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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
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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
18 BEDFORD RD., TAIKOKTSUI
KOWLOON, HONG KONG N/A
(Address of principal executive offices) (Zip Code)
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: $40,668,000
The aggregate market value of the common stock held by non-affiliates of the
registrant as of March 27, 2000 was approximately $19,662,456, based upon the
closing sale price of $6.188 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
27, 2000.
Transitional Small Business Disclosure Format (check one): YES / / NO /X/
DOCUMENTS INCORPORATED BY REFERENCE: Portions of Registrant's Proxy Statement
for its 2000 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Registrant's fiscal
year, are incorporated herein by reference in Part III of this Report.
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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 and directors of the Company and
their ages and positions as of April 18, 2000 are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
AND DIRECTORS (1) AGE POSITION
----------------- --- --------
<S> <C> <C>
Carl Ka Wing Tong 49 President, Chief Executive Officer and Chairman of the Board
Leo Sheck Pui Kwok 44 Chief Operating Officer and Director
John Rempel 44 Chief Financial Officer and Assistant Secretary
Shing Kam Ming 38 Senior Vice-President, Controller and Secretary
Steve Gordon 45 Director
Clayton K. Trier 48 Director
</TABLE>
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(1) Each of the executive officers of the Company also serves in various
corresponding capacities with Creative Master Limited, the Company's
wholly-owned Hong Kong subsidiary ("CML"), or subsidiaries of CML.
Carl Ka Wing Tong has been the Chairman, Chief Executive Officer and
President of the Company 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
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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. Mr. Rempel served with Arthur Andersen & Co. in Canada and Bermuda
from 1978 to 1981 and with Ernst & Whinney in Hong Kong from 1982 to 1985.
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 CML in March 1993 as Manager - Finance and Administration.
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.
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.
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive 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"). Directors, executive officers 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. Based solely upon a review of the copies
of the forms furnished to the Company and the representations made by the
reporting persons to the Company with respect to any required Form 5 filings,
the Company believes that during the year ended December 31, 1999, its
directors, officers and 10% stockholders complied with all filing requirements
under Section 16(a) of the Exchange Act.
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, 1999 and three other executive
officers (together, the "named executive officers") whose compensation exceeded
$100,000 for that year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards -
Annual Compensation Securities
---------------------------------------- Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options/SARs(#)
- --------------------------- ---------------------------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Carl Ka Wing Tong 1999 $227,000(1) -- -- --
President and Chief 1998 $177,000(2) -- -- 112,500 shares
Executive Officer 1997 $115,000(3) -- -- --
Leo Sheck Pui Kwok 1999 $113,000 -- $82,000(4) --
Chief Operating Officer 1998 $77,000 $27,000 $84,000(4) 82,500 shares
1997 $46,000 $4,000 $61,000(4) --
John Rempel 1999 $136,000 -- -- --
Chief Financial Officer 1998 $8,000 -- -- 22,500 shares
and Assistant Secretary 1997 -- -- -- --
Shing Kam Ming 1999 $115,000 -- -- --
Senior Vice-President, 1998 $96,000 -- -- 22,500 shares
Controller and Secretary 1997 $70,000 -- -- --
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</TABLE>
(1) Represents fees paid to Carl Tong & Associate Management Consultancy
Limited. See "Certain Relationships and Related Transactions - Tong Consulting
Arrangement."
(2) Represents $116,000 in compensation paid to Acma Strategic Holdings Limited
for consulting services and $61,000 in fees paid to Carl Tong & Associate
Management Consultancy Limited. See "Certain Relationships and Related
Transactions - Tong Consulting Arrangement."
(3) Represents compensation paid to Acma Strategic Holdings Limited for
consulting services. See "Certain Relationships and Related Transactions -- Tong
Consulting Arrangement."
(4) Represents a residence allowance. See "Employment Agreements."
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OPTION GRANTS IN 1999
The Company did not grant any stock options to any named executive
officer during 1999.
OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES
No options were exercised by any named executive officer during 1999.
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options Held at In-the-Money Options at
Fiscal Year-End(#) Fiscal Year End($)(1)
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Name Exercisable Unexercisable Exercisable Unexercisable
------------------------ -------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Carl Ka Wing Tong 40,179 72,321 $0 $0
Leo Sheck Pui Kwok 29,464 53,036 $0 $0
John Rempel 8,036 14,464 $0 $0
Shing Kam Ming 8,036 14,464 $0 $0
</TABLE>
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(1) Based on the difference between the option exercise price and the fair
market value per shared based on the closing price of $2.563 reported by the
Nasdaq National Market on December 31, 1999.
COMPENSATION OF DIRECTORS
The Company reimburses each director for reasonable expenses incurred
in attending meetings of the Company's Board of Directors and pays each
non-employee director a fee of $1,300 for each meeting attended by such
director. Non-employee directors who serve on board committees are paid a fee of
$300 for each committee meeting attended. Directors also are 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 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 acted as Managing Director of Acma Strategic Holdings Limited
and performed 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." Consulting arrangements such as the Company's arrangements with
Mr. Tong 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
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months written notice to terminate the agreement. The agreement provides that
Mr. Kwok would receive a salary of $46,000 and a stated bonus for the first year
and that, thereafter, his salary, bonus and benefits would be subject to annual
review by the Board. In addition, the Company provides Mr. Kwok with a residence
allowance.
In January 1997, CML, the Company's wholly-owned Hong Kong subsidiary,
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. Any forfeited contributions made by
the Company and the accrued interest thereon are used to reduce future
employer's contributions. The aggregate amount of the Company's contributions
(net of forfeited contributions) for the years ended December 31, 1997, 1998 and
December 31, 1999 was approximately $50,000, $68,000 and $103,000, respectively.
The Company's employees in China are all hired on a contractual basis
and consequently the Company has no obligation for pension liabilities to these
employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of Common Stock
as of April 18, 2000 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.
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%. Unless otherwise indicated, the address of each
person is c/o the Company at Casey Ind. Bldg., 8th Floor, 18 Bedford Rd.,
Taikoktsui, Kowloon, Hong Kong.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership
Name and Address (Number of Shares)(1) Percent of Class
- ---------------- ------------------------ --------------------
<S> <C> <C>
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Carl Ka Wing Tong (2).................. 308,370 6.1%
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
Leo Sheck Pui Kwok (3)................. 601,778 9.4%
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
Steve Gordon (4)....................... 8,500 *
Clayton K. Trier (4)................... 17,500 *
Acma Ltd. (5).......................... 2,364,430 47.3%
17 Jurong Port Road
Singapore 619092
All directors and executive officers as
group (7 persons) (6).................. 959,586 18.7%
</TABLE>
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(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) Includes 50,223 shares issuable upon the exercise of stock options which
will be exercisable at a price of $5.00 per share within 60 days of April 18,
2000. 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 (see note 5 below). Mr. Tong disclaims beneficial ownership of such
shares, however.
(3) Of the shares shown, 564,948 are held of record by Superego, Inc., a British
Virgin Islands company beneficially owned by Mr. Kwok. Includes 36,830 shares
issuable to Mr. Kwok upon the exercise of stock options which will be
exercisable at a price of $5.00 per share within 60 days of April 18, 2000.
(4) Includes 7,500 shares issuable upon the exercise of currently exercisable
stock options. The exercise price of these options is $5.00 per share.
(5) 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 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.
(6) Includes 125,491 shares issuable upon the exercise of stock options which
will be exercisable at a price of $5.00 per share within 60 days of April 18,
2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 $88,000. Acma Strategic is
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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 1998, the Company paid
consulting fees and a performance bonus in the aggregate amount of $116,000
to Acma Strategic for consulting services provided pursuant to this
consulting agreement.
Acma Strategic entered into a consulting agreement with Carl Tong &
Associate Management Consultancy Limited ("Associate Management"), a Company
beneficially owned by Mr. Tong, pursuant to which Mr. Tong serves 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. During 1999, the
Company paid consulting fees in the amount of $227,000 to Associate Management.
This is reflected as compensation to Mr. Tong in the summary compensation table
above under "Item 10. Executive Compensation."
TFS CONSULTING AGREEMENT
In 1996, the Company entered into a one-year, annually renewable
consulting agreement with TFS Limited. Steve Gordon, a director of the Company,
is the principal owner of and performs the functions of chief executive officer
for TFS Limited. During 1998 and 1999, the Company paid $179,000 and $172,000,
respectively, to TFS Limited.
LOANS TO CML
Messrs. Kwok and Tong had outstanding certain non-interest bearing
loans to CML in the amounts of $438,000 and $232,000, respectively, as of
September 30, 1998. The loans were repayable on demand. As of October 1, 1998,
the principal amounts of the outstanding loans were converted into unsecured,
non-interest bearing term loans which are due and payable in six equal
semi-annual installments commencing March 31, 1999 and ending September 30,
2001. As of December 31, 1999, the aggregate outstanding balance of the loans
was $321,000 and $186,000, respectively.
In addition, in 1997, Acma Strategic advanced $9,000 on CML's behalf,
which was repaid, without any interest, in January 1998.
LOANS FROM CML
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. All loan transactions ceased
upon the completion of the Company's exchange reorganization in December 1997.
The loans were repaid in full in September 1998.
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GUARANTEES OF COMPANY DEBT
As of December 31, 1999, the Company had banking facilities of approximately
$2,737,000 for overdrafts, loans and trade financing. Unused facilities as of
December 31, 1999 amounted to approximately $1,276,000. These facilities are
secured by, amoung other things, personal guarantees provided by Messrs. Tong
and Kwok, mortgage over a real estate property owned by Mr. Tong and a
corporate guarantee provided by Acma Strategic. 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 first amendment to its annual
report on Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized.
CREATIVE MASTER INTERNATIONAL, INC.
Date: April 28, 2000 By: /s/ Carl Ka Wing Tong
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Carl Ka Wing Tong
President and Chief Executive Officer
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