U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No.: 1-7948
AIC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2192898
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 East 57th Street, Room 21-H, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 838-3220
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.10 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. Yes [ ] No [x]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The total revenue of the Company for fiscal 1998 was $13,478,000.
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Company is unavailable.
Indicate the number of shares outstanding of each of the registrant's
classes of common equity, as of the latest practicable date:
Class of Number of
Common Equity Shares
------------- ---------
Common Stock 4,207,379
par value $.10
<PAGE>
PART I
Item 1. Business
The Company
AIC International, Inc., and its subsidiaries (collectively the "Company")
are engaged in the importation, merchandising and wholesale distribution of high
quality photographic equipment. Currently, the Company's operations are
conducted exclusively in Germany, through Soligor GmbH, Foto Optik Video
Elektronik (f/k/a A.I.C. Fototechnik GmbH), a wholly-owned German subsidiary of
the Company's wholly owned subsidiary, Allied Impex Corporation, a New York
corporation. The Company does not presently conduct any business activities
other than Soligor GmbH.
Historically, the Company's primary business has been the sale of lenses
for 35mm single lens reflex (SLR) camera, which has declined due to the
popularity of auto focus cameras and compact cameras. In fiscal 1998, the sales
of interchangeable lenses for SLR cameras were at approximately the same level
as for fiscal 1997, despite the stagnancy of the German domestic market. This
situation is expected to continue into fiscal 1999, with the rising popularity
of more advanced new models of cameras equipped with zoom lenses.
Since 1989, the Company's domestic activities were comprised of maintaining
a small administrative office with a minimal staff. The Company has no present
plans to expand its business activities in the U.S.; however, Soligor GmbH
continues to remain active in the photographic industry. U.S. operating expenses
are funded through dividends from Soligor GmbH.
Products
The Company, through Soligor GmbH, markets Soligor photographic lenses,
autofocus (shutter) cameras, electronic flash equipment and accessories in
Germany and other European countries on an exclusive distributorship basis, a
common practice in the industry. Most of the Company's photographic equipment is
intended for sophisticated amateur users, as well as professional photographers.
Equipment sold by the Company is manufactured exclusively for the Company by
various manufacturers in Japan, Hong Kong, Taiwan, Korea, and China. All Soligor
lenses, as well as the other equipment, are warranted by the Company. The
periods of such warranties vary from one to five years depending on the type of
equipment.
The Company has been marketing and distributing Soligor brand lenses,
exposure meters and accessories since 1956. Accessories available under the
Soligor name include tripods, electronic flash units, camera bags, binoculars
and optical devices. Soligor sales represented approximately 84.6% of the
Company's overall consolidated sales for the fiscal year 1998 and 85% for fiscal
year 1997. The Company owns the Soligor trademark and has registered it in many
countries around the world.
Since 1972, Soligor GmbH has been the exclusive distributor in Germany for
Elmo products, formerly a manufacturer of film cameras and projectors, who now
produces AV equipment and CCD surveillance cameras in Japan. Elmo sales
represented 14.6% and 14.9%, respectively, of the Company's overall consolidated
sales for the fiscal years ended 1998 and 1997.
<PAGE>
In 1986, the Company began purchasing flashes and winders for cameras to be
marketed by the Company and Soligor GmbH under the name of Soligor from Maxwell
Electronics, Ltd. ("Maxwell"), a Hong Kong corporation all of whose shares are
owned by Daniel C.K. Yu, Chairman of the Board, principal shareholder and
chairman of the Company. Mr. Yu is also the sole shareholder of AIC Investment
Ltd., a Hong Kong corporation which owns 77.6% of the Company's Common Stock.
For fiscal years 1998 and 1997, sales of Maxwell products represented
approximately 3% and 3.4%, respectively, of consolidated net sales of Soligor
products. In the period from 1986 to March 1989, Maxwell extended financing to
the Company and, as of February 28, 1998, was owed an aggregate of $1,468,620 by
the Company, including accrued interest of $795,346. See Note 8 to Financial
Statements.
Distribution and Repair Operation
The Company distributes its merchandise by utilizing its warehouse located
in Leinfelden-Echterdingen near Stuttgart, Germany. Warranty repairs and service
operations for the U.S. are now being performed on behalf of the Company by a
third party repairer. Customers are billed for repairs made after expiration of
the applicable warranty period. The Company had liability for product warranties
for fiscal 1998 and 1997 of $83,000 and $96,000, respectively.
Foreign Operations & Competitive Conditions:
In spite of the economic upturn in Western Europe during 1997, due to
rising unemployment and an increase in German taxes and social security fees,
consumer spending in Germany, especially during the 1997 Christmas season,
decreased. As a result, the Company expects most of the photographic industry,
especially technical consumer products, to suffer. Technical consumer products
under the Soligor name include optical goods, photographic equipment, and video
and surveillance equipment, which are manufactured in Japan, Korea, China and
Taiwan, and distributed by Soligor GmbH worldwide. Despite the downturn in the
technical consumer area, the Company's German subsidiary, Soligor GmbH, had
revenues in fiscal 1998 of approximately DM24.1 million compared to the prior
year's DM24.2 million. The Company's export turnover increased 11.4% from the
previous year, with the largest share of export business coming from the
European Common Market and Eastern European states. However, the German domestic
market sales decreased by 6.3% from the previous year to DM15 million. Sales in
the German domestic market represent 62.8% of the Company's total revenue,
compared to the prior year's 66.8%, while exports represent 37.2% of total
revenue compared to the prior year's 33.2%. Due to unexpectedly poor sales in
the 1997 Christmas season, the inventories at the end of fiscal year 1998
increased to DM6.6 million compared to the previous year's DM5.5 million.
Since the Company expects little positive change in the economic and
unemployment situation in Western Europe during the next fiscal year, no
increase in turnover is expected. The economic turmoil in Asia in 1998 is
expected to lead to stronger competition throughout these countries. In
addition, the fluctuation in exchange rates will likely influence competition.
Under the current circumstances, the Company believes that the ability of the
market to absorb additional quantities of products is limited, which will likely
result in falling sales prices and turnover. Furthermore, the trend of the
photographic industry appears to be moving away from specialty stores with a
wide range of photographic products and professional services to large sundries
markets with limited product ranges and no expert services. To address this
trend, Soligor GmbH plans to stimulate sales by enlarging its assortment of
optical and surveillance equipment items as well as digital cameras.
<PAGE>
Material Licenses
The Company has an exclusive distribution agreement with Elmo Co. Ltd. (for
an unstated period of time) for the distribution of Elmo AV equipment and CCD
surveillance cameras in Germany.
Employees
As of February 28, 1998, the Company employed one person in the United
States and Soligor GmbH employed 40 persons in Germany.
Item 2. Properties
The Company's executive office is located at 117 East 57th Street, Suite
21H, New York, New York 10022, in a condominium owned by the Chairman of the
Board and principal shareholder of the Company and is occupied on a month to
month basis pursuant to which the Company pays building maintenance fees and
property taxes. In August 1997, the Company's German subsidiary, Soligor GmbH,
purchased the office building located at Schulze-Delitzsch Str. 7, D-70711,
Leinfelder, Echterdingen, Germany, for DM 1,628,000.
Item 3. Legal Proceedings
The inquiry by the New York State Tax Department regarding taxes in
connection with fiscal years 1980 through 1982, which arose in connection with
the Company's payment of deficiencies assessed by the Internal Revenue Service
in February 1995, is still pending.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock, par value $.10 per share (the "Common Stock"),
was traded on the American Stock Exchange (APH) until March 9, 1985 at which
time it was delisted. To the best of the Company's knowledge, there is no active
trading market in the Common Stock. Accordingly, the Company is unable to obtain
price information for the Common Stock.
The number of recordholders of the Common Stock as of November 14, 1998 is
916.
No cash or stock dividends were paid during fiscal 1997 and 1998. The
future payment by the Company of dividends, if any, is discretionary with the
Board of Directors and will depend upon the Company's earnings, capital
requirements and financial condition, as well as other relevant factors. The
Company is not contractually restricted in its ability to pay dividends.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended
Feb. 28 Feb. 28 Feb. 29 Feb. 28 Feb. 28
1998 1997 1996 1995 1994
(000s omitted except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net Sales $13,478 $15,523 $14,274 $10,703 $9,916
Net Income (Loss) 116 67 (36) (592) (125)
Average Number of
Outstanding Shares 4,207 4,207 4,207 4,207 4,207
Net Gain (Loss) Per Share of
Common Stock .03 .02 (.01) (.14) (.03)
Cash Dividends None None None None None
Balance Sheet Data
- --------- --------
Total Assets 6,821 5,408 5,735 6,377 6,312
Working Capital 1,284 1,611 2,040 2,121 2,181
Long Term Obligations 690 -- 127 133 105
Stockholders' Equity 1,506 1,613 1,993 2,073 2,147
</TABLE>
<PAGE>
Financial Condition of Discontinued Operations
Maintaining the Company's presence in New York, which has been reduced to
minimal operations, is funded by dividends generated from the Company's German
subsidiary. The Company has no intention to operate sales other than of the
German subsidiary, which has managed worldwide sales successfully in the past
years.
Results of Operations
Due to the weakened spending power of consumers in Germany, the Company's
net sales decreased in fiscal 1998 by $2,045,434 to $13,477,823 from $15,523,257
in the prior year. As adjusted for the fluctuating exchange rate of the U.S.
Dollar and the German Deutsche Mark, the sales for fiscal 1998 actually
decreased by DM55,360 to DM24,145,725 from DM24,201,085 in the prior year.
Cost of Sales
As a percentage of sales, the Company's cost of sales decreased to 67.1% in
fiscal 1998 from 69.1% in 1997. The main reason for the decrease was the
fluctuation of exchange rate of the Deutsche Mark and Asian currencies.
Operating Expenses
The Company's total selling, general and administrative expenses decreased
to $3,175,000 from $3,701,000 the previous year, as a result of decreased
Soligor GmbH operating expenses and fluctuating of exchange rates.
In fiscal 1998, operating expenses of Soligor GmbH decreased by DM154,800
(approximately U.S. $88,000) compared to the prior year.
The Company incurred expenses of $110,000 in fiscal 1998 and $112,000 in
fiscal 1997 in connection with maintaining a New York office.
Taxes on Income
Taxes on income for fiscal 1998 were $411,000 and consist principally of
foreign income tax.
The Company and its domestic subsidiaries have net operating loss
carryforwards of approximately $5,056,000 which is available to offset future
domestic income through 2012. The deferred tax assets resulting from possible
utilization of the net operating loss carryforwards have been offset by a
valuation reserve of the same amount because of uncertainty of future
realization.
Summary
In fiscal 1998, due to a stronger Deutsche Mark as compared to the Japanese
yen and other Asian currencies, lower purchasing costs of products resulted in a
net income of $116,000 compared to $67,000 in the prior year.
<PAGE>
Liquidity
The Company's working capital at February 28, 1998 was $1,284,000 and was
$1,611,000 at February 28, 1997. The ratio of current assets to current
liabilities was 1.28 to 1 at February 28, 1998, and 1.44 to 1 at February 28,
1997.
Net cash provided by operating activities was $498,000 in fiscal 1998
compared to net cash provided by operating activities of $736,000 in fiscal
1997. There will be no commitment of capital expenditures in fiscal 1999.
Net cash for capital expenditures in fiscal 1998 was $948,000 compared to
$60,000 in fiscal 1997.
Net borrowings of $1,061,000 from banks in fiscal 1998 compared to net cash
repayments to banks of $247,000 in fiscal 1997. The Company believes its cash
flow, working capital, internally generated funds and the funds available under
its line of credit is sufficient to meet its current working capital needs.
As of February 28, 1998, the Company had access to several lines of credit
which aggregate to approximately DM7,500,000 ($4,314,000). The credit lines are
also available for discounted notes receivable and for letters of credit. Two
credit lines of DM2,500,000 ($1,378,000) each are collateralized by inventory
and accounts receivable, respectively of the German subsidiary.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure statements.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income", establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a restated financial statement that is displayed with the
same prominence as other restated financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", establishes standards for the way that public enterprises report
information about operating segments in interim restated financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for restated financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. The Company's results of
operations and financial position will be unaffected by implementation of these
new standards.
<PAGE>
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), "Employers'
Disclosures about Pensions and Other Postretirement Benefits", which
standardizes the disclosure requirements for pensions and other postretirement
benefits. The adoption of SFAS No. 132 in 1998 is not expected to materially
impact the Company's current disclosures.
Year 2000 Compliance
The Year 2000 ("Y2000") issue exists because many computer systems and
applications use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems may not be able to recognize the year 2000
or may do so incorrectly as the year 1900. This inability to recognize or
properly interpret the year 2000 may result in the incorrect processing of
financial and operational information.
The Company is currently in the process of evaluating its information
technology infrastructure for Y2000 compliance. Based upon its identification
and assessment efforts to date, the Company believes that certain of its
computer equipment and software that it currently uses may require replacement
or modification. In addition, in the ordinary course of replacing computer
equipment and software, the Company is attempting to obtain replacements that it
believes are Y2000 compliant. Utilizing internal resources to identify and
assess needed Y2000 remediation, the Company currently anticipates that its
Y2000 identification, assessment, remediation, and testing efforts will be
timely completed, and that such efforts will be completed prior to any currently
anticipated impact on its computer equipment and software. The Company does not
believe that the cost to modify its information technology infrastructure to be
material to its financial condition or results of operations nor does the
Company anticipate any material disruption of its operations as a result of a
failure by the Company to be compliant. However, there can be no assurance that
there will not be a delay in, or increased costs associated with, the need to
address Y2000 issues.
The Company also relies, directly and indirectly, on other businesses such
as third party service providers, creditors, financial institutions and
governmental entities. The Company may, in the future, be subject to claims
based on Y2000 compliance issues related to products provided by third parties,
modifications to the Company's products made by third parties, or issues arising
from the integration of the Company's products with other products. The Company
has not been involved in any proceeding involving its products or services in
connection with Y2000 compliance, however, there is no assurance that the
Company will not, in the future, be required to defend its products or services
in such proceedings against claims of Y2000 compliance issues, and any resulting
liability of the Company for damages could have a material adverse effect on the
Company's business operating results and financial condition. Even if the
Company's computer systems are not materially adversely affected by the Y2000
issue, the Company's business and operations could be materially adversely
affected by disruptions in the operations of other entities with which the
Company interacts.
Item 7. Financial Statements
This information is contained on Pages F-1 through F-17 hereof.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
Each of the following individuals was a director of the Company as of
February 28, 1998.
<TABLE>
<CAPTION>
Position with the Company Business
Experience During the Past Five
Years and Other Public
Name Age Directorships Director Since
<S> <C> <C>
Daniel C.K. Yu 62 Chairman and Director of the 1986
Company, Managing Director of
Maxwell Electronics, Ltd.
James B. Wong 66 Director and President of the 1987
Company
Stephen P.Y. Chow 70 Director of the Company, Director 1987
of Top-Q-A Development Ltd.,
Top-Q-S Investment Ltd., P.Y. Chow
(Secretaries) Ltd., P.Y. Chow
(Consultants) Ltd. and Kiangsu and
Chekiang Residents (H.K.)
Association
Robert I. Campbell 50 President of Stratheden Investment 1988
Ltd. of Monrovia, Liberia,
Solicitor & Notary Public
qualified in England & Wales, Hong
Kong and Australia
</TABLE>
The term of office of each director will continue until the next annual
meeting of stockholders or until his earlier death, resignation or removal.
The executive officers of the Company as of February 28, 1998, together
with their ages are:
Name Age Office
James B. Wong 66 President
Stephen Lai 44 Secretary, Chief Financial Officer
and Vice President
<PAGE>
Item 10. Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended February 28, 1998, February 28, 1997
and February 29, 1996 to the Company's President. For the fiscal years ended
February 28, 1998, February 28, 1997, and February 29, 1996, no executive
officer received cash compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary
--------------------------- ---- ------
James B. Wong........................... 1998 $36,000
President.............................. 1997 $36,000
1996 $36,000
The Company also pays an annual service fee of DM10,000 to members of the
Advisory Council of Soligor GmbH and a service fee of $3,000 to directors of the
Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 28, 1998
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known to the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each executive officer and director of the Company, and (iii) all
officers and directors of the Company as a group. Except as otherwise indicated
each beneficial owner has sole voting and investment power over such owner's
shares.
<TABLE>
<CAPTION>
Name Shares Percent of Class
---- ------ ----------------
<S> <C> <C>
AIC Investment Ltd., Hong Kong 3,267,361 77.6%
Estate of Rose Silverman, Forest Hills, New 424,851 10.1%
York
All Directors and Officers as a group 01 01
(five persons)
</TABLE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports.
Based solely on the Company's review of the copies of such forms received by it
during the Company's fiscal year ended February 28, 1998, the Company believes
that all filing requirements applicable to the reporting persons were complied
with.
1 Does not include 3,267,361 shares owned by AIC Investment Ltd., Hong Kong
which is indirectly controlled by Daniel C.K. Yu, chairman of the Board and a
Director of the Company.
<PAGE>
Item 12. Certain Relationships and Related Transactions
In 1986, the Company began purchasing flashes and winders for cameras to be
marketed by the Company and Soligor GmbH under the name of Soligor from Maxwell
Electronics, Ltd. ("Maxwell"). Maxwell, a Hong Kong corporation all of whose
shares are owned by Daniel C.K. Yu, Chairman of the Board, principal shareholder
and a Director of the Company. Mr. Yu is also the sole shareholder of AIC
Investment Ltd., a Hong Kong corporation which owns 77.6% of the Company's
Common Stock. For fiscal years 1998 and 1997, sales of Maxwell products
represented approximately 3% and 3.4%, respectively, of consolidated net sales
of Soligor products. In the period from 1986 to March 1989, Maxwell extended
financing to the Company and, as of February 28, 1998, was owed an aggregate of
$1,468,620 by the Company, including accrued interest of $795,346.
Item 13. Exhibits and reports on Form 8-K
(a) EXHIBITS
3(i) Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3(a) to the Company's Registration
Statement No. 2-29168.
3(ii) Certificate of Amendment to Certificate of Incorporation of the Company
incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 1988.
3(iii) By-Laws of the Company, incorporated by reference to Exhibit 3(b) to
the Company's Registration Statement No. 2-29168.
22 Subsidiaries of the Company.
27 Financial Data Schedule
(b)(1) REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AIC INTERNATIONAL, INC.
Registrant
By: /s/Stephen Lai
-----------------------------
Stephen Lai, President
Dated: February 10, 1999
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Daniel C.K. Yu Director and Chairman of the Board February 10, 1999
- ------------------------
Daniel C.K. Yu
/s/Stephen Lai President and Director February 10, 1999
- ------------------------
Stephen Lai
/s/John Chau Vice President, Secretary and Chief February 10, 1999
- ------------------------ Financial Officer
John Chau
/s/ Stephen P.Y. Chow Director February 10, 1999
- ------------------------
Stephen P.Y. Chow
/s/ Robert I. Campbell Director February 10, 1999
- ------------------------
Robert I. Campbell
</TABLE>
<PAGE>
AIC International, Inc.
and Subsidiaries
Consolidated Financial Statements
Years Ended February 28, 1998 and 1997
F-1
<PAGE>
AIC International, Inc.
and Subsidiaries
Contents
Report of independent certified public accountants F-3
Consolidated balance sheets:
February 28, 1998 and 1997 F-4
Consolidated financial statements for the years
ended February 28, 1998 and 1997:
Statements of operations F-5
Statement of stockholders' equity F-6
Statements of cash flows F-7
Summary of accounting policies F-8 - F-10
Notes to consolidated financial statements F-11 - F-17
F-2
<PAGE>
Report of Independent Certified Public Accountants
AIC International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of AIC
International, Inc. and subsidiaries as of February 28, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 financial position of AIC
International, Inc. and its subsidiaries at February 28, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/BDO SEIDMAN LLP
- ---------------------
BDO SEIDMAN LLP
Melville, New York
April 30, 1998
F-3
<PAGE>
AIC International, Inc.
and Subsidiaries
Consolidated Balance Sheets
(000s omitted except per share data)
<TABLE>
<CAPTION>
Year ended February 28, 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current:
Cash $842 $454
Trade receivables, less allowances of $138 and $78 for possible 1,159 1,507
losses (Note 5)
Merchandise inventories (Note 5) 3,655 3,242
Prepaid expenses and other current assets 151 95
- ------------------------------------------------------------------------- --------------------------- ---------------------------
Total current assets 5,807 5,298
Property and equipment, at cost less accumulated depreciation and 996 91
amortization (Note 2)
Other assets 18 18
- ------------------------------------------------------------------------- --------------------------- ---------------------------
$6,821 $5,407
- ------------------------------------------------------------------------- --------------------------- ---------------------------
Liabilities and Stockholders' Equity
Current:
Bank loans and current portion of long-term debt (Note 5) $1,689 $1,318
Accounts payable - trade 153 108
Due to related party (Note 8) 1,490 1,353
Income taxes payable 594 309
Other taxes payable 185 198
Liability for product warranties 83 96
Accrued payrolls, commissions and other liabilities 329 305
- ------------------------------------------------------------------------- --------------------------- ---------------------------
Total current liabilities 4,523 3,687
Long-term debt (Note 5) 690 -
Accrued pension costs (Note 7) 102 107
- ------------------------------------------------------------------------- --------------------------- ---------------------------
Total liabilities 5,315 3,794
- ------------------------------------------------------------------------- --------------------------- ---------------------------
Commitments and Contingencies (Notes 6 and 7)
Stockholders' equity:
Common stock, $.10 par - shares authorized, 10,000,000; issued, 424 424
4,244,879
Additional paid-in capital 6,720 6,720
Deficit (6,132) (6,248)
Accumulated translation adjustment 607 830
Treasury stock, at cost - 37,500 shares (113) (113)
- ------------------------------------------------------------------------- --------------------------- ---------------------------
Total stockholders' equity 1,506 1,613
- ------------------------------------------------------------------------- --------------------------- ---------------------------
$6,821 $5,407
- ------------------------------------------------------------------------- --------------------------- ---------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
AIC International, Inc.
and Subsidiaries
Consolidated Statements of Operations
(000s omitted except per share data)
<TABLE>
<CAPTION>
Year ended February 28, 1998 1997
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Net sales (Note 3) $13,478 $15,523
Cost of sales (Note 8) 9,044 10,720
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Gross profit 4,434 4,803
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Operating expenses:
Selling, general and administrative (Notes 6 and 7) 3,175 3,701
Advertising 572 695
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Total operating expenses 3,747 4,396
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Income from operations 687 407
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Other income (expense):
Interest expense (Note 8) (211) (227)
Net foreign exchange gain 39 70
Other 12 95
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Other income (expense) - net (160) (62)
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Income before income tax expense (Note 3) 527 345
Income tax expense (Note 4) 411 278
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Net income $116 $67
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Net income per share -- basic and diluted $0.03 $0.02
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
Average number of shares used in computation of net income per share 4,207,379 4,207,379
- ----------------------------------------------------------------------- ---------------------------- ----------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
AIC International, Inc.
and Subsidiaries
Consolidated Statements of
Stockholders' Equity
(000s omitted except per share data)
<TABLE>
<CAPTION>
For the two years ended February 28, 1998
- --------------------------------------------------- -------------------------------- ------------------- --------------------- ----
Common Stock
Authorized 10,000
Shares, $.10 Par
----------------------------
Shares Issued Amount Additional Deficit Accumulated Treasury
Paid-in Translation Stock,
Capital Adjustment At Cost
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1996 4,245 $424 $6,720 $(6,315) $1,276 $(113)
Year ended February 28, 1997:
Net income - - - 67 - -
Foreign currency translation adjustment - - - - (446) -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1997 4,245 424 6,720 (6,248) 830 (113)
Year ended February 28, 1998
Net income - - - 116 - -
Foreign currency translation adjustment - - - - (223) -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1998 4,245 $424 $6,720 $(6,132) $607 $(113)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE>
AIC International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows (Note 9)
(000s omitted)
<TABLE>
<CAPTION>
Year ended February 28, 1998 1997
- -------------------------------------------------------------------- ------------------------------- ----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $116 $67
Items in net income not affecting cash:
Depreciation and amortization 43 30
Increase (decrease) in provision for possible losses on (60) -
accounts receivable
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Accounts receivable 408 (27)
Inventories (413) 287
Prepaid expenses and other current assets (56) 79
Accounts payable 45 (2)
Due to related parties 137 97
Income taxes payable 285 226
Other liabilities (7) (21)
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Net cash provided by operating activities 498 736
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Cash flows from investing activities:
Capital expenditures, net of proceeds from sale of equipment (141) (60)
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Cash flows from financing activities:
Borrowings from bank 1,572 -
Repayments to banks (1,318) (247)
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Net cash provided by (used in) financing activities 254 (247)
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Effect of exchange rate changes on cash (223) (446)
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Net increase (decrease) in cash 388 (17)
Cash, at beginning of year 454 471
- -------------------------------------------------------------------- ------------------------------- ----------------------------
Cash, at end of year $842 $454
- -------------------------------------------------------------------- ------------------------------- ----------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
<PAGE>
AIC International, Inc.
and Subsidiaries
Summary of Accounting Policies
(000s omitted except per share data)
Organization and Business
The Company is a 77.6% owned subsidiary of AIC Investments, Ltd. which is a
wholly-owned subsidiary of Maxwell Electronics, Ltd. Its principal business is
the importation, merchandising and wholesale distribution of photographic
equipment. The principal portion of its operations are in Germany.
Consolidation
The consolidated financial statements include the accounts of AIC
International, Inc. and its subsidiaries (all wholly-owned), with the exception
of its immaterial Hong Kong and Japanese subsidiaries.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company engages in the sale of photographic equipment to customers, the majority
of whom are in the retail industry. Concentration of credit risk with respect to
accounts receivable from one industry is limited due to the diverse group of
distributors to whom the Company sells. Also, the Company attempts to minimize
credit risk by reviewing all customers' credit history before extending credit,
and by monitoring customers' credit exposure on a regular basis. The Company
established an allowance for accounts receivable based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
Merchandise Inventory
Inventories, which consist only of finished goods, are valued at the lower
of cost or market. Cost is determined by the first-in, first-out (FIFO) method.
F-8
<PAGE>
Property, Equipment and Depreciation
Depreciation and amortization are computed principally by the straight-line
method over the estimated useful lives of the assets.
Translation of Foreign Currency Financial Statements
Substantially all assets and liabilities of the Company's German subsidiary
are translated at year-end exchange rates, while income and expenses are
translated at average exchange rates for the year. Gains and losses resulting
from translation of foreign currency financial statements are classified as a
separate component of stockholders' equity.
Product Warranties
The Company sells its products with warranties ranging from one to five
years. The estimated cost of repairs under existing warranties has been provided
for in the consolidated financial statements.
Advertising Costs
The Company expenses advertising costs when they are incurred.
Per Share Data
In 1997, the Financial Accounting Standards Board issued Standard No. 128
("SFAS No. 128"), Earnings per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Under the new standard basic earnings per share is computed using the
weighted average number of shares of common stock outstanding, plus the shares
of common stock issued at nominal considerations for all periods presented.
Diluted earnings per share is computed using the basic weighted average shares
of common stock issued plus outstanding stock options. The adoption of SFAS No.
128 had no effect on earnings per share because the Company has no outstanding
stock options.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Accounting for the Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
F-9
<PAGE>
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure statements.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
restated financial statement that is displayed with the same prominence as other
restated financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in interim restated financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for restated financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. The Company's results of
operations and financial position will be unaffected by implementation of these
new standards.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132") Employers'
Disclosures about Pensions and Other Postretirement Benefits, which standardizes
the disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 is not expected to materially impact the
Company's current disclosures.
F-10
<PAGE>
AIC International, Inc.
and Subsidiaries
Notes to Consolidated
Financial Statements
(000s omitted except per share data)
1.Business
Since 1988, the Company's domestic business activities have been
substantially curtailed in order to reduce operating losses and the level of
operating funds needed from the German subsidiary. During 1997 and 1998, the
Company's domestic activities were comprised of maintaining a small
administrative office and a minimum staff.
At present there are no plans to expand the United States operations to
prior levels. As a result, Soligar GmbH, FotoOptikVideoElektronik, Germany
(formerly A.I.C. Fototechnik GmbH) became autonomous, developed its own supplier
relationships and imports merchandise directly. The Germany subsidiary continues
to account for substantially all of the consolidated 1998 and 1997 assets and
revenues. Management plans to continue operating the Company in this manner and
is funding the operating expenses in the United States with dividends from
Germany.
2.Property and Equipment
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
February 28, 1998 1997 Estimated
useful lives
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building $898 $- 50 years
Office furniture and equipment 403 334 4 -10 years
Leasehold improvements - 52 Term of lease
- -----------------------------------------------------------------------------------------
1,301 386
Less accumulated depreciation and (305) (295)
amortization
- -----------------------------------------------------------------------------------------
$996 $91
- -----------------------------------------------------------------------------------------
</TABLE>
The amount shown under leasehold improvements in previous years will now be
shown under office furniture and equipment due to the acquisition of the
building on August 15, 1997.
F-11
<PAGE>
3.Information about the Company's Operations in Different Geographic Areas
The Company operates in one business segment - the importation and
wholesale distribution of photographic equipment. Operations in different
geographic areas are summarized on this page for 1998 and on the following page
for 1997.
<TABLE>
<CAPTION>
1998
- -----------------------------------------------------------------------------------------------
Germany United Adjustments and Consolidated
States Eliminations
- -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Sales to unaffiliated $13,478 $- $- $13,478
customers
- -----------------------------------------------------------------------------------------------
Income before income tax 764 413 650 527
expense
- -----------------------------------------------------------------------------------------------
Identifiable assets:
Current assets 3,206 2,601 - 5,807
Property and equipment 996 - - 996
Investment in - 4,302 (4,302) -
subsidiary
Other assets - 18 - 18
- -----------------------------------------------------------------------------------------------
$4,202 $6,921 $(4,302) $6,821
- -----------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
3.Information about the Company's Operations in Different Geographic Areas
(concluded)
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------------------------
Germany United Adjustments and Consolidated
States Eliminations
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Sales to $15,523 $- $- $15,523
unaffiliated
customers
- ----------------------------------------------------------------------------------------------
Income (loss) before 525 (180) - 345
income tax expense
(recovery)
- ----------------------------------------------------------------------------------------------
Identifiable assets:
Current assets 2,517 2,781 - 5,298
Property and equipment 90 1 - 91
Investment in - 3,096 (3,096) -
subsidiary
Other assets - 18 - 18
- ----------------------------------------------------------------------------------------------
$2,607 $5,896 $(3,096) $5,407
- ----------------------------------------------------------------------------------------------
</TABLE>
4.Income Tax Expense
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Federal $- $-
State 4 4
Foreign 407 274
- -----------------------------------------------------------------------------------------
$411 $278
- -----------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
Reconciliations for the difference between the reported tax expenses and
the amounts computed by using the statutory Federal income tax rate are as
follows:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Federal income tax expense at statutory $179 $117
rate based on pretax income
Domestic losses which did not result in 81 61
tax benefit (net operating loss
carryforwards)
Foreign tax at rates higher than U.S. 147 100
statutory rate
Other 4 -
- ------------------------------------------------------------------------------------------
$411 $278
- ------------------------------------------------------------------------------------------
</TABLE>
The Company and its domestic subsidiaries have net operating loss
carryforwards of approximately $6,056, which is available to offset future
domestic income through 2012. The deferred tax assets resulting from possible
utilization of the net operating loss carryforwards have been offset by a
valuation reserve because of uncertainty of future realization.
F-14
<PAGE>
5.Bank Loans and Long Term Debt
Bank loans payable and long term debt consist of the following at February
28, 1998:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Bank demand loans with an average interest rate of $1,572 $1,318
4.1% for 1998 and 3.04% for 1997
Mortgage with an interest rate of 4.7% per annum on 162 -
land and building with payments due monthly in the
amount of $9 through July 31, 1999
Mortgage with an interest rate of 4.75% per annum on 645 -
land and building with payments semi-annually
starting March 2000 through September 2007, in the
amount of $40
- ------------------------------------------------------------------------------------------
2,379 1,318
Less current portion 1,689 1,318
- ------------------------------------------------------------------------------------------
$690 $-
- ------------------------------------------------------------------------------------------
</TABLE>
Annual maturities of the Company's debt for the next five years and
thereafter are as follows:
1999 $1,689
2000 125
2001 81
2002 81
2003 81
Thereafter 322
- --------------------------------------------------------------------------------
$2,379
- --------------------------------------------------------------------------------
As of February 28, 1998 the Company had access to several lines of credit
which aggregate to approximately DM 7,500 ($4,314). The credit lines are also
available for discounted notes receivable and for letters of credit. Two credit
lines of DM 2,500 ($1,378) each are collateralized by inventory and accounts
receivable, respectively of the German subsidiary.
F-15
<PAGE>
6.Commitments and Contingencies
(a) The Company rents office equipment and motor vehicles under operating
leases. Rent expense for the years ended February 28, 1998 and 1997 totalled $59
and $118, respectively.
Year ending February 28,
- --------------------------------------------------------------------------------
1999 $63
2000 42
2001 22
2002 12
- --------------------------------------------------------------------------------
$139
- --------------------------------------------------------------------------------
(b) The Company's New York State income tax returns for 1980, 1981, and
1982 are presently under examination by the New York State Department of
Taxation. At this time no adjustments have been proposed, and the Company has no
basis for determining the amount of any potential adjustment.
7.Retirement Plan
The Company's unfunded foreign retirement plan provides benefits to the
foreign subsidiary's directors based on length of service and compensation. The
actuarial present value of vested plan benefits at February 28, 1998 and 1997
aggregated approximately $102 and $107, respectively. Plan costs charged to
expense for the years ended February 28, 1998 and 1997, were approximately $16
and $11, respectively. Payments are currently being made to the directors.
F-16
<PAGE>
8.Related Party Transactions
Due to related parties are as follows:
<TABLE>
<CAPTION>
Year ended February 28, 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Due to Maxwell Electronics, Ltd. $1,468 $1,341
Due to other related entities 22 12
- ------------------------------------------------------------------------------------------
$1,490 $1,353
- ------------------------------------------------------------------------------------------
</TABLE>
Due to Maxwell Electronics, Ltd. arose from the purchase of merchandise
before March 1989. Interest on this indebtedness is accrued at the prime rate of
Hong Kong & Shanghai Banking Corp. Accrued interest thereon at February 28, 1998
and 1997 of $796 and $668, respectively, is included in the above Due to Maxwell
Electronics, Ltd. amounts. Purchases from Maxwell Electronics, Ltd. for the
years ended February 28, 1998 and 1997, totalled $171 and $276, respectively.
Interest expenses accrued to Maxwell Electronics, Ltd. for the years ended
February 28, 1998 and 1997, were $128 and $109, respectively.
9.Supplemental Disclosures of Cash Flow Information
(1) Cash paid during the year for:
1998 1997
- --------------------------------------------------------------------------------
Interest $73 $123
- --------------------------------------------------------------------------------
Taxes $- $-
- --------------------------------------------------------------------------------
(2) Non cash transaction
On August 15, 1997, the Company purchased a building and secured mortgages
in the amount of $807.
F-17
1. Allied Impex Corporation, a New York corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000002880
<NAME> AIC INTERNATIONAL, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1998
<CASH> 842,000
<SECURITIES> 0
<RECEIVABLES> 1,297,000
<ALLOWANCES> (138,000)
<INVENTORY> 3,655,000
<CURRENT-ASSETS> 5,807,000
<PP&E> 1,301,000
<DEPRECIATION> 305,000
<TOTAL-ASSETS> 6,821,000
<CURRENT-LIABILITIES> 4,523,000
<BONDS> 0
0
0
<COMMON> 424,488
<OTHER-SE> 1,082,000
<TOTAL-LIABILITY-AND-EQUITY> 6,821,000
<SALES> 13,478,000
<TOTAL-REVENUES> 13,478,000
<CGS> 9,044,000
<TOTAL-COSTS> 9,044,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,000
<INCOME-PRETAX> 527,000
<INCOME-TAX> 411,000
<INCOME-CONTINUING> 116,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
