SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 3, 1999 Commission file No. 0-17038
Concord Camera Corp.
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
4000 Hollywood Blvd. Suite 650N, Hollywood, Florida 33021
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (954) 331-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of September 17, 1999 the aggregate market value of the Common Stock (based
upon the high and low trading prices) held by non-affiliates of the Company was
approximately $109,416,488.
As of September 17, 1999 the number of shares outstanding of the Company's
Common Stock was 11,671,092.
-----------------
DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit Index -- Page 44
PART I
Unless the context indicates otherwise, when used in this report the word
"Company" or "Concord" refers to Concord Camera Corp. and its subsidiaries.
Beginning in Fiscal 1999, the Company changed its fiscal year and fiscal
quarters to end on the Saturday closest to the respective period ended, based on
a fiscal year ending June 30. Fiscal 1999 refers to the Fiscal Year ended July
3, 1999. In the years prior to Fiscal 1999, the Company's year ended was the
twelve-month period ending or ended on June 30th.
This report contains certain "forward-looking statements" concerning the
Company's operations, economic performance and financial condition, which are
subject to inherent uncertainties and risks. Actual results could differ
materially from those anticipated in this report. When used in this report, the
words "estimate", "project", "anticipate", "expect", "intend", "believe" and
similar expressions are intended to identify forward-looking statements.
Item 1. Business.
Summary
Founded in 1982, the Company is a global developer, designer, manufacturer, and
marketer of high quality, low cost Advanced Photo System, 35mm, and 110mm
traditional and single-use cameras.
Growth Strategy. Concord's strategy for growth is to capitalize on the trend of
vertically integrated camera and toy companies to outsource their design,
development, and manufacturing from low cost, third party original equipment
manufacturers ("OEMs") such as Concord, which conducts its manufacturing
activities in the People's Republic of China ("PRC") at a monthly cost per
production worker of only $142. Since implementing its strategy in Fiscal 1995,
Concord has built sufficient strength in its engineering, design, and
manufacturing capabilities to capture OEM business of several of the world's
largest film, camera, and toy companies, including Eastman Kodak Company
("Kodak"), Polaroid Corporation ("Polaroid"), Agfa-Gevaert AG ("Agfa") (a
subsidiary of Bayer AG), Imation Corp. ("Imation") (formerly Minnesota Mining
and Manufacturing Co. (a 3M subsidiary)) and Mattel, Inc. ("Mattel").
The Company seeks to obtain additional business from these and potential new OEM
relationships by positioning itself as an innovative designer and manufacturer
of high quality, low cost products. Additionally, Concord differentiates its OEM
capability by providing its customers with dedicated design and development
expertise during pre-contract discussions, and with local (Americas, European
and Asian) management presence, thereby adding significant customer value,
comfort and reliability.
In Fiscal 1999, the Company has increased its emphasis in product development,
design and new digital technologies to drive revenue growth and profits. The
Company believes that its increased capabilities in the development, design and
low-cost manufacture of innovative electro, optical, mechanical devices and
apparatus (initially in digital image capture and transmission for large branded
international OEM customers) will position the Company for continued growth.
The Company has also increased its sales of single-use cameras (SUC) from
approximately $27 million in 1995, or 43.6% of sales, to approximately $53
million in 1999, or 45.2% of sales. The Company believes that it is currently
the fourth largest SUC manufacturer in the world, behind Kodak, Fuji Photo Film
Co. Ltd. ("Fuji") and Konica Corporation ("Konica"). The Company estimates that
it produced 8.6% of all single-use cameras sold worldwide in 1998 and 13.7% of
all single-use cameras sold in 1999 worldwide excluding Japan. Market size
estimates are based on industry sources. Concord estimates the worldwide
single-use camera market grew to 230 million units in 1998 and will grow to 296
million units in 2000 and 335 million units in 2001, a compound annual growth
rate of 13.5%.
2
Overall Company sales for 1999 were $118.4 million, an increase of 15.3% over
1998 sales of $102.7 million.
1999 EBITDA and Earnings Growth: EBITDA for Fiscal 1999 grew by 41.7%, to $16.6
million, from $11.5 Million for Fiscal 1998. Net income for Fiscal 1999 grew to
$7.7 million or $.67 per diluted share from $6.0 million or $.52 per diluted
share for Fiscal 1998, an increase of $1.7 million or 28.2%.
Strong Sales, Earnings and Cash Flow. These incremental sales, coupled with the
Company's investments in new product development and manufacturing facilities,
enabled the Company to achieve its previously announced Fiscal 1999 projected
sales level of more than $115 million, and its Fiscal 1999 projected profit
level of more than $7 million. Actual results for Fiscal 1999 were reported on
August 26, 1999, and amounted to sales of $118,418,000 and net income of
$7,709,000 ($0.70 of basic earnings per share and $0.67 of diluted earnings per
share).
Recent Events
The Chairman and Chief Executive Officer, Ira B. Lampert, along with his
management team, conceptualized and implemented a strategic growth and earnings
plan which began in Fiscal 1995.
This plan was based on three key concepts:
(1) Improve sales and manufacturing stability by developing a stronger
OEM business that would not be subject to the erratic volume swings and
pricing pressure of the retail channel, permitting substantially lower
investment in finished goods inventory, distribution of the Company's
products by companies with extensive sales and marketing capabilities,
and the elimination of competitors;
(2) Develop, design, and manufacture products that produce superior
picture performance and quality since film companies will only be
associated with products that produce superior picture performance and
quality; and
(3) Establish a position in the single-use camera market, which would
grow rapidly throughout Europe and North America as it had in Japan.
To implement this strategy the Company knew it needed to improve two aspects of
its operations. First, the Company needed to improve the quality and capacity of
its manufacturing operations to a world class standard. Second, the Company
needed to acquire additional core technology, design, and engineering expertise
to improve product performance and picture quality and to respond quickly to
customer requirements. The activation of these improvements provided the Company
with the ability to obtain business from the world's top tier of photographic
and film companies.
The Company continues to make great industry strides by developing new products,
while using the latest technology. In keeping with the Company's philosophy,
these products are being developed where affordability and greater access are
key. The Company continues to partner with complimentary organizations in an
effort to bring about strategic alliances for the creation of new, high quality
products that meet the demands of the marketplace. Lastly, the Company continues
its efforts of acquiring entities that own or produce branded products, to which
the Company is able to add value.
3
Modernization of Manufacturing Facilities
In Fiscal 1996, the Company commenced construction of a new manufacturing
facility on a production site in the PRC previously acquired by the Company. The
Company commenced manufacturing in the new facility on July 1, 1996. In Fiscal
1995, the Company began investing in new equipment for the new facility. The
Company also implemented new training and quality programs in Fiscal 1995 and
1996 (which are ongoing). The result of these initiations was the establishment
of a world class manufacturing operation. The Company funded these expenditures
internally by shrinking finished goods inventory, consolidating operations and
better utilizing working capital. In Fiscal 1999 the Company's PRC manufacturing
facilities were accredited as an ISO 9002 certified facility by the China
Authorization Center of Import & Export Commodity (CQC).
OEM Relationships and New Product Development
In completion of the program to modernize its manufacturing facilities and
improve its manufacturing processes to a world class level, management focused
on improving the Company's product development expertise. The Company increased
its product development budget from $4.0 million (or 3.9% of net sales) in
Fiscal 1998 to $4.8 million (or 4.1% of the sales) in Fiscal 1999 . The Company
has increased it product development team by opening its permanent United States
Design Center in January 1999, and by adding technical personnel in the
Company's HongKong/PRC facilities. The increased funding was used to develop
products and long-term relationships with several of the world's largest and
most successful photographic and film manufacturers, including Imation (formerly
part of Minnesota Mining and Manufacturing Co.), Agfa, Kodak and Polaroid.
Recently, the Company supplemented their capabilities with technological
adaptation in the digital image capture and digital image transmission via
wireless means to a multitude of devices, including cellular transmission.
Imation. The Company established its contractual OEM relationship with Imation
for the production of single-use cameras in Fiscal 1995. Products developed
under this contract, which continues in effect, included the Company's second
and third generation daylight and flash single-use cameras.
Agfa. In Fiscal 1996, the Company and Agfa developed the world's first
two-format Advanced Photo System single-use cameras under a co-development
agreement. The Company continues to manufacture the single-use cameras for Agfa
under the OEM contract with Agfa.
Fisher-Price. In Fiscal 1996, the Company was the successful bidder for a design
and manufacturing agreement with Mattel under which the Company designed and now
manufactures for Fisher-Price a "child proof" 35mm manual camera product. This
led to the award to the Company by Mattel of a co-development and production
agreement for the successor to the Viewmaster(TM) product. This product was sold
by both Fisher-Price and under a branding arrangement with Fisher-Price and The
Discovery Channel in Fiscal 1999.
Kodak. The Company was awarded a long-term supply agreement for a traditional
motorized Advanced Photo System camera in Fiscal 1997. Shipments of the camera
began in the first quarter of Fiscal 1998, and the Company believes the camera
is now the best selling Advanced Photo System camera in the world in its
category in terms of unit volume. The Company has retained the right to sell
these cameras under its brand names, and shipments of the Company's branded
versions began in the first quarter of Fiscal 1999. The Company is involved in
discussions with Kodak looking toward the production of additional products by
the Company for Kodak.
Polaroid. Capitalizing on a pre-existing relationship with Polaroid for the
production of single-use cameras, the Company was awarded a co-development and
long-term supply agreement to co-design and manufacture an instant single-use
camera and the instant manual camera for Polaroid. Shipments of these products
commenced in Fiscal 1999. The Company is involved in discussions with Polaroid
looking toward the production of additional products by the Company for
Polaroid.
4
Future OEM Relationships. The Company is actively engaged in negotiating with
existing OEM customers and new potential OEM customers for the development,
design and production of a number of new products, including an Advanced Photo
System (APS) single-use camera, an APS camera, and camera and image-capture
devices incorporating digital technology. If negotiations and development
efforts are successfully concluded, certain new products would be introduced in
Fiscal 2000, impacting results in the second half of that year. Additionally,
Concord differentiates its OEM capability by providing its customers with
dedicated design and development expertise during pre-contract discussions, and
with local (Americas, European and Asian) management presence, thereby adding
significant customer value, comfort and reliability.
Concord has transformed itself from a supplier of cameras to an imaging OEM
through its capabilities in Research and Development. Specifically, the
differentiation lies in its ability to offer proprietary assistance in design
and product development. Over the last four years, since new management has been
at the helm of the Company, they have put together a team of talented and very
experienced designers, product development specialists and manufacturing
management that is enabling the Company to take advantage of the recent trend
toward outsourcing these functions to OEMs. Among the areas of expertise of this
team is their ability to develop extremely compact designs while allowing the
incorporation of a large number of features.
One significant product that the Company is in the process of designing is a
digital product that is state-of-the-art in function and design, featuring a
compact body, a lithium battery with auto-focus single lens reflex multiple zoom
lens, viewfinder and viewer.
5
Lastly, the Company targets potential OEM customers that have an established
brand name, existing channels of distribution, the potential to outsource
multiple products (cameras and/or non-cameras), and whose products match the
manufacturing and value added skills of Concord. This approach is geared to
capitalize on the trend of vertically integrated consumer product companies to
outsource their development, design, and low cost manufacturing from third party
OEMs such as Concord.
Consolidation and Overhead Cost Reductions. The Company has consolidated its
direct sales operations to reduce costs, increase efficiency, centralize
warehousing and shipping, and better utilize capital. In connection therewith,
the Company transferred its operations in Hungary to an independent sales agent
in 1996, relocated its Latin American sales and administrative offices from
Panama to the United States in 1997 and transferred its Canadian administrative
office from Canada to the United States in 1999. The Company now has three
centralized warehouse distribution operations: Concord Americas -- servicing the
United States, Canada and South America; Concord Europe -- servicing the UK,
Germany and France; and Concord HK -- servicing the Far East and major retail
customers on an FOB Hong Kong basis.
Product Line Diversification. Since 1995, management has also diversified the
Company's product base as sales of single-use camera accounted for 70.1% of
sales in Fiscal 1996 compared to 45.2% of Fiscal 1999 sales..
Concord's Mission and Growth Strategy:
Mission Statement. Concord has adopted the following Mission Statement:
Concord's mission is to be a world class, high quality, low cost
developer, designer and manufacturer of popularly priced, easy-to-use
cameras and consumer products with performance that results in
appropriate equity returns for shareholders.
This statement embodies the Company's commitment to maintaining the highest
quality workmanship in the engineering, design, and manufacture of low cost,
high quality consumer products, as well as its commitment to earning appropriate
equity returns for its shareholders.
Growth Strategy. Concord's strategy for growth is to capitalize on the trend of
vertically integrated photographic, camera and consumer product companies to
outsource their design, development and manufacturing from low cost, third party
OEMs such as Concord, which conducts its manufacturing activities in the PRC at
a monthly cost per production worker of approximately $ 142. Since beginning
implementation of its strategy in Fiscal 1995, Concord has built sufficient
strength in its engineering, design and manufacturing capabilities to capture
OEM business of several of the world's largest film, camera and toy companies,
including Kodak, Polaroid, Agfa, Imation and Mattel.
The Company seeks to obtain additional business from these customers and
establish new OEM relationships by positioning itself as an innovative
developer, designer and manufacturer of high quality, low cost products.
In addition to offering low cost, high quality products, Concord differentiates
its OEM capability by providing its customers with dedicated design and
development expertise. The Company's contracts with AGFA, Imation, Kodak,
Polaroid, and Mattel, for example, were obtained and executed through the
Company's ability to provide its own co-development and design resources.
Although the Company sometimes shares development costs with its customers, it
generally requires customer investment to cover custom tooling costs.
6
Domestic and Foreign Sales, Markets and Marketing
The Company markets its products both directly, under Company brand names and
private label brands, and on an OEM basis. OEM sales, accounted for 66.2% of
consolidated net sales in Fiscal 1998 or $67.9 million. OEM sales, which have
experienced strong growth, accounted for 68.9% of consolidated net sales in
Fiscal 1999 or $81.6 million. This trend is expected to continue in the future.
The Company sells its products to both United States and foreign customers. In
Fiscal 1999, approximately 66.5% of the Company's consolidated sales were made
to customers in the United States. Approximately 33.5% of the Company's
consolidated sales were made to customers outside the United States.
Direct Sales. Direct sales are made worldwide through Concord operations in the
U.S. for the U.S., Latin American and Canadian markets (the "Americas"
operations), in the U.K., France and Germany (the "Europe" operations), and in
Hong Kong, China and Japan (the "Asia" operations). These divisions market the
Company's products under the following brand names:
o Concord(R) o Argus(R)
o Keystone(R) o Apex(R)
o Le Clic(R) o FUN SHOOTER(R)
Argus sales were made worldwide, except for the United States and Mexico.
Additionally, the Company sold and distributed cameras under licensed trademarks
such as Crayola(R) in the U.S., Canada and U.K., and "Thomas the Tank Engine &
Friends" in the U.K., United States and Canada.
The Company's worldwide direct sales customers include but are not limited to
the following major discount, drug and retail chains: Walgreen, Wal-Mart, Boots,
Auchan, Target, Argos, Shoppers Drug Mart, Sears, Family Dollar, K-Mart, Kay
Bee, Press Nogoce, Japan Diffusion, Ames, Loceda, Continent, Photo Color, Porst,
Index and Meijers, Eckerds, Ritz Camera. The Company also sells and distributes
its products through independent retail stores, distributors, and accounts which
use the cameras as premiums in connection with their product sales.
A large portion of the Company's U.S. sales are made by in-house sales
personnel, with the assistance of approximately 18 non-affiliated sales agents
serving specific geographic areas. Sales agents generally receive commissions of
1% to 3% of net sales, depending on the type of customer, and may act as selling
agents for manufacturers and distributors of other products.
Direct sales to retailers were approximately $36.8 million and $34.6 million in
Fiscal 1999 and 1998, respectively. This increase in retail sales reverses the
decline in retail sales that the Company had experienced over the past few
years, due to the intentional phase-out of older motorized and manual models and
to increased competition for single-use cameras, among other reasons. OEM Sales.
The Company sells various camera products to OEM customers who re-market these
products under their own brand names and private labels through their own
distribution channels. The Company's strategy is to expand its OEM sales by
capitalizing on the trend of vertically integrated photographic, camera, toy and
consumer products companies to outsource their requirements for the development,
design and manufacture of low cost products. Since Fiscal 1995, Concord's OEM
sales have grown from 22% of Fiscal 1995 sales to 68.9% of Fiscal of 1999 sales.
7
Concord Americas and Concord Europe. Consolidated sales of the Company's United
States, Canadian and Latin American operations (collectively "Concord
Americas"), including FOB Hong Kong sales to customers in these regions for
Fiscal 1999, 1998, and 1997 were approximately $20,160,000 $19,132,000, and
$22,076,000, respectively. Consolidated sales of Concord Camera GmbH ("Concord
Germany"), Concord Camera Europe (formerly Concord Camera UK Limited) ("Concord
UK") and Concord Camera France SARL ("Concord France"), collectively "Concord
Europe," including FOB Hong Kong sales to customers in these regions were
approximately $16,473,000, $14,744,000, and $12,532,000 in Fiscal 1999, 1998,
1997 respectively. This increase in retail sales is primarily attributable to
the successful implementation of new programs with new retail accounts and the
successful sell through of certain new products. On a regional basis, only
direct (F.O.B.) Asian sales have increased since 1995.
Far East. Sales by Concord HK , which comprises the Company's Asia operation,
(excluding FOB Hong Kong sales to customers in the Americas and Europe) were
approximately $81,590,000, $68,047,000, and $30,032,000 in Fiscal 1999, 1998,
1997, respectively. The increase is due to the continued acceptance of the
Company's newer products, principally the single-use and slim-line camera
models, and the successful implementation of FOB. Hong Kong sales programs with
the Company's larger customers. The Company believes that sales in the Far East
will continue to represent a significant percentage of total sales.
Licensing Activities. In Fiscal 1995, the Company executed a license agreement
with Hallmark Licensing, Inc., as agent for Binney & Smith Properties, Inc.
("Binney & Smith"), under which the Company licensed certain Binney & Smith
trademarks with regard to Crayola and certain associated marks, tradenames and
logos for use with single-use cameras, pocket 110 cameras and 35mm cameras. The
agreement expires December 31, 2001.
In Fiscal 1997, the Company executed a license agreement with Britt Allcroft
(Thomas) Limited under which the Company licensed certain trademarks with regard
to "Thomas the Tank Engine & Friends" and certain associated marks, trademarks
and logos for use with single-use cameras, pocket 110 cameras, 35mm cameras,
Advanced Photo System cameras, photograph albums and camera cases. The agreement
expired September 30, 1999. The parties are in the process of renewing this
license agreement, with an anticipated expiration date of December 31, 2001. As
part of the renewal, new items will be added to the product line Additionally,
the Company is seeking to license other high-profile brands.
Customers. In Fiscal 1999 and 1998, approximately 86.9% and 83.6%, respectively,
of the Company's sales were to its ten largest customers. The consolidated sales
to the Company's three largest customers, Kodak, Polaroid and Agfa in Fiscal
1999 amounted to approximately $36,110,000 (30.5%), $17,718,000 (15.0%) and
$14,276,000 (12.1%), respectively. The loss of any of these three customers, in
management's opinion, could have a material adverse impact on the Company.
Imation and Agfa-Gevaert AG are in the process of renewing agreements with the
Company for the Company to supply single-use cameras as an OEM. Once the renewal
is fully executed, the Imation Agreement will be extended for two years, until
Fiscal 2001. Minimum purchases of several million single-use cameras by each
customer is required under the existing agreements. In addition, as noted above,
the Company has executed an agreement to supply a low cost Advanced Photo System
camera to Kodak, which includes minimum purchase requirements. Under the
agreement with Polaroid to co-develop and exclusively manufacture specialized
products, the Company developed traditional and single-use cameras for Polaroid,
which are sold to Polaroid pursuant to minimum purchase requirements.
Advertising. The Company engages in a limited amount of advertising and in the
past has given allowances to customers who advertise its products. Advertising
allowances and other discounts were approximately $ 464,000, $793,000, $876,000
and in Fiscal 1999, 1998, and 1997, respectively.
8
Manufacturing
General. The Company conducts all of its manufacturing activities in the PRC.
During Fiscal 1999, the Company completed an expansion and conversion program
which increased the Company's PRC manufacturing and related dormitory facilities
to over 600,000 square feet.
The Company purchases and stores its raw materials and components at its PRC
facilities. Raw materials and components include film, batteries, glass lenses,
plastic resins, metal, packaging, and electronic component parts. The Company
also purchases and resells photographic accessories, including flashes, vinyl
pouches, and carrying cases for its cameras. The Company's operations and
profitability are substantially dependent upon its manufacturing and assembly
activities. The Company conducts engineering, design, purchasing and certain
distribution and warehouse activities in Hong Kong. The Company's manufacturing
activities in the PRC are conducted pursuant to the PRC agreements (the "PRC
Agreements") with various local municipal and government agencies and
sub-divisions located in Baoan County, Shenzhen Municipality, PRC (collectively,
the "PRC Entities"). The Company's initial agreement in Baoan County was
approved on September 12, 1985 by the local Foreign Economic Relations Office
("FERO"), which was necessary to assure the validity and enforceability of the
PRC Agreements. The Company's most recent PRC Agreement covering its
manufacturing activities was approved by the PRC Entities and FERO in 1993 and
expires in 2002. The Company intends to continue to expand its operations in the
PRC, although there can be no assurance that it will be able to do so.
Products
General.
Camera Products. Concord is primarily engaged in the development, design,
manufacture, marketing, distribution and sale of popularly-priced, easy-to-use
cameras. The Company currently produces traditional and single-use 35mm cameras,
traditional and single-use Advanced Photo System cameras, and 110 film cartridge
cameras, and has contracted to produce single-use and manual instant cameras on
an on going basis. The Company manufactures and assembles its products in the
PRC for both direct sale under Company brand names and on an OEM basis.
Suggested retail prices of the Company's products range from $4.99 to $169.00.
In 1991, the Company began to sell single-use cameras, which accounted for 45.2%
of Fiscal 1999 consolidated net sales. In addition to its own single-use camera
technology, in Fiscal 1996 the Company obtained a license to use certain
single-use camera patents owned by Fuji.(1)
- ----------
(1) The Company instituted an action in December 1997 in the Southern District
of New York seeking to prevent Fuji Photo Film Co., Ltd. (Fuji) from terminating
a license agreement previously entered into between the parties. Fuji has
alleged that the Company violated the terms of a license agreement between the
parties. Fuji has filed a counterclaim seeking to terminate the license
agreement and seeking unspecified damages. The parties are presently engaged in
the completion of discovery and motion practice.
In addition, on February 13, 1998, Fuji filed a complaint with the International
Trade Commission (ITC) seeking (1) to halt the importation of licensed
single-use cameras into the United States and (2) to ban the unlicensed
re-manufacture of single-use cameras in the United States. On June 3, 1999, the
ITC issued a Final Ruling (General Exclusion Order) that bars importation into
the United States of single-use cameras that infringe on fifteen (15) patents
held by Fuji. The ITC General Exclusion Order was appealed to the U.S. District
Court of Appeals for the Federal Circuit . On July 6, 1999, the U.S. District
Court of Appeals for the Federal Circuit issued a stay pending its decision of
the appeal of the ITC order. A companion case has also been initiated by Fuji in
the U.S. District Court in New Jersey. This action seeks to enjoin the
manufacture, distribution and sale of single use cameras, whether produced
domestically or imported, and whether newly manufactured or reloaded, based on
patent infringement claims and seeks a preliminary and permanent injunction and
damages in the form of lost profits. Although the Company is not a party to
these proceedings, Fuji's actions, if successful, could lessen competition for
the Company in the United States single-use camera market assuming the
continuation of the Company's license agreement with Fuji. See Item 3, "Legal
Proceedings."
9
In Fiscal 1995, the Company commenced a product development program with the
goal of developing and designing new products for major consumer products
companies with established brand names and distribution channels. This program
continues today, and has already resulted in a new low cost Advanced Photo
System camera(1) marketed by Kodak and a contract to co-develop and provide
Polaroid(2) with significant quantities of single-use and manual instant
cameras.
In Fiscal 1996, the Company decided to terminate production of certain 35mm
traditional motorized camera models that it had produced in the past and had
anticipated producing in the future. The Company made this decision in part
because of the aged design of these products and the anticipated introduction of
Advanced Photo System cameras to the marketplace. During the fourth quarter of
Fiscal 1996, the Company recorded provisions totaling approximately $3,035,000
with respect to this line of 35mm cameras and related finished goods and
components inventories to fairly reflect their net realizable value, as well as
with respect to certain tools, molds and other related fixed assets.
Non-Camera Products. From time to time, the Company has also sold various
non-camera products on an OEM basis. However, such sales have not been material.
In Fiscal 1998, the Company began to manufacture cameras for the largest toy
company in the world, Mattel. The Company believes that it can build on this
relationship to design, develop, and manufacture additional products for Mattel
and other non-camera companies. The Company has contracted with Mattel for the
manufacture of Viewmaster products to be sold and distributed by Mattel under
Mattel's brand name.
New Products. The Company's manufactured products are created, designed and
engineered principally in design centers in Hong Kong and the United States. As
of July 3, 1999, the Company employed 63 engineers and designers.
New products are, and are expected to continue to be, designed both
independently and on a co-development basis with existing and potential new OEM
customers. In addition to its ability to manufacture low cost and high quality
products, Concord differentiates its OEM capability by providing its customers
with dedicated design and development expertise.
The results of the Company's new product development program began to appear in
Fiscal 1996 with the introduction of single-use Advanced Photo System cameras,
and in Fiscal 1997 with the introduction of a new traditional 35mm camera. Also,
in the first quarter of Fiscal 1998, the Company began delivery of a new
Advanced Photo System traditional camera to Kodak. The Company has designed and
expects to introduce a number of innovative Advanced Photo System and 35mm
traditional and single-use cameras, as well as the Polaroid single-use and
manual instant cameras.
- ----------
(1) The Company licenses certain Advanced Photo System technology from the
Advanced Photo System development companies.
(2) The Company licenses certain technology from Polaroid in connection with its
products.
10
Product Development. The Company expended approximately $ 4,815,000, $3,963,000,
and $3,130,000 in Fiscal 1999, 1998, and 1997, respectively, for product design
and development. The large increase in these costs over the years was due to the
significant development costs incurred with respect to new digital cameras, and
digital image capture devices, instant single-use and instant manual cameras,
Advanced Photo System single-use and conventional cameras, as well as new 35mm
single-use cameras. The Company anticipates product development costs to
increase in Fiscal 2000 which would primarily be attributable to the
development, design and production of the Company's new products, including
digital cameras and digital capture devices, incorporating digital technology.
Suppliers, Raw Materials and Production
General. The Company owns or leases the tools and equipment necessary to
manufacture most of the components used in its cameras. Numerous manufacturers
and suppliers in the Far East and other parts of the world supply the Company
with components, materials and film it does not manufacture.
Sourcing. The Company purchases finished products from third-party manufacturers
to supplement its existing manufactured product line. The Company depends on
non-affiliated suppliers for its required glass lenses, motors, film and certain
electronic components such as transistors and diodes. In the past, the Company
has experienced, and may in the future experience, difficulties in obtaining in
a timely manner certain components and film necessary for its finished products.
The Company believes, however, that it is not dependent on any single supplier
for any component or film and that it could find alternate sources on relatively
short notice at prices competitive with those it currently pays.
Advance Commitments. To secure adequate production materials, components and
film the Company must make substantial advance commitments to suppliers ranging
from one to six months prior to the receipt of firm orders from customers.
However, many of these commitments are subject to changes in numbers,
assortments or delivery dates. Although, from time-to-time, the Company has
experienced difficulties obtaining needed materials, components and film on a
timely basis, it has been able to operate under such conditions. The Company
believes these conditions to be standard in its industry.
Quality Control. The Company devotes substantial effort to quality control,
including testing components and raw materials when purchased or produced,
testing during the assembly process and final quality control testing of
finished products. The Company has implemented a continuous improvement program
to monitor quality and SIC Sigma programs to fortify continuous improvement and
quality. The Company's terms with all of its United States customers include the
right to return defective merchandise for credit. Foreign customers are
permitted to exchange defective merchandise for the same product, and the
Company believes those practices to be standard in its industry.
Trademarks and Patents
The Company owns trademarks on the CONCORD(R), KEYSTONE(R), FUN SHOOTER(R), LE
CLIC(R) and APEX(R) names for cameras sold in the United States and numerous
foreign countries. In addition, the Company owns the trademark ARGUS(R) in
numerous countries other than in the United States and Mexico. The Company
purchased several of the patents used in its Keystone cameras. In addition, the
Company was granted United States patents for its data imprinting system, its
film counter in the back of cameras, and its method for film loading, and it has
applied for United States and Japanese patent protection for certain camera
related processes and anticipates filing for patent protection on those
processes in other countries. Concord HK
11
has applied for United States and foreign patent protection for a film drive
system used in certain cameras it produces. The Company believes that its
competitiveness and market share are not dependent on the ultimate disposition
of its patent applications.
Employees
On July 3, 1999, the Company had 157 employees: 33 in the United States, 3 in
Germany, 3 in Canada, 104 in Hong Kong and the PRC, 3 in France and 11 in the
UK. The Company employs 63 employees in executive, administrative or clerical
capacities, 16 in direct merchandising and sales, 15 in warehouse and shipping
and 63 in engineering and design. No Company employee is represented by a union.
The PRC Entities currently provide the Company with approximately 4,200 workers
at its PRC facilities. To date, the Company has not had any of its operations
interrupted due to labor disputes and it considers its working relationship with
employees and workers to be good.
Risk Factors
Dependence on Agreements with the PRC
General. The Company manufactures a majority of the components used in its
cameras and assembles all of its manufactured finished products in the PRC
pursuant to the PRC Agreements. FERO approval is required on all of the PRC
Agreements to ensure their enforceability. See "Manufacturing--General."
Operating Practices. The Company's PRC Agreements provide for the production and
manufacture of cameras at the Company's owned facilities in the PRC with labor
supplied by PRC Entities. The PRC Entities currently supply the Company with
approximately 4,200 workers to manufacture and assemble cameras. During Fiscal
1996, the Company completed construction of a new factory building on the
Company-leased land next to the other Company-owned buildings and moved the
manufacturing and assembling operations from the leased assembly plants to the
new factory and existing Company-owned buildings. During the first quarter of
Fiscal 1997, the Company completed the conversion of certain production
facilities on the Company-leased land. Consequently, the Company no longer
leases manufacturing facilities from the PRC Entity. See "Item 2. Properties".
Although a substantial number of the Company's workers are employees of the PRC
Entities, the Company is responsible for their food and housing and
substantially all of them live in Company maintained dormitories. The current
average cost per production line worker is approximately $142 per month
including room and board and the Company's payments to the PRC Entities
allocable to the provision of those workers. If any worker fails to work
efficiently or to improve after instruction, the Company has the right to
request that the PRC Entities replace that individual. Additionally, the Company
has completed an expansion and conversion program that increased the aggregate
size of the PRC manufacturing and related dormitory facilities to over 600,000
square feet.
PRC Taxes and Import/Export Duties. The Company has never paid any income or
turnover tax to the PRC on account of its business activities in the PRC.
Existing PRC statutes can be construed as providing for a minimum of 10% to 15%
income tax and a 3% turnover tax on the Company's business activities; however,
the PRC has never attempted to enforce such statutes. The Company has been
advised that the PRC's State Tax Bureau is reviewing the applicability of those
statutes to processing activities similar to those engaged in by the Company,
but it has not yet announced any final decisions as to the taxability of such
activities. After consultation with its tax advisors, the Company believes that
any tax exposure it may have on account of its operations in the PRC will not be
material to its financial condition. The Company does not pay import/export
12
duties to the PRC, but, as with any tax, there can be no assurance that the
Company will not be required to pay such duties in the future. Hong Kong is
taxed separately from the PRC.
Other PRC Risks. If the PRC Entities fail to honor the PRC Agreements, the
Company believes that within a six-month period it could resume production
activities elsewhere in the PRC through the use of subcontractor agreements with
other third-party manufacturers. The Company is not able to estimate the amount
of time required to enter into a new PRC Agreement. In order to minimize this
risk, the Company obtained a land use certificate for the land on which the
Company-owned plant is situated and to which it has obtained title. However, in
addition to lost assets and revenues attributable to the discontinuance of its
operations at the Baoan County facilities, the Company would likely experience
some loss on account of such interruption depending upon where and under what
arrangements the Company was able to resume production. If, for any reason, the
Company could not continue production in its existing PRC locations, all
manufacturing activities would cease for at least six months until the Company
was able to resume production elsewhere. If the Company were required to move
its production operations from the PRC, the Company's profitability would be
substantially impaired, its competitiveness and market position would be
materially jeopardized and there could be no assurance that it would be able to
profitably manufacture and distribute its products.
Risk of Expropriation and Restrictions
There is a risk of expropriation of the Company's assets by the PRC and the
imposition of restrictions or embargoes on the export of finished products, or
the import of components and materials used in the Company's PRC operations. At
July 3, 1999, the net book value of Company assets in the PRC was approximately
$16,076,000. The amount of Company assets in the PRC is expected to increase as
operations in that country continue to grow. The Company maintains property and
casualty insurance covering the replacement cost of assets in its PRC facilities
and has insured those assets against expropriation. The Company also maintains
political risk insurance on certain equipment up to $4,000,000. If the Company
were required to relocate and could not remove the assets it owns or leases in
the PRC, the cost of replacement of such assets would be significantly higher
than their book value.
Interruptions as a Result of Political Events
The Company did not experience any interruption in its manufacturing or other
operations as a result of political events (Tiananmen Square) in the PRC in June
1989 other than a brief interruption of deliveries between Hong Kong and the
PRC. There can be no assurance that similar events will not occur in the PRC in
the future and, if they do occur, that they will not result in material
interruption of the Company's manufacturing or other operations.
Backlog
The Company's general practice is to fill orders within delivery dates required
by customers. Substantially all of the Company's cameras are produced in
accordance with specifications and production schedules determined by the
Company on the basis of projected sales and orders placed by its primary
customers. Production schedules for sales are determined in accordance with
customers' orders and the Company's anticipation of the demand for its products.
The amount of unfilled orders at a particular time is affected by a number of
factors, including availability of finished inventory, manufacturing and
assembly capability and product shipments. Accordingly, the amount of unfilled
orders from period to period is not necessarily meaningful and may not be
indicative of actual shipments to be made to customers in any period.
13
Dependence on Key Personnel
The Company is run by a small number of key management personnel, the loss of
certain of whom could have a material adverse impact on the Company. The Company
believes that its future success will depend in large part on its continued
ability to attract and retain highly-skilled and qualified personnel.
Dependence on OEM Customers
The loss by the Company of any of its major OEM customers could have a material
adverse impact on its revenues and profits.
Competition
The camera and photographic products industry is highly competitive. As a
manufacturer and distributor of inexpensive cameras, the Company encounters
substantial competition from a number of firms, many of which have longer
operating histories, established markets and more extensive facilities. Many of
the Company's competitors have greater resources than the Company has or may
reasonably be expected to have in the foreseeable future. The Company considers
Vivitar, Ansco Photo Optical Products Corporation ("Ansco") and the Achiever
Group as its chief competitors in United States markets. W. Haking Enterprises
Limited, the parent of Ansco, the Achiever Group and several small Taiwanese and
Hong Kong companies are the Company's chief competitors in worldwide markets
other than the United States. The Company also competes with certain major film
manufacturers (including Eastman Kodak, Fuji and Konica) in the single-use
camera market, primarily on the basis of product cost and responsiveness to
customer needs. The Company's competitive position is dependent upon its ability
to continue to produce in the PRC. See "Dependence on Agreements with the PRC."
Considerations Relating to the Company's Business Outside of the United States
The Company conducts a substantial portion of its administrative, finance,
accounting and sales activities and all of its engineering, design, product
development, purchasing and warehousing activities in Hong Kong. It conducts all
of its manufacturing in the PRC.
Foreign Currencies. Since 1983, the Hong Kong dollar has been pegged to the
United States dollar at an approximate rate of U.S.$l = HK$7.70. There can be no
assurance, however, that the exchange rate of the Hong Kong dollar will not
fluctuate in the future. Certain obligations under the PRC Agreements and the
Company's Hong Kong suppliers are paid in Hong Kong dollars. In addition, the
Company is exposed to currency risks in Japan and various other countries where
it purchases materials for its products or sells those products.
Hong Kong 1997. Effective July 1, 1997 the exercise of sovereignty over Hong
Kong was transferred from the United Kingdom to the PRC pursuant to a
Sino-British Joint Declaration on the Question of Hong Kong (the "Joint
Declaration") signed on December 19, 1984. Hong Kong is now a Special
Administrative Region ("SAR") of the PRC. The Joint Declaration provides that
the Hong Kong SAR shall be directly under the authority of the PRC, shall enjoy
a high degree of autonomy except in foreign and defense affairs and shall be
vested with executive, legislative and independent judicial powers. It also
provides that the current social and economic systems in Hong Kong shall remain
unchanged for 50 years after June 30, 1997 and that Hong Kong shall retain its
status as an international financial center.
14
The Joint Declaration provides that the basic policies of the PRC regarding Hong
Kong and the elaboration of these policies in the Joint Declaration will be
stipulated in the Basic Law of the Hong Kong SAR (the "Basic Law"). The Basic
Law was adopted on April 4, 1990 and is now effective. It provides, in part,
that the "socialist system and policies shall not be practiced in the Hong Kong
SAR and the previous capitalist system and way of life shall remain unchanged
for 50 years."
The Company cannot predict how the PRC will interpret and implement the Basic
Law and Joint Declaration, what actions the PRC may take in the future regarding
Hong Kong and the effect any such action may have on the Company's business
activities in Hong Kong, or its operations or financial condition in general.
Importation of Products and Tax Considerations. The importation of camera
products into the United States and other jurisdictions in which Company
products are sold is subject to numerous risks including non-Company related
labor strikes, shipping delays, fluctuation in currency exchange rates and
import duties. There can be no assurance that the United States, the PRC, Hong
Kong or other countries will not in the future impose trade restrictions which
could adversely affect the Company's operations. The United States duty on
imported cameras of the type that the Company sells from countries of origin
which enjoy United States normal trading relations ("NTR") status (formerly
known as "most favored nation status") range from 3% to 4%. There are currently
no United States import quotas on the type of products manufactured and
distributed by the Company. NTR status entitles imports from the PRC to enter
the United States subject to the same rate of duty which applies to imports from
other NTR countries. The PRC's current NTR status was renewed on July 27, 1999,
with such status to be reviewed annually. The President may recommend that NTR
status for the PRC be extended for successive 12-month periods, but the Company
can give no assurances or make any predictions as to what actions the President
may take regarding the PRC's NTR status.
As a result of trade disputes between the United States and the PRC, the United
States Trade Representative ("USTR") has published lists of products imported
from the PRC that are potentially subject to increased tariffs in the event the
trade dispute is not resolved. At the present time, there are no pending trade
disputes in connection with which such lists have been published. The United
States has published such a list, which list did not include cameras, in
connection with a dispute over intellectual property rights protection in the
PRC, but the two sides settled that dispute on February 26, 1995 by reaching a
comprehensive agreement designed to ensure greater protection for U.S.
intellectual property in the PRC. The United States revisited the intellectual
property rights issue in 1996, publishing a proposed retaliation list which
focused on PRC textile exports and did not include cameras, before reaching an
accord on June 17, 1996, to strengthen enforcement of the 1995 agreement.
In addition, the United States is currently monitoring various PRC practices
including trade, investment and government procurement, as well as the PRC's
compliance with various multilateral and bilateral agreements. The Company
cannot predict whether the Untied States will take future trade actions against
the PRC that may result in increased tariffs against PRC products including
products imported by the Company.
The PRC is currently engaged in talks concerning its possible accession to the
World Trade Organization ("WTO"). Successful conclusion of these talks could
result in the application of comprehensive rules to the PRC's trade with other
WTO members, including the United States. However, the Company cannot predict
when such talks may conclude, or when such rules may come into effect.
Furthermore, PRC accession to the WTO would not necessarily eliminate the need
for successive yearly determinations by the United States regarding the PRC's
NTR status.
15
Possible United States Taxation of Foreign Earnings
Concord HK. Concord HK is a controlled foreign corporation ("CFC") for United
States tax purposes. Under certain circumstances, a United States shareholder of
a CFC is required to include some or all of the CFC's earnings in its own
taxable income as if the CFC had distributed those earnings as a dividend. The
possibility of deferring inclusion of Concord HK's earnings in the Company's
taxable income depends on the ability of the Company and Concord HK to meet the
requirements of several provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as on the absence of adverse future tax
legislation.
Certain provisions of the Code currently tax the Company on Concord HK's
"foreign base company income" if such income is equal to or greater than the
lesser of $1,000,000 or 5% (the "De Minimis Amount") of Concord HK's gross
income. "Foreign base company income" is defined to include income derived from
certain types of activities including "foreign personal holding company income"
and "foreign base company sales income". Concord HK believes that it earns
"foreign base company sales income" because a portion of its earnings might be
attributable to selling activities as opposed to manufacturing or production
activities and thereby result in some "foreign base company sales income."
The Company includes such foreign base company income in its United States
taxable income. Due to the availability of net operating loss carryovers, such
inclusion does not currently have a material impact on the Company's U.S. tax
liability.
Another provision of the Code would tax the Company currently if Concord HK
makes certain investments in United States property, as specifically defined. An
investment in such property includes, among other things, ownership of tangible
property in the United States, or stock or obligations of United States persons,
or a guarantee of an obligation of a United States person. There is an exception
to the rule treating obligations of United States persons as constructive
dividends for obligations arising in connection with the sale of property, such
as trade accounts payable if the amount of the obligation is not commercially
excessive by reference to transactions between unrelated persons. The Company
does not believe that the Company's obligations to Concord HK, arising from the
purchase of Concord HK products, are in an amount or on terms such as would
cause such obligations to be deemed commercially excessive and the Company will
attempt to secure financing without requiring Concord HK to guarantee it.
If Concord HK's earnings are taxed to the Company as deemed dividends prior to
the time that the earnings actually are remitted to the Company as dividends,
the Company generally can claim a foreign tax credit on the deemed dividends
just as if actual dividends had been paid. If and to the extent the Company is
subjected to United States income tax on such deemed dividends, Concord HK may
subsequently distribute an amount equal to such previously taxed income without
additional tax consequences to the Company.
If Concord HK distributes a portion of its earnings to the Company in excess of
the earnings, if any, that have already been taxed to the Company as deemed
dividends, such dividends will constitute taxable income. If it so elects, the
Company generally will be entitled to a foreign tax credit to the extent that
the distributed earnings have borne an income tax in Hong Kong.
The Company's carryforward net operating losses will be applied to reduce the
Company's current taxable income and the federal income tax on any remaining
taxable income will be reduced by foreign tax credits subject to statutory
limitations on such credits.
16
Other Subsidiaries. Concord Canada, Concord Europe, Concord France, and Concord
Germany are also CFC's to which the United States tax laws, as discussed above,
are applicable. Due to the nature of their operations, some of those CFC's may
earn or generate "foreign base company income" above the De Minimis Amount.
However, the Company does not believe that the United States tax on "foreign
base company income" generated by the Company's CFC's in excess of available
foreign tax credits would represent a substantial percentage of its total
income. It is not expected that those foreign subsidiaries will make investments
in United States property and no United States taxes have been provided on the
earnings of those subsidiaries since management intends to permanently reinvest
such earnings abroad.
Forward-Looking Statements
The statements contained in this report that are not historical facts are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995) which can be identified by the use of
forward-looking terminology such as; "estimates," "projects," "anticipates,"
"expects," "intends," "believes," or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in such forward-looking statements. Management wishes to
caution the reader that these forward-looking statements, such as statements
regarding development of the Company's business, the Company's anticipated
capital expenditures and other statements contained in this report regarding
matters that are not historical facts are only estimates or predictions. No
assurance can be given that future results will be achieved; actual events for
results may differ materially as a result of risks facing the Company or actual
results differing from the assumptions underlying such statements. In
particular, expected revenues could be adversely affected by production
difficulties or economic conditions adversely affecting the market for the
Company's products. To obtain the results expected from the introduction of the
Company's new products will require timely completion of development, successful
ramp-up of full-scale production on a timely basis and customer and consumer
acceptance of those products. In addition, the OEM agreements require an ability
to meet high quality and performance standards, successful implementation of
production at greatly increased volumes and an ability to sustain production at
greatly increased volumes as to all of which there can be no assurance. There
also can be no assurance that products under development will be successfully
developed or that once developed such products will be commercially successful.
Item 2. Properties.
United States Offices and Warehouses. The Company's principal offices are
located in a 10,100 square foot facility, including a 2,900 square foot design
center at 4000 Hollywood Blvd., Hollywood, Florida. The Company's domestic
warehouse is located in a 13,700 square foot facility in Fort Lauderdale,
Florida. The Company's leases for these facilities provide for rent of
approximately $13,300 and $6,900 per month, respectively, with annual increases
of 4% and 3% respectively, and expire January 4, 2009.
Hong Kong. The Company owns one floor and leases four floors constituting
approximately 33,000 square feet of warehouse and business space at Fortei
Building, 98 Texaco Road, Tsuen Wan, New Territories, Hong Kong at a cost of
approximately $22,300 per month including rent and maintenance.
Other Jurisdictions. The Company leases warehouse and/or office space in France,
Canada, Germany and the UK in connection with the activities of its subsidiaries
in those jurisdictions.
PRC--Operations. Cameras and components are manufactured and assembled at the
Company-owned manufacturing facilities located in Baoan County, Shenzhen
Municipal, PRC (the "Company Facility"). The
17
Company leases three employee dormitories and a canteen (the "Dormitories") at a
cost of approximately $21,800 per month. The aggregate square footage of the
Company Facility and the Dormitories is in excess of 600,000 square feet.
In Fiscal 1996, the Company completed construction of an additional factory
building and in Fiscal 1997 completed the conversion of a Company-owned
dormitory to office, administrative space, engineering facilities, factory space
for pilot runs and living quarters for foreign employees on the same plot of
land as the current Company facility (the "Addition") to accommodate increased
production and to facilitate the consolidation of the leased facilities into the
Company Facility. The Company also completed certain improvements to the new
leased dormitory in Fiscal 1996. Additionally, in 1999 the Company has expanded
the aggregate size of the PRC manufacturing and related dormitory facilities. In
connection with these construction activities in China, the Company incurred
costs of approximately $4,092,000. Such cost will be amortized over the expected
useful life of the Addition. If production requirements continue to increase,
the Company may be required to provide for an additional dormitory.
The Company has Land Use Agreements (the "Land Use Agreements") with PRC
Entities for the use of PRC Land (the "PRC Land") for the Company Facility and
the Addition. Under the Land Use Agreements, which have FERO approval, the
Company obtained land use rights for approximately eight acres of land from a
PRC Entity for the Company Facilities, the Addition and construction of
factories, dormitories and other ancillary buildings. The Company has the right
to use the PRC Land through 2042 (the "Term"). Under the Land Use Agreements,
the Company paid approximately $825,000 in fees and related expenses to obtain
the Land Use Rights Certificate from the PRC Entity. The Company is responsible
for stipulated land management fees and for the installation of certain
utilities. The Land Use Agreements permit the Company to transfer, lease or
mortgage its rights under the Land Use Agreements and in the buildings developed
thereunder during the Term. At the end of the Term, all facilities on the PRC
Land will belong to the PRC Entity and the Company shall have the right to lease
the PRC Land and facilities thereon at the prevailing rent under regular lease
terms.
Item 3. Legal Proceedings.
Jack C. Benun. On November 18, 1994, the Company filed a demand for arbitration
in New Jersey for money damages in excess of $1.5 million against Jack C. Benun
("Benun"), its former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company, including the misappropriation of funds from the Company. Benun has
submitted a counterclaim in which he alleges wrongful termination of his
employment and denial of benefits by the Company. On August 24, 1999, the
arbitrator upheld the propriety of Concord's termination for cause of Benun. The
arbitrator found that Benun perpetrated a fraud on the Company by diverting and
embezzling company monies. The Company will now pursue its further damage claims
against Benun related to the fraud and embezzlement.
Fuji. On December 30, 1997, the Company commenced in the United States District
Court of the Southern District of New York (the "Court") an action against Fuji
seeking to enforce the terms of a Settlement Agreement between the Company and
Fuji (the "Settlement Agreement") and to restrain Fuji from terminating the
Settlement Agreement. Under the terms of the Settlement Agreement, the Company
has been granted a worldwide (subject to certain geographic limitations),
non-exclusive license to use certain Fuji technology in connection with the
manufacture and sale of single-use cameras. On January 9, 1998, the Court
granted the Company's request for an order restraining Fuji from terminating the
Settlement Agreement. Pending a final judicial determination of the dispute, the
restraining order will continue in effect as long as the Company
18
refrains from making any further shipments pursuant to the purchase order which
gave rise to the dispute. The parties are presently engaged in the discovery
process.
Kubbany. The Company and its subsidiary have been sued in Panama before the
First Tribunal of Labor of the City of Colon, alleging breach of various
employment-related obligations of Joseph Kubbany, a former executive of Concord
Camera (Panama), Inc. A counterclaim against Kubbany has been filed on behalf of
Concord Camera (Panama), Inc. alleging a breach of his employment obligations by
taking unauthorized travel advances. Evidentiary hearing dates have been
concluded. Certain additional submissions and document review are taking place.
Under Panamanian law, certain claims of the employer were not appropriate for
presentation in the Employment Tribunal; therefore, the Company has filed a
civil action against Joseph Kubbany alleging various breaches of his obligations
as the Manager for Concord. (Panama), Inc. and for losses incurred because of
excess inventory and the sale of film and for restitution of the costs of
airplane tickets for his wife paid with Company funds. The Company has named as
a party to the litigation, Dynamic World Trading, inc. This case is on going.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 22, 1999, the Company held its Annual Meeting of Shareholders at which
all of the Company's nominees for directors were elected. The shareholders' vote
electing each of the directors was as follows:
Mr. Ira B. Lampert 9,844,053 for, 654,393 withheld;
Mr. Eli Arenberg 9,720,708 for, 777,738 withheld;
Mr. Joel Gold 9,734,498 for, 763,948 withheld;
Mr. Morris H. Gindi 9,734,497 for, 763,949 withheld;
Mr. J. David Hakman 9,732,497 for, 765,949 withheld; and
Mr. Kent M. Klineman 9,724,997 for, 773,449 withheld.
At the Annual Meeting, the Company's shareholders approved increasing the number
of shares of the common stock authorized for issuance under the Company's
incentive plan from 2,000,000 shares to 3,000,000 shares by the following vote:
For: 2,905,283, Against: 1,659,414, Abstain: 27,514, and Not Voted: 5,906,235.
Ernst & Young LLP was ratified as independent auditors of the Company for the
Fiscal Year July 3, 1999 by the following vote:
For: 10,356,086, Against: 80,596, and Abstain: 61,764
19
PART II
Item 5. Market for Company's Common Equity and Related Shareholder Matters.
The Company's common stock, no par value per share ("Common Stock"), is traded
on the NASDAQ National Market System under the symbol LENS. The approximate high
and low bid prices for the shares tabulated below are as reported by the NASDAQ
National Market System and represent inter-dealer quotations which do not
include retail mark-ups, mark-downs or commissions. They do not necessarily
represent actual transactions. As of September 17, 1999, there were 11,671,092
shares of Common Stock ("Common Shares") outstanding, held by 1,070 record
holders. There are in excess of 3,300 beneficial holders of the Company's Common
Stock.
Period Bid Price
- ------ ---------
Quarter Ended High Low
- ------------- ---- ---
September 30, 1997 4 3/4 2 3/8
December 31, 1997 5 1/16 2 7/16
March 31, 1998 4 7/8 2 5/8
June 30, 1998 7 7/16 4 3/8
October 3, 1998 6 9/16 3 1/16
January 2, 1999 5 11/16 2 3/8
April 3, 1999 5 1/8 4
July 3, 1999 5 3/4 3 1/2
The Company has never paid cash dividends and has no present intention to pay
cash dividends.
20
Item 6. Selected Financial Data.
Year Ended
----------
July 3, June 30, June 30, June 30, June 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts)
STATEMENT OF OPERATIONS DATA:
Net Sales $118,418 $102,663 $65,747 $ 66,782 $62,139
Cost of Product sold 86,664 74,771 48,722 49,293 41,984
-------- ------ ------- -------- -------
Gross Profit 31,754 27,892 17,025 17,48(4) 20,155
Operating expenses 23,593 21,892 17,864 19,173 18,685
-------- ------ ------- -------- -------
8,161 6,000 (839) (1,684) 1,470
Other (income) expenses, net (441) (517) (123) (30) 154
-------- ------ ------- -------- -------
Income (loss)
before income taxes 8,602 6,517 (716) (1,654) 1,316
Income taxes 893 504 117 80 107
-------- -------- ------- -------- -------
Net income (loss) $ 7,709 $ 6,013 ($833) ($1,734) $ 1,209
======== ======== ======= ======== =======
Basic earnings (loss) per share $ 0.70 $ 0.55 ($0.08) ($0.16) $ 0.12
-======= ======== ======= ======== =======
Diluted earnings (loss) per share $ 0.67 $ 0.52 ($0.08) ($0.16) $ 0.12
======== ======== ======= ======== =======
BALANCE SHEET DATA:
Working Capital $ 37,447 $ 20,813 $13,994 $ 16,696 $17,432
======== ======== ======= ======== =======
Total assets $ 96,647 $ 72,082 $53,088 $ 49,850 $50,189
======== ======== ======= ======== =======
Long-term debt $ 17,473 $ 3,871 $ 2,397 $ 2,379 $ 388
======== ======== ======= ======== =======
Total stockholders' equity $ 42,696 $ 36,105 $29,502 $ 30,478 $32,264
======== ======== ======= ======== =======
- ----------
(4) Gross profit in Fiscal 1996 included a provision for inventory and related
items of approximately $3,035 in certain 35mm camera products and related
inventory.
21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto presented
elsewhere in this Report.
Results of Operations
The following table sets forth the relationship between total sales and certain
expenses and earnings items for the three years ended July 3, 1999 and June 30,
1998 and 1997:
Year Ended
July 3, June 30, June 30,
1999 1998 1997
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Product Sold 73.2 72.8 74.1
Gross Profit 26.8 27.2 25.9
Operating Expenses 19.9 21.3 27.2
Other (income), net (0.4) (0.5) (0.2)
Income (loss) before income taxes 7.3 6.4 (1.1)
Income taxes 0.8 0.5 0.2
Net income (loss) 6.5% 5.9% (1.3%)
Fiscal 1999 Compared to Fiscal 1998
Revenues. Total revenues for Fiscal 1999 and 1998 were approximately
$118,418,000 and $102,663,000, respectively, an increase of approximately
$15,755,000 or 15.3%. Revenues from OEM and retail sales in Fiscal 1999
increased by approximately $13,542,000 or 19.9%, and $2,212,000 or 6.4% to
$81,590,000 and $36,828,000 in Fiscal 1999 from $68,048,000 and $34,615,000 in
Fiscal 1998. The increases in OEM and retail sales are attributable to increased
purchases by preexisting OEM and retail customers together with purchases by new
OEM and Retail customers.
Single-use camera sales amounted to approximately $53,467,000 or 45.2% of total
sales in Fiscal 1999 versus $47,116,000 or 45.9% of total sales in Fiscal 1998.
This increase in sales of single-use cameras is primarily attributable to the
successful implementation of new programs with new and existing customers and
the successful sell through of certain new products.
22
Sales by Concord HK in Fiscal 1999 and 1998 were approximately $101,327,000 and
$85,896,000, respectively, an increase of approximately $15,431,000 or 18.0%.
The increase is due primarily to the shipments of the new single-use instant and
the new reloadable manual instant camera and the growth of shipments to OEM and
FOB customers, net of approximately $9,492,000 of non-recurring sales in the
year ended June 30, 1998 by Concord Hong Kong. The Company expects Fiscal 2000
revenues to grow as production of new products ramp up.
Consolidated sales of Concord Americas for Fiscal 1999 and 1998, including FOB
Hong Kong sales to customers in the Americas, were approximately $20,160,000 and
$19,132,000, respectively, an increase of $1,028,000 or 5.4%. The increase in
sales to Concord Americas is primarily attributable to the successful
implementation of new programs with new and existing customers and the
successful sell through of certain new products.
Consolidated sales of Concord Europe for Fiscal 1999 and 1998, including FOB
Hong Kong sales to customers in Europe, were approximately $16,473,000 and
$14,744,000, respectively, an increase of approximately $1,729,000 or 11.7%. The
increase in sales to Europe is primarily attributable to the successful
implementation of new programs with new and existing customers and the
successful sell through of certain new products.
Gross Profit. Gross profit, expressed as a percentage of sales, decreased from
27.2% in Fiscal 1998 to 26.8% in Fiscal 1999. This decrease was primarily a
result of costs associated with the production ramp up of new products,
increases in license costs, royalty expenses, and product development costs
associated with new products. Product development costs associated with new
products increased from $3,963,000 in Fiscal 1998 to $4,815,000, an increase of
$852,000 or 21.5%. The Company anticipates product development costs to continue
to increase in Fiscal 2000 as management continues to expand its product lines.
Operating Expenses. As a percentage of sales, operating expenses decreased to
19.9% in Fiscal 1999 from 21.3% in Fiscal 1998. Operating expenses, consisting
of selling, general and administrative, financial expenses and litigation and
settlement costs, increased to $23,593,000 in Fiscal 1999 from $21,892,000 in
Fiscal 1998, an increase of approximately $1,701,000.
As a percentage of sales, interest expense decreased to 6.7% in Fiscal 1999 from
9.0% in Fiscal 1998. Selling expenses decreased to $7,922,000 in Fiscal 1999
from $9,234,000 in Fiscal 1998. The decrease was primarily attributable to
decreases in freight costs, royalty expenses, commission expenses and promotion
allowances, net of increases in compensation and employee benefits.
As a percentage of sales, general and administrative expenses decreased to 10.1%
in Fiscal 1999 from 10.5% in Fiscal 1998. General and administrative expenses
increased to $11,905,000 in Fiscal 1999 from $10,777,000 in Fiscal 1998. The
increase is primarily attributable to increases in professional fees and
expenses related to new OEM customer agreements, and increases in compensation
and employee benefits.
As a percentage of sales, interest expenses increased to 2.9% in Fiscal 1999
from 1.6 % in Fiscal 1998. Financial expenses increased to $3,455,000 in Fiscal
1999 from $1,668,000 in Fiscal 1998. Such increase was primarily a result of an
increase in average debt outstanding during Fiscal 1999.
Litigation and settlement costs in Fiscal 1999 and 1998 were approximately
$312,000 and $213,000, respectively. These matters consisted primarily of the
demand for arbitration and other litigation against Jack C. Benun.
23
Other (income) expense, Net. Other (income) expense, net includes interest
income, gains and losses from the sale of fixed assets, foreign exchange gains
and losses, directors' fees and certain public relations cost. With respect to
foreign exchange gains and losses, the Company operates on a worldwide basis and
its results may be adversely or positively affected by fluctuations of various
foreign currencies against the U.S. Dollar, specifically, the Canadian Dollar,
German Mark, British Pound Sterling, French Francs, and Japanese Yen. Each of
the Company's foreign subsidiaries purchases its inventories in U.S. Dollars and
sells them in local currency, thereby creating an exposure to fluctuations in
foreign currency exchange rates. Certain components needed to manufacture
cameras are priced in Japanese Yen. The translation from the applicable
currencies to U.S. Dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The impact of
foreign exchange transactions is reflected in the profit and loss statement,
which in Fiscal 1999 included a loss of approximately $432,000.
In Fiscal 1999, the Company's hedging activities were immaterial and at July 3,
1999 there were no forward exchange contracts outstanding.
Income Taxes. As of July 3, 1999, Concord had net operating loss carryforwards
for U.S. tax purposes of approximately $12,262,000, which expire as follows:
$5,700,000 in 2008; $2,770,000 in 2009; $3,481,000 in 2010; and $311,000 in
2011. Net operating losses for state tax purposes began to expire in 1997. Net
operating loss carryforwards cannot be used to offset certain alternative
minimum tax elements under the Internal Revenue Code.
The income tax provision for Fiscal 1999 of approximately $893,000 is comprised
of a current U.S. tax benefit of approximately ($53,000), a current foreign
provision of approximately $786,000 and a deferred provision of approximately
$160,000. The Company's provision for income taxes for Fiscal 1999 is primarily
related to the earnings of the Company's Far East and domestic operations, net
of benefits relating to operating loss carryforwards and overpayments/refunds on
the Company's other subsidiaries.
The realization of the deferred tax assets relates directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate taxable income
in these jurisdictions is more certain.
Net Income. As a result of the matters described above, the Company had net
income of approximately $7,709,000 in Fiscal 1999 compared to $6,013,000 in
Fiscal 1998, an increase in profit of approximately $1,696,000, or 28.2%.
Forecast for Fiscal 2000: The Company is actively engaged in negotiating with
certain existing OEM customers and new potential OEM customers for the
development, design and production of a number of new products, including an
Advanced Photo System (APS) Single-use Camera, and APS camera, and camera and
image capture devices incorporating digital technology. If negotiations and
development efforts are successfully concluded, certain new products would be
introduced in Fiscal 2000, impacting results in the second half of that year.
The Company anticipates sales in Fiscal 2000 to be in the $150 million to $160
million range, an increase of approximately $32 million to $42 million (or 27%
to 36%) over Fiscal 1999 sales of $118 million . Net income for Fiscal 2000 is
anticipated to be in the range of $11 million to $12 million or $0.94 to $1.03
per diluted share, an increase of approximately or 40% to 54% over Fiscal 1999.
Fiscal 1998 Compared to Fiscal 1997
Revenues. Total revenues for Fiscal 1998 and 1997 were approximately
$102,663,000 and $65,747,000, respectively, an increase of approximately
$36,916,000 or 56.1%. Revenues from OEM sales in Fiscal 1998 increased by
approximately $38,016,000 or 126.6% to $68,048,000 in Fiscal 1998 from
$30,032,000 in Fiscal 1997, while sales to other customers decreased by
approximately $1,100,000 or 3.1% to $34,615,000 in Fiscal 1998 from $35,715,000
for Fiscal 1997. The increase in OEM sales is attributable to increased
purchases by preexisting OEM customers together with purchases by new OEM
customers offset, in part, by decreased purchases by other preexisting
customers. The decline in sales to other customers is attributable to lower
sales
24
of traditional and single-use camera models. This decrease in sales resulted
from an aging product line of traditional cameras and intensified competition in
the sale of single-use cameras.
One aspect of the Company's previously announced co-development project with
Polaroid is nearing completion and manufacturing on an exclusive basis by the
Company of the new Polaroid single-use flash instant camera commenced at the end
of the first quarter of Fiscal 1999. Revenues for the first 12 months of this
contract are presently estimated to be in the range of $15 to $20 million. The
Company is also engaged in discussions with certain existing OEM customers for
the addition, in the future, of new products to the Company's manufacturing
arrangements with such customers. The Company anticipates sales in fiscal 1999
to be in the $115 million to $125 million range and net income for Fiscal 1999
to be in the range of $7 million to $8 million or $0.58 to $0.66 per diluted
share.
Single-use camera sales amounted to approximately $47,116,000 or 45.9% of total
sales in Fiscal 1998 versus $44,108,000 or 67.1% of total sales in Fiscal 1997.
Sales by Concord HK in Fiscal 1998 and 1997 were approximately $85,896,000 and
$46,443,000, respectively, an increase of approximately $39,453,000 or 84.9%.
The increase is due primarily to the continued growth of shipments to OEM
customers by Concord Hong Kong. The Company expects Fiscal 1999 OEM revenues to
grow as manufacturing under the Polaroid OEM contract ramps up.
Consolidated sales of Concord Americas for Fiscal 1998 and 1997, including FOB
Hong Kong sales to customers in the Americas, were approximately $19,132,000 and
$22,076,000, respectively, a decrease of $2,944,000 or 13.3%. The decrease in
sales to Concord Americas resulted from an aging product line of traditional
cameras and intensified competition in the sale of single-use cameras.
Consolidated sales of Concord Europe for Fiscal 1998 and 1997, including FOB
Hong Kong sales to customers in Europe, were approximately $14,744,000 and
$12,532,000, respectively, an increase of approximately $2,212,000 or 17.7%. The
increase in sales to Europe is primarily attributable to increased FOB Hong Kong
sales.
Gross Profit. Gross profit, expressed as a percentage of sales, increased from
25.9% in Fiscal 1997 to 27.2% in Fiscal 1998. This increase was primarily as a
result of more favorable absorption of manufacturing overhead and labor
utilization resulting from increased sales and manufacturing volume and
efficiencies. At the same time, product development costs associated with new
products increased from $3,130,000 in Fiscal 1997 to $3,963,000 in Fiscal 1998,
an increase of $833,000 or 26.6%. The Company anticipates product development
costs to continue to increase in Fiscal 1999 as management continues to expand
its product lines.
Operating Expenses. As a percentage of sales, operating expenses decreased to
21.3% in Fiscal 1998 from 27.2% in Fiscal 1997. Operating expenses, consisting
of selling, general and administrative, financial expenses and litigation and
settlement costs increased to $21,891,000 in Fiscal 1998 from $17,863,000 in
Fiscal 1997, an increase of approximately $4,028,000.
As a percentage of sales, selling expenses decreased to 9.0% in Fiscal 1998 from
10.6% in Fiscal 1997. Selling expenses increased to $9,234,000 in Fiscal 1998
from $6,950,000 in Fiscal 1997. The increase was primarily attributable to the
Company's increased sales volume and increases in freight costs, royalty
expenses and promotion allowances net of benefits from the consolidation of
warehouse and administration facilities undertaken in Fiscal 1996.
25
As a percentage of sales, general and administrative expenses decreased to 10.5%
in Fiscal 1998 from 14.1% in Fiscal 1997. General and administrative expenses
increased to $10,777,000 in Fiscal 1998 from $9,247,000 in Fiscal 1997. The
increase is primarily attributable to increases in professional fees and
expenses related to new OEM customer agreements, increased rent, other expenses
and costs relating to the relocation of the Company's principal offices to
Florida.
As a percentage of sales, interest expense decreased to 1.6 % in Fiscal 1998
from 2.2% in Fiscal 1997. Financial expenses increased to $1,668,000 in Fiscal
1998 from $1,465,000 in Fiscal 1997. Such increase was primarily a result of an
increase in average debt outstanding during Fiscal 1998.
Litigation and settlement costs in Fiscal 1998 and 1997 were approximately
$213,000 and $201,000, respectively. In Fiscal 1998, these matters consisted
primarily of the demand for arbitration and other litigation against Jack C.
Benun.
Other (income) expense, Net. Other (income) expense, net includes interest
income, gains and losses from the sale of fixed assets, foreign exchange gains
and losses, directors' fees and certain public relations costs.
With respect to foreign exchange gains and losses, the Company operates on a
worldwide basis and its results may be adversely or positively affected by
fluctuations of various foreign currencies against the U.S. Dollar,
specifically, the Canadian Dollar, German Mark, British Pound Sterling, French
Francs, and Japanese Yen. Each of the Company's foreign subsidiaries purchases
its inventories in U.S. Dollars and sells them in local currency, thereby
creating an exposure to fluctuations in foreign currency exchange rates. Certain
components needed to manufacture cameras are priced in Japanese Yen. The
translation from the applicable currencies to U.S. Dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. The impact of foreign exchange transactions is
reflected in the profit and loss statement, which in Fiscal 1998 included a gain
of approximately $374,000.
In Fiscal 1998, the Company's hedging activities were immaterial and at June 30,
1998 there were no forward exchange contracts outstanding.
Income Taxes. As of June 30, 1998, Concord had net operating loss carryforwards
for U.S. tax purposes of approximately $11,951,000, which expire as follows:
$5,700,000 in 2008; $2,770,000 in 2009; and $3,481,000 in 2010. Net operating
losses for state tax purposes began to expire in 1997. Net operating loss
carryforwards cannot be used to offset certain alternative minimum tax elements
under the Internal Revenue Code.
The income tax provision for Fiscal 1998 of approximately $504,000 is comprised
of a current U.S. tax provision of approximately $69,000, a current foreign
provision of approximately $318,000 and a deferred provision of approximately
$117,000. The Company's provision for income taxes for Fiscal 1998 is primarily
related to the earnings of the Company's Far East and domestic operations, net
of benefits relating to operating loss carryforwards and overpayments/refunds on
the Company's other subsidiaries.
The realization of the deferred tax assets relates directly to the Company's
ability to generate taxable income for certain foreign and U.S. federal and
state tax purposes. Management is not able to conclude that realization of these
deferred tax assets is more likely than not as a result of the Company's
earnings history. Reductions to the valuation allowance will be recorded when,
in the opinion of management, the Company's ability to generate taxable income
in these jurisdictions is more certain.
26
Net Income. As a result of the matters described above, the Company had net
income of approximately $6,013,000 in Fiscal 1998 compared to a net loss of
approximately $833,000 in Fiscal 1997, an increase in profit of approximately
$6,846,000.
Liquidity and Capital Resources
At July 3, 1999, the Company had working capital of $37,447,000 as compared to
$20,813,000 at June 30, 1998. Cash flows provided by operating activities were
approximately $17,519,000 for Fiscal 1999 compared to $1,146,140 for Fiscal
1998. Capital expenditures, excluding assets financed under capital leases, for
Fiscal 1999 and 1998 were approximately $6,166,331 and $4,459,000, respectively.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15 million of senior notes. The notes bear interest at 11%, and
the maturity date is July 15, 2005. Interest payments are due quarterly. The
agreement contains certain restrictive covenants relating to, among other
things, incurrence of additional indebtedness and dividend and other payment
restrictions affecting subsidiaries. At July 3, 1999 $14,850,000 was
outstanding, net of original issue discount and classified a long-term debt. The
Company was in compliance with all covenants under the Senior Notes.
Mortgage Payable. On April 9, 1998, the Company entered into a 15 month
$2,100,000 mortgage loan agreement that is secured by the Company-owned
manufacturing facilities located in Baoan County, Shenzhen Municipal, PRC and
bears interest at 12.986%. The mortgage loan agreement requires monthly payments
of interest only. At July 3, 1999 $2,100,000 was outstanding, and classified as
current portion of long-term debt. Subsequent to the balance sheet date, on July
9, 1999, all borrowings under the mortgage loan were repaid by the Company.
Non-Notification Factoring with Recourse Facility. During the last quarter of
Fiscal 1998, Concord HK consummated a $10,000,000 Non-Notification Factoring
with Recourse Facility (the "Factoring Facility") that is guaranteed by the
Company, is secured by certain accounts receivables of the Company's Hong Kong
operations and bears interest at 1.5% above the prime lending rate. During the
last quarter of Fiscal 1999, $2,000,000 of the factoring facility was converted
into two $1,000,000 equipment leasing facilities with terms of three and four
years each. Availability under the factoring facility is subject to advance
formulas based on eligible accounts receivable with no minimum borrowings. At
July 3, 1999, approximately $6,585,000, and $1,050,000 was outstanding and
classified as short-term debt, and capital lease obligations, respectively.
U.S. Credit Facility. The Company was a party to a U.S. credit facility (the
"U.S. Credit Facility"). On May 31, 1999, all borrowings under the U.S. Credit
Facility were repaid by the Company.
Hong Kong Credit Facilities. Concord HK has credit facilities (the "HK
Facilities") that provides Concord HK with up to $4,200,000 of financing as
follows: letters of credit of up to $2,900,000, and packing loans of up to
$1,300,000. As of July 3, 1999, approximately $1,504,000 was utilized under the
HK Facilities. The HK Facilities, which are payable on demand, bears interest at
2% above the prime lending rate, which was 8.5% at July 3, 1999. The Company
guarantees all amounts outstanding under the HK Facilities.
Canadian Working Capital Facility. The Company was a party to a Canadian working
capital facility (the "Canadian Facility"). On May 31, 1999, all borrowings
under the Canadian Facility were repaid by the Company.
27
Common Stock Buy-Back Program. The Board of Directors of the Company approved
the allocation of an additional $5.5 million to be used by the Company in its
stock repurchase program, whereby Concord has been repurchasing its Common Stock
in open market transactions. This additional allocation increases the Company's
stock repurchase program to $10.5 million, of which approximately $7.5 million
is currently available. As of September 17, 1999, the Company has repurchased
approximately 612,310 Common Shares under its stock repurchase program at a cost
of $2,926,000.
Other Arrangements and Future Cash Commitments. Management believes that
anticipated cash flow from operations together with financing from the Factoring
Facility, the HK Facility, and its July 30, 1998 private offering of $15 million
of Senior Notes, or replacement facilities, will be sufficient to fund its
operating cash needs for the foreseeable future.
Impact of Year 2000
Many currently installed computer systems and software are coded to accept only
two digit entries in the date code field. Beginning the year 2000, these date
code fields will need to accept four digit entries to distinguish twenty-first
century dates from twentieth century date. As a result, within the next given
months, computer systems and/or software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. The Company has assessed
the potential impact of Year 2000 on the processing of date-sensitive
information by the Company's information systems, manufacturing systems and
other ancillary systems. While there can be no assurance that Year 2000 matters
will be satisfactorily identified and resolved, the Company currently believes,
based on discussions with Its information systems vendors, that Year 2000 issues
will not have a material adverse affect on the Company.
The Company's Year 2000 initiative is being managed by an internal staff and is
designed to ensure that there are no adverse effects on the Company's ability to
conduct business. The initiative covers the corporate office network and
financial systems, payroll processing, corporate computers, manufacturing
systems and telephone systems. In addition, the Company is reviewing the Year
2000 compliance efforts of the Company's key suppliers and other principal
business partners.
Effective July 4, 1999, the Company implemented an integration software package,
which is fully Y2K compliant. The implementation was completed as an Enterprise
Resource Planning (ERP) package, which control the Company's main systems of (a)
shipping/distribution, (b) accounting, (c) customer service/order entry system,
and (d) manufacturing. The Company outsources the payroll portion of its
accounting functions, and such provider has represented to the Company that it
is Y2K compliant. Thus, all of the Company's computer-dependent systems have
been replaced by the Y2K compliant package. The Company has established a
supplier compliance program, and is working with its key suppliers to minimize
such risks. The costs incurred related to systems implementation have not been
material to the Company's results of operations, financial condition or cash
flow. The Company believes that future costs of system implementation will
primarily be enhancements to provide for more complete utilization of
applications and are not requirements for Y2K readiness and will not have a
material impact on the Company's results of operations, financial condition or
cash flows. The Company currently estimates that it will incur expenses of
approximately $50,000 through calendar 1999 in connection with its anticipated
Year 2000 efforts. The timing and amount of the Company's expenses may vary and
are not necessarily indicative of readiness efforts or progress to date.
The Company is in the process of developing contingency and business continuity
plans tailored for Year 2000-related occurrences. The Company believes its
significant hardware and software systems are Year 2000 compliant. The Company
believes that the most reasonably likely worst case scenario of failure by the
Company or its suppliers to adequately resolve Year 2000 issues would arise from
a failure of its order entry and accounts receivable system. Such a failure
would require the Company to resort to "non-computerized" means to undertake
such sales and distribution functions as placing customer orders and ordering
inventory. While the Company believes that it is equipped to operate in such a
"non-computerized" mode to address such a failure, there can be no assurance
that the Company would not, as a result of such or any other unanticipated Year
2000 failure, suffer from lost revenues, increased operating costs, loss of
customers or other business interruptions of a material nature.
In consideration at the potential impact of Y2K issue of its business,
operations, and financial condition, the Company has addressed issues which may
arise from its systems as described below.
28
The Company has not formally determined a most reasonably likely worst case
scenario regarding the impact of Y2K problems on our business. However, we
believe the most likely and significant Y2K-related risks faced by the Company
are business interruptions by our customers. Such interruptions could include
distribution and temporary related reduction of demand for Company products by
such customers until their Y2K problem is remedied. We will attempt to identify
and assess any such risks and follow up with any significant customers that
could likely be less than full Y2K compliant. Based on our assessment and
remediation efforts to date, the Company does not believe that any problems
resulting from the Y2K issue will have a material adverse effect on its
financial condition or results of operations.
The Company believes that its continuing assessment, planning and implementation
process will be effective to achieve a level of readiness that will meet the
challenges presented by Y2K issues in a timely manner. Although the Company is
evaluating the Y2K readiness of third-party software, computer technology and
other hardware and software, the Company cannot guarantee the Y2K readiness of
third-party products, services, or providers that may impact the Company's
operations.
The above information is based on the Company's current best estimates, which
were derived using numerous assumptions of future events, including the
availability and future costs of certain technological and other resources,
third party modification actions and other factors. Given the complexity of
these issues and possible as yet unidentified risks, actual results may vary
materially from those anticipated and discussed above. Specific factors that
might cause such differences include, among others, the availability and cost of
personnel trained in this area, the ability to locate and correct all affected
computer codes, the timing and success of remedial efforts of the Company's
third party suppliers and similar uncertainties.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, as a result of its global operating and financial activities, is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities, the
Company manages exposures to changes in interest rates and foreign currency
exchange rates through its regular operating and financing activities. The
Company's hedging activities were immaterial and as of July 3, 1999 there were
no forward exchange contracts outstanding. The Company continues to analyze the
benefits and costs associated with hedging against foreign currency
fluctuations. The Company's exposure to changes in interest rates results from
its investing and borrowing activities used to meet its liquidity needs.
Long-term debt is generally used to finance long-term investments, while
short-term debt is used to meet working capital requirements. Derivative
instruments are not presently used to adjust the Company's interest rate risk
profile. The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments.
Item 8. Financial Data and Supplemental Data.
The financial statements listed in Item 14(a) (1) and (2) are included in this
Report beginning on page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
29
PART III
Item 10. Directors and Executive Officers of the Company.
Year First Elected/ Positions and Officers
Name of Directors Age Nominated Director with the Company
- ----------------- --- ------------------- -----------------------
Ira B. Lampert (1) 54 1993 Chairman, Chief Executive Officer,
President and Director; Director of
Concord Camera HK Limited, Concord
Camera GmbH, Concord Camera UK
Limited and Concord Camera France.
Eli Arenberg (2) 71 1988 Director
Joel L. Gold (3) 57 1991 Director
Morris H. Gindi (4) 54 1988 Director
J. David Hakman (5) 57 1993 Director
Kent M. Klineman (6) 66 1993 Director
- --------------------
(1) On July 13, 1994, Ira B. Lampert was appointed to the positions of
Chairman and Chief Executive Officer of the Company. Mr. Lampert was
President and Chief Operating Officer from June 1, 1993 through January
1, 1996 and has been a Director of the Company since June 29, 1993. Mr.
Lampert is also a Director of Concord HK, Concord UK, Concord Germany and
Concord France. On July 31, 1998, Mr. Lampert was appointed to the
additional position of President. From April 1992 through May 30, 1993,
Mr. Lampert's services were made available to the Company under various
consulting agreements with Whitehall Enterprises Inc. ("WEI"), an
investment banking company for the middle-market, of which Mr. Lampert
was the President from August 1990 through May 1993. During the 1980's
through the early 1990's, Mr. Lampert also served as a Director and/or
Officer of Summit Ventures, Inc. and related entities which developed and
managed Ascutney Mountain Resort, a year-round destination resort located
in Vermont. Mr. Lampert is a Board Member of the Queens College
Foundation which is part of the City University of New York and is the
Treasurer of the Boys Brotherhood Republic, a non-profit organization for
underprivileged children in the New York City area.
(2) Eli Arenberg joined the Company in April 1984 as Vice President of Sales
and Marketing and in September 1989 was promoted to Senior Vice President
of Sales. In February 1992, Mr. Arenberg retired from such positions and
in July 1994 made his services available to the Company under a
consulting agreement with ELA Enterprises, Inc. (the "ELA Enterprises
Consulting Agreement"), a Florida corporation wholly-owned by Mr.
Arenberg.
(3) Joel L. Gold is currently Senior Managing Director of Inter Bank Capital
Group LLC, an investment bank. From March 1996 through September 1997,
Mr. Gold was an Executive Vice President at L.T. Lawrence & Co., Inc., an
investment bank. From April 1995 through March 1996, Mr. Gold was a
Managing Director at Fector Detwiler & Co, Inc., an investment bank. From
January 1992 through April 1995, Mr. Gold was a Director at Furman Selz
Incorporated, an investment bank. From April 1990 through December 1991,
Mr. Gold was a Managing Director at Bear, Stearns & Co. Inc., New York,
New York. From April 1971 through February 1990, Mr. Gold was a Managing
Director at Drexel Burnham Lambert. Mr. Gold is currently a member of the
board of directors of BCAM International, Life Medical Sciences and
Sterling Vision.
(4) Morris H. Gindi is the Chief Executive Officer of Notra Trading Inc.,
located in Woodbridge, New Jersey and has served in such capacity since
1983. Notra Trading Inc. is an import agent in the housewares and
domestics industry. Mr. Gindi has over 27 years experience in importing.
30
(5) J. David Hakman is the owner and Chief Executive Officer of Hakman and
Company, Inc., an investment and merchant banking concern and a member of
the National Association of Securities Dealers, Inc. Mr. Hakman has been
a Director since 1989 and a member of the Audit and Nominating Committees
since 1991 of Hanover Direct, Inc., a firm engaged in the direct
marketing business.
(6) Kent M. Klineman has been an attorney and private investor and has served
as a Director of several closely held companies during the past five
years. Mr. Klineman is a Director, secretary and a member of the
Compensation Committee of EIS International, Inc., and a Director of
Dealers Alliance Credit Corp. and Dealers Alliance Capital Corp. Mr.
Klineman's initial nomination to serve as Director of the Company in 1993
was made by Mr. Hechler. See "Certain Relationships and Related
Transactions."
Meetings and Committees
In Fiscal 1999, the Board held five meetings. The Board has an Audit Committee,
a Compensation Committee, a Stock Option Committee, an Executive Committee, an
Ad Hoc Committee, a Nominating Committee and a Marketing Committee.
The Audit Committee, consisting of Kent M. Klineman (Chairman), J. David Hakman
and Eli Arenberg, reviews and reports to the Board with respect to various
auditing and accounting matters including recommendations to the Board as to the
selection of the Company's independent auditors, the scope of audit procedures,
general accounting policy matters and the performance of the Company's
independent auditors. The Audit Committee held four meetings in Fiscal 1999.
The Compensation and Stock Option Committee, consisting of Joel L. Gold
(Chairman) and Morris Gindi, reviews and makes recommendations to the Board
regarding all executive compensation. The Compensation Committee held three
meetings in Fiscal 1999. During his tenure, Committee member, Ira Hechler, died.
The Nominating Committee, consisting of Ira B. Lampert, Joel Gold, and Kent
Klineman nominates those persons who shall be invited to stand for election to
the Board of Directors as management nominees at any and all ensuing meetings of
the shareholders of the Company or pursuant to any actions with respect to the
election of directors to be taken by written consent of the shareholders. The
Nominating Committee held one meeting in Fiscal 1999. Shareholder suggestions of
one or more nominees for election to the Board may be sent in writing to the
Nominating Committee, Attention: Chairman, c/o Concord Camera Corp., Suite 650-N
4000 Hollywood Blvd., Hollywood, Florida 33021.
In Fiscal 1999, all of the directors attended at least 75% of the aggregate of
the total number of meetings of the Board and committees of which they were
members.
Directors Compensation
Non-employee members of the Board receive (I) an annual fee of $10,000
(increased to $15,000 as of January 1, 1999), (ii) a $2,500 annual fee for
serving on each committee of the Board with the Chairman thereof receiving a
$3,500 annual fee and (iii) a meeting fee of $750 (increased to $1,000 as of
January 1, 1999) for each meeting attended. In addition, under the Company's
Incentive Plan, each non-employee director is entitled to receive options
pursuant to a formula to purchase up to 20,000 shares of Common Stock upon
his/her appointment as director. The Incentive Plan also provides for the grant
of an immediately exercisable option to purchase 1,000 shares of Common Stock on
the date of the original grant and on each anniversary of the original grant.
Commencing April 22, 1999, by approval of the shareholders of the Company, each
director received an annual grant of options to purchase 6,500 shares of Common
Stock. Pursuant to the Incentive Plan, each non-employee director received
options to purchase 32,500 shares of Common Stock.
31
As of October 22, 1998 the expiration date of the initial options granted to
each director to purchase was aggregate of 15,750 shares was extended from
November 29, 1998 to January 31, 2004, except for Mr. Arenberg's option to
purchase 21,000 shares, which was extended from July 17, 1999 to July 17, 2004.
Mr. Arenberg, through a company controlled by him, is a party to a consulting
agreement with the Company. See "Certain Relationships and Related
Transactions."
32
EXECUTIVE OFFICERS
The names of the current executive officers of the Company together with certain
biographical information for each of them (other than Mr. Lampert for whom
biographical information is provided above) is set forth below:
Name of Executive Officer Age Positions and Offices with the Company
- ------------------------- --- --------------------------------------
Ira B. Lampert 54 Chairman, Chief Executive Officer, President and Director
Brian F. King 46 Senior Vice President of Corporate and Strategic Development and
Secretary; Managing Director of Concord Camera HK Limited
Urs W. Stampfli 47 Director of Sales and Global Marketing
Keith Lampert 29 Vice President
Harlan I. Press 35 Corporate Controller and Assistant Secretary
Brian F. King was appointed to the position of Senior Vice President on August
25, 1998. Mr. King is also Secretary of the Company and Managing Director of
Concord Camera HK Limited, and he has held such positions since August 1996. Mr.
King joined the Company in March 1996 as Vice President of Corporate and
Strategic Development. From June 1991 through February 1996, Mr. King was
Managing General Partner of Cripple Creek Associates, a partnership that built
and operated two casinos in Cripple Creek, Colorado.
Urs W. Stampfli was appointed Director of Sales and Global Marketing in May
1998. From 1992 to April 1998, Mr. Stampfli was Vice President, Marketing, Photo
Imaging Systems of Agfa Division, Bayer Corporation.
Keith Lampert, (Ira B. Lampert's son), was appointed to the position of Vice
President on August 25, 1998. Mr. Lampert has been with the Company since 1993,
and is also Vice President, Operations of Concord Camera HK. Prior to holding
his current position, Mr. Lampert held the positions of Financial Analyst and
Assistant to the Managing Director. Mr. Lampert is presently responsible for
China operations and various other duties within the Company.
Harlan I. Press is currently Corporate Controller and Assistant Secretary of the
Company and has held such positions since October 1, 1996. Mr. Press was
appointed as a Director of Concord Camera HK Limited on September 1, 1997. Mr.
Press joined the Company in April 1994 and has held the position of Chief
Accounting Officer since November 1994. Mr. Press was a Senior Field Examiner
for the CIT Group from April 1993 through April 1994. From December 1991 through
April 1993, Mr. Press served as the Production Manager and Inventory Controller
for Sandberg and Sikorski Diamond Corp., a jewelry manufacturer. Prior to then
Mr. Press was a Senior Accountant in BDO Seidman's Audit Division.
33
Section 16 Beneficial Ownership Reporting Compliance
The following officers and directors of the Company filed late reports under
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") relating to Fiscal 1999: Ira B. Lampert, late filing of a Form 4
due October, 10, 1998, reporting the purchase in an open market transaction of
9,320 shares of Common Stock. Kent Klineman, late filing of a Form 4 due
February 10, 1998, reporting the purchase in an open market transaction of
5,000 shares of Common Stock.
34
Item 11.
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
(a) (b) (c) (d) (e) (g) (i)
Name and Principal Position Fiscal Salary Bonus Other Annual Securities All Other
Year Compensation Underlying Options Compensation
($) ($) ($) (#) ($)
Ira B. Lampert 1999 616,668 350,000 (20) 148,595 (1) -- 409,061 (16)
President, Chief Executive 1998 541,667 -- 210,383 (2) -- 14,973 (17)
Officer and Chairman 1997 545,205 -- 200,141 (3) 695,000 (13) 10,350 (17)
Brian F. King 1999 322,460 150,000 (20) 48,000 (4) -- 105,783 (18)
Vice President of Corporate 1998 231,738 -- 78,000 (5) -- 1,721 (17)
and Strategic Development; 1997 170,000 -- 73,000 (6) 147,500 (13) 783 (17)
Managing Director of Concord
HK Limited
Keith Lampert 1999 167,052 75,000 (20) 25,000 (7) -- 72,037 (19)
Vice President of Concord HK 1998 139,849 -- 25,000 (8) -- 535 (17)
Limited 1997 109,896 -- 25,000 (9) 50,000 (13) 500 (17)
Urs Stampfli 1999 175,000 5,000 (20) 12,000 (10) -- 7,245 (17)
Director of Global Sales and 1998 23,275 -- -- 45,000 (14) --
Marketing 1997 -- -- -- -- --
Harlan I. Press 1999 140,178 40,000 (20) 4,833 (11) 20,000 (15) 790 (17)
Corporate Controller 1998 115,000 -- -- 15,000 (14) 640 (17)
1997 92,100 -- 2,400 (12) 25,000 (13) 640 (17)
35
- --------------------
(1) Includes $35,595, $48,000 and $65,000 paid for and to Mr. Lampert for auto
lease and costs, partial housing costs and reimbursement of taxes,
respectively.
(2) Includes $30,939, $108,300 and $62,594 paid for and to Mr. Lampert for auto
lease and costs, reimbursement of taxes and partial housing costs,
respectively.
(3) Includes $38,068, $102,036 and $45,360 paid for and to Mr. Lampert for auto
lease and costs, reimbursement of taxes and partial housing costs,
respectively.
(4) Includes $12,000 and $36,000 paid to Mr. King for an auto allowance and
housing allowance paid for living arrangements in the Far East,
respectively.
(5) Includes $18,000 and $60,000 paid to Mr. King for an auto allowance and
housing allowance paid for living arrangements in the Far East,
respectively.
(6) Includes $18,000 paid to Mr. King for auto allowances and $55,000 for
housing allowance paid to Mr. King for living arrangements in the Far East.
(7) Includes $25,000 paid in 1999 to Mr. Keith Lampert for auto and housing
allowance for living arrangements in the Far East.
(8) Includes $25,000 paid in 1998 to Mr. Keith Lampert for auto and housing
allowance for living arrangements in the Far East.
(9) Includes $25,000 paid in 1997 to Mr. Keith Lampert for auto and housing
allowance for living arrangements in the Far East.
(10) Represents auto allowances paid to Mr. Stampfli in 1999.
(11) Represents auto allowances paid to Mr. Press in 1999.
(12) Represents auto allowances paid to Mr. Press 1997.
(13) These options include options issued prior to Fiscal 1997 that were
canceled and repriced during Fiscal 1997.
(14) These options include options issued in Fiscal 1998.
(15) These options include options issued in Fiscal 1999.
(16) Includes $389,827 of forgiveness of indebtedness provided by the Company to
Mr. Ira Lampert as part of a conditional release program (See Item 13
below) and $19,234 paid by the Company for insurance premiums.
(17) Represents amount paid by the Company for insurance premiums.
(18) Includes $103,954 of forgiveness of indebtedness provided by the company to
Mr. Brian King as part of a conditional release program (See Item 13 below)
and $1,829 paid by the Company for insurance premiums.
(19) Includes $71,468 of forgiveness of indebtedness provided by the company to
Mr. Keith Lampert as part of a conditional release program (See item 13
below) and $569 paid by the Company for insurance premiums.
(20) Represents bonuses determined and paid by the Company in Fiscal 1999 on
account of Fiscal 1998 performance.
36
II. OPTION GRANTS IN FISCAL 1999
(a) (b) (c) (d) (e) (f) (g) (h)
Name of Number of % of Total Exercise Market Price Expiration Potential Realizable Annual Rate of
Executive Officer Securities Options Price of Common Date Value at assumed Appreciation
Underlying granted to ($/Sh) Stock on Date ---- Stock Price 10% ($)
Options Employees ------ of Grant Option Term 5% ($) -------
Granted in Fiscal ($/Sh)(1) ------------------
------- 1999 ---------
----
Harlan Press 20,000 19.6% $3.250 $ -- 08-Sep- 40,878 103,593
2008
(1) The market price on the date of the grant was either above or equal to the
option price on the date of the grant.
III. AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION
VALUES
(a) (b) (c) (d) (e)
Shares
Acquired on Value Number of Securities Value of Unexercised
Name Exercise Realized Underlying Unexercised Options In-the-Money Options at FY End
---- (#) ($) at FY End (#) ($)(1)
----------- -------- Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Ira B. Lampert -- $-- 705,000 -- $2,390,625 --
Brian F. King -- -- 193,333 -- 629,374 --
Keith Lampert -- -- 137,000 8,000 457,580 44,500
Urs Stampfli -- -- 15,000 30,000 938 1,875
Harlan I. Press -- -- 55,000 15,000 134,843 34,688
(1) The closing price of the Company's Common Stock at 1999 Fiscal Year End
was $5 9/16.
Executive Employment Contracts, Termination of Employment and Change in Contract
Arrangements
The employment agreement between the Company and Ira B. Lampert effective July
1, 1993 was amended and restated as of January 1, 1999 (the "Lampert
Agreement"). The Lampert Agreement provides that Mr. Lampert serve in the
additional capacities of Chairman and Chief Executive Officer of the Company.
The Lampert Agreement provides for an annual salary of $650,000, has a term of
four years and provides for the term of employment to be automatically extended
for one additional day for each day of the term of employment that elapses in
the event that neither party notifies the other at any time during the term of
employment that it does not want the term of employment extended.
37
Under the Lampert Agreement, Mr. Lampert has been granted two sets of Common
Stock options. The first, an option to purchase 340,000 Common Shares at an
exercise price of $4.00 per share, was reduced to 127,500 Common Shares at an
exercise price of $2.00 per share, 63,750 Common Shares at an exercise price of
$2.50 per share and 63,750 Common Shares at an exercise price of $3.00 per
share. This option is currently exercisable as to 255,000 Common Shares . These
options to acquire a total of 255,000 shares of Common Stock were not granted
pursuant to the Company's incentive plan and are currently exercisable through
July 2003.Such options have anti-dilution provisions. The second option, an
option to purchase 260,000 Common Shares at an exercise price of $4.00 per share
was reduced to 97,500 Common Shares at an exercise price of $2.00 per share,
48,750 Common Shares at an exercise price of $2.50 per share and 48,750 Common
shares at an exercise price of $3.00 per share. This option is currently
exercisable as to 195,000 Common Shares and is currently exercisable through
September 2004. Such options also have anti-dilution provisions.
In the Lampert Agreement, the Company agreed to adopt a supplemental executive
retirement plan (the "SERP") for the benefit of Mr. Lampert and shall cause to
be credited to this account $14,167, increased to $18,333 on January 1, 1999,
each month ("Monthly Credit") for the benefit of Mr. Lampert. The balance in the
SERP account will always be 100% vested and non-forfeitable. Each time the
Company credits a monthly credit to the SERP account, the Company will also
simultaneously contribute an amount equal to such credit to a trust established
for the purpose of accumulating funds to satisfy the obligations incurred by the
Company pursuant to the establishment of the SERP. The Lampert Agreement
prohibits Mr. Lampert from competing with the Company for a one-year period upon
expiration of the Lampert Agreement.
38
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 17, 1999 with
respect to (i) those persons or groups known to the Company to beneficially own
more than 5% of the Common Stock, (ii) each of the directors and nominees of the
Company, (iii) the Company's executive officers named in the summary
compensation table and (iv) the Company's directors and executive officers as a
group:
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
- ------------------------------------ ----------------------- -----------
(i) Beneficial Owners of More than 5%
of the Common Shares
Theodore H. Kruttschnitt..................................... 1,205,000 10.7%
1350 Bayshore Blvd., Suite 850
Burlingame, California 94010
Deltec Asset Management...................................... 628,835 5.4%
535 Madison Avenue
New York, New York 10002
(ii) Directors and Nominees of the Company
Ira B. Lampert............................................... 1,353,623(2)(3) 11.6%
Concord Camera Corp.
4000 Hollywood Blvd., Suite 650N
Hollywood, FL 33021
Eli Arenberg................................................. 54,250(4) *
9578 Harbour Lake Circle
Boynton Beach, Florida 33437
Joel L. Gold................................................. 37,750(5) *
J. W. Barclay & Co.
1 Battery Park Plaza - 23rd Fl
New York, New York 10004
Morris Gindi................................................. 37,250(6) *
Notra Trading Inc.
One Woodbridge Center
Woodbridge, New Jersey 07095
J. David Hakman.............................................. 117,250(7) 1.0%
Hakman & Co. Inc.
1350 Bayshore Highway - Suite 300
Burlingame, California 94010
Kent M. Klineman............................................. 135,500(8) 1.2%
c/o Klineman Assoc., Inc.
1270 Avenue of the Americas
New York, New York 10020
39
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
- ------------------------------------ ----------------------- -----------
(iii) Executive officers
Brian F. King................................................ 956,333(2)(9) 8.2%
Concord Camera Corp.
4000 Hollywood Blvd., Suite 650N
Hollywood, FL 33021
Keith Lampert................................................ 948,333(2)(10) 8.1%
Concord Camera Corp.
4000 Hollywood Blvd., Suite 650N
Hollywood, FL 33021
Urs Stampfli................................................. 15,000(11) *
Concord Camera Corp.
4000 Hollywood Blvd., Suite 650N
Hollywood, FL 33021
Harlan I. Press.............................................. 55,000(12) *
Concord Camera Corp.
4000 Hollywood Blvd., Suite 650N
Hollywood, FL 33021
Arthur Zawodny............................................... 870,333(2)(13) 7.5%
Concord Camera Corp.
4000 Hollywood Blvd., Suite 650N
Hollywood, FL 33021
(iv) All executive officers and directors as a group (11 Persons) 2,052,623 17.6%
- --------------------
* Indicates less than 1%.
(1) All information is as of September 17, 1999 and was determined in
accordance with Rule 13d-3 under the Exchange Act based upon information
furnished by the persons listed or contained in filings made by them with
the Commission. As of September 17, 1999, the Company had issued and
outstanding 11,671,092 Common Shares, the Company's only class of voting
securities outstanding. Unless otherwise indicated, beneficial ownership
disclosed consists of sole voting and dispositive power.
(2) Includes 836,333 shares which are beneficially owned by a group
comprising Ira B. Lampert, Brian F. King, Keith Lampert, Arthur Zawodny,
and George Erfurt (Mr. Erfurt is no longer with the Company) as a result
of the terms of an Amended and Restated Voting Agreement, dated as of
February 28, 1997 (the "Voting Agreement") pursuant to which each party
to the Voting Agreement agreed to vote any Purchased Shares or Option
Shares acquired by such party in accordance with the will of the holders
of a majority of all such shares issued.
(3) Includes 67,290 shares purchased in the open market, 245,000 shares
purchased pursuant to a purchase agreement with the Company, 55,000
shares purchased in a private transaction from former employees of the
Company pursuant to the Management Equity provision of the Company's
Stock Incentive Plan and 705,000 shares underlying stock options, as to
all of which such person has sole dispositive power.
(4) Represents 23,000 shares purchased in the open market and 31,250 shares
underlying stock options.
(5) Represents 10,500 shares purchased in the open market and 27,250 shares
underlying stock options.
(6) Represents 10,000 shares purchased in the open market and 27,250 shares
underlying stock options.
40
(7) Includes 55,000 shares purchased in the open market, 35,000 warrants
pursuant to a consulting agreement and 27,250 shares underlying stock
options. Excludes 108,000 shares underlying warrants which will not
become exercisable within 60 days of September 17, 1999.
(8) Represents 108,250 shares purchased in the open market and 27,250 shares
underlying stock options.
(9) Includes 27,500 shares purchased pursuant to a purchase agreement with
the Company, 52,500 shares purchased in private transactions from former
employees of the Company pursuant to the Management Equity provision of
the Company's Stock Incentive Plan and 193,333 shares underlying stock
options, as to all of which such person has sole dispositive power.
(10) Includes 30,000 shares purchased in the open market, 55,000 shares
purchased in private transactions from former employees of the Company
pursuant to the Management Equity provision of the Company's Stock
Incentive Plan and 137,000 shares underlying stock options, as to all of
which such person has sole dispositive power. Excludes 8,000 shares
underlying options which will not become exercisable within 60 days of
September 17, 1999.
(11) Includes 15,000 shares underlying stock options, as to all of which such
person has sole dispositive power. Excludes 30,000 shares underlying
options which will not become exercisable within 60 days of September 17,
1999.
(12) Includes 55,000 shares underlying stock options, as to all of which such
person has sole dispositive power. Excludes 15,000 shares underlying
options which will not become exercisable within 60 days of September 17,
1999.
(13) Includes 7,000 shares pursuant to a purchase agreement with the Company
and 41,000 shares underlying stock options, as to all of which such
person has sole dispositive power. Excludes 8,000 shares underlying
options which will not become exercisable within 60 days of September 17,
1999.
Item 13. Certain Relationships and Related Transactions
At July 3, 1999, the Company was indebted to Mr. Benun for certain loans made by
him to the Company in the principal amount of $100,000, which amount bears
interest at a rate per annum equal to 2% over prime lending rate. The Company
incurred approximately $11,000 in interest expense in Fiscal 1999 in connection
with the loans from Mr. Benun and suspended payment of the loans. The Company
believes that any amounts which may otherwise have been due Mr. Benun will be
offset by the amounts which Mr. Benun will be found to owe the Company when all
claims by the Company against Mr. Benun are finally arbitrated or adjudicated.
See "Item 3 Legal Proceedings."
The Company and Mr. Benun entered into and executed a Pledge Agreement on each
of March 7, 1994 and April 6, 1994 to secure the prompt payment of any liability
to the Company that Mr. Benun may incur as a result of the matters then under
investigation. Mr. Benun was terminated as Chief Executive Officer on July 14,
1994. The Company holds 30,770 shares of the Company's Common Stock owned by Mr.
Benun and pledged to the Company in connection with the Pledge Agreement.
On August 1, 1994, ELA Enterprises, Inc., a Company owned by Eli Arenberg, was
granted an option under the Company's Incentive Plan to purchase 10,000 Common
Shares at an exercise price of $3.00 per share, 10,000 Common Shares at an
exercise price of $4.00 per share and 10,000 Common Shares at an exercise price
of $5.00 per share, in connection with consulting services provided by Mr.
Arenberg to the Company pursuant to the ELA Enterprises, Inc. Consulting
Agreement. All options previously granted to Mr. Arenberg were canceled. In
addition, ELA Enterprises, Inc. will be paid at an hourly rate for consulting
services provided to the Company. Under the consulting agreement, ELA
Enterprises, Inc. was paid $49,000, and $56,000 for such consulting services and
related expenses during the fiscal years ended July 3, 1999 and June 30, 1998
respectively.
41
On August 23, 1995, the Compensation Committee of the Board approved stock
purchase awards under the Management Equity Provisions of the Company's
Incentive Plan, pursuant to which 500,000 Common Shares were made available for
purchase by senior management of the Company at a price per share equal to
$5.375 per share (the closing price of the Common Stock on August 23, 1995),
pursuant to binding commitments to be made by such persons by August 31, 1995.
The Company received commitments for the purchase of 444,000 of such shares (the
"Purchased Shares"). Each purchaser was also granted the right to receive a
contingent restricted stock award covering a number of shares equal to the
number of shares purchased by such purchaser. The contingent restricted stock
was to be issued based upon attainment of increases in shareholder value in
accordance with the Incentive Plan.
In November 1995, members of the Company's senior management entered into
purchase agreements (the "Purchase Agreements"), for the Purchased Shares. As
payment for such shares, each purchaser executed a full recourse note for the
purchase price of such shares (each a "Note"; collectively, the "Notes") and
pledged the Purchased Shares as security for the payment of the Note. The Notes
mature five years from the date of purchase (May 7, 1996 in the case of the Note
executed by Brian F. King and November 7, 1995 in the case of Notes executed by
all other purchasers) and bear interest at 6%.
Concurrently with the execution of their respective Purchase Agreements and
Notes, each purchaser entered into a Voting Agreement pursuant to which each
purchaser agreed to vote all of his Purchased Shares and contingent restricted
stock in accordance with the determination of the holders of a majority of all
of the Purchased Shares and contingent restricted stock held by the purchasers.
To effect the foregoing, each of the purchasers delivered to Mr. Ira Lampert an
irrevocable proxy and agreed that prior to any transfer of Purchased Shares and
contingent restricted stock, such purchaser will cause the transferee (A) to
agree in writing with Mr. Lampert to be bound by the provisions of the Voting
Agreement and (B) to execute and deliver to Mr. Lampert an irrevocable proxy.
Pursuant to Amendments to each of the Purchase Agreements dated February 28,
1997 (the "Amendments"), the Company was relieved of its obligation to issue any
contingent restricted stock. Instead, each member of the Company's senior
management received, as of December 22, 1996, options to purchase that number of
shares of Common Stock (the "Option Shares") equal to the number of Purchased
Shares purchased by such person. The option shares were exercisable at $1.815
per share. The options vested as to 20% of the Option Shares covered thereby as
of December 22, 1996 with the balance of the shares covered thereby vesting
beginning December 31, 1996 in equal monthly installments over a four-year
period during the term of employment or consultancy. The unvested portion became
vested on August 18, 1998, when the average closing price of the Common Stock
equaled or exceeded $5.00 for a consecutive 90 trading day period.
Concurrently with the Amendments, the Voting Agreement and the irrevocable
proxies were amended and restated to include the Option Shares and to delete the
contingent restricted stock.
42
In April 1999, the Board of Directors of the Company approved a conditional
release program (the "Release Program") whereby the Company agreed to forgive
the indebtedness of the senior management holders of the Purchased Shares, Brian
King, Ira Lampert, Keith Lampert and Arthur Zawodny (together, the "Releasees"
and each individually, a "Releasee"), of a total principal sum of $2,376,750 of
indebtedness, together with interest, owing by the Releasees under the Notes.
Under the Release Program, the Company agreed to forgive a certain portion of
the total indebtedness of each Releasee under their respective Notes on each of
May 1, 1999, and January 1 of 2000, 2001, 2002 and 2003. Concurrently with the
forgiveness of each portion of indebtedness, the Company agreed to release a
proportionate number of the Purchased Shares held by the Company as security for
the indebtedness. The forgiveness of the indebtedness is conditioned upon each
Releasee's continued employment with the Company. If the Releasee ceases to be
an employee of the Company at any time prior to the full forgiveness of that
Releasee's indebtedness, then all of the remaining indebtedness owing by that
Releasee that has not yet been forgiven will be due and payable in accordance
with the terms of that Releasee's Note.
The total principal amount of indebtedness and the number of Purchased Shares to
be released by the Company for each Releasee over the 44-month period are set
forth below.
Releasee Release Dates Total Principal Total Purchased
-------- ------------- Indebtedness to be Shares to be
Forgiven Released
------------------ ---------------
Brian King May 1, 1999, and January 1st of $430,0000.00 80,000
2000, 2001, 2002 and 2003
Ira Lampert May 1, 1999, and January 1st of $1,612,500.00 300,000
2000, 2001, 2002 and 2003
Keith Lampert May 1, 1999, and January 1st of $296,625.00 55,000
2000, 2001, 2002 and 2003
Arthur Zawodny May 1, 1999, and January 1st of $37,625.00 7,000
2000, 2001, 2002 and 2003
The following executive officers of the Company are indebted to the Company, for
amounts in excess of $60,000 as a result of purchases of the Purchased Shares:
Ira B. Lampert............................................$1,461,852
Brian F. King...............................................$389,827
Keith Lampert ..............................................$268,006
43
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The following consolidated financial statements of the Company and the notes
thereto, the related reports thereon of the certified public accountants and
financial statement schedule are filed under Item 8 of this Report:
(a) (1) Financial Statements
Page
Report of Independent Certified Public Accountants ..................................................F-1
Consolidated Balance Sheets at July 3, 1999 and June 30, 1998 .......................................F-2
Consolidated Statements of Operations for the years ended
July 3, 1999 and June 30, 1998, and 1997 ..........................................................F-3
Consolidated Statements of Cash Flows for the year ended
July 3, 1999, June 30, 1998 and 1997...............................................................F-4
Consolidated Statements of Stockholders' Equity for the years
ended July 3, 1999, June 30, 1998 and 1997.........................................................F-5
Notes to Consolidated Financial Statements...........................................................F-6
(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves.........................................F-23
All other financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the instructions to Item 8 or are inapplicable and therefore
have been omitted.
(3) Exhibits:
Exh. No. Page
--------- ----
3.1 Certificate of Incorporation of the Company(1)........................................................
3.2 Amendments to Certificate of Incorporation of the Company(1)..........................................
3.3 Amendment No. 4 to Certificate of Incorporation of the Company(3).....................................
3.4 Amendment No. 5 to Certificate of Incorporation of the Company(18)....................................
3.5 Restated By-Laws of the Company(18)...................................................................
4.1 Form of Common Stock Certificate(1)...................................................................
4.2 Purchase Agreement, dated July 30, 1998, between Dreyfus High Yield Strategies Fund and the Company...
4.3 Indenture, dated July 30, 1988, between Bankers Trust Company and the Company.........................
4.4 Registration Rights Agreement, dated July 30, 1998, between Dreyfus High Yield Strategies Fund
and the Company.......................................................................................
9.1 Voting Agreement, dated as of November 7, 1995, as amended, among Ira B. Lampert, Eli Shoer, Steve
Jackel, George Erfurt Arthur Zawodny, Brian F. King and Lawrence Pesin (16)...........................
9.2 Agreement dated as of July 18, 1997, by and among Brian F. King, Lawrence Pesin and Keith
Lampert (17)..........................................................................................
44
Exh. No. Page
--------- ----
10.1 Settlement Agreement between the Company and the Commission effective September 1, 1994(11)...........
10.2 Employment Agreement between the Company and Ira B. Lampert, dated as of July 15, 1993(6).............
10.3 Employment Agreement between Concord France and Jean Louis Vinant dated as of July 1, 1994(11)........
10.4 Employment Agreement between the Company and Hans Dieter Kuehn dated as of April 1, 1993(6)...........
10.5 Employment Agreement between the Company and Eli Shoer dated as of July 1, 1993(6)....................
10.6 Pledge Agreement between the Company and Benun dated as of March 7, 1994(10)..........................
10.7 Pledge Agreement between the Company and Benun dated as of April 6, 1994(10)..........................
10.8 Compensation Trade Agreement between Concord HK and
Shenzhen Baoan Contat Camera Factory and translation dated November 23, 1993(7).......................
10.9 Processing Trade Agreement, dated October 28, 1986, between Concord Camera Enterprises Company
Ltd. and Baoan County Foreign Trade Company and Concord Electronic Factory Henggang, Baoan County
and translations)(1)..................................................................................
10.10 Filing Certificate for Joint Venture, Cooperative Venture, Compensation Trade and Foreign-Related
Processing and Assembly Agreements (Contracts) issued by the Foreign Economic Relations Office
People's Government of Baoan County, Shenzhen November 1, 1986 and translations)(1)...................
10.11 Processing and Assembly Contract, dated July 25, 1987, between Concord Camera Enterprises Company
Ltd. and Baoan County Foreign Trade Company and Concord Electronic Factory, Henggang, Baoan County
and translations)(1)..................................................................................
10.12 Processing Trade Agreement, dated September 6, 1985, between Dialbright Company Limited and Baoan
County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan County and
translations)(1)......................................................................................
10.13 Filing Certificate for Joint Venture, Cooperative Venture, Compensation Trade and Foreign-Related
Processing and Assembly Agreements (Contracts) issued by the Foreign Economic Relations Office,
People's Government of Baoan County, Shenzhen on September 12, 1985 and translations)(1)..............
10.14 Notice Concerning the Approval of Import Projects issued by the Foreign Economic Relations
Office, Baoan County, Shenzhen on September 12, 1985 and translations)(1).............................
10.15 Supplementary Agreement, dated September 27, 1985, between Dialbright Company Limited and Baoan
County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan County and
translations)(1)......................................................................................
45
Exh. No. Page
--------- ----
10.16 Notice Concerning the Approval of Supplementary Agreement dated September 27, 1985 issued by
the Foreign Economic Relations Office, Baoan County on October 4, 1985 and
translations)(1)......................................................................................
10.17 Processing and Assembly Contract, dated September 27, 1985, between Dialbright Company Limited
and Baoan County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan
County and translations(1)............................................................................
10.18 Supplementary Agreement, dated October 30, 1985, between Dialbright Company Limited and Baoan
County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan County and
translations(1).......................................................................................
10.19 Processing and Assembly Contract, dated December 17, 1985, between Dialbright Company Limited
and Baoan County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan
County and translations(1)............................................................................
10.20 Processing and Assembly Contract between Dialbright Company Limited and Baoan County Foreign Trade
Company and Dialbright Electronic Factory, Henggang, Baoan County and translations(1).................
10.21 Supplementary Agreement, dated July 9, 1986, between Dialbright Company Limited and Baoan County
Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan County and
translations(1).......................................................................................
10.22 Processing and Assembly Contract, dated July 11, 1986, between Dialbright Company Limited and
Baoan County Foreign Trade Company and Dialbright Electronic Factory, Henggang,
Baoan County and translations(1)......................................................................
10.23 Processing and Assembly Contract, dated August 14, 1986, between Dialbright Company Limited and
Baoan County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan County
and translations(1).........................
10.24 Supplementary Agreement, dated August 26, 1986, between Dialbright Company Limited and Baoan
County Foreign Trade Company and Dialbright Electronic Factory, Henggang, Baoan County and
translations(1).......................................................................................
10.25 Agreement for the Provision of Land, Management Services and Labor between Company and Wan Kong
Economic Development Corporation of Baoan County, dated July 10, 1988 (English Translation
with Chinese Original attached)(2)....................................................................
10.26 Agreement between Dialbright and Development Corporation, Baoan County, dated September 23,
1988(2)...............................................................................................
10.27 Agreement between Dialbright and Henggang Economic Development Corporation, dated September 23,
1988 and translation(2)...............................................................................
10.28 Construction Works Contract between Concord Factory Henggang and Henggang Economic Development
Corporation dated February 25, 1989 and translation(2)................................................
10.29 Agreement between Concord HK and Baoan Henggang Joint Stock Investment Company, Ltd., dated
February 15, 1993 and translation(4)..................................................................
10.30 Contract for the Utilization of Land in Factory Construction between Concord HK and Henggang
Investment Holdings Limited dated June 20, 1994 and translation(11)...................................
46
Exh. No. Page
--------- ----
10.31 Supplemental Agreement to the Contract for the Utilization of Land in Factory Construction
between Concord HK and Henggang Investment Holdings Limited dated June 20, 1994 and
translation(11).......................................................................................
10.32 Incentive Plan, effective November 29, 1993(13).......................................................
10.33 Amended and Restated 1988 Stock Option Plan(4)........................................................
10.34 Amended and Restated Employment Agreement between Concord Camera HK Limited and Arthur Zawodny
dated as of October 21, 1994(12)......................................................................
10.35 Amended and Restated Employment Agreement between the Company and Ira B. Lampert dated as of
May 1, 1997(18).......................................................................................
10.36 Lease Agreement, undated between Prologis Trust, a Maryland real estate investment trust, and
the Company ..........................................................................................
10.37 Lease Agreement, dated as of August 12, 1998, between CarrAmerica Realty Corp., a Maryland
corporation, and the Company .........................................................................
10.38 Amendment No. 2, dated as of January 1, 1999, to amended and restated Employment Agreement dated
as of May 1, 1997, between Ira B. Lampert and the Company ............................................
10.39 Supplemental Executive Retirement Plan and Agreement for Ira B. Lampert...............................
10.40 Amendment to the Supplemental Executive Retirement Plan and Agreement for Ira B. Lampert .............
10.41 Deferral Agreement, dated as of May 1, 1997, between Concord Camera Corp. and Ira B. Lampert .........
21. List of Subsidiaries of Company(6)....................................................................
23. Consent of Independent Certified Public Accountants...................................................
27. Financial Data Schedule...............................................................................
The Financial Statement Schedules required to be filed pursuant to this Item
14(d) are listed above.
(1) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to Company's Registration Statement
on Form S-18 (No. 33-21156), declared effective July 12, 1988 and is
incorporated herein by reference.
(2) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to Company's annual report on Form
10-K for the fiscal year ended June 30, 1989 and is incorporated herein
by reference.
(3) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to Company's interim report on Form
8-K dated May 29, 1992 and is incorporated herein by reference.
(4) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's Registration
Statement on Form S-1 (33-59398), filed with the Commission on March
11, 1993 and is incorporated herein by reference.
(5) This document has been previously filed as Exhibit 10.46 to Amendment
No. 2 to the Company's Registration Statement on Form S-1, filed June
1, 1993 and is incorporated herein by reference.
47
(6) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1993 and is incorporated
herein by reference.
(7) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's interim report on
Form 8-K dated November 23, 1993 and is incorporated herein by
reference.
(8) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended December 31, 1993 and is
incorporated herein by reference.
(9) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's interim report on
Form 8-K dated March 30, 1994 and is incorporated herein by reference.
(10) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended March 31, 1994 and is
incorporated herein by reference.
(11) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's annual report on
Form 10-K for the Fiscal Year ended June 30, 1994 and is incorporated
herein by reference.
(12) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's quarterly report on
Form 10-Q for the fiscal period ended March 31, 1995 and is
incorporated herein by reference.
(13) This document has been previously filed with the Securities and
Exchange Commission as an Exhibit to the Company's annual report on
Form 10-K for the Fiscal Year ended June 30, 1995 and is incorporated
herein by reference.
(14) This document has been previously filed with the Securities and
Exchange Commission as a Form 10-Q for the fiscal period ended
September 30, 1995 and is incorporated herein by reference.
(15) This document has been previously filed with the Securities and
Exchange Commission as a Form 10-Q for the Fiscal period
ended March 31, 1996 and is incorporated herein by reference.
(16) This document has been previously filed with the Securities and
Exchange Commission as an exhibit to a Schedule 13D Amendment No. 1
filed on March 4, 1997.
(17) This document has been previously filed with the Securities and
Exchange Commission as an exhibit to a Schedule 13D Amendment No. 2
filed on July 14, 1997.
(18) This document has been previously filed with the Securities and
Exchange Commission as an exhibit to the Company's annual report on
Form 10-K for the Fiscal Year ended June 30, 1997 and is incorporated
herein by reference.
48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Concord Camera Corp.
We have audited the accompanying consolidated balance sheets of Concord
Camera Corp. and subsidiaries as of July 3, 1999 and June 30, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 3, 1999. Our audits
also included the financial statement schedule listed in the Index in Item
14(a)(2). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Concord Camera Corp. and subsidiaries as of July 3, 1999 and June 30, 1998 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended July 3, 1999, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Miami, Florida
August 20, 1999
F-1
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp. Consolidated Balance Sheets
July 3, June 30,
1999 1998
--------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 30,706,761 $ 7,119,699
Accounts receivable, net 18,272,329 19,961,534
Inventories, net 20,620,556 21,458,595
Prepaid expenses and other current assets 2,404,400 3,238,129
------------ -----------
Total current assets 72,004,046 51,777,957
Plant and equipment, net 18,871,300 15,930,486
Goodwill, net 291,764 727,633
Other assets, net 5,480,342 3,645,703
------------ -----------
Total assets $96,647,452 $72,081,779
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 16,224,538 $14,213,757
Accrued expenses 4,985,789 4,418,604
Short-term debt 8,088,901 10,822,012
Current portion of long-term debt 2,100,000 35,676
Current portion of obligations under capital leases 2,073,492 870,173
Income taxes payable 896,142 379,662
Other current liabilities 188,058 224,781
------------ -----------
Total current liabilities 34,556,920 30,964,665
Deferred income taxes 792,358 689,169
Long-term debt, net of current portion 14,850,000 2,460,784
Obligations under capital leases, net of current portion 2,623,080 1,409,865
Other long-term liabilities 1,129,569 452,548
COMMITMENT AND CONTINGENCIES
Stockholders' Equity:
Common stock, no par value, 40,000,000 authorized; 11,629,592 and 41,117,335 40,094,559
11,214,451, issued and outstanding as of July 3, 1999 and June 30, 1998,
respectively
Paid in capital 1,033,553 850,786
Retained earnings (accumulated deficit) 6,086,691 (1,622,215)
Notes receivable arising from common stock purchase agreements (2,163,542) (2,765,463)
------------ -----------
46,074,037 36,557,667
Less: treasury stock, at cost; 675,863 and 63,553 shares as of July 3,
1999 and June 30, 1998, respectively (3,378,512) (452,919)
------------ -----------
Total stockholders' equity 42,695,525 36,104,748
------------ -----------
Total liabilities and stockholders' equity $96,647,452 $72,081,779
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
Concord Camera Corp.
Consolidated Statement of Operations
Year ended
July 3, June 30, June 30,
1999 1998 1997
------------ ------------ -----------
Net sales $118,418,074 $102,663,451 $65,747,433
Cost of products sold 86,664,126 74,771,683 48,722,416
------------ ------------ -----------
Gross profit 31,753,948 27,891,768 17,025,017
Selling expenses 7,922,140 9,233,781 6,949,600
General and administrative expenses 11,904,235 10,776,643 9,247,489
Legal expenses and settlement costs 311,635 212,818 200,810
Interest expense 3,454,717 1,668,233 1,465,169
Other (income), net (440,872) (516,694) (122,513)
------------ ------------ -----------
Income (loss) before income taxes 8,602,093 6,516,987 (715,538)
Provision for income taxes 893,187 503,548 117,124
------------ ------------ -----------
Net income (loss) $7,708,906 $6,013,439 $ (832,662)
============ ============ ===========
Basic earnings (loss) per share $0.70 $0.55 $ (0.08)
============ ============ ===========
Diluted earnings (loss) per share $0.67 $0.52 $ (0.08)
============ ============ ===========
Weighted average common shares outstanding -
Basic 10,990,395 10,938,934 10,880,473
============ ============ ===========
Diluted 11,579,123 11,553,982 10,880,473
============ ============ ===========
See accompanying notes to consolidated financial statements.
F-3
Concord Camera Corp.
Consolidated Statements of Cash Flows
Year ended
July 3, June 30, June 30,
1999 1998 1997
---------- ---------- ---------
Cash flows from operating activities:
Net income (loss) $7,708,906 $6,013,439 ($832,662)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 4,111,148 3,316,328 3,151,144
Amortization of deferred financing costs 122,298 -- --
Deferred income taxes 103,189 116,677 129,603
Officers notes forgiven on stock purchases 744,321 -- --
Compensation expense on stock options 182,767 -- --
Interest income on notes receivable arising from common stock purchase (142,400) (143,190) (143,190)
agreements
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,689,205 (10,094,572) (2,316,554)
(Increase) decrease in inventories 838,039 (5,706,193) 1,739,213
(Increase) decrease in prepaid expenses and other current assets 833,729 (146,460) (555,245)
(Increase) decrease in other assets (2,256,699) (81,985) (610,414)
Increase (decrease) in accounts payable 2,010,781 5,548,135 2,665,294
Increase (decrease) in accrued expenses 567,185 2,186,315 59,426
Increase (decrease) in income taxes payable 516,481 376,831 (76,219)
Increase (decrease) in other current liabilities (36,723) (89,184) (347,770)
Increase (decrease) in other long-term liabilities 527,021 (150,001) (64,242)
---------- ---------- ---------
Net cash provided by operating activities 17,519,248 1,146,140 2,798,384
---------- ---------- ---------
Cash flows from investing activities:
Purchase of plant and equipment (6,166,331) (4,458,775) (3,188,424)
Purchase of treasury stock, at cost (2,925,593) -- --
---------- ---------- ---------
Net cash used in investing activities (9,091,924) (4,458,775) (3,188,424)
---------- ---------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under short-term debt agreements (2,733,111) 2,845,697 1,607,343
Net borrowings (repayments) of long-term debt (396,460) 2,066,541 (30,222)
Proceeds from issuance of senior notes, net 14,850,000 -- --
Net borrowings (repayments) under capital lease obligations 2,416,533 (510,390) (886,031)
Net proceeds from issuance of common stock options 1,022,776 732,666 --
---------- ---------- ---------
Net cash provided by financing activities 15,159,738 5,134,514 691,090
---------- ---------- ---------
Net increase in cash and cash equivalents 23,587,062 1,821,879 301,050
Cash and cash equivalents at beginning of year 7,119,699 5,297,820 4,996,770
---------- ---------- ---------
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information: $30,706,761 $7,119,699 $5,297,820
=========== ========== ==========
Cash paid for interest $ 3,048,000 $1,299,000 $1,067,000
=========== ========== ==========
Cash paid for taxes $ 15,000 $ 120,000 $ 146,000
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
Concord Camera Corp.
Consolidated Statements of Stockholders' Equity
Notes
receivable
arising
Retained from common
Common stock Earnings stock Treasury stock
------------ Paid in (Accumulated purchase --------------
Issued shares Stated Value capital (deficit) agreements Shares Cost Total
------------- ------------ ------- ----------- ------------ ------ --------- -----------
Balance as of June 30, 1996 10,944,026 $39,361,893 $850,786 ($6,802,992) ($2,479,083) 63,553 ($452,919) $30,477,685
Interest on notes
receivable arising from
common stock purchase
agreements -- -- -- -- (143,190) -- -- (143,190)
Net (loss) -- -- -- (832,662) -- -- -- (832,662)
---------- ----------- -------- ---------- ---------- ------ ---------- -----------
Balance as of June 30, 1997 10,944,026 39,361,893 850,786 (7,635,654) (2,622,273) 63,553 (452,919) 29,501,833
Exercise of stock options 270,425 732,666 -- -- -- -- -- 732,666
Interest on notes
receivable
arising from common stock
purchase agreements -- -- -- -- (143,190) -- -- (143,190)
Net income -- -- -- 6,013,439 -- -- -- 6,013,439
---------- ----------- -------- ---------- ---------- ------ ---------- -----------
Balance as of June 30, 1998 11,214,451 $40,094,559 $850,786 ($1,622,215) ($2,765,463) 63,553 ($452,919) $36,104,748
---------- ----------- -------- ---------- ---------- ------ ---------- -----------
Exercise of stock options 415,141 1,022,776 -- -- -- -- -- 1,022,776
Interest on notes
receivable
arising from common stock
purchase agreements -- -- -- -- (142,400) -- -- (142,400)
Officers notes forgiven -- -- -- -- 744,321 -- -- 744,321
on stock purchases
Purchase of treasury -- -- -- -- -- 612,310 (2,925,593) (2,925,593)
stock, at cost
Compensation expense on -- -- 182,767 -- -- -- -- 182,767
stock options
Net income -- -- -- 7,708,906 -- -- -- 7,708,906
---------- ----------- -------- ---------- ---------- ------ ---------- -----------
Balance as of July 3, 1999 11,629,592 $41,117,335 $1,033,553 $6,086,691 ($2,163,542) 675,863 ($3,378,512) $42,695,525
========== =========== ========== ========== ========== ======= ========== ===========
See accompanying notes to consolidated financial statements.
F-5
CONCORD CAMERA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Concord Camera Corp. ("Concord") and its wholly-owned subsidiaries, Concord
Camera HK Limited ("Concord HK") a Hong Kong corporation, Concord Camera GmbH
("Concord GmbH"), Concord Camera Europe Ltd. (formerly Concord Camera UK Ltd)
("Concord UK"), Concord-Keystone Sales Corporation ("Concord Keystone"), Concord
Holding Corp. ("Concord Holding"), Concord Camera Illinois Corp. ("Concord
Canada"), Concord Camera (Panama) Corp. ("Concord Panama"), Concord Camera
(Hungary) ("Concord Hungary") and Concord Camera France SARL ("Concord France")
(collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated.
The Company terminated the operations of Concord Camera Canada Corp., Concord
Hungary and Concord Panama during June 1995, December 1995 and March 1997,
respectively, as part of its plan to consolidate its worldwide operations and
focus more closely on its core business. The Company will continue to service
customers throughout Canada, Hungary and Latin America through Concord Canada,
Concord UK and Concord Keystone, respectively.
Nature of Business
The Company is engaged in the design, manufacture, marketing and worldwide
distribution of cameras and related accessories. Substantially all of the
Company's products are assembled in the People's Republic of China ("PRC"). As a
result, the Company's operations could be adversely affected by political
instability in the PRC. Consolidated sales to the Company's three largest
customers in Fiscal 1999 and 1998 amounted to approximately $68,105,000 (57.5%)
and $ 56,592,000 (55.1%), respectively. Consolidated sales to the Company's two
largest customers in Fiscal 1997 amounted to approximately $26,585,000 (40.4%).
The Company believes that the loss of such customers would have a material
effect on the Company and its subsidiaries taken as a whole. No other customer
accounted for 10% or more of consolidated sales during the years ended July 3,
1999, and June 30, 1998 and 1997.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories, which consist mostly of raw materials, are stated at the lower of
cost or market and are determined on a first-in, first-out basis.
F-6
Inventories are comprised of the following:
July 3, June 30,
1999 1998
----------- -----------
Raw material and components $15,605,934 $14,291,849
Finished goods 6,389,998 8,821,721
----------- -----------
21,995,932 23,113,570
----------- -----------
Less: Reserve for inventory obsolescence (1,375,376) (1,654,975)
----------- -----------
$20,620,556 $21,458,595
=========== ===========
Plant and Equipment
Plant and equipment is stated at cost. Depreciation is computed by use of the
straight-line method over the estimated useful lives of the respective assets
which range from two to forty years. Small tools and accessories used in
production in the PRC are charged to operations when purchased. Leasehold costs
and improvements are amortized over their estimated useful lives on the
remaining life of the lease, whichever is shorter. Amortization of assets
recorded under capital leases is included in depreciation and amortization
expense.
Goodwill
Cost in excess of net assets acquired (goodwill) was being amortized on a
straight-line basis over its estimated life of fifteen years. The carrying value
of goodwill is reviewed by the Company's management if the facts and
circumstances suggest that it may be impaired. If this review indicates that
these costs will not be recoverable, as determined based on the expected
undiscounted cash flows of the entity to which the goodwill is associated over
the remaining amortization period, the carrying value of goodwill would be
reduced by the estimated shortfall of cash flows. During the year ended June 30,
1997, the Company revised the estimated life of certain goodwill to three
remaining years and is amortizing the balance of this goodwill over this period.
Accumulated amortization at July 3, 1999 and June 30, 1998 for such intangible
asset is approximately $2,262,000 and $1,826,000, respectively.
Impairment of Long-Lived Assets
In accordance with the Financial Accounting Standards Board SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" the Company records impairment losses when indications of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. No impairment
indicators were noted for the years ended July 3, 1999, June 30, 1998 and 1997.
Other Assets
Other assets include trademarks, patents, licensing fees, deposits, capitalized
costs and non-current receivables. Trademarks, patents, licensing fees and
capitalized costs are amortized on a straight-line basis over their estimated
useful lives.
F-7
Revenue Recognition
Revenues are recorded when the product is shipped to a customer net of
appropriate reserves for returns.
Advertising
Advertising costs are expensed as incurred and included in selling expenses.
Advertising allowances and other discounts totaled approximately $464,000,
$793,000, and $876,000 for the years ended July 3, 1999, June 30, 1998, and
1997, respectively.
Foreign Currency Remeasurement
The Company operates on a worldwide basis and its results may be adversely or
positively affected by fluctuations of various foreign currencies against the
U.S. Dollar, specifically, the Canadian Dollar, German Mark, British Pound
Sterling, French Francs and Japanese Yen. Each of the Company's foreign
subsidiaries purchases its inventories in U.S. Dollars and sells them in local
currency, thereby creating an exposure to fluctuations in foreign currency
exchange rates. Certain components needed to manufacture cameras are priced in
Japanese Yen. The translation from the applicable currencies to U.S. Dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. At July 3, 1999, included in other
assets and other current assets are amounts receivable from a Chinese company of
approximately $369,000 denominated in Chinese Renminbi. Cumulative translation
adjustments are not material. Gains or losses resulting from foreign currency
transactions are included in "Other (income) expense, net" in the Consolidated
Statements of Operations. For the years ended July 3, 1999, June 30, 1998 and
1997, consolidated other (income) expense, net includes approximately
($294,000), ($22,000) and $192,000, respectively, of net foreign currency
(gains) losses from remeasurement.
Forward Exchange Contracts
During the years ended July 3, 1999, June 30, 1998 and 1997, the Company's
hedging activities were immaterial and as of July 3, 1999 there were no forward
exchange contracts outstanding. The Company continues to analyze the benefits
and costs associated with hedging against foreign currency fluctuations.
Income Taxes
Deferred income tax assets and liabilities are determined based on the
difference between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. All applicable earnings per share amounts
have been presented to conform to the SFAS 128 requirements. The difference in
the basic and diluted EPS calculation for Fiscal 1999 and 1998 is the dilutive
impact of stock options. There was no difference between basic and diluted EPS
calculation for Fiscal 1997.
F-8
Stock Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" , the
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock-based transactions and has
complied with the disclosure requirement of SFAS 123. Under APB 25, compensation
expense is calculated at the time of option grant based upon the difference
between the exercise price of the option and the fair market value of the
Company's common stock at the date of grant recognized over the vesting period.
Business Segments
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business Enterprise
and Related Information", the Company is required to report segment information.
As the Company only operates in one business segment, no additional reporting is
required.
Comprehensive Income (Loss)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income (loss) and its components in financial statements. The adoption of
SFAS No. 130 had no impact on the Company's net income (loss) or stockholders'
equity. There are no other components of comprehensive income (loss) other
than the Company's net income (loss) for the years ended July 3, 1999, June 30,
1998 and 1997.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal quarters of
fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. The Company plans to adopt SFAS No. 133 in the Fiscal
Year 2000.
Management believes that the impact of SFAS No. 133 will not be significant to
the Company.
NOTE 2 -- ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
July 3, June 30,
1999 1998
----------- -----------
Trade accounts receivable $18,672,034 $20,524,657
Less: Allowances for doubtful accounts, discounts
and allowances (399,705) (563,123)
----------- -----------
$18,272,329 $19,961,534
=========== ===========
The Company's accounts receivable are primarily due from manufacturers, mass
merchandisers and other retailers. Approximately 70% of the accounts receivable
balance at July 3, 1999 was due from two customers. Approximately 36.8% of the
accounts receivable balance at June 30, 1998 was due from one customer.
F-9
NOTE 3 -- PLANT AND EQUIPMENT:
Plant and equipment consist of the following:
July 3, June 30,
1999 1998
----------- -----------
Building and building under capital lease $ 7,451,114 $ 6,061,376
Equipment and equipment under capital lease 21,647,213 18,979,857
Office furniture and equipment 6,164,743 4,471,283
Automobiles 256,623 237,467
Leasehold improvements 1,854,971 1,072,622
----------- -----------
37,374,664 30,822,605
Less: Accumulated depreciation and amortization (18,503,364) (14,892,119)
----------- -----------
$18,871,300 $15,930,486
=========== ===========
NOTE 4 -- SHORT-TERM DEBT:
Short term debt is comprised of the following: July 3, June 30,
1999 1998
----------- -----------
Non-notification factoring with recourse facility $ 6,584,901 $ 7,396,012
U.S. credit facility
-- 687,000
Hong Kong credit facility 1,504,000 2,128,000
Canadian working capital facility -- 611,000
----------- -----------
$ 8,088,901 $10,822,012
=========== ===========
F-10
Non-Notification Factoring Facility with Recourse Facility
During the last quarter of Fiscal 1998, Concord HK consummated a $10,000,000
Non-Notification Factoring with Recourse Facility (the "Factoring Facility")
that is guaranteed by the Company. The Factoring Facility is secured by certain
accounts receivables of the Company's Hong Kong operations and bears interest at
1.5% above the prime lending rate. During the last quarter of Fiscal 1999,
$2,000,000 of the factoring facility was converted into two $1,000,000 equipment
leasing facilities with terms of three and four years each. Availability under
the factoring facility is subject to advance formulas based on eligible accounts
receivable with no minimum borrowings. At July 3, 1999, approximately
$6,585,000, and $1,050,000 was outstanding and classified as short-term debt and
capital lease obligations, respectively. Availability under the factoring
facility amounted to $1,415,000 and $2,604,000 at July 3, 1999 and June 30,
1998, respectively,
U.S. Credit Facility
The Company had a $4,500,000 credit facility (the "U.S. Credit Facility") which
expired on May 31, 1999, was secured by accounts receivable, inventory and other
related assets of the Company's United States operations and bore interest at
1.5% above prime lending rate, which was 8.5% at June 30, 1998. Availability was
subject to advance formulas based on eligible inventory and accounts receivable
with interest calculated on borrowing of $1,500,000. At June 30, 1998,
approximately $687,000 was outstanding and classified as short-term debt under
the U.S. Credit Facility. On May 31, 1999, all borrowings under the U.S. Credit
Facility were repaid by the Company.
Hong Kong Credit Facility
Concord HK had a credit facility (the "HK Facility") that provided Concord HK
with up to $6,900,000 of financing as follows: letters of credit and standby
letters of credit of up to $2,825,000, overdraft and packing loans of up to
$3,600,000 and an installment loan of $475,000. The installment loan was
utilized in part to repay the outstanding mortgage obligation on the Hong Kong
office property . As of June 30, 1998, approximately $3,480,000 was utilized and
approximately $2,945,000 was available under the HK Facility. Approximately
$2,128,000 of the total $3,480,000 utilized was in the form of trade finance,
including but not limited to import letters of credit. The HK Facility, which is
payable on demand, bears interest at 2% above prime lending rate for letters of
credit and 2.25% above prime lending rate for overdraft and packing loans. At
June 30, 1998, the prime lending rate was 10%. In connection with the HK
Facility, Concord HK has placed a $1,252,000 time deposit with the lender which
is included in prepaid and other current assets at June 30, 1998 and such
deposit is pledged as collateral for the HK Facility. In addition, all amounts
outstanding under the HK Facility are guaranteed by Concord.
In April 1999, Concord HK paid off the HK Facility and entered into a new
facility with another lender that provides Concord HK with up to $2,700,000 of
financing as follows: letters of credit of up to $1,800,000, and packing loans
of up to $900,000. As of July 3, 1999, approximately $1,504,000 was utilized
under the facility. The facility, which is payable on demand, bears interest at
2% above the prime lending rate, which was 8.5% at July 3, 1999. The Company
guarantees all amounts outstanding under the facility.
Canadian Working Capital Facility
On November 25, 1996, the Company obtained a $1,090,000 working capital facility
(the "Canadian Facility") with a Canadian bank which is secured by accounts
receivable, inventory and other related assets of the Company's Canadian
operations and bears interest at 1% above the Canadian prime lending rate, which
was 5.5% at June 30, 1998. Availability under the Canadian Facility is subject
to advance formulas based on eligible accounts receivable and seasonable
inventory eligibility with no minimum borrowings and is subject to monthly
covenant requirements. At June 30, 1998, approximately $611,000 was outstanding
and classified as short-term debt. Concord Canada did not meet the effective net
worth covenant at June 30, 1998 as required under the Canadian Facility. On May
31, 1999, all borrowings under the Canadian Facility were repaid by the Company.
F-11
The weighted average interest rate on the Company's short-term borrowings was
approximately 11.7% and 11.2% at July 3, 1999 and June 30, 1998, respectively.
NOTE 5 -- LONG-TERM DEBT:
Long-term debt consists of the following:
July 3, June 30,
1999 1998
----------- ----------
Senior Notes - $15,000,000 @ 11% interest dated July 30, 1998 due 2005 $14,850,000 $ --
Mortgage payable through July 9, 1999, monthly payments of interest
only at 12.986%. Facility is secured by Company owned manufacturing
facilities in Boan County, Shenzhen Municipal, PRC 2,100,000 2,100,000
Mortgage payable through October 2005, monthly principal and interest (at 10.75%
per annum) payments of $6,658. Outstanding balance is guaranteed by Concord -- 396,460
----------- ----------
16,950,000 2,496,460
Current portion of long-term debt (2,100,000) (35,676)
----------- ----------
Long-term debt $14,850,000 $2,460,784
=========== ==========
Senior Notes Payable
On July 30, 1998, the Company consummated a private placement of $15 million of
unsecured senior notes ("Senior Notes"). The notes bear interest at 11%, and the
maturity date is July 15, 2005. Interest payments are due quarterly. At July 3,
1999, $14,850,000 was outstanding, net of original issue discount and classified
as long-term debt.
Upon a Change of Control as defined in the Senior Notes, the Company would be
required to offer to repurchase the notes at a purchase price equal to 101% of
the aggregate principal amount plus accrued and unpaid interest thereon.
In addition, on or prior to July 16, 2000, the Company could redeem, at its
option, up to 35% of the aggregate principal amount of the Senior Notes with the
net proceeds of one or more Equity Offerings, as defined, at a redemption price
equal to 107% of the principal amount thereof plus accrued and unpaid interest,
provided that such redemption occurs within 60 days of the closing of any such
Equity Offerings.
F-12
The Senior Notes contain certain financial and operational covenants and
customary events of default, including, among others, payment defaults and
default in the performance of other covenants, breach of representations or
warranties, cross-default to other indebtedness, certain bankruptcy or ERISA
defaults, the entry of certain judgment against the Company or any subsidiary,
and any security interest or guarantees that cease to be in effect.
NOTE 6 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued expenses and short-term debt
approximate fair value because of their short duration to maturity.
The carrying amounts of long-term debt approximate the fair value of the
Company's long-term debt at July 3, 1999. The fair value of long-term debt is
estimated based on the quoted market prices for the same issues or on current
rates offered to the Company for debt of the same remaining maturities. The
estimated fair value of long-term debt and the bank borrowings under the various
credit facilities approximated its carrying value. Because judgment is required
in interpreting market data to develop estimates of fair value, the estimates
are not necessarily indicative of the amounts that could be realized or would be
paid in a current market exchange. The effect of using different market
assumptions or estimation methodologies may be material to the estimated fair
value amounts.
NOTE 7 -- COMMON STOCK:
The Company's Incentive Plan permits the Compensation Committee of the Company's
Board of Directors to grant a variety of common stock awards and provides for a
formula plan for annual grants to non-employee directors. The maximum number of
shares of common stock available for awards under the Incentive Plan is
3,000,000. Upon the adoption of the Incentive Plan, the Company's 1988 Stock
Option Plan was terminated except with respect to any unexercised options
outstanding thereunder.
Stock option activity is as follows:
Number of Shares Option price per share
---------------- ----------------------
Outstanding June 30, 1996 1,568,350 $2.13 - $9.00
Canceled (1,181,900) $1.81 - $8.31
Granted 986,000 $1.75 - $3.00
--------- -------------
Outstanding June 30, 1997 1,372,450 $1.75 - $9.00
Canceled (96,550) $2.69 - $9.00
Granted 220,513 $1.90 - $5.00
Exercised (247,925) $1.81 - $3.81
--------- -------------
Outstanding June 30, 1998 1,248,488 $1.75 - $9.00
Canceled (500) $3.00
Granted 78,500 $3.25 - $6.13
Exercised (151,340) $1.75 - $4.00
--------- -------------
Outstanding July 3, 1999 1,175,148 $1.75 - $6.13
========= =============
F-13
At July 3, 1999, 997,187 shares are available for future grants.
For financial reporting purposes, 444,000 shares of Common Stock, which were
issued in exchange for notes of $2,386,500 pursuant to the Company's Senior
Management Common Stock Purchase Award Provisions forming a part of the
Company's Incentive Plan, have been treated as outstanding since August 23, 1995
the date upon which commitments for the purchase of such shares were made by the
purchasers. Definitive agreements and the related notes for such purchases were
executed on November 7, 1995, when the shares were issued. The purchase price
was paid by a loan from the Company to the participating senior executives and
evidenced by a full recourse promissory note secured by the common stock
purchased by the obligors. The notes mature five years from the date of purchase
and bear interest at 6%. Interest on this Note is payable in cash, except that
so long as Obligor remains an employee of the Company or any subsidiary thereof
or performs consulting activities for any thereof, Obligor may (i) apply the
shares of the Company's Common Stock pledged to the Company as provided below in
payment of interest by delivering to the Company a letter in form and substance
reasonably satisfactory to the Company instructing it to apply the requisite
number of such shares to the payment of such interest (whereupon the number of
shares required for such payment shall be canceled), it being understood that
for this purpose such shares shall be valued at the Fair Market Value (as
defined below) thereof on the date on which such letter is so delivered to the
Company, or (ii) deliver, as payment of interest, a secured promissory note
dated the date of payment of interest in the principal amount of such interest
payment and having substantially the same terms as this Note. Interest on this
note may also be payable in any combination of cash, shares of the Company's
Common Stock or a secured promissory note, all on the terms described in the
preceding paragraph. Each senior management purchaser was granted a restricted
stock award covering a number of shares equal to the number of shares purchased
by such purchase. The restricted stock was to be issued based upon attainment of
increase in shareholder value in accordance with the Incentive Plan. Pursuant to
Amendments to each of the Purchase Agreements, dated February 28, 1997 (the
"Amendments"), the Company was relieved of its obligation to issue any
Restricted Shares. Instead, each participant received, as of December 22, 1996,
options to purchase that number of shares of Common Stock (the "Option Shares")
equal to the number of Purchased Shares purchased by such participant. The
options vested as to 20% of the Option Shares covered thereby as of December 22,
1996 and the balance of the shares covered thereby began vesting December 31,
1996 in equal monthly installments over a four-year period during the term of
employment or consultancy. The unvested portion became vested on August 19, 1998
when the average closing price of the Common Stock was at least $5.00 for 90
consecutive trading days. In April 1999, the Board of Directors of the Company
approved a conditional release program (the "Release Program") whereby the
Company agreed to forgive the indebtedness of the senior management holders of
the Purchased Shares, of a total principal sum of $2,376,750 of indebtedness,
together with interest, owing by the Releasees under the Notes. Under the
Release Program, the Company agreed to forgive a certain portion of the total
indebtedness of each Releasee under their respective Notes on each of May 1,
1999, and January 1 of 2000, 2001, 2002 and 2003. Concurrently with the
forgiveness of each portion of indebtedness, the Company agreed to release a
proportionate number of the Purchased Shares held by the Company as security for
the indebtedness. The forgiveness of the indebtedness is conditioned upon each
Releasee's continued employment with the Company. If the Releasee ceases to be
an employee of the Company at any time prior to the full forgiveness of that
Releasee's indebtedness, then all of the remaining indebtedness owing by that
Releasee that has not yet been forgiven will be due and payable in accordance
with the terms of that Releasee's Note.
F-14
In Fiscal 1997, certain executives' option agreements were canceled and repriced
as follows (the market price on the date of grant was either above or equal to
the option price on the date of grant):
Pursuant to his amended employment agreement, 225,000, 112,500 and 112,500
shares of the Company's common stock are subject to options which were granted
to Ira B. Lampert, Chairman and Chief Executive Officer, at an exercise price of
$2.00, $2.50 and $3.00 per share, respectively.
Pursuant to terms of his employment agreement, 22,500, 11,250 and 11,250 shares
of the Company's common stock are subject to options which were granted to Brian
F. King, Vice President Corporate & Strategic Development, at an exercise price
of $2.00, $2.50 and $3.00 per share, respectively.
As of July 3, 1999, a total of 2,760,835 shares of Common Stock have been
reserved for issuance. At the Board of Directors meeting of August 23, 1995, a
Management Incentive Compensation Program was approved for the 1995 Fiscal Year
and for subsequent periods. The Plan was enacted in order to foster increased
efforts by senior executives on behalf of the Company by giving them a direct
financial interest in the Company's performance and to encourage key employees
to remain with the Company as well as to provide an incentive in the recruitment
of senior management. The incentive pool is to be earned if the Company achieves
certain return on equity goals. The goals are reviewable each year by the Board
and may be amended. If the goals are achieved, an Inventive Fund is to be
established of up to 10% of earnings after taxes and any unawarded portion of an
Incentive Fund from previous years. Included in General and Administrative
expenses in Fiscal 1999 is an accrual of $911,254 allocated to the Incentive
Fund for Fiscal 1999 incentive compensation payments. An accrual of $703,526 was
made in Fiscal 1998; no accrual was made in Fiscal 1997.
The Company accounts for its stock option plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations, under which no compensation
cost for stock options is recognized for stock option awards granted at or above
fair market value. On October 22, 1998, the Board of Directors approved the
extension of the expiration date of certain option grants to non-employee
directors to January 31, 2004. Compensation expense recognized by the Company
related to this modification amounted to $182,767 for the year ended July 3,
1999.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock Issued to Employees", and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option-pricing model with
the following weighted average assumptions for the three years ended July 3,
1999:
Expected dividend yield 0% for all three periods. Expected life of the
options within a range of 5 to 7.5 years. Risk free interest rates
within a range of 4.6% to 6.2% and a volatility factor of the Company's
common stock of .716, .747 and .612 for Fiscal 1999, 1998 and 1997,
respectively.
The Black-Scholes option valuation model was developed for us in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, the management's option,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The Company
has determined the weighted average fair value per share of options
granted during Fiscal 1999, 1998 and 1997 to be $3.10, $3.80 and $1.39,
respectively.
F-15
For the purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options vesting period. The
Company's pro forma information is as follows:
1999 1998 1997
---------- ---------- -----------
Pro forma net income (loss) $7,328,297 $5,593,640 ($1,224,154)
========== ========== ===========
Pro forma basic net income (loss) per share $.67 $.51 ($.11)
========== ========== ===========
Pro forma diluted net income per share $.63 $.48 ($.11)
========== ========== ===========
NOTE 8 -- INCOME TAXES:
For financial reporting purposes, pre-tax income (loss) consists of the
following:
July 3, June 30, June 30,
1999 1998 1997
------- ------ ------
(in 000's)
United States $(1,470) $1,401 $532
Foreign 10,072 5,116 (1,248)
------- ------ ------
$ 8,602 $6,517 $ (716)
======= ====== ======
The provision for income taxes, principally related to foreign operations, is
comprised of the following:
July 3, June 30, June 30,
1999 1998 1997
-------- -------- --------
Current $733,656 $386,871 ($ 12,479)
Deferred 159,531 116,677 129,603
-------- -------- --------
$893,187 $503,548 $117,124
======== ======== ========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's net
deferred tax liability as of July 3, 1999 are as follows:
F-16
Deferred Tax Liabilities:
Domestic
Federal State Foreign Total
--------- ------- ------- ---------
Difference between book and tax
basis of property $ -- $ -- $ 820,302 $ 820,302
Other deferred liabilities -- -- 28,398 28,398
---------- -------- --------- ----------
Total deferred liabilities $ -- $ -- $ 848,700 $ 848,700
Deferred Tax Assets:
Operating loss carryforwards $3,699,694 $ 74,124 $ -- $3,773,818
Reserves not currently deductible 147,715 25,807 -- 173,522
Difference between book and tax
basis of foreign subsidiaries 979,096 32,085 -- 1,011,181
Depreciation 143,096 15,055 -- 158,151
Compensation accruals 448,089 78,284 -- 526,372
Foreign taxes (1,475) (258) -- (1,733)
Difference between book and tax
basis of property 95,092 16,613 -- 111,705
Tax credits 45,369 -- -- 45,369
Contributions Carryover 28,376 6,467 -- 34,843
Other deferred tax assets 162,525 28,394 -- 190,919
---------- -------- --------- ----------
Total deferred tax assets 5,747,577 276,571 - 6,024,148
Valuation allowance (5,747,577) (276,571) - (6,024,148)
---------- -------- --------- ----------
Net deferred tax liability $ -- $ -- $ 848,700 $ 848,700
========== ======== ========= ==========
F-17
The tax effects of significant items comprising the Company's net deferred tax
liability as of June 30, 1998 are as follows:
Domestic Foreign Total
---------- -------- ----------
Difference between book and tax basis of property $ -- $661,607 $ 661,607
Other deferred liabilities -- 27,562 27,562
---------- -------- ----------
Total deferred tax liabilities $ -- $689,169 $ 689,169
========== ======== ==========
Deferred Tax Assets:
Operating loss carryforwards $4,763,345 -- $4,763,345
Reserves not currently deductible 312,407 -- 312,407
Difference between book and tax basis for foreign 345,436 -- 345,436
subsidiaries
Difference between book and tax basis of property 117,222 -- 117,222
Tax credits 45,369 -- 45,369
Contributions carryover 33,907 -- 33,907
Other deferred tax assets 129,068 -- 129,068
---------- -------- ----------
Total deferred tax assets 5,746,754 -- 5,746,754
Valuation allowance (5,746,754) -- (5,746,754)
---------- -------- ----------
Total deferred tax assets after valuation allowance $ -- $ -- $ --
---------- -------- ----------
Net deferred tax liability $ -- $689,169 $ 689,169
========== ======== ==========
In May 1992, the Hong Kong Inland Revenue Department notified Concord HK that
its annual tax rate commencing July 1, 1992 will be 8.75%. The Company currently
does not pay taxes or import/export duties in the PRC, but there can be no
assurance that the Company will not be required to pay such taxes or duties in
the future. Hong Kong is taxed separately from the PRC.
The Company has never paid any income or turnover tax to the PRC on account of
its business activities in the PRC. Existing PRC statutes can be construed as
providing for a minimum of 10% to 15% income tax and a 3% turnover tax on the
Company's business activities; however, the PRC has never attempted to enforce
those statutes. The Company has been advised that the PRC's State Tax Bureau is
reviewing the applicability of those statutes to processing activities of the
type engaged in by the Company, but it has not yet announced any final decisions
as to the taxability of those activities. After consultation with its tax
advisors, the Company does not believe that any tax exposure it may have on
account of its operations in the PRC will be material to its financial
condition.
The Company does not provide U.S. federal income taxes on undistributed earnings
of its foreign subsidiaries as it intends to permanently reinvest such earnings.
Undistributed earnings of its foreign subsidiaries approximated $27.4 million as
of July 3, 1999. It is not practicable to estimate the amount of tax that might
be payable on the eventual remittance of such earnings. Upon eventual
remittance, no withholding taxes will be payable. As of July 3, 1999, Concord
had net operating loss carryforwards for U.S. tax purposes of approximately
$12,262,000, which expire as follows: $5,700,000 in 2008, $2,770,000 in 2009,
$3,481,000 in 2010, and $311,000 in 2011. Losses for state tax purposes began to
expire in 1997.
The realization of the deferred tax assets relate directly to the Company's
ability to generate taxable income for U.S. federal and state tax purposes.
Management is not able to conclude that realization of these deferred tax assets
is more likely than not as a result of the Company's earnings history.
Reductions to the valuation allowance will be recorded when, in the opinion of
management, the Company's ability to generate taxable income is more certain.
F-18
A reconciliation of income tax expense computed at the statutory U.S. federal
rate to the actual provision for income taxes is as follows:
July 3, June 30, June 30,
1999 1998 1997
---------- ---------- ---------
Computed tax (benefits) at statutory U.S. federal tax rates $2,614,886 $2,215,776 ($243,283)
Utilization of operating loss carryforward -- (476,180) (217,592)
Earnings of foreign subsidiaries subject to a different tax rate (2,894,376) (1,754,284) (306,705)
Refund of prior years' income taxes paid by foreign subsidiary -- (58,733) --
U.S. federal minimum tax -- 68,798 --
Losses producing no current tax benefit 1,059,900 554,473 834,171
State income tax, net of federal benefit 30,000 -- --
Other 82,777 (46,302) 50,532
---------- ---------- ---------
$ 893,187 $ 503,548 $ 117,123
========== ========== =========
NOTE 9 -- PRODUCT DEVELOPMENT:
The Company's products are created, designed and engineered principally by its
own engineers in Hong Kong. The Company expended approximately $4,815,000,
$3,963,000, and $3,130,000 during the years ended July 3, 1999, June 30, 1998
and 1997, respectively, for product design and development associated mostly
with the new Advanced Photo System single-use and traditional cameras,
single-use instant and instant manual cameras, as well as new 35mm single-use
cameras.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
United States Offices and Warehouses
The Company's principal offices are located in a 10,100 square foot facility,
including a 2,900 square foot design center at 4000 Hollywood Blvd., Hollywood,
Florida. The Company's domestic warehouse is located in a 13,700 square foot
facility in Fort Lauderdale, Florida. The Company's leases for these facilities
provide for rent of approximately $13,300 and $6,900 per month, respectively,
with annual increases of 4% and 3% respectively, and expire January 4, 2009.
Hong Kong
The Company owns one floor and leases four floors constituting approximately
33,000 square feet of warehouse and business space at Fortei Building, 98 Texaco
Road, Tsuen Wan, New Territories, Hong Kong at a cost of approximately $22,300
per month including rent and maintenance.
PRC-Operations
Cameras and components are manufactured and assembled at the Company-owned
manufacturing facilities located in Baoan County, Shenzhen Municipal, PRC (the
"Company Facility"). The Company leases three employee dormitories and a canteen
(the "Dormitories") at a cost of approximately $21,800 per month. The aggregate
square footage of the Company Facility and the Dormitories is in excess of
600,000 square feet.
F-19
In Fiscal 1996, the Company completed construction of an additional factory
building and in Fiscal 1997 completed the conversion of a Company-owned
dormitory to office, administrative space, engineering facilities, factory space
for pilot runs and living quarters for foreign employees on the same plot of
land as the current Company facility (the "Addition") to accommodate increased
production and to facilitate the consolidation of the leased facilities into the
Company Facility. The Company also completed certain improvements to the new
leased dormitory in Fiscal 1996. Additionally, in 1999 the Company has expanded
the aggregate size of the PRC manufacturing and related dormitory facilities. In
connection with these construction activities in China, the Company incurred
costs of approximately $4,092,000. Such cost will be amortized over the expected
useful life of the Addition. If production requirements continue to increase,
the Company may be required to provide for an additional dormitory.
Other Jurisdictions
The Company leases warehouse and/or office space in France, Canada, Germany and
the UK in connection with the activities of its subsidiaries in those
jurisdictions.
The Company also leases various fixed assets which have been classified as
capital leases. The initial terms of such capital leases range from three to
five years and expire at various times through 2003. Monthly payments on those
leases range from approximately $300 to $50,000.
The following is a summary of assets under capitalized leases:
July 3, June 30,
1999 1998
----------- ----------
Assets under capitalized leases $11,619,227 $7,137,845
Less: accumulated amortization (5,248,246) (4,150,077)
----------- ----------
$ 6,370,981 $2,987,768
=========== ==========
Future minimum rental payments are as follows:
Operating Leases Capital Leases
Fiscal Year:
2000 $1,435,491 $2,433,558
2001 879,947 1,670,263
2002 677,797 1,044,482
2003 495,480 144,157
2004 442,206 --
Thereafter 2,054,994 --
---------- ----------
Total minimum payments $5,985,915 5,292,460
----------
Less: amount representing interest (594,447)
----------
Present value of net minimum lease payments $4,698,013
==========
The effective interest rates on capital leases range from approximately 12% to
14%. Rental expense for operating leases of approximately $1,336,000, $998,000
and $986,000 was incurred for years ended July 3, 1999, and June 30, 1998 and
1997, respectively.
F-20
The Company has an employment agreement with its Chief Executive Officer. The
agreement is for a period of four years and provides for the term of employment
to be automatically extended for one additional day for each day of the term of
employment that elapses. Under the terms of such employment arrangements, the
Company is committed to pay an annual salary of approximately $574,000 for the
fiscal years ending July 1, 2000 and June 30, 2001. The agreement also provides
for other incentives which are based on the operating performance of the
Company.
The Company has License and Royalty Agreements which require the payment of
royalties based on the manufacture and/or sale of certain products which expire
at various dates through Fiscal 2008.
NOTE 11 -- LITIGATION AND SETTLEMENTS
Jack C. Benun. On November 18, 1994, the Company filed a demand for arbitration
in New Jersey for money damages in excess of $1.5 million against Jack C. Benun
("Benun"), its former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company including the misappropriation of funds from the Company. Benun has
submitted a counterclaim in which he alleges wrongful termination of his
employment and denial of benefits by the Company. The Company is vigorously
pursuing its action as well as defending the counterclaim. On August 24, 1999,
the arbitrator upheld the propriety of Concord's termination for cause of Benun.
The arbitrator found that Benun perpetrated a fraud on the Company by diverting
and embezzling company monies. The Company will now pursue its further damage
claims against Benun related to the fraud and embezzlement.
Fuji. On December 30, 1997, the Company commenced in the United States District
Court of the Southern District of New York (the "Court") an action against Fuji
seeking to enforce the terms of a Settlement Agreement between the Company and
Fuji (the "Settlement Agreement") and to restrain Fuji from terminating the
Settlement Agreement. Under the terms of the Settlement Agreement, the Company
has been granted a worldwide (subject to certain geographic limitations),
non-exclusive license to use certain Fuji technology in connection with the
manufacture and sale of single-use cameras. On January 9, 1998, the Court
granted the Company's request for an order restraining Fuji from terminating the
Settlement Agreement. Pending a final judicial determination of the dispute, the
restraining order will continue in effect as long as the Company refrains from
making any further shipments pursuant to the purchase order which gave rise to
the dispute. The parties are presently engaged in the conception of discovery
and motion practice.
Kubbany. The Company and its subsidiary have been sued in Panama before the
First Tribunal of Labor of the City of Colon, alleging breach of various
employment-related obligations of Joseph Kubbany, a former executive of Concord
Camera (Panama), Inc. A counterclaim against Kubbany has been filed on behalf of
Concord Camera (Panama), Inc. alleging a breach of his employment obligations by
taking unauthorized travel advances. Evidentiary hearing dates have been
concluded. Certain additional submissions and document review are taking place.
Under Panamanian law, certain claims of the employer exceeding the forgoing
amounts were not appropriate for presentation in the Employment Tribunal;
therefore, the Company has filed a civil action against Joseph Kubbany alleging
various breaches of his obligations as the Manger for Concord. (Panama), Inc.
and for losses incurred because of excess inventory and the sale of film and for
restitution of the costs of airplane tickets for his wife paid with Company
funds. The Company has named as a party to the litigation, Dynamic World
Trading, inc. This case is on going.
The Company is involved from time to time in routine legal matters incidental
to its business. In the opinion of the Company's management, the resolution of
such matters, including those described above, will not have a material effect
on its financial position or results of operations.
F-21
NOTE 12 - GEOGRAPHIC AREA INFORMATION:
Set forth below is a summary of selected financial information regarding the
Company's geographic operations (in 000's):
Year Ended
July 3, June 30, June 30,
1999 1998 1997
-------- -------- -------
Sales made to unaffiliated customers:
United States $4,739 $4,923 $6,245
Canada 3,528 3,957 4,746
Central America 122 575 639
Hong Kong/People's Republic of China 100,856 85,896 46,249
Federal Republic of Germany 1,240 948 1,915
United Kingdom 3,977 3,923 3,764
France 3,485 2,441 2,189
-------- -------- -------
$117,947 $102,663 $65,747
======== ======== =======
Sales to unaffiliated customers exclude intercompany sales (in 000's) of
approximately $12,474, $11,548 and $12,877 for Fiscal Years 1999, 1998 and
1997, respectively. The basis of accounting for intercompany sales is cost plus
a manufacturing profit.
Year Ended
July 3, June 30, June 30,
1999 1998 1997
------ ------ ------
Income (loss) before income taxes:
United States $ (244) $2,005 $ 740
Canada 228 (540) (208)
Central America (16) (64) (403)
Hong Kong/People's Republic of China 4,722 6,747 1,205
Federal Republic of Germany (113) (777) (785)
United Kingdom (29) (817) (1,083)
France (3) (37) (182)
------ ------ ------
$4,545 $6,517 ($ 716)
====== ====== ======
July 3, June 30, June 30,
1999 1998 1997
------- ------- -------
Identifiable assets:
United States $23,831 $10,056 $ 6,209
Canada 909 1,608 1,357
Central America 240 254 280
Hong Kong/People's Republic of China 66,351 54,810 39,210
Federal Republic of Germany 577 720 1,537
United Kingdom 2,482 3,373 3,245
France 2,130 1,261 1,250
------- ------- -------
$96,520 $72,082 $53,088
======= ======= =======
F-22
NOTE 13 -- RELATED PARTY TRANSACTIONS:
During the first quarter of Fiscal 1995, the Company entered into an agreement
with a member of the Board to provide sales and marketing consulting services.
Selling expenses include $49,000, $56,000 and $48,000 for such consulting
services and related expenses during the fiscal years ended July 3, 1999 and
June 30, 1998 and 1997, respectively.
NOTE 14 -- OTHER (INCOME) EXPENSES -- NET:
July 3, June 30, June 30,
1999 1998 1997
---------- -------- --------
Other interest (income) ($1,099,000) ($433,000) ($403,000)
Other expense, net 69,000 151,000 55,000
Directors' fees 157,000 136,000 133,000
Foreign exchange (gain) loss, net 432,000 (371,000) 92,000
---------- -------- --------
($441,000) ($517,000) ($123,000)
========== ======== ========
F-23
Schedule II
CONCORD CAMERA CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Additions
Charged to Charged to
Balance at costs and other Balance at end of
Description beginning of period expenses accounts Deductions period
----------- ------------------- ---------- ---------- ---------- -----------------
Reserve for doubtful accounts, discounts and allowances
Fiscal Year:
1997 $1,393,585 $2,868,438 -- $3,259,550 $1,002,473
1998 1,002,473 3,095,265 -- 3,534,615 563,123
1999 563,123 2,760,957 -- 2,924,375 399,705
Inventory reserves and provisions
Fiscal Year:
1997 3,232,105 644,192 -- 2,103,522 1,772,775
1998 1,772,775 583,888 -- 701,688 1,654,975
1999 1,654,975 1,444,551 -- 1,724,150 1,375,376
F-24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONCORD CAMERA CORP.
By: /s/ Ira B. Lampert
-----------------------------------
Name: Ira B. Lampert
Title: Chairman, Chief Executive Officer
and Director
By: /s/ Harlan I. Press
-----------------------------------
Name: Harlan I. Press
Title: Corporate Controller and
Assistant Secretary
By: /s/ Eli Arenberg
-----------------------------------
Name: Eli Arenberg
Title: Director
By: /s/ Joel L. Gold
-----------------------------------
Name: Joel L. Gold
Title: Director
By: /s/ Morris H. Gindi
-----------------------------------
Name: Morris H. Gindi
Title: Director
By: /s/ J. David Hakman
-----------------------------------
Name: J. David Hakman
Title: Director
By: /s/ Kent M. Klineman
-----------------------------------
Name: Kent M. Klineman
Title: Director