While this tribunal may help insure the
stability of Hong Kong's commercial environment, the ultimate independence and
authority of this tribunal is uncertain. In addition, the PRC stated in August
1994 that it will abolish the Legislative Council once it takes control of Hong
Kong.
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, 1996; however, the President may recommend
that MFN status for the PRC be extended for successive 12-month periods.
On June 2, 1995, the President announced his decision to renew the PRC's
MFN status until July 3, 1996. In addition, he reiterated his policy, first
announced in 1994 of separating MFN treatment for the PRC from most human rights
issues. However, the President noted that statutory requirements concerning free
emigration would continue to apply as a
-12-
prerequisite for MFN status for the PRC. In addition, the ban imposed by
the President in 1994 on the importation of munitions from the PRC and existing
U.S. sanctions imposed in view of continuing human rights abuses in that country
remain in effect. None of the extended U.S. sanctions relates to the importation
of commercial products from the PRC.
Under current law, within 60 days after an extension of MFN status takes
effect, Congress may disapprove the extension through the adoption of and
transmittal of a joint resolution. The President may veto such resolution
subject to provisions contained in the Trade Act of 1974 ("the Trade Act"). No
such resolution was passed by Congress in 1995. However, the House of
Representatives passed a Resolution that was highly critical of some Chinese
practices, and several other provisions critical of the PRC were added to other
legislative measures. None of these measures has yet been adopted formally by
Congress as legislation. Moreover, neither the Resolution nor the provisions
would affect the importation of products from the PRC.
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 had 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.
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 United States will take trade actions against
the PRC that may result in increased tariffs against PRC products.
The PRC is currently engaged in talks concerning its possible accession to
the World Trade Organization ("WTO"). Successful conclusion of these talks would
result in the application of comprehensive trade rules on trade with the PRC.
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.
-13-
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
-14-
Company as dividends, the Company generally can claim a foreign tax credit
on the deemed dividends just as if actual dividends had been paid. If and to the
extent the Company is subjected to United States income tax on such deemed
dividends, Concord HK may subsequently distribute an amount equal to such
previously taxed income without additional tax consequences to the Company.
If Concord HK distributes a portion of its earnings to the Company in
excess of the earnings, if any, that have already been taxed to the Company as
deemed dividends, such dividends will constitute taxable income. If it so
elects, the Company generally will be entitled to a foreign tax credit to the
extent that the distributed earnings have borne an income tax in Hong Kong.
The Company's net operating losses (and a carry forward of net operating
losses) will be applied to reduce the Company's current taxable income and the
federal income tax on any remaining taxable income will be reduced by foreign
tax credits, subject to statutory limitations on such credits.
Other Subsidiaries. Concord Canada, Concord UK, Concord France, Concord
Germany, Concord Panama and Concord Hungary are also CFC's to which the United
States tax laws as discussed above are applicable. Due to the nature of their
operations, some of those CFC's may earn or generate foreign base company income
above the De Minimis Amount. However, the Company does not believe that the
United States tax on foreign base company income generated by the Company's
CFC's in excess of available foreign tax credits would represent a substantial
percentage of its total income. It is not expected that those foreign
subsidiaries will make investments in United States property and no United
States taxes have been provided on the earnings of those subsidiaries since
management intends to permanently reinvest such earnings abroad.
Trademarks and Patents
The Company owns trademarks on the CONCORD, KEYSTONE, Funshooter, and LE
CLIC, names for cameras sold in the United States and numerous foreign
countries. In addition, the Company owns the trademark ARGUS in numerous
countries other than in the United States and Mexico. As part of its acquisition
of Keystone, the Company purchased several patents used in its Keystone cameras.
In addition, the Company was granted a United States patent for its data
imprinting system and it has applied for United States and Japanese patent
protection for certain camera related processes and anticipates filing for
patent protection on those processes in other countries. Concord HK has applied
for United States and foreign patent protection for a film drive system 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.
-15-
Employees
On June 30, 1995, the Company had 138 employees, 36 in the United States,
6 in Germany, 6 in Canada, 68 in Hong Kong and the PRC, 1 in Japan, 2 in France,
8 in the UK, 4 in Hungary and 7 in Panama. Seventy-four Company employees are in
executive, administrative or clerical capacities, 14 in direct merchandising
and sales, 19 in warehouse and shipping and 31 in engineering and design. No
Company employee is represented by a union. The PRC Entities currently provide
the Company with approximately 2,000 workers at its PRC facilities. To date, the
Company has not had any of its operations interrupted due to labor dispute and
it considers its working relationship with employees and workers to be good.
Item 2. Properties.
United States Offices and Warehouses. The Company's principal offices
containing the Company's domestic warehouse and administrative offices are in a
35,000 square foot facility located at 35 Mileed Way, Avenel, N.J. The Company's
lease on this facility provides a rent of $15,000 per month and that lease
expires in December of 1997.
Hong Kong. The Company owns one floor and leases one floor constituting
approximately 13,000 square feet of warehouse and business space at Fortei
Building, 98 Texaco Road, Tsuen Wan, New Territories, Hong Kong at a cost of
approximately $6,600 per month, including rent and maintenance.
Other Jurisdictions. The Company leases warehouse and/or office space in
France, Canada, Germany, UK, Hungary and Panama in connection with the
activities of its subsidiaries in those jurisdictions.
PRC -- Operations. Cameras and components are manufactured and assembled at
three manufacturing facilities located in Baoan County, Shenzhen Municipal, PRC.
Two of the manufacturing facilities are leased from a PRC Entity (the "Leased
Facilities") for which the Company pays rent of approximately $21,000 per month.
The other manufacturing facility is owned by the Company (the "Company
Facility"). The Leased Facilities and the Company Facility each have a related
employee dormitory (the "Related Dormitory"). The aggregate square footage of
the Leased Facilities, Company Facility and their respective Related Dormitory
is approximately 384,000 square feet.
In Fiscal 1996 the Company expects to commence construction of an
additional factory building 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 total
cost to construct and complete the Addition will be approximately $750,000. The
Company had also anticipated commencing construction of a new dormitory in
Fiscal 1995. In lieu of the construction, the Company leased a new dormitory
facility commencing in July 1995. Certain improvements will be made to the new
dormitory at an approximate cost of $250,000. In addition, the current dormitory
owned by the Company will be converted to office and administrative space and
engineering facility as well as a small factory for pilot runs and living
quarters for foreign employees at an approximate cost of $250,000. Total cost
for all the construction described above is estimated to be approximately
$1,250,000. Such cost
-16-
will be amortized over the expected useful life of the Addition once completed
and placed in service, which is expected to be by the end of Fiscal 1996. If
production requirements continue to increase, the Company may be required to
provide for an additional dormitory.
The Company negotiated and executed 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. In satisfaction of a
portion of its obligations under the Land Use Agreement the Company had intended
to issue 33,108 shares of Common Stock valued at $132,365 on November 9, 1994.
While such shares were actually issued, they were never, in fact, delivered to
the PRC Entity. The PRC Entity insisted on renegotiation of the terms allowing
for payment in the Company's Common Stock. During the fourth quarter of Fiscal
1995 the shares were canceled and payment was made in cash. In addition, the
Company will also be 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.
Roland Kohl. During the last quarter of Fiscal 1990, Concord HK terminated
for cause certain of its former officers and directors, including Roland Walter
Kohl ("Kohl"), its former Managing Director. On April 10, 1990, the Company and
Concord HK instituted proceedings in the Supreme Court of Hong Kong, High Court
against such individuals for alleged breach of employment contracts and breach
of duties owed to Concord HK. Concord HK's claims against those persons included
damages caused by an alleged conspiracy to impede Concord HK's production
capabilities, disruption of Concord HK's business, ordering of unnecessary or
obsolete inventory, impeding Concord HK from obtaining credit and loss of
profits. The Company and Concord HK claimed damages of approximately $5.9
million, including claims for lost business. The defendants served answers and
counter-claimed for arrears of salary, salary in lieu of notice and bonuses held
in escrow by Concord HK's former attorneys.
-17-
The Company has executed a settlement agreement with all of the defendants.
The settlement documents are subject to finalization. The settlement resulted in
all claims and counter claims being dismissed. As a result of the settlement,
the Company will not recover any alleged damages. The Company will not pay any
money to Kohl and one other defendant. Payment will, however, be made by the
Company to certain other defendants who had claims for salary arrearages and
legal fees incurred in asserting those claims in the aggregate amount of
$800,000 which will be paid by the release of certain escrowed funds of
approximately $287,000 (which sum was originally posted by Concord HK to secure
payments under the employment agreements to those defendants) with the balance
being payable over time, through May 1996.
SEC Investigation. In December of 1990, Michael J. Rea ("Rea"), the
Company's then Chief Financial and Accounting Officer was terminated by the
Company. On February 7, 1991, Rea instituted suit against the Company and Jack
C. Benun ("Benun") individually, the Company's former Chairman and Chief
Executive Officer, in the Superior Court of New Jersey, Law Division, Middlesex
County. Rea alleged, among other things, that his employment had been terminated
in breach of his employment contract, and in retaliation for Rea's discovery and
investigation of certain misconduct involving, among others, Benun, who Rea
alleged had misappropriated at least $150,000 from the Company.
On November 1, 1991, the Company was advised that the Securities and
Exchange Commission (the "Commission") had issued an order on October 21, 1991
directing a private investigation (the "Commission Investigation") of Rea's
allegations and related matters to determine whether any persons, including the
Company and certain of its officers, directors, employees and affiliates, had
engaged in, are engaging in, or are about to engage in, acts or practices in
violation of various provisions of the 1933 Act and the Exchange Act and the
rules and regulations thereunder.
An initial investigation was instituted in 1991 by an Ad Hoc Committee of
the Company's Board of Directors regarding the allegations of misconduct against
Benun. The Ad Hoc Committee reported in 1992 that they had been unable to find
any substantial evidence of wrongdoing by Benun. When new evidence became
available in 1993, the Ad Hoc Committee was reconstituted with two new members
and one member of the prior committee panel and its investigation was continued.
On July 13, 1994, the Company's Board received and adopted a report from
the Ad Hoc Committee, concluding that the credible evidence indicated Benun had
misappropriated $150,000 from the Company and recommended that Benun be
terminated. As a consequence of the new report and the Ad Hoc Committee's
recommendation, on July 14, 1994 the Company announced that it had terminated
Benun for cause. On September 16, 1994, as required by his settlement agreement
with the Commission, Benun paid the Company $215,243, representing reimbursement
of the $150,000 allegedly misappropriated and interest thereon from May 1, 1990.
On September 1, 1994, the Company settled the Commission Investigation as
it related to the Company without monetary damages or penalties. The settlement
became effective upon the filing of an Administrative Order in which the
Company, without admitting any wrongdoing, agreed to cease and desist from
filing false reports and proxy statements, and keeping inaccurate books and
records.
-18-
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
Benun. 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. [See above SEC
Investigation]
Mr. Benun has submitted a counterclaim in which he alleges among other
things a wrongful termination by the Company. The Company intends to vigorously
pursue its action as well as defend the counterclaim. The Company has reserved
its rights under any other claims it may have against Mr. Benun. [See below
Purported Class Action]
Purported Class Action. On February 22, 1995 the Company was served with a
complaint purporting to be a class action on behalf of purchasers of the
Company's common stock throughout the period from January 1, 1991 through
December 31, 1994 seeking damages in an unspecified amount. The complaint
appeared to be predicated on the wrongdoing of the Company's former chief
executive officer who was terminated for cause by the Company in July 1994 and
an alleged failure by the Company to promptly disclose such wrongdoing to the
public. By way of responding to the complaint, the Company and the individual
defendants (comprised of present and former Board members) filed a motion to
dismiss the complaint. On September 5, 1995 plaintiffs responded by filing a
cross-motion to file an amended complaint. The Company intends vigorously to
contest the litigation and believes that it has good defenses to the purported
claims asserted in the complaint and amended complaint. The matter is in its
earliest stage and there can be no assurance as to its eventual outcome. The
Company has already commenced an arbitration proceeding described above against
its former chief executive officer and intends to file a claim against him for
all costs incurred by the Company in connection with the purported class action
litigation.
Argus. Effective March 31, 1992, the Company sold to Argus, a company
controlled by two former Company executives, the rights to the ARGUS trademark
and trade name in Mexico and the United States for approximately $500,000, and
agreed to sell to Argus the related inventories at their wholesale value of $1.5
million. Argus agreed to purchase the inventories over a twelve month period in
equal monthly installments. Of the $500,000 sales price, $200,000 was paid in
cash and the balance was paid by a promissory note ("the Argus Note").
Argus failed to comply with certain payment and other terms in the purchase
agreement and the Company declared a default under such agreement. On November
23, 1992, Argus commenced litigation against the Company and its subsidiary
Concord Camera Illinois Corp. in the Superior Court of New Jersey alleging,
among other things, that the Company breached its agreements with Argus and
violated the New Jersey Civil RICO statute. Argus sought, among other relief,
injunctions and monetary damages.
-19-
In connection with the Argus litigation and Argus' default on certain of
its purchase obligations the Company, in response, mitigated damages by selling
certain of the inventories to third parties (the "Resale") and filed two motions
for partial summary judgement seeking recovery for the deficiency of
approximately $70,000 resulting from the Resale and for approximately $39,000
for unsold inventory. The Court granted both of the Company's motions and
entered judgements in those amounts. Argus had satisfied the judgement of
approximately $39,000 and the Company initiated proceedings to levy upon certain
Argus assets to satisfy the judgement of approximately $70,000. Prior to
finalization of those proceedings the parties settled all of the claims between
them on terms favorable to the Company but which do not have any material impact
on the Company's financial condition. All monies due from Argus were paid to the
Company in the first quarter of Fiscal 1996.
Item 4. Submission of Matters to a Vote of
Security Holders.
None.
-20-
Part II
Item 5. Market for Company's Common Equity and Related
Shareholder Matters.
The Company's 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 15, 1995, there were 10,497,526 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, 1993 ......................... 6 3 7/8
December 31, 1993 .......................... 7 3/4 4 5/8
March 31, 1994 ............................. 9 3/8 5 3/8
June 30, 1994 .............................. 5 3/4 2 1/2
September 30, 1994 ......................... 4 5/8 2 1/4
December 30, 1994 .......................... 3 1/2 1 7/8
March 31, 1995 ............................. 3 3/4 2 1/8
June 30, 1995 .............................. 4 1/2 2 1/2
The Company has never paid cash dividends and has no present intention to
pay cash dividends.
-21-
Item 6. Selected Financial Data.
Twelve Months Ended June 30,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands except per share amounts)
STATEMENT OF INCOME DATA:
Net Sales ..................................... $ 62,139 $ 54,817 $ 59,131 $ 57,372 $ 48,459
-------- -------- -------- -------- --------
Cost of Product sold .......................... 41,984 37,684 40,081 37,797 31,300
-------- -------- -------- -------- --------
Gross Profit .................................. 20,155 17,133 19,050 19,575 17,159
Operating expenses ............................ 18,685 17,734 26,239 22,592 15,060
-------- -------- -------- -------- --------
1,470 (601) (7,189) (3,017) 2,099
Other (income) expenses,
net ......................................... 154 221 147 (498) (788)
-------- -------- -------- -------- --------
Income (loss) from
operations before income
taxes ....................................... 1,316 (822) (7,336) (2,519) 2,887
Provision for income taxes .................... 107 123 298 140 23
-------- -------- -------- -------- --------
Net income (loss) ............................. 1,209 (945) (7,634) (2,659) 2,864
======== ======== ======== ======== ========
Earnings (loss) per share ..................... 0.12 (0.09) (0.99) (0.44) 0.64
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working Capital ............................... $ 17,432 $ 21,115 $ 14,032 $ 5,201 $ 4,825
======== ======== ======== ======== ========
Total assets .................................. $ 50,189 $ 48,182 $ 46,718 $ 49,724 $ 47,982
======== ======== ======== ======== ========
Long-term debt ................................ $ 1,201 $ 4,900 $ 4,174 $ 5,400 $ 6,341
======== ======== ======== ======== ========
Total stockholders'
equity ...................................... $ 32,264 $ 31,055 $ 26,228 $ 17,590 $ 14,556
======== ======== ======== ======== ========
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, 1995,
1994 and 1993.
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Year Ended June 30,
-----------------------------
1995 1994 1993
---- ---- ----
Net Sales ................................ 100.0% 100.0% 100.0%
Cost of Product Sold ..................... 67.6 68.7 67.8
----- ----- -----
Gross Profit ............................. 32.4 31.3 32.2
Operating Expenses ....................... 30.1 32.4 32.7
Other Expense, net ....................... .2 .4 11.9
----- ----- -----
Income (loss) before Provision for
income taxes ........................... 2.1 (1.5) (12.4)
----- ----- -----
Provision for income taxes ............... .2 .2 .5
----- ----- -----
Net income (loss) ........................ 1.9% (1.7)% (12.9)%
===== ===== =====
Fiscal 1995 Compared to Fiscal 1994
Revenues
Total revenues for Fiscal 1995 and 1994 were approximately $62,139,000 and
$54,817,000, respectively, an increase of approximately $7,322,000 or 13.4%. The
increase, which is net of decreases in non-camera revenues and revenues from
promotional sales, is due to the Company's European expansion, continued
acceptance of the Company's new products, principally the single-use and
slim-line camera models, and an increase in OEM revenues. Revenues from
traditional camera sales and OEM sales increased by approximately $5,359,000 or
13.2% and $6,948,000 or 104.5%, respectively, for Fiscal 1995 to $46,067,000 and
$13,596,000, respectively, from $40,708,000 and $6,648,000, respectively, for
Fiscal 1994. Included in net sales during Fiscal 1995 were approximately
$2,476,000 of non-camera sales and no revenues from one time promotional sales
compared to approximately $4,561,000 and $2,900,000, respectively, of such sales
in Fiscal 1994. Non-camera sales were substantially discontinued by the Company
as of the end of the quarter ended September 30, 1994. The increase in OEM sales
is attributable to contract obligations and increased purchases from the
Company's preexisting OEM customer and from sales to a new OEM customer.
Fiscal 1995 sales included sales of approximately $27,107,000 or 43.6% of
total sales of the Company's single use camera product line, as compared to
$19,541,000 or 35.6% in Fiscal 1994, an increase of $7,566,000 or 38.7%. The
Company believes that sales of its single use camera product line will continue
to grow in Fiscal 1996.
Sales by Concord HK in Fiscal 1995 and 1994 were approximately $27,910,000
and $13,289,000, respectively, an increase of approximately $14,621,000 or
110.0%. The increase is due to the continued acceptance of the Company's new
products, principally the single-use and slim-line camera
-23-
models and the successful implementation of FOB Hong Kong sales programs
with the Company's larger customers and a change in the point of sale from the
United States to Hong Kong during the quarter ended December 31, 1994. The
Company effectuated a change in the OEM point of sale in order to secure an
additional working capital line from the Bank of East Asia, New York (see Bank
of East Asia, New York). Payment of FOB sales are primarily by letter of credit.
Sales by the Company's United States operation in Fiscal 1995 and 1994 were
approximately $20,161,000 and $29,014,000, respectively, a decrease of
approximately $8,853,000 or 30.5%. United States net sales for Fiscal 1995 and
1994 included OEM sales with point of sale out of U.S. of approximately
$2,225,000 and $6,648,000, respectively, a decrease of approximately $4,423,000
or 66.5%; non-camera revenues of approximately $2,476,000 and $4,561,000,
respectively, a decrease of approximately $2,085,000 or 45.7%; and no revenues
from a one time promotional sale in Fiscal 1995 as compared to $2,900,000 for
Fiscal 1994. If the foregoing sales were eliminated from U.S. operations from
each of Fiscal 1995 and Fiscal 1994 it would reflect an increase in traditional
camera sales in the United States for Fiscal 1995 of approximately $555,000 or
3.7% over such sales for Fiscal 1994. In addition, certain United States
customers increased merchandise purchases on an FOB Hong Kong basis from Concord
HK, which merchandise was previously purchased from Concord in the United
States. During Fiscal 1995 and 1994, United States customers purchased
approximately $11,914,000 and $7,478,000, respectively, from Concord HK, an
increase of approximately $4,436,000 or 59.3%. If this increase were added to
Fiscal 1995 U.S. sales, sales to U.S. customers would have increased by 22.3%.
Sales by Concord Panama into select areas of Central and South American
markets for Fiscal 1995 and 1994 were approximately $1,824,000 and $1,957,000,
respectively, representing a decrease of approximately $133,000 or 6.8%.
Sales by Concord Canada for Fiscal 1995 and 1994 were approximately
$2,966,000 and $3,701,000, respectively, representing a decrease of
approximately $735,000 or 19.9%. The decrease was primarily a result of the
reduction of non-camera revenues, the successful implementation of certain sales
programs with the Company's larger customers which are on an FOB Hong Kong
basis, and the depressed economic conditions of the Canadian market.
Consolidated sales of Concord Europe, for Fiscal 1995 and 1994, were
approximately $9,278,000 and $6,856,000, respectively, an increase of
approximately $2,422,000 or 35.3%. In addition, certain European customers
increased merchandise purchases on an F.O.B. Hong Kong basis from Concord HK.
During Fiscal 1995 and 1994 European customers purchased approximately
$2,491,000 and $1,886,000, respectively, from Concord HK, an increase of
approximately $605,000 or 32.1%. If this increase were added to 1995 European
sales, sales to European customers would have increased by 34.6%. During the
first quarter of Fiscal 1994, the Company formed Concord Hungary which had sales
of approximately $105,000 in the fourth quarter of Fiscal 1994. During the
quarter ended June 30, 1994, the Company formed Concord France which commenced
operations on July 1, 1994. Sales by Concord Hungary and Concord France were
$379,000 and $1,817,000, respectively, during Fiscal 1995. After giving effect
to the sales by the new subsidiaries, sales by Concord Europe increased by
approximately $331,000 or 4.8%. This increase is primarily attributable to
-24-
sales to new customers by the Company's increased European Sales and Marketing
force. Sales in this region are improving, but are still affected by the
sluggish economic conditions in the Region.
Gross Profit
Gross profit, expressed as a percentage of sales, increased to 32.4% for
Fiscal 1995 from 31.3% for Fiscal 1994. This increase was primarily due to
improved control over costs, production and inventory levels during the past
fiscal year.
Operating Expenses
Operating expenses, consisting of selling, general and administrative and
financial expenses, increased to $18,685,000 in Fiscal 1995 from $17,734,000 in
Fiscal 1994, an increase of $951,000 or 5.4%. As a percentage of sales,
operating expenses decreased to 30.1% in Fiscal 1995 from 32.4% in Fiscal 1994.
Selling expenses increased to $7,298,000 or 11.7% of net sales in Fiscal
1995 from $5,569,000 or 10.2% of net sales in Fiscal 1994. The increase was
primarily attributable to the Company's expansion and enhancement of the
worldwide sales force including increases in sales salaries, sales commissions,
co-operative advertising expenses, marketing and trade show related expenses.
General and Administrative expenses decreased to $8,110,000 or 13.1% of net
sales in Fiscal 1995 from $9,123,000 or 16.6% of net sales in Fiscal 1994. The
decrease is primarily due to cost control on a worldwide basis, which includes
but is not limited to, a reduction in officer salaries and bonuses,
administrative salaries, related payroll expenses, rent and engineering
expenses, net of approximately $250,000 in increased expenses attributable to
opening the two new subsidiaries (see "Revenues").
Financial expenses decreased to $1,413,000 or 2.3% of net sales in Fiscal
1995 from $1,889,000 or 3.5% of net sales in Fiscal 1994. Such decrease was
primarily a result of a reduction in average debt outstanding during Fiscal
1995, and a reduction in loan costs and guarantee fees.
Litigation and settlement costs in Fiscal 1995 and 1994 were approximately
$1,864,000 and $1,153,000, respectively. The Company incurred significant legal
expenses and settlement costs in connection with non-operating matters,
primarily the demand for arbitration against Jack Benun, the Purported Class
Action, the Roland Kohl litigation, the Argus Settlement, and the SEC
Investigation. See "Item 3. Legal Proceedings." above.
Other Expense, Net
Other expense, net includes directors fees, certain public relations costs,
and foreign exchange gains and losses net of interest income and gains from the
sale of fixed assets.
With respect to foreign exchange gains and losses, the Company operates on
a worldwide basis and its results may be adversely or positively affected by
fluctuations of various foreign currencies against the U.S. Dollar,
specifically, the Canadian Dollar, German Mark, British Pound Sterling,
Hungarian Forints, French Francs, and Japanese Yen. Each
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of the Company's foreign subsidiaries purchases its inventories in U.S. Dollars
and sells them in local currency, thereby creating an exposure to fluctuations
in foreign currency exchange rates. Certain components needed to manufacture
cameras are priced in Japanese Yen. The translation from the applicable
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The impact of
foreign exchange transactions is reflected in the profit and loss statement
which in Fiscal 1995 included a loss of approximately $95,000.
In Fiscal 1995, the Company's hedging activities were immaterial and, at
June 30, 1995 there were no forward exchange contracts outstanding.
Income Taxes
The income tax provision for Fiscal 1995 of $106,990 is comprised of
deferred taxes of $12,515 and a current provision of $94,475. The Company's
provision for income taxes for Fiscal 1995 is primarily related to the earnings
of the Company's Far East operations, net of benefits relating to
overpayments/refunds on the Company's other foreign Subsidiaries.
As of June 30, 1995, Concord had net operating loss carryforwards for U.S.
tax purposes of approximately $14,732,000 which expire as follows: $1,586,000 in
2005; $16,000 in 2006; $444,000 in 2007; $6,630,000 in 2008 and $2,770,000 in
2009, and $3,280,000 in 2010. Losses for state tax purposes begin to expire in
1997.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate taxable income
in these jurisdictions is more certain.
Net Income (Loss)
As a result of matters described above, the Company had net income of
approximately $1,209,000 in Fiscal 1995, compared to a net loss of approximately
$945,000 in Fiscal 1994, a turnaround in net income of $2,154,000.
Fiscal 1994 Compared to Fiscal 1993
Revenues
Total revenues for Fiscal 1994 and 1993 were approximately $54,817,000 and
$59,131,000, respectively, a decrease of approximately $4,314,000 or 7.3%.
Approximately $2,010,000 of the total decrease was from a reduction in
non-camera revenues and a result of the Company's plan to streamline its
worldwide operations and focus more closely on the
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manufacture and distribution of cameras and camera related accessories. In
addition, net sales in Fiscal 1993 included a significant amount of closeout
merchandise, sold at reduced prices to generate working capital.
Fiscal 1994 sales include approximately $19,541,000 or 35.6% of total sales
of the Company's single use camera product line, as compared to $14,846,000 of
total sales or 25.1% in Fiscal 1993, an increase of $4,695,000 or 31.6%.
Sales by Concord HK in Fiscal 1994 and 1993 were approximately $13,289,000
and $15,532,000, respectively, a decrease of approximately $2,243,000 or 14.5%.
The decrease was primarily attributable to a significant amount of initial sales
into the Japanese market in Fiscal 1993.
Sales by the Company's United States operation in Fiscal 1994 and 1993 were
approximately $29,014,000 and $27,985,000, respectively, an increase of
approximately $1,029,000 or 3.7%. Sales in Fiscal 1994 and 1993 include
approximately $9,580,000 and $2,957,000, respectively, of the Company's single
use product line sold on an OEM basis or through private labels. The significant
increase is primarily a result of a $2,900,000 premium sale made in Fiscal 1994
and increased sales of single use products to 3M Company. If OEM sales were
eliminated for the U.S. operations sales for each of Fiscal 1994 and Fiscal
1993, sales by the United States operation would have decreased by approximately
$6,912,000 or 25.7%. The decrease is primarily a result of the reduction in
non-camera revenue and the inclusion of a significant amount of closeout
merchandise in Fiscal 1993, as discussed above.
Sales by Concord Panama in Fiscal 1994 and 1993 were approximately
$1,957,000 and $1,222,000, respectively, representing an increase of
approximately $735,000 or 60.1%. Concord Panama commenced operations in Fiscal
1992 and, over its first two full years of operation, has successfully marketed
the Company's product in Central and South America.
Sales by Concord Canada in Fiscal 1994 and 1993 were approximately
$3,701,000 and $8,114,000, respectively, representing a decrease of
approximately $4,413,000 or 54.4%. The significant decrease was primarily a
result of the reduction of non-camera revenues, as discussed above and the
depressed economic conditions of the Canadian market.
Sales by Concord Europe in Fiscal 1994 and 1993, were approximately
$6,857,000 and $6,278,000, respectively, an increase of approximately $579,000
or 9.2%. The increase is a result of improving economic conditions in Europe and
increased marketing efforts.
Gross Profit
Gross profit, expressed as a percentage of sales, decreased to 31.3% for
Fiscal 1994 from 32.2% for Fiscal 1993. This slight decrease was
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primarily due to reductions in prices of certain products as a result of
competition, especially in the single use camera market and the liquidation of
non-camera inventory at prices approximating cost.
Operating Expenses
Operating expenses, consisting of selling, general and administrative and
financial expenses, decreased to $17,735,000 in Fiscal 1994 from $19,335,000 in
Fiscal 1993, a decrease of $1,600,000 or 8.3%. As a percentage of sales,
operating expenses decreased to 32.4% in Fiscal 1994 from 32.7% in Fiscal 1993.
Selling expenses decreased to $5,569,000 or 10.2% of net sales in Fiscal
1994 from $6,102,000 or 10.3% of net sales in Fiscal 1993. The decrease was
primarily attributable to reduced sales salaries and related costs as a result
of the Company's worldwide management restructuring in Fiscal 1993 which
continued into Fiscal 1994. In addition, customer advertising and other sales
allowances continued to decrease in Fiscal 1994 as a result of the improved
internal and operational controls instituted by the Company in Fiscal 1993 and
Fiscal 1994.
General and administrative expenses decreased to $9,123,000 or 18.8% of net
sales in Fiscal 1994 from $10,125,000 or 17.1% of net sales in Fiscal 1993. The
decrease is primarily a result of reductions in operating expenses of the
Company's subsidiaries operations.
Financial expenses decreased to $1,889,000 or 3.5% of net sales in Fiscal
1994 from $3,108,000 or 5.3% of net sales in Fiscal 1993. Included in the Fiscal
1993 total is approximately $1,045,000 of amortization related to a warrant
issued to Ira J. Hechler ("Hechler"), a director of the Company. After excluding
such amortization, financial expenses decreased to $1,889,000 or 3.5% of net
sales in Fiscal 1994 from approximately $2,063,000 or 3.5% of net sales in
Fiscal 1993. Such decrease was primarily a result of a reduction in average
short term debt outstanding in Fiscal 1994.
Litigation and Settlement costs in Fiscal 1994 were approximately
$1,153,000. The Company incurred significant legal expenses and settlement costs
in connection with non-operating matters primarily the demand and arbitration
against Jack Benun, the Roland Kohl litigation, Argus litigation, and the SEC
investigation. [See Item 3. Legal Proceedings above.]
Other Expense, Net
Other expense, net include directors fees, certain public relations costs,
the Company's share of losses incurred by its joint venture in Hungary and
foreign exchange gains and losses.
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 United States Dollar,
specifically, the Canadian Dollar, German Mark, British Pound Sterling and
Japanese Yen. Each of the Company's foreign subsidiaries purchases its
inventories in United States Dollars and sells them in local currencies, thereby
creating an exposure to fluctuations in currency exchange rates. Certain
components required for the manufacture of cameras are priced in Japanese Yen.
The impact of foreign exchange
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transactions is reflected in the profit and loss statement which in Fiscal 1994
included a loss of approximately $776,000.
In Fiscal 1994, the Company's hedging activities were immaterial and at
June 30, 1994 there were no forward exchange contracts outstanding.
Product Line Rationalization
As a result of the Company's success in the introduction of single use
cameras, that product's acceptance in the market and the Company's belief that
demand for that product will continue, the Company decided to curtail certain of
its 35 millimeter and 110 product lines and to focus a significant amount of its
efforts on single use camera. In connection with those changes, the Company
suspended production of certain camera models. As a consequence in Fiscal 1993,
provisions for certain component parts inventory and certain fixed assets
(principally tools and molds) used in connection with the manufacturing of those
models were made to reduce those items to their net realizable values. Such
assets have been recorded at a negligible amount which the Company recovered in
Fiscal 1994. The total amount recorded was $4,478,000.
Reorganization and Restructuring
In connection with the reorganization and upgrading of its worldwide
management, finances, and management information systems and procedures, certain
expenses have been and will be incurred. Substantially all of the manufacturing
joint ventures which operated prior to the Company's purchase of the interests
of its joint venture partners have been consolidated with the Company's
manufacturing operations, new management has been hired and new worldwide
management information system and
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procedures were implemented and installed. In addition, the Company is in the
process of liquidating its joint venture in Hungary as a result of financial
instability of its joint venture partners. In Fiscal 1993, the Company recorded
provisions for current and future expenditures of approximately $234,000 for
compensation and severance costs, $260,000 for certain professional fees and
$378,000 for organization and consolidation costs. In addition, the Company
recorded provisions of approximately $492,000 against certain of its inventories
in the joint ventures and $158,000 for certain deferred refinancing costs.
The effects of the reorganization and restructuring can not be quantified,
however, management expects that such steps will yield more efficient operations
and enhance internal and operating controls.
Proposed Transaction Costs
As a result of the termination of its agreement with Gestetner Holdings
PLC, the parent of the Vivitar Group of Companies ("Vivitar"), in Fiscal 1993
the Company wrote off $904,000 of costs incurred in connection with the Vivitar
Transaction.
Income Taxes
The net income tax provision of $123,050, is comprised of deferred income
taxes of $185,944 and a refund due of $62,894, both of which relate to the
Company's Far East operation.
Net Loss
As a result of the matters described above, the Company incurred a net loss
of approximately $945,000 in Fiscal 1994, compared to a net loss of
approximately $7,634,000 in Fiscal 1993, a decrease of $6,689,000 (87.6%).
Liquidity and Capital Resources
At June 30, 1995, the Company had working capital of $17,432,000 as
compared to $21,115,000 at June 30, 1994. Cash flow provided by (used in)
operating activities was approximately $5,088,000 for the fiscal year ended June
30, 1995 compared to ($2,165,000) for the fiscal year ended June 30, 1994.
Capital expenditures, excluding assets financed under capital leases, for the
fiscal year ended June 30, 1995 and 1994 were approximately $2,261,000 and
$1,690,000, respectively. During the fiscal year ended June 30, 1994, the
Company purchased an interest bearing $1,000,000 time deposit in connection with
a short-term credit arrangement (see Bank of East Asia, Limited - Hong Kong
below). The Company's principal funding requirement has been, and is expected to
continue to be, the financing of accounts receivable and inventory.
During Fiscal 1994, certain warrants and options to purchase the Company's
common stock were exercised. Such exercises generated net proceeds of
approximately $5,772,000 which were used to reduce debt and for working capital
purposes.
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 which expires on December 20, 1995. 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 9.0% at June 30, 1995. Availability under the BOEA NY Facility is subject to
advance formulas based on eligible accounts receivable with no minimum
borrowing. At June 30, 1995, approximately $547,000 was outstanding and
classified as short-term debt under the BOEA NY Facility.
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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
closing of the amendment is contingent on the delivery of certain closing
documents.
The CIT Group/Credit Finance, Inc ("CIT")
On March 30, 1994, the Company obtained a two year $10,000,000 credit
facility with CIT (the "CIT Facility") which expires on March 29, 1996. 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 9.0% at June 30, 1995. Availability under the CIT
Facility is subject to advance formulas based on eligible inventory and accounts
receivable with minimum borrowing of $2,000,000. At June 30, 1995, approximately
$2,214,000 was outstanding and classified as short-term debt under the CIT
Facility.
Bank of East Asia, Limited ("BOEA") - Hong Kong
Effective August 2, 1993, Concord HK entered into a credit arrangement (the
"BOEA Facility") with BOEA that provides Concord HK with up to $4,000,000 of
financing, including, but not limited to trade finance and overdraft privileges.
On January 11, 1994, BOEA increased the total amount available under the BOEA
Facility to $4,800,000 as follows: letters of credit and standby letters of
credit $3,300,000, overdraft and packing loan of $1,500,000. As of June 30,
1995, approximately $4,164,000 was utilized and approximately $636,000 was
available under the BOEA Facility. Approximately $2,841,000 of the total
$4,164,000 utilized, was in the form of trade finance, including but not limited
to import letters of credit. The BOEA Facility, which is payable on demand,
bears interest at 2% above BOEA's prime lending rate for letters of credit and
2.25% above BOEA's prime lending rate for overdraft and packing loans. At June
30, 1995 BOEA's prime lending rate was 9.0%. In connection with the BOEA
Facility, Concord HK has placed a $1,075,000 time deposit with BOEA, which is
included in prepaid and other current assets at June 30, 1995 and such deposit
is pledged as collateral for the BOEA facility. In addition, all amounts
outstanding under the BOEA Facility are guaranteed by Concord.
In the fourth quarter of Fiscal 1995, East Asia Finance Company, a
wholly-owned subsidiary of BOEA, extended to Concord HK a five year equipment
leasing facility in the amount of approximately one million dollars.
On June 27, 1995 the Company received a commitment letter from the BOEA to
increase the amount available under the BOEA facility up to $6,375,000 as
follows: letters of credit and standby letters of credit $3,600,000 overdraft
and packing loan of 2,300,000, and an installment loan $475,000. The installment
loan will be utilized in part to repay the current mortgage outstanding on the
Hong Kong office property with the Bank of China.
Canadian Imperial Bank of Commerce
The Company and Concord Canada were parties to a loan agreement with CIBC
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(the "CIBC Facility"). On April 18, 1994, all borrowings under the CIBC Facility
were repaid by the Company.
Other arrangements and future cash commitments
In connection with the acquisition of certain production equipment and
intellectual property, in the three months ended September 30, 1991 the Company
entered into a five year financing lease with EDS (the "EDS Lease"). During
April 1994, the Company and EDS amended the EDS Lease and applied a $1 million
certificate of deposit which had been pledged to EDS to the outstanding
principal balance due under the EDS Lease. This $1,000,000 principal payment
reduced the monthly payments under the EDS Lease from $114,700 to $72,048. As of
June 30, 1995, the balance outstanding under the EDS Lease was approximately
$673,000.
In connection with the upgrading of its worldwide information systems, the
Company has committed to purchase hardware and software and incur other costs of
approximately $670,000 for its United States and Far East operations; at June
30, 1995, approximately $516,000 of that amount had been paid. The Company
anticipates incurring approximately $154,000 of additional costs for hardware,
software and other related items for the balance of the Company's worldwide
operations.
In connection with its construction activities in China, the Company
anticipates incurring costs of approximately $1,250,000. [See Item 2.
Properties.]
Management believes that the anticipated cash flow from operations together
with financing from CIT and BOEA 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.
On the recommendation of its Audit Committee and by action of its Board of
Directors, Registrant, On May 18, 1995, terminated the engagement of the firm of
Deloitte & Touche LLP ("Deloitte & Touche") as independent public accountants,
effective immediately and appointed Ernst & Young LLP ("Ernst & Young") as its
new independent public accountants. During the two most recent fiscal years and
for the period through May 18, 1995, the Registrant has not consulted with Ernst
& Young on items which (1) were or should have been subject to SAS 50 or (2)
concerned the subject matter of a disagreement or reportable event with the
former auditor (as described in Regulation S-K Item 304 (a)(2)).
Deloitte & Touche's report on the Registrant's financial statements for the
fiscal years ended June 30, 1994 and 1993 contained no adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope, or accounting principles.
In connection with its audits for the fiscal years ended June 30, 1994 and
1993 and in the subsequent interim period preceding the termination of Deloitte
& Touche's engagement and the engagement of Ernst &
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Young, there have been no disagreements with Deloitte & Touche on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to the satisfaction of Deloitte &
Touche would have caused it to make a reference to the subject matter of the
disagreements in connection with its report.
No "Reportable event", as defined in Regulation S-K, Item 304 (a)(1)(v) has
occurred within the last two fiscal years and in the subsequent interim period
preceding the termination of Deloitte & Touche.
Deloitte & Touche furnished Registrant with a letter addressed to the
Securities and Exchange Commission stating it agreed with the foregoing
statements. A copy of Deloitte & Touche's letter to the Securities and Exchange
Commission was filed as an exhibit to Form 8-K, dated May 18, 1995.
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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) ... 50 1993 Chairman, Chief Executive Officer,
President, Chief Operating Officer and
Director; Director of Concord Camera
HK Limited, Concord Camera GmbH, Concord
Camera UK Limited and Concord Camera
France
Eli Arenberg (2) ..... 68 1988 Director
Joel L. Gold (3) ..... 54 1991 Director
Morris H. Gindi (4) .. 51 1988 Director
J. David Hakman (5) .. 54 1993 Director
Ira J. Hechler (6) ... 77 1992 Director
Kent M. Klineman (7) . 63 1993 Director
- ------------
(1) On July 13, 1994 Ira B. Lampert was appointed to the additional positions
of Chairman and Chief Executive Officer of the Company. Mr. Lampert has
been President and Chief Operating Officer since June 1, 1993, and a
Director of the Company since June 29, 1993. Mr. Lampert is also a director
of Concord HK, Concord UK, Concord Germany and Concord France. From April
1992 through May 30, 1993, Mr. Lampert's services were made available to
the Company under various consulting agreements with Whitehall Enterprises
Inc. ("WEI"), an investment banking company for the middle-market, of which
Mr. Lampert was the President since August 1990. During the 1980's through
the early 1990's, Mr. Lampert also served as a director and/or officer of
Summit Ventures, Inc., and related entities which developed and managed
Ascutney Mountain Resort, a year-round destination resort located in
Vermont. In June 1990, Mr. Lampert filed a petition for personal bankruptcy
pursuant to Chapter 11 of the Federal Bankruptcy Code which he caused to be
converted to Chapter 7 in July 1993. On January 24, 1994 the Bankruptcy
Court issued an order discharging Mr. Lampert. The bankruptcy resulted from
contingent and other liabilities incurred in the development of Ascutney
Mountain Resort. 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.
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(2) Eli Arenberg joined the Company in April 1984 as Vice President of Sales
and Marketing and in September 1989 was promoted to Senior Vice President
of Sales. In February 1992 Mr. Arenberg retired from such positions. In
July 1994 Mr. Arenberg made his services available to the Company under a
consulting agreement with ELA Enterprises, Inc. (the "ELA Enterprises
Consulting Agreement"), a Florida corporation wholly-owned by Mr. Arenberg.
(3) Joel L. Gold is currently a managing director at Fechtor Detwiler & Co.,
Inc. an investment bank. From January 1992 through April, 1995 Mr. Gold was
a managing director at Furman Selz Incorporated, an investment bank. 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 Biomechanics Corporation
of America, Action Industries, Inc. and Life Medical Sciences.
(4) Morris H. Gindi is the Chief Executive Officer of Notra Trading Inc.,
located in Woodbridge, New Jersey, and has served in such capacity since
1983. Notra Trading Inc. is an import agent in the housewares and domestics
industry. Mr. Gindi has over 26 years experience in importing.
(5) J. David Hakman is the owner and Chief Executive Officer of Hakman and
Company Inc. a merchant banking concern, and has held such position since
1980. Mr. Hakman is President of Hakman & Company, Inc., an investment
banking concern and a member of the National Association of Securities
Dealers, Inc., and has held such position since 1974. Mr. Hakman has been a
director since 1989 and a member of the Audit and Nominating Committees
since 1991 of Hanover Direct, Inc., a firm engaged in the direct marketing
business. Mr. Hakman was the Chairman and a director of AFD Acquisition
Corporation which filed for protection under Chapter 11 of the U.S.
Bankruptcy Laws in June 1991 and emerged from Chapter 11 in September 1993.
(6) 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. Mr.
Hechler was appointed to the Board and given the right (since terminated)
to appoint two other designees to the Board in connection with certain
loans he made to the Company. The Company has agreed to indemnify Mr.
Hechler and any of his nominees against certain liabilities in connection
with their service on the Board pursuant to an indemnification agreement.
See "Certain Relationships and Related Transactions."
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(7) Kent M. Klineman is an attorney and private investor and serves as a
director of several closely-held companies. He is also a general partner of
ConArb Partners, L.P., a securities dealer engaged in arbitrage and trading
of convertible securities for its own account. Mr. Klineman is a director,
Secretary and a member of the Compensation Committee of EIS International,
Inc. See "Certain Relationships and Related Transactions."
Meetings and Committees
In Fiscal 1995, the Board held eight 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 the recommendations to the
Board as to the selection of the Company's independent public accountants, the
scope of audit procedures, general accounting policy matters and the performance
of the Company's independent public accountants. The Audit Committee held three
meetings in Fiscal 1995.
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 two meetings in Fiscal 1995.
The Executive Committee, consisting of Ira B. Lampert, Kent Klineman and
Ira J. Hechler, oversees the operations of the Company and has the full power
of the Board when the Board is not in session.
On November 10, 1994 the Board established a Nominating Committee for the
purpose of nominating those persons who shall be invited to stand for election
to the Board of Directors as management nominees at any and all ensuing meetings
of the shareholders of the Company or pursuant to any actions with respect to
the election of directors to be taken by written consent of the shareholders.
The Nominating Committee consists of Ira B. Lampert, Joel Gold, Ira J. Hechler
and Kent Klineman. Shareholder suggestions of one or more nominees for election
to the Board may be sent in writing to the Nominating Committee, Attention:
Chairman, C/O the Company, 35 Mileed Way, Avenel, New Jersey 07001.
In Fiscal 1995, 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.
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Directors Compensation
Non-employee members of the Board receive (i) an annual fee of $10,000,
(ii) a $2,500 annual fee for serving on each committee of the Board with the
Chairman thereof receiving a $3,500 annual fee, and (iii) a meeting fee of $750
for each meeting attended in person and $250 for each meeting attended
telephonically. In addition, under the Company's Incentive Plan non-employee
directors received options pursuant to a formula with certain vesting
requirements to purchase up to 21,000 Common Shares. The Incentive Plan also
provides for the grant of an immediately exerciseable option to purchase
1,000 Common Shares on each anniversary of the original grant.
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 for
whom biographical information is provided above) is set forth below:
Name of Executive Officer Age Positions and Offices with the Company
- ------------------------- --- --------------------------------------
Eli Shoer ............... 48 Senior Vice President of the Company
and Managing Director of Concord HK
Gary M. Simon ........... 35 Chief Financial Officer, Secretary and
Treasurer
Harlan I. Press ......... 31 Chief Accounting Officer
Steve Jackel ............ 59 Consultant
Eli Shoer is Senior Vice President of the Company and Managing Director of
Concord HK and has held such positions since August 1994. 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.
Gary M. Simon is Chief Financial Officer, Treasurer and Secretary of the
Company. Mr. Simon has been Chief Financial Officer and Treasurer since June
1992 and was appointed Secretary in January 1994. From December 1989 through May
1992, Mr. Simon was a Vice President of Oxbridge Partners, a Merchant Bank.
Steve Jackel's services are 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. Mr. Jackel is not an employee of the
Company and does not have a corporate title. His consulting activities on behalf
of the Company, however, have evolved to the point where Mr. Jackel is
considered to be a member of the Company's senior management team performing a
policy making function. From February 1993 to 1994 Mr. Jackel was President of
McCrory's Corporation and Chairman
-37-
of McCrory Stores. From June 1992 through February 1993 he was Co-President and
Chairman 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.
Harlan I. Press is Chief Accounting Officer and has held this position
since November 1994. Mr. Press was a Senior Field Examiner for the CIT Group
from April 1993 through April 1994. From December 1991 through April 1993, Mr.
Press served as the Production Manager and Inventory Controller for Sandberg and
Sikorski Diamond Corp., a jewelry manufacturer. Prior to then Mr. Press was a
Senior Accountant in BDO Seidman's Audit Division.
Section 16 Reporting Obligations
The following officers and directors of the Company filed late reports
under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
Exchange Act") during the period July 1, 1994 through June 30, 1995: (I) Mark
Welland, former President of U.S. Branch Operations and a Vice President of the
Company, late filing of a Form 4 due July 10, 1994; (ii) Gary M. Simon, Chief
Financial Officer, late filing of a Form 4 due August 10, 1994; (iii) Eli
Arenberg, Director, late filing of Forms 4 due August 10 and September 16,
1994; (iv) Ira B. Lampert, Chairman and CEO, late filing of a Form 4 due October
10, 1994; and (v) Harlan I. Press late filing a Form 3 due February 25, 1995.
There are no known failures to file a required report for any of the Company's
reporting persons during such time period.
-38-
Item 11.
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Annual Compensation Awards
- ----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (g) (i)
Securities
Other Annual Underlying All Other
Name and Principal Fiscal Salary Bonus Compen- Options Compen-
Position Year ($) ($) sation($) (#) sation($)
- ------------------ ------ ------ ----- ------------ ---------- ---------
Ira B. Lampert ........... 1995 $495,515 $196,648(13) 600,000(17)(18) $ 11,477(11)
Chief Executive 1994 475,000 -- $ 78,475(7) 340,000 47,200(8)
Officer, and 1993 -- -- -- --
Chairman
Eli Shoer ................ 1995 207,307 -- 66,850(9) 150,000(17) --
Director of 1994 200,000 -- 60,000(10) 25,000 --
Operations -- 1993 146,154 -- 60,000(10) 70,000 --
Concord HK
Gary M. Simon ............ 1995 175,000 -- 16,800(14) 190,000(17) 2,260(11)
Chief Financial 1994 151,923 $ 37,500 -- -- 2,260(11)
Officer, 1993 140,503 37,500 -- 50,000 --
Secretary
and Treasurer
Mark Welland(15) ......... 1995 175,000 -- 34,600(12) -- 1,940(11)
Vice President 1994 175,000 -- 34,600(12) 10,000 1,940(11)
and President 1993 -- -- -- -- --
of United States
Operations
Steve Jackel(16) ......... 1995 87,500 -- 7,500 100,000 --
Consultant 1994 -- -- -- -- --
1993 -- -- -- -- --
Jack C. Benun ............ 1995 66,923 -- -- -- 11,000(6)
Former Chairman 1994 600,000 150,000 96,057(1) 500,000(2) 220,441(3)
1993 600,00 -- 45,693(4) 600,000(2)(5) 39,000(6)
- -------------
(1) Includes $53,012 paid to Mr. Benun for his auto allowance.
(2) All options granted to Mr. Benun were canceled upon his termination on July
13, 1994.
(3) Represents a $184,096 fee paid to Mr. Benun for his guarantee of certain
loans, and reimbursement of taxes $26,580 paid to Mr. Benun for interest
accrued on loans from Mr. Benun to the Company, and $9,765 paid for Mr.
Benun's insurance premiums.
(4) Represents amounts paid to Mr. Benun for certain income tax related
interest and penalties which resulted from the Company being unable to
timely repay loans made by Mr. Benun to the Company.
(5) Includes 150,000 Common Shares underlying stock options which were canceled
in January 1994.
-39-
(6) Represents interest accrued on loans from Mr. Benun to the Company.
(7) Includes $24,260 and $25,179 paid to Mr. Lampert for his auto allowance and
reimbursement of taxes, respectively, and $22,210 paid for partial housing
costs.
(8) Includes $25,208 paid by the Company for insurance premiums and $21,992
paid to Mr. Lampert for consulting fees and expenses in connection with
consulting services provided by Mr. Lampert pursuant to the Company's
consulting agreement with WEI, which terminated upon Mr. Lampert's
employment with the Company.
(9) Includes a $60,000 housing allowance paid to Mr. Shoer for his living
arrangements in the Far East.
(10) Represents a housing allowance paid to Mr. Shoer for his living
arrangements in the Far East.
(11) Represents amount paid by the Company for insurance premiums.
(12) Includes $25,000 paid to Mr. Welland for the Company's repurchase of his
option relating to 10,000 Common Shares underlying such option.
(13) Includes $46,558 and $102,740 paid for and to Mr. Lampert for his auto
lease and costs and reimbursement of taxes respectively and $47,350 paid
for partial housing costs.
(14) Represents payment for auto allowances.
(15) Mr. Welland resigned from the Company on July 28, 1995.
(16) Mr. Jackel's services are 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. Mr. Jackel is not an employee of
the Company and he does not have any corporate title. His consulting
activities on behalf of the Company, however, have evolved to the point
where Mr. Jackel is considered to be a member of the Company's senior
management team performing a policy making function. Therefore, the Company
considers Mr. Jackel to be an officer of the Company for Securities Acts
purposes. The consulting agreement has a one year term and calls for
payment of consulting fees of $300,000 for the term as well as
reimbursement of automobile expenses of up to $2,000 per month and
reimbursement of certain insurance payments.
(17) These options include options previously issued, cancelled, repriced and
re-issued during the fiscal year.
(18) Does not include 150,000 options contingent upon the consummation of an
acquisition described in Mr. Lampert's employment agreement.
-40-
II. OPTION GRANTS IN FISCAL 1995 [See Note 20 of Notes to the Financial
Statements for Stock Purchase Awards made in August 1995].
Individual Grants
- ---------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Potential Realizable
Number of % of Total Market Price Annual Value at
Securities Options of Common Assumed Rates of Stock
Underlying Granted to Exercise Stock On Date Price Appreciation for
Name of Executive Options Employees in Price of Grant Option Term
Officer Granted(#)(4) 1994(1) ($/Sh) ($/sh) Expiration Date 5%($) 10%($)
- ----------------- ------------- ------------ -------- ------------- --------------- -------- --------
Ira B. Lampert ..... 340,000 $4.00 -- July 13, 2003 855,297 2,167,490
260,000 $4.00 -- Sept. 30, 2004 654,000 1,657,492
150,000 $6.00 -- (3)
Gary M. Simon ...... 70,000 10.77% $3.00 -- July 13, 2004 132,068 334,686
120,000 18.46% $4.00 -- Feb. 20, 2005 301,869 764,996
Eli Shoer .......... 75,000 11.54% $3.25 -- Oct. 3, 2004 153,293 388,475
75,000 11.54% $4.00 -- Sept. 30, 2004 188,668 478,123
Steve Jackel ....... 25,000 3.85% $3.00 -- Dec. 31, 2000 47,167 119,531
75,000 11.54% $4.00 -- May 1, 2001 188,668 478,123
- ---------------
(1) The Company granted incentive stock options under the Company's 1988 Stock
Option Plan and the Company's Incentive Plan to purchase an aggregate of
649,450 Common Shares. Mr. Lampert's options are issued pursuant to a
separate plan applicable only to Mr. Lampert and are not included in the
computation herein.
(2) The market price on date of grant was either above or equal to the option
price on the date of the grant.
(3) Mr. Lampert's grant of stock options is under a separate plan and are not
issued under the Company's Incentive Plan. The grant of 150,000 shares at
$6.00 is contingent upon the consumation of an acquisition described in Mr.
Lampert's employment agreement.
(4) Includes options repriced during Fiscal 1995 for Messrs. Lampert, Simon and
Shoer.
-41-
III. AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND FISCAL YEAR-END OPTION
VALUES
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(1)
---------------------- --------------------
Shares
Acquired
on Value
Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Ira B. Lampert ......... -- -- 275,000 475,000 1,221,000 1,443,000
Eli Shoer .............. -- -- -- 150,000 -- 666,000
Gary M. Simon .......... -- -- 71,500 118,500 317,460 526,140
Steve Jackel ........... -- -- -- 100,000 -- 444,000
Mark Welland ........... -- 25,000(2) -- -- -- --
- ------------
(1) The closing price of the Company's Common Stock at 1995 fiscal year end was
$4.44
(2) Mr. Welland was granted options to purchase 20,000 Common Shares at an
exercise price of $8.00 per share with the right to put to the Company at
$10.50 per share 10,000 of such options per year. In Fiscal 1995, Mr.
Welland exercised such right and the Company repurchased for Mr. Welland
the option as to 10,000 Common Shares for $25,000.
-42-
Executive Employment Contracts, Termination of Employment and Change in Contract
Arrangements
On July 13, 1994 the Board of Directors of the Company (the "Board")
terminated Jack C. Benun for cause from his positions as Chairman and Chief
Executive Officer and his status as a director of the Company as a result of its
adoption of a report from the Ad Hoc Committee of the Board indicating that Mr.
Benun had misappropriated $150,000 from the Company. Accordingly, the employment
agreement between the Company and Mr. Benun executed on July 12, 1988, and
amended and restated on September 15, 1993, which provided that Mr. Benun serve
in the capacities of Chairman and Chief Executive Officer of the Company and be
paid an annual salary of $600,000 for a term of three years, was terminated.
The employment agreement between the Company and Ira B. Lampert effective
July 1, 1993 was amended and restated as of September 1, 1994 (the "Lampert
Agreement"). The Lampert Agreement provides that Mr. Lampert serve in the
additional capacities of Chairman and Chief Executive Officer of the Company.
The Lampert Agreement provides for an annual salary of $500,000, has a term of
four years and provides for automatic one year renewals, unless prior written
notice is given by either party. Under the Lampert Agreement, Mr. Lampert's
grant of an option to purchase 340,000 Common Shares was amended and restated to
an exercise price of $4.00 per share, of which 177,500 are presently exercisable
with the balance exercisable in allotments of 12,500 on each November 30,
February 28 (or February 29 as the case may be), May 31 and August 31 until
exercisable as to the entire amount. Such shares have anti-dilution provisions
and are exercisable through July 2003. In addition, the Lampert Agreement
granted Mr. Lampert an additional option to purchase 260,000 Common Shares at an
exercise price of $4.00 per share, of which 97,500 are presently exercisable
with the balance exercisable in allotments of 12,500 on each November 30,
February 28 (or February 29 as the case may be), May 31 and August 31 until
exercisable as to the entire amount. Such shares also have anti-dilution
provisions and are exercisable through September 2004. The Lampert Agreement
prohibits Mr. Lampert from competing with the Company for a one year period upon
expiration of the Lampert Agreement. The Lampert Agreement also provides that if
the Company consummates an acquisition identified in the Lampert Agreement
during Mr. Lampert's term of employment with the Company, Mr. Lampert will
receive a cash bonus of $300,000 and will be granted an option to purchase
150,000 Common Shares at an exercise price of $6.00 per share.
Effective October 1, 1994, the Company entered into an employment agreement
with Eli Shoer, whereby Mr. Shoer is employed as Managing Director of Operations
of the Company's Far East operations and as Senior Vice President of the
Company. The employment agreement has a term of three years and provides for an
annual salary of $210,000. In addition, Mr. Shoer receives an annual housing
allowance of $75,000. Mr. Shoer's employment agreement prohibits Mr. Shoer from
competing with the Company for a one year period upon termination of such
employment agreement. The agreement also provides that previous stock option
agreements for an aggregate of 145,000 shares at varying prices ranging from a
high of $8.875
-43-
to a low of $4.4375 are relinquished by Mr. Shoer. In lieu of such options he
was granted options for 75,000 shares at $3.25 and 75,000 shares at $4.00. This
agreement supersedes the July 1, 1993 agreement between Mr. Shoer and the
Company.
Effective June 1, 1994, the Company entered into an employment agreement
with Gary M. Simon whereby Mr. Simon is employed as Chief Financial Officer and
Treasurer of the Company. The Agreement is for a term of three years and
provides for an annual salary of $175,000. Under the Agreement Mr. Simon was
granted an option to purchase 30,000 Common Shares at an exercise price of $3.00
per share, 7,500 of which are presently exercisable with the balance exercisable
in allotments of 7,500 after the completion of the first, second and third years
of his term of employment. In addition, Mr. Simon was granted a presently
exercisable options to purchase 40,000 Common Shares at $3.00 per share; and
120,000 Common Shares at an exercise price of $4.00 per share which options vest
as follows: 24,000 on June 1, 1995; 48,000 on June 1, 1996; and 48,000 on June
1, 1997. Options to purchase 50,000 Common Shares granted to Mr. Simon prior to
June 1, 1994 were canceled. Mr. Simon's employment agreement prohibits Mr. Simon
from competing with the Company for a one year period upon termination of such
employment agreement.
During the first quarter of Fiscal 1996, the Company entered into a
consulting agreement with Harjac Consulting, Inc. for the services of Steve
Jackel. The agreement provides for options to purchase 25,000 Common Shares at
$3.00 per share and 75,000 Common Shares at $4.00 per share. [See Note 13 to the
Financial Statements.]
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of August 22, 1995
with respect to (i) those persons or groups known to the Company to beneficially
own more than 5% of the Common Stock, (ii) each of the directors and nominees of
the Company, (iii) the Company's executive officers named in the summary
compensation table, and (iv) for the Company's directors and executive officers
as a group:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(1)
- ------------------ ----------------------- -----------
(i) Beneficial Owners of More than 5% of the Common Shares
Jack C. Benun .......................... 556,065(7) 5.3%
80 Wickapecko Drive
Allenhurst, New Jersey 07711
Theodore H. Kruttschnitt ............... 1,205,000 11.5%
1350 Bayshore Blvd Suite 850
Burlingame, California 94010
-44-
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(1)
- ------------------ ----------------------- -----------
VC Holdings, Inc.(3) .................. 927,306 8.8%
250 Park Avenue
New York, New York 10017
Jack Silver ............................ 727,000(4) 6.9%
c/o Silverman, Collura & Chernis, P.L.
381 Park Avenue South
New York, New York 10016
(ii) Directors and Nominees of the Company
Ira B. Lampert ......................... 780,000(6) 7.4%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Eli Arenberg ........................... 53,500(5) *
9578 Harbour Lake Circle
Boynton Beach, Florida 33437
Joel L. Gold ........................... 31,500(5) *
Fechtor & Detwiler
230 Park Avenue
New York, New York 10169
Morris Gindi ........................... 21,000(5) *
Notra Trading, Inc.
One Woodbridge Center
Woodbridge, NJ 07095
J. David Hakman ........................ 21,000(5) *
Hakman & Co., Inc.
Suite 300
1350 Bayshore Highway
Burlingame, CA 94010
Ira. J. Hechler ........................ 467,000(2) *
Ira J. Hechler and Associates
45 Rockefeller Plaza
New York, New York 10111
-45-
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(1)
- ------------------ ----------------------- -----------
Kent M. Klineman ....................... 93,400(5) *
c/o Klineman Assoc., Inc.
1270 Avenue of the Americas
New York, NY 10020
(iii) Executive Officers
Eli Shoer .............................. 150,000(5) 1.4%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Gary M. Simon .......................... 190,000(5) 1.8%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Steve Jackel ........................... 100,000 *
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Mark Welland ........................... -0- *
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Harlan Press ........................... 10,000 *
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07711
(iv) All executive officers and
directors as a group (11 Persons) ...... 1,787,400 17.0%
- -----------
* Indicates less than 1%.
(1) All information is as of August 22, 1995 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
-46-
made by them with the Commission. As of August 22, 1995, the Company
had issued and outstanding 10,497,526 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) Does not include any shares owned by any other party to the Management
Agreement (as herein defined) which the Company believes is no longer
effective. Mr. Benun and Mr. Hechler agreed to vote their Common Shares in
accordance with the terms of the Management Agreement. See "Certain
Relationships and Related Transactions."
(3) VC Holding, Inc. is the sole manager and holds 100% of the voting interests
of Venture Capital Equities, L.L.C. Dominion Capital, Inc. contributed all
of its interests in a specified portfolio of investments, including the
above described Company securities to Venture Capital, L.L.C.
(4) Mr. Silver's holdings include shares held by Mr. Silver or his wife for the
benefit of his children and 426,000 shares held by Siar Money Purchase
Plan. In addition, Mr. Silver holds warrants to purchase 73,333 shares of
the Company's common stock.
(5) Represents Common Shares underlying stock options.
(6) Represents Common Shares underlying stock options and 30,000 shares
purchased in the open market.
(7) Based upon Mr. Benun's last filed amendment to his 13-D dated as of
January 30, 1995 and notice of actual sales provided to the Company by the
counsel for Mr. Benun.
Item 13. Certain Relationships and Related Transactions
A warrant (the "Warrant") to purchase 1,500,000 Common Shares at an
exercise price of $6.00 per share was issued to Ira J. Hechler in exchange for
certain short term loans and other financial accommodations provided to the
Company by Mr. Hechler during the period May 29, 1992 through December 31, 1992
(the "Hechler Loans"). The market value of the Warrant on the date of issuance
was determined to be in the range of $.30 to $.60 per share and was amortized
as a financing cost through December 31, 1992. In November 1993 Mr. Hechler
exercised his right under the Warrant and purchased 900,000 Common Shares at
$6.00 per share. Such exercise generated net proceeds of approximately
$5,364,000 which was used to reduce debt and for working capital purposes. The
Warrant for the remaining 600,000 shares expired on June 2, 1994.
In connection with the Hechler Loans, Mr. Hechler was appointed to the
Board and given the right (since terminated) to nominate two other designees to
the Board (the "Hechler Nominees"). The Company agreed to include these nominees
as management's nominees in any proxy solicitation and to indemnify Mr. Hechler
and such nominees against certain liabilities pursuant to an indemnification
agreement. Mr. Hechler nominated Kent M. Klineman to the Board in 1993.
In connection with Mr. Hechler's purchase of Common Shares in a private
placement completed on December 31, 1992 (the "Private Placement"),
-47-
the Company, Mr. Benun and Mr. Hechler entered into a certain Management
Agreement, dated December 31, 1992 (the "Management Agreement"), which provided
among other matters that (i) Mr. Benun would retain, on and after the closing of
a proposed loan facility with a new lender his position as Chairman and Chief
Executive Officer of the Company (Mr. Benun's employment with the Company was
terminated on July 13, 1994), (ii) Mr. Benun would propose, at any Meetings to
Elect Directors, a slate consisting of the Hechler Nominees, Mr. Benun and other
members of whom a majority would, to the extent practical, be new "unaffiliated"
or "independent" members of the Board, (iii) Mr. Benun would vote all Common
Shares over which he had sole voting power on the date of the Management
Agreement or acquired thereafter in favor of the Hechler Nominees for election
to the Board at all Meetings to Elect Directors, (iv) Mr. Hechler would vote or
cause to be voted all Common Shares over which he has sole voting power on the
date of the Management Agreement or acquired thereafter and all Common Shares
purchased by him or his designee in the Private Placement in favor of the Benun
Nominees at all Meetings to Elect Directors, (v) neither Mr. Benun nor Mr.
Hechler, Hechler & Associates or any of their respective affiliates (the
"Hechler Group"), without the consent of two-thirds of the Board, from December
31, 1992 through December 1, 1994 would (a) solicit proxies with respect to
securities of the Company or become a "participant" in any "election contest"
relating to the election of directors of the Company (as such terms are used in
Rule 14a-11 of Regulation 14A under the Exchange Act), or seek to advise or
influence any person or entity with respect to the voting of any voting
securities of the Company, (b) make any public announcement with respect to, or
submit a formal proposal for a transaction between any member of the Hechler
Group and the Company or any of its securities holders except proposals
recommending transactions in the ordinary course of the Company's business, (c)
act to seek control of management, Board or policies of the Company except in
any such person's capacity as a director, or (d) form, join or participate in a
group for purposes of any transactions referred to in (a), (b), or (c) above,
and (vi) the Warrant be amended (a) to extend the exercise period of the Warrant
until December 1, 1993, (b) to eliminate the mandatory exercise and early
termination provisions of the Warrant and (c) provide that the purchase by all
purchasers in the Private Placement will not trigger the anti-dilution
provisions of the Warrant. The Company believes that Mr. Benun no longer has any
rights under the Management Agreement to nominate directors of the Company. Mr.
Benun has asserted that he continues to have such rights and intends to enforce
them.
Certain of the Company's and Concord HK's financing and credit arrangements
in the past have been secured by the personal guarantees and/or assets of Mr.
Benun and Mr. Hechler. During Fiscal 1994, Mr. Benun was a guarantor of all of
the Company's borrowings under the loan agreements with Midlantic National Bank
and Canadian Imperial Bank of Commerce and the Bank of East Asia until their
termination in March and April 1994, respectively, when such loans were repaid.
Mr. Benun is currently a guarantor of the Company's borrowings under the loan
agreement with The CIT Group/Credit Finance, Inc.
-48-
At June 30, 1995 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 1995 in
connection with the loans from Mr. Benun and suspended payment of the loans
because the Company believes that it has valid claims against Mr. Benun vastly
in excess of said loans. The Company believes that any amounts which may
otherwise have been due Mr. Benun will be offset by the amounts which Mr. Benun
will be found to owe the Company when all claims by the Company against Mr.
Benun are finally arbitrated or adjudicated. (See Litigation.)
The Company and Mr. Benun entered into and executed a Pledge Agreement on
each of March 7, and April 6, 1994 to secure the prompt payment of any liability
to the Company that Mr. Benun may incur as a result of the matters then under
investigation. Mr. Benun was terminated as Chief Executive Officer on July 14,
1994. The Company holds 30,770 shares of the Company's Common Stock owned by Mr.
Benun and pledged to the Company in connection with the Pledge Agreement.
On August 1, 1994 ELA Enterprises, Inc., a Company owned by Eli Arenberg,
was granted an option under the Company's Incentive Plan to purchase 10,000
Common Shares at an exercise price of $3.00 per share, 10,000 Common Shares at
an exercise price of $4.00 per share, and 10,000 Common Shares at an exercise
price of $5.00 per share, in connection with consulting services provided by Mr.
Arenberg to the Company pursuant to the ELA Enterprises, Inc. Consulting
Agreement. All options previously granted to Mr. Arenberg were canceled. In
addition, ELA Enterprises, Inc. will be paid at an hourly rate for consulting
services provided to the Company.
-49-
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The following consolidated financial statements of the Company and the
notes thereto, the related reports thereon of the certified public accountants,
and financial statement schedule, are filed under Item 8 of this Report:
(a) (1) Financial Statements
Page
----
Independent Auditors' Reports .................................... F-1
Consolidated Balance Sheets at June 30, 1995 and 1994 ............ F-3
Consolidated Statements of Operations for the years ended
June 30, 1995, 1994 and 1993 ................................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1994 and 1993 ................................... F-6
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1995, 1994 and 1993 ....................... F-8
Notes to Consolidated Financial Statements ....................... F-9
(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves ...... F-30
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:
Page
----
3.1 Certificate of Incorporation of the Company(1).....................
-50-
Page
----
3.2 Amendments to Certificate of Incorporation of the Company(1)........
3.3 Amendment No. 4 to Certificate of Incorporation of the Company(12)..
3.4 Restated By-Laws of the Company ....................................
4.1 Form of Common Stock Certificate(1) ................................
10.1 Settlement Agreement between the Company and the Commission
effective September 1, 1994 ......................................
10.2 Employment Agreement between the Company and Ira B. Lampert,
dated as of July 15, 1993(16) ....................................
10.3 Employment Agreement between the Company and Gary M. Simon
dated as of June 1, 1994 .........................................
10.4 Employment Agreement between Concord France and Jean Louis Vinant
dated as of July 1, 1994 .........................................
10.5 Employment Agreement between Concord UK and Mark Easterbrook
dated as of January 1, 1994 ......................................
10.6 Employment Agreement between the Company and Mark Welland
dated as of March 1, 1993(15) ....................................
10.7 Employment Agreement between the Company and Hans Dieter Kuehn
dated as of April 1, 1993(16) ....................................
10.8 Employment Agreement between the Company and Eli Shoer
dated as of July 1, 1993(16) .....................................
10.9 Pledge Agreement between the Company and Benun
dated as of March 7, 1994(20) ....................................
10.10 Pledge Agreement between the Company and Benun
dated as of April 6, 1994(20) ....................................
10.11 Compensation Trade Agreement between Concord HK and
Shenzhen Baoan Contat Camera Factory and translation
dated November 23, 1993(17) ......................................
10.12 Processing Trade Agreement, dated October 28, 1986, between
Concord Camera Enterprises Company Ltd. and Baoan County Foreign
Trade Company and Concord Electronic Factory Henggang,
Baoan County and translation(1) ..................................
10.13 Filing Certificate for Joint Venture, Cooperative Venture,
Compensation Trade and Foreign-Related Processing and
Assembly Agreements (Contracts) issued by the Foreign economic
Relations Office People's Government of Baoan County, Shenzhen
November 1, 1986 and translation(1)...............................
-51-
Page
----
10.14 Processing and Assembly Contract, dated July 25, 1987, between
Concord Camera Enterprises Company Ltd. and Baoan County
Foreign Trade Company and Concord Electronic Factory,
Henggang, Baoan County and translation(1) ........................
10.15 Processing Trade Agreement, dated September 6, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) ..................................
10.16 Filing Certificate for Joint Venture, Cooperative Venture,
Compensation Trade and Foreign-Related Processing and Assembly
Agreements (Contracts) issued by the Foreign Economic Relations
Office, People's Government of Baoan County, Shenzhen
on September 12, 1985 and translation(1) .........................
10.17 Notice Concerning the Approval of Import Projects issued by the
Foreign Economic Relations Office, Baoan County, Shenzhen on
September 12, 1985 and translation(1) ............................
10.18 Supplementary Agreement, dated September 27, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan
County and translation(1) ........................................
10.19 Notice Concerning the Approval of Supplementary Agreement dated
September 27, 1985 issued by the Foreign Economic Relations
Office, Baoan County on October 4, 1985 and translation(1) .......
10.20 Processing and Assembly Contract, dated September 27, 1985,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) ..................................
-52-
Page
----
10.21 Supplementary Agreement, dated October 30, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) ..................................
10.22 Processing and Assembly Contract, dated December 17, 1985,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) ..................................
10.23 Processing and Assembly Contract between Dialbright Company
Limited and Baoan County Foreign Trade Company and Dialbright
Electronic Factory, Henggang, Baoan County and translation(1) ....
10.24 Supplementary Agreement, dated July 9, 1986, between Dialbright
Company Limited and Baoan County Foreign Trade Company and
Dialbright Electronic Factory, Henggang, Baoan County and
translation(1) ...................................................
10.25 Processing and Assembly Contract, dated July 11, 1986, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan
County and translation(1) ........................................
10.26 Processing and Assembly Contract, dated August 14, 1986,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translation(1) ..................................
10.27 Supplementary Agreement, dated August 26, 1986, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan
County and translation(1) ........................................
10.28 Agreement for the Provision of Land, Management Services
and Labor between Company and Wan Kong Economic Development
Corporation of Baoan County, dated July 10, 1988 (English
Translation with Chinese Original attached)(2) ...................
10.29 Agreement between Dialbright and Development Corporation,
Baoan County, dated September 23, 1988(2) ........................
-53-
Page
----
10.30 Agreement between Dialbright and Henggang Economic Development
Corporation, dated September 23, 1988 and translation(2) .........
10.31 Construction Works Contract between Concord Factory Henggang
and Henggang Economic Development Corporation dated
February 25, 1989 and translation(2) .............................
10.32 Agreement between Concord HK and Baoan Henggang Joint Stock
Investment Company, Ltd., dated February 15, 1993 and
translation(14) ..................................................
10.33 Contract for the Utilization of Land in Factory Construction
between Concord HK and Henggang Investment Holdings Limited
dated June 20, 1994 and translation ..............................
10.34 Supplemental Agreement to the Contract for the Utilization
of Land in Factory Construction between Concord HK and
Henggang Investment Holdings Limited dated June 20, 1994
and translation ..................................................
10.35 Loan and Security Agreement between the Company,
Concord-Keystone Sales Corp. and CIT dated March 30, 1994(19) ....
10.36 Loan Agreement between Concord HK and BOEA dated June 15, 1993(16) .
10.37 Amendment to Loan Agreement between Concord HK and BOEA dated
January 11, 1994(18) .............................................
10.38 Incentive Plan, effective November 29, 1993 ........................
10.39 Amended and restated 1988 Stock Option Plan(14) ....................
10.40 Letter of intent to form a joint venture with Hungarian
Optical Works, Fine Mechanical and Optical Ltd. and the
Hungarian Credit Bank Ltd.(3) ....................................
10.41 Deed of Association of Concord-MOM Camera Manufacturing and
Trading -- Limited Liability Company, dated April 24, 1990(4) ....
10.42 Employment Agreement between Concord Canada and Saul Ehrentreu
dated March 1, 1990(4) ...........................................
10.43 Lease Agreement dated May 21, 1991, between EDS and
the Company(6) ...................................................
-54-
Page
----
10.44 Security Agreement dated May 21, 1991, between EDS and the
Company(6) .......................................................
10.45 Amendment to Equipment Lease Agreement between EDS and the
Company executed on April 6, 1994(20) ............................
10.46 Purchase Agreement, dated May 29, 1992, between the Company
and Ira J. Hechler, with exhibits(12) ............................
10.47 Management, Voting, Warrant Extension and Standstill
Agreement, dated December 31, 1992, among the Company,
Jack C. Benun and Ira J. Hechler(14) .............................
10.48 Extension and Amendment of Lease dated January 28, 1991, by
and between Howard H. Gelb and Eunice Gelb and the Company(14) ...
10.49 Second Extension and Amendment of Lease dated December 23,
1993 by and between Howard H. Gelb and Eunice Gelb and the
Company ..........................................................
10.50 Third Extension and Amendment of Lease dated April 18, 1994
by and between Howard H. Gelb and Eunice Gelb and the
Company ..........................................................
10.51 Employment Agreement between the Company and Eli Shoer dated
as of October 1, 1994(21) ........................................
10.52 Employment Agreement between the Company and Gary Kaess
dated as of November 1994(21) ....................................
10.53 Amended and Restated Employment Agreement between Concord
Camera HK Limited and Arthur Zawodny dated as of October 21,
1994(21) .........................................................
10.54 Consulting Agreement between the Company and Harjac Consulting,
Inc., dated as of May 1, 1995 ....................................
16 Letter of Deloitte & Touche LLP regarding change in the
Company's auditors(22) ...........................................
21. List of Subsidiaries of Company(13) ................................
27. Financial Data schedule
The Financial Statement Schedules required to be filed pursuant to this
Item 14(d) are listed above.
-55-
FOOTNOTES:
(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 Registration Statement on Form S-1,
filed with the Commission on November 1, 1989, and is incorporated herein
by reference.
(4) 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, 1990 and is incorporated herein by reference.
(5) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's quarterly report on Form 10-Q, for
the fiscal quarter ended March 31, 1991 and is incorporated herein by
reference.
(6) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's Report on Form 8-K dated May 21,
1991 and is incorporated herein by reference.
(7) 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, 1991 and is incorporated herein by reference.
(8) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's quarterly report on Form 10-Q for
the fiscal quarter ended September 30, 1991 and is incorporated herein by
reference.
(9) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's quarterly report on Form 10-Q for
the fiscal quarter ended December 31, 1991 and is incorporated herein by
reference.
(10) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's Registration Statement on Form S-3
(No. 33-43853), declared effective January 17, 1992, and is incorporated
herein by reference.
-56-
(11) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's quarterly report on Form 10-Q for
the fiscal quarter ended March 31, 1992 and is incorporated herein by
reference.
(12) 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.
(13) 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, 1992 and is incorporated herein by reference.
(14) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's Registration Statement on Form
S-1 (33-59398), filed with the Commission on March 11, 1993, and is
incorporated herein by reference.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
-57-
(21) 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.
(22) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's current report on Form 8-K dated
May 18, 1995.
-58-
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Concord Camera Corp.
Avenel, New Jersey
We have audited the balance sheet of Concord Camera Corp. and subsidiaries
as of June 30, 1995, and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index in Item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, 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, 1995 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, 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 23, 1995
F-1
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, 1994 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended June 30, 1994. Our audits also included the
financial statement schedule listed in the Index in Item 14. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Concord Camera
Corp. and its subsidiaries as of June 30, 1994 and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1994 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
Parsippany, New Jersey
September 23, 1994
F-2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp.
Consolidated Balance Sheets
June 30,
-----------------------------
1995 1994
----------- -----------
Current assets:
Cash ....................................... $ 4,533,216 $ 3,394,658
Accounts Receivable, net ................... 8,589,790 8,489,661
Inventories ................................ 18,865,323 19,107,018
Prepaid expenses and other current assets... 2,494,559 2,610,127
----------- -----------
Total current assets ....................... 34,482,888 33,601,464
Plant and equipment, net ................... 10,802,688 10,306,659
Goodwill, net .............................. 1,678,629 1,728,783
Investment in joint ventures ............... 91,984 168,634
Other assets ............................... 3,132,566 2,377,018
----------- -----------
Total assets ............................... $50,188,755 $48,182,558
=========== ===========
Current liabilities:
Short-term debt ............................ $ 5,742,063 $ 3,708,976
Current portion of long-term debt .......... 24,836 23,646
Current obligations under capital leases ... 788,165 877,998
Accounts payable ........................... 6,993,857 5,436,932
Accrued expenses ........................... 2,902,282 1,947,521
Income taxes payable ....................... 294,584 184,471
Due to officer ............................. 0 100,000
Other current liabilities .................. 305,175 207,333
----------- -----------
Total current liabilities .................. 17,050,962 12,486,877
See accompanying notes to consolidated financial statements
F-3
June 30,
-----------------------------
1995 1994
----------- -----------
Deferred income taxes ...................... $ 484,842 $ 09,190
Long-term debt ............................. 264,432 3,284,534
Obligations under capital leases ........... 123,626 713,721
Other long term liabilities ................ 648 133,011
----------- -----------
Total liabilities .......................... 17,924,510 17,127,333
----------- -----------
Stockholders' equity:
Common stock, no par value, 20,000,000
authorized; 10,490,526 issued as of
June 30, 1995 and 1994 ................... 36,935,174 36,935,174
Paid in capital ............................ 850,786 850,786
Deficit .................................... (5,068,796) (6,277,816)
----------- -----------
32,717,164 31,508,144
Less: treasury stock, at cost; 63,553
shares ............................... (452,919) (452,919)
----------- -----------
Total stockholders' equity ................. 32,264,245 31,055,225
----------- -----------
Total liabilities and stockholders' equity.. $50,188,755 $48,182,558
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
Concord Camera Corp.
Consolidated Statements of Operations
For the year ended June 30,
-------------------------------------------------
1995 1994 1993
----------- ----------- -----------
Net Sales ....................................................... $62,139,346 $54,817,409 $59,131,391
Cost of products sold ........................................... 41,983,967 37,683,699 40,080,710
----------- ----------- -----------
Gross profit .................................................... 20,155,379 17,133,710 19,050,681
Selling expenses ................................................ 7,298,038 5,569,292 6,101,797
General and administrative expenses ............................. 8,109,668 9,123,239 10,124,896
Financial expenses .............................................. 1,412,947 1,889,004 3,108,467
Other expense, net .............................................. 154,534 220,866 147,280
Litigation and Settlement Costs ................................. 1,864,183 1,153,011 --
Product line rationalization .................................... -- -- 4,477,523
Reorganization & restructuring .................................. -- -- 1,522,477
Provision for proposed transaction costs ........................ -- -- 904,186
----------- ----------- -----------
Income (loss) from operations
before income taxes ........................................... 1,316,010 (821,701) (7,335,945)
Provision for income taxes ...................................... 106,99 123,050 297,681
----------- ----------- -----------
Net income (loss) ............................................... $1,209,020 ($944,751) ($7,633,626)
=========== =========== ===========
Income (loss) per common and
common equivalent share ....................................... $0.12 ($0.09) ($0.99)
=========== =========== ===========
Weighted average number of common
and common equivalent shares outstanding ...................... 10,426,973 10,044,049 7,733,463
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
Concord Camera Corp.
Consolidated Statements of Cash Flows
For the year ended June 30,
--------------------------------------------------
1995 1994 1993
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) ............................................... $1,209,020 ($ 944,751) ($7,633,626)
---------- ---------- ----------
Adjustments to reconcile net income (loss)to net
cash provided by (used in) operating activities:
Depreciation and amortization ................................... 2,260,673 2,256,832 2,774,233
Undistributed earnings of joint venture ......................... -- (65,997) --
(Gain)on sale of long term assets ............................... (5,027) (243,137) (65,545)
Provision for write-down of manufacturing equipment ............. 1,017,902
Change in assets and liabilities, net of effects from
purchase of joint venture interests:
(Increase) decrease in accounts receivable ...................... (100,129) (792,939) 3,089,026
(Increase) decrease in inventories .............................. 241,695 1,391,971 (1,078,873)
(Increase) decrease in prepaid expenses
and other current assets ...................................... 45,507 (617,964) 846,295
(Increase) in other assets ...................................... (1,026,238) (727,051) (199,266)
Increase (decrease) in accounts payable ......................... 1,556,925 (1,545,695) 1,151,752
Increase (decrease) in accrued expenses ......................... 954,761 (846,628) (487,673)
(Decrease) in payable to joint ventures ......................... -- (24,344) (485,660)
Increase (decrease) in income taxes payable...................... 110,113 53,065 (217,727)
(Decrease) in other current liabilities ......................... (2,159) (85,928) (496,268)
Increase (decrease) in deferred income taxes..................... (24,348) 172,401 137,259
Increase (decrease) in other liabilities ........................ (132,363) (145,267) 67,264
---------- ---------- ----------
Total adjustments ............................................... 3,879,410 (1,220,681) 6,052,719
---------- ---------- ----------
Net cash provided by (used in) operating activities ............. 5,088,429 (2,165,432) (1,580,907)
---------- ---------- ----------
See accompanying notes to consolidated financial statements
F-6
For the year ended June 30,
--------------------------------------------------
1995 1994 1993
---------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment ....................... (2,260,503) (1,689,821) (1,822,933)
Purchase of certificate of deposit .............................. -- (1,000,000) --
Proceeds from certificate of deposit -- 1,000,000 --
Payment for purchase of joint venture interests, net
of cash acquired .............................................. -- -- (32,463)
Proceeds from sale of long-term assets .......................... 30,176 268,189 684,059
Decrease in investment and advances to joint ventures ........... 76,650 28,012 395,556
---------- ---------- ----------
Net cash (used in) investing activities ......................... (2,153,677) (1,393,620) (775,781)
---------- ---------- ----------
Cash flows from financing activities:
Net repayments under short-term debt agreements ................. (985,825) (1,361,420) (10,506,182)
Proceeds from issuance of long-term debt ........................ 3,000,000
Repayments of long-term debt .................................... -- (33,283) (467,300)
Principal payments under capital lease obligations .............. (810,370) (2,230,602) (1,116,810)
Net repayments to shareholder ................................... -- (305,170) (329,307)
Net proceeds from issuance of common stock ...................... -- 5,771,896 16,268,858
---------- ---------- ----------
Net cash provided by (used in) financing activities ............. (1,796,195) 4,841,421 3,849,259
---------- ---------- ----------
Net increase in cash ............................................ 1,138,558 1,282,369 1,492,571
Cash at beginning of year ....................................... 3,394,658 2,112,289 619,718
---------- ---------- ----------
Cash at end of year ............................................. $4,533,216 $3,394,658 $2,112,289
========== ========== ==========
See accompanying notes to consolidated financial statements.
See note 17 -- Supplemental disclosure of cash flow information.
F-7
Concord Camera Corp.
Consolidated statements of stockholders' equity
Common stock
--------------------------------------------------------------
Issued and
outstanding Stated Issuable Stated Paid in Retained
shares Value shares Value capital earnings
---------- ----------- ------ ---------- ----------- -----------
Balance as of
June 30, 1992 ........... 6,059,269 $14,402,670 60,324 $ 472,563 $ 867,389 $ 2,300,561
Issuance of
stock ................... 3,300,000 16,080,927 -- -- -- --
Common stock
issuable ................ 60,324 472,563 (60,324) (472,563) -- --
Exercise of
stock options ........... 35,925 190,515 -- -- -- --
Net (loss) ............... -- -- -- -- -- (7,633,626)
---------- ----------- ------ ---------- ----------- -----------
Balance as of
June 30, 1993 ........... 9,455,518 31,146,675 -- -- 867,389 (5,333,065)
Issuance of
stock ................... 918,655 5,464,486 -- -- (16,603) --
Exercise of
stock options ........... 52,800 324,013 -- -- -- --
Net (loss) ............... -- -- -- -- -- (944,751)
---------- ----------- ------ ---------- ----------- -----------
Balance as of
June 30, 1994 ........... 10,426,973 36,935,174 -- -- 850,786 (6,277,816)
Net income ............... -- -- -- -- -- 1,209,020
---------- ----------- ------ ---------- ----------- -----------
Balance as of
June 30, 1995 ........... 10,426,973 $36,935,174 -- $ -- $ 850,786 ($5,068,796)
========== =========== ====== ========== =========== ===========
Treasury stock
------------------------
Shares Cost Total
------ --------- -----------
Balance as of
June 30, 1992 ........... 63,553 ($452,919) $17,590,264
Issuance of
Stock ................... -- -- 16,080,927
Common stock
issuable ................ -- -- 0
Exercise of
stock options ........... -- -- 190,515
Net (loss) ............... -- -- (7,633,626)
------ --------- -----------
Balance as of
June 30, 1993 ........... 63,553 (452,919) 26,228,080
Issuance of
stock.................... -- -- 5,447,883
Exercise of
stock options............ -- -- 324,013
Net (loss)................ -- -- (944,751)
------ --------- -----------
Balance as of
June 30, 1994 ........... 63,553 (452,919) 31,055,225
------ --------- -----------
Net income ............... -- -- 1,209,020
------ --------- -----------
Balance as of
June 30, 1995 ........... 63,553 ($452,919) $32,264,245
====== ========= ===========
See accompanying Notes to consolidated financial statements
F-8
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") (formerly Dialbright Company Limited) a Hong
Kong corporation, Concord Camera GmbH ("GmbH") Concord Camera Canada Corp.
("Canada") Concord Camera UK Ltd. ("UK"), Starprint Corporation ("Starprint"),
Concord-Keystone Sales Corp. ("Concord Keystone"), Concord Holding Corp.
("Concord Holding"), Concord Camera Illinois Corp. ("Concord Illinois"), Concord
Camera (Panama) Corp. ("Panama") commencing operations 1992, Concord Camera
(Hungary) ("Concord Hungary") commencing operations 1994, and Concord Camera
France SARL ("France") commencing operations 1995 (collectively, the "Company").
All material intercompany balances and transactions have been eliminated.
The Company ceased the operations of Starprint and Concord Camera Canada
Corp. during February of 1992 and June 1995, respectively as part of its plan to
consolidate its worldwide operations and focus more closely on its core
business. The Company will continue to service customers throughout Canada
through Concord Illinois.
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"). The
consolidated sales to two customers in fiscal 1995 and 1994 amounted to
approximately $15,759,000 (25.4%) and $12,176,000 (22.2%), respectively. The
Company believes that the loss of such customers would not 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,
1995, 1994, and 1993.
Reclassifications
Certain Fiscal 1994 amounts have been reclassified to conform with the
Fiscal 1995 presentation.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out basis.
Earnings (Loss) Per Share
Common stock equivalents were not included in the calculation of income
F-9
(loss) per share for the fiscal years ended June 30, 1995, 1994, and 1993
because their effect was anti-dilutive.
Property, Plant and Equipment
Property, plant and equipment are 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.
Intangible Assets
Cost in excess of net assets acquired (goodwill) is being amortized on a
straight-line basis over fifteen years. Accumulated amortization at June 30,
1995 and 1994 for such intangible asset is approximately, $816,000 and $658,000,
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. Gains or
losses resulting from foreign currency transactions are included in "Other
expense, net" in the Consolidated Statements of Operations. For the fiscal years
ended June 30, 1995, 1994, and 1993, consolidated other income includes
approximately $57,000, $22,000, and $893,000, respectively, of net foreign
currency losses from remeasurement.
Forward Exchange Contracts
During the fiscal years ended June 30, 1995, 1994 and 1993, the Company's
hedging activities were immaterial and, as of June 30, 1995, there were no
forward exchange contracts outstanding. The Company continues to analyze the
benefits and costs associated with hedging against foreign currency
fluctuations.
Income Taxes
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes", effective July 1, 1993. This statement
supersedes Statement of Financial Accounting Standards (SFAS) No. 96,
"Accounting for Income Taxes". The adoption of SFAS No. 109 had no effect on
F-10
the Company's financial results as of July 1, 1993.
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,
----------------------------
1995 1994
----------- -----------
Trade accounts receivable ...................... $ 9,631,561 $10,123,835
Less: Allowance for doubtful accounts,
discounts and allowances ..................... (1,041,771) (1,634,174)
----------- -----------
$ 8,589,790 $ 8,489,661
=========== ===========
NOTE 3 -- INVENTORIES:
Inventories are comprised of the following:
June 30,
----------------------------
1995 1994
----------- -----------
Raw materials and components ................... $ 7,162,899 $ 5,648,318
Finished goods ................................. 11,702,424 13,458,700
----------- -----------
$18,865,323 $19,107,018
=========== ===========
NOTE 4 -- NOTE RECEIVABLE:
During the fiscal year ended June 30, 1991, the Company purchased certain
assets which bear the ARGUS and SAFARI trade names, formerly belonging to Optex,
Inc. Effective March 31, 1992, the Company sold the rights to the ARGUS
trademark and trade name in Mexico and the United States. Of the $500,000 sales
price, $200,000 was paid in cash and the $300,000 balance was paid by a note
(the "Argus Note") payable in monthly installments over a three year period
through July 1995 and bearing interest at 5% per annum. Argus failed to comply
with certain payment and other terms in the purchase agreement and the Company
declared a default under such agreement. The Company agreed to settle all
outstanding obligations between Concord and Argus Industries, Inc. for a payment
in the amount of $68,371 from Argus. Said amount was paid in full in the first
quarter of Fiscal 1996.
F-11
Included in other assets as of June 30, 1995 is a note receivable for
approximately $431,000 from Shenzhen Baoan Contat Camera Factory, a Chinese
Company in settlement of an account receivable. The note is payable in equal
annual installments over five years and bears interest at 4% per annum.
NOTE 5 -- PLANT AND EQUIPMENT:
Plant and equipment consist of the following:
June 30,
------------------------------
1995 1994
------------- -------------
Building and building under capital lease .... $ 2,685,278 $ 1,864,583
Equipment and equipment under capital lease .. 12,371,625 11,306,291
Office furniture and equipment ............... 2,449,385 2,256,511
Automobiles .................................. 110,486 89,910
Leasehold improvements ....................... 1,382,089 1,356,802
------------- -------------
18,998,864 16,874,097
Less: Accumulated depreciation and
amortization ............................... (8,196,176) (6,567,438)
------------- -------------
$ 10,802,688 $ 10,306,659
============= =============
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 10 -- Asset Acquisition and Disposition). 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, 1995, there were no active joint ventures.
Concord maintains a 50% ownership interest in a joint venture in Budapest,
Hungary. During the quarter ended March 31, 1994 and because of the financial
instability of its joint venture partners, such joint venture ceased its
operations. The remaining assets and liabilities of this joint
F-12
venture is being liquidated which liquidation is anticipated to be completed in
Fiscal 1996. The Company has recorded provisions for any losses it may sustain
as a result of the liquidation.
The Company continued its activities in Hungary through a wholly-owned
subsidiary from the fourth quarter of Fiscal 1994 through the first quarter of
Fiscal 1996. The Company has decided to transition its sales activities in
Hungary to an independent sales representative. The Company has recorded
provisions for any losses it may sustain as a result of the liquidation.
Summarized combined financial information for unconsolidated joint ventures
is as follows (in 000's):
June 30,
----------------------
1995 1994 1993
---- ---- ----
Balance sheet:
Current assets .................................. $125 $176 $206
Noncurrent assets ............................... 2 2 2
Current liabilities ............................. 102 134 224
Noncurrent liabilities .......................... -- -- --
June 30,
----------------------
1995 1994 1993
---- ---- ----
Income Statement:
Gross revenues .................................. $ 2 $270 $ 227
Gross profit .................................... 1 167 19
Income (loss)from continuing operations ......... (11) 50 (219)
Net income (loss) ............................... $ (11) $ 50 $(219)
F-13
NOTE 7 -- SHORT-TERM DEBT:
Short Term Debt is Comprised of:
June 30,
(in 000's)
---------------------
1995 1994
--------- ---------
The Bank of East Asia -- NY .................... $ 547 --
The CIT Group/Credit Finance ................... 2,214 $ 947
The Bank of East Asia -- HK .................... 2,841 2,762
Other .......................................... 140 --
------ ------
$5,742 $3,709
====== ======
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 which expires on December 20, 1995. 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 9.0% at June 30, 1995. Availability under the BOEA NY Facility is subject to
advance formulas based on eligible accounts receivable with no minimum
borrowing. At June 30, 1995, approximately $547,000 was outstanding and
classified as short-term debt under 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
closing of the amendment is contingent on the delivery of certain closing
documents.
The CIT Group/Credit Finance, Inc ("CIT")
On March 30, 1994, the Company obtained a two year $10,000,000 credit
facility with CIT (the "CIT Facility") which expires on March 29, 1996. 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 9.0% at June 30, 1995. Availability under the CIT
Facility is subject to advance formulas based on eligible inventory and accounts
receivable with minimum borrowing of $2,000,000. At June 30, 1995, approximately
$2,214,000 was outstanding and classified as short-term debt under the CIT
Facility.
Bank of East Asia, Limited ("BOEA") -- Hong Kong
Effective August 2, 1993, Concord HK entered into a credit arrangement (the
"BOEA Facility") with BOEA that provides Concord HK with up to $4,000,000 of
financing, including, but not limited to trade finance and overdraft privileges.
On January 11, 1994, BOEA increased the total amount available
F-14
under the BOEA Facility to $4,800,000 as follows: letters of credit and standby
letters of credit $3,300,000, overdraft and packing loan of $1,500,000. As of
June 30, 1995, approximately $4,164,000 was utilized and approximately $636,000
was available under the BOEA Facility. Approximately $2,841,000 of the total
$4,164,000 utilized, was in the form of trade finance, including but not
limited to import letters of credit. The BOEA Facility, which is payable on
demand, bears interest at 2% above BOEA's prime lending rate for letters of
credit and 2.25% above BOEA's prime lending rate for overdraft and packing
loans. At June 30, 1995 BOEA's prime lending rate was 9.0%. In connection with
the BOEA Facility, Concord HK has placed a $1,075,000 time deposit with BOEA,
which is included in prepaid and other current assets at June 30, 1995 and such
deposit is pledged as collateral for the BOEA facility. In addition, all amounts
outstanding under the BOEA Facility are guaranteed by Concord.
In the fourth quarter of Fiscal 1995, East Asia Finance Company, a
wholly-owned subsidiary of BOEA, extended to Concord HK a five year equipment
leasing facility in the amount of approximately one million dollars.
On June 27, 1995 the Company received a commitment letter from the BOEA to
increase the amount available under the BOEA facility up to $6,375,000 as
follows: Letters of credit and standby letters of credit $3,600,000, overdraft
and packing loan of $2,300,000, and an installment loan $475,000. The
installment loan will be utilized in part to repay the current mortgage
outstanding on the Hong Kong Office property with the Bank of China.(See Note 8
- -- Long-term Debt.)
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of the following:
June 30,
----------------------
1995 1994
-------- ----------
Long-term portion of CIT facility,
payable on March 29, 1996 and bearing
interest at 2% above CIT's prime lending
rate (9.0% at June 30, 1995) ...................... -- $3,000,000
Mortgage with Bank of China, payable
through May 2004, monthly payments of
$2,100, plus interest at bank's prime
lending rate (9.0% at June 30, 1995),
plus 1% secured by property with an
approximate net book value of $462,000 at
June 30, 1995 ..................................... $289,268 308,180
-------- ----------
289,268 3,308,180
Current portion of long-term debt ................... (24,836) (23,646)
-------- ----------
Long-term portion ................................... $264,432 $3,284,534
======== ==========
Future maturities of long-term debt, exclusive of capital lease
obligations, are as follows:
F-15
Fiscal year:
1996 .................... $ 24,836
1997 .................... 24,836
1998 .................... 24,836
1999 .................... 24,836
2000 .................... 24,836
Thereafter .............. 140,252
--------
$264,432
========
NOTE 9 -- ASSET ACQUISITIONS AND DISPOSITIONS:
During Fiscal 1994, Concord HK sold its 60% interest in a joint venture for
approximately $381,000 to its former joint venture partner. Of the total
consideration paid, approximately $180,000 was in the form of lens making
machinery and the balance in cash. The Company will continue to manufacture, at
its production facility in the PRC, the hybrid and plastic lenses previously
supplied by this joint venture. 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 Option Price
Shares Per Share
--------- -------------
Outstanding June 30, 1992 ....................... 398,725 $1.23 - $9.50
Canceled ........................................ (158,550) $5.69 - $9.00
Granted ......................................... 423,975 $5.38 - $8.88
Exercised ....................................... (35,925) $1.23 - $8.25
--------- -------------
Outstanding June 30, 1993 ....................... 628,225 $1.63 - $9.50
Cancelled ....................................... (45,125) $4.50 - $8.88
Granted ......................................... 270,950 $3.88 - $7.69
Exercised ....................................... 52,800 $5.56 - $8.44
--------- -------------
F-16
Number of Option Price
Shares Per Share
--------- -------------
Outstanding June 30, 1994 ........................ 801,250 $1.63 - $9.50
Cancelled ........................................ 426,100 $1.63 - $9.50
Granted .......................................... 649,450 $2.13 - $5.00
Exercised ........................................ -- --
--------- -------------
Outstanding June 30, 1995 ........................ 1,024,600 $1.69 - $9.00
========= =============
At June 30, 1995, 1,193,800 are available for future grants. [See Note 20
for a description of Common Stock purchase awards made pursuant to the Incentive
Plan in August 1995.]
An aggregate of 1,000,000 shares of the Company's common stock are subject
to options which were granted under the Company's stock option plan for Jack C.
Benun, formerly Chairman and Chief Executive Officer, (the "Benun Plan") at
prices ranging from $5.00 - $12.00. On July 14, 1994, all of such options were
cancelled in connection with Benun's termination. (See Note 14--Litigation and
Settlements.)
As of June 30, 1995, the Company had the following options and warrants
outstanding:
Warrants to purchase 15,000 and 50,000 shares of the Company's common stock
at per share exercise prices of $5.75 and $6.00, respectively, were issued in
connection with certain consulting services provided to the Company by Jack
Silver. The warrant to purchase 15,000 shares expires on March 31, 1997 and the
warrant to purchase the 50,000 shares expires on December 13, 1995.
Pursuant to his amended employment agreement, 600,000 shares of the
Company's common stock are subject to options which were granted to Ira B.
Lampert, Chairman and Chief Executive Officer, ("Lampert") at an exercise price
of $4.00 per share. An additional 150,000 shares of the Company's common stock
are subject to options which will be granted to Lampert contingent upon the
consummation of an acquisition described in Mr. Lampert's amended employment
agreement at an exercise price of $6.00 per share.
As of June 30, 1995, a total of 3,033,400 shares of common stock have been
reserved for issuance.
F-17
NOTE 11 -- INCOME TAXES:
For financial reporting purposes, pre-tax income (loss) consists of the
following:
June 30,
---------------------------------------------
1995 1994 1993
-------- --------- ---------
(In 000's)
United States ................. $ (4,024) $ (4,141) $ (6,651)
Foreign ....................... 5,340 3,320 (685)
-------- --------- ---------
$ 1,316 $ (821) $ (7,336)
======== ========= =========
The provision for income taxes principally related to foreign operations is
comprised of the following:
June 30,
---------------------------------------------
1995 1994 1993
-------- --------- ---------
Current ....................... $ 94,475 $ (62,894) $ 98,788
Deferred ...................... 12,515 185,944 198,893
-------- --------- ---------
$106,990 $ 123,050 $ 297,681
======== ========= =========
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, 1995 are as follows:
F-18
Domestic Foreign Total
----------- ----------- -----------
Deferred Tax Liabilities
- ------------------------
Difference between book and tax basis of property ............................. $ (3,458) $ (464,446) $ (467,904)
Other deferred liabilities ..................................................... -- (20,396) (20,396)
----------- ----------- -----------
Total deferred tax liabilities ................................................. $ (3,458) $ (484,842) $ (488,300)
=========== =========== ===========
Deferred Tax Assets
- -------------------
Operating loss carryforwards ................................................... $ 5,884,128 $ -- $ 5,884,128
Reserves not currently deductible .............................................. 237,446 -- 237,446
Difference between book and tax basis of foreign subsidiaries .................. 393,183 -- 393,183
Difference between book and tax basis of joint venture ......................... 66,201 -- 66,201
Difference between book and tax basis of property .............................. 92,219 -- 92,219
Tax credits .................................................................... 69,764 -- 69,764
Contributions carryover ........................................................ 27,261 -- 27,261
Other deferred tax assets ...................................................... 222,867 -- 222,867
----------- ----------- -----------
Total deferred tax assets ...................................................... 6,993,069 -- 6,993,069
Valuation allowance ............................................................ (6,989,611) -- (6,989,611)
----------- ----------- -----------
Total deferred tax assets after valuation allowance ............................ $ 3,458 $ -- $ 3,458
=========== =========== ===========
Net deferred tax liability ..................................................... $ -- $ (484,842) $ (484,842)
=========== =========== ===========
F-19
The tax effects of significant items comprising the Company's net deferred
tax liability as of June 30, 1994 were as follows:
Domestic Foreign Total
----------- ----------- -----------
Deferred Tax Liabilities
- ------------------------
Difference between book and tax basis of property ............................. $ -- $ (488,217) $ (488,217)
Other deferred liabilities ..................................................... -- (20,973) (20,973)
----------- ----------- -----------
Total deferred tax liabilities ................................................. -- $ (509,190) $ (509,190)
=========== =========== ===========
Deferred Tax Assets
- -------------------
Operating loss carryforwards ................................................... $ 4,222,028 $ 1,419,769 $ 5,641,797
Reserves not currently deductible .............................................. 692,828 6,410 699,238
Difference between book and tax basis of foreign subsidiaries .................. 580,007 -- 580,007
Difference between book and tax basis of joint venture ......................... 69,392 -- 69,392
Difference between book and tax basis of property .............................. 64,646 52,197 116,843
Tax credits .................................................................... 33,500 -- 33,500
Contributions carryover ........................................................ 15,778 3,337 19,115
Other deferred tax assets ...................................................... 272,380 267,041 539,421
----------- ----------- -----------
Total deferred tax assets ...................................................... 5,950,559 1,748,754 7,699,313
Valuation allowance ............................................................ (5,950,559) (1,748,754) (7,699,313)
----------- ----------- -----------
Total deferred tax assets after valuation allowance ............................ $ 0 0 $ 0
=========== =========== ===========
Net deferred tax liability ..................................................... $ 0 $ (509,190) $ (509,190)
=========== =========== ===========
In May 1992, the Hong Kong Inland Revenue Department notified Concord HK
that its annual tax rate had been reduced from 16.5% to 8.25% from April 1, 1990
to June 30, 1992 and that its annual tax rate commencing July 1, 1992 will be
8.75%. The Company currently does not pay taxes or import/export duties in the
PRC, but there can be no assurance that the Company will not be required to pay
such taxes or duties in the future.
The Company has never paid any income or turnover tax to the PRC on account
of its business activities in the PRC. Existing PRC statutes can be construed as
providing for a minimum of 10% to 15% income tax and a 3% turnover tax on the
Company's business activities; however, the PRC has never attempted to enforce
those statutes. The Company has been advised that the PRC's State Tax Bureau is
reviewing the applicability of those statutes to processing activities of the
type engaged in by the Company, but it has not
F-20
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 $15
million dollars as of June 30, 1995. 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, 1995, Concord had net operating loss carryforwards for U.S.
tax purposes of approximately $14,732,000 which expire as follows: $1,586,000 in
2005; $16,000 in 2006; $444,000 in 2007; $6,630,000 in 2008 and $2,770,000 in
2009, and $3,280,000 in 2010. Losses for state tax purposes begin to expire in
1997.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate taxable income
in these jurisdictions is more certain.
A reconciliation of income tax expense computed at the statutory U.S.
Federal rate to the actual provision for income taxes is as follow:
June 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Computed tax (benefits) at statutory U.S.
Federal tax rates ......................... $ 447,443 ($ 279,000) ($2,494,000)
Utilization of Nol carryforward ............. -- -- --
Earnings of foreign subsidiaries subject to
a difference tax rate ..................... (1,784,278) (624,000) (622,000)
Refund of prior year's income taxes paid by
foreign subsidiary ........................ (4,456) (63,000) --
Losses producing no current tax benefit ..... 1,525,818 1,095,000 3,406,000
Other ....................................... (77,537) (5,950) 7,681
----------- ----------- -----------
$ 106,990 $ 123,050 $ 297,681
=========== =========== ===========
NOTE 12--RESEARCH AND DEVELOPMENT:
The Company's products are created, designed and engineered principally in
Hong Kong by its engineers. The Company expended approximately $598,000,
F-21
$1,021,000, and $2,100,000 during the fiscal years ended June 30, 1995,
1994 and 1993, respectively, for product design and development (including
redesign and redevelopment). The large increase in Fiscal 1993 is due to the
significant development costs incurred with respect to the Company's new single
use and traditional 35 millimeter cameras.
NOTE 13--COMMITMENTS AND CONTINGENCIES:
In connection with the acquisition of certain production equipment and
intellectual property in Fiscal 1991, the Company secured a five year financing
lease from EDS Financial Corporation ("EDS"), a division of Electronic Data
Systems Corporation. During April 1994, the Company re-negotiated the original
terms of the lease with EDS. Such renegotiation included the application of the
$1,000,000 certificate of deposit which was pledged to EDS as collateral under
the lease to the outstanding principal balance. The $1,000,000 principal payment
reduced the monthly lease payment from $114,700 to $72,048. All other terms
under the lease remain the same. As of June 30, 1995 the balance outstanding
with respect to such lease approximated $673,000.
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 $15,000 and also requires the Company to pay the
related real estate taxes. The Company is currently reviewing its requirements
for both administrative and warehouse space.
The Company also leases various office equipment 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 1997. Monthly payments on those
leases range from approximately $70 to $3,300.
The following is a summary of assets under capitalized leases:
June 30,
------------------------------
1995 1994
---------- -----------
Assets under capitalized leases ............. $4,436,392 $ 4,868,061
Less: accumulated amortization .............. (1,009,398) (916,717)
---------- -----------
$3,426,994 $ 3,951,344
========== ===========
F-22
Future minimum rental payments are as follows:
Operating Leases Capital Leases
---------------- --------------
Fiscal year:
1996 ....................... $ 670,180 $ 869,013
1997 ....................... 451,465 82,857
1998 ....................... 225,082 52,665
1999 ....................... 23,195 21,828
2000 ....................... 15,155 9,095
Thereafter ................. 92,195 --
---------- ----------
1,035,458
Total minimum payments ..... 1,477,272
==========
Less: Amount representing interest ................... (123,667)
----------
Present value of net minimum lease payments .......... $ 911,791
==========
The effective interest rates on capital leases range from approximately 12%
to 14%. Rental expense for operating leases of approximately $1,033,000,
$1,004,000, and $957,000 was incurred for fiscal years ended June 30, 1995, 1994
and 1993, 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 1999. Under the terms of such employment arrangements, the
Company is committed to pay annual salaries of approximately $1,481,000,
$1,240,000 and $675,000 and $83,000 for the fiscal year ending June 30, 1996,
1997, 1998 and 1999, respectively. Certain of the agreements also provide for
other incentives which are based on the operating performance of the Company.
During the first quarter of fiscal 1996, and effective as of May 1, 1995,
the Company entered into a one year consulting agreement with Harjac Consulting
Inc., a company of which Steve Jackel is president, for the services of Mr.
Jackel as a special assistant to the Chairman and Chief Executive Officer. The
agreement provides for remuneration at the rate of $300,000 for the term of the
agreement plus certain expenses. The agreement also provides for options to
purchase 25,000 shares of the Company's common stock at $3.00 per share and
75,000 at $4.00 per share. The options have a five year term and are exercisable
as of December 31, 1995 and May 1, 1996, respectively.
F-23
NOTE 14 -- LITIGATION AND SETTLEMENTS
Roland Kohl During Fiscal 1990, the Company terminated for cause certain
of its former officers and directors including its former Hong Kong managing
director, Roland Kohl and instituted legal proceedings for damages estimated at
$5.9 million. The defendants counter-claimed for arrears of salary and bonuses
held in escrow. The Company executed a settlement agreement with the defendants,
however, the value of the defendants' assets was severely diminished and there
existed a substantial question as to whether any judgement against Kohl could be
satisfied. The Company decided not to pursue the case with Kohl and settled with
the other defendants for claims for salary arrearages and legal fees in the
amount of $800,000.
SEC Investigation On November 1, 1991, the Company was advised that the
Securities and Exchange Commission (SEC) had issued an order directing a private
investigation of certain allegations made against the Company and Jack C. Benun,
the Company's former Chairman and Chief Executive Officer by the Company' former
Chief Financial Officer. An initial investigation by an Ad Hoc Committee of the
Company's Board of Directors reported that the Company was unable to find any
substantial evidence of wrongdoing by Benun. When new evidence became available
in 1993, the Ad Hoc Committee reported that Benun had misappropriated $150,000
from the Company. As a consequence of the new report, the Company terminated
Benun for cause. On September 16, 1994, as required by his settlement agreement
with the SEC, Benun paid the Company $215,243, representing settlement of the
misappropriation and interest thereon.
On September 1, 1994, the Company settled the SEC Investigation as it
related to the Company without monetary damages or penalties.
Jack C. Benun On November 18, 1994 the Company filed a demand for arbitration
for money damages in excess of $1.5 million against Jack C. Benun. This action
was taken due to Mr. Benun's failure to 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. Mr. Benun has
submitted a counterclaim in which he alleges among other things a wrongful
termination by the Company. The Company intends to vigorously pursue its action
as well as defend the counterclaim.
At June 30, 1995 the Company was indebted to Mr. Benun for $100,000.
Interest on the loans incurred by the Company during the fiscal years ended June
30, 1995 and 1994 approximately $11,000 and $27,000 respectively.
Purported Class Action
On February 22, 1995, the Company was served a complaint purporting to be a
class action on behalf of purchasers of the Company's common stock. The
complaint is predicated on the wrongdoing of Mr. Benun and an alleged failure by
the Company to promptly disclose such wrongdoing to the public. On September 5,
1995, plaintiffs, in response to motions to dismiss by the Company and the
individual defendants, filed a motion to file an amended complaint. The Company
intends to vigorously contest the litigation and believes that it has good
defenses to the purported claims in the complaint and the amended complaint.
F-24
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,
-------------------------------
1995 1994 1993
------- ------- -------
Current assets .............. $32,814 $31,428 $24,260
Noncurrent assets ........... 13,576 12,598 13,601
------- ------- -------
Total assets ................ 46,390 44,026 37,861
Liabilities ................. 27,325 33,102 27,208
------- ------- -------
Equity ...................... $19,065 $10,924 $10,653
======= ======= =======
Net sales (including
intercompany sales) ....... $61,560 $51,574 $54,028
Costs and expenses .......... 56,599 50,666 53,620
------- ------- -------
Net income .................. $ 4,961 $ 908 $ 408
======= ======= =======
Significant financial information regarding the Company's operations, which
includes the effect of the elimination of intercompany transactions, is as
follows (in 000's):
June 30,
-------------------------------
1995 1994 1993
------- ------- -------
Sales to unaffiliated customers:
United States .............................. $20,161 $29,014 $27,985
Canada ..................................... 2,966 3,701 8,114
Central America ............................ 1,824 1,957 1,222
Hong Kong/People's Republic of China ....... 27,910 13,288 15,532
Federal Republic of Germany ................ 3,509 3,853 4,317
United Kingdom ............................. 3,573 2,898 1,961
Hungary .................................... 379 106 --
France ..................................... 1,817 -- --
------- ------- -------
$62,139 $54,817 $59,131
======= ======= =======
Sales to unaffiliated customers exclude intercompany sales (in 000's) of
approximately $19,757, $27,400, and $24,600 for fiscal years 1995, 1994 and
F-25
1993, respectively. The basis of accounting for intercompany sales is cost plus
a manufacturing profit.
June 30,
---------------------------
1995 1994 1993
------ ------ -------
Operating profit (loss):
United States ................................. ($4,827) ($2,822) ($11,503)
Canada ........................................ (384) (1,228) (712)
Central America ............................... (134) 64 (34)
Hong Kong/People's Republic of China .......... 6,776 3,217 5,256
Federal Republic of Germany ................... 131 (11) 302
United Kingdom ................................ (371) (50) (645)
Hungary ....................................... 0 8
France ........................................ 125 -- --
------ ------ -------
$1,316 ($ 822) ($ 7,336)
====== ====== =======
June 30,
-----------------------------
1995 1994 1993
------- ------- -------
Identifiable assets:
United States ................................. $ 9,563 $15,805 $14,904
Canada ........................................ 1,366 1,516 2,891
Central America ............................... 1,594 1,701 1,061
Hong Kong/People's Republic of China .......... 30,128 22,842 23,847
Federal Republic of Germany ................... 3,939 4,422 3,028
United Kingdom ................................ 1,968 1,687 987
Hungary ....................................... 313 210 --
France ........................................ 1,318 -- --
------- ------- -------
$50,189 $48,183 $46,718
======= ======= =======
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 $63,000 for such consulting services and
related expenses during the fiscal year ended June 30, 1995.
F-26
During the fiscal years ended June 30, 1994 and 1993, the Company paid
consulting fees and expenses of approximately $22,000 and $459,000, respectively
to a firm, the President of which was appointed Chief Operating Officer and
President of the Company in June 1993 and Chairman and Chief Executive Officer
in July 1994.
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
June 30,
----------------------------------
1995 1994 1993
-------- ---------- ----------
Cash paid for interest ..................... $820,000 $1,126,000 $1,693,000
======== ========== ==========
Cash paid for taxes ........................ $ 88,000 $ 86,000 $ 313,000
======== ========== ==========
Noncash investing and financing activities:
Fair value of assets acquired ............ $ $ $ 747,998
Cash paid ................................ -- -- (45,200)
Liabilities incurred ....................... -- -- 108,241)
-------- ---------- ----------
Liabilities assumed ........................ $ -- $ -- $ 391,529
======== ========== ==========
During the fiscal year ended June 30, 1995 and 1994, capital lease
obligations of approximately $130,000 and $252,000 were incurred when the
Company entered into leases for new equipment.
NOTE 18 -- OTHER INCOME (EXPENSE) -- NET
June 30,
-----------------------------------
1995 1994 1993
--------- --------- ---------
Gain on sales of long term assets ......... $ 5,000 $ 229,000 $ 107,000
Other interest income ..................... 135,000 74,000 49,000
Settlements from legal proceedings ........ -- 447,000 --
Other income (expense), net ............... (27,000) 17,000 (48,000)
Directors fees ............................ (173,000) (212,000) (219,000)
Foreign exchange gain (loss), net ......... (95,000) (776,000) (36,000)
--------- --------- ---------
.......................................... $(155,000) ($221,000) $(147,000)
========= ========= =========
F-27
NOTE 19 -- REORGANIZATION AND RESTRUCTURING:
Product Line Rationalization
As a result of the Company's success in the introduction of the single use
cameras, the product's acceptance in the market and the Company's belief that
the demand for this product will continue, the Company has decided to curtail
certain of its 35 millimeter and 110 product line and focus a significant amount
of its efforts on this emerging market. In connection with this rationalization
of the product line, the Company had suspended production of certain models that
it produced in the past and anticipated producing in the future. As a
consequence, provisions for certain component parts inventory in the
manufacturing facility as well as certain fixed assets (principally tools and
molds) used in connection with the manufacturing of those models were being
recorded in order to reduce such items to net realizable value. The total
provisions recorded in fiscal 1993 were $4,477,523.
Reorganization & Restructuring
In connection with the reorganization and ongoing upgrade of worldwide
management, finances, and management information systems and procedures, certain
expenses have been and will be incurred. Substantially all of the manufacturing
joint ventures that had been operating individually prior to the Company's
purchase of its partners interest in the joint ventures have now been
consolidated with the Company's manufacturing operations, new management has
been hired and new worldwide management information systems and procedures are
being implemented and installed. In addition, the Company is in the process of
liquidating its joint venture in Budapest, Hungary as a result of its joint
venture partners' financial instability. In Fiscal 1993, the Company recorded a
provision of $1,522,477 for such consolidation, severance and other
reorganization costs.
Proposed Transaction Costs
As a result of the termination of its agreement with Gestetner Holdings
PLC, the parent of the Vivitar Group of Companies ("Vivitar"), in Fiscal 1993,
the Company wrote off $904,000 of costs incurred in connection with the Vivitar
transaction.
NOTE 20 -- SUBSEQUENT EVENTS
Effective July 1, 1995 the Company took certain actions to liquidate its
Canadian Subsidiary as part of the Company's plans to consolidate its North
America operations and to take advantage of certain tax benefits available to
it. The Company continues to operate in Canada as a branch of one of its United
States subsidiaries.
Senior management common stock purchase awards -- On August 23, 1995, the
Compensation Committee of the Board of Directors approved stock purchase
F-28
awards under the Company's Incentive Plan (See Note 10 Common Stock) pursuant to
which 500,000 shares of the Company's no par value common stock were made
(subject to earlier maturity upon the occurrence of certain events) 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 made
available for purchase. The purchase price will be paid by a loan from the
Company to the participating senior executives and evidenced by a full recourse
promissory note secured by the common stock purchased by the executives. The
notes will mature five years from the date of purchase and will bear interest at
6%. Each senior management purchaser will also be granted a contingent
restricted stock award covering a number of shares equal to the number of shares
purchased by such purchaser. The restricted stock will only be issued based upon
attainment of increases in shareholder value in accordance with the Incentive
Plan.
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 Incentive 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.
F-29
Concord Camera Corp. Schedule II
Valuation and qualifying accounts and reserves
- ----------------------------------------------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions period
- ----------- ---------- ---------- ---------- ---------- ----------
Reserve for doubtful accounts,
discounts and allowances
Fiscal year:
1993 2,770,811 2,667,764 -- 3,277,050 2,161,525
1994 2,161,525 613,353 -- 1,140,704 1,634,174
1995 1,634,174 218,496 810,899 1,041,771
F-30
SIGNATURES
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.
(Company)
Date: September 15, 1995
By: /s/ IRA B. LAMPERT
---------------------
Ira B. Lampert,
Chairman and Chief
Executive Officer
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 Office Date
--------- ------ ----
/s/ IRA B. LAMPERT
- ---------------------------- Director, Chairman and September 15, 1995
Ira B. Lampert Chief Executive Officer
/s/ GARY M. SIMON
- ---------------------------- Chief Financial Officer September 15, 1995
Gary M. Simon Secretary and Treasurer
/s/ HARLAN I. PRESS
- ---------------------------- Chief Accounting Officer September 15, 1995
Harlan I. Press
/s/ ELI ARENBERG
- ---------------------------- Director September 15, 1995
Eli Arenberg
/s/ MORRIS H. GINDI
- ---------------------------- Director September 15, 1995
Morris H. Gindi
/s/ JOEL L. GOLD
- ---------------------------- Director September 15, 1995
Joel L. Gold
- ---------------------------- Director
J. David Hakman
/s/ IRA J. HECHLER
- ---------------------------- Director September 15, 1995
Ira J. Hechler
/s/ KENT M. KLINEMAN
- ---------------------------- Director September 15, 1995
Kent M. Klineman