SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ______________ to _______________.
Commission File No. 0-25108
IWI HOLDING LIMITED
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(Exact Name of Registrant as Specified in Its Charter)
British Virgin Islands
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(Jurisdiction of Incorporation or Organization)
P.O. Box 3340, Dawson Building, Road Town, Tortola, British Virgin Islands
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Address of Principal Executive Offices
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, no par value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
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(Title of Class)
As of June 2, 2000, the Registrant had outstanding 2,554,700 shares of
Common Stock and 3,644,880 shares of Preferred Stock.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
twelve (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 ninety (90) days. Yes X No
--- ---
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 Item 18 X
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<PAGE>
TABLE OF CONTENTS
Page
------
PART I
ITEM 1. DESCRIPTION OF BUSINESS................................. 3
ITEM 2. DESCRIPTION OF PROPERTY................................. 5
ITEM 3. LEGAL PROCEEDINGS ...................................... 5
ITEM 4. CONTROL OF REGISTRANT................................... 5
ITEM 5. NATURE OF TRADING MARKET................................ 5
ITEM 6. EXCHANGE CONTROLS AND OTHER
LIMITATIONS AFFECTING SECURITY
HOLDERS................................................. 6
ITEM 7. TAXATION................................................ 6
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA.................... 6
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ...................................... 7
ITEM 10.DIRECTORS AND OFFICERS OF REGISTRANT..................... 10
ITEM 11.COMPENSATION OF DIRECTORS AND OFFICERS................... 11
ITEM 12.OPTIONS TO PURCHASE SECURITIES FROM
REGISTRANT OR SUBSIDIARIES.............................. 12
ITEM 13.INTEREST OF MANAGEMENT IN CERTAIN
TRANSACTIONS ...................................... 12
PART II
ITEM 14.DESCRIPTION OF SECURITIES TO BE REGISTERED............... 12
PART III
ITEM 15.DEFAULTS UPON SENIOR SECURITIES.......................... 12
ITEM 16.CHANGES IN SECURITIES AND CHANGES IN
SECURITY FOR REGISTERED SECURITIES...................... 12
PART IV
ITEM 17.FINANCIAL STATEMENTS..................................... 12
ITEM 18.FINANCIAL STATEMENTS..................................... 12
ITEM 19.FINANCIAL STATEMENTS AND EXHIBITS........................ 13
SIGNATURES ............................................. 14
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of Securities Exchange
Act of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risks which the Company cannot
foresee. Such risks include, but are not limited to an economic turndown,
changes in government policies, financial difficulty with a major customer or
interruption in supplies.
General
The Company, through its wholly-owned subsidiary, Imperial World, Inc.
("Imperial"), is engaged in the design, assembly, merchandising and wholesale
distribution of jewelry. The Company provides a broad range of fashionable
jewelry targeted at consumers who seek fine jewelry at moderate prices for every
day wear. These customers are likely to purchase jewelry at frequent intervals
as fashions and styles change. The majority of the Company's U.S. sales are
under the trade name of "World Pacific Jewelry". Customers of the Company are
principally large retail establishments with jewelry departments, mass media
marketers and independent Jewelers.
In connection with management's plan to increase liquidity the Company
completed its divestiture of its Canadian subsidiary DACO Manufacturing Ltd. on
August 31, 1998.
Products and Pricing
The Company's principal products are rings, pendants, earrings, bracelets,
necklaces, pins and brooches made of diamonds, other precious or semi-precious
stones, pearls, silver and gold in addition to the more moderately priced gold
and silver jewelry. The Company's products are currently sold in over 7,000
retail outlets. For the majority of products, the average wholesale price is
approximately $65 with the prices ranging from approximately $20 to $500.
Purchasing
The Company imports most of its jewelry from the People's Republic of China
("PRC"), Hong Kong and India. Approximately 35-40% of the Company's products are
sourced in the U.S. Cultured pearls are imported from the PRC, Japan and Hong
Kong and freshwater pearls are imported from the PRC. The imported pearls are
assembled by the Company into various pearl jewelry products. The Company
purchases jewelry from a number of suppliers based on quality, pricing and
available quantities.
Although purchases of material are made from a relatively small number of
suppliers, the Company believes there are numerous alternative sources for all
materials, and that the failure of any principal supplier would not have a
material adverse effect on operations or the Company's financial condition. The
Company believes it has good relations with its suppliers, most of whom have
supplied the Company for many years. The Company has not experienced any
difficulty in securing product.
Manufacturing and Assembly
Since the Company imports most of its jewelry in an assembled state from
suppliers in the PRC, Hong Kong and India, manufacturing and assembly operations
conducted by the Company are primarily limited to designing jewelry and assembly
of pearl products. Upon completing a design, the Company provides such design to
its suppliers, who will purchase the raw materials, such as diamonds, other
precious stones, gold and silver, and manufacture the product or subcontract for
its manufacture. The use of third party manufacturers enables the Company to
shift the risk and capital cost of manufacturing.
The Company maintains a light manufacturing and assembly operation in the
United States for the stringing of pearls. This enables the Company to assemble
pearls specifically to customer order and to provide shipment within two days of
the order date.
<PAGE>
Marketing
The primary marketing efforts are product design and customer support
services. The products are sold for the most part through independent sales
representatives on a commission basis and by in house sales personnel. While
such independent representatives may also sell other products, they do not sell
products which compete with those of the Company. The Company supports the
independent representatives with internal account executives who have selling
and account management responsibilities.
Customers
The Company's customers consist of jewelry retail stores, mass
merchandisers, such as Wal-Mart Stores, Inc., department stores, such as J.C.
Penney Company, Inc., national jewelry chains, catalog showrooms and various
specialty markets including The Home Shopping Network, Inc. J.C. Penney Company,
Inc. accounted for approximately 44% of net sales in 1999. The Company has no
long-term contracts with any customers, however, the core of each of its large
volume purchasers have been customers for at least five years. The following
table sets forth the approximate percentage of net sales for the major market
segments for the periods indicated.
Year Ended December 31,
--------------------------
1997 1998 1999
------ ------ ------
Jewelry retail stores............................... 12.0 % 9.9 % 5.8 %
Specialty markets................................... 7.1 4.6 11.2
Mass merchandisers.................................. 6.2 21.3 4.0
Department stores................................... 64.6 55.1 57.5
National Jewelry Chains............................. 10.6 7.9 20.7
Catalog showrooms................................... (0.5) 1.2 0.8
Total......................................... 100.0 % 100.0 % 100.0 %
Competition
The jewelry industry in the United States is highly fragmented, with little
significant brand name recognition or consumer loyalty. Selection is generally a
function of design appeal, perceived value and quality in relation to price.
Jewelry retail sales alone account for an estimated $23 billion in annual
sales in the United States. Retail jewelry sales have historically increased at
a rate in excess of the inflation rate. This increase is principally
attributable to the growth in the number of dual working households which in
turn has increased the amount of disposable income for women, the largest group
of jewelry purchasers. The rise in number of women in the workforce as well as
strong economic conditions have increased the demand for women's business
attire, including jewelry.
While many competitors may have a wider selection of products or greater
financial resources, the Company believes its competitive position is enhanced
by its quality merchandise, fulfillment capability, up to date information
system, responsive performance and its close relationship with its customers and
vendors. Therefore, although the competition is intense, the Company believes it
is well positioned in the jewelry industry.
Employees
As of May 22, 2000, the Company had 46 employees, including 3 executive
officers, 4 persons in sales and merchandising, 30 persons in operations, and 9
persons in administrative and support functions. None of the employees is
governed by a collective bargaining agreement and the Company considers its
relations with its employees to be satisfactory.
4
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its registered offices in the BVI; the Company leases
approximately 13,000 square feet of space for operations and pearl assembly in
Westmont, Illinois. Under the 10 year lease which commenced in November, 1993,
and modified in November 1998, future minimum annual lease payments range from
approximately $125,000 to $133,000. At the expiration of the lease, the Company
has the option to renew for an additional five years. The facility, which
provides state of the art security, was designed to maximize the efficiency of
the Company's current operations and to provide for the Company's anticipated
growth.
ITEM 3. LEGAL PROCEEDINGS
In September 1996, Robert J. Rosan filed a class action lawsuit in the
Supreme Court in the state of New York alleging claims of fraudulent
misrepresentations by IWI Holding Limited and some Company officers, accountants
and lawyers in connection with the Company's initial public offering on December
16, 1994, and in connection with the dissemination of financial data thereafter.
The Plaintiff claims damages on behalf of the class in excess of $11,000,000,
which allegedly resulted from a decline of the market value of the Company's
common stock after the initial public offering.
The Company has denied all allegations and through counsel is vigorously
defending all claims. A third party action was filed, discovery has been
conducted by the parties to the suit and the matter is currently waiting further
action in the state courts of New York. The Company believes that it has valid
defenses against this claim and that such are without merit.
During November 1999, the company and the Plaintiff entered into
negotiations to settle the claim against the Company. Because of the cost and
uncertainty of litigation, the parties reached an agreement in principle to
settle the claim. The Plaintiff and the Company have not yet executed a formal
settlement agreement. Moreover, the settlement agreement is subject to court
approval and the Company may decline to proceed with the agreement if a
significant number of class members "opt out" of the settlement.
ITEM 4. CONTROL OF REGISTRANT
The following table is furnished as of June 2, 2000, to indicate beneficial
ownership of shares of the Company's Common Stock and Preferred Stock by (1)
each shareholder of the Company who is known by the Company to be a beneficial
owner of more than 10% of the Company's Common Stock or Preferred Stock and (2)
all officers and directors of the Company as a group. The information in the
following table was provided by such persons.
<TABLE>
Name and Address Amount and Nature of Title of Percent of Percent of
of Beneficial Owner Beneficial Ownership (1) Class Class Voting Power
--------------------- ------------------------ --------- ---------- -------------
<S> <C> <C> <C> <C>
Bamberg Company Ltd. 918,750 Common 35.96 % 20.99 %
Bamberg company Ltd. 3,644,880 Preferred 100.00 % 41.64 %
Joseph K. Lau 15,000 Common 0.59 % 0.34 %
Richard J. Mick 31,500 Common 1.23 % 0.72 %
All executive officers and directors
As a group (2 persons) 46,500 Common 1.82 % 1.06 %
</TABLE>
ITEM 5. NATURE OF TRADING MARKET
There is no non-U.S. trading market for the Common Stock of the Company. Within
the United States, the Company's Common Stock is traded in the over-the-counter
market. The Company's Common Stock is quoted on the OTCBB under the symbol
"JEWLF".
The following table sets forth the high and low bid price per share for the
Company's Common Stock for each quarterly period for the past two years.
5
<PAGE>
1999 1998
------------------------- --------------------
High Low High Low
First Quarter $.1100 $ .0300 $.2500 $.0625
Second Quarter .0700 .0500 .3125 .1094
Third Quarter .0600 .0300 .1250 .1250
Fourth Quarter .1200 .0400 .1250 .0100
The quotations reflect inter-dealer prices without mark-up, mark-down or
commission and may not represent actual transactions.
At May 17, 2000, the bid price at the Common Stock was $.281.
As of June 2, 2000, there were approximately 1,470 beneficial holders of
the Common Stock of the Company, nearly all of which are believed to be in the
United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY-HOLDERS
The Company is not subject to any governmental laws, decrees or regulations
in the BVI which restrict the export or import of capital, including any foreign
exchange controls, or which affect the remittance of dividends, interest or
other payments to non-resident holders of the Company's Common Stock.
Additionally, neither the laws of the BVI nor the Company's Charter impose
any limitations on the right of non-resident foreign owners to hold or vote the
Common Stock of the Company.
ITEM 7. TAXATION
The BVI imposes no withholding taxes and holders of Common Stock who are
not resident in the BVI will not be subject to BVI tax on any dividends received
from the Company or on gains realized from a sale or other disposition of the
Common Stock. The United States does not have a tax treaty with the BVI.
On September 5, 1997, the Commissioner of Internal Revenue issued a
deficiency notice for calendar year 1993 against the Company for $9,659,799 plus
interest and penalties. On December 10, 1997, the Company filed a petition with
the United States Tax Court challenging this assessment. On March 12,1999, the
United States Tax Court entered its decision that there were no additional
income taxes due, nor were any interest or penalty payable. Accordingly, all of
the issues relative to 1993 have now been resolved.
ITEM. 8 SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share data)
<TABLE>
Year Ended December 31,
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1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales................................ $41,710 $30,840 $25,523 $16,337 $16,800
Cost of sales............................ 34,024 25,809 24,018 12,650 11,549
-------- -------- -------- --------- --------
Gross profit............................. 7,686 5,031 1,505 3,687 5,251
Operating expenses....................... 8,798 10,221 10,821 6,033 4,969
-------- -------- -------- --------- --------
Income (loss) from operations............ (1,112) (5,190) (9,316) (2,346) 282
Other income (expense) - net............. (901) (1,053) (832) (430) (225)
-------- -------- -------- --------- --------
Income (loss) before income taxes........ (2,013) (6,243) (10,148) (2,776) 57
Income data:
Income taxes (benefit)................ (629) (307) (14) (67) -
-------- -------- -------- --------- --------
Net income (loss)..................... $(1,384) $ (5,936) $(10,134) $ (2,709) $57
======== ======== ======== ========= ========
Net income (loss) per common share ... $ (.53) $ (2.25) $ (3.96) $ (1.06) $ .02
======== ======== ======== ========= ========
Cash distributions per common share .. $ - $ - $ - $ - $ -
======== ======== ======== ========= ========
Weighted average number of common
shares outstanding .................2,625,873 2,625,873 2,558,217 2,554,700 2,554,700
========== ========== ========== =========== ==========
</TABLE>
<TABLE>
Year Ended December 31,
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1995 1996 1997 1998 1999
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital..........................$ 16,064 $ 12,038 $ 2,926 $ 470 $ 584
Total assets............................. 44,137 29,768 11,155 6,569 8,713
Long-term debt........................... 556 204 0 0 0
Shareholders' equity..................... 20,288 14,287 4,124 1,415 1,472
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, certain
information derived from the Consolidated Statements of Income of the Company.
All dollar and share amounts are set forth in thousands, except per share data.
<TABLE>
1997 1998 1999
------------------------ ------------------------ -----------------------
Amount% Sales% Change Amount% Sales% Change Amount% Sales% Change
------- ------ ------ ------- ------ -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $25,523 100.0 -17.2 $16,337 100.0 -36.0 $16,800 100.0 2.8
Gross Profit............. 1,505 5.9 -70.1 3,687 22.6 144.0 5,251 31.3 42.4
Operating
expenses.............. 10,821 42.4 5.9 6,033 37.0 -44.2 4,969 29.6 -17.6
Income (loss) from
operations........... (9,316) (36.5) -79.5 (2,346) (31.1) 74.8 282 1.7 n/a
Income (loss) before
income taxes......... (10,148) (39.8) -62.6 (2,776) (34.3) 72.6 57 0.3 n/a
Income taxes
(benefit)............ (14) (1.0) -95.4 (67) 0.3 78.6 - - n/a
Net income (loss)........ (10,134) (39.7) -70.7 (2,709) (34.6) 73.3 57 0.3 n/a
Net income (loss)
per common
share................ $ (3.96) $(1.06) $.02
Weighted
average number
of shares
outstanding.......... 2,558 2,555 2,555
</TABLE>
6
<PAGE>
The Company's sales are generated through the wholesaling of jewelry
products to the following distinct groups:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Jewelry retail stores............. 6.1 % 8.2 % 12.0 % 9.8 % 5.8 %
Specialty markets................. 10.0 13.6 7.1 4.6 11.2
Mass merchandisers................ 36.4 25.7 6.2 21.3 4.0
Department stores................. 28.1 35.9 64.6 55.1 57.5
National Jewelry Chains........... 10.0 7.0 10.6 7.9 20.7
Catalog showrooms................. 9.4 9.6 (0.5) 1.2 0.8
Total............................. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Net sales increased by $.5 million, or 2.8% to $16.8 million in
1999, from $16.3 million in 1998. Included in the 1998 sales levels were $4.8
million from the Company's Canadian Subsidiary, which was sold on August 31,
1998. Net sales from continuing operations for 1999 increased $5.3 million or
46.1% to $16.8 million compared to $11.5 million a year ago. This increase
reflects both increased sales to our base customers as well as a broadening of
our overall customer base.
Gross Profit. Gross profit increased $2.4 million to $5.3 million in 1999.
The domestic or ongoing operations gross profit increased $ 3.5 million and
reflects both improved margins and increased volume.
Income from Operations. The income from operations increased by $2.6
million from a loss of $2.3 million in 1998 to income of $.3 million in 1999.
The improvement in operating income from continuing operations was $2.5 million
reflecting improved gross profit levels as well as lower general and
administrative costs reflecting cost reductions implemented during 1998. Sales
costs increased due to volume.
Net Income. The net income for 1999 of $57,000 compared to a loss of $2.7
million in 1998 reflects an improvement of $2.8 million. This increase in net
income for 1999 was primarily attributable to the increase in volume combined
with the increase in gross profit margins and decrease in operating costs as
described above. In addition, interest expense decreased $.2 million, of which
$15,000 is from continuing operations.
Year Ended December 31, 1998 Compared to Year Ended December 31,1997
Net Sales. Net sales decreased by $9.2 million, or 36% to $16.3 million in
1998, this decrease was caused by lower sales in the domestic market $3.6
million and the Company's sale of its Canadian subsidiary, DACO Manufacturing
Ltd., $5.6 million. The sale of this subsidiary was completed on August 31,
1998. The domestic sales decline of $3.6 million was primarily attributable to
the retail jewelry stores and department stores target market.
Gross Profit. Gross profit increased $2.2 million to $3.7 million in 1998.
The domestic or ongoing operations gross profit increased $3.5 million and was
partially offset by the decreased gross profit level from the Canadian
Subsidiary of $1.3 million, primarily resulting from its divestiture.
Loss from Operations. The loss from operations decreased by $7.0 million to
a loss of $2.3 million in 1998. This improvement in operating losses was
reflected both domestically and in the Canadian operation, $5.2 million and $1.8
million respectively. The domestic operating loss includes a gain on the sale of
DACO Manufacturing LTD of $110,000. Total operating costs decreased $4.8
million, of which $1.6 million from ongoing or domestic operations, reflecting
additional efficiencies and cost reductions implemented in 1998, and $3.2
million from Canadian operations.
Net loss. The net loss for 1998 of $2.7 million compared to $10.1 million
in 1997 reflects an improvement of $7.4 million. This decrease in the 1998 net
loss was primarily attributable to the increase in gross profit levels and
decrease in operating costs as described above. In addition, interest expense
decreased $.4 million, of which $.3 million is from ongoing operations
reflecting reduced financing requirements. Analysis of Financial Position,
Liquidity and Capital Resources
7
<PAGE>
The Company's primary liquidity needs are to fund accounts receivable and
inventories. The Company has historically financed its working capital
requirements through a combination of internally generated cash, short-term
borrowings under bank lines of credit, loans from affiliates and in 1994 and
1995, the proceeds from an IPO. The Company's working capital at December 31,
1999 was $.6 million as compared to $.5 million at December 31, 1998.
On May 19, 1999 the Company executed a financing agreement effective as of
May 24, 1999 with Business Alliance Capital Corp., an asset base lender. Under
the terms of this agreement, the Company is authorized to borrow a maximum of
$2,500,000 against certain assets, including eligible inventory and receivables.
The Company used a portion of these proceeds to pay off it's former lender so
that Business Alliance Capital Corp. is now the Company's sole lender.
The following table summarizes cash provided by (used in) the Company's
business activities for the past three years:
1997 1998 1999
------ ------ ------
(Dollars in thousands)
Operating activities..................$ 4,137 $ 928 $ (797)
Investing activities.................. (605) 494 (240)
Financing activities.................. (3,700) (1,378) 1,037
Increase (decrease) in cash........... (168) 44 -
Operating Activities. The net use of cash in 1999 was principally due to
the increase in accounts receivable of $1.2 million and inventories of $1.1
million. These increases reflect the increased sales levels particularly in the
fourth quarter and the stocking of inventory levels to support the increased
sales volume.
Investing Activities. Cash uses in 1999 primarily reflect the upgrade of
computer and related systems and building renovations relating to the Company's
lease reconfiguration.
Financing Activities. During 1999, the Company increased the amounts
outstanding under its line of credit by $1.1 million to $2.3 million at December
31, 1999. Notes payable to employees decreased by $65,000.
Seasonality
The jewelry business is highly seasonal, with the fourth calendar quarter,
which includes the Christmas shopping season, historically contributing the
highest sales of any quarter during the year. Net sales in the third quarter
1998 include the results from DACO through August 31, 1998. The fourth quarter
1998 does not reflect any results from DACO. Seasonality cannot be predicted or
counted upon, and the results of any interim period are not necessarily
indicative of the results that might be expected during a full fiscal year.
The following table sets forth the Company's unaudited net sales for the
periods indicated (dollar amounts are in thousands):
Year Ended December 31,
--------------------------------------------------------
1997 1998 1999
Amount % Amount % Amount %
-------------- ----------------- -------------------
First Quarter $ 6,051 23.7 $ 4,687 28.7 $ 2,819 16.8
Second Quarter 5,329 20.9 5,242 32.1 2,886 17.2
Third Quarter 5,955 23.3 3,234 19.8 3,413 20.3
Fourth Quarter 8,188 32.1 3,174 19.4 7,682 45.7
------ ------ ------- ------ -------- ------
Total $25,523 100.0 $16,337 100.0 $16,800 100.0
====== ====== ======= ====== ======== ======
8
<PAGE>
Inflation
Inflation has historically not had a material effect on the Company's
operations. When the price of gold or precious stones has increased, these costs
historically have been passed on to the customer. Furthermore, because the
Company does not have either long-term supply contracts or long-term contracts
with customers, prices are quoted based on the prevailing prices for
semi-precious gemstones or metals. Accordingly, the Company does not believe
inflation will have a material effect on its future operations.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Executive Officers
The following table sets forth certain information as of the date hereof
with respect to the directors and executive officers of the Company.
Name Age Position
---- ---- --------
Joseph K. Lau 52 Chairman of the Board of Directors: President of
IWI Holding Limited, Principal Financial Officer
Richard J. Mick 59 Vice President - Sales and Director
Norman S.W. Chui 28 Director
Connie S. Yui 49 Inventory Manager and Director
Joseph A. Benjamin 57 Director
Samuel H. Lou 46 Director
Each director is serving a one-year term that expires after the next annual
meeting of the Company's shareholders, or until their successors are elected and
qualified. Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors.
Joseph K. Lau and Connie Yui are brother and sister. Norman S. W. Chui is
the nephew of Joseph K. Lau.
Joseph K. Lau joined the Company in November, 1982 and was elected Senior
Vice President, Chief Operating Officer, Secretary and Director in February,
1986 and Chairman of the Board, President and Chief Executive Officer in August,
1998. For the 11 years prior to joining the Company, he held a management
position in the restaurant industry and owned a trading company in Hong Kong.
Richard J. Mick joined the Company in February, 1996 as Vice President -
Sales and Director. For 6 years prior to joining the Company he was President of
a sales and marketing firm selling jewelry and related products. Prior thereto,
Mr. Mick was employed by J.C. Penney Company, Inc. for 26 years.
Norman S. W. Chui joined the Company in December, 1997 as Senior
Manager/Secretary and Director. Prior to joining the Company, Mr. Chui was a
consultant with Eclipse Information Systems of Darien, IL and prior to thereto
was a consultant for Arthur Andersen & Co., which he joined following graduation
from the University of Illinois in 1994. Mr. Chui resigned from the Company in
January, 2000 but remains active as a member of the Board.
Connie S. Yui joined the Company in March, 1985 and has served as the
Product Development Manager and is responsible for inventory control and pearl
assembly.
Joseph A Benjamin has served as a Director of the Company since December,
1997. Mr. Benjamin is a CPA with his own accounting firm in Chicago, Illinois.
Samuel H. Lou has served as a Director of the Company since December, 1997.
Mr. Lou is a business consultant with his own firm in Chicago, Illinois.
9
<PAGE>
Employment Contracts
The Company has employment contracts with one officer of Imperial. Joseph
K. Lau is employed by Imperial pursuant to a contract expiring July, 2001. The
contract provides for at a base salary of $225,000 per year, and bonuses as
determined by the Compensation Committee of the Board of Directors.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate cash compensation paid by the Company to all directors and
officers as a group during 1999 was approximately $515,000.
Certain officers of the Company will be entitled to bonuses from the
Company based on performance criteria to be established by the Compensation
Committee of the Board of Directors of the Company. Additionally, in December,
1993, the Company adopted a Stock Option Plan (the "Option Plan") to assist the
Company and its subsidiaries in retaining the service of current employees,
motivating selected key management personnel, and attracting new management by
providing the opportunity for such personnel to acquire a proprietary interest
in the Company and thereby share in its growth and success. Participation in the
Option Plan and the granting of options under the Option Plan are made by the
Compensation Committee of the Board of Directors, subject to ratification by the
Board. Pursuant to the Option Plan, a total of 150,000 shares of Common Stock
are reserved for issuance. The Option Plan requires that the exercise price of
the option be the fair market value of the Company's stock on the date of the
grant of the option but not less than $8.50 per share. The fair market value for
purposes of the Option Plan is for so long as Common Stock is quoted on the
NASDAQ Small Cap, the final closing sales price per share on the date of the
grant. The exercise price with respect to any option must be paid in cash. As of
the date hereof, options to purchase 20,000 shares of Common Stock had been
granted and are outstanding under the Option Plan.
The Company, during 1995, also adopted a Non-Qualified Stock Option Plan
(the "Non-Qualified Plan"). A total of 600,000 shares are reserved for issuance
under the Non-Qualified Plan. The Non-Qualified Stock Option Plan provides for
the granting of options and stock appreciation rights to non-employee directors,
key management employees and consultants and is administered by the Compensation
Committee. The terms of any options and/or stock appreciation rights granted
under the Non-Qualified Plan shall be determined by the Compensation Committee
provided that options may not be exercisable for a term longer than ten years
and may not be exercisable at a price less than the stated value of the Common
Stock. No options or stock appreciation rights had been granted under the
Non-Qualified Stock Option Plan as of December 31, 1999.
In addition, the Company maintains a defined contribution plan which has both a
profit sharing feature and a 401(k) savings feature (the "Plan"). Under the
profit sharing portion of the Plan, contributions are an amount determined by
the Company's Board of Directors. Subject to certain limitations required by
law, the Company's contribution is allocated to each participant who is employed
by the Company at the end of the Plan year in the proportion that the total
compensation paid by the Company to each participant bears to the aggregate
compensation paid by the Company to all participants during such Plan year.
Under the 401(k) savings feature, eligible employees may elect, subject to
certain limitations required by law, to defer payment of up to 15% of their
compensation. The Plan provides that if an employee defers payment, the Company
will contribute 50% of the first 6% of compensation deferred, by making a cash
payment to the Plan on behalf of such participant. Contributions by the Company
to the profit sharing feature of the plan, and earnings thereon, vest based on
the participant's years of service with the Company, vesting 20% per year after
one year of service and being fully vested after six years of service. Employee
contributions are always 100% vested. Contributions by the Company to the 401(k)
savings feature vest on the employees first day of employment. All contributions
vest, regardless of years of service, upon termination of employment by reason
of death of disability, attainment of age 62 or the termination of the Plan.
After termination of employment, an employee is entitled to receive the
distribution of his or her entire vested interest in the Plan in a lump sum, in
installments for a specific period of time, or an annuity for life. The amounts
held under the Plan are invested according to the instructions of the
participant in investment funds designated by the plan administrator. The
Company made contributions to the Plan during 1999 and 1998 of $42,000 and
$31,000, respectively.
10
<PAGE>
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Pursuant to the Company's Option Plan, the Company presently has
outstanding incentive stock options to purchase 20,000 shares of the Company's
Common Stock, of which no options to purchase shares are held by officers of the
Company, are exercisable at $8.50 per share and expire in January of 2000.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
All transactions between the Company, its officers, directors, principal
shareholder or affiliates, whether presently existing are, or in the future will
be, in the belief of management, on terms no less favorable to the Company than
may be obtained from unaffiliated third parties.
Rhine Jewellery Limited (Rhine), located in Hong Kong and the Company's
principal supplier through 1997, is a subsidiary of Rhine Holding Limited, a
former major stockholder of the Company. For the years ended December 31,1999,
1998, and 1997, the Company's purchases of products from Rhine were
approximately $0, $900,000 and $ 4,200,000 respectively. During 1998, Rhine
Holding Limited filed for bankruptcy in Hong Kong and purchases from Rhine
ceased.
Since 1998, some of the Company's products were purchased from a
manufacturer in Hong Kong, which is managed by a relative of an officer of the
Company. For the years ended December 31, 1999 and 1998, the Company's purchases
from this manufacturer were approximately $5,000,000 and $700,000 respectively.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None reportable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
None reportable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to the index to Consolidated Financial Statements of the
Company, and notes thereto, appearing under Item 19 below, together with the
report of Blackman Kallick Bartelstein, LLP thereon.
11
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements Page
--------------------- -------
Report of Independent Auditors................................. F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998.. F-2
Consolidated Statements of Operations of Each of the Years
in the Three-Year Period Ended December 31, 1999........... F-3
Consolidated Statements of Shareholders' Equity for Each of the
Years in the Three-Year Period Ended December 31, 1999..... F-4
Consolidated Statements of Cash Flows for Each of the Years in
the Three-Year Period Ended December 31, 1999.............. F-5
Notes to Consolidated Financial Statements..................... F-7
Financial Statement Schedules (1).................
I - Condensed Financial Information of Registrant.......... F-25
II - Valuation and Qualifying Accounts..................... F-28
-----------------------
(1) All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule.
(b) Exhibits
Exhibit
Number Description
------- -------------------
2.1* Bill of Sale dated February 4, 1995 re: acquisition of assets of
Ullenberg Corporation (1)
2.2* Stock Purchase Agreement relating to DACO Manufacturing Ltd. (3)
3.1* Amended and Restated Memorandum of Association and Articles of
Association of IWI Holding Limited (2)
4.1* Specimen Form of Common Stock certificate (2)
10.1* Lease Agreement between Imperial World, Inc. and American
National Bank and Trust Company of Chicago dated October 15, 1993
for the site in Westmont, Illinois (2)
10.2* Stock Option Plan (2)
10.3* Amended and Restated Credit Agreement dated June, 1996 between
Rhode Island Hospital Trust National Bank and Imperial World, Inc. (2)
10.4* Indemnity Agreement (2)
10.5* Profit Sharing Plan (2)
10.6* Territorial Agreement (2)
10.8* IWI Holding Limited 1995 Non-Qualified Stock Option Plan (4)
10.10* Employment Contract with Joseph K. Lau
10.11* Financing Agreement with Business Alliance Capital Corp.
10.12* Settlement Agreement with Richard W. Sigman
10.13* Settlement Agreement with Bruce W. Anderson
10.14* Amended Lease Agreement
10.15* DACO Sales Agreement
27.1 * Financial Data Schedule
--------------------
(1) Incorporated by reference to the Company's Report on Form 6-K for the month
of February, 1995.
(2) Incorporated by reference to the Company's Registration Statement on Form
F-1 (File No. 33-78904) declared effective December 13, 1994).
(3) Incorporated by reference to the Company's Report on Form 6-K for the month
of August, 1995.
(4) Incorporated by reference to the Company's Form 20-F for the year-ended
December 31, 1995.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IWI HOLDING LIMITED
By:/s/ Joseph K. Lau
--------------------------
Joseph K. Lau
Chairman
By: /s/ Richard J. Mick
--------------------------
Richard J. Mick
Vice President - Sales and Director
By: /s/ Norman S.W. Chui
--------------------------
Norman S. W. Chui
Director
By: Connie S. Yui
--------------------------
Connie S. Yui
Inventory Manager and Director
By: /s/ Joseph A. Benjamin
--------------------------
Joseph A. Benjamin
Director
By: /s/ Samuel H. Lou
--------------------------
Samuel H. Lou
Director
Dated: June 16, 2000
13
<PAGE>
C O N T E N T S
Reference Page
----------- ------
Independent Auditor's Report 1
Consolidated Balance Sheets Exhibit A 2-3
Consolidated Statements of Operations Exhibit B 4
Consolidated Statements of Stockholders' Equity Exhibit C 5-6
Consolidated Statements of Cash Flows Exhibit D 7-8
Notes to Consolidated Financial Statements 9-21
Condensed Financial Information of Registrant Schedule I
Balance Sheets 22
Statements of Income (Loss) and Accumulated Deficit 23
Note to Condensed Financial Statements 24
Valuation and Qualifying Accounts Schedule II 25-26
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
IWI Holding Limited
Westmont, Illinois
We have audited the accompanying consolidated balance sheets of IWI HOLDING
LIMITED as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. Our audits also included the financial statement schedules listed in the
index at item 19(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits. The
financial statements and schedules of the Company for the year ended December
31, 1997, were audited by other auditors whose report, dated February 20, 1998,
except for Note 4 and paragraph 1 of Note 6 as to which the date was June 26,
1998, expressed an unqualified opinion, assuming the Company continued as a
going concern.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IWI HOLDING
LIMITED as of December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles. In addition, the information set forth
in schedules listed in the index at item 19(a) is fairly stated, in all material
respects, in relation to the consolidated financial statements from which it has
been derived.
s/Blackman Kallick Bartelstein, LLP
Chicago, Illinois
January 31, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS FOLLOW
IWI HOLDING LIMITED
Consolidated Balance Sheets
(In Thousands, Except Share Data)
December 31, 1999 and 1998
================================================================================
ASSETS (Note 4)
--------
1999 1998
------ ------
Current Assets
Cash $ 82 $ 82
Accounts receivable, less allowance for doubtful
accounts of $625 in 1999 and $280 in 1998 2,839 1,749
Inventories 4,800 3,686
Prepaid expenses 104 107
-------- --------
Total Current Assets 7,825 5,624
-------- --------
Property and Equipment 2,862 2,623
Less accumulated depreciation (1,974) (1,678)
-------- --------
Property and Equipment, Net 888 945
-------- --------
$ 8,713 $ 6,569
======== ========
The accompanying notes are a part of the consolidated financial statements
F-2
<PAGE>
EXHIBIT A
------------
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
1999 1998
------ -------
Current
Lines of $ 2,319 $ 1,217
Notes payable 60 125
Accounts payable - Trade 1,858 1,655
Accounts payable to affiliated companies 1,786 1,423
Accrued advertising 373 181
Accrued liabilities 845 553
-------- --------
Total Current Liabilities 7,241 5,154
-------- --------
Stockholders' Equity
Preferred stock - $1 par value; authorized - 5,000,000
shares; issued and outstanding - 3,644,880 shares 3,645 3,645
Common stock - No par value; authorized - 10,000,000
shares; issued and outstanding - 2,554,700 shares - -
Additional paid-in capital 12,446 12,446
Accumulated deficit (14,619) (14,676)
-------- --------
Total Stockholders' Equity 1,472 1,415
-------- --------
$ 8,713 $ 6,569
======== ========
The accompanying notes are a part of the consolidated financial statements
F-3
<PAGE>
EXHIBIT B
-----------
IWI HOLDING LIMITED
Consolidated Statements of Operations
(In Thousands, Except Share Data)
Years Ended December 31, 1999, 1998 and 1997
================================================================================
1999 1998 1997
------ ------ ------
Net Sales $ 16,800 $ 16,337 $ 25,523
Cost of Sales 11,549 12,650 24,018
--------- --------- ---------
Gross Profit 5,251 3,687 1,505
Selling, General and Administrative
Expenses 4,969 6,143 8,521
(Gain) Loss on Assets Held for Disposal - (110) 2,300
--------- --------- ---------
Income (Loss) from Operations 282 (2,346) (9,316)
Interest Expense (225) (430) (832)
--------- --------- ---------
Income (Loss) Before Income Taxes 57 (2,776) (10,148)
Income Tax Benefit - (67) (14)
--------- --------- ---------
Net Income (Loss) $ 57 $ (2,709) $(10,134)
========= ========= =========
Net Income (Loss) Per Common Share $ 0.02 $ (1.06) (3.96)
========= ========= =========
Weighted-Average Number of Common
Shares Outstanding 2,554,700 2,554,700 2,558,217
========== ========== ==========
The accompanying notes are a part of the consolidated financial statements
F-4
<PAGE>
IWI HOLDING LIMITED
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
Years Ended December 31, 1999, 1998 and 1997
================================================================================
Preferred Stock Common Stock
Number of Number of
Shares Amount Shares Amount
--------- ------- --------- -------
Balance, January 1, 1997 3,664,880 $ 3,645 2,582,900 $ -
Repurchase of Common Stock - - (28,200) -
Net Loss - - - -
---------- -------- ---------- --------
Balance, December 31, 1997 3,664,880 3,645 2,554,700 -
Net Loss - - - -
---------- -------- ---------- --------
Balance, December 31, 1998 3,664,880 3,645 2,554,700 -
Net Income - - - -
---------- -------- ---------- --------
Balance, December 31, 1999 3,664,880 $ 3,645 2,554,700 $ -
========== ======== ========== ========
The accompanying notes are a part of the consolidated financial statements
F-5
<PAGE>
EXHIBIT C
-----------
================================================================================
Additional
Paid-In Accumulated
Capital Deficit Total
------------ ------------ ---------
$ 12,475 $ (1,833) $ 14,287
(29) - 29
- (10,134) (10,134)
---------- ---------- ----------
12,446 (11,967) 4,124
- (2,709) (2,709)
---------- ---------- ----------
12,446 (14,676) 1,415
- 57 57
---------- ---------- ----------
$ 12,446 $(14,619) $ 1,472
========== ========== ==========
F-6
<PAGE>
EXHIBIT D
-----------
(Page 1)
IWI HOLDING LIMITED
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended December 31, 1999, 1998 and 1997
================================================================================
<TABLE>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 57 $ (2,709) $ (10,134)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation and amortization 297 252 955
Loss on sale of assets - 7 -
Provision for doubtful accounts 125 177 865
Deferred income taxes - - 46
(Gain) loss on assets held for disposal - (110) 2,300
(Increase) decrease in
Accounts receivable (1,215) 1,432 3,335
Inventories (1,114) 2,340 4,837
Refundable income taxes - - 432
Prepaid expenses 3 38 (58)
Increase (decrease) in
Accounts payable - Trade 203 (512) 100
Accounts payable to affiliated company 363 187 1,760
Accrued liabilities 484 (174) (101)
------- -------- ---------
Net Cash (Used in) Provided by
Operating Activities (797) 928 4,137
------- -------- ---------
Cash Flows from Investing Activities
Purchases of property and equipment (240) (11) (605)
Proceeds from sale of equipment - 5 -
Proceeds from sale of assets held for disposal - 500 -
------- -------- ---------
Net Cash (Used in) Provided by
Investing Activities (240) 494 (605)
------- -------- ---------
</TABLE>
The accompanying notes are a part of the consolidated financial statements
F-7
<PAGE>
EXHIBIT D
------------
(Page 2)
IWI HOLDING LIMITED
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended December 31, 1999, 1998 and 1997
================================================================================
<TABLE>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Financing Activities
(Payments to) borrowings from notes payable
employees $ 65 $ 125 $ -
Borrowings from (payments on) lines of credit, net 1,102 (1,503) (2,964)
Payments on notes payable to stockholders and
payable to affiliate - - -
Repurchase of common stock - - -
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities 1,037 (1,378) (3,700)
-------- -------- --------
Net Increase (Decrease) in Cash - 44 (168)
Cash, Beginning of Year 82 38 206
-------- -------- --------
Cash, End of Year $ 82 $ 82 $ 38
======== ======== ========
</TABLE>
The accompanying notes are a part of the consolidated financial statements
F-8
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 1 - DESCRIPTION OF BUSINESS AND ACQUISITIONS
IWI Holding Limited (Holding) was incorporated in the British Virgin Islands on
February 22, 1993. Holding and its wholly owned subsidiaries (together, the
Company) import, manufacture, and wholesale fine jewelry. The Company also
imports pearls for assembly and resale through its wholly owned subsidiary,
Imperial World, Inc. (Imperial). Sales to Canada were discontinued during 1998
due to the sale of the Daco subsidiary. See Note 3.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
-------------
All significant intercompany transactions have been eliminated.
Inventories
-----------
Inventories, primarily consisting of finished goods, are stated at the lower of
first-in, first-out (FIFO) cost or market.
As of December 31, 1997, management determined that the Company's inventory was
in excess of its requirements measured by its existing and anticipated level of
sales. Accordingly, based on the existing market conditions, inventory valuation
reserves of $1,800,000 were recorded as of December 31, 1997, for the
anticipated losses from the completion of the plans initiated to maintain
liquidity and reduce inventory to desired levels. These inventory reduction
plans were substantially completed as anticipated.
Net sales during 1998 continued at a level much lower than anticipated, and
management initiated another inventory reduction plan. Approximately $673,000 of
additional reserves were established during 1998 for the further reduction of
inventory under this plan. An inventory valuation reserve of $1,778,000 remained
as of December 31, 1998. This inventory reduction plan was substantially
completed as anticipated.
F-9
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories (Continued)
-----------
As of December 31, 1999, the inventory valuation reserve is $1,440,000 , which
the Company's management believes is adequate for any future liquidations. The
Company did not record any expense during 1999 for future liquidations.
Depreciation
------------
Property and equipment are stated at historical cost and depreciated primarily
on a straight-line basis over their estimated useful lives. Useful lives range
from three to ten years for machinery, equipment and leasehold improvements.
Income Taxes
------------
Deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are
expected to reverse.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and notes payable. The fair values of all financial
instruments were not materially different than their carrying values.
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires Company management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation
------------------------
The Company has granted stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and, accordingly,
recognizes no compensation expense for the stock option grants.
F-10
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs
-----------------
The Company expenses all advertising costs as incurred. Advertising costs were
approximately $672,180, $436,000, 658,000 for 1999, 1998 and 1997, respectively.
Foreign Currency
----------------
The functional currency of the Company is the U.S. dollar. Transactions arising
in foreign currencies have been translated at rates in effect at the dates of
the transactions. Gains or losses during the year have been included in net
income (loss).
Income (Loss) Per Common Share
------------------------------
Effective in 1997, the Company adopted the provisions of FASB No. 128, "Earnings
Per Share." Income (loss) per common share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during the
period. When dilutive, stock options and warrants are included as share
equivalents using the treasury stock method in the calculation of diluted
earnings per share. Basic and diluted net income (loss) per common share are the
same for the years ended December 31, 1999, 1998 and 1997. Common stock
equivalents of the Company were antidilutive for the years ended December 31,
1998 and 1997 and were not material for the year ended December 31, 1999.
Segment Information
-------------------
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement supercedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. This statement requires
disclosure of certain information by reportable segment, geographic area and
major customer.
The Company imports, manufactures and wholesales fine jewelry. Substantially all
the Company's sales are within the United States. The Company operates this
product line as one operating segment, which is deemed one reportable segment
for purposes of this disclosure.
F-11
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income (Loss)
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income (loss) and its
components in the financial statements. Components of comprehensive income
(loss) include amounts that, under SFAS No. 130, are included in the
comprehensive income (loss) but are excluded from net income (loss). There were
no significant differences between the Company's net loss and comprehensive
loss.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instrument and Hedging Activities." SFAS No. 133 is
effective for the fiscal years beginning after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair market value. Changes in the fair value of derivatives are recorded
each period in the current earnings or other comprehensive income (loss)
depending on whether a derivative is designed as part of a hedge transaction
and, if so, the type of hedge transaction involved. The Company does not expect
that adoption of SFAS No. 133 will have a material impact on its consolidated
financial position or results of operation, as the Company does not currently
hold any derivative financial instruments.
NOTE 3 - LOSS ON ASSETS HELD FOR DISPOSAL
In connection with management's plan to increase liquidity, the Company
completed the sale of its Daco subsidiary in August 1998. As of December 31,
1997, the carrying value of the net assets of Daco were reduced to fair value
(approximately $363,000) based on an estimate of the selling value less costs to
sell. The selling value had been determined based on a written offer received
and accepted in principle by the Company on June 26, 1998. The Company
recognized a loss of $2,300,000 in 1997 from this sale.
During 1998, the Company recognized a gain of $110,000 based upon the final
selling value less costs to sell. Daco had net sales of approximately $4.8
million and $10.4 million in 1998 and 1997, respectively, and a net loss of
$299,000 and $26,000 in 1998 and 1997, respectively.
F-12
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 4 - CREDIT ARRANGEMENTS
On May 24, 1999, the Company entered into an agreement with a financial
institution, whereby Imperial can borrow up to $2.5 million payable on demand.
The total credit facility is governed by a formula, as defined in the agreement,
based principally on accounts receivable and inventory levels. This agreement
provides, among other things, that the credit facilities are collateralized by
substantially all assets of Imperial. Under this new demand facility, interest
is calculated at 3% over prime. The agreement contains certain reporting and
financial covenants, which the Company is required to maintain. The agreement
can be terminated by the Company with 30 days' written notice, or by the lender
upon certain events as specified in the loan agreement. An officer of the
Company has personally guaranteed up to $1,000,000 of this borrowing. As of
December 31, 1999, borrowing under this credit agreement was $2,319,000.
During 1998, the Company had an agreement with a bank, whereby they borrowed
funds through a line of credit, which bore interest at 12.75% as of December 31,
1998. The borrowings under this line of credit as of December 31, 1998 was
$1,217,124.
NOTE 5 - STOCKHOLDERS' EQUITY
The 3,644,880 issued preferred shares are redeemable at the Company's option
after March 21, 1997, at an amount not to exceed 50% of net income in excess of
$15 million for the preceding year. If not redeemed, the preferred shares will
begin to accrue a 4% noncumulative dividend at that date. The preferred shares
have voting rights equivalent to one-half vote per share and a $1 per share
liquidation preference.
On December 16, 1994, the Company issued 1,500,000 shares of its common stock at
$8.50 per share in an initial public offering (IPO). The proceeds received, net
of commissions and other related expenses, were approximately $9.9 million.
The Company granted an option to purchase 225,000 shares of common stock at an
exercise price of $8.50 to the underwriters. This option was exercised on
January 30, 1995, with the Company receiving net proceeds of approximately $1.6
million. In conjunction with the IPO, warrants to purchase an aggregate of
150,000 shares of common stock at an exercise price of $14.025 were issued to
the representative of the underwriters of the IPO. The warrants are exercisable
for a period of four years beginning December 16, 1995.
In February 1996, the Company's Board of Directors authorized the repurchase of
up to 350,000 shares of its common stock. As of December 31, 1999, 89,050 common
shares had been repurchased and retired.
F-13
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 6 - STOCK OPTION PLANS
The Company has 150,000 shares of common stock reserved for options, which may
be granted to directors, officers and key employees under a stock option plan
adopted in 1994. The exercise price of the options shall not be less than the
greater of $8.50 per share or the fair market value of the stock on the date the
option is granted. The only options outstanding as of December 31, 1999 and 1998
were 20,000 shares, at an exercise price of $8.50 per share granted in 1995.
During 1998, 60,000 shares were canceled.
During 1995, the Company adopted a nonqualified stock option plan under which
600,000 shares of common stock have been reserved for options which may be
granted to key employees and third-party consultants at an option price to be
determined by the Compensation Committee of the Board of Directors. No options
have been granted under this plan.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
(FASB 123), requires use of option valuation models that were not developed for
use in valuing employee stock options.
Under APB 25, since the exercise price of the Company's employee stock option
grants has equaled the estimated fair value of the underlying stock on the date
of grant, no compensation expense is recognized. Pro forma information regarding
net income and earnings per share is required under FASB 123 and has been
determined as if the Company had accounted for its stock options granted
subsequent to December 31, 1994, under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 7.8%; a dividend yield of zero percent;
and a weighted-average expected life of the options of five to seven years. The
volatility factor of the expected market price of the Company's common stock is
1.2.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective input assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-14
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 6 - STOCK OPTION PLANS (Continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the respective option. The
Company's pro forma net income (loss) and pro forma net income (loss) per share,
respectively, for the years ended December 31, 1999, 1998 and 1997 would be
$13,000 and $.01; ($2,752,000) and ($1.07); and ($8,985,000) and ($3.42),
respectively.
The weighted-average exercise price of options outstanding as of December 31,
1999 and 1998 is $8.50. The weighted-average remaining contractual life of
options outstanding expired as of December 31, 1999.
NOTE 7 - RELATED PARTY TRANSACTIONS
Rhine Jewelry Limited (Rhine), located in Hong Kong and the Company's principal
supplier for 1997, is a subsidiary of Rhine Holding Limited, a former major
stockholder of the Company. For the years ended December 31, 1999, 1998 and
1997, the Company's purchases from Rhine were approximately $0, $900,000 and
$4,200,000, respectively.
Since 1998, some of the Company's products were purchased from a manufacturer in
Hong Kong, which is managed by a relative of an officer of the Company. For the
years ended December 31, 1999, 1998 and 1997, the Company's purchases from this
manufacturer were approximately $5,000,000, $700,000 and $0, respectively.
F-15
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 8 - INCOME TAXES
The following table summarizes income taxes (benefits):
Year Ended December 31
-----------------------------------------
1999 1998 1997
------ ------ ------
(In Thousands)
Current
U.S. federal $ - $ - $ -
U.S. state - - 90
Other - (67) 30
------- --------- ---------
- (67) (60)
------- --------- ---------
Deferred
U.S. federal - - -
U.S. state - - -
Other - - (46)
------- --------- ---------
- - (46)
------- --------- ---------
Income Taxes $ - $ (67) $ (14)
======= ========= =========
Income (loss) before income taxes
United States 57 (2,410) (7,898)
Other - (366) (2,250)
------- --------- ---------
$ 57 $(2,776) $ (10,148)
======= ========= =========
F-16
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 8 - INCOME TAXES (Continued)
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
Year Ended December 31
--------------------------------------
1999 1998 1997
------ ------ ------
U.S. federal statutory tax rate (34.0)% (34.0)% (34.0)%
Excess foreign income taxes (benefit) - (2.1) 1.0
State income taxes (net of U.S.
federal income tax benefit) - - -
Change in valuation allowance 34.0 34.6 31.0
Other - (.9) 2.0
------- -------- ---------
Consolidated Effective Tax Rate -% (2.4)% -%
======= ======== =========
The components of deferred income taxes are as follows as of December 31:
1999 1998
------ -------
(In Thousands)
Deferred Tax Assets (Liabilities)
Loss carryforwards $ 5,364 $ 5,390
Accounts receivable 217 109
Inventories 624 743
Property and equipment (20) (72)
Other 25 12
-------- ---------
6,210 6,182
Less: Valuation allowance (6,210) (6,182)
-------- ----------
Net Deferred Tax Liability $ - $ -
-------- ----------
F-17
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 8 - INCOME TAXES (Continued)
For income tax purposes, the Company has a net operating loss carryforward of
approximately $12.5 million, which expires through 2013, and a capital loss
carryforward of approximately $2.3 million, which expires in 2003. Under the Tax
Reform Act of 1986, the benefits from net operating losses carried forward may
be impaired or limited in certain circumstances. Events which may cause
limitations in the amount of net operation losses that the Company may utilize
in any one year include, but are not limited to a cumulative ownership charge of
more than 50% over a three-year period. The impact of any deemed ownership
charges of this nature, has not been determined as of December 31, 1999.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31
----------------------------------------
1999 1998 1997
-------- ------ ------
(In Thousands)
Cash paid for income taxes $ - $ - $ 11
Cash paid for interest 207 477 867
NOTE 10 - EMPLOYEE BENEFIT PLAN
Imperial sponsors a defined-contribution, profit sharing plan (Plan) covering
substantially all full-time employees who have completed one year of service.
Company contributions to the Plan are discretionary, determined by the Board of
Directors and fully vest to employees upon completion of six years of service.
The Plan has a voluntary 401(k) savings feature. Participants may contribute up
to 15% of their compensation to the Plan. Imperial matches 50% of the first 2%
of compensation that a participant contributes. As of July 1, 1998, the matching
portion was increased to 50% of the first 6% of compensation that a participant
contributes. The matching is discretionary and decided annually by the Board of
Directors. Participant and employer-matched contributions to the Plan are 100%
vested. Company contributions were approximately $42,000, $31,000 and $15,000,
in 1999, 1998 and 1997, respectively.
F-18
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 11 - SIGNIFICANT CUSTOMERS
The Company derived 44%, 33% and 21% of its net sales from one customer during
1999, 1998 and 1997, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCY
Litigation
----------
The Company is a codefendant in a class action lawsuit brought by a stockholder
in 1996 who alleges the Company misrepresented its financial position in interim
financial statements. The stockholder is seeking damages of $11 million. The
Company disputes the stockholder's allegations and believes that they would
ultimately prevail in the litigation. During November 1999, the Company and the
plaintiff entered into negotiations to settle the claim against the Company.
Because of the cost and uncertainty of litigation, the parties reached an
agreement in principal to settle the claim for a significantly lesser amount,
which was accrued as of December 31, 1999. The plaintiff and the Company have
not yet executed a formal settlement agreement. Moreover, the settlement
agreement is subject to court approval and the Company may decline to proceed
with the agreement if a significant number of class members "opt out" of the
settlement.
Operating Leases
----------------
Imperial is obligated under a lease on its operating facility for minimum
rentals as well as real estate taxes and other operating expenses through
October 2003, with an option for an additional five years. During 1999, Imperial
consolidated into a smaller space within the premises.
The future minimum lease payments required under these leases as of December 31,
1999, approximated the following (in thousands):
Year Ending December 31,
2000 $ 125
2001 129
2002 133
2003 125
------
Total Minimum Lease Payments $ 512
======
Rent expense included in the accompanying statements of operations amounted to
$173,686, $414,340 and $463,000 for 1999, 1998 and 1997, respectively.
F-19
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 12 - COMMITMENTS AND CONTINGENCY (Continued)
Employment Agreements
The Company has an employment agreement with an officer expiring on July 31,
2001. The agreement includes provisions for severance payments for the longer of
one additional year or any period for which the employee is required not to
compete.
The future minimum annual compensation payments as required under the agreement
as of December 31, 1999, approximated the following (in thousands):
2000 $ 235
2001 146
------
$ 381
======
F-20
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
NOTE 13 - GEOGRAPHIC SEGMENT INFORMATION
Financial information as of and for the years ended December 31, 1999, 1998 and
1997, summarized by geographic area, is as follows:
<TABLE>
United
1999 States Canada (1) Eliminations Consolidated
------ --------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Total Revenues - Unaffiliated
customers $ 16,800 $ - $ - $ 16,800
========== ======= ======== =========
Income from operations $ 282 $ - $ - $ 282
========== ======= ======== =========
Assets - Identifiable assets $ 8,713 $ - $ - $ 8,713
========== ======= ======== =========
1998
Total Revenues - Unaffiliated
customers $ 11,507 $ 4,830 $ - $ 16,337
========== ======= ======== =========
Loss from operations $ (2,170) $ (176) $ - $ (2,346)
========== ======= ======== =========
Assets - Identifiable assets $ 6,569 $ $ - $ 6,569
========== ======= ======== =========
1997
Total Revenues - Unaffiliated
customers $ 15,540 $ 10,395 $ (412) $ 25,523
========= ======= ========= =========
Loss from operations $ (7,314) $ (2,002) $ - $ (9,316)
========= ======= ========= =========
Assets - Identifiable assets $ 13,550 $ 7,572 $ (9,967) $ 11,155
========= ======= ========= =========
(1) DACO subsidiary sold in August 1998. See note 3.
</TABLE>
F-21
<PAGE>
SCHEDULE I
----------
(Page 1)
IWI HOLDING LIMITED
Condensed Financial Information of Registrant
Balance Sheets
December 31, 1999 and 1998
================================================================================
ASSETS
--------
1999 1998
------ ------
Cash $ $
Due from affiliate 500,000 500,000
Investments in wholly owned subsidiaries 970,694 914,000
----------- -----------
Total Assets $ 1,471,694 $ 1,415,000
=========== ===========
STOCKHOLDERS' EQUITY
---------------------
Preferred stock - $1 par value; authorized-5,000,000 $ 3,644,880 $ 3,644,880
shares; issued and outstanding - 3,644,880 shares
Common stock - No par value; authorized - 10,000,000
shares; issued and outstanding - 2,554,700 shares
Additional paid-in capital 12,446,222 12,446,222
Accumulated deficit (14,619,408) (14,676,102)
------------ ------------
$ 1,471,694 $ 1,415,000
============ ============
The accompanying note is an integral part of the condensed financial statements
F-22
<PAGE>
SCHEDULE I
-----------
(Page 2)
IWI HOLDING LIMITED
Condensed Financial Information of Registrant
Statements of Income (Loss) and Accumulated Deficit
Years Ended December 31, 1999 and 1998
================================================================================
1999 1998
------ ------
Equity in net income (loss) of subsidiaries $ 56,694 $ (2,709,000)
Accumulated deficit, beginning of year (14,676,102) (11,967,102)
------------- --------------
Accumulated deficit, end of year $ (14,619,408) $ (14,676,102)
============= ==============
The accompanying note is an integral part of the condensed financial statements
F-23
<PAGE>
IWI HOLDING LIMITED
Condensed Financial Information of Registrant
Note to Condensed Financial Statements
Years Ended December 31, 1999 and 1998
================================================================================
NOTE 1 - BASIS OF PRESENTATION
The Company's share of net income (loss) of its unconsolidated subsidiaries, all
of which are wholly owned, is included in net income (loss) using the equity
method. Parent-company-only financial statements should be read in conjunction
with the Company's consolidated financial statements.
F-24
<PAGE>
SCHEDULE II
-----------
(Page 1)
IWI HOLDING LIMITED
Valuation and Qualifying Accounts
Years Ended December 31, 1999 and 1998
================================================================================
<TABLE>
Additions Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
-------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1997
Allowance for
Doubtful Accounts $ 694,000 $ 865,000 $ - $ 917,000 (1) $ 642,000
Inventory Valuation
Allowance 1,600,000 3,642,000 - 3,442,000 (2) 1,800,000
Deferred Income
Tax Valuation
Allowance 2,734,000 2,487,000 - 5,221,000
Year Ended
December 31, 1998
Allowance for
Doubtful Accounts $ 642,000 $ 177,000 $ - $ 539,000 (1) $ 280,000
Inventory Valuation
Allowance 1,800,000 673,000 - 695,000 (2) 1,778,000
Deferred Income
Tax Valuation
Allowance 5,221,000 961,000 - 6,182,000
</TABLE>
F-25
<PAGE>
SCHEDULE II
-------------
(Page 2)
IWI HOLDING LIMITED
Valuation and Qualifying Accounts
Years Ended December 31, 1999 and 1998
================================================================================
<TABLE>
Additions Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
-------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1999
Allowance for
Doubtful Accounts $ 280,000 $ 125,000 $ 220,000 $ - $ 625,000
Inventory Valuation
Allowance 1,778,000 - - 338,000 (2) 1,440,000
Deferred Income
Tax Valuation
Allowance 6,182,000 28,000 - - 6,210,000
</TABLE>
(1) Writeoff of uncollectible accounts
(2) Inventory losses realized
