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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____ to _____
___________
COMMISSION FILE NUMBER: 33-18521-NY
CREATIVE MASTER INTERNATIONAL, INC.
(Name of small business issuer in its charter)
DELAWARE 11-2854355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CASEY IND. BLDG., 8TH FLOOR N/A
18 BEDFORD RD., TAIKOKTSUI (Zip Code)
KOWLOON, HONG KONG
(Address of principal executive offices)
ISSUER'S TELEPHONE NUMBER: 011-852-2396-0147
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001
par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [X] NO [_]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of the
issuer'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. [X]
Issuer's revenues for its most recent fiscal year: $33,633,000
The aggregate market value of the common stock held by non-affiliates of
the registrant as of March 12, 1999 was approximately $10,417,833, based upon
the closing sale price of $5.75 as reported by The Nasdaq National Market on
such date.
There were 4,999,322 shares of the Company's common stock outstanding on
March 12, 1999.
Transitional Small Business Disclosure Format (check one): YES [_] NO [X]
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
MANAGEMENT OF THE COMPANY
The executive officers, directors, and key employee of the Company and
their ages and position as of March 30, 1999 are as follows:
Executive Officers
and Directors(1) Age Position
- ---------------- --- --------
Carl Ka Wing Tong 49 President, Chief Executive Officer and
Chairman of the Board
Leo Sheck Pui Kwok 43 Chief Operating Officer and a Director
John Rempel 43 Chief Financial Officer and Asst. Secretary
Henry Hai-Lin Hu 54 Executive Vice-President--Marketing
Shing Kam Ming 38 Senior Vice-President, Controller, and Secretary
Paul Mo 47 Senior Vice-President--Marketing Services
Denny Cheng 38 Vice-President--Marketing Service, Engineering
Chou Kong Seng 44 Director
Clayton K. Trier 47 Director
Steve Gordon 44 Director
Key Employee
- ------------
Albert Chui 49 Assistant Vice President--Quality Assurance
______________
(1) Each of the executive officers of the Company also serves in various
corresponding capacities with Creative Master Limited, a wholly-owned Hong Kong
subsidiary ("CML") or its subsidiaries.
Carl Ka Wing Tong has been the Chairman, Chief Executive Officer and
President since December 1997. He also served as Secretary from December 1997
to September 1998 and as Chief Financial Officer from September 1998 to November
1998. He also serves as a director of Acma Strategic Holdings Limited. Mr.
Tong co-founded CML in 1986. From 1993 to 1995, he also served as Chief
Financial Officer of ZIC Holdings Limited, the holding company of Zindart
Industrial Co. Ltd., a manufacturer of toys and collectibles. Prior to founding
CML, from 1985 to 1987 Mr. Tong was Vice President of Citibank N.A.'s
Institutional Banking, Specialized Finance Group. In addition, from 1977 to
1985 Mr. Tong was a certified public accountant with Arthur Andersen & Co. in
United Kingdom and Hong Kong, where his last position was Senior Manager, Audit
Division. He is a certified public accountant in Hong Kong and a chartered
accountant in the United Kingdom.
Leo Sheck Pui Kwok has been the Chief Operating Officer and a director of
the Company since December 1997. Mr. Kwok co-founded CML in 1986. Before
founding CML, Mr. Kwok worked for the Hallmark Group in Asia from 1980 to 1987,
where his last position was as the Chief Merchandise Manager.
John Rempel has been Chief Financial Officer of the Company since November
1998 and Assistant Secretary of the Company since February 1999. Prior to
joining the Company, from 1995 to November 1998, Mr. Rempel founded and managed
the consulting division of Infocan Computer (HK) Limited, an information
technology solution provider, specializing in financial and material
requirements planning system design and implementation. Between 1990 and 1995,
Mr. Rempel was the Chief Financial Officer of a division of Lai Sun Group, a
publicly-listed company in Hong Kong. He is a Canadian Chartered Accountant and
a Fellow of the Hong Kong Society of Accountants. Prior to 1981, Mr. Rempel
served with Arthur Andersen & Co. in Canada and Bermuda.
Henry Hai-Lin Hu has been Executive Vice-President--Marketing of the
Company since September 1998. Prior to joining the Company, from 1996 through
1998 Mr. Hu served in executive management positions with various Hong Kong toy
manufacturers. Mr. Hu also served as the Chairman and Chief Executive Officer
of Zindart Industrial Co., Ltd. from 1993 until 1996.
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Shing Kam Ming has been the Senior Vice-President of the Company since
January 1998 and Secretary of the Company since February 1999. He also served
as Chief Financial Officer until September 1998, when he was appointed
Controller. Mr. Shing joined Creative Master Limited in March 1993 as Manager--
Finance and Administration.
Paul Mo has served as the Company's Senior Vice-President--Marketing
Services since August 1996. He also served as Secretary of the Company from
October 1998 to February 1999. Mr. Mo joined the Company as director of
Engineering in November 1994 and helped establish the Company's first Dongguan
factory. Prior to joining the Company, from 1992 to 1994 he was a General
Manager of Sinomex (Hong Kong).
Denny Cheng has served as Vice-President--Marketing Services, Engineering
since November 1996. Before joining the Company, Mr. Cheng served as an
Engineering Manager with Sinomex (Hong Kong), from 1993 to 1996.
Chou Kong Seng has been a director of the Company since December 1997. Mr.
Chou has been the Finance Director of Acma Ltd., a company listed on the
Singapore stock exchange since 1994. He also serves as a director of Acma
Strategic Holdings Limited, a principal stockholder of the Company. Before
joining Acma Ltd., he was a senior manager with KPMG Peat Marwick LLP in
Singapore.
Clayton K. Trier has been a director of the Company since February 1999.
Since 1997, Mr. Trier has been a private investor. Mr. Trier also currently
serves as a director of Pentacon, Inc (NYSE: JIT). From 1993 through 1997, Mr.
Trier served as the Chairman and Chief Executive Officer of U.S. Delivery
Systems, a NYSE-listed local delivery company with offices nationwide. He
founded U.S. Delivery Systems in 1993. U.S. Delivery Systems was acquired by
Corporate Express Inc. in March 1996. From 1987 to 1991, Mr. Trier was co-Chief
Executive Officer and President of Allwaste, Inc., a NYSE-listed company engaged
in waste management. Mr. Trier was a Certified Public Accountant with Arthur
Andersen & Co. in Houston, Texas and Hong Kong from 1974 to 1987, and was a
partner there from 1983 to 1987.
Steve Gordon has been a director of the Company since February 1999. Mr.
Gordon has been a principal of, and performed the functions of chief executive
officer for, TFS Limited, a direct response marketing and fulfillment services
company, since 1995. Before joining TFS Limited, Mr. Gordon served as a
Division Director of MBI, Inc., from 1985 to 1995, where he was responsible for
certain die-cast products.
Albert Chui has served as Assistant Vice-President--Quality Assurance and
Training since 1996. Before joining the Company, Mr. Chui served as a plant
manager with Sunshine Toys Manufacturing Limited from 1995 to 1996. In
addition, Mr. Chui worked as a quality manager with Artin Industries Company
Limited from 1993 to 1994.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
directors, certain officers, and persons who own more than 10% of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the
"Commission"). Officers, directors, and greater than 10% stockholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they file. Because the reporting obligations were not
triggered until December 23, 1998 when the Company completed a public offering
of its common stock, no reports were required to be filed during fiscal year
1998.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned by each person who served as the Company's Chief Executive Officer during
the year ended December 31, 1998 and one other executive officer (together, the
"named executive officers") whose compensation exceeded $100,000 for that year.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards--Securities
Annual Compensation Other Annual Underlying
---------------------------
Name and Principal Position Year Salary Bonus Compensation Options/SARs(#)
- ----------------------------- ---- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Carl Ka Wing Tong 1998 $177,000(1) -- -- 112,500 shares
President and Chief 1997 $115,000(2) -- -- --
Executive Officer 1996 $ 88,000(2) -- -- --
Leo Sheck Pui Kwok 1998 $ 77,000 $27,000 $84,000(3) 82,500 shares
Chief Operating Officer 1997 $ 46,000 $ 4,000 $61,000(3) --
1996 $ 43,200 -- $44,000(3) --
</TABLE>
- ---------------
(1) Represents $116,000 in compensation paid to Acma Strategic Holdings Limited
for consulting services and $61,000 in fees paid to Carl Tong & Associate
Management Consultancy Limited. See "Certain Relationships and Related
Transactions--Tong Consulting Arrangement."
(2) Represents compensation paid to Acma Strategic Holdings Limited for
consulting services. See "Certain Relationships and Related Transactions--Tong
Consulting Arrangement."
(3) Represents a residence allowance.
OPTION GRANTS IN 1998
The following table sets forth information concerning the grant of stock
options during 1998 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Number of Percentage of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price ($/sh) Date
- ---- ------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Carl Ka Wing Tong 112,500(1) 33.04% $5.00 12/23/06
Leo Sheck Pui Kwok 82,500(1) 24.23% $5.00 12/23/06
</TABLE>
________
(1) These options will vest and become exercisable as to 25% of the shares on
the date six months from the date of grant, which was December 23, 1998. The
remaining options will vest and become exercisable monthly pro rata over a 42-
month period.
OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
No options were exercised by the named executive officers.
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options At
Held At Fiscal Year-End(#) Fiscal Year-End ($) (1)
------------------------------ -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Carl Ka Wing Tong 0 112,500 -- $112,500
Leo Sheck Pui Kwok 0 82,500 -- $ 82,500
</TABLE>
- -----------
(1) Based on the difference between the exercise price and the fair market
value (the closing price of $6.00 reported by the Nasdaq National Market on
December 31, 1998)
COMPENSATION OF DIRECTORS
The Company reimburses each director for reasonable expenses incurred in
attending meetings of the Company's board of directors. The Company intends to
pay each non-
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employee director a fee of $1,300 for each meeting attended by such director.
Outside directors who serve on board committees will be paid a fee of $300 for
each committee meeting attended by such director. Directors also will be
eligible to receive grants of options under the Company's 1998 Stock Option
Plan. Concurrent with the Company's public offering on December 23, 1998, the
Company granted to each of Mr. Gordon and Mr. Trier (who were acting as
consultants and who became directors on February 10, 1999) stock options to
purchase 7,500 shares of common stock at an exercise price of $5.00 per share.
EMPLOYMENT AGREEMENTS
The Company was party to a consulting agreement with Acma Strategic Holdings
Limited (which was terminated as of December 23, 1998), which in turn entered
into a consulting agreement with Carl Tong & Associate Management Consultancy
Limited, a company beneficially owned by Carl Ka Wing Tong, pursuant to which
Mr. Tong acts as Managing Director of Acma Strategic Holdings Limited and
performs certain other duties, including acting as the President and Chief
Executive Officer of the company. The terms of these agreements are described
under "Certain Relationships and Related Transactions--Tong Consulting
Arrangement."
The Company also is party to a consulting agreement with Business Plus
Consultants Limited, which is beneficially owned by Henry Hai-Lin Hu, under
which Mr. Hu serves as Executive Vice-President--Marketing of the Company. See
"Certain Relationships and Related Transactions--Hu Consulting Agreement" for a
discussion of the terms of Mr. Hu's agreement.
Consulting arrangements such as the Company's arrangements with Messrs. Tong
and Hu are commonplace in Hong Kong.
In January 1996, the Company entered into a service agreement with Leo Sheck
Pui Kwok pursuant to which he was appointed as an executive officer of the
Company, effective as of February 1, 1996, for a term of three years. The
appointment automatically renews for a one-year term on each anniversary
beginning on February 1, 2000, unless either party provides six months written
notice to terminate the agreement. Mr. Kwok receives a salary of $46,000 per
year and a bonus of up to 2.5% of the Company's net after-tax profits on a
consolidated basis, provided the Company achieves certain net income targets. In
addition, the Company provides Mr. Kwok with a residence allowance.
Other than Mr. Kwok as described above, the Company's executive officers and
key employees are not subject to any noncompetition agreements or other
contractual obligations regarding the confidentiality of this Company's trade
secrets or other information. However, the Company is in the process of
developing service contracts for all of its senior executives which the Company
expects will be executed in the near future and which are expected to include
certain restrictions against the executives' use of confidential information of
the Company.
In January 1997, Creative Master Limited, the Company's wholly owned Hong
Kong subsidiary ("CML"), adopted a defined contribution pension plan which is
available to all of the Company's Hong Kong employees with at least three months
of continuous service. Participating employees may make monthly contributions to
the pension plan of up to 5% of each employee's base salary, with matching
contributions by the Company. The Hong Kong employees (or their beneficiaries)
are entitled to receive their entire contribution and the Company's matching
contributions, with accrued interest thereon, upon retirement or death of the
employee. Upon resignation or termination (other than for serious misconduct),
employees are entitled to receive their entire contributions to the pension
plan, with accrued interest thereon, plus the vested portion of the Company's
matching contributions. A participating employee becomes fully vested with
respect to 30% of the Company's matching contributions to the pension plan after
completing three years of service with the Company and becomes vested with
respect to an additional 10% of the Company's matching contributions for each
year of continuous service thereafter through year ten. CML's subsidiaries,
Excel Master Limited and Carison Engineering Limited, have each adopted
substantially identical pension plans for their employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of Common Stock as
of March 30, 1999 by (i) each person known by the Company to beneficially own 5%
or more of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each of the named executive officers, and (iv) all directors and
executive officers of the Company as a group.
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The information set forth in the table and accompanying footnotes has been
furnished by the named beneficial owners. An asterisk denotes beneficial
ownership of less than 1%.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership Percent
Name and Address (Number of Shares)(1) of Class
- ---------------- --------------------- --------
<S> <C> <C>
Carl Ka Wing Tong(2) 258,147 5.2%
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
Leo Sheck Pui Kwok(3) 564,948 11.3%
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
Chou Kong Seng(4) -- --
c/o Acma Ltd.
17 Jurong Port Road
Singapore 619092
Clayton K. Trier(5) 7,500 *
2100 Chase Tower
600 Travis Street
Houston, Texas 77002
Steve Gordon(5) 7,500 *
25 Ford Rd.
Westport, CT 06880
Acma Ltd.(6) 2,364,430 47.3%
17 Jurong Port Road
Singapore 619092
All directors and executive
officers as group (10 persons)(7) 848,095 16.9%
</TABLE>
- -------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the shares shown. Except as indicated by
footnote and subject to community property laws where applicable, to the
Company's knowledge the stockholders named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Excludes 112,500 shares issuable upon the exercise of stock options, which
will not be exercisable within 60 days of March 30, 1999. Mr. Tong is a
Managing Director and 10% shareholder of Acma Strategic Holdings Limited.
As such, Mr. Tong shares investment and voting power with respect to the
shares shown as beneficially owned by Acma Strategic Holdings Limited. Mr.
Tong disclaims beneficial ownership of such shares, however.
(3) The shares shown are held of record by Superego, Inc., a British Virgin
Islands company beneficially owned by Mr. Kwok. Excludes 82,500 shares
issuable upon the exercise of stock options held by Mr. Kwok all of which
will not be exercisable within 60 days of March 30, 1999.
(4) Mr. Chou is a director of Acma Ltd. and, as such, may be deemed to share
voting and investment power over the shares shown as beneficially owned by
Acma Ltd. Mr. Chou disclaims such beneficial ownership.
(5) Includes 7,500 shares issuable upon the exercise of currently exercisable
stock options.
(6) The shares shown as being owned by Acma Ltd. consist of 1,838,157 shares
held of record by Acma Strategic Holdings Limited and an additional 526,273
shares held
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of record by Acma Investments Pte., Ltd., a wholly-owned subsidiary of Acma
Ltd. Acma Investments Pte., Ltd. is a 90% shareholder of Acma Strategic
Holdings Limited.
(7) Includes 15,000 shares issuable upon the exercise of currently exercisable
stock options. Excludes 274,500 shares issuable upon the exercise of stock
options, which will not be exercisable within 60 days of March 30, 1999
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
HU CONSULTING AGREEMENT. In August 1998, the Company entered into a consulting
agreement with Business Plus Consultants Limited, which is beneficially owned by
Henry Hai-Lin Hu, the Company's Executive Vice-President--Marketing. For its
services and the services of Mr. Hu, the Company has agreed to pay Business Plus
a commission equal to 7.5% of all additional revenues of the Company generated
by Business Plus, with a guaranteed monthly minimum fee of approximately $5,000,
and all out-of-pocket expenses. The agreement has a two-year term and will
continue thereafter unless terminated by either party upon three months prior
written notice.
TONG CONSULTING ARRANGEMENT. In January 1996, the Company entered into a
consulting agreement with Acma Strategic Holdings Limited, one of the principal
stockholders of the Company, under which Acma Strategic was to receive an annual
consulting fee of approximately $106,000. Acma Strategic is a private investment
Company whose only investment is its ownership of common stock of the Company.
Mr. Tong is a director and 10% shareholder of Acma Strategic. In addition, under
the terms of the agreement, the Company, at its discretion, paid Acma Strategic
a performance bonus of up to 2.5% of the Company's consolidated net after-tax
profits. During 1996, 1997 and 1998, the Company paid consulting fees in the
amounts of $88,000, $115,000 and $116,000, respectively, to Acma Strategic for
consulting services provided.
Acma Strategic entered into a consulting agreement with Carl Tong & Associate
Management Consultancy Limited, a Company beneficially owned by Mr. Tong,
pursuant to which Mr. Tong acts as a director of Acma Strategic and performs
such other duties as requested by Acma Strategic, including acting as President
and Chief Executive Officer of the Company. Associate Management received all
amounts paid by the Company to Acma Strategic during 1996, 1997 and 1998. The
Company discontinued its arrangement with Acma Strategic upon completion of the
public offering on December 23, 1998 and Associate Management assumed the duties
previously performed by Acma Strategic.
LOANS TO CML. Messrs. Kwok and Tong had outstanding certain non-interest bearing
loans to CML in the amounts of $614,000 and $316,000, respectively as of
December 31, 1996 and $612,000 and $316,000, respectively, as of December 31,
1997. The loans were repayable on demand. As of September 30, 1998, the
outstanding balances of the loans were approximately $438,000 and $232,000,
respectively. As of October 1, 1998, the principal amount of the outstanding
loans from Messrs. Kwok and Tong were converted into non-interest bearing term
loans which will be due and payable in six equal semi-annual installments
commencing March 31, 1999 and ending September 30, 2001. In addition, in 1997
Acma Strategic advanced $9,000 on CML's behalf, which was repaid, without any
interest, in January 1998.
LOANS FROM COMPANY. During 1995, 1996 and 1997, Mr. Tong borrowed certain
amounts from CML. The maximum balance of such loans at any one time was
$124,000. The loans were non-interest bearing and were repayable on demand by
CML. All loan transactions ceased upon the completion of the Company's exchange
reorganization. The remaining outstanding balance of the loans were repaid in
full in September 1998.
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GUARANTEES OF COMPANY DEBT. As of December 31, 1998, the Company had credit
facilities with Hang Seng Bank, Banque Nationale de Paris, Bank of China and
Commonwealth Finance Corporation Limited of $258,000, $356,000, $65,000 and
$1,291,000, respectively, some of which Messrs. Tong and Kwok personally
guarantee. The facilities also are secured by a mortgage on certain real
property owned by Mr. Tong. Additionally, Acma Strategic guarantees certain of
the Company's debt. As of December 31, 1998, the Company had outstanding
balances under such facilities of $249,000, $356,000, $0 and $455,000,
respectively. The Company is currently attempting to eliminate the guarantees of
Messrs. Tong and Kwok and Acma Strategic.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment no. 1 to the annual
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CREATIVE MASTER INTERNATIONAL
Date: April 27, 1999 By: /s/ CARL KA WING TONG
--------------------------------------
Carl Ka Wing Tong,
President and Chief Executive Officer
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