UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED - December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO______
Commission File Number: 000-50140
ACL SEMICONDUCTORS INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1642709
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
B24-b27,1/f., Block B, Proficient Industrial Centre,
6 Wang Kwun Road, Kowloon, Hong Kong
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(Address of principal executive offices)
(852) 2799-1996
---------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Common Stock - $0.001 par value
Section 12(b) of the Act: The Common Stock is listed on the
Over-the-Counter Bulletin Board
Securities registered pursuant to
Section 12(g) of the Act: None
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 Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
at least the past 90 days. Yes [ ] No [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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [_]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [_] No [X]
The aggregate market value of the voting common equity held by non-affiliates of
the Registrant as of March 31, 2004 was approximately $9,334,671 based upon the
closing price of $1.70 of the Registrant's common stock on the OTC Bulletin
Board, as of the last business day of the most recently completed first fiscal
quarter (March 31, 2004). (For purposes of determining this amount, only
directors, executive officers, and 10% or greater stockholders have been deemed
affiliates).
The Registrant had 27,829,936 shares of common stock, par value $0.001 per
share, outstanding as of April 13, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS INCORPORATED HEREIN CONTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS
ANNUAL REPORT, STATEMENTS THAT ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT
MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING,
THE WORDS "PLAN", "INTEND", "MAY," "WILL," "EXPECT," "BELIEVE", "COULD,"
"ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR SIMILAR EXPRESSIONS OR OTHER
VARIATIONS OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. EXCEPT
AS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
ANY REFERENCE TO ACL, THE COMPANY OR THE REGISTRANT, WE, OUR OR US MEANS ACL
SEMICONDUCTORS INC. AND ITS SUBSIDIARIES.
TABLE OF CONTENTS
Form 10-K Index
PART I
PAGE
Item 1. Business......................................................... 2
Item 2. Properties....................................................... 13
Item 3. Legal Proceedings................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................... 14
Item 6. Selected Financial Data.......................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 16
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk............................................. 26
Item 8. Financial Statements and Supplementary Data...................... 26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 27
Item 9A. Controls and Procedures.......................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant............... 27
Item 11. Executive Compensation........................................... 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters................ 30
Item 13. Certain Relationships and Related Transactions................... 30
Item 14. Principal Accountant Fees and Services........................... 31
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 32
Signatures ................................................................. 36
1
PART I
ITEM 1. BUSINESS
ACL Semiconductors Inc., (fka) Print Data Corp. (the "Company" or
"ACL") was incorporated under the laws of the State of Delaware on September 17,
2002. The Company's predecessor, Print Data Corp. ("Historic Print Data") was
incorporated under the laws of the State of Delaware on August 15, 1984 as a
business forms distributor, a supplying source for office and computer
environment supply needs. In order to effectuate its desire to become a publicly
traded corporation, in September 2001, Historic Print Data merged with Odyssey
Capital Group, Ltd., a Nevada Corporation ("Odyssey"), whereby all of the issued
and outstanding shares of Historic Print Data stock were acquired by means of a
merger of Historic Print Data into Odyssey, with Odyssey as the surviving
corporation. Historic Print Data effectively disappeared.
In connection with the merger, Articles of Merger were filed in
September 2001 with the Nevada Department of State; however, due to oversight,
the Certificate of Merger was not filed until August 2002 with the Delaware
Department of State. Odyssey's Nevada certificate of incorporation remained as
the surviving corporation's certificate of incorporation, and as part of the
merger transaction, Odyssey amended its certificate of incorporation to change
its name to Print Data Corp. For accounting purposes the acquisition was treated
as a recapitalization of Historic Print Data with Historic Print Data as the
acquirer (reverse acquisition). At the time of the merger transaction, Odyssey
was a shell corporation conducting virtually no business operation, other than
its efforts to seek merger partners or acquisition candidates. Its
capitalization consisted of 1,818,532 shares of common stock issued and
outstanding. Shareholders of Historic Print Data received 7,500,000 shares of
Odyssey common stock and 642,576 shares of Odyssey preferred stock (convertible
into 3,212,880 shares of common stock). Concurrently, an additional 790,000
shares of preferred stock (convertible into 3,950,000 shares of common stock)
was issued to certain advisors and consultants as part of the plan of merger.
Odyssey was originally incorporated as Dayton Filmcorp. under the laws
of the State of Nevada in June 1987. In August 1987, World Energy Solar
Technology Corp., a Utah corporation, merged into Dayton Filmcorp, whereby
Dayton Filmcorp was the surviving corporation. In 1994, Dayton Filmcorp changed
its name to Universal Marketing and Entertainment, Inc. In 1998, it reverse
split its stock 1 for 20. In May 2001, Universal Marketing and Entertainment,
Inc. changed its name to Odyssey Capital Group, Ltd., and reverse split its
stock 1 for 5. In September 2001, Odyssey merged with Historic Print Data,
whereby Odyssey was the surviving corporation; and Odyssey changed its name to
Print Data Corp., a Nevada corporation ("Print Data Nevada"). On October 11,
2002, Print Data Nevada restructured its entire capital structure whereby it
reverse split its common stock 1 for 20 and its preferred stock 1 for 500; and,
in order to change its state of incorporation from Nevada to Delaware, Print
Data Nevada, merged into its newly formed subsidiary Print Data Corp., a
Delaware corporation (the "Company"). Pursuant to the plan of merger, all of the
issued and outstanding shares of Print Data Nevada stock were acquired by means
of a merger of Print Data Nevada into the Company, with the Company as the
surviving corporation. Print Data Nevada effectively disappeared. The Company's
certificate of incorporation remained as the surviving corporation's certificate
of incorporation. Pursuant to the plan of merger, each share of common stock of
Print Data Nevada was converted into one share of common stock of the Company
and each share of preferred stock of Print Data Nevada was converted into 5
shares of common stock of Print Data Corp.
On September 8, 2003, the Company entered into a Share Exchange and
Reorganization Agreement (the "Exchange Agreement") with Atlantic Components
Limited, a Hong Kong corporation ("Atlantic"), and Mr. Chung-Lun Yang, the sole
beneficial stockholder of Atlantic ("Mr. Yang"), which set forth the terms and
conditions of the exchange by Mr. Yang of his common shares of Atlantic,
representing all of the issued and outstanding capital stock of Atlantic, in
exchange for the issuance by
2
the Company to Mr. Yang and certain financial advisors of an aggregate twenty
five million (25,000,000) shares of common stock, par value $0.001 per share
(the "Print Data Common Stock"), of the Company (the "Transaction"). Pursuant to
the Exchange Agreement, the Company and Atlantic agreed, INTER ALIA, to elect
Mr. Yang and Mr. Ben Wong (the "Designees") to the board of directors ("Board of
Directors") of the Company upon the closing of the Transaction (the "Closing"),
effective as of that date (the "Closing Date"), at which time, all of the
Company's existing directors would resign.
On September 9, 2003, in contemplation of the Closing and the resultant
change in control of the Board of Directors, the Company filed an Information
Statement on Schedule 14f-1 with the Securities and Exchange Commission (the
"SEC").
The Closing occurred on September 30, 2003, upon the satisfaction or
waiver of the conditions to the Closing set forth in the Exchange Agreement, as
a result of which (i) Atlantic became a wholly-owned subsidiary of the Company,
(ii) Mr. Yang received an aggregate of 22,380,000 shares of Print Data Common
Stock, (iii) the Company's existing directors resigned and the Designees were
appointed to fill their vacancies and become the sole members of the Company's
Board of Directors, and (iv) certain financial advisors to Atlantic became
entitled to receive an aggregate of 2,620,000 shares of Print Data Common Stock.
Giving effect to the Closing (including required issuances to financial
advisors), Mr. Yang held approximately 80.4% of the outstanding Print Data
Common Stock immediately following the Closing.
In connection with the Transaction, the Company entered into a
Conveyance Agreement dated as of September 30, 2003, pursuant to which the
Company conveyed its historic operations of providing supplies used in a
computer or office environment to New Print Data Corp., a newly-formed,
wholly-owned subsidiary of the Company ("Newco"), by assigning all of the assets
and liabilities relating to such operations to Newco which, in turn, accepted
the assignment of such assets and assumed all such liabilities. On October 1,
2003, subsequent to the Closing of the Transaction, the Company entered into a
Securities Purchase Agreement with Jeffrey I. Green, Phyllis S. Green and Joel
Green (collectively, the "Series A Holders"), pursuant to which it sold all of
the issued and outstanding capital stock of Newco the Series A Holders in
consideration for their surrender to the Company for cancellation of all of
their outstanding shares of Series A Preferred Stock, par value $0.001 per
share, of the Company (the "DISPOSITION").
On December 16, 2003, the Company filed a Certificate of Amendment with
the Secretary of State of the State of Delaware changing its name from Print
Data Corp. to ACL Semiconductors Inc.
The address of the Company's principal executive offices and our
telephone and facsimile numbers at that address are:
ACL Semiconductors Inc., B24-B27, 1st Floor, Block B, Proficient
Industrial Centre, 6 Wang Kwun Road, Kowloon, Hong Kong; Phone Number: (852)
2799-1996.
The files registration statements, periodic and current reports, proxy
statements and other materials with the SEC. You may read and copy any materials
filed by the Company with the SEC at the SEC's Public Reference Room at 450
Fifth Street, NW, Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a web site at www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC, including the Company's filings.
3
GENERAL
We are a non-exclusive distributor in the Hong Kong and South China
markets of memory products of Samsung Electronics Co., Ltd. ("Samsung"), the
world's largest producer of memory chips and a global producer of memory
products through our wholly-owned subsidiary Atlantic Components Ltd.
("Atlantic") pursuant to a distribution agreement between Atlantic and Samsung
(the "Distribution Agreement"). Atlantic was established as a Hong Kong
corporation in May 1991 by our chairman, Mr. Yang, as a regional distributor of
memory products of various manufacturers. In 1993, Atlantic became an authorized
distributor and marketer of Samsung's memory products in Hong Kong and other
overseas markets and entered into the Distribution Agreement. Beginning in 2001,
Atlantic established a representative office in Shenzhen, China and began
concentrating its distribution and marketing efforts in the southern region of
the People's Republic of China. Since 1993, Atlantic has diversified its product
portfolio to include all Samsung's memory products marketed under the "Samsung"
brandname which comprise DRAM, Static Random Access Memory ("SRAM"), Double Data
Rate RAM ("DDR"), Graphic Random Access Memory ("Graphic RAM"), FLASH and MASK
Read Only Memory ("MASK ROM"). Atlantic believes it is the largest distributor
of Samsung memory products in Hong Kong and Southern China.
Our business objectives are to offer updated market intelligence to
Samsung in connection with the Hong Kong and Southern China markets' demand in
memory products and secure high-quality Samsung products in order to meet the
market demands of individual and corporate users in Hong Kong and Southern
China. Each quarter, we work closely with Samsung to present updated market
information collected from retail channels and corporate users to assist Samsung
to plan their production and allocation schedule for the coming six months. Our
business strategy is to assist Samsung in implementing their production planning
using market intelligence to balance the supply and demand of memory products in
the Hong Kong and Southern China markets. Accordingly, we maintain and develop a
sales and market research team to answer marketing questions from Samsung on a
regular basis. In addition, our established distribution channels covering
retail outlets and major corporate users in the region provides those retail or
ultimate customers a secure stable supply of Samsung's memory products with
competitive prices. We are a non-exclusive distributor of Samsung, and enjoy a
minimum guaranteed gross profit margin of approximately 5% of products sold in
form of sales rebate payable by Samsung.
Approximately 84% of our revenues are derived from sales of Samsung
memory products. As of December 31, 2003, pricing for the Samsung memory
products ranged from approximately $0.17 to $750 depending on the product
specifications.
As of December 31, 2003, we had more than 130 active customers in Hong
Kong and Southern China. For the years ended December 31, 2003, 2002, and 2001,
our largest five customers accounted for 43%, 36% and 40% of our revenues,
respectively. We sell our products in Hong Kong and Southern China and do not
anticipate selling our products outside of these regions in the foreseeable
future.
The Distribution Agreement has a one-year term and contains certain
sales quotas to be met by us. The Distribution Agreement has been renewed ten
times, most recently on March 1, 2003. We have never failed to meet the sales
quotas set forth in the Distribution Agreement. The Company is currently
negotiating the renewal of the Distribution Agreement with Samsung and
anticipates having a renewal in place in June 2004.
4
PRODUCTS
DRAMs are high density, low-cost-per-bit, random access memory
components that store digital information and provide high-speed storage and
retrieval of data. DRAMs are the most widely used semiconductor memory component
in computer systems.
SRAMs are semiconductor devices that perform memory functions similar
to DRAMs. SRAMs utilize a more complex memory cell and do not require the memory
array to be periodically refreshed. This simplifies system design for memory
applications utilizing SRAM and allows SRAM to operate faster than DRAM,
although SRAM has a higher cost-per-bit than DRAM.
DDRs are random access memory components that transfer data on both 0-1
and 1-0 clock transitions, theoretically yielding twice the data transfer rate
of normal RAM or SDRAM.
Graphic RAM is a special purpose DDR as graphic products request
high-speed 3-Dimensional calculation performance and large memory size as data
storage buffer for VCD/DVD display. The current market consumption on graphic
products is mainly for DDR 64Mb IC and DDR 128Mb IC with clockspeed up to
250MHz.
FLASH. Flash memory is a specialized type of memory component used to
store user data and program code; it retains this information even when the
power is off. Although flash memory is currently used predominantly in mobile
phones and PDAs, it is commonly used in multi-media digital storage applications
for products such as MP3 players, Digital Still Cameras, Digital Voice
Recorders, PDAs, USB Disks, Flash Cards, etc. Samsung is a major supplier in the
world of FLASH products. In July 2003, Samsung announced its intention to
significantly increase its production capacity for FLASH products in
anticipation of future growth of global demand.
MASK ROM is a kind of ROM in which the memory contents are determined
by one of the masks used to manufacture the integrated circuit. MROM can give
high storage density (bits per millimeter squared) making it a cheap solution
for high volume applications. Due to the constant growth of consumer electronic
products such as games, toys and PDAs, the worldwide demand for MASK ROM is
expected to increase significantly in the coming year.
INDUSTRY BACKGROUND
Memory products are an integral part of a wide variety of consumer
products and industry applications including personal computer systems,
notebooks, workstations and servers, handheld computer devices, cellular phones,
camcorders, MP3 music players, digital answering machines and game boxes, among
others. Market trends, such as increased emphasis on high-throughput
applications, including networking, graphics, multimedia, computer, consumer,
and telecommunications products, have created opportunities for high performance
memory products. Based upon a March 2004 market study by iSuppli, Taiwan
Digitimes, the market for DRAM memory products worldwide was estimated to be
approximately US$17.3 billion in 2003 and is anticipated to grow at the rate of
22% per annum in 2004. Samsung is among the world's largest developers and
manufacturers of memory products.
Set forth below is a table forecasting on world-wide semiconductors
sales to 2008, prepared by Gartner Dataquest.
5
[TABLE GRAPHIC OMITTED]
FORECAST ON WORLD SEMI-CONDUCTORS SALES TURNOVER
Year Sales Turnover
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2004 21.7
2005 24.6
2006 24
2007 26.5
2008 29.4
As the largest memory chip manufacturer in the world, sales of Samsung
DRAM memory products resulted in sales of approximated US$4.9 billion in 2003
(representing approximately 28.3% of the overall DRAM market). Like many of the
major manufacturers of memory products, Samsung markets and sells its products
through a network of non-exclusive distributors who are granted rights to sell
within specific territories. There are approximately 200 distributors of Samsung
memory products worldwide and only 6 authorized distributors in Hong Kong who
serve the Hong Kong and Southern China markets.
- -----------------------------------------------------------------------------
Rating Manufacturer 2003 Turnover (in million) Market Share
- -----------------------------------------------------------------------------
1 Samsung US$4,946.10 28.6%
- -----------------------------------------------------------------------------
2 Micron US$3,305.77 19.1%
- -----------------------------------------------------------------------------
3 Infineon US$2,810.60 16.3%
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4 Hynix US$2,548.00 14.7%
- -----------------------------------------------------------------------------
Information taken from DigiTimes Research dated March 2004.
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity and under-capacity, and
accelerated erosion of selling prices. The market for DRAM and SRAM devices is
continuing to experience excess supply relative to demand, which has resulted in
a significant downward trend in average selling prices in 2002 and 2003.
Although we are unable to predict future trends in average selling prices,
historically the semiconductor industry has experienced significant declines in
average selling prices.
CUSTOMERS
As of December 31, 2003, we had approximately 130 active customers in
Hong Kong and Southern China, the majority of whom are memory product traders
and PC/Servers OEM manufacturers. No one customer accounted for more than 25% of
our revenues for 2003, 2002 and 2001. Sales to Classic Electronics Ltd., a
related party, accounted for 23%, 12% and 7% of the Company's net sales for the
years ended December 31, 2003, 2002 and 2001, respectively. In order to control
our credit risks, we do not offer any credit terms to our customers other than a
small number of clients who have long-established business relationships with
us.
6
SALES AND MARKETING
As of December 31, 2003, we employed a total of 13 salespeople, each of
whom has several years experience in the memory products industry. Nine of these
salespeople are stationed in our headquarters offices in Hong Kong; and four
work out of our representative office in Shenzhen, China as customer liaisons.
These sales forces co-operate with key memory product retailers and PC/Servers
OEM manufacturers to ensure that clients are supplied promptly with Samsung
memory products. We intend to expand our sales force if levels of business
materially increase in the next twelve months.
MARKET RESEARCH
We invest significant resources in market research for our own account
to provide prompt and accurate market intelligence and feedback on a quarterly
or on demand basis to Samsung in order to assist Samsung's production planning
and products allocation functions and maintains the close business relationship
accordingly.
SUPPLIERS
As of December 31, 2003, we distributed mostly Samsung memory products
and relied heavily on Samsung to supply these products. Since 1993, our
procurement operations have been supported by Samsung Electronics H.K. Co., Ltd.
("SAMSUNG HK"), a wholly-owned subsidiary of Samsung, to ensure there are enough
supplies of memory products according to our monthly sales quota although there
is no written supply agreement in place with Samsung HK. Samsung HK is allocated
quantities of Samsung memory products each year based on anticipated demand for
such products by the customers of the various distributors of Samsung memory
products in Hong Kong. The distributors that are supported by Samsung HK provide
Samsung HK with their own annual estimates of product demand. In case of
unexpectedly strong demand in the market exceeding our monthly sales quota,
there is no assurance that Samsung HK will be able to supply sufficient memory
products to us and other non-exclusive distributors to meet such demand in
excess of Samsung's global allocation policy to Samsung HK. In the event of a
supply shortage, the market prices of such memory products typically rise and
any loss of income attributable to our inability to fulfill all of our orders
would typically be offset by the increase in commission income as a result of
any increase in the market prices of such memory products. The most recent
instance of a supply shortage of memory products occurred in early 2003 as a
result of unexpectedly strong demand in Hong Kong and Southern China. We believe
that this shortage of product was unusual and has not had an adverse effect on
our reputation insofar as we explained to our customers the reason for our
inability to fill their orders and we believe that other suppliers of Samsung
memory products in Hong Kong and Southern China experienced similar shortages.
However, no assurance can be given that such shortages will not recur or that
such shortage and future shortages won't have a negative impact on our business.
Atlantic relies primarily on Samsung to provide it with memory products
for distribution to its clients. Atlantic's relationship with Samsung is
primarily maintained through Mr. Yang. If our relationship with Samsung is
terminated or if Mr. Yang terminates his employment with Atlantic, Atlantic may
be unable to renew the Distribution Agreement with Samsung or may not be able to
continue as a distributor of Samsung memory products on favorable terms if at
all.
Atlantic maintains a relatively low level of inventories in its
warehouse as the turnover for memory products is relatively high. The Company
places orders from Samsung after the Company receives orders from its customers.
Atlantic usually ships the products to its customers within a week after it
receives the products from Samsung. In order to maintain stability of pricing
for its products,
7
Samsung limits the profit of its distributors (commissions) to a percentage of
Samsung's selling price. On a quarterly basis, Samsung calculates the
commissions payable to Atlantic based on the agreed schedule set forth in the
Distribution Agreement and makes payment of such commissions to Atlantic within
7 days after each quarter end.
COMPETITION
The memory products industry in the Hong Kong and Southern China
markets is very competitive. However, as one of the world's largest memory
products manufacturers, Samsung's memory products are competitively priced and
have an established reputation for product quality and brandname recognition in
the retail and PC/Server OEM segments. We, as one of the largest distributors of
Samsung's memory products for the Hong Kong and Southern China markets, believe
we are in a strong competitive position against other US, Japanese and Taiwanese
memory products manufacturers and distributors.
Samsung's principal competitors in the Hong Kong and Southern China
markets include Hynix and other Taiwanese manufacturers such as ESMT, Winbond,
Etron and Mira. Our principal competitors also include the 5 other non-exclusive
distributors of Samsung memory products in the Hong Kong and Southern China
markets. Samsung may at its sole discretion increase the number of distributors
of its products in Hong Kong and Southern China which would result in increased
competition for us.
REGULATION
As of December 31, 2003, our business operations were not subject to
the regulations of any jurisdiction other than China. Although we are not
formally authorized to do business in the People's Republic of China, we have
been permitted by the Chinese authorities to establish a representative office
in Shenzhen, China to carry out liaison works for our customers in Southern
China. We execute our sales contracts and deliver our products in Hong Kong for
our Chinese customers and there have been no restrictions imposed on us by the
mainland Chinese authorities with respect to our pursuit of business growth and
opportunities in China.
EMPLOYEES
As of December 31, 2003, we had 40 employees. Of the 40 employees, 13
employees are in sales and marketing, 13 employees are in administration, eight
employees are in engineering, six employees are in customer service and liaison.
None of our employees are represented by labor unions.
Our primary hiring sources for employees include referrals from
existing employees, print and Internet advertising and direct recruiting. All of
our employees are highly skilled and educated and subject to rigorous recruiting
standards appropriate for a company involved in the distribution of brandname
memory products. We attract talent from numerous sources, including higher
learning institutions, colleges and industry. Competition for these employees is
intense.
8
EMPLOYEE COMPENSATION
For the years ended December 31, 2003, 2002, and 2001, among our
current and former executive officers and directors, Mr. Yang our chairman,
director and chief executive officer, Mr. Wong our director, Mr. Jeffrey Green,
our former president and director and Phyllis Green our former executive
administrator and director had annual compensation exceeding $100,000. No
long-term compensation was awarded or paid to these individuals in 2003, 2002 or
2001.
As of December 31, 2003, we did not have any formal written employment
agreements with any of our directors, executives or other employees and we had
not issued any stock options or stock appreciation rights to any executive
officers (or any other persons). We may grant stock options or stock
appreciation rights to these or other executive officers or other persons in the
future at the discretion of our Board of Directors.
RISK FACTORS
In addition to the other information contained in this report, the
following risk factors should be considered carefully in evaluating an
investment in ACL and in analyzing our forward-looking statements.
IF OUR RELATIONSHIP WITH SAMSUNG IS TERMINATED, WE MAY NOT BE ABLE TO CONTINUE
OPERATIONS.
We rely ultimately on Samsung to provide us with memory products for
distribution to our clients even though we, with the consent from Samsung HK,
can purchase the required memory products from other Samsung distributors under
the same mode in calculation of commission income receivable from Samsung. Our
relationship with Samsung is primarily maintained through our Chief Executive
Officer Mr. Yang. If our relationship with Samsung is terminated or if Mr. Yang
terminates his employment with us, we may be unable to replace Samsung as
distributor of memory products on favorable terms if at all.
Although we are not an exclusive distributor of Samsung's memory
products, we believe we are the largest Samsung memory products distributor for
the Hong Kong and Southern China markets. Although the Distribution Agreement is
subject to annual renewal at Samsung's option, we do not foresee, based upon the
long-term business relationship with Samsung established by Mr. Yang and our
sales history with respect to the distribution of Samsung's memory products, any
significant obstacles to obtaining renewals of the Distribution Agreement in the
foreseeable future. However, no assurances can be given that Samsung will
definitely renew the Distribution Agreement or, if renewed, on terms
satisfactory to us.
In addition, Samsung has the right to increase the number of
distributors of its memory products in Hong Kong and the Southern China markets
without consulting us. If Samsung significantly increases the number of
authorized distributors of its memory products, competition among Samsung
distributors, would increase and we may not be able to meet its annual sales
quota, which could increase the likelihood that Samsung would not renew the
Distribution Agreement, or if renewed, that we could operate profitably.
IF THE GROWTH RATE OF EITHER MEMORY PRODUCTS SOLD OR THE AMOUNT OF MEMORY USED
IN EACH PRODUCT DECREASES, SALES OF OUR PRODUCTS COULD DECREASE.
We are dependent on the computer market as many of the memory products
that we distribute are used in PCs or peripheral products. DRAMs are the most
widely used semiconductor components in PCs.
9
In recent years, the growth rate of PCs sold has slowed or declined. If there is
a sustained reduction in the growth rate of either PCs sold or the average
amount of semiconductor memory included in each PC, sales of our memory products
built for those markets could decrease, and our results of operations, cash
flows and financial condition could be adversely affected.
THE MEMORY PRODUCT INDUSTRY IS HIGHLY COMPETITIVE.
We face intense competition from a number of companies, some of which
are large corporations or conglomerates that may have greater resources to
withstand downturns in the semiconductor memory market, invest in technology and
capitalize on growth opportunities. To the extent Samsung memory products become
less competitive, our ability to effectively compete against distributors of
other memory products will diminish.
CURRENT ECONOMIC AND POLITICAL CONDITIONS MAY HARM OUR BUSINESS.
Global economic conditions and the effects of military or terrorist
actions may cause significant disruptions to worldwide commerce. If these
disruptions result in delays or cancellations of customer orders, a decrease in
corporate spending on information technology or our inability to effectively
market, manufacture or ship our products, our results of operations, cash flows
and financial condition could be adversely affected. In addition, our ability to
raise capital for working capital purposes and ongoing operations is dependent
upon ready access to capital markets. During times of adverse global economic
and political conditions, accessibility to capital markets could decrease. If we
are unable to access the capital markets over an extended period of time, we may
be unable to fund operations, which could materially adversely affect our
results of operations, cash flows and financial condition.
IF SAMSUNG IS UNABLE TO RESPOND TO CUSTOMER DEMAND FOR DIVERSIFIED SEMICONDUCTOR
MEMORY PRODUCTS OR IS UNABLE TO DO SO IN A COST-EFFECTIVE MANNER, WE MAY LOSE
MARKET SHARE AND OUR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED.
In recent periods, the semiconductor memory market has become
relatively segmented, with diverse memory needs being driven by the different
requirements of desktop and notebook PCs, servers, workstations, handheld
devices, and communications, industrial and other applications that demand
specific memory solutions. Samsung currently offers customers a variety of
memory products including DDR, RAM, FLASH, SRAM and MASK ROM.
Samsung needs to dedicate significant resources to product design and
development to respond to customer demand for the continued diversification of
memory products. If Samsung is unable or unwilling to invest sufficient
resources to meet the diverse memory needs of customers, we, as a Samsung memory
products' major distributor may lose market share. In addition, as we diversify
our product lines, we may encounter difficulties penetrating certain markets,
particularly markets where we do not have existing customers. If we are unable
to respond to customer demand for market diversification in a cost-effective
manner, our results of operations may be adversely affected.
If Samsung's global allocation process results in Samsung HK not having
sufficient supplies of memory product to meet all of our customer orders, this
would have a negative impact on our sales and could result in our loss of
customers. Although such shortages are infrequent, there was such a shortage
during the three months ended March 31, 2003 and no assurance can be given that
such shortages will not occur in the future. Currently, due to increased demand
in FLASH memory, ACL also experiences insufficient supplies of such products
from Samsung and loss of sales.
IF SAMSUNG'S MANUFACTURING PROCESS IS DISRUPTED, OUR RESULTS OF OPERATIONS, CASH
FLOWS AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.
Samsung manufactures products using highly complex processes that
require technologically advanced equipment and continuous modification to
improve yields and performance. Difficulties in the
10
manufacturing process can reduce yields or disrupt production. From time to
time, we have experienced minor disruptions in product deliveries from Samsung
and we may be unable to meet our customers' requirements and they may purchase
products from other suppliers. This could result in loss of revenues or damage
to customer relationships.
WE BELIEVE THAT WE WILL REQUIRE ADDITIONAL EQUITY FINANCING TO REDUCE OUR
LONG-TERM DEBTS AND IMPLEMENT OUR BUSINESS PLAN.
We anticipate that we will require additional equity financing in order
to reduce our long-term debts and implement our business plan of increasing
sales into the Southern China markets. There can be no assurance that we will be
able to obtain the necessary additional capital on a timely basis or on
acceptable terms, if at all. As a result of such financing, the holders of our
common stock may experience substantial dilution.
WE ARE HEAVILY DEPENDENT UPON THE ELECTRONICS INDUSTRY, AND EXCESS CAPACITY OR
DECREASED DEMAND FOR PRODUCTS PRODUCED BY THIS INDUSTRY COULD RESULT IN
INCREASED PRICE COMPETITION AS WELL AS A DECREASE IN OUR GROSS MARGINS AND UNIT
VOLUME SALES.
Our business is heavily dependent on the electronics industry. A
majority of our revenues are generated from the networking, high-end computing
and computer peripherals segments of the electronics industry, which is
characterized by intense competition, relatively short product life-cycles and
significant fluctuations in product demand. Furthermore, these segments are
subject to economic cycles and have experienced in the past, and are likely to
experience in the future, recessionary periods. A recession or any other event
leading to excess capacity or a downturn in these segments of the electronics
industry could result in intensified price competition, a decrease in our gross
margins and unit volume sales and materially affect its business, prospects,
financial condition and results of operations.
OUR MAJOR STOCKHOLDER CONTROLS OUR BUSINESS, AND COULD DELAY, DETER OR PREVENT A
CHANGE OF CONTROL OR OTHER BUSINESS COMBINATION.
One shareholder, Mr. Yang, our Chief Executive Officer and Chairman
of the Board of Directors, holds approximately 80.4% of our outstanding common
stock. By virtue of his stock ownership, Mr. Yang will control all matters
submitted to our board and our stockholders, including the election of
directors, and will be able to exercise control over our business, policies and
affairs. Through his concentration of voting power, he could cause us to take
actions that we would not consider absent his influence, or could delay, deter
or prevent a change of control of us or other business combination that might
otherwise be beneficial to our stockholders.
OUR STOCK PRICE HAS BEEN VOLATILE AND MAY FLUCTUATE IN THE FUTURE.
There has been significant volatility in the market prices for publicly
traded shares of computer related companies, including ours. From September 30,
2003, the effective date of the acquisition of Atlantic Components Ltd., the
closing price of our common stock fluctuated from a per share high of $2.95 to a
low of $1.05 per share. The per share price of our common stock may not remain
at or exceed current levels. The market price for our common stock, and for the
stock of electronic companies generally, has been highly volatile. The market
price of our common stock may be affected by: (1) incidental level of demand and
supply of the stock; (2) daily trading volume of the stock; (3) number of public
stockholders in our stock; (4) fundamental results announced by ACL; and any
other unpredictable and uncontrollable factors.
IF ADDITIONAL AUTHORIZED SHARES OF OUR COMMON STOCK AVAILABLE FOR ISSUANCE OR
SHARES ELIGIBLE FOR FUTURE SALE WERE INTRODUCED INTO THE MARKET, IT COULD HURT
OUR STOCK PRICE.
11
We are authorized to issue 50,000,000 shares of common stock. As of
December 31, 2003, there were 27,829,936 shares of our common stock issued and
outstanding.
Currently, outstanding shares of common stock are eligible for resale.
We are unable to estimate the amount, timing or nature of future sales of
outstanding common stock. Sales of substantial amounts of the common stock in
the public market by these holders or perceptions that such sales may take place
may lower the common stock's market price.
IF PENNY STOCK REGULATIONS IMPOSE RESTRICTIONS ON THE MARKETABILITY OF OUR
COMMON STOCK, THE ABILITY OF OUR STOCKHOLDERS TO SELL SHARES OF OUR STOCK COULD
BE IMPAIRED.
The SEC has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share subject to certain exceptions.
Exceptions include equity securities issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for more than three years, or (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require that prior to
any transaction involving a penny stock, a risk of disclosure schedule must be
delivered to the buyer explaining the penny stock market and its risks. Our
common stock is currently trading at under $5.00 per share. Although we
currently fall under one of the exceptions, if at a later time we fail to meet
one of the exceptions, our common stock will be considered a penny stock. As
such the market liquidity for the common stock will be limited to the ability of
broker-dealers to sell it in compliance with the above-mentioned disclosure
requirements.
You should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns
include:
o Control of the market for the security by one or a few broker-dealers;
o "Boiler room" practices involving high-pressure sales tactics;
o Manipulation of prices through prearranged matching of purchases and
sales;
o The release of misleading information;
o Excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
o Dumping of securities by broker-dealers after prices have been
manipulated to a desired level, which hurts the price of the stock and
causes investors to suffer loss.
We are aware of the abuses that have occurred in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, we will strive within
the confines of practical limitations to prevent such abuses with respect to our
common stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW MAY DETER A THIRD PARTY FROM
ACQUIRING US.
Section 203 of the Delaware General Corporation Law prohibits a merger
with a 15% shareholder within three years of the date such shareholder acquired
15%, unless the merger meets one of several exceptions. The exceptions include,
for example, approval by two-thirds of the shareholders (not counting the 15%
shareholder), or approval by the Board prior to the 15% shareholder acquiring
its 15% ownership. This provision makes it difficult for a potential acquirer to
force a merger with or takeover of the Company, and could thus limit the price
that certain investors might be willing to pay in the future for shares of our
common stock.
12
ITEM 2. PROPERTIES
Our principal offices occupy approximately 4,989 square feet gross
floor area located at B24-B27, 1/F., Block B, Proficient Industrial Centre, 6
Wang Kwun Road, Kowloon Bay, Kowloon, Hong Kong, which is leased from Classic
Electronics Ltd., a related party, covering a lease period from December 1, 2003
to November 30, 2004 at monthly rental of HK$17,137 (approximately US$2,197).
We also lease a warehouse unit of approximately 825 square feet gross
floor area located at B34, 2/F., Block B, Proficient Industrial Centre, 6 Wang
Kwun Road, Kowloon Bay, Kowloon, Hong Kong pursuant to a one-year lease with
Classic Electronics Ltd. which covers a period from December 1, 2003 to November
30, 2004 with monthly lease payments of HK$5,363 (approximately US$687).
We also lease approximately 3,000 square feet gross floor area for its
directors' offices located at No. 78, 5th Street, Hong Lok Yuen, Tai Po, New
Territories, Hong Kong for Mr. Yang which is covered by a one year lease with
Classic Electronics Ltd. which expires on March 31, 2004, with monthly rentals
of HK$35,000 (approximately US$4,487). Mr. Ben Wong, one of our Directors, is
also a director of Classic Electronics Ltd.
We also lease an office unit of approximately 1,273.8 square feet gross
floor area located at Room 2307, 23/F., Building A, United Plaza, No.5022 Binhe
Road, Futian Centre, Shenzhen, China pursuant to a two-year lease dated June 1,
2002 with Shenzhen Jing Tian Wei Investment Development Co. Ltd. which expires
on May 30 2004 with monthly lease payments of RMB7, 643 (approximately US$920).
In the event that such facilities should become unavailable, we believe
that alternative facilities could be obtained on a competitive basis.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business we may be subject to litigation from
time to time. There is no past, pending or, to our knowledge, threatened
litigation or administrative action (including litigation or action involving
our officers, directors or other key personnel) which in our opinion has, had,
or is expected to have, a material adverse effect upon our business, prospects
financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 3, 2003, an action by written consent of the holders of
a majority of the outstanding shares of common stock of the Company approved an
amendment to the Company's Certificate of Incorporation to change the Company's
name from "Print Data Corp." to "ACL Semiconductors Inc."
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"ACLO". The following table shows, for the periods indicated, the high and low
closing prices per share of our common stock as reported by the OTC Bulletin
Board.
COMMON STOCK
QUARTERS ENDED HIGH LOW
FISCAL YEAR
ENDED DECEMBER 31, 2003:
Quarter ended March 31, 2003 ............................................................... N/A N/A
Quarter ended June 30, 2003 ................................................................ N/A N/A
Quarter ended September 30, 2003 (since September 30, 2003) ................................ $1.05 $1.05
Quarter ended December 31, 2003 ............................................................ $2.95 $1.50
FISCAL YEAR
ENDED DECEMBER 31, 2002:
Quarter ended March 31, 2002 ............................................................... N/A N/A
Quarter ended June 30, 2002 ................................................................ N/A N/A
Quarter ended September 30, 2002 ........................................................... N/A N/A
Quarter ended December 31, 2002 ............................................................ N/A N/A
As of April 5, 2004, the last reported sale price of our common stock,
as reported by the OTC Bulletin Board, was $1.46 per share.
As of March 31, 2004, there were approximately 207 holders of record of
our common stock. We are informed and believe that as of March 31, 2003, Cede &
Co. held 2,100,301 shares of our common stock as nominee for Depository Trust
Company, 55 Water Street, New York, New York 10004. It is our understanding that
Cede & Co. and Depository Trust Company both disclaim any beneficial ownership
therein and that such shares are held for the account of numerous other persons.
Since our reverse-acquisition of Atlantic Components Ltd., effective
September 30, 2003, we have never paid cash dividends on our capital stock. We
currently anticipate that we will retain all available funds for use in the
operation and expansion of our business, and do not anticipate paying any cash
dividends in the foreseeable future.
EQUITY COMPENSATION PLAN INFORMATION
We do not have any compensation plans (including individual
compensation arrangements) under which our equity securities are authorized for
issuance to employees or non-employees (such as directors and consultants), as
of December 31, 2003.
14
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated selected financial data, at the end of and
for the last three fiscal years, should be read in conjunction with our
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Annual Report on Form 10-K. The consolidated selected financial data are
derived from our consolidated financial statements that have been audited by
Stonefield Josephson, Inc., our independent auditors, as indicated in their
report included herein. The selected financial data provided below is not
necessarily indicative of our future results of operations or financial
performance.
2003 2002 2001
------------ ------------ ------------
Net Sales $ 72,672,797 $ 85,343,249 $ 61,663,209
Net income (loss) $ (1,437,670) $ 986,876 $ 238,292
Earnings (loss) per common
share-basic and diluted $ (0.06) $ 0.04 $ 0.01
Total Assets $ 9,570,808 $ 7,215,169 $ 7,429,388
Long-term Debt $ 194,703 $ 1,071,503 $ 1,780,303
Weighted average number of
shares outstanding - basic
and diluted
23,753,682 22,380,000 22,380,000
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND OTHER PORTIONS OF THIS REPORT CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES. ACL'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING INFORMATION.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
AVAILABILITY AND COST OF FINANCIAL RESOURCES, PRODUCT DEMAND, MARKET ACCEPTANCE
AND OTHER FACTORS DISCUSSED IN THIS REPORT UNDER THE HEADING "RISK FACTORS."
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH ACL'S FINANCIAL STATEMENTS AND THE
RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
OVERVIEW
CORPORATE BACKGROUND
ACL is engaged primarily in the business of distribution of memory
products under "Samsung" brandname which comprise DRAM and Graphic RAM, FLASH,
SRAM and MASK ROM for the Hong Kong and Southern China markets.
As of December 31, 2003, ACL had more than 130 active customers in Hong
Kong and Southern China.
Pricing for the Samsung memory products ranges from approximately $0.17
to $750 depending on the product specifications. ACL sells its products in Hong
Kong and Southern China and does not anticipate selling its products outside of
these regions in the foreseeable future.
For the years ended December 31, 2003, 2002, and 2001, our largest 5
customers accounted for 43%, 36% and 40% of our sales, respectively. As of
December 31, 2003, we had a working capital deficit of $254,562 and accumulated
deficit of $2,330,182 after declaration and payment of dividends of $512,821 to
our then sole beneficial shareholder before the acquisition by Print Data Corp.
We generated revenues of $72,672,797 for the year ended December 31, 2003 and
recorded a net loss of $1,437,670 after recording a one-time merger cost of
$2,753,620. In addition, during the year ended December 31, 2003, net cash used
for operating activities amounted to $216,151.
We are in the mature stage of operations and, as a result, the
relationships between revenue, cost of revenue, and operating expenses reflected
in the financial information included in this document to a large extent
represent future expected financial relationships. Much of the cost of revenue
and operating expenses reflected in our financial statements are recurring costs
in nature.
PLAN OF OPERATIONS
Our business objectives are to offer updated market intelligence to
Samsung in connection with the Hong Kong and Southern China markets' demand in
memory products and secure high-quality Samsung products in order to meet the
market demands of individual and corporate users in Hong Kong and Southern
China. Each quarter, we work closely with Samsung to present updated market
information collected from retail channels and corporate users to assist Samsung
to plan their production and allocation schedule for the coming six months. Our
business strategy is to assist Samsung in implementing their production planning
using market intelligence to balance the supply and demand of memory products in
the Hong Kong and Southern China markets. Accordingly, we maintain and develop
16
a sales and market research team to answer marketing questions from Samsung on a
regular basis. In addition, our established distribution channels covering
retail outlets and major corporate users in the region allows those retail or
ultimate customers a secure stable supply of Samsung's memory products with
competitive prices. We are a non-exclusive distributor of Samsung, and enjoy a
minimum guaranteed gross profit margin of approximately 5% of products sold in
form of sales rebate payable by Samsung.
General and administrative costs are expected to increase in future
periods due to the increased compliance (legal, accounting and insurance)
requirements arising out of our being a public company.
ACCOUNTING PRINCIPLES; ANTICIPATED EFFECT OF GROWTH
Below is a brief description of basic accounting principles which we
adopt in determining our recognition of revenues and expenses, as well as a
brief description of the effects that the management believe that its
anticipated growth will have on our revenues and expenses in the future 12
months.
REVENUES
Sales revenue and commission income from Samsung are recognized upon
the transfer of legal title of the electronic components to the customers. At
December 31, 2003, we had more than 130 active customers.
The quantities of our memory products sales will fluctuate with the
changes in demand from our customers and the prices set by Samsung for us to
charge our customers are expected to fluctuate as a result of current economic
situation and its impact on the market. During 2003, we have experienced an
increase in the general demand for memory products among the personal and
corporate users in the Hong Kong and Southern China regions due to general
recovery of economies, in particular for the third and fourth quarters of 2003.
We believe that current market demand exceeds the planned production of most
memory products manufacturers in the world and has resulted in upward pressure
in average pricing of the existing memory products offered by ACL and we expect
such pressure to continue through the next 12 months. Due to insufficient
allocation of memory products from Samsung HK, ACL also sourced Samsung memory
products from other Samsung memory products importers during the third and
fourth quarters of 2003. This move had a positive impact on the Company and
enabled it to improve its level of gross profits when compared to that of the
previous year. This, together with the successful cost control measures
implemented during the year ended December 31, 2003, enabled ACL to record an
increase of 33.3% in net income before the merger costs over the year ended
December 31, 2002. ACL believes it is uniquely positioned to take advantage of
any such upward trend as one of the largest distributors of memory products
distributor in Hong Kong and Southern China one of the largest memory products
manufacturers in the world.
We believe the essential element of our growth in the future, will be
to obtain adequate financial resources as additional working capital to meet
increased market demand from personal and business users of personal computers
in Southern China.
COST OF REVENUES
Cost of revenues consists of costs of goods purchased from our
principal supplier, Samsung and purchases from other Samsung authorized
distributors. Many factors affect our gross margin, including, but not limited
to, the volume of production orders placed on behalf of our customers, the
competitiveness of the memory products industry and the availability of cheaper
Samsung memory products from overseas Samsung distributors due to regional
demand and supply situation. Nevertheless,
17
ACL's procurement operations are supported by Samsung HK, although there is no
written supply agreement in place between us and Samsung HK. Our cost of goods,
as a percentage of total revenues, amounted to approximately 93.9% for the year
ended December 31, 2003 and approximately 95.6% the year ended December 31,
2002.
OPERATING EXPENSES
Our operating expenses for the year ended December 31, 2002 and the
year ended December 31, 2003 were comprised of selling and marketing, general
and administrative, and merger cost.
Selling expenses consisted primarily of general expenses including
salaries and bonuses paid to its sales, marketing and customer service and
internal commissions paid to internal sales personnel and costs associated with
advertising and marketing activities.
General and administrative expenses include all corporate and
administrative functions that serve to support our current and future operations
and provide an infrastructure to support future growth. Major items in this
category include management and staff salaries, rent/leases, professional
services, and travel and entertainment. We expect these expenses to increase as
a result of increased legal and accounting fees anticipated in connection with
our compliance with ongoing reporting and accounting requirements of the SEC and
to the extent that we expand our business. Sales and marketing costs are
expected to fluctuate as a percentage of revenue due to the addition of sales
personnel and various marketing activities planned throughout the year.
Merger cost includes the fair value of shares issued to certain
consultants related to the reverse-acquisition between ACL and Atlantic
Components Ltd.
Interest expense, including finance charges, relates primarily to our
short-term and long-term bank borrowings, which we intend to reduce.
RESULTS OF OPERATIONS
The following table sets forth audited income statement data for the
years ended December 31, 2003, December 31, 2002, and December 31, 2001 and
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and our financial statements and
the related notes appearing elsewhere in this document.
18
Year Ended December 31
-----------------------------------------
(US$)
2003 2002 2001
---- ---- ----
Net sales 72,672,797 85,343,249 61,663,209
Cost of sales 68,214,587 81,591,046 58,513,506
Gross profit 4,458,210 3,752,203 3,149,703
Operating expenses:
Selling 149,364 204,837 261,757
General and administrative 2,571,147 2,225,205 2,289,165
Merger cost 2,753,620 -- --
Total operating expenses
5,474,131 2,430,042 2,550,922
Income (loss) from operations (1,015,921) 1,322,161 598,781
Interest expense 166,509 213,589 355,054
Net income (loss) (1,437,670) 986,876 238,292
YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002
NET SALES
Sales decreased by $12,670,452 or 14.8% from $85,343,249 for year ended
December 31, 2002 to $72,672,797 for the year ended December 31, 2003. This
decrease resulted primarily from the impact of the US/Iraq War and SARS on the
economies of Hong Kong and Southern China during the first and second quarters
of 2003. We expect our sales in year 2004 to increase to more than $100 million
given the current strong demand of our Samsung memory products and the positive
impact to our sales after the acquisition of majority of interest in Classic
Electronics Ltd. as anticipated in the second quarter of 2004.
COST OF SALES
Cost of sales decreased $13,376,459 or 16.4%, from $81,591,046 for the
year ended December 31, 2002 to $68,214,587 for the year ended December 31,
2003. The decrease in cost of revenue resulted from the decrease in sales of
Samsung's memory products and availability of cheaper Samsung memory products
from overseas Samsung distributors due to the regional demand and supply
situation. As a percentage of net sales, cost of sales decreased slightly from
95.6% of net sales in the year ended December 31, 2002 to 93.9% of net sales in
the year ended December 31, 2003. We expect our cost of sales in fiscal 2004 to
increase as a result of our expectation of an increase in sales in fiscal 2004.
GROSS PROFIT
Gross profit increased by $706,007, or 18.8% from $3,752,203 for the
year ended December 31, 2002 to $4,458,210 for the year ended December 31, 2003.
The increase in gross profit was primarily due to the decrease of cost of sales
of the company. The gross profit improved accordingly to 6.1% of revenue for the
year ended December 31, 2003 compared to 4.4% of revenue for the year ended
December 31, 2002 because they purchased certain products at an extremely high
margin. We expect our gross profit margin in year 2004 will be around 5% in view
of Atlantic's historical average and the historical gross profit margins of
Classic Electronics Ltd. after our acquisition as anticipated in the second
quarter of 2004.
19
OPERATING EXPENSES
Selling expenses decreased by $55,473, or 27.1%, from $204,837 for the
year ended December 31, 2002 to $149,364 for the year ended December 31, 2003
due to a decrease of sales, we believe principally, as a result of the US/Iraq
War and SARS during the first and second quarters of 2003. As a percentage of
sales, sales and marketing expense maintained at 0.2% of revenue for both the
years ended December 31, 2003 and December 31, 2002. We expect sales and
marketing expenses will increase in fiscal 2004 due to expected increase in
sales and the consolidation of selling expenses of Classic Electronics Ltd.
after our acquisition as 51% subsidiary in the second quarter of 2004.
Nevertheless, we expect that as a percentage of sales, sales and marketing
expenses in fiscal 2004 will maintain at similar level as in fiscal 2003.
General and administrative expenses increased $345,942 or 15.5% from
$2,225,205 for the year ended December 31, 2002 to $2,571,147 for the year ended
December 31, 2003. The increase was primarily attributable to the professional
costs incurred in connection with the reverse merger by Print Data Corp.
occurring during the year ended December 31, 2003. Due to anticipated financing
and acquisition activities in 2004 and the consolidation of general and
administrative expenses of Classic Electronics Ltd. after our acquisition
anticipated in the second quarter of 2004, we expect that general and
administrative expenses will increase in year 2004.
Merger cost of $2,753,620 represents the fair value of common stock
issued to consultants and advisors related to the acquisition of Atlantic by
Print Data Corp., which took place on September 30, 2003. No such cost was
incurred during the year ended December 31, 2002. We do not expect reoccurrence
of such cost in year 2004. We don't expect the merger cost to be incurred
related to the acquisition of Classic Electronic Ltd. occurring in 2004 to be as
much as the that related to the acquisition.
Loss from operations for the Company was $1,015,921 for the year ended
December 31, 2003 compared to net income of $1,322,161 for the year ended
December 31, 2002, a decrease in net income or increase of net loss by
$2,338,082. This increase in net loss was primarily due to merger cost of
$2,753,620 incurred in September 2003 related to the acquisition of Atlantic.
Excluding the merger cost, income from operations increased $415,538 or 31% to
$1,737,699 for the year ended December 31, 2003, compared to $1,322,161 for the
year ended December 31, 2002. This increase was the result of an increase of
gross profits during the year 2003, offset by increased general and
administrative expenses. As a result of expected increase of sales in year 2004
with no anticipated reoccurrence of merger cost, we expect positive operating
income in 2004.
OTHER INCOME (EXPENSES)
Interest expense decreased by $47,080, or 22%, from interest expense of
$213,589 in the year ended December 31, 2002, to $166,509 in the year ended
December 31, 2003. This decrease was due to lower average loan balances in 2003.
In the year ended December 31, 2003, interest expense related primarily to
Atlantic's bank charges and interest incurred from its short-term and long-term
bank borrowings. We expect our interest expense will decrease in year 2004 given
the effect of continuous repayments of long-term bank borrowings, offset by
consolidation of the line-of-credit and long-term bank borrowings of Classic
Electronics Ltd. after our acquisition anticipated in the second quarter of
2004.
20
Gain on disposal of property and equipment increased by $7,228, from $0
in the year ended December 31, 2002 to $7,228 in the year ended December 31,
2003, due to certain automobile being disposed during 2003, which was replaced
with new purchases of automobile. We do not expect there will be any significant
gain or loss on disposal of property or equipment in year 2004.
The Company's net loss increased by $2,424,546 to $1,437,670 for the
year ended December 31, 2003 compared to an income of $986,876 for the year
ended December 31, 2002. Excluding the merger cost of $2,753,620, the Company's
net profit increased by $329,074 which represents an increase of 33% over the
profit of 2002. Excluding the effect of the merger cost recorded in year 2003,
we expect the Company's net income will increase by about $1 million in year
2004 in view of Atlantic's current sales forecast and the effect of anticipated
acquisition of Classic Electronics Ltd. in the second quarter of 2004.
INCOME TAX
The income tax increased by $154,810 from $111,056 for the year ended
December 31, 2002 to $265,866 for the year ended December 31, 2003, from an
effective tax rate of 10% to a negative effective rate of 23%. Excluding non tax
deductible merger cost incurred in 2003, the effective tax rate would have been
17% which approximated the standard tax rate imposed by the local Hong Kong tax
authority. During 2001, the Company had certain income which is not subject to
tax which lower both the effective tax rate and income tax expense.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31,
2001
NET SALES
Sales increased by $23,680,040 or 38.4% to $85,343,249 for year ended
December 31, 2002 from $61,663,209 for the year ended December 31, 2001. This
increase resulted primarily from an increase in net sales of Samsung's memory
products due to strong market demand in 2002.
COST OF SALES
Cost of sales increased $23,077,540 or 39.4%, to $81,591,046 for the
year ended December 31, 2002 from $58,513,506 for the year ended December 31,
2001. The increase in cost of sales resulted from the increase in sales of
Samsung's memory products. As a percentage of net sales, cost of sales increased
slightly to 95.6% of net sales in the year ended December 31, 2002 from 94.9% of
net sales in the year ended December 31, 2001.
GROSS PROFIT
Gross profit increased by $602,500, or 19.1% to $3,752,203 for the year
ended December 31, 2002 from $3,149,703 for the year ended December 31, 2001.
The increase in gross profit was primarily due to the increase in net sales over
the 2 years. The gross profit decreased slightly from 5.1% of net sales for the
year ended December 31, 2001 compared to 4.4% of net sales for the year ended
December 31, 2002.
OPERATING EXPENSES
Selling expenses decreased by $56,920, or 21.7%, to $204,837 for the
year ended December 31, 2002 from $261,757 for the year ended December 31, 2001
due to cost-cutting efforts implemented in the year of 2002.
21
General and administrative expenses decreased by $63,960 or 2.8% to
$2,225,205 for the year ended December 31, 2002 from $2,289,165 for the year
ended December 31, 2001. The decrease was primarily attributable to certain cost
control measures executed during the year 2002.
Income from operations for the Company was $1,322,161 for the year
ended December 31, 2002 compared to an income of $598,781 for the year ended
December 31, 2001, a increase of income by $723,380. The increase of income was
the result of increased gross profit through increase of sales and cost cutting
efforts during the year of 2002.
OTHER INCOME (EXPENSES)
Interest expense decreased by $141,465, or 39.8%, to interest expense
of $213,589 in the year ended December 31, 2002, from $355,054 in the year ended
December 31, 2001. The decrease in interest expense was due to lower interest
rate throughout 2002 and lower average loan balances. In the year ended December
31, 2002, interest expense related primarily to Atlantic's bank charges and
interest incurred from its short-term and long-term bank borrowings.
The Company's net income increased by $748,584 to $986,876 for the year
ended December 31, 2002 compared to an income of $238,292 for the year ended
December 31, 2001, an increase of 314% due to increases of net sales and results
of cost reduction during the year of 2002.
INCOME TAX
The income tax increased by $111,056 from $0 for the year ended
December 31, 2001 to $111,056 for the year ended December 31, 2002, from an
effective tax rate of 0% to an effective rate of 10%. Prior to 2001, the Company
incurred operating loss which was carried forward to 2001 to offset the taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity have been cash provided by
operations, bank lines of credit, subordinated convertible debt, and credit
terms from suppliers. Our principal uses of cash have been for operations and
working capital. We anticipate these uses will continue to be our principal uses
of cash in the future.
We may require additional financing in order to reduce our long-term
debt and implement our business plan. In order to meet anticipated demand for
Samsung's memory products in the Southern China market over the next 12 months,
we anticipate an additional need of working capital of at least $2.0 million to
finance the cash flow required to finance the purchase of Samsung memory
products from Samsung HK one day in advance of the release of goods from Samsung
HK's warehouse before receiving payments from customers upon physical delivery
of such goods in Hong Kong which, in most instances, takes approximately two
days from such delivery. In certain limited instances, our customers are
permitted up to thirty (30) days to make payment for purchased memory products.
As the anticipated cash generated by our operations are insufficient to fund our
growth requirements, we will need to obtain additional equity funds. There can
be no assurance that we will be able to obtain the necessary additional capital
on a timely basis or on acceptable terms, if at all. In any of such events, our
business growth and prospects would be materially and adversely affected. As a
result of any such financing, if it is an equity financing, the holders of our
common stock may experience substantial dilution. In addition, as our results
may be negatively impacted as a result of political and economic factors beyond
our control, our capital requirements may increase.
22
The following factors, among others, could cause actual results to
differ from those indicated in the above forward-looking statements: pricing
pressures in the industry; a continued downturn in the economy in general or in
the memory products sector; an unexpected decrease in demand for Samsung's
memory products; its ability to attract new customers; an increase in
competition in the memory products market; and the ability of some of our
customers to obtain financing. These factors or additional risks and
uncertainties not known to us or that we currently deem immaterial may impair
business operations and may cause our actual results to differ materially from
any forward-looking statement.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this report to conform them to
actual results or to make changes in its expectations.
In the year ended December 31, 2003, net cash used for operating
activities amounted to $216,151 while in the year ended December 31, 2002, we
generated net cash of $1,629,294 in operating activities, a decrease of
$1,845,445. This decrease was caused, in part, by the acquisition deposit to
acquire the 51% equity interests in Classic Electronics Ltd. of $1,000,000 in
the year ended December 31, 2003 which was used to offset the accounts
receivable from Classic Electronics Ltd. by such amount. We expect net cash will
also be used for operating activities in year 2004 given the anticipated cash
consideration of $4,000,000 to acquire the 51% equity interests in Classic
Electronics Ltd. in the second quarter which will be used to offset the accounts
receivable from Classic Electronics Ltd. by such amount .
In the year ended December 31, 2003, net cash provided by investing
activities amounted to $790,641 while in the year ended December 31, 2002, we
used net cash of $595,845 in investing activities, an increase of cash provided
by investing activities of $1,386,486. This increase was caused, in part, by
repayment of loans from stockholder of $807,724 in the year ended December 31,
2003 and in the year ended December 31, 2002, there was a net cash of $584,838
advanced to the stockholder. We do not expect a significant amount of cash used
for investing activities in 2004 as the acquisition of Classic Electronics
Limited will be principally by relief of outstanding accounts receivable and
issuance of common stock.
In the year ended December 31, 2003, net cash used for financing
activities amounted to $286,353 while in the year ended December 31, 2002, we
used net cash of $909,049 in financing activities, a decrease of cash used for
financing activities of $622,696. This decrease was caused, in part, by proceeds
of line-of-credit and issuance of convertible note payable of $166,410 and
$250,000 respectively in the year ended December 31, 2003 and in the year ended
December 31, 2002, there was a net repayment of line-of-credit of $269,317. We
expect approximately $2,000,000 of cash will be provided by financing activities
in year 2004 for working capital purpose.
In the year ended December 31, 2002, net cash provided by operating
activities was $1,629,294 while in the year ended December 31, 2001, we
generated net cash of $133,970 in operating activities, an increase of
$1,495,324. This increase was primarily due to increase of net income recorded
in year 2002 and a reduction of inventories.
In the year ended December 31, 2002, net cash used by investing
activities amounted to $595,845 while in the year ended December 31, 2001, we
used net cash of $166,962 in investing activities, an increase of cash used for
investing activities of $428,883. This increase was caused, in part, by advances
of loans to our then sole stockholder of $584,838 in the year ended December 31,
2002 and in the year ended December 31, 2001, there was a net cash of $144,411
advanced to such stockholder.
23
In the year ended December 31, 2002, net cash used for financing
activities amounted to $909,049 while in the year ended December 31, 2001, we
used net cash of $248,898 in financing activities, an increase of cash used for
financing activities of $660,151. This increase was caused, in part, by proceeds
of line-of-credit $210,651 in the year ended December 31, 2001 and in the year
ended December 31, 2002, there was a net repayment of line-of-credit of
$269,317.
An essential element of the Company's growth in the future, will be to
obtain adequate additional working capital to meet anticipated market demand
from personal computer users (business and personal) in Southern China. The
Company anticipates most of its additional capital to come from equity sources.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ACL is exposed to market risk for changes in interest rates as our bank
borrowings accrue interest at floating rates of 0.5% to 1.0% over the Best
Lending Rate (currently at 5.0% per annum) prevailing in Hong Kong. For the two
years ended December 31, 2003 and 2002, we did not generate any material
interest income. Accordingly, we believe that changes in interest rates may have
a material effect on our liquidity, financial condition or results of
operations.
IMPACT OF INFLATION
We believe that our results of operations are not affected by moderate
changes in inflation rates as we expect we will be able to pass along component
price increases to our customers.
SEASONALITY
We have not experienced any material seasonality in sales fluctuations
over the past 2 years in the memory products markets.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin (ARB) No. 51". This
interpretation clarifies the application of ARB No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. In December 2003, the FASB
revised FASB Interpretation No. 46 (FIN 46R) which addresses certain
implementation issues and allowed companies with certain types of variable
interest entities to defer adoption of FIN 46R until the end of the first
interim or annual reporting period ending after March 15, 2004. The Company is
evaluating the impact of applying FIN 46R to its consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and
clarifies financial accounting and reporting of derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003, except for certain hedging relationships designated after June 30, 2003.
The adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or cash flows.
24
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that issuers classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). With certain exceptions,
this Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of this Statement did
not have a material impact on the Company's financial position, results of
operations, or cash flows.
In December 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 132 (Revised 2003) "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This standard replaces SFAS-132 of the same
title which was previously issued in February 1998. The revised SFAS-132 was
issued in response to concerns expressed by financial statement users about
their need for more transparency of pension information. The revised standard
increases the existing GAAP disclosures for defined benefit pension plans and
other defined benefit postretirement plans. However, it does not change the
measurement or recognition of those plans as required under: SFAS-87,
"Employers' Accounting for Pensions"; SFAS-88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits"; and SFAS-106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Specifically, the revised standard requires
companies to provide additional disclosures about pension plan assets, benefit
obligations, cash flows, and benefit costs of defined benefit pension plans and
other defined benefit postretirement plans. Also, for the first time, companies
are required to provide a breakdown of plan assets by category, such as debt,
equity and real estate, and to provide certain expected rates of return and
target allocation percentages for these asset categories. The revised SFAS-132
is effective for financial statements with fiscal years ending after December
15, 2003 and for interim periods beginning after December 15, 2003. The adoption
of this Statement did not have a material impact on the Company's financial
position, results of operations, or cash flows.
CONTRACTUAL OBLIGATIONS
The following table presents the Company's contractual obligations as of
December 31, 2003 over the next five years and thereafter:
Payments by Period
- --------------------------------------------------------------------------------
LESS
THAN 1-3 4-5 AFTER 5
AMOUNT 1 YEAR YEARS YEARS YEARS
------ ------ ----- ----- -----
Operating Leases ................ 51,960 51,960 -- -- --
Convertible note payable ........ 250,000 250,000 -- -- --
Long-term Debt .................. 1,078,834 884,131 181,229 13,474 --
---------- ---------- ---------- ---------- ----
Total Contractual Obligations $1,380,794 $1,186,091 $181,229 $13,474 $---
========== ========== ========== ========== ====
CRITICAL ACCOUNTING POLICIES
The U.S. Securities and Exchange Commission ("SEC") recently issued
Financial Reporting Release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE
ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), suggesting companies provide
additional disclosure and commentary on their most critical accounting policies.
In FRR 60, the SEC defined the most critical accounting policies as the ones
that are most important to the portrayal of a company's financial condition and
operating results, and require management to make its most difficult and
subjective judgments, often as a result of the need to make
25
estimates of matters that are inherently uncertain. Based on this definition,
ACL's most critical accounting policies include: inventory valuation, which
affects cost of sales and gross margin; policies for revenue recognition,
allowance for doubtful accounts, and stock-based compensation. The methods,
estimates and judgments ACL uses in applying these most critical accounting
policies have a significant impact on the results ACL reports in its
consolidated financial statements.
INVENTORY VALUATION. Our policy is to value inventories at the lower of cost or
market on a part-by-part basis. This policy requires us to make estimates
regarding the market value of our inventories, including an assessment of excess
or obsolete inventories. We determine excess and obsolete inventories based on
an estimate of the future demand for our products within a specified time
horizon, generally 12 months. The estimates we use for demand are also used for
near-term capacity planning and inventory purchasing and are consistent with our
revenue forecasts. If our demand forecast is greater than our actual demand we
may be required to take additional excess inventory charges, which will decrease
gross margin and net operating results in the future
ALLOWANCE FOR DOUBTFUL ACCOUNTS. ACL maintains an allowance for doubtful
accounts for estimated losses resulting from the inability of ACL's customers to
make required payments. ACL's allowance for doubtful accounts is based on ACL's
assessment of the collectibility of specific customer accounts, the aging of
accounts receivable, ACL's history of bad debts, and the general condition of
the industry. If a major customer's credit worthiness deteriorates, or ACL's
customers' actual defaults exceed ACL's historical experience, ACL's estimates
could change and impact ACL's reported results.
STOCK-BASED COMPENSATION. ACL records stock-based compensation to outside
consultants at fair market value as operating cost. ACL accounted for
options/warrants to outside consultants under the fair value method on the date
of grant using the Black-Scholes pricing method. This option valuation model
requires input of highly subjective assumptions. Changes in the subjective input
assumptions can materially affect the fair value estimate. In management's
opinion, the existing model does not necessarily provide a reliable single
measure of fair value of these options/warrants granted to outside consultants.
REVENUE RECOGNITION. The Company derives revenues from resale of computer memory
products. Revenue for resale of computer memory products is recognized based on
guidance provided in Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," as amended (SAB
101). Computer memory resale revenue is recognized when products have been
shipped and collection is probable.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not invest in or own any market risk sensitive instruments
entered into for trading purposes or for purposes other than trading purposes.
All loans to us have been made at fixed interest rates and; accordingly, the
market risk to us prior to maturity is minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Annual Report on Form 10-K
are our Consolidated Financial Statements, beginning on page F-1.
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic SEC filings. There have
been no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, as of December 31, 2003, and their
biographical information are set forth below:
NAME AGE POSITION
Chun-Lun Yang 41 Chairman of the Board of Directors
and Chief Executive Officer
Ben Wong 40 Director
Kenneth Lap-Yin Chan 41 Chief Financial Officer
CHUNG-LUN YANG, Chairman of the Board and Chief Executive Officer. Mr.
Yang became a Director on September 30, 2003. Mr. Yang is the founder of
Atlantic and has been a director of Atlantic since 1991. Mr. Yang was graduated
from The Hong Kong Polytechnic in 1982 with a degree in electronic engineering.
From October 1982 until April 1985, he was the sales engineer of Karin
Electronics Supplies Ltd. From June 1986 until September 1991, he was Director
of Sales (Samsung Components Distribution) of Evertech Holdings Limited, a Hong
Kong based company. Mr. Yang has over 15 years' extensive experience in the
electronics distribution business. Mr. Yang is also a member of The Institution
of Electrical Engineers, United Kingdom.
BEN WONG, Director. Mr. Wong became a Director on September 30, 2003.
Since 1992, Mr. Wong has been the vice-president of Atlantic and is responsible
for the purchasing, sales and marketing of Atlantic's products. Mr. Wong was
graduated from the Chinese Culture University of Taiwan in 1986 with a
Bachelor's Degree of Science in Mechanical Engineering.
KENNETH LAP-YIN CHAN, Chief Financial Officer. Mr. Chan was appointed
our Chief Financial Officer effective September 30, 2003. Mr. Chan has been with
Atlantic since 2001 serving as Financial Controller. From 1998 to 2001, Mr. Chan
worked for Standard Chartered Bank. Prior to September 2001, Mr. Chan worked for
a number of other banks in Hong Kong, including Dao Heng Bank and Asia
27
Commercial Bank. He has more than 12 years of experience in corporate and
commercial finance. Mr. Chan graduated from the University of Toronto in 1986
with a Bachelor's Degree in Commerce.
Each director holds office (subject to our By-Laws) until the next
annual meeting of shareholders and until such director's successor has been
elected and qualified. All of our executive officers are serving until the next
annual meeting of directors and until their successors have been duly elected
and qualified. There are no family relationships between any of our directors
and executive officers.
The board of the Company does not have a Compensation Committee, an
Audit Committee or a Nominating Committee. The board of the Company plans to
expand the number of members on the board and create an independent Compensation
Committee, Audit Committee and a Nominating Committee.
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a written code of business conduct and ethics, known as
our Code of Business Conduct and Ethics which applies to all of our directors,
officers, and employees, including our principal executive officer and our
principal financial and accounting officer. A copy of the Code of Business
Conduct and Ethics is attached hereto as Exhibit 14 to this Annual Report on
Form 10-K.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers and persons who own more than ten
percent of a registered class of our equity securities (collectively, "Reporting
Persons") to file with the SEC initial reports of ownership and reports of
changes in ownership of our common stock and other equity securities of ACL.
Reporting Persons are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms that they file. To our knowledge, based solely
on a review of the copies of such reports furnished to us, we believe that
during fiscal year ended December 31, 2003 all Reporting Persons complied with
all applicable filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for the two years ended December 31,
2003.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
- --------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Fiscal Salary Bonus Other Restrict- Securities LTIP All Other
Principal Position year Annual ed Stock Underlying Payouts Compensa-
Compen- Awards Options ation
- --------------------------------------------------------------------------------------------------------------------------------
Jeffrey I. Green, 2003 $195,000 0 0 0 0 0 0
Former Director and 2002 $306,000 0 0 0 0 0 0
President(1)
- --------------------------------------------------------------------------------------------------------------------------------
Phyllis Green, Former 2003 $160,367 0 0 0 0 0 0
Director and Executive 2002 $180,400 0 0 0 0 0 0
Administrator(2)
- --------------------------------------------------------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------------------------------------------------------
Chun-Lun Yang, 2003 $23,077 $624,462 $16,539 0 0 0 0
Chief Executive 2002 N/A N/A N/A N/A N/A N/A N/A
Officer and Chairman
of the Board(3)
- --------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Green resigned effective September 9, 2003 upon the closing of the
reorganization. Compensation includes amount up to September 30, 2003.
(2) Ms. Green resigned effective September 9, 2003 upon the closing of the
reorganization. Compensation includes amount up to September 30, 2003.
(3) Mr. Yang was elected to be the Chief Executive Office of ACL upon the
resignation of Mr. Jeffrey I. Green after the reverse-acquisition of
Atlantic Components Ltd. Compensation information indicated above covers
the salaries of $23,077 to Mr. Yang for the period from October 1 to
December 31, 2003. Salaries for the full year totaled $92,308 for the year
ended December 31, 2003. The Company accrued bonus of $624,462 and payable
to Mr. Yang on September 30, 2003, effective date of the
reverse-acquisition. Other annual compensation of $16,539 includes rent of
$13,462 for Mr. Yang's personal residency and housing allowance of $3,077
for the period from October 1 to December 31, 2003.
OPTION GRANTS TO EXECUTIVE OFFICERS IN LAST FISCAL YEAR
No options were granted to executive officers of the Company during the
fiscal year ended December 31, 2003. The Company does not have any stock option,
retirement, pension or profit-sharing plans for the benefit of the directors,
officers or other employees of the Company, but our board of directors may
recommend the adoption of one or more such plans in the future.
NUMBER OF SHARES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
NAME EXERCISED REALIZED OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
- ---- --------- -------- ---------------------- ---------------------------------
N/A N/A N/A N/A N/A N/A N/A
COMPENSATION OF DIRECTORS
None of the current or former directors who served during the years
ended December 31, 2003, 2002, and 2001 received compensation for serving as
such, other than reimbursement for out of pocket expenses incurred in attending
director meetings.
OPTIONS TO DIRECTORS
No options were granted to directors during the fiscal year ended
December 31, 2003. The Company does not have any stock option, retirement,
pension or profit-sharing plans for the benefit of the directors, officers or
other employees of the Company, but our board of directors may recommend the
adoption of one or more such plans in the future.
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 2003 (i) each person known by
us to own beneficially more than 5% of the outstanding shares of our common
stock (ii) each director, named executive officer and (iii) all executive
officers and directors as a group. On such date, we had 27,829,936 shares of
common stock outstanding. Shares not outstanding but deemed beneficially owned
by virtue of the right of any individual to acquire shares within 60 days are
treated as outstanding only when determining the amount and percentage of common
stock owned by such individual. Each person has sole voting and investment power
with respect to the shares shown, except as noted.
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE OF CLASS
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- -------------------- ---------------------- ---------------------
Chung-Lun Yang 22,380,000 80.4%
No. 78, 5th Street, Hong Lok Yuen,
Tai Po, New Territories, Hong Kong
Ben Wong 0 0.0%
19B, Tower 8, Bellagio,
33 Castle Peak Road, Sham Tseng,
New Territories, Hong Kong
Kenneth Lap-Yin Chan 0 0.0%
Flat B, 8/F., Block 19,
South Horizons,
Aplei Chau, Hong Kong
All Directors and Officers 22,380,000 80.4%
as a Group
- -----------------------
(1) Calculated based upon 27,829,936 shares of common stock outstanding as of
April 13, 2004.
Except as otherwise set forth, information on the stock ownership of
these persons was provided to the Company by the persons.
The Company does not have any compensation plans or arrangements
benefiting employees or non-employees under which equity securities of the
Company are authorized for issuance in exchange for consideration in the form of
good services.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
All current transactions between the Company, and its officers,
directors and principal stockholders or any affiliates thereof are, and in the
future such transactions will be, on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
As of December 31, 2003 and 2002, the Company had an outstanding
receivable from Mr. Yang, the President and Chairman of the Board of Directors
of the Company, totaling $102,936, and $624,351, respectively. These advances
bear no interest and are payable on demand.
30
For the years ended December 31, 2003, 2002, and 2001, the Company
recorded compensation to Mr. Yang of $716,770, $732,280, and $298,630,
respectively, and paid $92,308, $92,308, and $92,308, respectively, to Mr. Yang
as compensation to him. The respective unpaid amounts offset the amount due
(from) to stockholder/director as of December 31, 2002 and 2001.
During each of the years ended December 31, 2003, 2002, and 2001, the
Company paid rent of $53,846, $53,846, and $94,231 for Mr. Yang's personal
residency as fringe benefits to him, and recorded such payments as compensation
expense, and paid housing allowance to him in the amount of $12,308, $2,052, and
$0, respectively.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents fees, including reimbursements for
expenses, for professional audit services rendered by Stonefield Josephson, Inc.
for the audit of the Company's annual financial statements for the years ended
December 31, 2003 and December 31, 2002 and fees billed for other services
rendered by Stonefield Josephson, Inc. during those periods.
FISCAL 2003 FISCAL 2002
Audit Fees (1) $71,050 $ --
Audit Related Fees (2) $ -- $ --
Tax Fees (3) $ -- $ --
All Other Fees (4) $ -- $ --
Total $ -- $ --
- ---------------
(1) Audit Fees consist of fees billed for professional services
rendered for the audit of the Company's consolidated annual
financial statements and review of the interim consolidated
financial statements included in quarterly reports and services
that are normally provided by Stonefield Josephson, Inc. in
connection with statutory and regulatory filings or engagements.
(2) Audit-Related Fees consist of fees billed for assurance and
related services that are reasonably related to the performance of
the audit or review of the Company's consolidated financial
statements and are not reported under "Audit Fees." There were no
such fees in fiscal 2002 or 2003.
(3) Tax Fees consist of fees billed for professional services rendered
for tax compliance, tax advice and tax planning. There were no
such fees in fiscal 2002 or 2003.
(4) All Other Fees consist of fees for products and services other
than the services reported above. There were no such fees in
fiscal 2002 or 2003.
31
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
(1) The financial statements listed in the Index to Consolidated
Financial Statements are filed as part of this report
(2) Schedule II - Valuation and Qualifying Accounts and Reserves
The Schedule on page S-1 is filed as part of this report.
(3) List of Exhibits
See Index to Exhibits in paragraph (c) below.
The Exhibits are filed with or incorporated by reference in this
report.
(b) REPORTS ON FORM 8-K. We filed the following current reports on Form 8-K
during the last quarter of our fiscal year ended December 31, 2003 and the first
quarter of our fiscal year ended March 31, 2004:
1. Form 8-K filed October 16, 2003 relating to items 1,2,5 and 7.
2. Form 8-K filed November 7, 2003 relating to items 4 and 7.
3. Form 8-K filed December 19, 2003 relating to items 5 and 7.
4. Form 8-K/A filed February 9, 2004 to the Form 8-K filed October 16, 2003
relating to item 7.
5. Form 8-K filed March 5, 2004 relating to item 12.
6. Form 8-K filed March 24, 2004 relating to items 5 and 7.
7. Form 8-K filed March 25, 2004 relating to items 5 and 7.
8. Form 8-K/A filed April 13, 2004 to the Form 8-K filed March 24, 2004
relating to items 7.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. We will furnish to our
stockholders a copy of any of the exhibits listed below upon payment of $.25 per
page to cover the costs of the Company of furnishing the exhibits.
EXHIBIT NO. DESCRIPTION
3.1 Certificate of incorporation of the Company, together with all
amendments thereto, as filed with the Secretary of State of the
State of Delaware, incorporated by reference to Exhibit 3.1 to the
Form 8-K filed with the Securities and Exchange Commission on
December 19, 2003.
3.2 By-Laws of the Company, as amended, incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement.
4.1(a) Form of specimen certificate for common stock of the Company.*
10.1 Share Exchange and Reorganization Agreement, dated as of September
8, 2003, among Print Data Corp., Atlantic Components Limited and
Mr. Chung-Lun Yang, incorporated by reference to Exhibit 10.1 to
the Form 8-K filed with the Securities and Exchange Commission on
October 16, 2003.
32
10.2 Conveyance Agreement, dated as of September 30, 2003, between
Print Data Corp. and New Print Data Corp., incorporated by
reference to Exhibit 10.2 to the Form 8-K filed with the
Securities and Exchange Commission on October 16, 2003.
10.3 Securities Purchase Agreement dated October 1, 2003 among Print
Data Corp, Jeffery Green, Phyllis Green and Joel Green,
incorporated by reference to Exhibit 10.3 to the Form 8-K filed
with the Securities and Exchange Commission on October 16, 2003.
10.4 Sales Restriction Agreement dated September 30, 2003 between Print
Data Corp. and Phyllis Green, incorporated by reference to Exhibit
10.4 to the Form 8-K filed with the Securities and Exchange
Commission on October 16, 2003.
10.5 Sales Restriction Agreement dated September 30, 2003 between Print
Data Corp. and Jeffery Green, incorporated by reference to Exhibit
10.5 to the Form 8-K filed with the Securities and Exchange
Commission on October 16, 2003.
10.6 Distribution Agreement dated May 1, 1993 by and between Samsung
Electronics Co., Ltd. and Atlantic Components Limited,
incorporated by reference to Exhibit 10.6 to the Form 8-K filed
with the Securities and Exchange Commission on October 16, 2003.
10.7 Renewal of Distributorship Agreement dated March 1, 2002 by and
between Samsung Electronics Co., Ltd. and Atlantic Components
Limited, incorporated by reference to Exhibit 10.7 to the Form 8-K
filed with the Securities and Exchange Commission on October 16,
2003.
10.8 Form of Note Subscription dated as of December 31, 2003 by and
between the Company and Professional Traders Fund LLC, a New York
limited liability company ("PTF"), incorporated by reference to
Exhibit 10.1 to the Form 8-K filed with the Securities and
Exchange Commission on March 24, 2004.
10.9 Form of 12% Senior Subordinated Convertible Note due December 31,
2004 in the aggregate principal amount of $250,000 issued by the
Company to PTF, incorporated by reference to Exhibit 10.2 to the
Form 8-K filed with the Securities and Exchange Commission on
March 24, 2004.
10.10 Form of Limited Guaranty and Security Agreement, dated as of
December 31, 2003 by and among, the Company, PTF, Orient Financial
Services Limited, Mr. Li Wing-Kei and Emerging Growth Partners,
Inc., incorporated by reference to Exhibit 10.3 to the Form 8-K
filed with the Securities and Exchange Commission on March 24,
2004.
10.11 Form of Stock Purchase and Escrow Agreement dated as of December
31, 2003, by and among, PTF, Orient Financial Services Limited,
Mr. Li Wing-Kei and Emerging Growth Partners, Inc., and the law
firm of Sullivan & Worcester LLP, as escrow agent, incorporated by
reference to Exhibit 10.4 to the Form 8-K filed with the
Securities and Exchange Commission on March 24, 2004.
10.12 Form of Letter Agreement dated as of December 31, 2003 by and
between the Registrant and PTF, incorporated by reference to
Exhibit 10.5 to the Form 8-K filed with the Securities and
Exchange Commission on March 24, 2004.
33
10.13 Letter of Intent, dated December 29, 2003, between the Company and
Classic Electronics, Ltd., incorporated by reference to Exhibit
10.1 to the Form 8-K filed with the Securities and Exchange
Commission on March 25, 2004.
10.14 Note Subscription dated as of December 31, 2003 by and between the
Company and Professional Traders Fund LLC, a New York limited
liability company ("PTF"), incorporated by reference to Exhibit
10.6 to the Form 8-K/A filed with the Securities and Exchange
Commission on April 13, 2004.
10.15 12% Senior Subordinated Convertible Note due December 31, 2004 in
the aggregate principal amount of $250,000 issued by the Company
to PTF, incorporated by reference to Exhibit 10.7 to the Form
8-K/A filed with the Securities and Exchange Commission on April
13, 2004.
10.16 Limited Guaranty and Security Agreement, dated as of December 31,
2003 by and among, the Company, PTF, Orient Financial Services
Limited, Mr. Li Wing-Kei and Emerging Growth Partners, Inc.,
incorporated by reference to Exhibit 10.8 to the Form 8-K/A filed
with the Securities and Exchange Commission on April 13, 2004.
10.17 Stock Purchase and Escrow Agreement dated as of December 31, 2003,
by and among, PTF, Orient Financial Services Limited, Mr. Li
Wing-Kei and Emerging Growth Partners, Inc., and the law firm of
Sullivan & Worcester LLP, as escrow agent, incorporated by
reference to Exhibit 10.9 to the Form 8-K/A filed with the
Securities and Exchange Commission on April 13, 2004.
10.18 Letter Agreement dated as of December 31, 2003 by and between the
Registrant and PTF, incorporated by reference to Exhibit 10.10 to
the Form 8-K/A filed with the Securities and Exchange Commission
on April 13, 2004.
14 Code of Business Conduct and Ethics of the Company*
21 Subsidiaries of the Company Atlantic Components Limited, a Hong
Kong corporation Alpha Perform Technologies Limited, a British
Virgin Islands corporation
31.1 Certification of Principal Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*
31.2 Certification of Principal Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
34
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
- ----------------------
* Filed herewith
35
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.
ACL SEMICONDUCTORS INC.
By: /s/ Chung-Lun Yang
-------------------------------
Chung-Lun Yang
Chief Executive Officer
Dated: April 14, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/ Chung-Lun Yang Chief Executive April 14, 2004
- ---------------------------- Officer and Chairman of the
Chung-Lun Yang Board of Directors
(Principal Executive
Officer)
/s/ Kenneth Lap-Yin Chan Chief Financial Officer, April 14, 2004
- ---------------------------- (Principal Financial and Accounting
Kenneth Lap-Yin Chan Officer)
/s/ Ben Wong Director April 14, 2004
- ----------------------------
Ben Wong
36
SCHEDULE II
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2003, 2002 and 2001
Balance Charged Balance
at the Beginning to Costs at the End
of the Year and Expenses Deductions of the Year
---------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 2001 -- 205,166 -- 205,166
Year ended December 31, 2002 205,166 -- (205,166) --
Year ended December 31, 2003 -- 128,598 (128,598) --
INVENTORY OBSOLESCENCE RESERVE:
Year ended December 31, 2001 -- 512,821 -- 512,821
Year ended December 31, 2002 512,821 -- (412,821) 100,000
Year ended December 31, 2003 100,000 50,590 -- 150,590
S-1
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
WITH INDEPENDENT AUDITORS' REPORT
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002
AND THE THREE YEAR RECORD ENDED DECEMBER 31, 2002
WITH INDEPENDENT AUDITORS' REPORT
Index Page
- ----- ----
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4
Consolidated Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-25
INDEPENDENT AUDITORS' REPORT
Board of Directors
ACL Semiconductors Inc.
Kowloon, Hong Kong
We have audited the accompanying consolidated balance sheets of ACL
Semiconductors Inc. and Subsidiaries (formerly Print Data Corp.) as of December
31, 2003 and 2002, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2003. Our audits also included the
financial statement schedule listed in the Index at Item 15 (a). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 ACL
Semiconductors Inc. and Subsidiaries (formerly Print Data Corp.) as of December
31, 2003 and 2002, and the consolidated results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America. 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.
/s/ STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
April 2, 2004
F-1
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2003 2002
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 467,074 $ 178,937
Accounts receivable, net of allowance
for doubtful accounts of $0 for 2003 and 2002 880,361 1,084,116
Accounts receivable, related parties 5,481,192 5,243,626
Inventories, net 1,327,120 302,089
Other current assets 10,679 11,100
----------- -----------
Total current assets 8,166,426 6,819,868
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net of
accumulated depreciation and amortization 54,382 45,301
ACQUISITION DEPOSITS 1,000,000 -
OTHER DEPOSITS 350,000 350,000
----------- -----------
$ 9,570,808 $ 7,215,169
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 5,037,304 $ 3,815,645
Accrued expenses 140,369 159,149
Lines of credit and loan facilities 2,158,984 1,992,574
Current portion of long-term debt 884,131 710,094
Convertible note payable, net of unamortized discount of
$250,000 as of December 31, 2003 -- --
Income tax payable 177,645 58,938
Other current liabilities 22,555 26,693
----------- -----------
Total current liabilities 8,420,988 6,763,093
Long-term debt, less current portion 194,703 1,071,503
----------- -----------
Total liabilities 8,615,691 7,834,596
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $0.001 par value, 50,000,000 shares
authorized, 27,829,936 in 2003 and 22,380,000 in 2002 issued 27,830 22,380
and outstanding
Additional paid-in capital 3,360,405 362,235
Amount due from stockholder/director (102,936) (624,351)
Accumulated deficit (2,330,182) (379,691)
----------- -----------
Total stockholders' equity (deficit) 955,117 (619,427)
----------- -----------
$ 9,570,808 $ 7,215,169
=========== ===========
The accompanying notes form an integral part of
these consolidated financial statements
F-2
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
2003 2002 2001
------------ ------------ ------------
NET SALES:
Related parties $ 16,126,175 $ 10,644,308 $ 7,959,851
Other 56,698,071 74,930,372 54,267,148
Less discounts to customers (151,449) (231,431) (563,790)
------------ ------------ ------------
72,672,797 85,343,249 61,663,209
COST OF SALES 68,214,587 81,591,046 58,513,506
------------ ------------ ------------
GROSS PROFIT 4,458,210 3,752,203 3,149,703
OPERATING EXPENSES:
Selling 149,364 204,837 261,757
General and administrative 2,571,147 2,225,205 2,289,165
Merger cost 2,753,620 -- --
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,015,921) 1,322,161 598,781
OTHER INCOME (EXPENSES):
Interest expense (166,509) (213,589) (355,054)
Gain on disposal of property and equipment 7,228 -- --
Miscellaneous 3,398 (10,640) (5,435)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,171,804) 1,097,932 238,292
INCOME TAXES 265,866 111,056 --
------------ ------------ ------------
NET INCOME (LOSS) $ (1,437,670) $ 986,876 $ 238,292
============ ============ ============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ (0.06) $ 0.04 $ 0.01
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES -
BASIC AND DILUTED 23,753,682 22,380,000 22,380,000
============ ============ ============
The accompanying notes form an integral part of
these consolidated financial statements
F-3
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
0 Common stock Additional Due from Total
------------------------ paid-in stockholder/ Accumulated stockholders'
Shares Amount capital director deficit equity (deficit)
---------- ------- ----------- ------------ ----------- ----------------
Balance at December 31, 2000 22,380,000 $ 22,380 $ 362,235 $ (741,396) $(1,604,859) $(1,961,640)
Net decrease in due from stockholder/
director -- -- -- 61,911 -- 61,911
Net income 238,292 238,292
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 22,380,000 $ 22,380 $ 362,235 $ (679,485) $(1,366,567) $(1,661,437)
Net decrease in due from stockholder
director -- -- -- 55,134 -- 55,134
Net income -- -- -- -- 986,876 986,876
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 22,380,000 $ 22,380 $ 362,235 $ (624,351) $ (379,691) $ (619,427)
Reverse acquisition between
ACL Semiconductors Inc.
(formerly Print Data Corp.) and
Atlantic Components Ltd. 2,829,936 2,830 (2,830) -- -- --
Issuance of common stock to consultants
related to reverse-acquisition 2,620,000 2,620 2,751,000 -- -- 2,753,620
Dividend declared -- -- -- -- (512,821) (512,821)
Intrinsic value for beneficial conversion
feature on convertible note payable -- -- 250,000 -- -- 250,000
Net decrease in due from stockholder
director -- -- -- 521,415 -- 521,415
Net loss -- -- -- -- (1,437,670) (1,437,670)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 27,829,936 $ 27,830 $ 3,360,405 $ (102,936) $(2,330,182) $ 955,117
=========== =========== =========== =========== =========== ===========
The accompanying notes form an integral part of these consolidated financial
statements
F-4
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
----------------------------------------------------
2003 2002 2001
----------- -------- --------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $(1,437,670) $ 986,876 $ 238,292
----------- ---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 15,230 23,571 19,345
Bad debt 128,598 -- 205,166
Change in inventory reserve 50,590 (412,821) 512,821
Gain on disposal of property and equipment (7,228) -- --
Merger cost 2,753,620 -- --
Reduction of receivable due from stockholder/
director as additional compensation 624,462 639,972 206,322
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS
Accounts receivable - other 75,157 320,412 4,012
Accounts receivable - related parties (2,661,158) (177,044) (2,626,545)
Inventories (1,075,621) 663,905 (96,352)
Recoverable income taxes -- 280,903 (280,903)
Other current assets 421 700 302,525
Deposits -- (350,000) --
INCREASE (DECREASE) IN LIABILITIES
Accounts payable 1,221,659 (452,519) 1,926,270
Accrued expenses (18,780) 46,820 (12,886)
Income tax payable 118,707 58,938 --
Other current liabilities (4,138) (419) (264,097)
----------- ---------- ----------
Total adjustments 1,221,519 642,418 (104,322)
----------- ---------- ----------
Net cash provided by (used for)
operating activities (216,151) 1,629,294 133,970
----------- ---------- ----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
(Loans) to/repayments from stockholders 807,724 (584,838) (144,411)
Proceeds received from sale of automobile 25,641 -- --
Purchases of property, equipment and improvements (42,724) (11,007) (22,551)
----------- ---------- ----------
Net cash provided by (used for)
investing activities 790,641 (595,845) (166,962)
----------- ---------- ----------
The accompanying notes form an integral part of these consolidated financial
statements
F-5
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
--------------------------------------------------
2003 2002 2001
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds (repayments) on lines of credit and
notes payable 166,410 (269,317) 210,651
Cash proceeds from issuance of convertible note payable 250,000 -- --
Principal payments on long-term debt (702,763) (639,732) (459,549)
----------- ----------- -----------
Net cash used for financing activities (286,353) (909,049) (248,898)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 288,137 124,400 (281,890)
CASH AND CASH EQUIVALENTS, beginning of year 178,937 54,537 336,427
CASH AND CASH EQUIVALENTS, end of year $ 467,074 $ 178,937 $ 54,537
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 166,509 $ 213,589 $ 355,054
=========== =========== ===========
Income tax paid $ 147,159 $ 67,418 $ 280,903
=========== =========== ===========
NON-CASH ACTIVITIES:
Reduction of accounts receivable from related party as
acquisition deposit $ 1,000,000 $ -- $ --
=========== =========== ===========
Reduction of accounts receivable from related parties
for assumed liability due stockholder/director $ 1,423,592 $ -- $ --
=========== =========== ===========
Dividend to stockholder of Atlantic Components Ltd.
prior to reverse-acquisition to increase payable to
stockholder/director $ 512,821 $ -- $ --
=========== =========== ===========
The accompanying notes form an integral part of these consolidated financial
statements
F-6
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
On September 8, 2003, ACL Semiconductors Inc. (formerly Print
Data Corp.) ("ACL") entered into a Share Exchange and
Reorganization Agreement with Atlantic Components Ltd.
("Atlantic"), a Hong Kong based company, and Mr. Chung-Lun
Yang ("Mr. Yang"), the then sole beneficial stockholder of
Atlantic. Under the terms of the agreement, ACL issued
22,380,000 of its shares to Mr. Chung-Lun Yang and 2,620,000
of its shares to certain financial advisors in exchange for
100% of the issued and outstanding shares of Atlantic's
capital stock. The Company recorded an expense of $2,753,620
related to the issuance of 2,620,000 shares of its common
stock to these advisors, which was computed based on the
quoted market price of $1.05 on September 30, 2003, the
effective date of the merger and was classified as merger cost
in the accompanying consolidated statements of operations for
the year ended December 31, 2003.
The share exchange agreement closed and became effective on
September 30, 2003. Upon the completion of this transaction,
Atlantic became the wholly owned subsidiary of ACL, and Mr.
Yang became the owner of approximately 80% of ACL's issued and
outstanding shares of common stock. In addition, ACL's
directors and officers resigned and were replaced by directors
and officers of Atlantic. For accounting purposes, the
acquisition was accounted for as a reverse-acquisition,
whereby Atlantic was deemed to have acquired ACL. Because the
acquisition was accounted for as a purchase of ACL, the
historical financial statements of Atlantic became the
historical financial statements of ACL after this transaction.
The accompanying consolidated statements of operations for the
year ended December 31, 2003 include the operating results of
Atlantic up to September 30, 2003, the closing date of the
acquisition, and the operating results of ACL from October 1,
2003 to December 31, 2003. In accounting for this transaction:
o Atlantic is deemed to be the purchaser and surviving
company for accounting purposes. Accordingly, due to the
acquisition, its net assets have been included in the
consolidated balance sheets at their historical book
values and the results of operations of Atlantic have been
presented for the comparative prior years ended December
31, 2002 and 2001.
o Control of the net assets and operations of ACL was
acquired effective September 30, 2003. The Company
accounted for this transaction as a purchase of the assets
and liabilities of ACL. The historical cost of the net
assets assumed was $0.
F-7
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED:
In connection with this transaction, ACL entered into a
Conveyance Agreement on September 30, 2003 with New Print Data
Corp. ("NewCo"). Under the terms of this agreement, effective
September 30, 2003, ACL conveyed its historic operations of
providing supplies used in a computer or office environment to
NewCo, by assigning all of the assets and liabilities related
to such operations to NewCo which accepted the assignment and
assumed all such liabilities in exchange for 1,000,000 shares
of common stock of NewCo.
On October 1, 2003, Print Data Corp. entered into a Securities
Purchase Agreement with the holders of Print Data Corp.'s
Series A Preferred Stock. Under the terms of this agreement,
Print Data Corp. sold its 1,000,000 shares of NewCo common
stock in exchange for the cancellation of the issued and
outstanding 500,400 shares of ACL's Series A Preferred Stock
(representing 100% of Print Data Corp.'s issued and
outstanding preferred stock previously held by three preferred
stockholders). This transaction was reflected in the
accompanying consolidated balance sheet as if the transaction
took place on September 30, 2003.
On December 16, 2003, Print Data Corp. filed a Certificate of
Amendment with the Secretary of State of the State of Delaware
changing its name from Print Data Corp. to ACL Semiconductors
Inc.
BUSINESS ACTIVITY:
ACL Semiconductors Inc. (formerly Print Data Corp.) ("Company"
or "ACL") was incorporated under the State of Delaware on
September 17, 2002. Through a reverse-acquisition of Atlantic
Components Ltd., a Hong Kong based company, effective
September 30, 2003, the Company's principal activities are
distribution of electronic components under the "Samsung"
brandname which comprise DRAM and graphic RAM, FLASH, SRAM and
MASK ROM for the Hong Kong and Southern China markets.
Atlantic Components Ltd., its wholly owned subsidiary, was
incorporated in Hong Kong on May 30, 1991 with limited
liability. On October 2, 2003, the Company set up a
wholly-owned subsidiary, Alpha Perform Technology Limited, a
British Virgin Islands company, to provide services on behalf
of the Company in jurisdictions outside of Hong Kong.
F-8
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CURRENCY REPORTING:
Amounts reported in the accompanying consolidated financial
statements and disclosures are stated in U.S. Dollars, unless
stated otherwise. The functional currency of the Company,
which accounted for most of the Company's operations, is
reported in Hong Kong dollars ("HKD"). Foreign currency
transactions (outside Hong Kong) during the years ended
December 31, 2003, 2002, and 2001 are translated into HKD
according to the prevailing exchange rate at the transaction
dates. Assets and liabilities denominated in foreign
currencies at the balance sheet dates are translated into HKD
at period-end exchange rates.
For the purpose of preparing these consolidated financial
statements, the financial statements of Atlantic reported in
HKD have been translated into United States Dollars at
US$1.00=HKD7.8, a fixed exchange rate maintained between the
two countries.
CONSOLIDATION POLICY:
The consolidated financial statements include the financial
statements of ACL Semiconductors Inc. and its wholly owned
subsidiaries, Atlantic Components Ltd. and Alpha Perform
Technology Limited. All significant intercompany accounts and
transactions have been eliminated in preparation of the
consolidated financial statements.
REVENUE RECOGNITION:
Product sales are recognized when products are shipped to
customers, title passes and collection is reasonably assured.
Provisions for discounts to customers, estimated returns and
allowances and other price adjustments are provided for in the
same periods the related revenue is recorded which are
deducted from the gross sales.
USE OF ESTIMATES:
The preparation of consolidated 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, revenue
recognition, allowance for doubtful accounts, long lived
assets impairment, inventory, and disclosure of contingent
assets and liabilities, at the date of the consolidated
financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-9
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH AND CASH EQUIVALENTS:
For purposes of the consolidated statements of cash flows,
cash equivalents include all highly liquid debt instruments
with original maturities of three months or less which are not
securing any corporate obligations. The Company had no cash
equivalents at December 31, 2003 or 2002.
ACCOUNTS RECEIVABLE:
The Company provides an allowance for doubtful accounts equal
to the estimated uncollectible amounts. The Company's estimate
is based on historical collection experience and a review of
the current status of trade accounts receivable. It is
reasonably possible that the Company's estimate of the
allowance for doubtful accounts will change. Accounts
receivable are presented net of an allowance for doubtful
accounts of $0 at December 31, 2003 and 2002.
INVENTORIES:
Inventories are stated at the lower of cost or market and are
comprised of purchased computer technology resale products.
Cost is determined using the first-in, first-out method. The
reserve for obsolescence was increased by $50,590 for 2003 and
was decreased by $412,821 for 2002. Inventory obsolescence
reserve totaled $150,590 and $100,000 as of December 31, 2003
and 2002, respectively.
PROPERTY, EQUIPMENT AND IMPROVEMENTS:
Property and equipment are valued at cost. Depreciation and
amortization are provided over the estimated useful lives of
three to five years using the straight-line method. Leasehold
improvements are amortized on a straight-line basis over the
shorter of the economic lives or the lease terms.
The estimated service lives of property, equipment and
improvements are as follows:
Automobile 3 1/3 years
Office equipment 5 years
Leasehold improvements 5 years
Computers 5 years
F-10
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
LONG-LIVED ASSETS:
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," long-lived assets to be held and used
are analyzed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS No. 144 relates to assets that
can be amortized and the life can be determinable. The Company
evaluates at each balance sheet date whether events and
circumstances have occurred that indicate possible impairment.
If there are indications of impairment, the Company uses
future undiscounted cash flows of the related asset or asset
grouping over the remaining life in measuring whether the
assets are recoverable. In the event such cash flows are not
expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair
value. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value of asset less the cost
to sell. The Company determined that there was no impairment
of long-lived assets as of December 31, 2003 and 2002.
ADVERTISING:
The Company expenses advertising costs when incurred.
Advertising expense totaled $3,567, $24,580, and $42,738 for
the years ended December 31, 2003, 2002, and 2001,
respectively.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Deferred income tax expense represents the
change during the period in the deferred tax assets and
deferred tax liabilities. The components of the deferred tax
assets and liabilities are individually classified as current
and non-current based on their characteristics. Realization of
the deferred tax asset is dependent on generating sufficient
taxable income in future years. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
F-11
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of the Company's cash and cash
equivalents, accounts receivable, lines of credit, convertible
debt, accounts payable, accrued expenses, and long-term debt
approximates their estimated fair values due to the short-term
maturities of those financial instruments.
COMPREHENSIVE INCOME:
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. As of
December 31, 2003, 2002, and 2001, the Company has no items
that represent other comprehensive income and, therefore, has
not included a schedule of comprehensive income in the
consolidated financial statements.
BASIC AND DILUTED EARNINGS PER SHARE:
In accordance with SFAS No. 128, "Earnings Per Share," the
basic earnings per common share is computed by dividing net
earnings available to common stockholders by the weighted
average number of common shares outstanding. Diluted earnings
per common share is computed similarly to basic earnings per
common share, except that the denominator is increased to
include the number of additional common shares that would have
been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. At
December 31, 2003, the Company has 346,580 shares of common
stock equivalents upon conversion of the convertible note
payable. These common stock equivalents were excluded from the
computation of diluted earnings per share as their effect is
antidilutive. As of December 31, 2002 and 2001, the Company
did not have any dilutive common stock equivalents.
SEGMENT REPORTING:
Based on the Company's integration and management strategies,
the Company operated in a single business segment. For the
years ended December 31, 2003, 2002, and 2001, all sales have
been derived from Hong Kong and the South East Asia region.
F-12
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS:
In October 2002, the FASB issued Statement No. 147,
"Acquisitions of Certain Financial Institutions-an amendment
of FASB Statements No. 72 and 144 and FASB Interpretation No.
9," which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in
accordance with Statements No. 141, "Business Combinations,"
and No. 142, "Goodwill and Other Intangible Assets." In
addition, this Statement amends SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," to include
in its scope long-term customer-relationship intangible assets
of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions
of financial institutions are effective for acquisitions for
which the date of acquisition is on or after October 1, 2002.
The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this
Statement did not have a material impact on the Company's
financial position or results of operations as the Company has
not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure," which amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition
guidance and annual disclosure provisions of Statement 148 are
effective for fiscal years ending after December 15, 2002,
with earlier application permitted in certain circumstances.
The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods
beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's
financial position or results of operations as the Company has
not elected to change to the fair value based method of
accounting for stock-based employee compensation.
F-13
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin (ARB) No. 51".
This interpretation clarifies the application of ARB No. 51,
"Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities
without additional subordinated financial support from other
parties. In December 2003, the FASB revised FASB
Interpretation No. 46 (FIN 46R) which addresses certain
implementation issues and allowed companies with certain types
of variable interest entities to defer adoption of FIN 46R
until the end of the first interim or annual reporting period
ending after March 15, 2004. The Company is evaluating the
impact of applying FIN 46R to its consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies financial
accounting and reporting of derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is
effective for contracts entered into or modified after June
30, 2003, except for certain hedging relationships designated
after June 30, 2003. The adoption of this Statement did not
have a material impact on the Company's financial position,
results of operations, or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS 150 establishes standards for
how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and
equity. It requires that issuers classify a financial
instrument that is within its scope as a liability (or an
asset in some circumstances). With certain exceptions, this
Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June
15, 2003. The adoption of this Statement did not have a
material impact on the Company's financial position, results
of operations, or cash flows.
F-14
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In December 2003, the FASB issued SFAS No. 132 (Revised 2003),
"Employers' Disclosures about Pensions and Other
Postretirement Benefits." This standard replaces SFAS 132 of
the same title which was previously issued in February 1998.
The revised SFAS 132 was issued in response to concerns
expressed by financial statement users about their need for
more transparency of pension information. The revised standard
increases the existing GAAP disclosures for defined benefit
pension plans and other defined benefit postretirement plans.
However, it does not change the measurement or recognition of
those plans as required under: SFAS 87, "Employers' Accounting
for Pensions;" SFAS 88 "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits;" and SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions."
Specifically, the revised standard requires companies to
provide additional disclosures about pension plan assets,
benefit obligations, cash flows, and benefit costs of defined
benefit pension plans and other defined benefit postretirement
plans. Also, for the first time, companies are required to
provide a breakdown of plan assets by category, such as debt,
equity and real estate, and to provide certain expected rates
of return and target allocation percentages for these asset
categories. The revised SFAS 132 is effective for financial
statements with fiscal years ending after December 15, 2003
and for interim periods beginning after December 15, 2003. The
adoption of this Statement did not have a material impact on
the Company's financial position, results of operations, or
cash flows.
(2) PROPERTY, EQUIPMENT AND IMPROVEMENTS:
A summary is as follows:
2003 2002
---------- ---------
Office equipment $ 45,907 $ 38,821
Leasehold improvements 2,346 2,346
Furniture and fixtures 3,843 1,538
Automobile 53,281 58,408
---------- ---------
105,377 101,113
Less accumulated depreciation and amortization 50,995 55,812
---------- ---------
$ 54,382 $ 45,301
========== =========
Depreciation and amortization expense for property, equipment, and
improvements amounted to $15,230, $23,571, and $19,345, for the years
ended December 31, 2003, 2002, and 2001, respectively.
F-15
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(3) REVOLVING LINES OF CREDIT AND LOAN FACILITIES:
The Company has a $738,461 revolving line of credit with a bank with an
outstanding balance of $737,000 at December 31, 2003 and $737,785 at
December 31, 2002. For borrowings in Hong Kong dollars, the line of
credit bears interest at the greater of (1) 0.5% over Hong Kong dollar
prime rate or (2) 1% over the Hong Kong Interbank Offer Rate
("HIBOR".), or 5.5% as of December 31, 2003 and 2002. Weighted average
interest rate approximated 5.5% for 2003 and 5% for 2002. For
borrowings in foreign currency, the line of credit carries interest of
0.5% over the Base Rate. The line matures on September 30, 2004.
The Company has a $248,718 revolving line of credit with a bank with an
outstanding balance of $247,984 at December 31, 2003 and $244,789 at
December 31, 2002. The line of credit bears interest at the greater of
(1) 1% over Hong Kong dollar prime rate or (2) 1% over HIBOR, or 6% as
of December 31, 2003 and 2002. Weighted average interest rate
approximated 6% for 2003 and 5.5% for 2002. The line matured on
September 30, 2004.
The Company has import loan facilities totaling $1,282,051 with a bank
with an outstanding balance of $1,174,000 at December 31, 2003 and
$1,010,000 at December 31, 2002. For borrowings in Hong Kong dollars,
the import loan facilities bear interest at 0.5% per annum over the
bank's best lending rate and are payable monthly, or 5.5% as of
December 31, 2003 and 2002. Weighted average interest rate approximated
5.5% for 2003 and 5% for 2002. This loan is due on demand.
See Note 5 for the details for the security, collateral and guarantees
under the debenture deed dated April 20, 2001.
F-16
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(4) CONVERTIBLE NOTE PAYABLE:
On December 31, 2003, the Company issued a 12% subordinated convertible
note in the amount of $250,000 to a financing company. The borrowing
amount is due and payable on December 31, 2004. The interest is payable
in arrears on March 31, June 30, September 30, and December 31, 2004.
In the event of default on principal and interest payments, interest is
accrued at a rate of 15% on and after the date of the default, and the
Company is obligated to pay a default penalty equal to 30% of the
unpaid principal and interest. At the option of the debt holder, such
unpaid principal, interest and default penalty can be paid with shares
of the Company's common stock at conversion price, which is defined in
the following paragraph.
The holder of this note, at its option, can convert the outstanding
balance of the debt into shares of common stock at the conversion
price, which is defined as 40% of the average closing price of the
stock three trading days immediately prior to the Notice of Conversion
date or the interest payment date or the debt maturity date. The
conversion price shall not in any case exceed $1. At December 31, 2003,
the note is convertible into 346,580 shares of the Company's common
stock.
In addition, since this debt is convertible into equity at the option
of the note holder at beneficial conversion rates, an embedded
beneficial conversion feature was recorded as a debt discount and
amortized using the effective interest method over the life of the debt
in accordance with Emerging Issues Task Force No. 00-27, "Application
of Issue No. 98-5 to Certain Convertible Instruments." Since the
intrinsic value of the beneficial conversion feature exceeds the
proceeds of the convertible debt, the amount of the discount assigned
to the beneficial conversion feature is limited to the amount of the
proceeds of the convertible debt. Therefore, the Company recorded a
discount of $250,000, the face value of the debt, and accordingly the
debt is $0 at December 31, 2003, net of the unamortized discount.
Amortization of discount was immaterial for the year ended December 31,
2003. Any unamortized debt discount related to the beneficial
conversion feature will be accreted as interest expense.
Pursuant to the terms of a Limited Guarantee and Security Agreement,
the debt is guaranteed by 1.2 million shares of the Company's common
stock beneficially owned by three shareholders of which 700,000 are
restricted shares and 500,000 are freely traded shares.
The Company has agreed to file a registration statement for the
conversion shares within 60 days of the funding of the note and agreed
to use reasonable efforts to cause such registration statement to be
declared effective within 150 days of the funding of the note. If the
Company fails to meet either of such timelines, a 1% penalty per month
on the funded amount of the note will be levied against the Company. As
of April 2, 2004, the Company has not yet filed such registration
statement for the conversion shares. Accordingly, the Company is
incurring a 1% penalty per month on the funded amount of the note.
F-17
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(5) LONG-TERM DEBT:
A summary is as follows as of December 31:
2003 2002
---- ----
Installment loan carrying an interest of 0.75% over Hong Kong
dollar Prime Rate (5.75% at December 31, 2003 and 5.75% at
December 31, 2002) to a bank payable in monthly installments of
$4,535 including interest through April 2007 $ 160,961 $ 204,747
Installment loan carrying an interest of 1% over Hong Kong dollar
Prime Rate (6% at December 31, 2003 and 6% at December 31, 2002)
to a bank payable in monthly installments of $7,723 including
interest through June 2004 45,540 125,572
Term loan carrying an interest of 0.75% over the bank's best
lending rate (5.75% at December 31, 2003 and 5.75% at December 31,
2002) to a bank payable in monthly installments of $35,897
including interest through June 2005 453,827 846,188
Accrued interest on previous term loan which was converted to a
term loan carrying 0% to a bank, unpaid amount due June 2005 156,825 156,825
Term loan carrying an interest of 0.75% over Hong Kong dollar
Prime Rate (5.75% at December 31, 2003 and 5.75% at December 31,
2002) to a bank payable in monthly installments including interest
at the following schedule: $13,718 from May 2001 to April 2002,
$16,410 from May 2002 to April 2003, $19,103 from May 2003 to
April 2004, $21,923 from May 2004 to March 2005, and the remaining
balance due April 2005 261,681 448,265
----------- -----------
1,078,834 1,781,597
Less current maturities 884,131 710,094
------------ ------------
$ 194,703 $ 1,071,503
============ ============
F-18
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(5) LONG-TERM DEBT, CONTINUED:
With respect to all of the above referenced debt and credit
arrangements in Note 3, pursuant to a debenture deed dated April 20,
2001, the Company pledged its assets as collateral collectively to a
bank group in Hong Kong comprised of Dah Sing Bank Limited, The Hong
Kong and Shanghai Banking Corporation Limited, and DBS Bank (Hong Kong)
Ltd. (formerly Overseas Trust Bank Limited) for all current and future
borrowings from the bank group by the Company. In addition to the above
pledged collateral, the debt is also secured by:
1. a personal guarantee given by Mr. Alan Chung-Lun Yang ("Mr.
Yang") limited to approximately US$6,900,000 to The Hong Kong
and Shanghai Banking Corporation Limited;
2. a security interest in a residential property located in Hong
Kong owned by an independent third party together with a joint
and several guarantee given by Mr. Yang and an ex-director of
the Company to DBS Bank (Hong Kong) Ltd. (formerly Overseas
Trust Bank Limited); and
3. a personal guarantee given by Mr. Yang for unlimited amount
together with a key man life insurance policy on Mr. Yang for
$1,000,000 and a personal guarantee to Dah Sing Bank Limited.
A summary of the maturities of long-term debt at December 31, 2003
follows:
Year ending December 31,
2004 $ 884,131
2005 129,221
2006 52,008
2007 13,474
Thereafter --
------------
$ 1,078,834
============
(6) INCOME TAXES:
Income tax provision amounted to $265,866 for 2003, $111,056 for 2002
and $0 for 2001 (an effective rate of -23% for 2003, 10% for 2002 and
0% for 2001). A reconciliation of the provision for income taxes with
amounts determined by applying the statutory federal income tax rate of
34% to income before income taxes is as follows:
F-19
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(6) INCOME TAXES, CONTINUED:
2003 2002 2001
---- ---- ----
Computed tax at federal statutory rate $ (398,414) $ 373,297 $ 81,019
Non-deductible merger cost 936,231 -- --
Tax rate differential on foreign earnings of
Atlantic Components Ltd. ("Atlantic"), a Hong Kong
based company (89,247) (197,628) (42,893)
Earnings on Alpha Perform Technology Limited
("Alpha"), a British Virgin Islands ("BVI") Company
not subject to corporate income tax (353,914) -- --
Utilization of net operating loss carryforward -- -- (60,909)
Provision for tax liabilities on procurement service
fee income to Alpha 150,000 -- --
Other 21,210 (64,613) 22,783
-------------- ------------- -------------
$ 265,866 $ 111,056 $ --
============== ============= =============
The income tax provision consists of the following components:
2003 2002 2001
---- ---- ----
Federal $ -- $ -- $ --
Foreign 265,866 111,056 --
-------------- ------------- -------------
$ 265,866 $ 111,056 $ --
============== ============= =============
As of December 31, 2003, 2002, and 2001, there are no material amounts
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
The Company's Hong Kong subsidiary, Atlantic, paid a procurement fee to
the Company's subsidiary, Alpha in BVI, and allocated certain expenses
incurred outside Hong Kong. Procurement fee income net of such expenses
totaled approximately $1,000,000, which is not subject to corporate tax
in Hong Kong or BVI. However, such procurement service fee income or
income net of related expenses may be subject to corporate income tax
in the People's Republic of China. Based on the analysis of its tax
counsel, the Company accrued approximately $150,000 for such potential
tax liabilities.
F-20
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(7) CONCENTRATIONS:
The Company has a non-exclusive Distributorship Agreement with Samsung
Electronics Co., Ltd. ("Samsung"), which was initially entered into in
May 1993 and has been renewed annually. Under the terms of the
agreement, Samsung appointed the Company on a non-exclusive basis as
Samsung's distributor to distribute and market its products in the
designated territory. The Company has the right to market and sell the
products of other manufacturers and render service related to such
activities, unless such activities result in the Company's inability to
fulfill its obligations under the Agreement. However, the Company shall
not purchase to sell any of the same product lines as Samsung produces
and deals in from any other Korean manufacturer during the term of this
Agreement. The most recent renewal of the Distributorship Agreement
expired on March 1, 2004. As of April 2, 2004, the Company is still in
negotiation with Samsung regarding the terms and such agreement has not
yet been renewed.
The Company's distribution operations are dependent on the availability
of an adequate supply of electronic components under the "Samsung"
brand name which have historically been principally supplied to the
Company by the Hong Kong office of Samsung. The Company purchased 84%,
94%, and 100% of materials from Samsung for the years ended December
31, 2003, 2002, and 2001, respectively. However, there is no written
supply contract between the Company and Samsung and, accordingly, there
is no assurance that Samsung will continue to supply sufficient
electronic components to the Company on terms and prices acceptable to
the Company or in volumes sufficient to meet the Company's current and
anticipated demand, nor can assurance be given that the Company would
be able to secure sufficient products from other third party
supplier(s) on acceptable terms. In addition, the Company's operations
and business viability are to a large extent dependent on the provision
of management services and financial support by Mr. Yang. See Note 5
for details for Mr. Yang's support of the Company's banking facilities.
At December 31, 2003 and 2002, included in accounts payable were
$2,551,823 and $1,159,257, respectively, to Samsung. Termination of
such distributorship by Samsung will significantly impair and adversely
affect the continuation of the Company's business.
During the years ended December 31, 2003, 2002, and 2001, 23%, 12%, and
7%, respectively, of the sales were generated from Classic Electronic
Ltd. ("Classic"), a related party (see Note 10 for additional
discussion of related party transactions). As of December 31, 2003 and
2002, accounts receivable included $5,289,626 and $5,243,626,
respectively, due from Classic, which represented 83% and 83%,
respectively, of the total accounts receivable.
As of December 31, 2003 and 2002, Samsung has withheld a total of
$350,000 commission due to the Company as deposits. Per a letter sent
by Samsung in May 1, 2001, the deposits will be released upon further
agreement between Samsung and the Company. Subsequent to this letter,
no further discussion regarding this matter was made. The Company
believes the amount is fully recoverable.
F-21
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(8) RETIREMENT PLAN:
Under the Mandatory Provident Fund ("MPF") Scheme Ordinance in Hong
Kong, the Company is required to set up or participate in an MPF scheme
to which both the Company and employees must make continuous
contributions throughout their employment based on 5% of the employees'
earnings, subject to maximum and minimum level of income. For those
earning less than the minimum level of income, they are not required to
contribute but may elect to do so. However, regardless of the
employees' election, their employers must contribute 5% of the
employees' income. Contributions in excess of the maximum level of
income are voluntary. All contributions to the MPF scheme are fully and
immediately vested with the employees' accounts. The contributions must
be invested and accumulated until the employees' retirement. The
Company contributed and expensed $16,129 for 2003, $15,611 for 2002,
and $39,764 for 2001.
(9) COMMITMENTS:
The Company leases its facilities. The following is a schedule by years
of future minimum rental payments required under operating leases that
have noncancellable lease terms in excess of one year as of December
31, 2003:
Related Party Other Total
------------- ------------- -------------
Year ending December 31,
2004 $ 45,192 $ 6,768 $ 51,960
Thereafter -- -- --
------------- ------------- -------------
Total $ 45,192 $ 6,768 $ 51,960
============= ============= =============
All leases expire prior to January 2005. Real estate taxes, insurance,
and maintenance expenses are obligations of the Company. It is expected
that in the normal course of business, leases that expire will be
renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will likely be more
than the amounts shown for 2003. Rent expense for the years ended
December 31, 2003, 2002, and 2001 totaled $106,612, $100,229, and
$131,572, respectively.
(10) RELATED PARTY TRANSACTIONS:
TRANSACTIONS WITH MR. YANG
As of December 31, 2003 and 2002, the Company had an outstanding
receivable from Mr. Yang, the President and Chairman of the Board of
Directors of the Company, totaling $102,936, and $624,351,
respectively. These advances bear no interest and are payable on
demand.
F-22
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(10) RELATED PARTY TRANSACTIONS, CONTINUED:
For the years ended December 31, 2003, 2002, and 2001, the Company
recorded compensation to Mr. Yang of $716,770, $732,280, and $298,630,
respectively, and paid $92,308 for each of the three-year period ended
December 31, 2003, to Mr. Yang as compensation to him. The respective
unpaid amounts are included in the amount due (from) to
stockholder/director as of December 31, 2003 and 2002.
During each of the years ended December 31, 2003, 2002, and 2001, the
Company paid rent of $53,846, $53,846, and $94,231 for Mr. Yang's
personal residency as fringe benefits to him, and paid housing
allowance to him in the amount of $12,308, $2,052, and $0,
respectively. All such payments have been recorded as compensation
expense in the accompanying financial statements.
TRANSACTIONS WITH CLASSIC ELECTRONIC LTD.
During the years ended December 31, 2003, 2002, and 2001, the Company
sold $15,224,745, $10,007,267, and $5,665,945, respectively, to Classic
Electronic Ltd. ("Classic"). The Company has not experienced any bad
debt from this customer in the past. Pursuant to a written personal
guarantee agreement, Mr. Yang personally guarantees to the Company's
lenders up to $10 million outstanding accounts receivable from Classic.
During the years ended December 31, 2003, 2002, and 2001, the Company
purchased inventory of $4,159,300, $3,266,005, and $0, respectively,
from Classic, which offset the outstanding accounts receivable from
Classic. As of December 31, 2003 and 2002, the Company had net
outstanding accounts receivable from Classic totaling $5,289,626 and
$5,243,626, respectively.
The Company leased two of its facilities and Mr. Yang's personal
residency from Classic. Lease agreements for the two facilities expire
on November 30, 2004 while the lease agreement for Mr. Yang's personal
residency expires on March 31, 2004. Monthly lease payments for these 3
leases totaled $7,372. The Company incurred and paid rent expense of
$56,731, $53,846, and $94,231 to Classic for the years ended December
31, 2003, 2002, and 2001, respectively.
During the years ended December 31, 2003, 2002, and 2001, certain
Classic's employees performed work on behalf of Atlantic and their
salaries were allocated to Atlantic's operations and charged to
expenses in the accompanying consolidated financial statements. Such
expenses approximated $248,000 for 2003, $310,000 for 2002, and
$310,000 for 2001.
Classic maintains a bank account for which the bank does not charge
fees on transactions in US dollars. As a result, Classic collected
certain accounts receivable from Atlantic's customers on behalf of
Atlantic if the accounts receivable needed to be settled in US dollars,
at no charge to Atlantic.
F-23
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(10) RELATED PARTY TRANSACTIONS, CONTINUED:
In December 2003, the Company entered into a Letter of Intent to
acquire 51% interest of Classic (see Note 12). As part of the terms,
the Company agreed to make a purchase deposit of $1,000,000 related to
this purchase. The Company reduced its accounts receivable by
$1,000,000 from Classic and is reflected as acquisition deposits on the
accompanying consolidated balance sheet at December 31, 2003.
In December 2003, the Company relieved its account receivable from
Classic by transferring $1,048,604 of outstanding amounts it owed to
its stockholder/director.
Effective September 30, 2003, Mr. Ben Wong, a director and shareholder
of Classic, was elected as a director of the Company.
TRANSACTIONS WITH ACL TECHNOLOGY PTE LTD.
During the years ended December 31, 2003, 2002, and 2001, the Company
sold $901,430, $616,305, and $0, respectively, to ACL Technology Pte
Ltd. ("ACLT"), a company owned 100% by Mr. Yang. Outstanding accounts
receivable totaled $191,566 and $0 as of December 31, 2003 and 2002,
respectively. The Company has not experienced any bad debt from this
customer in the past.
During the years ended December 31, 2003, 2002, and 2001, the Company
purchased inventories of $700,126, $401,676, and $0, respectively, from
ACLT. As of December 31, 2003 and 2002, there were no outstanding
accounts payable to ACLT.
During 2002, the Company sold inventory previously reserved for
obsolescence to ACLT. The inventory had an original cost of
approximately $300,000 and was sold to ACLT at a substantial discount.
In December 2003, the Company relieved its account receivable from ACLT
by transferring $374,988 of outstanding amounts it owed to its
stockholder/director.
TRANSACTIONS WITH KADATCO COMPANY LTD.
During the years ended December 31, 2003, 2002, and 2001, the Company
sold $0, $20,736, and $2,293,906, respectively, to Kadatco Company Ltd.
("Kadatco"), a company owned 100% by Mr. Yang. Outstanding accounts
receivable totaled $0 as of December 31, 2003 and 2002. The Company has
not experienced any bad debt from this customer in the past.
During the years ended December 31, 2003, 2002, and 2001, the Company
purchased $0, $11,340, and $148,595, respectively, from Kadatco. As of
December 31, 2003 and 2002, there were no outstanding accounts payable
to Kadatco.
F-24
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(FORMERLY PRINT DATA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002 AND
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2003
(11) QUARTERLY INFORMATION (UNAUDITED):
The summarized quarterly financial data presented below reflects all
adjustments, which in the opinion of management, are of a normal and
recurring nature necessary to present fairly the results of operations
for the periods presented.
(dollars in thousands except per share data)
-------------------------------------------------------------------
TOTAL FOURTH THIRD SECOND FIRST
----- ------ ----- ------ -----
2003
- ----
Total net sales $72,673 $20,212 $20,301 $17,081 $15,079
Gross profit $4,458 $1,037 $1,750 $844 $827
Net income (loss) $(1,438) $351 $(2,190) $217 $184
Net income (loss) per share:
basic and diluted $(0.06) $0.01 $(0.10) $0.01 $0.01
2002
- ----
Total net sales $85,343 $16,559 $22,147 $22,406 $24,231
Gross profit $3,752 $388 $1,039 $2,685 $(359)
Net income (loss) $987 $356 $73 $1,943 $(1,385)
Net income (loss) per share:
basic and diluted $0.04 $0.02 $0.00 $0.09 $(0.06)
(12) SUBSEQUENT EVENT (UNAUDITED):
On March 4, 2004, the Company announced that on December 29, 2003, the
Company entered into a Letter of Intent to acquire 51% of Classic
Electronic Ltd. ("Classic"), a related party. Under the initial terms
of the Letter of Intent, the Company agreed to make cash payments of $5
million and issue 5,000,000 shares of the Company's common stock. As of
December 31, 2003, the Company made a deposit of $1,000,000 through
relieving $1,000,000 of accounts receivable from Classic. The Company
is in the process of performing certain due diligence work and the
final terms of the purchase are subject to changes depending on the
results of the audits of Classic and due diligence work.
F-25