SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 - Commission file Number 0-17038
Concord Camera Corp.
(Exact names of registrant as specified in its charter)
New Jersey 13-3152196
(State or other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
35 Mileed Way, Avenel, New Jersey 07001
(Address of principal executive office) (Zip code)
908/499-8280
(Registrant's telephone number, including area code)
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 X No_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value -- 10,880,473 shares as of October 29, 1997
------------------------------
Page 1 of 12
Exhibit Index on Page 11
1
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<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp.
Consolidated Balance Sheets
<CAPTION>
September 30,
1997 June 30,
(Unaudited) 1997
<S> <C> <C>
Current Assets:
Cash $6,071,350 $5,297,820
Accounts receivable, net 11,042,346 9,866,962
Inventories 21,355,658 15,752,402
Prepaid expenses and other current assets 4,017,079 3,091,669
------------- -------------
Total current assets 42,486,433 34,008,853
Plant and equipment, net 14,103,858 13,865,777
Goodwill, net 989,605 1,089,217
Other assets 3,498,760 4,124,396
------------- -------------
Total assets $61,078,656 $53,088,243
=========== ===========
Current Liabilities:
Short-term debt $8,520,022 $7,976,315
Current portion of long-term debt 34,301 33,349
Current obligations under capital leases 778,657 790,426
Accounts payable 15,036,314 8,665,622
Accrued expenses 2,794,391 2,232,289
Income taxes payable 72,831 2,831
Other current liabilities 184,346 313,965
------------ ------------
Total current liabilities 27,420,862 20,014,797
Deferred income taxes 572,538 572,492
Long-term debt 387,613 396,570
Obligations under capital leases 1,857,935 2,000,002
Other long-term liabilities 602,548 602,549
------------ ------------
Total liabilities 30,841,496 23,586,410
---------- ----------
Stockholders' equity:
Common stock, no par value, 40,000,0000 authorized;
10,944,026 issued as of September 30 and June 30, 1997 39,361,893 39,361,893
Paid in capital 850,786 850,786
Deficit (6,864,235) (7,635,654)
Notes receivable arising from common stock
purchase agreements (2,658,365) (2,622,273)
------------ ------------
30,690,079 29,954,752
Less: treasury stock, at cost; 63,553 shares (452,919) (452,919)
----------- -----------
Total stockholders' equity 30,237,160 29,501,833
----------- -----------
Total liabilities and stockholders' equity $61,078,656 $53,088,243
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
Concord Camera Corp.
Consolidated Statements of Operations
<CAPTION>
Unaudited
For the three months ended September 30,
1997 1996
<S> <C> <C>
Net sales $19,806,282 $15,132,554
Cost of products sold 14,512,582 11,446,970
------------ ------------
Gross profit 5,293,700 3,685,584
Selling expenses 1,696,467 1,699,858
General and administrative expenses 2,385,189 2,162,254
Financial expenses 398,921 364,515
Other (income) expense, net (70,172) 7,173
Legal expenses and settlement costs 41,594 60,042
------------ ------------
Income (loss) from operations before income taxes 841,701 (608,258)
Provision for income taxes 70,282 0
------------ ------------
Net Income (loss) $771,419 ($608,258)
============ ============
Income (loss) per common and common equivalent share $0.07 ($0.06)
============ ============
Weighted average number of common and common
equivalent shares outstanding 11,258,571 10,882,973
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
Concord Camera Corp.
Consolidated Statements of Cash Flows
<CAPTION>
For the three months ended September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $771,419 ($ 608,258)
---------- ------------
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 838,298 785,196
Net (gain) on sale of property and equipment (30,697) --
Interest income on notes receivable arising from common stock agreements (36,092) (36,092)
Change in assets and liabilities:
(Increase) in accounts receivable (1,175,384) (671,733)
Decrease (increase) in inventories (5,603,256) 89,691
Decrease (increase) in prepaid expenses and other current assets (925,411) 339,354
Decrease (Increase) in other assets 530,642 (94,841)
Increase in accounts payable 6,370,692 331,607
Increase in accrued expenses 562,102 425,598
Increase (decrease) in income taxes payable 70,000 (79,050)
(Decrease) in other current liabilities (129,619) (284,268)
Increase in deferred income taxes 45 26,655
------------ ----------
Total adjustments 471,320 832,117
------------ ----------
Net cash provided by operating activities 1,242,739 223,859
------------ ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (851,076) (590,509)
------------ ----------
Net cash (used in) investing activities (851,076) (590,509)
------------ ----------
Cash flows from financing activities:
Net borrowings under short-term debt agreements 543,707 340,260
Net repayments of long-term debt (8,005) (7,276)
Principal payments under capital lease obligations (153,835) (149,401)
------------ ---------
Net cash provided by financing activities 381,867 183,583
------------ ---------
Net increase (decrease) in cash 773,530 (183,067)
Cash at beginning of period 5,297,820 4,996,770
------------ ----------
Cash at end of period $6,071,350 $4,813,703
=========== ==========
See accompanying notes to consolidated financial statements. See Note 3 -
Supplemental disclosure of cash flow information.
</TABLE>
4
CONCORD CAMERA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
Note 1 - General
In the opinion of Concord Camera Corp. ("the Company"), the accompanying
unaudited financial statements contain all adjustments, including normal
recurring adjustments, necessary for the fair presentation of the Company`s
financial position as of September 30, 1997, and the results of operations and
cash flows for the periods ended September 30, 1997 and 1996.
The Notes to Consolidated Financial Statements, which are included in the
Company's 1997 Form 10-K Annual Report, should be read with the accompanying
financial statements.
Earnings per common and common equivalent share, for the three months ended
September 30, 1997, is based on the weighted average number of common shares
outstanding and the dilutive effect of common stock equivalents, which include
stock options that are exercisable at prices below the average price of the
Company's common stock during such three month period ended September 30, 1997.
Loss per common share, for the three months ended September 30, 1996, is based
on the weighted average number of common shares outstanding during such three
month period.
In February, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share, which is effective for both interim and annual periods
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary and fully diluted earnings per share
for the three-month and nine-month periods ended September 30, 1997 and
September 30, 1996 is not expected to be material.
The Company operates on a worldwide basis and its results may be adversely or
positively affected by fluctuations of various foreign currencies against the
U.S. Dollar, specifically, the Canadian Dollar, German Mark, British Pound
Sterling, French Francs, and Japanese Yen. Each of the Company's foreign
subsidiaries purchases its inventories in U.S. Dollars and sells them in local
currency, thereby creating an exposure to fluctuations in foreign currency
exchange rates. Certain components needed to manufacture cameras are purchased
in Japanese Yen. The impact of foreign exchange transactions is reflected in the
profit and loss statement. The Company continues to analyze the benefits and
costs associated with hedging against foreign currency fluctuations.
5
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Note 2 - Inventories
Inventories are comprised of the following:
September 30, June 30,
1997 1997
Raw materials and components $ 13,598,814 $ 10,517,322
Finished goods 7,756,844 5,235,080
------------- -------------
$21,355,658 $15,752,402
=========== ===========
Note 3 - Supplemental Disclosures of Cash Flow Information:
For the Three months ended September 30,
1997 1996
---- ----
Cash paid for interest $ 321,401 $ 266,535
=========== ===========
Cash paid for taxes $ 807 $ 460
=========== ===========
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Three months ended September 30, 1997 compared to the three months ended
September 30, 1996.
Total revenues for the three months ended September 30, 1997 and 1996
were approximately $19,806,000 and $15,133,000, respectively, an increase of
approximately $4,673,000 or 30.9%. The increase is primarily attributable to
increases in original equipment manufacturer ("OEM") revenues from sales to the
Company's new and preexisting OEM customers. The increase in traditional camera
revenues included shipments of a new Advanced Photo System traditional camera to
a previously announced large new OEM customer. Furthermore, sales revenues from
all product lines in the first quarter exceeded the revenues in the same quarter
last year. The Company expects the increased production and sales levels to
continue throughout Fiscal 1998 and anticipates achieving its previously
announced sales projection of $100 million to $110 million.
Sales by Concord Camera HK Limited ("Concord HK") for the three months
ended September 30, 1997 and 1996 were approximately $15,836,000 and $9,879,000,
respectively, an increase of approximately $5,957,000 or 60.3%. The increase is
due primarily to the increase in OEM sales. OEM sales for the three months ended
September 30, 1997 and 1996 were approximately $10,938,000 and $5,493,000,
respectively, an increase of approximately $5,445,000 or 99.1%. The increase was
due to increases in traditional and single-use camera revenues by the Company's
new and preexisting OEM customers. The increase in traditional camera revenues
included shipments of a new Advanced Photo System traditional camera to a
previously announced large new OEM customer.
Consolidated sales of the Company's United States, Canadian, and
Panamanian operations, collectively "Concord Americas," for the three months
ended September 30, 1997 and 1996 were approximately $2,501,000 and $3,066,000,
respectively, a decrease of approximately $565,000 or 18.4%. In addition,
certain Concord Americas customers decreased merchandise purchases on an F.O.B.
Hong Kong basis from Concord HK. During the three months ended September 30,
1997 and 1996 Concord Americas customers purchased approximately $2,632,000 and
$2,920,000, respectively, from Concord HK, a decrease of approximately $288,000
or 9.9%. If this decrease were added to the three months ended September 30,
1997 American sales, sales of traditional cameras to Concord Americas customers
would have decreased by 14.2%. This decrease in sales to Concord Americas
resulted from an aging product line of traditional cameras and intensified
competition in the sale of single-use cameras.
Consolidated sales of Concord Camera GmbH ("Concord Germany"), Concord
Camera Europe (formerly Concord Camera UK Limited) ("Concord UK"), and Concord
Camera France ("Concord France"), collectively "Concord Europe", for the three
months ended September 30, 1997 and 1996, were approximately $1,469,000 and
$2,170,000, respectively, a decrease of approximately $701,000 or 32.3%. This
decrease in sales was offset by an increase in sales to certain European
customers on an F.O.B. Hong Kong basis from Concord HK. During the three months
ended September 30, 1997 and 1996 European customers purchased approximately
$1,881,000 and $1,090,000, respectively, from Concord HK, an increase of
approximately $791,000 or 72.6%. If this increase were added to the sales for
the three months ended September 30, 1997, European sales to European customers
would have increased by 2.8%.
7
<PAGE>
Gross Profit
Gross profit, expressed as a percentage of sales, increased to 26.7%
for the three months ended September 30, 1997 from 24.4% for the three months
ended September 30, 1996. This increase was primarily the result of increased
sales and manufacturing volume efficiencies, net of increases in license and
royalty expenses. Product development costs for the three months ended September
30, 1997 and 1996, were approximately $764,000 and $771,000, respectively, a
decrease of approximately $7,000, or 0.9%. As new products are introduced and
production volume increases, The Company expects margins to increase.
Expenses
Operating expenses consisting of selling, general and administrative
and financial expenses, increased to $4,481,000 in the three months ended
September 30, 1997 from $4,227,000 in the three months ended September 30, 1996,
an increase of $254,000 or 6.0%. As a percentage of sales, operating expenses
decreased to 22.6% in the three months ended September 30, 1997 from 27.9% in
the three months ended September 30, 1996.
Selling expenses decreased to $1,696,000 or 8.6% of net sales in the
three months ended September 30, 1997 from $1,700,000 or 11.2% of net sales in
the three months ended September 30, 1996. The decrease was primarily
attributable to the benefits from the consolidation of warehouse facilities
undertaken by the Company in Fiscal 1996, net of increases in freight charges
associated with the Company's increased sales volume.
General and Administrative expenses increased to $2,385,000 or 12.0% of
net sales in the three months ended September 30, 1997 from $2,162,000 or 14.3%
of net sales in the three months ended September 30, 1996. The increase is
primarily attributable to increases in professional fees and expenses related to
contracts.
Financial expenses increased to $398,000 or 2.0% of net sales in the
three months ended September 30, 1997 from $365,000 or 2.4% of net sales in the
three months ended September 30, 1996. Such increase was primarily a result of a
increase in average debt outstanding during the three months ended September 30,
1997.
Litigation and settlement costs in the three months ended September 30,
1997 and 1996 were approximately $42,000 and $60,000, respectively, a decrease
of approximately $18,000, or 30.0%. The costs were incurred in connection with
non-operating matters, primarily the arbitration against Jack C. Benun, the
Company's former chairman & ceo.
Other (Income) Expense, Net
Other (income) expense, net increased to approximately $70,000 of
income in the three months ended September 30, 1997 from approximately $7,000 of
expense in the three months ended September 30, 1996. Other (income) expense,
net includes directors fees, certain public relations costs, foreign exchange
gains and losses and interest income.
8
<PAGE>
Income Taxes
The Company's provision for income taxes for the three months ended
September 30, 1997 is primarily related to the earnings of the Company's Far
East and domestic operations, net of benefits relating to operating loss
carryforwards and overpayments/refunds on the Company's other subsidiaries.
Net Income
As a result of the matters described above, the Company had net income
of approximately $771,000 or $.07 per share in the three months ended September
30, 1997 compared to a net (loss) of approximately ($608,000) or ($.06) per
share in the three months ended September 30, 1996. The Company exceeded its
profit plan for the first quarter and is in line to achieve the profit plan for
the second quarter. The Company continues to believe that the Company will
achieve its previously announced projected profit of $5 to $7 million for the
current fiscal year.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $15,066,000
as compared to $13,994,000 at June 30, 1997. Cash flow provided by operating
activities was approximately$1,243,000 and $224,000 for the three months ended
September 30, 1997 and 1996, respectively. Capital expenditures for the three
months ended September 30, 1997 and 1996 were approximately $851,000 and
$591,000, respectively. The Company's principal funding requirement has been,
and is expected to continue to be, the financing of accounts receivable and
inventory.
The Bank of East Asia, Limited New York ("BOEA NY")
On December 20, 1994, the Company obtained a one-year, $1,500,000
revolving credit facility with BOEA NY (the "BOEA NY Facility") . On September
20, 1995, the Company executed an amendment increasing the BOEA NY Facility to
$3,000,000. The BOEA NY Facility has also been extended to December 19, 1997.
The BOEA NY Facility is secured by certain accounts receivable of the Company's
Hong Kong operations and bears interest at 2% above BOEA NY's prime lending
rate, which was 8.5% at September 30, 1997. Availability under the BOEA NY
Facility is subject to advance formulas based on eligible accounts receivable
with no minimum borrowing. At September 30, 1997, approximately $3,000,000 was
outstanding and classified as short-term debt under the BOEA NY Facility.
The CIT Group/Credit Finance, Inc ("CIT")
The Company has a $4,500,000 credit facility with CIT (the "CIT
Facility") which expires on May 31, 1999. The CIT Facility is secured by
accounts receivable, inventory and other related assets of the Company's United
States operations and bears interest at 2% above CIT's prime lending rate, which
was 8.5% at September 30, 1997. Availability under the CIT Facility is subject
to advance formulas based on eligible inventory and accounts receivable with
minimum borrowing of $1,500,000. At September 30, 1997, approximately $1,036,000
was outstanding and classified as short-term debt under the CIT Facility.
9
<PAGE>
Bank of East Asia, Limited ("BOEA") --Hong Kong
Concord HK has a credit facility (the "BOEA HK Facility") with BOEA
that provides Concord HK with up to $6,900,000 of financing as follows: letters
of credit and standby letters of credit up to $2,825,000, overdraft and packing
loans of up to $3,600,000 and an installment loan of $475,000. The installment
loan was utilized in part to repay the outstanding mortgage obligation on the
Hong Kong office property to the Bank of China. As of September 30, 1997,
approximately $6,425,000 was utilized under the BOEA HK Facility. Approximately
$3,908,000 of the total $6,425,000 utilized was in the form of trade finance,
including but not limited to import letters of credit. The BOEA HK Facility,
which is payable on demand, bears interest at 2% above BOEA's prime lending rate
for letters of credit and 2.25% above BOEA's prime lending rate for overdraft
and packing loans. At September 30, 1997 BOEA's prime lending rate was 8.5%. In
connection with the BOEA HK Facility, Concord HK has placed a $1,216,000 time
deposit with BOEA, which is included in prepaid and other current assets at
September 30, 1997 and such deposit is pledged as collateral for the BOEA HK
Facility. In addition, all amounts outstanding under the BOEA HK Facility are
guaranteed by Concord.
Toronto Dominion Bank ("TDB")
On November 25, 1996, the Company obtained a $1,090,000 working capital
facility with TDB (the "TDB Facility") which expires on October 31, 1998. The
TDB Facility is secured by accounts receivable, inventory and other related
assets of the Company's Canadian operations and bears interest at 1% above TDB's
prime lending rate, which was 4.75% at September 30, 1997. Availability under
the TDB Facility is subject to advance formulas based on eligible accounts
receivable and seasonable inventory eligibility with no minimum borrowings and
is subject to monthly covenant requirements. At September 30, 1997,
approximately $434,000 was outstanding and classified as short-term debt and the
Company was in compliance with all covenants under the TDB Facility.
Other Arrangements and Future Cash Commitments
Management believes that anticipated cash flow from operations
together with financing from BOEA, CIT and TDB or replacement facilities will be
sufficient to fund its operating cash needs over the next twelve months.
Forward-Looking Statements
The statements contained in this report that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995) which can be identified by the use of
forward-looking terminology such as; "estimates," "projects," "anticipates,"
"expects," "intends," "believes," or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in such forward-looking statements as a result of certain
factors, including those set forth in the Company's Form 10-K Annual Report for
its Fiscal Year ended June 30, 1997. Management wishes to caution the reader
that these forward-looking statements, such as statements regarding development
of the Company's business, the Company's anticipated capital expenditures and
other statements contained in this report regarding matters that are not
historical facts are only estimates or predictions. No assurance can be given
that future results will be achieved; actual events for results may differ
materially as a result of risks facing the Company or actual results differing
from the assumptions underlying such statements. In particular, expected
revenues could be adversely affected by production difficulties or economic
conditions adversely affecting the market for the Company's products. To obtain
the results expected from the introduction of the Company's new products will
require timely completion of development, successful ramp-up of full-scale
production on a timely basis and customer and consumer acceptance of those
10
<PAGE>
products. In addition, the OEM agreements require an ability to meet high
quality and performance standards, successful implementation of production at
greatly increased volumes and an ability to sustain production at greatly
increased volumes as to all of which there can be no assurance. There also can
be no assurance that products under development will be successfully developed
or that once developed such products will be commercially successful.
PART 2. OTHER INFORMATION
a. Item 6. Reports on Form 8-K
None
b. Exhibits
Exhibit No. Exhibit
27 Financial Data Schedule
11
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORD CAMERA CORP.
(Registrant)
BY: s/Harlan I. Press
(Signature)
Harlan I. Press
Corporate Controller and Assistant Secretary
DULY AUTHORIZED AND PRINCIPAL ACCOUNTING
OFFICER
DATE: November 13, 1997
12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Concord
Camera Corp.'s Consolidated financial statements as of September 30, 1997 and
the results of operations for the three months ended September 30, 1997 and is
qualified in its entiriety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> $6,071,350
<SECURITIES> 0
<RECEIVABLES> 11,547,298
<ALLOWANCES> 504,952
<INVENTORY> 21,355,658
<CURRENT-ASSETS> 42,486,433
<PP&E> 27,521,542
<DEPRECIATION> (13,417,684)
<TOTAL-ASSETS> 61,078,655
<CURRENT-LIABILITIES> 27,420,861
<BONDS> 387,613
0
0
<COMMON> 39,361,893
<OTHER-SE> (9,124,733)
<TOTAL-LIABILITY-AND-EQUITY> 61,078,656
<SALES> 19,806,282
<TOTAL-REVENUES> 19,806,282
<CGS> 14,512,582
<TOTAL-COSTS> 4,522,171
<OTHER-EXPENSES> (70,172)
<LOSS-PROVISION> 6,667
<INTEREST-EXPENSE> 324,084
<INCOME-PRETAX> 841,701
<INCOME-TAX> 70,282
<INCOME-CONTINUING> 771,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 771,419
<EPS-PRIMARY> $0.07
<EPS-DILUTED> $0.07
</TABLE>
