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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, 1998 Commission file No. 0-17038
Concord Camera Corp.
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) identification no.)
35 Mileed Way, Avenel, New Jersey 07001
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (732) 499-8280
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of September 17, 1998 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 $37,848,772.
As of September 17, 1998 the number of shares outstanding of the Company's
Common Stock was 11,214,451.
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DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit Index -- Page 44
PART I
Unless the context indicates otherwise, when used in this report the word
"Company" or "Concord" 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. For
example, Fiscal 1998 refers to the twelve-month period ended June 30, 1998.
This report contains certain "forward-looking statements" concerning the
Company's operations, economic performance and financial condition, which are
subject to inherent uncertainties and risks. Actual results could differ
materially from those anticipated in this report. When used in this report,
the words "estimate," "project," "anticipate," "expect," "intend," "believe"
and similar expressions are intended to identify forward-looking statements.
Item 1. Business.
Summary
Founded in 1982, the Company is a global developer, designer, manufacturer,
and marketer of high quality, low cost Advanced Photo System, 35mm and 110mm
traditional and single-use cameras.
Growth Strategy. Concord's strategy for growth is to capitalize on the trend
of vertically integrated camera and toy companies to outsource their design,
development, and manufacturing from low cost, third party original equipment
manufacturers ("OEMs") such as Concord, which conducts its manufacturing
activities in the People's Republic of China ("PRC") at a monthly cost per
production worker of only $120. Since implementing its strategy in Fiscal
1995, Concord has built sufficient strength in its engineering, design, and
manufacturing capabilities to capture OEM business of several of the world's
largest film, camera, and toy companies, including Eastman Kodak Company
("Kodak"), Polaroid Corporation ("Polaroid"), Agfa-Gevaert AG ("Agfa") (a
subsidiary of Bayer AG), Imation Corp. ("Imation") (formerly Minnesota Mining
and Manufacturing Co. (a 3M subsidiary)) and Mattel, Inc. ("Mattel").
The Company seeks to obtain additional business from these and potential new
OEM relationships by positioning itself as an innovative designer and
manufacturer of high quality, low cost products. Additionally, Concord
differentiates its OEM capability by providing its customers with dedicated
design and development expertise during pre-contract discussions, and with
local (Americas, European and Asian) management presence, thereby adding
significant customer value, comfort and reliability.
The Company has also increased its sales of single-use cameras at a 20.4%
compounded annual growth rate, increasing from approximately $27 million in
1995, or 43.6% of sales, to approximately $47 million in 1998, or 45.9% of
sales. The Company believes that it is currently the fourth largest SUC
manufacturer in the world, behind Kodak, Fuji Photo Film Co. Ltd. ("Fuji") and
Konica Corporation ("Konica"). The Company estimates that it produced 8.6% of
all single-use cameras sold worldwide in 1997 and 13.7% of all single-use
cameras sold worldwide excluding Japan, which accounted for approximately 85
million units. Market size estimates are based on industry sources. Concord
estimates the worldwide single-use camera market will grow from 192 million
units in 1997 to 281 million units in 2000, a compound annual growth rate of
13.5%.
Overall Company sales for 1998 were $102.7 million, an increase of 56.1% over
1997.
2
1998 EBITDA and Earnings Growth: EBITDA for Fiscal 1998 grew by 194.9%, to
$11.5 million, from $3.9 million for Fiscal 1997. Net income for Fiscal 1998
grew to $6.0 million or $.52 per diluted share from a $.8 million loss or
($.08) per share for Fiscal 1997.
Strong Sales, Earnings and Cash Flow. These incremental sales, coupled with
the Company's investments in new product development and manufacturing
facilities, enabled the Company to achieve its previously announced Fiscal
1998 projected sales level of more than $100 million, and its Fiscal 1998
projected profit level of more than $5 million. Actual results for Fiscal 1998
were reported on August 26, 1998 and amounted to sales of $102,663,000 and net
income of $6,013,000 ($0.55 of basic earnings and $0.52 of diluted earnings per
share).
Recent Events
During Fiscal 1995, the Company underwent a management change with current
Chairman and chief executive officer, Ira B. Lampert, replacing the former
Chairman and Chief Executive Officer, who was discharged for cause. Mr.
Lampert's management team conceptualized a new strategic plan and began the
implementation of that plan in Fiscal 1995.
This plan was based on three key concepts:
(1) Improve sales and manufacturing stability by developing a
stronger OEM business that would not be subject to the erratic volume
swings and pricing pressure of the retail channel, permitting
substantially lower investment in finished goods inventory,
distribution of the Company's products by companies with extensive
sales and marketing capabilities, and the elimination of competitors;
(2) Develop, design, and manufacture products that produce superior
picture performance and quality since film companies will only be
associated with products that produce superior picture performance
and quality; and
(3) Establish a position in the single-use camera market, which would
grow rapidly throughout Europe and North America as it had in Japan.
To implement this strategy the Company knew it needed to improve two aspects
of its operations. First, the Company needed to improve the quality and
capacity of its manufacturing operations to a world class standard. Second,
the Company needed to acquire additional core technology, design, and
engineering expertise to improve product performance and picture quality and
to respond quickly to customer requirements. These improvements would provide
the Company with the ability to obtain business from the world's top tier of
photographic and film companies.
3
Modernization of Manufacturing Facilities
In Fiscal 1996, the Company commenced construction of a new manufacturing
facility on a production site in the PRC previously acquired by the Company.
The Company commenced manufacturing in the new facility on July 1, 1996. In
Fiscal 1995, the Company began investing in new equipment for the new
facility. The Company also implemented new training and quality programs in
Fiscal 1995 and 1996 (which are ongoing). The result of these initiations was
the establishment of a world class manufacturing operation. The Company funded
these expenditures internally by shrinking finished goods inventory,
consolidating operations and better utilizing working capital.
OEM Relationships and New Product Development
Concurrent with its program to modernize its manufacturing facilities and
improve its manufacturing processes to a world class level, management focused
on improving the Company's product development expertise. The Company
significantly increased its product development budget from $598,000 in Fiscal
1995 to approximately $4.0 million in Fiscal 1998, resulting in a significant
increase in technical personnel. The Company's in-house product and
development team has grown from 31 persons at the end of Fiscal 1995 to 63
persons in the first quarter of Fiscal 1999. The increased funding was used to
develop products and long-term relationships with several of the world's
largest and most successful photographic and film manufacturers including
Imation (formerly part of Minnesota Mining and Manufacturing Co.), Agfa,
Fisher-Price (a division of Mattel) and Kodak.
Imation. The Company established its contractual OEM relationship with Imation
for the production of single-use cameras in Fiscal 1995. Products developed
under this contract, which continues in effect, included the Company's first and
second generation daylight and flash single-use cameras.
Agfa. In Fiscal 1996, the Company and Agfa developed the world's first
two-format Advanced Photo System single-use cameras under a co-development
agreement. The Company continues to manufacture single-use cameras for Agfa
under the OEM contract with Agfa.
Fisher-Price. In Fiscal 1996, the Company was the successful bidder for a design
and manufacturing agreement with Mattel under which the Company designed and now
manufactures for Fisher-Price a "child-proof" 35mm manual camera product. This
led to the award to the Company by Mattel of a co-development and production
agreement for the successor to the Viewmaster(TM) product. This product, set for
release in Fiscal 1999, is expected to be sold by both Fisher-Price and under a
branding arrangement with Fisher-Price and The Discovery Channel.
Kodak. The Company was awarded a long-term supply agreement for a traditional
motorized Advanced Photo System camera in Fiscal 1997. Shipments of the camera
began in the first quarter of Fiscal 1998, and the Company believes the camera
is now the best selling Advanced Photo System camera in the world in its
category in terms of unit volume. The Company has retained the right to sell
these cameras under its brand names, and shipments of the Company's branded
versions began in the first quarter of Fiscal 1999. The Company is involved in
discussions with Kodak looking toward the production of additional products by
the Company for Kodak.
Polaroid. Capitalizing on a pre-existing relationship with Polaroid for the
production of single-use cameras, the Company was awarded a co-development and
long-term supply agreement to design and manufacture an instant single-use
camera for Polaroid in the fourth quarter of Fiscal 1997. Shipment of this
product commenced in the first quarter of Fiscal 1999. Revenues from this
contract are expected to aggregate between $15 and $20 million for Fiscal 1999.
Future OEM Relationships. The Company seeks to obtain additional business from
these customers and establish new OEM relationships by positioning itself as
an innovative developer, designer and manufacturer of high quality, low cost
products. Additionally, Concord differentiates its OEM capability by providing
its customers with dedicated design and development expertise during
pre-contract discussions, and with local (Americas, European and Asian)
management presence, thereby adding significant customer value, comfort and
reliability.
The Company targets potential OEM customers that have an established brand
name, existing channels of distribution, the potential to outsource multiple
products (cameras and/or non-cameras), and whose products match the
manufacturing and value added skills of Concord. This approach is geared to
capitalize on the trend of vertically integrated consumer product companies to
outsource their development, design, and low cost manufacturing from third
party OEMs such as Concord.
4
Consolidation and Overhead Cost Reductions. The Company has consolidated its
direct sales operations to reduce costs, increase efficiency, centralize
warehousing and shipping, and better utilize capital. In connection therewith,
the Company transferred its operations in Hungary to an independent sales
agent in 1996, and relocated its Latin American sales and administrative
offices from Panama to New Jersey in 1997. The Company now has three
centralized warehouse distribution operations: Concord Americas -- servicing
the United States, Canada and South America, Concord Europe -- servicing the
UK, Germany and France, Concord HK -- servicing the Far East and major retail
customers on an FOB Hong Kong basis.
Product Line Diversification. Since 1995, management has also diversified the
Company's product base from single-use cameras, which accounted for 67.1% and
70.1% of sales in Fiscal 1997 and Fiscal 1996, respectively, to 45.9% of
Fiscal 1998 sales. This decrease resulted, in part, from management's Fiscal
1995 implementation of a new product development program that has led to the
Company's agreements to produce low cost Advanced Photo System and 35mm
cameras in Fiscal 1998 and to produce single-use and manual instant cameras in
Fiscal 1999.
Concord's Mission and Growth Strategy:
Mission Statement. Concord has adopted the following Mission Statement:
Concord's mission is to be a world class, high quality, low cost
developer, designer and manufacturer of popularly priced, easy-to-use
cameras and consumer products, with performance that results in
appropriate equity returns for shareholders.
This statement embodies the Company's commitment to maintaining the highest
quality workmanship in the engineering, design, and manufacture of low cost,
high quality consumer products, as well as its commitment to earning
appropriate equity returns for its shareholders.
Growth Strategy. Concord's strategy for growth is to capitalize on the trend
of vertically integrated photographic, camera and consumer product companies
to outsource their design, development and manufacturing from low cost, third
party OEMs such as Concord, which conducts its manufacturing activities in the
PRC at a monthly cost per production worker of approximately $120. Since
beginning implementation of its strategy in Fiscal 1995, Concord has built
sufficient strength in its engineering, design and manufacturing capabilities to
capture OEM business of several of the world's largest film, camera and toy
companies, including Kodak, Polaroid, Agfa, Imation and Mattel.
The Company seeks to obtain additional business from these customers and
establish new OEM relationships by positioning itself as an innovative
developer, designer and manufacturer of high quality, low cost products.
In addition to offering low cost, high quality products, Concord
differentiates its OEM capability by providing its customers with dedicated
design and development expertise. The Company's contracts with AGFA, Imation,
Kodak, Polaroid, and Mattel, for example, were obtained and executed through
the Company's ability to provide its own co-development and design resources.
Although the Company sometimes shares development costs with its customers, it
generally requires customer investment to cover custom tooling costs.
Domestic and Foreign Sales, Markets and Marketing
The Company markets its products both directly, under Company brand names and
private label brands, and on an OEM basis. Historically, direct sales
constituted the majority of the Company's annual sales, accounting for 54.3%
of Fiscal 1997 consolidated net sales. However, OEM sales, which have
experienced strong growth, accounted for 66.2% of consolidated net sales in
Fiscal 1998. This trend is expected to continue in the future.
5
The Company sells its products to both United States and foreign customers. In
Fiscal 1998, approximately 52.0% of the Company's consolidated sales were made
to customers in the United States. Approximately 48.0% of the Company's
consolidated sales were made to customers outside the United States.
Direct Sales. Direct sales are made worldwide through Concord operations in
the U.S. for the U.S., Latin American and Canadian markets (the "Americas"
operations), in the U.K., France and Germany (the "Europe" operations), and in
Hong Kong, China and Japan (the "Asia" operations). These divisions market the
Company's products under the following brand names:
o Concord(R) o Argus(R)
o Keystone(R) o Apex(R)
o Le Clic(R) o Fun Shooter(R)
Cameras are also sold and distributed under licensed trademarks such as
Crayola(R) in the U.S., Canada and U.K., and "Thomas the Tank Engine &
Friends" in the U.K.
The Company's worldwide direct sales customers include but are not limited to
the following major discount, drug and retail chains: Walgreen, Walmart,
Boots, Auchan, Target, Price Costco, Argos, Shoppers Drug Mart, Sears, Family
Dollar, K-Mart, Caldors, Kay Bee, Press Nogoce, Japan Diffusion, Ames, Loceda,
Continent, Photo Color, Porst, Index and Meijers. The Company also sells and
distributes its products through independent retail stores, distributors, and
accounts which use the cameras as premiums in connection with their product
sales.
A large portion of the Company's U.S. sales are made by in-house sales
personnel, with the assistance of approximately 21 non-affiliated sales agents
serving specific geographic areas. Sales agents generally receive commissions
of 1% to 3% of net sales, depending on the type of customer, and may act as
selling agents for manufacturers and distributors of other products.
The Company's direct sales (to retailers) have declined over the last few
years from $43.8 million in Fiscal 1995, or 78% of Fiscal 1995 consolidated
net sales, to $34.6 million in Fiscal 1998, or 34% of Fiscal 1998 consolidated
net sales. Aside from the growth in OEM sales, management attributes the
decline of direct sales to its intentional phase-out of older motorized and
manual models and to increased competition for single-use cameras, among other
reasons. On a regional basis, only direct (F.O.B.) Asian sales have increased
since 1995.
OEM Sales. The Company sells various camera products to OEM customers who
re-market these products under their own brand names and private labels
through their own distribution channels. The Company's strategy is to expand
its OEM sales by capitalizing on the trend of vertically integrated
photographic, camera, toy and consumer products companies to outsource their
requirements for the development, design and manufacture of low cost products.
Since Fiscal 1995, Concord's OEM sales have grown from 22% of Fiscal 1995 sales
to 66.2% of Fiscal 1998 sales. OEM sales have increased at a compounded annual
rate of 71.4% since Fiscal 1995.
Concord Americas and Concord Europe. Consolidated sales of the Company's
United States, Canadian and Latin American operations (collectively "Concord
Americas"), including FOB Hong Kong sales to customers in these regions for
Fiscal 1998, 1997 and 1996 were approximately $19,132,000, $22,076,000 and
$26,224,000, respectively. Consolidated sales of Concord Camera GmbH ("Concord
Germany"),
6
Concord Camera Europe (formerly Concord Camera UK Limited) ("Concord UK") and
Concord Camera France SARL ("Concord France"), collectively "Concord Europe,"
including FOB Hong Kong sales to customers in these regions were approximately
$14,744,000, $12,532,000 and $13,910,000 in Fiscal 1998, 1997 and 1996,
respectively. These net decreases are due to lower sales of traditional and
single-use camera models. The decrease in sales to Concord Americas resulted
from an aging product line of traditional cameras and intensified competition
in the sale of single-use cameras.
Far East. Sales by Concord HK (excluding FOB Hong Kong sales to customers in
the Americas and Europe) were approximately $68,047,000, $30,032,000 and
$26,648,000 in Fiscal 1998, 1997 and 1996, respectively. The increase is due
to the continued acceptance of the Company's newer products, principally the
single-use and slim-line camera models, and the successful implementation of
F.O.B. Hong Kong sales programs with the Company's larger customers. The
Company believes that sales in the Far East will continue to represent a
significant percentage of total sales.
Licensing Activities. In Fiscal 1995, the Company executed a license agreement
with Hallmark Licensing, Inc., as agent for Binney & Smith Properties, Inc.
("Binney & Smith"), under which the Company licensed certain Binney & Smith
trademarks with regard to Crayola and certain associated marks, tradenames and
logos for use with single-use cameras, pocket 110 cameras and 35 millimeter
cameras. The agreement expires December 31, 1998, but the Company may renew
the agreement for an additional one-year term if actual royalties payable
under the agreement exceed a pre-determined minimum level.
In Fiscal 1997, the Company executed a license agreement with Britt Allcroft
(Thomas) Limited under which the Company licensed certain trademarks with
regard to "Thomas the Tank Engine & Friends" and certain associated marks,
trademarks and logos for use with single-use cameras, pocket 110 cameras, 35
millimeter cameras, Advanced Photo System cameras, photograph albums and
camera cases. The agreement expires March 31, 1999. In addition, the Company
is seeking to license other high-profile brands.
Customers. In Fiscal 1998 and 1997, approximately 83.6% and 67.1%,
respectively, of the Company's sales were to its ten largest customers. The
consolidated sales to the Company's three largest customers, Kodak, Imation
and Agfa in Fiscal 1998 amounted to approximately $28,152,000 (27.4%),
$14,513,000 (14.1%) and $13,926,000 (13.6%), respectively. The loss of any of
these three customers, in management's opinion, could have a material adverse
impact on the Company.
7
Imation and Agfa-Gevaert AG have renewed agreements with the Company for the
Company to supply single-use cameras as an OEM. Each agreement is for a
one-year term and requires minimum purchases of several million single-use
cameras by each of these customers. In addition, as noted above, the Company
has executed an agreement to supply a low cost Advanced Photo System camera to
Kodak, which includes minimum purchase requirements. The Company has also
executed an agreement with Polaroid to co-develop and exclusively manufacture
specialized, traditional and single-use cameras for Polaroid, which includes
minimum purchase requirements.
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 $793,000, $876,000 and
$889,000 in Fiscal 1998, 1997 and 1996, respectively.
Manufacturing
General. The Company conducts all of its manufacturing activities in the PRC.
During Fiscal 1998, the Company completed an expansion and conversion program
which increased the Company's PRC manufacturing and related dormitory
facilities to over 500,000 square feet.
The Company purchases and stores its raw materials and components at its PRC
facilities. Raw materials and components include film, batteries, glass
lenses, plastic resins, metal, packaging, and electronic component parts. The
Company also purchases and resells photographic accessories, including
flashes, vinyl pouches, and carrying cases for its cameras. The Company's
operations and profitability are substantially dependent upon its
manufacturing and assembly activities. The Company conducts engineering,
design, purchasing and certain distribution and warehouse activities in Hong
Kong. The Company's manufacturing activities in the PRC are conducted pursuant
to the PRC agreements (the "PRC Agreements") with various local municipal and
government agencies and sub-divisions located in Baoan County, Shenzhen
Municipality, PRC (collectively, the "PRC Entities"). The Company's initial
agreement in Baoan County was approved on September 12, 1985 by the local
Foreign Economic Relations Office ("FERO"), which was necessary to assure the
validity and enforceability of the PRC Agreements. The Company's most recent
PRC Agreement covering its manufacturing activities was approved by the PRC
Entities and FERO in 1993 and expires in 2002. The Company intends to continue
to expand its operations in the PRC, although there can be no assurance that
it will be able to do so.
Products
General.
Camera Products. Concord is primarily engaged in the development, design,
manufacture, marketing, distribution and sale of popularly-priced, easy-to-use
cameras. The Company currently produces traditional and single-use 35mm
cameras, traditional and single-use Advanced Photo System cameras, and 110
film cartridge cameras, and has contracted to produce single-use and manual
instant cameras in 1999. The Company manufactures and assembles its products
in the PRC for both direct sale under Company brand names and on an OEM basis.
Retail prices of the Company's products range from $5.99 to $60.00. A detailed
listing and description of the Company's products is contained in Appendix C.
8
In 1991, the Company began to sell single-use cameras, which accounted for
45.9% of Fiscal 1998's consolidated net sales. In addition to its own
single-use camera technology in Fiscal 1996, the Company obtained a license to
use certain single-use camera patents owned by Fuji.1
In Fiscal 1995, the Company commenced a product development program with the
goal of developing and designing new products for major consumer products
companies with established brand names and distribution channels. This program
continues today, and has already resulted in a new low cost Advanced Photo
System camera2 marketed by Kodak and a contract to co-develop and, in 1999,
begin providing Polaroid3 with significant quantities of single-use and manual
instant cameras.
In Fiscal 1996, the Company decided to terminate production of certain 35mm
traditional motorized camera models that it had produced in the past and had
anticipated producing in the future. The Company made this decision in part
because of the aged design of these products and the anticipated introduction
of Advanced Photo System cameras to the marketplace. During the fourth quarter
of Fiscal 1996, the Company recorded provisions totaling approximately
$3,035,000 with respect to this line of 35mm cameras and related finished
goods and components inventories to fairly reflect their net realizable value,
as well as with respect to certain tools, molds and other related fixed
assets.
Non-Camera Products. From time to time, the Company has also sold various
non-camera products on an OEM basis. However, such sales have not been
material. In Fiscal 1998, the Company began to manufacture cameras for the
largest toy company in the world, Mattel. The Company believes that it can
build on this relationship to design, develop, and manufacture additional
products for Mattel and other non-camera companies. The Company has contracted
with Mattel for the manufacture of Viewmaster products to be sold and
distributed by Mattel under Mattel's brand name.
New Products. The Company's manufactured products are created, designed and
engineered principally in Hong Kong. As of June 30, 1998, the Company employed
59 engineers and designers in its Hong Kong offices. In August 1998, the
Company opened a temporary design center in Chicago, Illinois, which currently
employs four engineers and designers. These employees will move to a 10,000
square foot design center in Florida in December 1998. The Company expects to
employ 10 engineers and designers at the Florida design center.
- - --------
(1) The Company instituted an action in December 1997 in the Southern District
of New York seeking to prevent Fuji from terminating a license agreement
previously entered into between the parties. Fuji has alleged that the Company
by entering into one or more commercial transactions violated the terms of a
license agreement between the parties. Fuji has filed a counterclaim seeking
to terminate the license agreement and seeking unspecified damages. The matter
is in discovery. Fuji has not yet fully responded to the Company's discovery
demands. In addition, on February 13, 1998, Fuji filed a complaint with the
International Trade Commission seeking (1) to halt the importation of
unlicensed single-use cameras into the United States and (2) to ban the
unlicensed re-manufacture of single-use cameras in the United States. The
Company is not a party to this proceeding. Nevertheless, Fuji's action, if
successful, could lessen competition for the Company in the domestic
single-use camera market. See Item 3, "Legal Proceedings."
(2) The Company licenses certain Advanced Photo System technology from the
Advanced Photo System development companies.
(3) The Company licenses certain technology from Polaroid in connection with its
products.
9
New products are, and are expected to continue to be, designed both
independently and on a co-development basis with existing and potential new
OEM customers. In addition to its ability to manufacture low cost and high
quality products, Concord differentiates its OEM capability by providing its
customers with dedicated design and development expertise.
The results of the Company's new product development program began to appear
in Fiscal 1996 with the introduction of single-use Advanced Photo System
cameras, and in Fiscal 1997 with the introduction of a new traditional 35mm
camera. Also, in the first quarter of Fiscal 1998, the Company began delivery
of a new Advanced Photo System traditional camera to Kodak. The Company has
designed and expects to introduce a number of innovative Advanced Photo System
and 35mm, traditional and single-use cameras in the future, as well as the
Polaroid single-use and manual instant cameras.
Product Development. The Company expended approximately $3,963,000, $3,130,000
and $1,722,000 in Fiscal 1998, 1997 and 1996, respectively, for product design
and development. The large increase in these costs over these years was due to
the significant development costs incurred with respect to new Advanced Photo
System single-use and conventional cameras, as well as new 35 millimeter
single-use cameras. The Company anticipates product development costs to
continue to increase in Fiscal 1999 with the opening of its U.S. design center
and as management continues to develop new products.
Suppliers, Raw Materials and Production
General. The Company owns or leases the tools and equipment necessary to
manufacture most of the components used in its cameras. Numerous manufacturers
and suppliers in the Far East and other parts of the world supply the Company
with components, materials and film it does not manufacture.
Sourcing. From time to time, the Company purchases finished products from
third-party manufacturers. The Company depends on non-affiliated suppliers for
its required glass lenses, motors, film and certain electronic components such
as transistors and diodes. In the past, the Company has experienced, and may
in the future experience, difficulties in obtaining in a timely manner certain
components and film necessary for its finished products. The Company believes,
however, that it is not dependent on any single supplier for any component or
film and that it could find alternate sources on relatively short notice at
prices competitive with those it currently pays.
Advance Commitments. To secure adequate production materials, components and
film the Company must make substantial advance commitments to suppliers
ranging from one to six months prior to the receipt of firm orders from
customers. However, many of these commitments are subject to changes in
numbers, assortments or delivery dates. Although, from time-to-time, the
Company has experienced difficulties obtaining needed materials, components
and film on a timely basis, it has been able to operate under such conditions.
The Company believes these conditions to be standard in its industry.
Quality Control. The Company devotes substantial effort to quality control,
including testing components and raw materials when purchased or produced,
testing during the assembly process and final quality control testing of
finished products. The Company's terms with all of its United States customers
include the right to return defective merchandise for credit. Foreign
customers are permitted to exchange defective merchandise for the same
product, and the Company believes those practices to be standard in its
industry.
10
Trademarks and Patents
The Company owns trademarks on the CONCORD(R), KEYSTONE(R), Funshooter(R), LE
CLIC(R) and Apex(R) names for cameras sold in the United States and numerous
foreign countries. In addition, the Company owns the trademark ARGUS(R) in
numerous countries other than in the United States and Mexico. The Company
purchased several of the patents used in its Keystone cameras. In addition,
the Company was granted United States patents for its data imprinting system,
its film counter in the back of the camera, and its method for film loading,
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.
Employees
On June 30, 1998, the Company had 157 employees: 22 in the United States,
three in Germany, six in Canada, 111 in Hong Kong and the PRC, one in Japan,
two in France and 12 in the UK. Sixty-five Company employees are in executive,
administrative or clerical capacities, 15 in direct merchandising and sales,
18 in warehouse and shipping and 59 in engineering and design. No Company
employee is represented by a union. The PRC Entities currently provide the
Company with approximately 3,500 workers at its PRC facilities. To date the
Company has not had any of its operations interrupted due to labor disputes
and it considers its working relationship with employees and workers to be
good.
In conjunction with the opening of the Company's U.S. Design Center in Chicago
during the first quarter of Fiscal 1999, the Company has hired four additional
experienced design engineers.
Risk Factors
Dependence on Agreements with the PRC
General. The Company manufactures a majority of the components used in its
cameras and assembles all of its manufactured finished products in the PRC
pursuant to the PRC Agreements. FERO approval is required on all of the PRC
Agreements to ensure their enforceability. See "Manufacturing--General."
Operating Practices. The Company's PRC Agreements provide for the production
and manufacture of cameras at the Company's owned facilities in the PRC with
labor supplied by PRC Entities. The PRC Entities currently supply the Company
with approximately 3,500 workers to manufacture and assemble cameras. During
Fiscal 1996, the Company completed construction of a new factory building on
the Company-leased land next to the other Company-owned buildings and moved
the manufacturing and assembling operations from the leased assembly plants to
the new factory and existing Company-owned buildings. During the first quarter
of Fiscal 1997, the Company completed the conversion of certain production
facilities on the Company-leased land. Consequently, the Company no longer
leases manufacturing facilities from the PRC Entity. See "Item 2. Properties".
Although a substantial number of the Company's workers are employees of the
PRC Entities, the Company is responsible for their food and housing and
substantially all of them live in Company maintained dormitories. The current
average cost per production line worker is approximately $120 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. Additionally, the
Company has completed an expansion and conversion program that increased the
aggregate size of the PRC manufacturing and related dormitory facilities to
over 500,000 square feet.
11
PRC Taxes and Import/Export Duties. The Company has never paid any income or
turnover tax to the PRC on account of its business activities in the PRC.
Existing PRC statutes can be construed as providing for a minimum of 10% to
15% income tax and a 3% turnover tax on the Company's business activities;
however, the PRC has never attempted to enforce such statutes. The Company has
been advised that the PRC's State Tax Bureau is reviewing the applicability of
those statutes to processing activities similar to those engaged in by the
Company, but it has not yet announced any final decisions as to the taxability
of such activities. After consultation with its tax advisors, the Company
believes that any tax exposure it may have on account of its operations in the
PRC will not be material to its financial condition. The Company does not pay
import/export duties to the PRC, but, as with any tax, there can be no
assurance that the Company will not be required to pay such duties in the
future.
Other PRC Risks. If the PRC Entities fail to honor the PRC Agreements, the
Company believes that within a six-month period it could resume production
activities elsewhere in the PRC through the use of subcontractor agreements
with other third-party manufacturers. The Company is not able to estimate the
amount of time required to enter into a new PRC Agreement. In order to
minimize this risk, the Company obtained a land use certificate for the land
on which the Company-owned plant is situated and to which it has obtained
title. However, in addition to lost assets and revenues attributable to the
discontinuance of its operations at the Baoan County facilities, the Company
would likely experience some loss on account of such interruption depending
upon where and under what arrangements the Company was able to resume
production. If, for any reason, the Company could not continue production in
its existing PRC locations, all manufacturing activities would cease for at
least six months until the Company was able to resume production elsewhere. If
the Company were required to move its production operations from the PRC, the
Company's profitability would be substantially impaired, its competitiveness
and market position would be materially jeopardized and there could be no
assurance that it would be able to profitably manufacture and distribute its
products.
Risk of Expropriation and Restrictions
There is a risk of expropriation of the Company's assets by the PRC and the
imposition of restrictions or embargoes on the export of finished products, or
the import of components and materials used in the Company's PRC operations.
At June 30, 1998, the net book value of Company assets in the PRC was
approximately $13,302,000. The amount of Company assets in the PRC is expected
to increase as operations in that country continue to grow. The Company
maintains property and casualty insurance covering the cost of assets in its
PRC facilities and has insured those assets against expropriation. The Company
also maintains political risk insurance on certain equipment up to $4,000,000.
If the Company were required to relocate and could not remove the assets it
owns or leases in the PRC, the cost of replacement of such assets would be
significantly higher than their book value.
Interruptions as a Result of Political Events
The Company did not experience any interruption in its manufacturing or other
operations as a result of political events (Tiananmen Square) in the PRC in
June 1989 other than a brief interruption of deliveries between Hong Kong and
the PRC. There can be no assurance that similar events will not occur in the
PRC in the future and, if they do occur, that they will not result in material
interruption of the Company's manufacturing or other operations.
12
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.
Dependence on Key Personnel
The Company is run by a small number of key management personnel, the loss of
certain of whom could have a material adverse impact on the Company. The
Company believes that its future success will depend in large part on its
continued ability to attract and retain highly-skilled and qualified
personnel.
Dependence on OEM Customers
The loss by the Company of any of its major OEM customers could have a
material adverse impact on its revenues and profits.
Competition
The camera and photographic products industry is highly competitive. As a
manufacturer and distributor of inexpensive cameras, the Company encounters
substantial competition from a number of firms, many of which have longer
operating histories, established markets and more extensive facilities. Many
of the Company's competitors have greater resources than the Company has or
may reasonably be expected to have in the foreseeable future. The Company
considers Vivitar, Ansco Photo Optical Products Corporation ("Ansco") and the
Achiever Group as its chief competitors in United States markets. W. Haking
Enterprises Limited, the parent of Ansco, the Achiever Group and several small
Taiwanese and Hong Kong companies are the Company's chief competitors in
worldwide markets other than the United States. The Company also competes with
certain major film manufacturers (including Eastman Kodak, Fuji and Konica) in
the single-use camera market, primarily on the basis of product cost and
responsiveness to customer needs. The Company's competitive position is
dependent upon its ability to continue to produce in the PRC. See "Dependence
on Agreements with the PRC."
Considerations Relating to the Company's Business Outside of the United States
The Company conducts a substantial portion of its administrative, finance,
accounting and sales activities and all of its engineering, design, product
development, purchasing and warehousing activities in Hong Kong. It conducts
all of its manufacturing in the PRC.
Foreign Currencies. Since 1983, the Hong Kong dollar has been pegged to the
United States dollar at an approximate rate of U.S.$l = HK$7.73. There can be
no assurance, however, that the exchange rate of the Hong Kong dollar will not
fluctuate in the future. Certain obligations under the PRC Agreements and the
Company's Hong Kong suppliers are paid in Hong Kong dollars. In addition, the
Company is exposed to currency risks in Japan and various other countries
where it purchases materials for its products or sells those products.
Hong Kong 1997. Effective July 1, 1997 the exercise of sovereignty over Hong
Kong was transferred from the United Kingdom to the PRC pursuant to a
Sino-British Joint Declaration on the Question of
13
Hong Kong (the "Joint Declaration") signed on December 19, 1984. Hong Kong is
now a Special Administrative Region ("SAR") of the PRC. The Joint Declaration
provides that the Hong Kong SAR shall be directly under the authority of the
PRC, shall enjoy a high degree of autonomy except in foreign and defense
affairs and shall be vested with executive, legislative and independent
judicial powers. It also provides that the current social and economic systems
in Hong Kong shall remain unchanged for 50 years after June 30, 1997 and that
Hong Kong shall retain its status as an international financial center.
The Joint Declaration provides that the basic policies of the PRC regarding
Hong Kong and the elaboration of these policies in the Joint Declaration will
be stipulated in the Basic Law of the Hong Kong SAR (the "Basic Law"). The
Basic Law was adopted on April 4, 1990 and is now effective. It provides, in
part, that the "socialist system and policies shall not be practiced in the
Hong Kong SAR and the previous capitalist system and way of life shall remain
unchanged for 50 years."
The Company cannot predict how the PRC will interpret and implement the Basic
Law and Joint Declaration, what actions the PRC may take in the future
regarding Hong Kong and the effect any such action may have on the Company's
business activities in Hong Kong, or its operations or financial condition in
general.
Importation of Products and Tax Considerations. The importation of camera
products into the United States and other jurisdictions in which Company
products are sold is subject to numerous risks including non-Company related
labor strikes, shipping delays, fluctuation in currency exchange rates and
import duties. There can be no assurance that the United States, the PRC, Hong
Kong or other countries will not in the future impose trade restrictions which
could adversely affect the Company's operations. The United States duty on
imported cameras of the type that the Company sells from countries of origin
which enjoy United States normal trading relations ("NTR") status (formerly
known as "most favored nation 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. NTR status entitles imports from the PRC to
enter the United States subject to the same rate of duty which applies to
imports from other NTR countries. The PRC's current NTR status was renewed on
July 22, 1998, with such status to be reviewed annually. The President may
recommend that NTR status for the PRC be extended for successive 12-month
periods, but the Company can give no assurances or make any predictions as to
what actions the President may take regarding the PRC's NTR status.
As a result of trade disputes between the United States and the PRC, the
United States Trade Representative ("USTR") has published lists of products
imported from the PRC that are potentially subject to increased tariffs in the
event the trade dispute is not resolved. At the present time, there are no
pending trade disputes in connection with which such lists have been
published. The United States has published such a list, which list did not
include cameras, in connection with a dispute over intellectual property
rights protection in the PRC, but the two sides settled that dispute on
February 26, 1995 by reaching a comprehensive agreement designed to ensure
greater protection for U.S. intellectual property in the PRC. The United
States revisited the intellectual property rights issue in 1996, publishing a
proposed retaliation list which focused on PRC textile exports and did not
include cameras, before reaching an accord on June 17, 1996, to strengthen
enforcement of the 1995 agreement.
In addition, the United States is currently monitoring various PRC practices
including trade, investment and government procurement, as well as the PRC's
compliance with various multilateral and bilateral agreements. The Company
cannot predict whether the Untied States will take future trade actions
against the PRC that may result in increased tariffs against PRC products
including products imported by the Company.
14
The PRC is currently engaged in talks concerning its possible accession to the
World Trade Organization ("WTO"). Successful conclusion of these talks could
result in the application of comprehensive rules to the PRC's trade with other
WTO members, including the United States. However, the Company cannot predict
when such talks may conclude, or when such rules may come into effect.
Furthermore, PRC accession to the WTO would not necessarily eliminate the need
for successive yearly determinations by the United States regarding the PRC's
NTR status.
Possible United States Taxation of Foreign Earnings
Concord HK. Concord HK is a controlled foreign corporation ("CFC") for United
States tax purposes. Under certain circumstances, a United States shareholder
of a CFC is required to include some or all of the CFC's earnings in its own
taxable income as if the CFC had distributed those earnings as a dividend. The
possibility of deferring inclusion of Concord HK's earnings in the Company's
taxable income depends on the ability of the Company and Concord HK to meet
the requirements of several provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), as well as on the absence of adverse future tax
legislation.
Certain provisions of the Code currently tax the Company 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". Concord HK believes that it
earns "foreign base company sales income" because 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."
The Company includes such foreign base company income in its United States
taxable income. Due to the availability of net operating loss carryovers, such
inclusion does not currently have a material impact on the Company's U.S. tax
liability.
Another provision of the Code would tax the Company currently if Concord HK
makes certain investments in United States property, as specifically defined.
An investment in such property includes, among other things, ownership of
tangible property in the United States, or stock or obligations of United
States persons, or a guarantee of an obligation of a United States person.
There is an exception to the rule treating obligations of United States
persons as constructive dividends for obligations arising in connection with
the sale of property, such as trade accounts payable if the amount of the
obligation is not commercially excessive by reference to transactions between
unrelated persons. The Company does not believe that the Company's obligations
to Concord HK, arising from the purchase of Concord HK products, are in an
amount or on terms such as would cause such obligations to be deemed
commercially excessive and the Company will attempt to secure financing
without requiring Concord HK to guarantee it.
If Concord HK's earnings are taxed to the Company as deemed dividends prior to
the time that the earnings actually are remitted to the Company as dividends,
the Company generally can claim a foreign tax credit on the deemed dividends
just as if actual dividends had been paid. If and to the extent the Company is
subjected to United States income tax on such deemed dividends, Concord HK may
subsequently distribute an amount equal to such previously taxed income
without additional tax consequences to the Company.
If Concord HK distributes a portion of its earnings to the Company in excess
of the earnings, if any, that have already been taxed to the Company as deemed
dividends, such dividends will constitute taxable
15
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 carryforward net operating losses will be applied to reduce the
Company's current taxable income and the federal income tax on any remaining
taxable income will be reduced by foreign tax credits subject to statutory
limitations on such credits.
Other Subsidiaries. Concord Canada, Concord Europe, Concord France, Concord
Germany and Concord Panama are also CFC's to which the United States tax laws,
as discussed above, are applicable. Due to the nature of their operations,
some of those CFC's may earn or generate "foreign base company income" above
the De Minimis Amount. However, the Company does not believe that the United
States tax on "foreign base company income" generated by the Company's CFC's
in excess of available foreign tax credits would represent a substantial
percentage of its total income. It is not expected that those foreign
subsidiaries will make investments in United States property and no United
States taxes have been provided on the earnings of those subsidiaries since
management intends to permanently reinvest such earnings abroad.
Forward-Looking Statements
The statements contained in this report that are not historical facts are
"forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995) which can be identified by the use
of forward-looking terminology such as; "estimates," "projects,"
"anticipates," "expects," "intends," "believes," or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in such forward-looking
statements. Management wishes to caution the reader that these forward-looking
statements, such as statements regarding development of the Company's
business, the Company's anticipated capital expenditures and other statements
contained in this report regarding matters that are not historical facts are
only estimates or predictions. No assurance can be given that future results
will be achieved; actual events for results may differ materially as a result
of risks facing the Company or actual results differing from the assumptions
underlying such statements. In particular, expected revenues could be
adversely affected by production difficulties or economic conditions adversely
affecting the market for the Company's products. To obtain the results
expected from the introduction of the Company's new products will require
timely completion of development, successful ramp-up of full-scale production
on a timely basis and customer and consumer acceptance of those products. In
addition, the OEM agreements require an ability to meet high quality and
performance standards, successful implementation of production at greatly
increased volumes and an ability to sustain production at greatly increased
volumes as to all of which there can be no assurance. There also can be no
assurance that products under development will be successfully developed or
that once developed such products will be commercially successful.
Item 2. Properties.
United States Offices and Warehouses. The Company's principal offices
containing the Company's domestic warehouse and administrative offices are in
a 35,000 square foot facility located at 35 Mileed Way, Avenel, N.J. The
Company's lease on this facility provides for a rent of approximately $13,300
per month and expires on December 31, 1998.
The Company plans to move its principal offices to a 10,100 square foot
facility including a 2,900 square foot design center located at 400 Hollywood
Blvd., Hollywood, Florida 33021, and relocate its domestic warehouse to a 13,700
square foot facility
16
located at Port 95 Distribution Center #500, 398 SW 30th Avenue, Ft.
Lauderdale, Florida 33312, commencing December 1998. The Company's leases on
these facilities provide for a rent of approximately $13,300 and $6,900 per
month, respectively, with annual increases of 4% and 3%, respectively, and
expire in August 31, 2008, and 120 months from the completion of warehouse
improvements (or approximately November 30, 2008), respectively. In August
1998, the Company opened a temporary design center in Chicago, Illinois.
Hong Kong. The Company owns one floor and leases three floors constituting
approximately 23,000 square feet of warehouse and business space at Fortei
Building, 98 Texaco Road, Tsuen Wan, New Territories, Hong Kong at a cost of
approximately $15,800 per month including rent and maintenance.
Other Jurisdictions. The Company leases warehouse and/or office space in
France, Canada, Germany and the UK in connection with the activities of its
subsidiaries in those jurisdictions.
PRC--Operations. Cameras and components are manufactured and assembled at the
Company-owned manufacturing facilities located in Baoan County, Shenzhen
Municipal, PRC (the "Company Facility"). The Company leases three employee
dormitories and a canteen (the "Dormitories") at a cost of approximately
$12,800 per month. The aggregate square footage of the Company Facility and
the Dormitories is in excess of 500,000 square feet.
In Fiscal 1996, the Company completed construction of an additional factory
building and in Fiscal 1997 completed the conversion of a Company-owned
dormitory to office, administrative space, engineering facilities, factory
space for pilot runs and living quarters for foreign employees on the same
plot of land as the current Company facility (the "Addition") to accommodate
increased production and to facilitate the consolidation of the leased
facilities into the Company Facility. The Company also completed certain
improvements to the new leased dormitory in Fiscal 1996. Additionally, the
Company has completed an expansion program that increased the aggregate size
of the PRC manufacturing and related dormitory facilities. In connection with
these construction activities in China, the Company incurred costs of
approximately $2,702,000. Such cost will be amortized over the expected useful
life of the Addition. If production requirements continue to increase, the
Company may be required to provide for an additional dormitory.
The Company has Land Use Agreements (the "Land Use Agreements") with PRC
Entities for the use of PRC Land (the "PRC Land") for the Company Facility and
the Addition. Under the Land Use Agreements, which have FERO approval, the
Company obtained land use rights for approximately eight acres of land from a
PRC Entity for the Company Facilities, the Addition and construction of
factories, dormitories and other ancillary buildings. The Company has the
right to use the PRC Land through 2042 (the "Term"). Under the Land Use
Agreements, the Company paid approximately $825,000 in fees and related
expenses to obtain the Land Use Rights Certificate from the PRC Entity. The
Company is responsible for stipulated land management fees and for the
installation of certain utilities. The Land Use Agreements permit the Company
to transfer, lease or mortgage its rights under the Land Use Agreements and in
the buildings developed thereunder during the Term. At the end of the Term,
all facilities on the PRC Land will belong to the PRC Entity and the Company
shall have the right to lease the PRC Land and facilities thereon at the
prevailing rent under regular lease terms.
17
Item 3. Legal Proceedings.
Jack C. Benun. On November 18, 1994, the Company filed a demand for
arbitration in New Jersey for money damages in excess of $1.5 million against
Jack C. Benun ("Benun"), its former chief executive officer who was discharged
for cause in Fiscal 1995. This action was taken due to Benun's failure to
fully compensate the Company for damages it sustained as a result of Benun's
breaching his employment obligations, his fiduciary obligations and
perpetrating frauds upon the Company including the misappropriation of funds
from the Company. Benun has submitted a counterclaim in which he alleges
wrongful termination of his employment and denial of benefits by the Company.
The Company is vigorously pursuing its action as well as defending the
counterclaim. The matter is currently in discovery. The Company has reserved
its rights under any other claims it may have against Mr. Benun.
Fuji. On December 30, 1997, the Company commenced in the United States
District Court of the Southern District of New York (the "Court") an action
against Fuji seeking to enforce the terms of a Settlement Agreement between
the Company and Fuji (the "Settlement Agreement") and to restrain Fuji from
terminating the Settlement Agreement. Under the terms of the Settlement
Agreement, the Company has been granted a worldwide (subject to certain
geographic limitations), non-exclusive license to use certain Fuji technology
in connection with the manufacture and sale of single-use cameras. On January
9, 1998, the Court granted the Company's request for an order restraining Fuji
from terminating the Settlement Agreement. Pending a final judicial
determination of the dispute, the restraining order will continue in effect as
long as the Company refrains from making any further shipments pursuant to the
purchase order which gave rise to the dispute.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 23, 1998, the Company held its Annual Meeting of Shareholders at
which all of the Company's nominees for directors were elected. The
shareholders' vote electing each of the directors was as follows:
Mr. Ira B. Lampert 10,275,506 for, 168,587 withheld;
Mr. Steve Jackel 10,275,546 for, 168,547 withheld;
Mr. Eli Arenberg 10,270,845 for, 173,248 withheld;
Mr. Morris H. Gindi 10,275,905 for, 168,188 withheld;
Mr. Joel Gold 10,275,905 for, 168,188 withheld;
Mr. J. David Hakman 10,275,906 for, 168,187 withheld;
Mr. Ira J. Hechler 10,270,844 for, 173,249 withheld; and
Mr. Kent M. Klineman 10,274,805 for, 169,288 withheld.
The shareholders also ratified the selection of Ernst & Young LLP as the
Company's independent auditors by a vote of 10,357,662 for, 10,101 against and
76,330 abstain.
18
PART II
Item 5. Market for Company's Common Equity and Related Shareholder Matters.
The Company's common stock, no par value per share ("Common Stock"), is traded
on the NASDAQ National Market System under the symbol LENS. The approximate
high and low bid prices for the shares tabulated below are as reported by the
NASDAQ National Market System and represent interdealer quotations which do
not include retail mark-ups, mark-downs or commissions. They do not
necessarily represent actual transactions. As of September 17, 1998, there
were 11,214,451 shares of Common Stock ("Common Shares") outstanding, held by
1,103 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, 1996 3 1/8 1 15/16
December 31, 1996 2 7/16 1 9/16
March 31, 1997 2 13/16 1 21/32
June 30, 1997 2 25/32 1 3/4
September 30, 1997 4 3/4 2 3/8
December 31, 1997 5 1/16 2 7/16
March 31, 1998 4 7/8 2 5/8
June 30, 1998 7 7/16 4 3/8
The Company has never paid cash dividends and has no present intention to pay
cash dividends.
19
Item 6. Selected Financial Data.
Year Ended June 30,
-------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands except per share amounts)
STATEMENT OF OPERATIONS DATA:
Net Sales $102,663 $ 65,747 $ 66,782 $ 62,139 $54,817
-------- -------- -------- -------- -------
Cost of Product sold 74,771 48,722 49,293 41,984 37,684
-------- -------- -------- -------- -------
Gross Profit 27,892 17,025 17,489(4) 20,155 17,133
Operating expenses 21,892 17,864 19,173 18,685 17,734
-------- -------- -------- -------- -------
6,000 (839) (1,684) 1,470 (601)
Other (income) expenses, net (517) (123) (30) 154 221
-------- -------- -------- -------- -------
Income (loss)
before income taxes 6,517 (716) (1,654) 1,316 (822)
Income taxes 504 117 80 107 123
-------- -------- -------- -------- -------
Net income (loss) $ 6,013 ($833) ($1,734) $1,209 ($945)
======== ======== ======== ======== =======
Basic earnings (loss) per share $0.55 ($0.08) ($0.16) $0.12 ($0.09)
======== ======== ======== ======== =======
Diluted earnings (loss) per share $0.52 ($0.08) ($0.16) $0.12 ($0.09)
======== ======== ======== ======== =======
BALANCE SHEET DATA:
Working Capital $20,813 $13,994 $16,696 $17,432 $21,115
======== ======== ======== ======== =======
Total assets $72,082 $53,088 $49,850 $50,189 $48,182
======== ======== ======== ======== =======
Long-term debt $3,871 $2,397 $2,379 $ 388 $ 3,998
======== ======== ======== ======== =======
Total stockholders' equity $36,105 $29,502 $30,478 $32,264 $31,055
======== ======== ======== ======== =======
- - ------------
(4) Gross profit in Fiscal 1996 included a provision for inventory and related
items of approximately $3,035 in certain 35mm camera products and related
inventory.
20
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, 1998,
1997 and 1996:
Year Ended June 30,
1998 1997 1996
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Product Sold 72.8 74.1 73.8
Gross Profit 27.2 25.9 26.2
Operating Expenses 21.3 27.2 28.7
Other (income), net (0.5) (0.2) 0.0
Income (loss) before income taxes 6.4 (1.1) (2.5)
Income taxes 0.5 0.2 0.1
Net income (loss) 5.9% (1.3%) (2.6%)
Fiscal 1998 Compared to Fiscal 1997
Revenues. Total revenues for Fiscal 1998 and 1997 were approximately
$102,663,000 and $65,747,000, respectively, an increase of approximately
$36,916,000 or 56.1%. Revenues from OEM sales in Fiscal 1998 increased by
approximately $38,016,000 or 126.6% to $68,048,000 in Fiscal 1998 from
$30,032,000 in Fiscal 1997, while sales to other customers decreased by
approximately $1,100,000 or 3.1% to $34,615,000 in Fiscal 1998 from
$35,715,000 for Fiscal 1997. The increase in OEM sales is attributable to
increased purchases by preexisting OEM customers together with purchases by
new OEM customers offset, in part, by decreased purchases by other preexisting
customers. The decline in sales to other customers is attributable to lower
sales of traditional and single-use camera models. This decrease in sales
resulted from an aging product line of traditional cameras and intensified
competition in the sale of single-use cameras.
One aspect of the Company's previously announced co-development project with
Polaroid is nearing completion and manufacturing on an exclusive basis by the
Company of the new Polaroid single-use flash instant camera commenced at the
end of the first quarter of Fiscal 1999. First 12 months revenues from this
contract are presently estimated to be in the range of $15 to 20 million. The
Company is also engaged in discussions with certain existing OEM customers for
the addition, in the future, of new products to the Company's manufacturing
arrangements with such customers. The Company anticipates sales in fiscal 1999
to be in the $115 million to $125 million range and net income for Fiscal 1999
to be in the range of $7 million to $8 million or $0.58 to $0.66 per diluted
share.
Single-use camera sales amounted to approximately $47,116,000 or 45.9% of
total sales in Fiscal 1998 versus $44,108,000 or 67.1% of total sales in
Fiscal 1997.
21
Sales by Concord HK in Fiscal 1998 and 1997 were approximately $85,896,000 and
$46,443,000, respectively, an increase of approximately $39,453,000 or 84.9%.
The increase is due primarily to the continued growth of shipments to OEM
customers by Concord Hong Kong. The Company expects Fiscal 1999 OEM revenues
to grow as manufacturing under the Polaroid OEM contract ramps up.
Consolidated sales of Concord Americas for Fiscal 1998 and 1997, including FOB
Hong Kong sales to customers in the Americas, were approximately $19,132,000
and $22,076,000, respectively, a decrease of $2,944,000 or 13.3%. The decrease
in sales to Concord Americas resulted from an aging product line of
traditional cameras and intensified competition in the sale of single-use
cameras.
Consolidated sales of Concord Europe for Fiscal 1998 and 1997, including FOB
Hong Kong sales to customers in Europe, were approximately $14,744,000 and
$12,532,000, respectively, an increase of approximately $2,212,000 or 17.7%.
The increase in sales to Europe is primarily attributable to increased FOB
Hong Kong sales.
Gross Profit. Gross profit, expressed as a percentage of sales, increased from
25.9% in Fiscal 1997 to 27.2% in Fiscal 1998. This increase was primarily as a
result of more favorable absorption of manufacturing overhead and labor
utilization resulting from increased sales and manufacturing volume and
efficiencies. At the same time, product development costs associated with new
products increased from $3,130,000 in Fiscal 1997 to $3,963,000 in Fiscal
1998, an increase of $833,000 or 26.6%. The Company anticipates product
development costs to continue to increase in Fiscal 1999 as management
continues to expand its product lines.
Operating Expenses. As a percentage of sales, operating expenses decreased to
21.3% in Fiscal 1998 from 27.2% in Fiscal 1997. Operating expenses, consisting
of selling, general and administrative, financial expenses and litigation and
settlement costs increased to $21,891,000 in Fiscal 1998 from $17,863,000 in
Fiscal 1997, an increase of approximately $4,028,000.
As a percentage of sales, selling expenses decreased to 9.0% in Fiscal 1998
from 10.6% in Fiscal 1997. Selling expenses increased to $9,234,000 in Fiscal
1998 from $6,950,000 in Fiscal 1997. The increase was primarily attributable
to the Company's increased sales volume and increases in freight costs,
royalty expenses and promotion allowances net of benefits from the
consolidation of warehouse and administration facilities undertaken in Fiscal
1996.
As a percentage of sales, general and administrative expenses decreased to
10.5% in Fiscal 1998 from 14.1% in Fiscal 1997. General and administrative
expenses increased to $10,777,000 in Fiscal 1998 from $9,247,000 in Fiscal
1997. The increase is primarily attributable to increases in professional fees
and expenses related to new OEM customer agreements, increased rent, other
expenses and costs relating to the relocation of the Company's principal
offices to Florida.
As a percentage of sales, financial expenses decreased to 1.6 % in Fiscal 1998
from 2.2% in Fiscal 1997. Financial expenses increased to $1,668,000 in Fiscal
1998 from $1,465,000 in Fiscal 1997. Such increase was primarily a result of
an increase in average debt outstanding during Fiscal 1998.
Litigation and settlement costs in Fiscal 1998 and 1997 were approximately
$213,000 and $201,000, respectively. In Fiscal 1998, these matters consisted
primarily of the demand for arbitration and other litigation against Jack C.
Benun.
22
Other (income) expense, Net. Other (income) expense, net includes interest
income, gains and losses from the sale of fixed assets, foreign exchange gains
and losses, directors' fees and certain public relations costs.
With respect to foreign exchange gains and losses, the Company operates on a
worldwide basis and its results may be adversely or positively affected by
fluctuations of various foreign currencies against the U.S. Dollar,
specifically, the Canadian Dollar, German Mark, British Pound Sterling, French
Francs, and Japanese Yen. Each of the Company's foreign subsidiaries purchases
its inventories in U.S. Dollars and sells them in local currency, thereby
creating an exposure to fluctuations in foreign currency exchange rates.
Certain components needed to manufacture cameras are priced in Japanese Yen.
The translation from the applicable currencies to U.S. Dollars is performed
for balance sheet accounts using current exchange rates in effect at the
balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The impact of foreign exchange
transactions is reflected in the profit and loss statement, which in Fiscal
1998 included a gain of approximately $374,000.
In Fiscal 1998, the Company's hedging activities were immaterial and at June
30, 1998 there were no forward exchange contracts outstanding.
Income Taxes. As of June 30, 1998, Concord had net operating loss
carryforwards for U.S. tax purposes of approximately $11,951,000, which expire
as follows: $5,700,000 in 2008; $2,770,000 in 2009; and $3,481,000 in 2010.
Net operating losses for state tax purposes began to expire in 1997. Net
operating loss carryforwards cannot be used to offset certain alternative
minimum tax elements under the Internal Revenue Code.
The income tax provision for Fiscal 1998 of approximately $504,000 is
comprised of a current U.S. tax provision of approximately $69,000, a current
foreign provision of approximately $318,000 and a deferred provision of
approximately $117,000. The Company's provision for income taxes for Fiscal
1998 is primarily related to the earnings of the Company's Far East and
domestic operations, net of benefits relating to operating loss carryforwards
and overpayments/refunds on the Company's other subsidiaries.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that 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. As a result of the matters described above, the Company had net
income of approximately $6,013,000 in Fiscal 1998 compared to a net loss of
approximately $833,000 in Fiscal 1997, an increase in profit of approximately
$6,846,000.
Fiscal 1997 Compared to Fiscal 1996
Revenues. Total revenues for Fiscal 1997 and 1996 were approximately
$65,747,000 and $66,782,000, respectively, a decrease of approximately
$1,035,000 or 1.5%. Revenues from OEM sales in Fiscal 1997 increased by
approximately $3,606,000 or 13.7% to $29,880,000 in Fiscal 1997 from
$26,274,000 in Fiscal 1996, while sales to other customers decreased by
approximately $4,641,000 or 11.5% to $35,867,000 in Fiscal 1997 from
$40,508,000 for Fiscal 1996. The increase in OEM sales was attributable to
increased purchases by two preexisting OEM customers together with purchases
by two new OEM customers offset, in part, by decreased purchases by another
preexisting customer. The decline in sales to other customers was attributable
to lower sales of traditional and single-use camera models. The
23
decrease in traditional camera revenues was anticipated and previously
outlined in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 in connection with management's decision to eliminate a number
of older motorized and manual traditional models.
The Company signed an agreement with Kodak for production of a lower cost
Advanced Photo System camera to be sold and marketed by Kodak as one of its
own branded products. Shipments began in September 1997 and contributed
$28,152,000 to revenues in Fiscal 1998. In addition, the Company completed an
agreement with Polaroid to co-develop and exclusively manufacture specialized,
traditional and single-use cameras for Polaroid.
Single-use camera sales amounted to approximately $44,108,000 or 67.1% of
total sales in Fiscal 1997 versus $43,553,000 or 65.2% of total sales in
Fiscal 1996.
Sales by Concord HK in Fiscal 1997 and 1996 were approximately $46,249,000 and
$42,442,000, respectively, an increase of approximately $3,807,000 or 9.0%.
The increase was due primarily to the continued growth of shipments to OEM
customers by Concord Hong Kong. This trend continued in Fiscal 1998.
Consolidated sales of Concord Americas for Fiscal 1997 and 1996, including FOB
Hong Kong sales to customers in the Americas, were approximately $21,997,000
and $26,224,000, respectively, a decrease of $4,227,000 or 16.1%. The decrease
in sales to Concord Americas resulted from an aging product line of
traditional cameras and intensified competition in the sale of single-use
cameras.
Consolidated sales of Concord Europe for Fiscal 1997 and 1996, including FOB
Hong Kong sales to customers in Europe, were approximately $12,742,000 and
$13,910,000, respectively a decrease of $1,168,000 or 8.4%. This decrease is
primarily attributable to an aging product line, intensified competition in
the sale of single-use cameras and the effect of a United States dollar that
increase in value relative to European currencies during Fiscal 1997.
Gross Profit. Gross profit, expressed as a percentage of sales, decreased from
26.2% in Fiscal 1996 to 25.9% in Fiscal 1997. This decrease was primarily due
to increased engineering and product development costs of approximately
$3,130,000 in Fiscal 1997, an increase of $1,408,000 or 81.8% from 1996 and in
part to the sale of products with lower gross profit margins. Gross Profit in
Fiscal 1996 included a provision for inventory and related items of
approximately $3,035,000 on certain 35 millimeter camera products and related
inventory.
Operating Expenses. Operating expenses, consisting of selling, general and
administrative, financial expenses and litigation and settlement costs
decreased to $17,864,000 in Fiscal 1997 from $19,173,000 in Fiscal 1996, a
decrease of approximately $1,309,000 or 6.8%. As a percentage of sales,
operating expenses decreased to 27.2% in Fiscal 1997 from 28.7% in Fiscal
1996.
Selling expenses decreased to $6,950,000 or 10.6% of net sales in Fiscal 1997
from $7,571,000 or 11.3% of net sales in Fiscal 1996. The decrease was
primarily attributable to the decreases in royalties and sales commissions due
to decreased volume in the Americas and Europe and benefits from the
consolidation of warehouse and administration facilities undertaken in Fiscal
1996.
General and administrative expenses decreased to $9,247,000 or 14.1% of net
sales in Fiscal 1997 from $9,396,000 or 14.1% of net sales in Fiscal 1996. The
increases in amortization of goodwill ($265,000) and costs associated with new
OEM customer agreements ($511,000) were offset by decreases in bad debt
24
expense ($466,000), cost savings resulting from the consolidations of the
American and European branches ($371,000) and reduced amortization and
depreciation ($88,000).
Financial expenses of $1,465,000 or 2.2% of net sales in Fiscal 1997 were
essentially unchanged from $1,489,000 or 2.2% of net sales in Fiscal 1996.
Litigation and settlement costs in Fiscal 1997 and 1996 were approximately
$201,000 and $718,000, respectively. In Fiscal 1997, these matters consisted
primarily of the demand for arbitration and other litigation against Jack C.
Benun.
Other (income) expense, Net. Other (income) expense, net includes interest
income, gains and losses from the sale of fixed assets, foreign exchange gains
and losses, directors' fees and certain public relations costs.
The impact of foreign exchange transactions is reflected in the profit and
loss statement, which in Fiscal 1997 included a loss of approximately $92,000.
In Fiscal 1997, the Company's hedging activities were immaterial and at June
30, 1997 there were no forward exchange contracts outstanding.
Income Taxes. As of June 30, 1997, Concord had net operating loss
carryforwards for U.S. tax purposes of approximately $14,394,000, which expire
as follows: $1,054,000 in 2005; $16,000 in 2006; $443,000 in 2007; $6,630,000
in 2008; $2,770,000 in 2009; and $3,481,000 in 2010. Net operating losses for
state tax purposes began to expire in 1997. Net operating loss carryforwards
cannot be used to offset certain alternative minimum tax elements under the
Internal Revenue Code.
The income tax provision for Fiscal 1997 of approximately $117,000 is
comprised of a current tax benefit of approximately $13,000 and a deferred
provision of approximately $130,000. The Company's provision for income taxes
for Fiscal 1997 is primarily related to the earnings of the Company's Far East
and domestic operations, net of benefits relating to operating loss
carryforwards and overpayments/ refunds on the Company's other subsidiaries.
Net Income (Loss). As a result of the matters described above, the Company had
a net loss of approximately $833,000 in Fiscal 1997 compared to a net loss of
$1,734,000 in Fiscal 1996 a decrease in loss of approximately $901,000.
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $20,813,000 as compared
to $13,994,000 at June 30, 1997. Cash flow provided by operating activities
was approximately $1,146,140 for Fiscal 1998 compared to $2,798,000 for Fiscal
1997. Capital expenditures, excluding assets financed under capital leases,
for Fiscal 1998 and 1997 were approximately $4,459,000 and $3,188,000,
respectively. The Company's principal funding requirement has been and is
expected to continue to be the financing of accounts receivable and inventory.
Additionally, the combined United States operation is dependent upon funding
received from the foreign operations.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15 million of senior notes. The notes bear interest at 11%, and
the maturity date is July 15, 2005. Interest payments are due quarterly. The
agreement contains certain restrictive covenants relating to, among other
things, incurrence of additional indebtedness and dividend and other payment
restrictions affecting subsidiaries.
25
Mortgage Payable. On April 9, 1998, the Company entered into a 15 month
$2,100,000 mortgage loan agreement that is secured by the Company-owned
manufacturing facilities located in Baoan County, Shenzhen Municipal, PRC and
bears interest at 12.986%. The mortgage loan agreement requires monthly payments
of interest only and a balloon payment of $2,100,000 on July 9, 1999.
Non-Notification Factoring with Recourse Facility. During the last quarter of
Fiscal 1998, Concord HK consummated a $10,000,000 Non-Notification Factoring
with Recourse Facility (the "Factoring Facility") that is guaranteed by the
Company, is secured by certain accounts receivables of the Company's Hong Kong
operations and bears interest at 1.5% above prime lending rate. Availability is
subject to advance formulas based on eligible accounts receivable with no
minimum borrowings. The Company utilized the Factoring Facility during the
fourth quarter of Fiscal 1998 to replace a one-year $1,500,000 revolving credit
facility with a U.S. bank. At June 30, 1998, approximately $7,396,000 was
outstanding and classified as short-term debt.
U.S. Credit Facility. The Company has a $4,500,000 credit facility (the "U.S.
Credit Facility") which expires on May 31, 1999, that is secured by accounts
receivable, inventory and other related assets of the Company's United States
operations and bears interest at 1.5% above prime lending rate, which was 8.5%
at June 30, 1998. Availability is subject to advance formulas based on eligible
inventory and accounts receivable with interest calculated on borrowing of
$1,500,000. At June 30, 1998, approximately $687,000 was outstanding and
classified as short-term debt under the U.S. Credit Facility.
Hong Kong Credit Facility. Concord HK has a credit facility (the "HK Facility")
that provides Concord HK with up to $6,900,000 of financing as follows: letters
of credit and standby letters of credit of up to $2,825,000, overdraft and
packing loans of up to $3,600,000 and an installment loan of $475,000. The
installment loan was utilized in part to repay the outstanding mortgage
obligation on the Hong Kong office property. See "Note 7 - Long-Term Debt." As
of June 30, 1998, approximately $3,480,000 was utilized and approximately
$2,945,000 was available under the HK Facility. Approximately $2,128,000 of the
total $3,480,000 utilized was in the form of trade finance, including but not
limited to import letters of credit. The HK Facility, which is payable on
demand, bears interest at 2% above the prime lending rate for letters of credit
and 2.25% above the prime lending rate for overdraft and packing loans. At June
30, 1998, the prime lending rate was 10%. In connection with the HK Facility,
Concord HK has placed a $1,252,000 time deposit with the lender which is
included in prepaid and other current assets at June 30, 1998 and such deposit
is pledged as collateral for the HK Facility. In addition, all amounts
outstanding under the HK Facility are guaranteed by Concord.
Canadian Working Capital Facility. On November 25, 1996, the Company obtained a
$1,090,000 working capital facility (the "Canadian Facility") with a Canadian
bank which is secured by accounts receivable, inventory and other related assets
of the Company's Canadian operations and bears interest at 1% above the prime
lending rate, which was 5.5% at June 30, 1998. Availability under the Canadian
Facility is subject to advance formulas based on eligible accounts receivable
and seasonable inventory eligibility with no minimum borrowings and is subject
to monthly covenant requirements. At June 30, 1998, approximately $611,000 was
outstanding and classified as short-term debt. Concord Canada did not meet the
effective net worth covenant at June 30, 1998.
26
Other Arrangements and Future Cash Commitments. Management believes that
anticipated cash flow from operations together with financing from the Factoring
Facility, the U.S. Credit Facility, the HK Facility, the Canadian Facility and
its July 30, 1998 private offering of $15 million of its 11% senior notes, or
replacement facilities, will be sufficient to fund its operating cash needs for
the foreseeable future.
Impact of Year 2000
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on an assessment, the Company determined that it will be required to
modify or replace portions of its software and hardware so that its systems
will function properly with respect to dates in the year 2000 and thereafter.
The Company presently believes that with modifications to existing software
and conversions to new software and hardware, the Year 2000 issue will not
pose significant operational problems for its systems. However, if such
modifications and conversions are not made, or are not completed in timely
fashion, the Year 2000 problems could have a material impact on the operations
of the Company.
The Company is continuing to contact all of its significant suppliers and large
customers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of third party
Year 2000 issues based on presently available information is approximately
$100,000. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be converted on a timely basis and will
not have a material adverse effect on the Company's systems.
The Company is actively engaged in utilizing both internal and external
resources to reprogram, or replace, and test its software and hardware for
Year 2000 compliance. The Company's objective is to complete the Year 2000
project not later than July 1, 1999, which is prior to any anticipated impact
on its operating systems. The Fiscal 1999 cost of the Year 2000 project is not
expected to have a material effect on the results of operations.
The costs of the project and the date which the Company has established to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification
plans and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, as a result of its global operating and financial activities, is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities,
the Company manages exposures to changes in interest rates and foreign
currency exchange rates through its regular
27
operating and financing activities. The Company's hedging activities are
immaterial and as of June 30, 1998 there were no forward exchange contracts
outstanding. The company continues to analyze the benefits and costs
associated with hedging against foreign currency fluctuations. The Company's
exposure to changes in interest rates results from its investing and borrowing
activities used to meet its liquidity needs. Long-term debt is generally used
to finance long-term investments, while short-term debt is used to meet
working capital requirements. Derivative instruments are not presently used to
adjust the Company's interest rate risk profile. The Company does not utilize
financial instruments for trading or other speculative purposes, nor does it
utilize leveraged financial instruments.
Item 8. Financial Data and Supplemental Data.
The financial statements listed in Item 14(a) (1) and (2) are included in this
Report beginning on page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
28
Part III
Item 10. Directors and Executive Officers of the Company.
Year First Elected/ Positions and Officers
Name of Directors Age Nominated Director with the Company
- - ----------------- --- ------------------- ----------------------
Ira B. Lampert (1) 53 1993 Chairman, Chief Executive Officer
and Director; Director of Concord
Camera HK Limited, Concord
Camera GmbH, Concord Camera
UK Limited and Concord Camera
France.
Steve Jackel (2) 62 1996 Chief Operating Officer, President
and Director
Eli Arenberg (3) 70 1988 Director
Joel L. Gold (4) 56 1991 Director
Morris H. Gindi (5) 53 1988 Director
J. David Hakman (6) 56 1993 Director
Ira J. Hechler (7) 79 1992 Director
Kent M. Klineman (8) 65 1993 Director
- - --------------------
(1) On July 13, 1994, Ira B. Lampert was appointed to the positions of
Chairman and Chief Executive Officer of the Company. Mr. Lampert was
President and Chief Operating Officer from June 1, 1993 through January
1, 1996 and has been a Director of the Company since June 29, 1993. Mr.
Lampert is also a Director of Concord HK, Concord UK, Concord Germany
and Concord France. On July 31, 1998, Mr. Lampert was appointed to the
additional position of President. From April 1992 through May 30,
1993, Mr. Lampert's services were made available to the Company under
various consulting agreements with Whitehall Enterprises Inc. ("WEI"),
an investment banking company for the middle-market, of which Mr.
Lampert was the President from August 1990 through May 1993. During
the 1980's through the early 1990's, Mr. Lampert also served as a
Director and/or Officer of Summit Ventures, Inc. and related entities
which developed and managed Ascutney Mountain Resort, a year-round
destination resort located in Vermont. Mr. Lampert is a Board Member
of the Queens College Foundation which is part of the City University
of New York and is the Treasurer of the Boys Brotherhood Republic, a
non-profit organization for underprivileged children in the New York
City area.
(2) Effective January 1, 1996, Steve Jackel was appointed President, Chief
Operating Officer and Director of the Company. Mr. Jackel resigned from
the Company as Chief Operating Officer, President and Director
effective July 31, 1998, after the end of Fiscal 1998. From May 1, 1995
to December 31, 1995, Mr. Jackel's services were rendered to the
Company pursuant to a consulting agreement dated May 1, 1995 between
the Company and Harjac Consulting Corp., a corporation owned by Mr.
Jackel. From February 1993 to November 1994, Mr. Jackel was President
of McCrory's Corporation and Chairman of McCrory Stores. From June 1992
through February 1993, he was Co-President of McCrory Stores. From
February 1991 through June 1992, he was Executive Vice President
Specialty Operation for McCrory Stores. Prior to that time, Mr. Jackel
was an independent management consultant.
29
(3) Eli Arenberg joined the Company in April 1984 as Vice President of
Sales and Marketing and in September 1989 was promoted to Senior Vice
President of Sales. In February 1992, Mr. Arenberg retired from such
positions and in July 1994 made his services available to the Company
under a consulting agreement with ELA Enterprises, Inc. (the "ELA
Enterprises Consulting Agreement"), a Florida corporation wholly-owned
by Mr. Arenberg.
(4) Joel L. Gold is currently Senior Managing Director of Inter Bank
Capital Group LLC, an investment bank. From March 1996 through
September 1997 Mr. Gold was an Executive Vice President at L.T.
Lawrence & Co., Inc., an investment bank. From April 1995 through March
1996, Mr. Gold was a Managing Director at Fector Detwiler & Co, Inc.,
an investment bank. From January 1992 through April 1995, Mr. Gold was
a Director at Furman Selz Incorporated, an investment bank. From April
1990 through December 1991, Mr. Gold was a Managing Director at Bear,
Stearns & Co. Inc., New York, New York. From April 1971 through
February 1990, Mr. Gold was a Managing Director at Drexel Burnham
Lambert. Mr. Gold is currently a member of the board of directors of
BCAM International, Life Medical Sciences and Sterling Vision.
(5) Morris H. Gindi is the Chief Executive Officer of Notra Trading Inc.,
located in Woodbridge, New Jersey and has served in such capacity since
1983. Notra Trading Inc. is an import agent in the housewares and
domestics industry. Mr. Gindi has over 27 years experience in
importing.
(6) J. David Hakman is the owner and Chief Executive Officer of Hakman and
Company, Inc., an investment and merchant banking concern and a member of
the National Association of Securities Dealers, Inc. Mr. Hakman has been
a Director since 1989 and a member of the Audit and Nominating Committees
since 1991 of Hanover Direct, Inc., a firm engaged in the direct
marketing business.
(7) Ira J. Hechler is a Partner and a Director of the investment firm Ira
J. Hechler & Associates located in New York, New York. Mr. Hechler has
been associated with such firm since June 1987. The firm's principal
business is holding stock, partnership interests and other property for
investment purposes. Mr. Hechler is currently a member of the board of
directors of Jan Ball Marketing, Inc., I.C. Isaacs and Company, Inc. and
United States Banknote Corporation.
(8) Kent M. Klineman has been an attorney and private investor and has
served as a Director of several closely held companies during the past
five years. Mr. Klineman is a Director, secretary and a member of the
Compensation Committee of EIS International, Inc., a Director and
Treasurer of Sonoma Cutrer Vineyards, Inc. and a Director of Dealers
Alliance Credit Corp. and Dealers Alliance Capital Corp. Mr. Klineman's
initial nomination to serve as Director of the Company in 1993 was made
by Mr. Hechler. See "Certain Relationships and Related Transactions."
Meetings and Committees
In Fiscal 1998, the Board held four meetings, of which one was telephonic. The
Board has an Audit Committee, a Compensation Committee, a Stock Option
Committee, an Executive Committee, an Ad Hoc Committee and a Nominating
Committee.
The Audit Committee, consisting of Kent M. Klineman (Chairman), J. David
Hakman and Eli Arenberg, reviews and reports to the Board with respect to
various auditing and accounting matters including recommendations to the Board
as to the selection of the Company's independent auditors, the scope of audit
procedures, general accounting policy matters and the performance of the
Company's independent auditors. The Audit Committee held four meetings in
Fiscal 1998.
The Compensation and Stock Option Committee, consisting of Joel L. Gold
(Chairman), Ira J. Hechler and Morris Gindi, reviews and makes recommendations
to the Board regarding all executive compensation. The Compensation Committee
held two meetings in Fiscal 1998.
30
The Nominating Committee, consisting of Ira B. Lampert, Joel Gold, Ira Hechler
and Kent Klineman nominates those persons who shall be invited to stand for
election to the Board of Directors as management nominees at any and all
ensuing meetings of the shareholders of the Company or pursuant to any actions
with respect to the election of directors to be taken by written consent of
the shareholders. The Nominating Committee held one meeting in Fiscal 1998.
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
Concord Camera Corp., 35 Mileed Way, Avenel, New Jersey 07001.
In Fiscal 1998, all of the directors attended at least 75% of the aggregate of
the total number of meetings of the Board and committees of which they were
members.
Directors Compensation
Non-employee members of the Board receive (i) an annual fee of $10,000, (ii) a
$2,500 annual fee for serving on each committee of the Board with the Chairman
thereof receiving a $3,500 annual fee and (iii) a meeting fee of $750 for each
meeting attended in person and $250 for each meeting attended telephonically.
In addition, under the Company's Incentive Plan, each non-employee director is
entitled to receive options pursuant to a formula to purchase up to 20,000
Common Shares upon his/her appointment as director. The Incentive Plan also
provides for the grant of an immediately exercisable option to purchase 1,000
Common Shares on the date of the original grant and on each anniversary of the
original grant. Pursuant to this plan each non-employee director received
options to purchase 25,000 Common Shares.
As of December 22, 1996, all outstanding options held by directors of the
Company having an exercise price of $4.00 a share or more were revised as
follows:
(a) The number of shares of Common Stock covered by each option was
reduced by 25% (their reduction was applied first on a pro rata basis against
the unvested installments of each option).
(b) The exercise price for 50% of the shares covered by the revised
option was repriced to be $2.00 per share, for 25% was repriced to be $2.50
per share and for 25% was repriced to be $3.00 per share.
(c) Vesting of the repriced options remained unchanged.
Mr. Arenberg, through a company controlled by him, is a party to a consulting
agreement with the Company. See "Certain Relationships and Related
Transactions."
31
EXECUTIVE OFFICERS
The names of the current executive officers(5) of the Company together with
certain biographical information for each of them (other than Mr. Lampert and
Mr. Jackel for whom biographical information is provided above) is set forth
below:
Name of Executive Officer Age Positions and Offices with the Company
- - ------------------------- --- --------------------------------------
Ira B. Lampert 53 Chairman, Chief Executive Officer and Director
Steve Jackel 62 President, Chief Operating Officer and Director
Brian F. King 45 Senior Vice President of Corporate and Strategic Development
and Secretary; Managing Director of Concord Camera HK
Limited
Urs W. Stampfli 46 Director of Sales and Global Marketing
Harlan I. Press 34 Corporate Controller and Assistant Secretary
Brian F. King was appointed to the position of Senior Vice President on August
25, 1998. Mr. King is also Secretary of the Company and Managing Director of
Concord Camera HK Limited, and he has held such positions since August 1996.
Mr. King joined the Company in March 1996 as Vice President of Corporate and
Strategic Development. From June 1991 through February 1996, Mr. King was
Managing General Partner of Cripple Creek Associates, a partnership that built
and operated two casinos in Cripple Creek, Colorado.
Urs W. Stampfli was appointed Director of Sales and Global Marketing in May
1998. From 1992 to April 1998, Mr. Stampfli was Vice President, Marketing,
Photo Imaging Systems of Agfa Division, Bayer Corporation.
Harlan I. Press is currently Corporate Controller and Assistant Secretary of
the Company and has held such positions since October 1, 1996. Mr. Press was
appointed as a Director of Concord Camera HK Limited on September 1, 1997. Mr.
Press joined the Company in April 1994 and has held the position of Chief
Accounting Officer since November 1994. Mr. Press was a Senior Field Examiner
for the CIT Group from April 1993 through April 1994. From December 1991
through April 1993, Mr. Press served as the 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.
- - --------
(5) Mr. Jackel resigned as President, Chief Operating Officer and director
effective July 31, 1998. Eli Shoer resigned as Executive Vice President on
April 30, 1998. Lawrence Pesin resigned as Vice President Global Marketing on
June 11, 1998. Barry M. Shereck resigned as Vice President and Chief Financial
Officer on October 31, 1997.
32
Section 16 Beneficial Ownership Reporting Compliance
The following officers and directors of the Company filed late reports under
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") relating to Fiscal 1998: (i) Eli Arenberg, Director, late
filing of a Form 4 due June 10, 1998, reporting the purchase in an open market
transaction of 5,000 shares of Common Stock, (ii) Morris Gindi, Director, late
filing of a Form 4 due October 10, 1997, reporting the sale in an open market
transaction of 5,000 shares of Common Stock to Notra Trading and (iii) Morris
Gindi, Director, late filing of a Form 4 due November 10, 1997, reporting the
sale in an open market transaction of 5,000 shares of Common Stock to Notra
Trading. There are no known failures to file a required Form 3, 4 or 5 and no
other known late filings of a required Form 3, 4 or 5 during Fiscal 1997 by
any person required to file such forms with respect to the Company pursuant to
Section 16 of the Exchange Act.
33
Item 11.
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
(a) (b) (c) (d) (e) (f) (g)
Securities All Other
Other Annual Underlying Compen-
Salary Bonus Compensation Options sation
Name and Principal Position Fiscal Year ($) ($) ($) (#) ($)
- - --------------------------- ----------- ----- ----- ----- ----- ----
1998 $541,667 -- $210,383 (4) -- $14,973 (9)
Ira B. Lampert
Chief Executive Officer, 1997 545,205 -- 200,141 (5) 695,000 (7) 10,350 (9)
and Chairman
1996 551,282 $100,000 (19) 220,432 (6) 245,000 (8) 18,289 (9)
1998 438,462 -- 83,545 (10) -- 42,415 (9)
Steve Jackel (1)
Chief Operating Officer, 1997 400,000 -- 66,210 (11) 306,250 (7) 26,821 (9)
President
1996 377,346 25,000 (19) 36,237 (12) 300,000 (8) 38,631 (9)
1998 313,000 -- 66,527 (13) -- 4,277 (9)
Eli Shoer (2)
Director of Operations -- 1997 210,000 -- 75,000 (14) 66,250 (7) 1,600 (9)
Concord HK
1996 214,039 42,000 (19) 75,000 (14) 10,000 (8) --
Brian F. King 1998 231,738 -- 78,938 (15) -- 1,721 (9)
Vice President of Corporate
and Strategic Development; 1997 170,000 -- 73,000 (16) 147,500 (7) 783 (9)
Managing Director of
Concord Camera HK Limited 1996 44,265 -- 3,105 (17) 87,500 (8) --
1998 195,833 -- 18,000 (18) -- 3,669 (9)
Lawrence Pesin (3)
General Manager - Americas 1997 181,250 -- 18,000 (18) 72,500 (7) --
1996 43,750 -- 4,500 (18) 87,500 (8) --
- - --------------------
(1) Mr. Jackel resigned from the Company on July 31, 1998.
(2) Mr. Shoer resigned from the Company on April 30, 1998.
(3) Mr. Pesin resigned as an executive officer from the Company on June 11,
1998 and is currently the General Manager - Americas.
(4) Includes $30,939, $108,300 and $62,594 paid for and to Mr. Lampert for
auto lease and costs, reimbursement of taxes and partial housing costs,
respectively.
34
(5) Includes $38,068, $102,036 and $45,360 paid for and to Mr. Lampert for
auto lease and costs, reimbursement of taxes and partial housing costs,
respectively.
(6) Includes $35,012, $122,775 and $54,461 paid for and to Mr. Lampert for an
auto lease and costs, reimbursement of taxes and partial housing costs,
respectively.
(7) These options include options issued prior to Fiscal 1997 that were
canceled and repriced during Fiscal 1997.
(8) Includes shares purchased from the Company for $5.375 per share by a loan
from the Company and evidenced by full recourse promissory note secured
by the Common Stock and does not include an equal number of shares
underlying a contingent restricted stock award ("restricted stock award")
which vest as follows: 33 1/3% upon the Common Stock reaching a market
price of $10.00 by August 31, 1997; 66 2/3% upon the Common Stock
reaching a market price of $15.00 by February 28, 1999; and 100% upon the
Common Stock reaching a market price of $20.00 by August 31, 2000. See
"Certain Relationships and Related Transactions" for information
regarding substitution of options to purchase Common Stock for contingent
restricted stock awards.
(9) Represents amount paid by the Company for insurance premiums.
(10) Includes $26,969 and $56,576 paid to Mr. Jackel for an auto lease, costs
and tax reimbursement, respectively.
(11) Includes $33,825 and $32,385 paid to Mr. Jackel for an auto lease, costs
and tax reimbursement, respectively.
(12) Includes $27,414 and $8,823 paid to Mr. Jackel for an auto lease and
costs and travel expenses reimbursed to Harjac Consulting, of which Mr.
Jackel was a principle, respectively.
(13) Includes $62,594 paid to Mr. Shoer for housing allowance for living
arrangements in the Far East and $6,000 paid to Mr. Shoer for auto
allowances.
(14) Represents housing allowance paid to Mr. Shoer for living arrangements in
the Far East.
(15) Includes $18,000 and $60,000 paid to Mr. King for an auto allowance and
housing allowance paid for living arrangements in the Far East,
respectively.
(16) Includes $18,000 paid to Mr. King for auto allowances and $55,000 for
housing allowance paid to Mr. King for living arrangements in the Far
East.
(17) Represents auto allowances paid to Mr. King.
(18) Represents auto allowances paid to Mr. Pesin.
(19) Represents bonus determined and paid by the Company in Fiscal 1996 on
account of Fiscal 1995 performance.
35
II. OPTION GRANTS IN FISCAL 1998
None.
III. AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION
VALUES
(a) (b) (c) (d) (e)
Shares
Acquired Number of Securities Value of Unexercised In-the-
on Value Underlying Unexercised Money Options at FY End
Exercise Realized Options at FY End (#) ($)(1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----- ----- ----------- ------------- ----------- -------------
Ira B. Lampert -- $-- 686,250 18,750 $2,502,442 $64,454
Steve Jackel -- -- 311,000 20,250 1,109,719 69,616
Eli Shoer 131,250 741,430 -- -- -- --
Lawrence Pesin 2,500 15,845 35,000 7,500 93,594 51,563
Brian F. King -- -- 136,250 40,000 487,500 121,875
- - -----------
(1) The closing price of the Company's Common Stock at 1998 Fiscal Year End
was $5 13/16.
Executive Employment Contracts, Termination of Employment and Change in Contract
Arrangements
The employment agreement between the Company and Ira B. Lampert effective July
1, 1993 was amended and restated as of May 1, 1997 (the "Lampert Agreement").
The Lampert Agreement provides that Mr. Lampert serve in the additional
capacities of Chairman and Chief Executive Officer of the Company. The Lampert
Agreement provides for an annual salary of $500,000, has a term of four years
and provides for the term of employment to be automatically extended for one
additional day for each day of the term of employment that elapses in the
event that neither party notifies the other at any time during the term of
employment that it does not want the term of employment extended.
Under the Lampert Agreement, Mr. Lampert has been granted two sets of Common
Stock options. The first, an option to purchase 340,000 Common Shares was
amended and restated to 127,500 Common Shares at an exercise price of $2.00
per share, 63,750 Common Shares at an exercise price of $2.50 per share and
63,750 Common Shares at an exercise price of $3.00 per share. This option is
currently exercisable as to 245,625 Common Shares and the balance of 9,375
Common Shares became vested on July 31, 1998. These options to acquire a total
of 255,000 shares of Common Stock were not granted pursuant to the Company's
incentive plan and are currently exercisable through July 2003, and such
options have anti-dilution provisions. The second option, an option to
purchase 260,000 Common Shares was amended and restated to 97,500 Common
Shares at an exercise price of $2.00 per share, 48,750 Common Shares at an
exercise price of $2.50 per share and 48,750 Common shares at an exercise
price of $3.00 per share. This option is currently exercisable as to 185,625
Common Shares and the balance of 9,375 Common Shares became vested on August
31, 1998 and currently exercisable through
36
September 2004, and such options also have anti-dilution provisions.
In the Lampert Agreement, the Company agreed to adopt a supplemental executive
retirement plan (the "SERP") for the benefit of Mr. Lampert and shall cause to
be credited to this account $14,167 each month ("Monthly Credit") for the
benefit of Mr. Lampert. The balance in the SERP account will always be 100%
vested and non-forfeitable. Each time the Company credits a monthly credit to
the SERP account, the Company will also simultaneously contribute an amount
equal to such credit to a trust established for the purpose of accumulating
funds to satisfy the obligations incurred by the Company pursuant to the
establishment of the SERP. The Lampert Agreement prohibits Mr. Lampert from
competing with the Company for a one-year period upon expiration of the
Lampert Agreement.
As of January 1, 1996, the Company and Steve Jackel entered into an Employment
Agreement (the "Jackel Agreement") whereby Mr. Jackel is employed as President
and Chief Operating Officer of the Company. Mr. Jackel resigned from the
Company on July 31, 1998, after the end of Fiscal 1998. Prior to entering into
the Jackel Agreement, Mr. Jackel rendered consulting services to the Company
pursuant to a Consulting Agreement, dated May 1, 1995, between the Company and
Harjac Consulting Corp., a corporation owned by Mr. Jackel, which agreement
was terminated upon the effective date of the Jackel Agreement. The Jackel
Agreement provides for an annual salary of $400,000, has a term of three years
commencing on January 1, 1996 and provides for automatic one-year renewals
unless prior written notice is given by either party. The Jackel Agreement
prohibits Mr. Jackel from competing with the Company for at least one year
following the termination of Mr. Jackel's employment.
Under the Jackel Agreement, Mr. Jackel has been granted Common Stock options.
The option to purchase 300,000 Common Shares was amended and restated to
103,125 shares of the Company's Common Stock at an exercise price of $2.00 per
share, 51,562 shares of the Company's Common Stock at an exercise price of
$2.50 per share and 76,563 shares of the Company's Common Stock of an exercise
price of $3.00 per share of which 226,000 were exercisable as of September 17,
1998 with the balance becoming exercisable in equal allotments of 750 Common
Shares on the Thursday of each successive week after September 17, 1998
through and including December 31, 1998, as of which date such options shall
be exercisable. These options to acquire a total of 231,250 shares of Common
Stock were not granted pursuant to the Company's Incentive Plan. The options
contain anti-dilution provisions and are exercisable through February 15,
2006.
37
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 17, 1998
with respect to (i) those persons or groups known to the Company to
beneficially own more than 5% of the Common Stock, (ii) each of the directors
and nominees of the Company, (iii) the Company's executive officers named in
the summary compensation table and (iv) the Company's directors and executive
officers as a group:
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
- - ------------------------------------ -------------------- --------
(i) Beneficial Owners of More than 5%
of the Common Shares
Theodore H. Kruttschnitt........................................ 1,205,000 10.7%
1350 Bayshore Blvd., Suite 850
Burlingame, California 94010
Deltec Asset Management......................................... 1,708,060 15.2%
535 Madison Avenue
New York, New York 10002
(ii) Directors and Nominees of the Company
Ira B. Lampert.................................................. 1,801,017(2)(3) 16.1%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Steve Jackel.................................................... 1,801,017(2)(4) 16.1%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Eli Arenberg.................................................... 82,750(5) *
9578 Harbour Lake Circle
Boynton Beach, Florida 33437
Joel L. Gold.................................................... 30,250(6) *
Inter Bank
630 Fifth Avenue, Suite 1820
New York, New York 10111
Morris Gindi.................................................... 29,750(7) *
Notra Trading Inc.
One Woodbridge Center
Woodbridge, New Jersey 07095
J. David Hakman................................................. 96,750(8) *
Hakman & Co. Inc.
1350 Bayshore Highway - Suite 300
Burlingame, California 94010
Ira J. Hechler.................................................. 465,750(9) 4.2%
45 Rockefeller Plaza
New York, New York 10111
38
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
- - ------------------------------------ -------------------- --------
Kent M. Klineman................................................ 128,000(10) 1.2%
c/o Klineman Assoc., Inc.
1270 Avenue of the Americas
New York, New York 10020
(iii) Executive officers
Brian F. King................................................... 1,801,017(2)(11) 16.1%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Keith Lampert................................................... 1,801,017(2)(12) 16.1%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
Arthur Zawodny.................................................. 1,801,017(2)(13) 16.1%
Concord Camera Corp.
35 Mileed Way
Avenel, New Jersey 07001
(iv) All executive officers and directors as a group (11 Persons) 2,634,267 23.5%
- - --------------------
* Indicates less than 1%.
(1) All information is as of September 17, 1998 and was determined in
accordance with Rule 13d-3 under the Exchange Act based upon information
furnished by the persons listed or contained in filings made by them with
the Commission. As of September 17, 1998, the Company had issued and
outstanding 11,214,451 Common Shares, the Company's only class of voting
securities outstanding. Unless otherwise indicated, beneficial ownership
disclosed consists of sole voting and dispositive power.
(2) Represents the total number of shares which are beneficially owned by a
group comprising Ira B. Lampert, Steve Jackel, Brian F. King, Keith
Lampert and Arthur Zawodny as a result of the terms of an Amended and
Restated Voting Agreement, dated as of February 28, 1997 (the "Voting
Agreement") pursuant to which each party to the Voting Agreement agreed to
vote any purchased shares or option shares acquired by such party under
the Company's Incentive Plan in accordance with the will of the holders of
a majority of all the shares issued under the Company's Incentive Plan.
(3) Includes 53,850 shares purchased in the open market, 245,000 shares
purchased pursuant to a purchase agreement with the Company, 55,000 shares
purchased in a private transaction from former employees of the Company
pursuant to the Management Equity provision of the Company's Stock
Incentive Plan and 705,000 shares underlying stock options, as to all of
which such person has sole dispositive power.
(4) Includes 267,667 shares underlying stock options, as to all of which such
person has sole dispositive power. Excludes 5,250 shares underlying
options which will not become exercisable within 60 days of September 17,
1998.
(5) Represents 28,000 shares purchased in the open market and 54,750 shares
underlying stock options.
(6) Represents 10,500 shares purchased in the open market and 19,750 shares
underlying stock options.
(7) Represents shares underlying stock options.
(8) Includes 55,000 shares purchased in the open market, 22,000 warrants
pursuant to a consulting agreement and 19,750 shares underlying stock
options. Excludes 109,000 shares underlying warrants which will not become
exercisable within 60 days of September 17, 1998.
(9) Represents 446,000 shares purchased in the open market and 19,750 shares
underlying stock options.
39
(10) Represents 108,250 shares purchased in the open market and 19,750 shares
underlying stock options.
(11) Includes 27,500 shares purchased pursuant to a purchase agreement with
the Company, 52,500 shares purchased in private transactions from former
employees of the Company pursuant to the Management Equity provision of
the Company's Stock Incentive Plan and 160,000 shares underlying stock
options, as to all of which such person has sole dispositive power.
Excludes 40,000 shares underlying options which will not become
exercisable within 60 days of September 17, 1998.
(12) Includes 20,000 shares purchased in the open market, 55,000 shares
purchased in private transactions from former employees of the Company
pursuant to the Management Equity provision of the Company's Stock
Incentive Plan and 115,500 shares underlying stock options, as to all of
which such person has sole dispositive power. Excludes 29,500 shares
underlying options which will not become exercisable within 60 days of
September 17, 1998.
(13) Includes 7,000 shares pursuant to a purchase agreement with the Company
and 37,000 shares underlying stock options, as to all of which such
person has sole dispositive power. Excludes 12,000 shares underlying
options which will not become exercisable within 60 days of September 17,
1998.
Item 13. Certain Relationships and Related Transactions
At June 30, 1998, 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 1998 in
connection with the loans from Mr. Benun and suspended payment of the loans.
The Company believes that any amounts which may otherwise have been due Mr.
Benun will be offset by the amounts which Mr. Benun will be found to owe the
Company when all claims by the Company against Mr. Benun are finally
arbitrated or adjudicated. See "Item 3 - Legal Proceedings."
The Company and Mr. Benun entered into and executed a Pledge Agreement on each
of March 7, 1994 and April 6, 1994 to secure the prompt payment of any
liability to the Company that Mr. Benun may incur as a result of the matters
then under investigation. Mr. Benun was terminated as Chief Executive Officer
on July 14, 1994. The Company holds 30,770 shares of the Company's Common
Stock owned by Mr. Benun and pledged to the Company in connection with the
Pledge Agreement.
On August 1, 1994, ELA Enterprises, Inc., a Company owned by Eli Arenberg, was
granted an option under the Company's Incentive Plan to purchase 10,000 Common
Shares at an exercise price of $3.00 per share, 10,000 Common Shares at an
exercise price of $4.00 per share and 10,000 Common Shares at an exercise
price of $5.00 per share, in connection with consulting services provided by
Mr. Arenberg to the Company pursuant to the ELA Enterprises, Inc. Consulting
Agreement. All options previously granted to Mr. Arenberg were canceled. In
addition, ELA Enterprises, Inc. will be paid at an hourly rate for consulting
services provided to the Company. Selling expenses include $56,000 and $48,000
for such consulting services and related expenses during the fiscal years
ended June 30, 1998 and 1997, respectively.
During the fiscal year ended June 30, 1996 the Company paid consulting fees and
expenses of approximately $218,000 to a firm, the president of which was
appointed Chief Operating Officer and President of the Company in January 1996.
On August 23, 1995, the Compensation Committee of the Board approved stock
purchase awards under the Company's Incentive Plan pursuant to which 500,000
Common Shares were made available for purchase by senior management of the
Company at a price per share equal to $5.375 per share (the closing price of
the Common Stock on August 23, 1995) pursuant to binding commitments to be
made by such persons by August 31, 1995. The Company received commitments for
the purchase of 444,000 of such shares. Each purchaser was also granted the
right to receive a contingent restricted stock award covering a number of
shares equal to the number of shares purchased by such purchaser. The
contingent restricted stock was to be issued based upon attainment of
increases in shareholder value in accordance with the Incentive Plan as
follows:
40
Percentage of Restricted Stock Fair Market Value Latest Attainment Date
- - ------------------------------ ----------------- ----------------------
33 1/3% $10.00 August 31, 1997
66 2/3% $15.00 February 28, 1999
100% $20.00 August 31, 2000
If issued, such contingent restricted shares were to vest over a three-year
period and were subject to forfeiture prior to vesting under certain
conditions.
Pursuant to purchase agreements (the "Purchase Agreements"), members of the
Company's senior management purchased shares of Common Stock (the "Purchased
Shares") pursuant to the terms of the Management Equity Provisions of the
Company's Incentive Plan. As payment for such shares, each purchaser executed
a full recourse note for the purchase price of such shares (each a "Note";
collectively, the "Notes") and pledged the Purchased Shares as security for
the payment of the Note. The Notes mature five years from the date of purchase
(May 7, 1996 in the case of the Note executed by Brian F. King and November 7,
1995 in the case of Notes executed by all other purchasers) and bear interest
at 6%.
Concurrently with the execution of their respective Purchase Agreements and
Notes, each purchaser entered into a Voting Agreement pursuant to which each
purchaser agreed to vote all of his Purchased Shares and contingent restricted
stock in accordance with the determination of the holders of a majority of all
of the Purchased Shares and contingent restricted stock held by the
purchasers. To effect the foregoing, each of the purchasers delivered to Mr.
Lampert an irrevocable proxy and agreed that prior to any transfer of
Purchased Shares and contingent restricted stock, such purchaser will cause
the transferee (A) to agree in writing with Mr. Lampert to be bound by the
provisions of the Voting Agreement and (B) to execute and deliver to Mr.
Lampert an irrevocable proxy.
Pursuant to Amendments to each of the Purchase Agreements dated February 28,
1997 (the "Amendments"), the Company was relieved of its obligation to issue
any contingent restricted stock. Instead, each member of the Company's senior
management received, as of December 22, 1996, options to purchase that number
of shares of Common Stock (the "Option Shares") equal to the number of
Purchased Shares purchased by such person. The options vested as to 20% of the
Option Shares covered thereby as of December 22, 1996 and the balance of the
shares covered thereby vest beginning December 31, 1996 in equal monthly
installments over a four-year period during the term of employment or
consultancy. The unvested portion will immediately become vested in the event
that the average closing price of the Common Stock for any consecutive 90
trading day period is at least $5.00. The unvested portion is cancelable upon
any termination of employment or consultancy (except for death, disability or
retirement).
Concurrently with the Amendments, the Voting Agreement and the irrevocable
proxies were amended and restated to include the Option Shares and to delete
the contingent restricted stock.
As of December 22, 1996, all outstanding options held by senior management and
directors of the Company that previously had an exercise price of up to $3.99
per share remained unchanged. All such options having an exercise price at
$4.00 a share or above (excluding those granted to ELA Enterprises, Inc.) were
revised as follows:
41
(a) The number of shares of Common Stock covered by each
option was reduced by 25% (the reduction was applied on a pro rata
basis first against the unvested installments of each option).
(b) The exercise price for 50% of the shares covered by
the revised option were repriced to be $2.00 per share, 25% were
repriced to be $2.50 per share and 25% to be $3.00 per share.
(c) Vesting of the repriced options remained unchanged.
The following tables detail the above changes in options held by senior
management exclusive of the options granted in lieu of the contingent
restricted stock awards discussed above and exclusive of the options described
in Item 11 - Table II (Option Grants in Fiscal 1997), which were granted
subsequent to December 22, 1996:
OPTIONS HELD PRIOR TO CHANGES OF 12/22/96(1) TERMS OF ORIGINAL GRANT
-------------------------------------------------------- --------------------------------
# OF END OF
UNDERLYING OPTION VESTED UNVESTED GRANT VESTING VESTING
SHARES PRICE ($) SHARES SHARES DATE PERIOD METHOD
---------- --------- ------ -------- ----- ------- -------
Ira B. Lampert 260,000 4.0000 172,500 87,500 9/30/94 8/31/98 quarterly
340,000 4.0000 252,500 87,500 7/1/93 8/31/97 quarterly
- - ----------------------------------------------------------------------------------------------------------------------------
Steve Jackel 25,000 3.0000 25,000 0 5/1/95 12/31/95 100%
75,000 4.0000 75,000 0 5/1/95 4/30/96 100%
200,000 4.0000 95,000 105,000 2/15/95 12/31/98 weekly
- - ----------------------------------------------------------------------------------------------------------------------------
Eli Shoer 75,000 4.0000 50,000 25,000 10/1/94 9/30/97 annual
75,000 3.2500 75,000 0 10/4/94 10/4/94 annual
- - ----------------------------------------------------------------------------------------------------------------------------
Brian F. King (2) 60,000 4.0000 0 60,000 5/7/96 5/7/99 annual
- - ----------------------------------------------------------------------------------------------------------------------------
Lawrence Pesin (2) 60,000 4.0000 0 60,000 5/7/96 5/7/99 annual
- - ----------------------------------------------------------------------------------------------------------------------------
Arthur Zawodny 12,000 3.2500 12,000 0 10/21/94 10/21/94 annual
8,000 3.2500 4,000 4,000 10/21/94 5/31/98 annual
12,000 2.8125 6,000 6,000 5/15/96 5/15/97 annual
- - ----------------------------------------------------------------------------------------------------------------------------
(1) For each person listed, excludes contingent restricted stock awards.
(2) Excludes a stock option for $10,000 Common Shares at $1.81 purchased in a
private transaction for a former employee of the Company pursuant to the
management equity provision of the Company's Stock Incentive Plan.
42
OPTIONS HELD AFTER 12/22/96 WITH
OPTIONS HELD AFTER 12/22/96 ORIGINAL EXERCISE PRICE
------------------------------------------------------ -----------------------------------------
# OF NUMBER
OPTIONS OF SHARES SHARES
CANCELED SHARES VESTED UNVESTED PRICE ($) VESTED UNVESTED
-------- ------ ------ -------- --------- ------ --------
Ira B. Lampert (65,000) 195,000 129,375 65,625 4.0000 0 0
(85,000) 255,000 189,375 65,625 4.0000 0 0
- - -----------------------------------------------------------------------------------------------------------------------------
Steve Jackel 0 25,000 25,000 0 3.0000 25,000 0
(18,750) 56,250 56,250 0 4.0000 0 0
(50,000) 150,000 71,250 78,750 4.0000 0 0
- - -----------------------------------------------------------------------------------------------------------------------------
Eli Shoer (18,750) 56,250 37,500 18,750 4.0000 0 0
0 75,000 75,000 0 3.2500 75,000 0
- - -----------------------------------------------------------------------------------------------------------------------------
Brian F. King (2) (15,000) 45,000 0 45,000 4.0000 0 0
- - -----------------------------------------------------------------------------------------------------------------------------
Lawrence Pesin (2) (15,000) 45,000 0 45,000 4.0000 0 0
- - -----------------------------------------------------------------------------------------------------------------------------
Arthur Zawodny 0 12,000 12,000 0 3.2500 12,000 0
0 8,000 4,000 4,000 3.2500 4,000 4,000
0 12,000 6,000 6,000 2.8125 6,000 6,000
- - -----------------------------------------------------------------------------------------------------------------------------
OPTIONS HELD AFTER 12/22/96 WITH NEW EXERCISE PRICE
------------------------------------------------------------------------------------------------------------
$2.00 PRICE $2.50 PRICE $3.00 PRICE TOTAL OUTSTANDING
----------- ----------- ----------- -----------------
VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED
- - ---------------------------------------------------------------------------------------------------------------------------------
Ira B. Lampert 64,687 32,813 32,344 16,406 32,344 16,406 129,375 65,625
94,687 32,813 47,344 16,406 47,344 16,406 189,375 65,625
- - ---------------------------------------------------------------------------------------------------------------------------------
Steve Jackel 0 0 0 0 0 0 25,000 0
28,125 0 14,062 0 14,063 0 56,250 0
35,625 39,375 17,812 19,688 17,813 19,687 71,250 78,750
- - ---------------------------------------------------------------------------------------------------------------------------------
Eli Shoer 18,750 9,375 9,375 4,687 9,375 4,688 37,500 18,750
0 0 0 0 0 0 75,000 0
- - ---------------------------------------------------------------------------------------------------------------------------------
Brian F. King (2) 0 22,500 0 11,250 0 11,250 0 45,000
- - ---------------------------------------------------------------------------------------------------------------------------------
Lawrence Pesin (2) 0 22,500 0 11,250 0 11,250 0 45,000
- - ---------------------------------------------------------------------------------------------------------------------------------
Arthur Zawodny 0 0 0 0 0 0 12,000 0
0 0 0 0 0 0 4,000 4,000
0 0 0 0 0 0 6,000 6,000
- - ---------------------------------------------------------------------------------------------------------------------------------
The following executive officers of the Company are indebted to the Company
for amounts in excess of $60,000 as a result of purchases Pursuant to the
Purchase Agreements:
Ira B. Lampert....................................................$1,588,272.74
Brian F. King.......................................................$350,354.28
Steve Jackel........................................................$622,852.05
43
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The following consolidated financial statements of the Company and the notes
thereto, the related reports thereon of the certified public accountants and
financial statement schedule are filed under Item 8 of this Report:
(a) (1) Financial Statements
Page
Independent Auditors' Report..................................... F-1
Consolidated Balance Sheets at June 30, 1998 and 1997............ F-2
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996................................... F-3
Consolidated Statements of Cash Flows for the year ended
June 30, 1998, 1997 and 1996................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1998, 1997 and 1996............................. F-5
Notes to Consolidated Financial Statements....................... F-6
(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves......F-23
All other financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the instructions to Item 8 or are inapplicable and
therefore have been omitted.
(3) Exhibits:
Exh. No. Page
-------- ----
3.1 Certificate of Incorporation of the Company(1)........................................................
3.2 Amendments to Certificate of Incorporation of the Company(1)..........................................
3.3 Amendment No. 4 to Certificate of Incorporation of the Company(3).....................................
3.4 Amendment No. 5 to Certificate of Incorporation of the Company(18)....................................
3.5 Restated By-Laws of the Company(18)...................................................................
4.1 Form of Common Stock Certificate(1)...................................................................
4.2 Purchase Agreement dated July 30, 1998, between Dreyfus High Yield Strategies Fund and the Company....
4.3 Indenture, dated July 30, 1998, between Bankers Trust Company and the Company.........................
4.4 Registration Rights Agreement dated July 30, 1998, between Dreyfus High Yield Strategies Fund and
the Company...........................................................................................
9.1 Voting Agreement, dated as of November 7, 1995, as amended,
among Ira B. Lampert, Eli Shoer, Steve Jackel, George Erfurt
Arthur Zawodny, Brian F. King and Lawrence Pesin(16)..................................................
9.2 Agreement dated as of July 18, 1997, by and among Brian F. King,
Lawrence Pesin and Keith Lampert (17).................................................................
10.1 Settlement Agreement between the Company and the Commission
effective September 1, 1994(11).......................................................................
10.2 Employment Agreement between the Company and Ira B. Lampert,
dated as of July 15, 1993(6)..........................................................................
44
Exh. No. Page
-------- ----
10.3 Employment Agreement between Concord France and Jean Louis Vinant
dated as of July 1, 1994(11)..........................................................................
10.4 Employment Agreement between the Company and Hans Dieter Kuehn
dated as of April 1, 1993(6)..........................................................................
10.5 Employment Agreement between the Company and Eli Shoer
dated as of July 1, 1993(6)...........................................................................
10.6 Pledge Agreement between the Company and Benun
dated as of March 7, 1994(10).........................................................................
10.7 Pledge Agreement between the Company and Benun
dated as of April 6, 1994(10).........................................................................
10.8 Compensation Trade Agreement between Concord HK and
Shenzhen Baoan Contat Camera Factory and translation
dated November 23, 1993(7)............................................................................
10.9 Processing Trade Agreement, dated October 28, 1986,
between Concord Camera Enterprises Company Ltd. and
Baoan County Foreign Trade Company and Concord Electronic
Factory Henggang, Baoan County and translations)(1)...................................................
10.10 Filing Certificate for Joint Venture, Cooperative Venture,
Compensation Trade and Foreign-Related Processing and
Assembly Agreements (Contracts) issued by the Foreign
Economic Relations Office People's Government of Baoan
County, Shenzhen November 1, 1986 and translations)(1)................................................
10.11 Processing and Assembly Contract, dated July 25, 1987,
between Concord Camera Enterprises Company Ltd. and
Baoan County Foreign Trade Company and Concord Electronic
Factory, Henggang, Baoan County and translations)(1)..................................................
10.12 Processing Trade Agreement, dated September 6, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan County
and translations)(1)..................................................................................
10.13 Filing Certificate for Joint Venture, Cooperative Venture,
Compensation Trade and Foreign-Related Processing and
Assembly Agreements (Contracts) issued by the Foreign
Economic Relations Office, People's Government of Baoan
County, Shenzhen on September 12, 1985 and translations)(1)...........................................
10.14 Notice Concerning the Approval of Import Projects issued
by the Foreign Economic Relations Office, Baoan County,
Shenzhen on September 12, 1985 and translations)(1)...................................................
10.15 Supplementary Agreement, dated September 27, 1985,
between Dialbright Company Limited and Baoan County
Foreign Trade Company and Dialbright Electronic Factory,
Henggang, Baoan County and translations)(1)...........................................................
10.16 Notice Concerning the Approval of Supplementary Agreement
dated September 27, 1985 issued by the Foreign Economic Relations
Office, Baoan County on October 4, 1985 and translations)(1)..........................................
10.17 Processing and Assembly Contract, dated September 27, 1985,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translations(1)......................................................................
45
Exh. No. Page
-------- ----
10.18 Supplementary Agreement, dated October 30, 1985, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang,
Baoan County and translations(1)......................................................................
10.19 Processing and Assembly Contract, dated December 17, 1985,
between Dialbright Company Limited and Baoan County Foreign
Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translations(1)......................................................................
10.20 Processing and Assembly Contract between Dialbright Company
Limited and Baoan County Foreign Trade Company and Dialbright
Electronic Factory, Henggang, Baoan County and translations(1)........................................
10.21 Supplementary Agreement, dated July 9, 1986, between Dialbright
Company Limited and Baoan County Foreign Trade Company and
Dialbright Electronic Factory, Henggang, Baoan County and translations(1).............................
10.22 Processing and Assembly Contract, dated July 11, 1986, between
Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan
County and translations(1)............................................................................
10.23 Processing and Assembly Contract, dated August 14, 1986, between
Dialbright Company Limited and Baoan County Foreign Trade Company
and Dialbright Electronic Factory, Henggang, Baoan County and translations(1).........................
10.24 Supplementary Agreement, dated August 26, 1986, between Dialbright
Company Limited and Baoan County Foreign Trade Company and
Dialbright Electronic Factory, Henggang, Baoan County and translations(1).............................
10.25 Agreement for the Provision of Land, Management Services and
Labor between Company and Wan Kong Economic Development
Corporation of Baoan County, dated July 10, 1988 (English Translation
with Chinese Original attached)(2)....................................................................
10.26 Agreement between Dialbright and Development Corporation,
Baoan County, dated September 23, 1988(2).............................................................
10.27 Agreement between Dialbright and Henggang Economic Development
Corporation, dated September 23, 1988 and translation(2)..............................................
10.28 Construction Works Contract between Concord Factory Henggang
and Henggang Economic Development Corporation dated
February 25, 1989 and translation(2)..................................................................
10.29 Agreement between Concord HK and Baoan Henggang Joint Stock
Investment Company, Ltd., dated February 15, 1993 and translation(4)..................................
10.30 Contract for the Utilization of Land in Factory Construction
between Concord HK and Henggang Investment Holdings Limited
dated June 20, 1994 and translation(11)...............................................................
10.31 Supplemental Agreement to the Contract for the Utilization
of Land in Factory Construction between Concord HK and
Henggang Investment Holdings Limited dated June 20, 1994 and translation(11)..........................
10.32 Loan and Security Agreement between the Company,
Concord-Keystone Sales Corp. and CIT dated March 30, 1994(9)..........................................
46
Exh. No. Page
--------- ----
10.33 Loan Agreement between Concord HK and BOEA dated June 15, 1993(6)
10.34 Amendment to Loan Agreement between Concord HK and BOEA
dated January 11, 1994(8).............................................................................
10.35 Incentive Plan, effective November 29, 1993(13).......................................................
10.36 Amended and Restated 1988 Stock Option Plan(4)........................................................
10.27 Third Extension and Amendment of Lease dated April 18, 1994
by and between Howard H. Gelb and Eunice Gelb and the Company(11).....................................
10.38 Employment Agreement between the Company and Eli Shoer dated
as of October 1, 1994(12).............................................................................
10.39 Employment Agreement between the Company and Gary Kaess
dated as of November 1994(12).........................................................................
10.40 Amended and Restated Employment Agreement between
Concord Camera HK Limited and Arthur Zawodny dated
as of October 21, 1994(12)............................................................................
10.41 Consulting Agreement between the Company Arid Harjac Consulting, Inc.,
dated as of May 1, 1995(13)...........................................................................
10.42 First Amendment to Revolving Line of Credit and Security
Agreement between the Company and the Bank of East Asia Limited,
New York Branch (14)..................................................................................
10.43 Employment Agreement between the Company and Steve Jackel dated
as of January 1, 1996. (15)...........................................................................
10.44 Amended and Restated Employment Agreement between the Company
and Ira B. Lampert dated as of May 1, 1997(18)........................................................
21. List of Subsidiaries of Company(6)....................................................................
27. Financial Data Schedule...............................................................................
The Financial Statement Schedules required to be filed pursuant to this Item
14(d) are listed above.
(1) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's Registration Statement on Form S-18
(No. 33-21156), declared effective July 12, 1988 and is incorporated
herein by reference.
(2) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's annual report on Form 10-K for the
fiscal year ended June 30, 1989 and is incorporated herein by reference.
(3) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to Company's interim report on Form 8-K dated May
29, 1992 and is incorporated herein by reference.
(4) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's Registration Statement on Form
S-1 (33-59398), filed with the Commission on March 11, 1993 and is
incorporated herein by reference.
(5) This document has been previously filed as Exhibit 10.46 to Amendment No.
2 to the Company's Registration Statement on Form S-1, filed June 1, 1993
and is incorporated herein by reference.
(6) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1993 and is incorporated herein by
reference.
(7) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's interim report on Form 8-K dated
November 23, 1993 and is incorporated herein by reference.
47
(8) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended December 31, 1993 and is incorporated herein
by reference.
(9) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's interim report on Form 8-K
dated March 30, 1994 and is incorporated herein by reference.
(10) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended March 31, 1994 and is incorporated herein by
reference.
(11) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-K for
the Fiscal Year ended June 30, 1994 and is incorporated herein by
reference.
(12) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's quarterly report on Form 10-Q
for the fiscal period ended March 3 1, 1995 and is incorporated herein by
reference.
(13) This document has been previously filed with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-K for
the Fiscal Year ended June 30, 1995 and is incorporated herein by
reference.
(14) This document has been previously filed with the Securities and Exchange
Commission as a Form 10-Q for the fiscal period ended September 30, 1995
and is incorporated herein by reference.
(15) This document has been previously filed with the Securities and Exchange
Commission as a Form 10-Q for the Fiscal period ended March 31, 1996 and
is incorporated herein by reference.
(16) This document has been previously filed with the Securities and Exchange
Commission as an exhibit to a Schedule 13D Amendment No. 1 filed on March
4, 1997.
(17) This document has been previously filed with the Securities and Exchange
Commission as an exhibit to a Schedule 13D Amendment No. 2 filed on July
14, 1997.
(18) 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, 1997 and is incorporated herein by
reference.
48
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, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1998. Our
audits also included the financial statement schedule listed in the Index in
Item 14(a)(2). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Concord Camera Corp. and subsidiaries as of June 30, 1998 and 1997
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
MetroPark, New Jersey
August 24, 1998
F-1
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp. Consolidated Balance Sheets
Proforma
June 30, June 30, June 30,
1998 1998 1997
---- ---- ----
(unaudited)
ASSETS
Current Assets:
Cash $21,225,699 $ 7,119,699 $ 5,297,820
Accounts receivable, net 19,961,534 19,961,534 9,866,962
Inventories 21,458,595 21,458,595 15,752,402
Prepaid expenses and other current assets 3,238,129 3,238,129 3,091,669
----------- ----------- -----------
Total current assets 65,883,957 51,777,957 34,008,853
Plant and equipment, net 15,930,486 15,930,486 13,865,777
Goodwill, net 727,633 727,633 1,089,217
Other assets 4,389,703 3,645,703 4,124,396
----------- ----------- -----------
Total assets $86,931,779 $72,081,779 $53,088,243
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $10,822,012 $10,822,012 $ 7,976,315
Current portion of long-term debt 35,676 35,676 33,349
Current obligations under capital leases 870,173 870,173 790,426
Accounts payable 14,213,757 14,213,757 8,665,622
Accrued expenses 4,418,604 4,418,604 2,232,289
Income taxes payable 379,662 379,662 2,831
Other current liabilities 224,781 224,781 313,965
----------- ----------- -----------
Total current liabilities 30,964,665 30,964,665 20,014,797
Deferred income taxes 689,169 689,169 572,492
Long-term debt 2,460,784 2,460,784 396,570
Senior Notes Payable, net of original issue discount 14,850,000 -- --
Obligations under capital leases 1,409,865 1,409,865 2,000,002
Other long-term liabilities 452,548 452,548 602,549
----------- ----------- -----------
Total liabilities 58,827,031 35,977,031 23,586,410
----------- ----------- -----------
COMMITMENT AND CONTINGENCIES
Stockholders' Equity:
Common stock, no par value, 40,000,000 authorized; 11,214,451 and 40,094,559 40,094,559 39,361,893
10,944,026, issued as of June 30, 1998 and 1997, respectively.
Paid in capital 850,786 850,786 850,786
Deficit (1,622,215) (1,622,215) (7,635,654)
Notes receivable arising from common stock purchase agreements (2,765,463) (2,765,463) (2,622,273)
----------- ----------- -----------
36,557,667 36,557,667 29,954,752
Less: treasury stock, at cost; 63,553 shares (452,919) (452,919) (452,919)
----------- ----------- -----------
Total stockholders' equity 36,104,748 36,104,748 29,501,833
----------- ----------- -----------
Total liabilities and stockholders' equity $86,931,779 $72,081,779 $53,088,243
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-2
Concord Camera Corp.
Consolidated Statement of Operations
For the year ended June 30,
1998 1997 1996
---- ---- ----
Net sales $102,663,451 $65,747,433 $66,781,851
Cost of products sold 74,771,683 48,722,416 49,292,625
------------ ----------- -----------
Gross profit 27,891,768 17,025,017 17,489,226
Selling expenses 9,233,781 6,949,600 7,570,658
General and administrative expenses 10,776,643 9,247,489 9,395,677
Financial expenses 1,668,233 1,465,169 1,488,672
Other (income), net (516,694) (122,513) (29,764)
Legal expenses and settlement costs 212,818 200,810 718,359
------------ ----------- -----------
Income (loss) before income taxes 6,516,987 (715,538) (1,654,376)
Provision for income taxes 503,548 117,124 79,820
------------ ----------- -----------
Net income (loss) $ 6,013,439 $ (832,662) $(1,734,196)
============ =========== ============
Weighted average common shares outstanding - 10,938,934 10,880,473 10,813,224
basic
Incremental shares using treasury stock method 615,048 0 0
------------ ----------- -----------
Weighted average common shares outstanding -
diluted 11,553,982 10,880,473 10,813,224
============ =========== ============
Basic earnings (loss) per share $0.55 $(0.08) $(0.16)
===== ======= =======
Diluted earnings (loss) per share $0.52 $(0.08) $(0.16)
===== ======= =======
See accompanying notes to consolidated financial statements.
F-3
Concord Camera Corp.
Consolidated Statements of Cash Flows
For the year ended June 30,
--------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income (loss) $6,013,439 ($832,662) ($1,734,196)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 3,316,328 3,151,144 3,023,209
Net (gain) loss on sale of property & equipment -- -- 19,881
Interest income on notes receivable arising from common stock purchase (143,190) (143,190) (92,583)
agreements
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (10,094,572) (2,316,554) 1,039,382
Decrease (increase) in inventories (5,706,193) 1,739,213 1,373,708
(Increase) in prepaid expenses and other current assets (146,460) (555,245) (111,474)
(Increase) in other assets (81,985) (610,414) (1,538,316)
Increase (decrease) in accounts payable 5,548,135 2,665,294 (993,529)
Increase (decrease) in accrued expenses 2,186,315 59,426 (729,419)
Increase (decrease) in income taxes payable 376,831 (76,219) (215,534)
Increase (decrease) in other current liabilities (89,184) (347,770) 356,660
Increase (decrease) in deferred income taxes 116,677 129,603 (41,953)
Increase (decrease) in other long-term liabilities (150,001) (64,242) 666,143
----------- ---------- ----------
Total adjustments (4,867,299) 3,631,046 2,756,075
----------- ---------- ----------
Net cash provided by operating activities 1,146,140 2,798,384 1,021,879
----------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,458,775) (3,188,424) (2,531,327)
Proceeds from sale of long-term assets -- -- 2,004,150
Decrease in investment in and advances to joint ventures -- -- 91,984
----------- ---------- ----------
Net cash (used in) investing activities (4,458,775) (3,188,424) (435,193)
----------- ---------- ----------
Cash flows from financing activities:
Net borrowings under short-term debt agreements 2,845,697 1,607,343 626,909
Net borrowings (repayments) of long-term debt 2,066,541 (30,222) 170,873
Principal payments under capital lease obligations (510,390) (886,031) (961,133)
Net proceeds from exercise of common stock options 732,666 -- 40,219
----------- ---------- ----------
Net cash provided by (used in) financing activities 5,134,514 691,090 (123,132)
----------- ---------- ----------
Net increase in cash 1,821,879 301,050 463,554
Cash at beginning of period 5,297,820 4,996,770 4,533,216
----------- ---------- ----------
Cash at end of period $7,119,699 $5,297,820 $4,996,770
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
Concord Camera Corp.
Consolidated Statements of Stockholders' Equity
Common stock
------------
Notes
receivable
arising from
common
stock
purchase
Issued shares Stated Value Paid in capital (Deficit) agreements
------------- ------------ --------------- --------- ------------
Balance as of June 30, 1995 10,490,526 $36,935,174 $850,786 ($5,068,796) --
Exercise of stock options 453,500 2,426,719 -- -- ($2,386,500)
Interest on notes receivable -- -- -- -- (92,583)
arising from Common Stock
purchase agreements
Net (loss) -- -- -- (1,734,196) --
---------- ------------ ---------- ----------- -----------
Balance as of June 30, 1996 10,944,026 39,361,893 $850,786 (6,802,992) (2,479,083)
Interest on notes receivable -- -- -- -- (143,190)
arising from Common Stock
purchase agreements
Net (loss) -- -- -- (832,662) --
---------- ------------ ---------- ----------- -----------
Balance as of June 30, 1997 10,944,026 39,361,893 850,786 (7,635,654) (2,622,273)
Exercise of stock options 270,425 732,666 -- -- --
Interest on notes receivable -- -- -- -- (143,190)
arising from Common Stock
purchase agreements
Net income -- -- -- 6,013,439 --
---------- ------------ ---------- ----------- -----------
Balance as of June 30, 1998 $11,214,451 $40,094,559 $850,786 ($1,622,215) ($2,765,463)
========== ============ ========== =========== ===========
Treasury stock
--------------
Shares Cost Total
------ ---- -----
Balance as of June 30, 1995 63,553 ($452,919) $32,264,245
Exercise of stock options -- -- 40,219
Interest on notes receivable -- -- (92,583)
arising from Common Stock
purchase agreements
Net (loss) -- -- (1,734,196)
------- --------- -----------
Balance as of June 30, 1996 63,553 (452,919) 30,477,685
Interest on notes receivable -- -- (143,190)
arising from Common Stock
purchase agreements
Net (loss) -- -- (832,662)
------- --------- -----------
Balance as of June 30, 1997 63,553 (452,919) 29,501,833
Exercise of stock options -- -- 732,666
Interest on notes receivable -- -- (143,190)
arising from Common Stock
purchase agreements
Net income -- -- 6,013,439
------- --------- -----------
Balance as of June 30, 1998 63,553 ($452,919) $36,104,748
======= ========= ===========
See accompanying notes to consolidated financial statements.
F-5
CONCORD CAMERA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Concord Camera Corp. ("Concord") and its wholly-owned subsidiaries, Concord
Camera HK Limited ("Concord HK") a Hong Kong corporation, Concord Camera GmbH
("Concord GmbH"), Concord Camera Europe Ltd. (formerly Concord Camera UK Ltd)
("Concord UK"), Concord-Keystone Sales Corporation ("Concord Keystone"),
Concord Holding Corp. ("Concord Holding"), Concord Camera Canada a division of
Concord Camera Illinois Corp. ("Concord Canada"), Concord Camera (Panama)
Corp. ("Concord Panama"), Concord Camera (Hungary) ("Concord Hungary") and
Concord Camera France SARL ("France") (collectively, the "Company"). All
material intercompany balances and transactions have been eliminated.
The Company terminated the operations of Concord Camera Canada Corp., Concord
Hungary and Concord Panama during June 1995, December 1995 and March 1997,
respectively, as part of its plan to consolidate its worldwide operations and
focus more closely on its core business. The Company will continue to service
customers throughout Canada, Hungary and Latin America through Concord Canada,
Concord UK and Concord Keystone, respectively.
Nature of Business
The Company is engaged in the design, manufacture, marketing and worldwide
distribution of cameras and related accessories. Substantially all of the
Company's products are assembled in the People's Republic of China ("PRC"). As
a result, the Company's operations could be adversely affected by political
instability in the PRC. Consolidated sales to the Company's three largest
customers in Fiscal 1998 amounted to approximately $56,592,000 (55.1%).
Consolidated sales to the Company's two largest customers in Fiscal 1997 and
1996 amounted to approximately $26,585,000 (40.4%), and $26,685,000 (40.0%).
The Company believes that the loss of such customers would have a material
effect on the Company and its subsidiaries taken as a whole. No other customer
accounted for 10% or more of consolidated sales during the years ended June
30, 1998, 1997 or 1996.
Reclassifications
Certain amounts have been reclassified to conform with current year
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-6
Cash and Cash Equivalents
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out basis. Inventories are reviewed quarterly for both
obsolescence and lower of cost or market issues at which time valuation
allowances, if required, are established. In determining lower of cost or
market, the Company reviews current sales prices, sales projections and market
conditions to ensure inventory is not stated above net realizable value.
Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 128, Earnings per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share are calculated on a basis similar to
fully diluted earnings per share. All applicable earnings per share amounts
have been presented to conform to the Statement 128 requirements. Options to
purchase shares of common stock were outstanding during Fiscal 1997 and 1996 but
were not included in the calculation of diluted earnings per share because the
effect would be antidilutive.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income ("Statement 130"). Statement 130 established standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Statement 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Statement 130 is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect to be significantly impacted by the adoption of Statement 130.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 established standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
established standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for
financial statements for fiscal years beginning after December 15, 1997 and,
therefore, the Company will adopt the new requirements retroactively in Fiscal
1999. Management has not completed its review of Statement 131, but the
adoption of this Statement may increase the number of the Company's reported
segments.
Plant and Equipment
Plant and equipment is stated at cost. Depreciation and amortization are
computed based upon the estimated useful lives of the respective assets using
accelerated methods for income tax purposes and the straight-line method for
financial reporting purposes. These lives range from two to forty years. Small
F-7
tools and accessories used in production in the PRC are charged to operations
when purchased. Amortization of assets recorded under capital leases is
included in depreciation and amortization expense.
Intangible Assets
Cost in excess of net assets acquired (goodwill) was being amortized on a
straight-line basis over its estimated life of fifteen years. During Fiscal
1997, the Company revised the estimated life of certain goodwill to three
remaining years and is amortizing the balance of this goodwill over this
period. Accumulated amortization at June 30, 1998 and 1997 for such intangible
asset is approximately $1,826,000 and $1,405,000, respectively.
Impairment of Long-Lived Assets
In accordance with the Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of" the Company records impairment losses when indications of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. No
impairment indicators were noted for the periods ended June 30, 1998, 1997,
and 1996.
Other Assets
Other assets include trademarks, patents, licensing fees, deposits,
capitalized costs and non current receivables. Trademarks, patents, licensing
fees and capitalized costs are amortized on a straight line basis over their
estimated useful lives.
Advertising
Advertising costs are expensed as incurred and included in selling expenses.
Advertising allowances and other discounts totaled approximately $793,000,
$876,000, and $889,000 in Fiscal 1998, 1997 and 1996, 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, 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. Cumulative translation adjustments are
not material. Gains or losses resulting from foreign currency transactions are
included in "Other (income) expense, net" in the Consolidated Statements of
Operations. For the fiscal years ended June 30, 1998, 1997 and 1996,
consolidated other (income) expense, net includes approximately ($22,000),
$192,000, and ($103,000), respectively, of net foreign currency (gains) losses
from remeasurement.
F-8
Forward Exchange Contracts
During the Fiscal years ended June 30, 1998, 1997 and 1996, the Company's
hedging activities were immaterial and as of June 30, 1998 there were no
forward exchange contracts outstanding. The Company continues to analyze the
benefits and costs associated with hedging against foreign currency
fluctuations.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce preferred tax assets to the amount expected to be
realized.
Stock Based Compensation
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
option plans. Under APB 25, compensation expense is calculated at the time of
option grant based upon the difference between the exercise price of the
option and the fair market value of the Company's common stock at the date of
grant recognized over the vesting period.
Revenue Recognition
Revenues are recorded when the product is shipped to a customer net of
appropriate reserves for returns.
NOTE 2 -- ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
June 30
1998 1997
---- ----
Trade accounts receivable $20,524,657 $10,869,435
Less: Allowances for doubtful accounts,
discounts and allowances (563,123) (1,002,473)
----------- -----------
$19,961,534 $ 9,866,962
=========== ===========
NOTE 3 -- INVENTORIES:
Inventories are comprised of the following:
June 30
1998 1997
---- ----
Raw material and components $13,033,653 $10,517,322
Finished goods 8,424,942 5,235,080
----------- -----------
$21,458,595 $15,752,402
=========== ===========
F-9
During the fourth quarter of Fiscal 1996, the Company recorded inventory
provisions totaling $3,035,000 on certain 35 millimeter camera products and
related inventory. The Company has suspended production of certain 35
millimeter conventional camera models that it produced in the past and
anticipate producing in the future. As a consequence, provisions for certain
components as well as certain inventory related items for those models were
recorded in order to reduce their carrying value to net realizable value.
NOTE 4 -- PLANT AND EQUIPMENT:
Plant and equipment consist of the following:
June 30
1998 1997
---- ----
Building and building under capital lease $ 6,061,376 $ 5,288,671
Equipment and equipment under capital lease 18,979,857 15,907,081
Office furniture and equipment 4,471,283 3,990,970
Automobiles 237,467 310,588
Leasehold improvements 1,072,622 944,799
----------- -----------
30,822,605 26,442,309
Less: Accumulated depreciation and amortization (14,892,119) (12,576,532)
----------- -----------
$15,930,486 $13,865,777
=========== ===========
NOTE 5 -- SHORT-TERM DEBT:
Short term debt is comprised of the following:
June 30
1998 1997
---- ----
Non-notification factoring with recourse facility $ 7,396,000 --
U.S. bank facility -- $3,000,000
U.S. credit facility 687,000 1,143,000
Hong Kong credit facility 2,128,000 3,427,000
Canadian working capital facility 611,000 406,000
----------- ----------
$10,822,000 $7,976,000
=========== ==========
Non-Notification Factoring with Recourse Facility
During the last quarter of Fiscal 1998, Concord HK consummated a $10,000,000
Non-Notification Factoring with Recourse Facility (the "Factoring Facility")
that is guaranteed by the Company, is secured by certain accounts receivables of
the Company's Hong Kong operations and bears interest at 1.5% above prime
lending rate. Availability under the Factoring Facility is subject to advance
formulas based on eligible accounts receivable with no minimum borrowings. The
Company utilized the Factoring Facility during the fourth quarter of Fiscal 1998
to replace its revolving credit facility with a U.S. bank.
F-10
At June 30, 1998, approximately $7,396,000 was outstanding and classified as
short-term debt under the Factoring Facility.
U.S. Credit Facility
The Company has a $4,500,000 credit facility (the "U.S. Credit Facility") which
expires on May 31, 1999 that is secured by accounts receivable, inventory and
other related assets of the Company's United States operations and bears
interest at 1.5% above prime lending rate, which was 8.5% at June 30, 1998.
Availability is subject to advance formulas based on eligible inventory and
accounts receivable with interest calculated on borrowing of $1,500,000. At June
30, 1998, approximately $687,000 was outstanding and classified as short-term
debt under the U.S. Credit Facility.
Hong Kong Credit Facility
Concord HK has a credit facility (the "HK Facility") that provides Concord HK
with up to $6,900,000 of financing as follows: letters of credit and standby
letters of credit of up to $2,825,000, overdraft and packing loans of up to
$3,600,000 and an installment loan of $475,000. The installment loan was
utilized in part to repay the outstanding mortgage obligation on the Hong Kong
office property See "Note 6". As of June 30, 1998, approximately $3,480,000 was
utilized and approximately $2,945,000 was available under the HK Facility.
Approximately $2,128,000 of the total $3,480,000 utilized was in the form of
trade finance, including but not limited to import letters of credit. The HK
Facility, which is payable on demand, bears interest at 2% above prime lending
rate for letters of credit and 2.25% above prime lending rate for overdraft and
packing loans. At June 30, 1998, the prime lending rate was 10%. In connection
with the HK Facility, Concord HK has placed a $1,252,000 time deposit with the
lender which is included in prepaid and other current assets at June 30, 1998
and such deposit is pledged as collateral for the HK Facility. In addition, all
amounts outstanding under the HK Facility are guaranteed by Concord.
Canadian Working Capital Facility
On November 25, 1996, the Company obtained a $1,090,000 working capital facility
(the "Canadian Facility") with a Canadian bank which is secured by accounts
receivable, inventory and other related assets of the Company's Canadian
operations and bears interest at 1% above the Canadian prime lending rate, which
was 5.5% at June 30, 1998. Availability under the Canadian Facility is subject
to advance formulas based on eligible accounts receivable and seasonable
inventory eligibility with no minimum borrowings and is subject to monthly
covenant requirements. At June 30, 1998, approximately $611,000 was outstanding
and classified as short-term debt. Concord Canada did not meet the effective net
worth covenant at June 30, 1998 as required under the TDB Facility.
The weighted average interest rate on the Company's short-term borrowings was
approximately 11.2% and 10.4% at June 30, 1998 and 1997, respectively.
Due to the short-term nature of these debt instruments the Company believes
that the carrying amount approximates its fair value.
In the fourth quarter of Fiscal 1997, Hong Kong Finance Company, extended to
Concord HK a five-year equipment leasing facility in the amount of approximately
$1,100,000. At June 30, 1998, approximately $672,000 was outstanding and
classified as capital lease obligations.
F-11
NOTE 6 -- LONG-TERM DEBT:
Long-term debt consists of the following:
June 30
1998 1997
---- ----
Mortgage payable through July 9, 1999, monthly payments of interest
only at 12.986%. Facility is secured by Company owned manufacturing
facilities in Boan County, Shenzhen Municipal, PRC. $2,100,000 --
Mortgage payable through October 2005, monthly principal and interest
(at 10.75% per annum) payments of $6,658. Outstanding balance is
guaranteed by Concord See "Note 5 - Short-Term Debt" 396,460 $429,919
---------- --------
2,496,460 429,919
Current portion of long-term debt (35,676) (33,349)
---------- --------
Long-term portion $2,460,784 $396,570
========== ========
The carrying amount of the Company's long-term borrowings approximates its
fair value.
Future maturities of long-term debt, exclusive of capital lease obligations,
are as follows: Fiscal Year:
1999....................... $35,676
2000....................... 2,140,950
2001....................... 45,915
2002....................... 51,305
2003....................... 57,661
Thereafter ....................... 164,953
----------
$2,496,460
==========
Senior notes payable
On July 30, 1998, the Company consummated a private offering of $15 million of
its senior notes. The notes bear interest at 11%, and the maturity date is July
15, 2005. Interest payments are due quarterly. The agreement contains certain
restrictive covenants relating to, among other things, incurrence of additional
indebtedness and dividend and other payment restrictions affecting subsidiaries.
The unaudited Pro Forma Consolidated Balance Sheet at June 30, 1998 reflects
this transaction as if it had occurred on June 30, 1998.
NOTE 7 -- 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.
F-12
Stock option activity is as follows:
Number of Shares Option price per share
---------------- ----------------------
Outstanding June 30, 1995 1,184,600 $1.69 - $9.00
Canceled (120,750) $2.19 - $8.31
Granted 960,500 $2.19 - $5.50
Exercised (456,000) $1.69 - $5.38
------------ -------------
Outstanding June 30, 1996 1,568,350 $2.13 - $9.00
Canceled (1,181,900) $1.81 - $8.31
Granted 986,000 $1.75 - $3.00
Exercised -- --
------------ -------------
Outstanding June 30, 1997 1,372,450 $1.75 - $9.00
Canceled (96,550) $2.69 - $9.00
Granted 220,513 $1.90 - $5.00
Exercised (247,925) $1.81 - $3.81
------------ -------------
Outstanding June 30, 1998 1,248,488 $1.75 - $9.00
============ =============
At June 30, 1998, 69,187 shares are available for future grants.
For financial reporting purposes, 444,000 shares of Common Stock, which were
issued in exchange for notes of $2,386,500 pursuant to the Company's Senior
Management Common Stock Purchase Award Provisions forming a part of the
Company's Incentive Plan, have been treated as outstanding since August 23,
1995 the date upon which commitments for the purchase of such shares were made
by the purchasers. Definitive agreements and the related notes for such
purchases were executed on November 7, 1995, when the shares were issued. The
purchase price was paid by a loan from the Company to the participating senior
executives and evidenced by a full recourse promissory note secured by the
common stock purchased by the obligors. The notes mature five years from the
date of purchase and bear interest at 6%. Interest on this Note is payable in
cash, except that so long as Obligor remains an employee of the Company or any
subsidiary thereof or performs consulting activities for any thereof, Obligor
may (i) apply the shares of the Company's Common Stock pledged to the Company
as provided below in payment of interest by delivering to the Company a letter
in form and substance reasonably satisfactory to the Company instructing it to
apply the requisite number of such shares to the payment of such interest
(whereupon the number of shares required for such payment shall be canceled),
it being understood that for this purpose such shares shall be valued at the
Fair Market Value (as defined below) thereof on the date on which such letter
is so delivered to the Company, or (ii) deliver, as payment of interest, a
secured promissory note dated the date of payment of interest in the principal
amount of such interest payment and having substantially the same terms as
this Note. Interest on this note may also be payable in any combination of
cash, shares of the Company's Common Stock or a secured promissory note, all
on the terms described in the preceding paragraph. Each senior management
purchaser was granted a restricted stock award covering a number of shares
equal to the number of shares purchased by such purchase. The restricted stock
was to be issued based upon attainment of increase in shareholder value in
accordance with the Incentive Plan. Pursuant to Amendments to each of the
F-13
Purchase Agreements, dated February 28, 1997 (the "Amendments"), the Company
was relieved of its obligation to issue any Restricted Shares. Instead, each
participant received, as of December 22, 1996, options to purchase that number
of shares of Common Stock (the "Option Shares") equal to the number of
Purchased Shares purchased by such participant. The options vested as to 20%
of the Option Shares covered thereby as of December 22, 1996 and the balance
of the shares covered thereby began vesting December 31, 1996 in equal monthly
installments over a four-year period during the term of employment or
consultancy. The unvested portion became vested on August 19, 1998 when the
average closing price of the Common Stock was at least $5.00 for 90
consecutive trading days.
In Fiscal 1997, certain executives' option agreements were canceled and
repriced as follows (the market price on the date of grant was either above or
equal to the option price on the date of grant):
Pursuant to his amended employment agreement, 225,000, 112,500 and 112,500
shares of the Company's common stock are subject to options which were granted
to Ira B. Lampert, Chairman and Chief Executive Officer, at an exercise price
of $2.00, $2.50 and $3.00 per share, respectively.
Pursuant to his employment agreement, 115,625, 57,813 and 57,812 shares of the
Company's common stock are subject to options which were granted to Steve
Jackel, Chief Operating Officer and President, at an exercise price of $2.00,
$2.50 and $3.00 per share, respectively.
Pursuant to terms of his employment agreement, 22,500, 11,250 and 11,250
shares of the Company's common stock are subject to options which were granted
to Lawrence Pesin, General Manager -- Americas, at an exercise price of $2.00,
$2.50 and $3.00 per share, respectively.
Pursuant to terms of his employment agreement, 22,500, 11,250 and 11,250
shares of the Company's common stock are subject to options which were granted
to Brian F. King, Vice President Corporate & Strategic Development, at an
exercise price of $2.00, $2.50 and $3.00 per share, respectively.
As of June 30, 1998, a total of 2,114,425 shares of Common Stock have been
reserved for issuance.
At the Board of Directors meeting of August 23, 1995, a Management Incentive
Compensation Program was approved for the 1995 Fiscal Year and for subsequent
periods. The Plan was enacted in order to foster increased efforts by senior
executives on behalf of the Company by giving them a direct financial interest
in the Company's performance and to encourage key employees to remain with the
Company as well as to provide an incentive in the recruitment of senior
management. The incentive pool is to be earned if the Company achieves certain
return on equity goals. The goals are reviewable each year by the Board and
may be amended. If the goals are achieved, an Inventive Fund is to be
established of up to 10% of earnings after taxes and any unawarded portion of
an Incentive Fund from previous years. Included in General and Administrative
expenses in Fiscal 1998 is an accrual of $703,526 allocated to the Incentive
Fund for Fiscal 1998 incentive compensation payments. No accrual was made in
Fiscal 1997 or 1996.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company has accounted for its employee stock options and
warrants ("equity awards") under the fair value method of FAS 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
between 4.6% and 4.9%; expected volatility of .747; expected option life of 5
to 7.5 years and an expected dividend yield of 0.0%. The weighted average
grant date fair value of the options granted during Fiscal 1998 and 1997 was
$3.65 and $1.39, respectively.
F-14
For the purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options vesting period. The
Company's pro forma information is as follows:
1998 1997 1996
---- ---- ----
Pro forma net income (loss) $5,599,495 ($1,220,971) ($2,001,871)
========== ============ ============
Pro forma net (loss) income per share of common stock $.49 ($.11) ($.18)
========== ============ ============
NOTE 8 -- INCOME TAXES:
For financial reporting purposes, pre-tax income (loss) consists of the
following:
June 30,
1998 1997 1996
---- ---- ----
(in 000's)
United States $1,401 $ 532 $ 979
Foreign 5,116 (1,248) (2,633)
------ ------- ---------
$6,517 $ (716) ($ 1,654)
====== ======= =========
The provision for income taxes, principally related to foreign operations, is
comprised of the following:
June 30,
1998 1997 1996
---- ---- ----
Current $386,871 ($ 12,479) $ 121,773
Deferred 116,677 129,603 (41,953)
-------- --------- ---------
$503,548 $ 117,124 $ 79,820
======== ========= =========
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, 1998 are as follows:
Deferred Tax Liabilities:
Domestic Foreign Total
-------- ------- -----
Difference between book and tax basis of property $ 0 $661,607 $661,607
Other deferred liabilities 0 27,562 27,562
-- -------- --------
Total deferred tax liabilities $ 0 $689,169 $689,169
=== ======== ========
Deferred Tax Assets:
Operating loss carryforwards $4,763,345 -- $4,763,345
Reserves not currently deductible 312,407 -- 312,407
F-15
Difference between book and tax basis for foreign 345,436 -- 345,436
subsidiaries
Difference between book and tax basis of property 117,222 -- 117,222
Tax credits 45,369 -- 45,369
Contributions carryover 33,907 -- 33,907
Other deferred tax assets 129,067 -- 129,067
---------- ---------- -----------
Total deferred tax assets 5,746,754 -- 5,746,754
Valuation allowance (5,746,754) -- (5,746,754)
---------- ---------- -----------
Total deferred tax assets after valuation allowance $ -- $ -- $ --
========== ========== ===========
Net deferred tax liability $ -- $ 689,169 $ 689,169
========== ========== ===========
The Tax effects of significant items comprising the Company's Net deferred tax
liability as of June 30, 1997 are as follows:
Domestic Foreign Total
-------- ------- -----
Deferred Tax Liabilities:
Difference between book and tax basis of property ($ 34,920) ($513,489) ($ 548,409)
Other deferred liabilities ( 24,083) ( 24,083)
----------- --------- ----------
Total deferred tax liabilities ($ 34,920) ($537,572) ($ 572,492)
=========== ========= ==========
Deferred Tax Assets:
Operating loss carryforward $5,566,523 -- $5,566,523
Reserves not currently deductible 84,905 -- 84,905
Difference between book and tax basis of foreign 328,366 -- 328,366
subsidiaries
Difference between book and tax basis of property 167,703 -- 167,703
Tax credits 40,837 -- 40,837
Contributions carryover 43,484 -- 43,484
Other deferred tax assets 92,659 -- 92,659
----------- --------- ----------
Total deferred tax assets 6,324,477 -- 6,324,477
Valuation allowance 6,324,477 -- 6,324,477
----------- --------- ----------
Total deferred tax assets after valuation allowance $ -- $ -- $ --
=========== ========= ==========
Net long-term deferred tax liability ($ 34,920) ($537,572) ($ 572,492)
=========== ========= ==========
In May 1992, the Hong Kong Inland Revenue Department notified Concord HK that
its annual tax rate commencing July 1, 1992 will be 8.75%. The Company
currently does not pay taxes or import/export duties in the PRC, but there can
be no assurance that the Company will not be required to pay such taxes or
duties in the future.
F-16
The Company has never paid any income or turnover tax to the PRC on account of
its business activities in the PRC. Existing PRC statutes can be construed as
providing for a minimum of 10% to 15% income tax and a 3% turnover tax on the
Company's business activities; however, the PRC has never attempted to enforce
those statutes. The Company has been advised that the PRC's State Tax Bureau
is reviewing the applicability of those statutes to processing activities of
the type engaged in by the Company, but it has not yet announced any final
decisions as to the taxability of those activities. After consultation with
its tax advisors, the Company does not believe that any tax exposure it may
have on account of its operations in the PRC will be material to its financial
condition.
The Company does not provide U.S. federal income taxes on undistributed
earnings of its foreign subsidiaries as it intends to permanently reinvest
such earnings. Undistributed earnings of its foreign subsidiaries approximated
$17.4 million as of June 30, 1998. 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, 1998, Concord had net operating loss carryforwards for U.S. tax
purposes of approximately $11,951,000, which expire as follows: $5,700,000 in
2008, $2,770,000 in 2009 and $3,481,000 in 2010. Losses for state tax purposes
began 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 follows:
June 30,
1998 1997 1996
---- ---- ----
Computed tax (benefits) at statutory U.S. federal tax rates $2,215,776 ($243,283) ($562,483)
Utilization of operating loss carryforward (476,180) (217,592) (332,730)
Earnings of foreign subsidiaries subject to a different tax rate (1,754,284) (306,705) --
Refund of prior years' income taxes paid by foreign subsidiary (58,733) -- --
U.S. federal minimum tax 68,798 -- --
Losses producing no current tax benefit 554,473 834,171 950,733
Other (46,302) 50,532 24,300
---------- --------- ---------
$ 503,548 $117,123 $ 79,820
========== ========= =========
NOTE 9 -- PRODUCT DEVELOPMENT:
The Company's products are created, designed and engineered principally by its
own engineers in Hong Kong. The Company expended approximately $3,963,000,
$3,130,000, and $1,722,000 during the fiscal years ended June 30, 1998, 1997
and 1996, respectively, for product design and development. The large increase
in these costs over these years was due to the significant development costs
incurred with respect to new Advanced Photo System single-use and traditional
cameras, as well as new 35 millimeter single-use cameras.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
United States Offices and Warehouses
F-17
The Company's lease on its principal offices containing the Company's domestic
warehouse and administrative offices provides for a rent of approximately
$13,300 per month and expires on December 31, 1998.
The Company plans to move its principal offices and warehouse to Florida in
December 1998. The Company's leases on these facilities provide for a rent of
approximately $13,300 and $6,900 per month, respectively, with annual
increases of 4% and 3%, respectively, and expire in August 31, 2008, and 120
months from the completion of warehouse improvements (or approximately
November 30, 2008), respectively. In August 1998, the Company opened a
temporary design center in Chicago, Illinois. A permanent design center at the
principal offices in Florida is expected to open in December 1998.
Hong Kong
The Company owns one floor and leases three floors constituting approximately
23,000 square feet of warehouse and business space in Hong Kong at a cost of
approximately $15,800 per month including rent and maintenance.
Other Jurisdictions
The Company leases warehouse and/or office space in France, Canada, Germany
and the UK in connection with the activities of its subsidiaries in those
jurisdictions.
The Company also leases various fixed assets which have been classified as
capital leases. The initial terms of such capital leases range from three to
five years and expire at various times through 2003. Monthly payments on those
leases range from approximately $300 to $50,000.
The following is a summary of assets under capitalized leases:
June 30,
1998 1997
---- ----
Assets under capitalized leases $7,137,845 $6,808,988
Less: accumulated amortization (4,150,077) (3,425,828)
---------- ----------
$2,987,768 $3,383,160
========== ==========
Future minimum rental payments are as follows:
Operating Leases Capital Leases
Fiscal Year:
1999 $1,037,173 $1,117,617
2000 827,264 1,021,033
2001 664,553 299,255
2002 545,999 260,011
2003 469,466 19,189
Thereafter 2,278,276 --
---------- ----------
2,717,105
Total minimum payments $5,822,730
==========
Less: amount representing interest (437,067)
----------
Present value of net minimum lease payments $2,280,038
==========
F-18
The effective interest rates on capital leases range from approximately 12% to
14%. Rental expense for operating leases of approximately $998,000, $986,000
and $1,121,000 was incurred for fiscal years ended June 30, 1998, 1997 and
1996, respectively.
The Company has an employment agreement with its Chief Executive Officer. The
agreement is for a period of four years and provides for the term of
employment to be automatically extended for one additional day for each day of
the term of employment that elapses. Under the terms of such employment
arrangements, the Company is committed to pay an annual salary of
approximately $574,000 for the fiscal years ending June 30, 1999, 2000 and
2001. The agreement also provides for other incentives which are based on the
operating performance of the Company.
The Company has License and Royalty Agreements which require the payment of
royalties based on the manufacture and/or sale of certain products which
expire at various dates through Fiscal 2008.
NOTE 11 -- LITIGATION AND SETTLEMENTS
Jack C. Benun. On November 18, 1994, the Company filed a demand for
arbitration in New Jersey for money damages in excess of $1.5 million against
Jack C. Benun ("Benun"), former chief executive officer who was discharged for
cause in Fiscal 1995. This action was taken due to Benun's failure to fully
compensate the Company for damages it sustained as a result of Benun's
breaching his employment obligations, his fiduciary obligations and
perpetrating frauds upon the Company including the misappropriation of funds
from the Company. Mr. Benun has submitted a counterclaim in which he alleges,
among other things, a wrongful termination by the Company. The Company is
vigorously pursuing its action as well as defending the counterclaim. The
matter is currently in discovery. The Company has reserved its rights under
any other claims it may have against Mr. Benun.
Fuji. On December 30, 1997, the Company commenced in the United States
District Court of the Southern District of New York (the "Court") an action
against Fuji Photo Film Co., Ltd. ("Fuji") seeking to enforce the terms of a
Settlement Agreement between the Company and Fuji (the "Settlement Agreement")
and to restrain Fuji from terminating the Settlement Agreement. Under the
terms of the Settlement Agreement, the Company has been granted a worldwide
(subject to certain geographic limitations), non-exclusive license to use
certain Fuji technology in connection with the manufacture and sale of
single-use cameras. On January 9, 1998, the Court granted the Company's
request for an order restraining Fuji from terminating the Settlement
Agreement. Pending a final judicial determination of the dispute, the
restraining order will continue in effect as long as the Company refrains from
making any further shipments pursuant to the purchase order which gave rise to
the dispute.
The Company is involved from time to time in routine legal matters incidental
to its business. In the opinion of the Company's management, the resolution of
such matters will not have a material effect on its financial position or
results of operations.
F-19
NOTE 12 -- FOREIGN OPERATIONS:
Set forth below is a summary of significant financial information regarding
the Company's foreign operations (in 000's):
June 30,
1998 1997 1996
---- ---- ----
Current assets $ 50,504 $36,315 $33,427
Non-current assets 17,160 15,869 13,885
--------- ------- -------
Total assets 67,664 52,184 47,312
Liabilities 48,617 37,331 30,922
--------- ------- -------
Equity $ 19,047 $14,852 $16,390
========= ======= =======
Net sales (including intercompany sales) $ 105,077 $67,064 $73,595
Costs and expenses 100,395 68,393 76,266
--------- ------- -------
Net income (loss) $ 4,682 ($1,329) ($2,671)
========= ======= =======
Significant financial information regarding the Company's operations, which
includes the effect of the elimination of intercompany transactions, is as
follows (in 000's):
Year Ended June 30,
1998 1997 1996
---- ---- ----
Sales made to unaffiliated customers:
United States $ 4,923 $6,245 $8,954
Canada 3,957 4,746 4,270
Central America 575 639 1,849
Hong Kong/People's Republic of China 85,896 46,249 42,442
Federal Republic of Germany 948 1,915 3,161
United Kingdom 3,923 3,764 3,896
France 2,441 2,189 2,199
Hungary -- -- 11
-------- ------- -------
$102,663 $65,747 $66,782
======== ======= =======
Sales to unaffiliated customers exclude intercompany sales (in 000's) of
approximately $11,548, $12,877, and $16,000 for Fiscal Years 1998, 1997 and
1996, respectively. The basis of accounting for intercompany sales is cost
plus a manufacturing profit.
Year Ended June 30,
1998 1997 1996
---- ---- ----
Income (loss) before income taxes:
United States $2,005 $ 740 $ 1,330
Canada (540) (208) (351)
Central America (64) (403) (156)
Hong Kong/People's Republic of China 6,747 1,205 (1,153)
Federal Republic of Germany (777) (785) (509)
United Kingdom (817) (1,083) (748)
France (37) (182) (27)
Hungary -- -- (40)
------ ------- --------
$6,517 ($ 716) ($ 1,654)
====== ======= ========
F-20
June 30,
1998 1997 1996
---- ---- ----
Identifiable assets:
United States $10,056 $ 6,209 $ 8,088
Canada 1,608 1,357 1,690
Central America 254 280 1,075
Hong Kong/People's Republic of China 54,810 39,210 32,445
Federal Republic of Germany 720 1,537 2,990
United Kingdom 3,373 3,245 2,265
France 1,261 1,250 1,297
-------- -------- --------
$72,082 $53,088 $49,850
======= ======= =======
NOTE 13 -- 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 $56,000, $48,000 and $56,000 for such consulting
services and related expenses during the fiscal years ended June 30, 1998,
1997 and 1996, respectively.
During the fiscal year ended June 30, 1996, the Company paid consulting fees
and expenses of approximately $218,000 to a firm, the president of which was
appointed Chief Operating Officer and President of the Company in January 1996.
NOTE 14 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
June 30,
1998 1997 1996
---- ---- ----
Cash paid for interest $1,299,000 $1,067,000 $ 882,000
========== ========== =========
Cash paid for taxes $ 120,000 $ 146,000 $ 329,000
========== ========== =========
During the Fiscal years ended June 30, 1998, 1997 and 1996, capital lease
obligations of approximately $347,000, $1,157,000 and $2,569,000 were incurred
when the Company entered into leases for new equipment.
NOTE 15 -- OTHER (INCOME) EXPENSES -- NET:
June 30,
-------
1998 1997 1996
---- ---- ----
(Gain) loss on sales of long-term assets -- -- $ 20,000
Other interest (income) ($433,000) ($403,000) (271,000)
Other expense, net 151,000 55,000 200,000
Directors' fees 136,000 133,000 128,000
Foreign exchange (gain) loss, net (371,000) 92,000 (107,000)
--------- --------- ---------
($517,000) ($123,000) ($ 30,000)
========= ========= =========
F-21
Schedule II
CONCORD CAMERA CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to
beginning of costs and other Balance at end of
Description period expenses accounts Deductions period
----------- ------------ ---------- ---------- ---------- -----------------
Reserve for doubtful accounts, discounts and allowances
Fiscal Year:
1996 1,041,771 584,497 -- 232,683 1,393,585
1997 1,393,585 118,072 -- 509,184 1,002,473
1998 1,002,473 59,178 -- 498,528 563,123
Inventory reserves and provisions
Fiscal Year:
1996 1,036,701 3,034,604 -- 839,200 3,232,105
1997 3,232,105 644,192 -- 2,103,522 1,772,775
1998 1,772,775 583,888 -- 701,688 1,654,975
F-22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CONCORD CAMERA CORP.
By: /s/ Ira B. Lampert
--------------------------------------------------
Name: Ira B. Lampert
Title: Chairman, Chief Executive Officer and
Director
By: /s/ Harlan I. Press
--------------------------------------------------
Name: Harlan I. Press
Title: Corporate Controller and Assistant Secretary
By: /s/ Eli Arenberg
--------------------------------------------------
Name: Eli Arenberg
Title: Director
By: /s/ Joel L. Gold
--------------------------------------------------
Name: Joel L. Gold
Title: Director
By: /s/ Morris H. Gindi
--------------------------------------------------
Name: Morris H. Gindi
Title: Director
By: /s/ J. David Hakman
--------------------------------------------------
Name: J. David Hakman
Title: Director
By: /s/ Ira J. Hechler
--------------------------------------------------
Name: Ira J. Hechler
Title: Director
By: /s/ Kent M. Klineman
--------------------------------------------------
Name: Kent M. Klineman
Title: Director