UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K/A

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):             September 29, 2006

 

EMERGING VISION, INC.

(Exact name of registrant as specified in its charter)

 

 

New York

No.001-14128

No.11-3096941

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification No.)

 

 

100 Quentin Roosevelt Boulevard

Garden City, New York 11530

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code:   (516) 390-2100

 

Former name or former address, if changed since last report:                 Not Applicable

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2.):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

On September 29, 2006, Emerging Vision, Inc. (the “Company”) filed a Current Report on Form 8-K with the Securities and Exchange Commission that included information under Item 2.01 thereof reporting that the Company had completed its acquisition of substantially all of the assets of Combine Optical Management Corporation (“Combine”), a subchapter “S” corporation incorporated in the state of Florida. In response to part (b) of Item 9.01 of such Form 8-K, the Company stated that it would file or furnish, as applicable, the required pro forma financial statements for Combine by amendment. This Form 8-K/A is being filed to provide the required financial information.

 

 

2

 

 

 

Item 9.01

Financial Statements and Exhibits

 

a) Financial Statements of Business Acquired

b) Pro Forma Financials Statements

 

Exhibits

a.

Exhibit 23.1

Consent of Miller Ellin & Company, LLP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

a)

Financial Statements of Business Acquired

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS

 

 

 

 

PAGE

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

5

 

 

BALANCE SHEET AS OF DECEMBER 31, 2005

6

 

 

STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2005

7

 

 

STATEMENT OF SHAREHOLDERS’ (DEFICIT) EQUITY FOR THE YEAR ENDED

 

DECEMBER 31, 2005

8

 

 

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2005

9

 

 

NOTES TO FINANCIAL STATEMENTS

10 – 14

 

 

4

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders of Combine Optical Management Corporation:

 

We have audited the accompanying balance sheet of Combine Optical Management Corporation (a Florida subchapter “S” corporation) (the “Company”) as of December 31, 2005, and the related statements of income, shareholders' (deficit) equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Combine Optical Management Corporation as of December 31, 2005, and the results of its operations and its cash flows for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States.

 

 

 

New York, New York

/s/ MILLER ELLIN & COMPANY LLP

December 12, 2006

Certified Public Accountants

 

 

 

 

5

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

BALANCE SHEET

 

 

 

ASSETS

 

December 31,

 

 

 

2005

Current assets:

 

 

 

Accounts receivable, net of allowance of $41,000

$

1,889,814

 

Prepaid expenses and other current assets

 

21,993

 

Total current assets

 

1,911,807

 

 

 

 

Property and equipment, net

 

53,660

Other assets, net

 

28,768

 

Total assets

$

1,994,235

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued liabilities

$

1,762,824

 

Current maturities of long-term debt

 

20,000

 

Related party borrowings

 

155,000

 

Total current liabilities

 

1,937,824

 

 

 

 

Long-term debt, net

 

40,000

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

Common stock, no par value; 1,000 shares authorized, issued and outstanding

 

1,000

 

Retained earnings

 

15,411

 

Total shareholders' equity

 

16,411

 

Total liabilities and shareholders' equity

$

1,994,235

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

 

6

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

STATEMENT OF INCOME

 

 

 

 

For the year ended

 

 

December 31, 2005

 

 

 

Net sales

$

14,833,684

Cost of sales

 

13,882,293

Gross profit

 

951,391

 

 

 

Operating expenses:

 

 

Selling, general and administrative

 

900,712

 

 

 

Operating income

 

50,679

 

 

 

Other income (expense):

 

 

Other income

 

10,504

Interest expense

 

(2,158)

Total other income

 

8,346

 

 

 

Net income

$

59,025

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

STATEMENT OF SHAREHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

Common Stock

 

(Accumulated Deficit) Retained Earnings

 

Total Shareholders’ (Deficit) Equity

 

 

 

 

 

 

 

Balance as of December 31, 2004

$

1,000

$

(43,614)

$

(42,614)

Net income

 

-

 

59,025

 

59,025

Balance as of December 31, 2005

$

1,000

$

15,411

$

16,411

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

STATEMENT OF CASH FLOWS

 

 

 

 

For the year ended

 

 

December 31, 2005

Cash flows from operating activities:

 

 

Net income

$

59,025

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

8,489

Provision for doubtful accounts

 

33,775

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

1,207,014

Prepaid expenses and other current assets

 

22,688

Accounts payable and accrued liabilities

 

(1,261,375)

Net cash provided by operating activities

 

69,616

 

 

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(49,616)

Net cash used in investing activities

 

(49,616)

 

 

 

Cash flows from financing activities:

 

 

Payments on borrowings

 

(20,000)

Net cash used in financing activities

 

(20,000)

Net increase in cash

 

-

Cash – beginning of year

 

-

Cash – end of year

$

-

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid during the year for:

 

 

Interest

$

2,158

Taxes

$

-

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

 

 

9

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION:

 

Combine Optical Management Corporation (the “Company”) operates an optical group purchasing business which provides its members with vendor discounts on optical products. The Company currently has approximately 1,000 active members in its optical group purchasing business. The Company was incorporated as a subchapter “S” corporation in the State of Florida on October 10, 1996.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:

 

Revenue Recognition and Cost of Sales

 

The Company follows the requirements of SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” The Company derives its revenue from the product pricing extended to its members. The Company does not carry any inventory as members’ orders are shipped directly to the member from the suppliers.

 

Accordingly, revenues and the related cost of sales are recognized when delivery has occurred, prices to buyers are fixed or determinable, and collectibility is reasonably assured.

 

Cost of sales include the Company’s cost of product (based on the volume purchasing power from ordering for its members as a group) from its vendors, the associated shipping and freight costs, less certain discounts for the Company’s guaranteed prompt payment.

 

Fair Value of Financial Instruments

 

In determining the fair value of its financial instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing as of December 31, 2005. For the majority of financial instruments, including receivables and long-term debt, standard market conventions and techniques, such as discounted cash flow analysis, replacement cost and termination cost, are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

 

Property and Equipment, net

 

Property and equipment, net, are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are recorded using the accelerated method over the useful lives of the respective classes of assets. All depreciation and amortization costs are reflected in selling, general and administrative expenses in the Statement of Income for the year ended December 31, 2005.

 

Impairment of Long-Lived Assets

 

The Company follows the provisions of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, but amends the prior accounting and reporting standards for segments of a business to be disposed of. The Company periodically evaluates its long-lived assets based on, among other factors, the estimated, undiscounted future cash flows expected to be generated from such assets in order to determine if impairment exists. For the year ended December 31, 2005, the Company did not

 

10

 

 

record any impairment charges.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses primarily include payroll and related benefits, rent, other overhead, professional fees, depreciation, bank fees and bad debt expense.

 

Income Taxes

 

The Company is a subchapter “S” (small business) corporation. Income generated by the Company is taxed at the shareholder level. Therefore, no provision for income taxes is reflected in the Statement of Income for the year ended December 31, 2005.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, allowances on member receivables and the valuation of capitalized software.

 

Concentration of Credit Risk

 

Receivables

The Company operates predominantly in the United States, and its receivables are primarily from members that operate retail optical stores in the United States. The Company estimates an allowance for doubtful accounts based on its members’ financial condition and collection history. Management believes the Company’s allowances are sufficient to cover any losses related to its inability to collect its accounts receivable. Accounts receivable are written-off when significantly past due and deemed uncollectible by management.

 

Vendors

The Company utilizes certain key vendors to provide its members with a broad spectrum of product purchasing options. If one of these key vendors ceases to do business with the Company, or ceases to exist, the Company could see a decrease in the amount of product purchased by its members, thus decreasing sales and net income. Management believes that there is a sufficient amount of competing vendors and enough of a product mix to offset any changes to the Company’s key vendors.

 

NOTE 3 – PROPERTY AND EQUIPMENT, NET:

 

Property and equipment, net, consists of the following:

 

 

 

As of

 

Estimated

 

 

December 31, 2005

 

Useful Lives

 

 

 

 

 

Furniture and fixtures

$

21,411

 

5 years

Computer equipment

 

85,572

 

5 years

Software

 

46,000

 

3 years

 

 

152,983

 

 

Less: Accumulated depreciation and amortization

 

(99,323)

 

 

 

$

53,660

 

 

 

Depreciation expense totaled $3,557 and is included in selling, general and administrative expenses in the Statement

 

11

 

 

of Income for the year ended December 31, 2005.

 

NOTE 4 – LONG-TERM DEBT (INCLUDING RELATED PARTY BORROWINGS):

 

As of December 31, 2005, principal payments due on the Company's long-term debt and related party borrowings are as follows:

 

 

 

Related Party

 

Other

 

 

Borrowings (1)

 

Debt (2)

 

 

 

 

 

2006

$

155,000

$

20,000

2007

 

-

 

20,000

2008

 

-

 

20,000

 

$

155,000

$

60,000

 

 

1)

The Company, from time-to-time, borrowed money from its shareholders during the ordinary course of business. During 2006, the Company repaid all such borrowings.

 

2)

In January 2004, the Company settled an outstanding claim with Essilor USA, Inc., a full service optical lab, for $100,000, payable in quarterly installments of $5,000.

 

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES:

 

Operating Lease Commitments

 

During the year ended December 31, 2005, the Company leased its executive and administrative offices, located in Boca Raton, Florida, from a related party. Such lease was terminated in June 2006. As of December 31, 2005, minimum future rental payments on this lease, in the aggregate, are as follows:

 

 

 

 

Total Lease Obligations

 

 

 

2006

$

14,243

 

 

Litigation

 

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.

 

Letters of Credit

 

The Company holds three letters of credit with a financial institution in favor of certain of the Company’s vendors to ensure payment of any outstanding invoices not paid by the Company. The letters of credit each have a one-year term and are renewed annually. As of December 31, 2005, the three letters of credit totaled $535,000 and were secured by certain assets of the Company’s President.

 

 

12

 

 

 

NOTE 6 – RELATED PARTY TRANSACTIONS:

 

During 2005, the Company leased its administrative and executive offices, located in Boca Raton, Florida, from Old Shore Associates II LLC (“Old Shore”). Old Shore is owned by both of the Company’s shareholders. For the year ended December 31, 2005, the Company paid approximately $54,000 for rent and related charges under this lease. Management believes that the lease is at fair market value. In June 2006, the Company terminated its lease with Old Shore and relocated its administrative and executive offices to a new building, located in Boca Raton, Florida, which is owned by an unrelated party.

 

At various times during 2005, the Company borrowed from each of its shareholders for working capital needs. As of December 31, 2005, the Company owed such shareholders $155,000. Such amount was paid in full in October 2006.

 

NOTE 7 – SHAREHOLDERS’ EQUITY:

 

The Company has 1,000 authorized, issued and outstanding common shares having no par value. As of December 31, 2005, there are two shareholders, each of whom own 500 shares.

 

NOTE 8 – RETIREMENT PLAN:

 

The Company sponsors a qualified profit sharing plan. The plan covers all employees who meet certain eligibility requirements. Employer contributions are subject to a vesting schedule. Contributions were $48,360 for the year ended December 31, 2005.

 

NOTE 9 – SUBSEQUENT EVENT:

 

Sale of Company

 

On September 29, 2006, effective August 1, 2006, the Company sold substantially all of the assets of the Company to COM Acquisition, Inc., a wholly-owned subsidiary of Emerging Vision, Inc., for an aggregate purchase price of $2,410,000. The purchase price consisted of cash payable as follows: (i) $700,000 paid at closing; (ii) a promissory note (without interest) in the amount of $1,273,000 with $498,000 payable on October 1, 2007, $300,000 payable on October 1, 2008, $250,000 payable on October 1, 2009, and $225,000 payable on October 1, 2010; and (iii) a promissory note in the amount of $500,000 (with interest at 7% per annum) payable in sixty, equal monthly installments of $9,900.60 commencing October 1, 2007.

 

 

13

 

 

 

Operating Lease Commitments

 

In June 2006, the Company terminated its existing lease with Old Shore, at no cost, and relocated its executive and administrative offices into a new building, located in Boca Raton, Florida, which is not owned by a related party. Minimum future rental payments for the new lease for the Company’s executive and administrative offices, in the aggregate, are as follows:

 

 

 

 

Total Lease Obligations

 

 

 

2006

$

11,335

2007

 

27,205

2008

 

11,948

 

$

50,488

 

 

 

 

 

 

14

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

FINANCIAL STATEMENTS

FOR THE SEVEN MONTHS ENDED JULY 31, 2006

TABLE OF CONTENTS

 

 

 

 

PAGE

 

 

BALANCE SHEET AS OF JULY 31, 2006

16

 

 

STATEMENT OF INCOME FOR THE YEAR ENDED JULY 31, 2006

17

 

 

STATEMENT OF SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED JULY 31, 2006

18

 

 

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JULY 31, 2006

19

 

 

NOTES TO FINANCIAL STATEMENTS

20 – 24

 

 

15

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

BALANCE SHEET

 

 

 

ASSETS

 

 

 

 

 

July 31, 2006

 

 

(Unaudited)

Current assets:

 

 

 

Cash

$

42,219

 

Accounts receivable, net of allowance of $41,000

 

2,252,625

 

Prepaid expenses and other current assets

 

41,309

 

Total current assets

 

2,336,153

 

 

 

 

Property and equipment, net

 

77,760

Other assets, net

 

25,968

 

Total assets

$

2,439,881

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued liabilities

$

2,089,728

 

Current maturities of long-term debt

 

20,000

 

Related party borrowings

 

162,000

 

Total current liabilities

 

2,271,728

 

 

 

 

Long-term debt, net

 

25,000

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

Common stock, no par value; 1,000 shares authorized, issued and outstanding

 

1,000

 

Retained earnings

 

142,153

 

Total shareholders' equity

 

143,153

 

Total liabilities and shareholders' equity

$

2,439,881

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

16

 

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

STATEMENT OF INCOME

 

 

 

 

For the seven months

 

 

ended July 31, 2006

 

 

(Unaudited)

 

 

 

Net sales

$

9,406,965

Cost of sales

 

8,817,097

Gross profit

 

589,868

 

 

 

Operating expenses:

 

 

Selling, general and administrative

 

462,672

 

 

462,672

 

 

 

Operating income

 

127,196

 

 

 

Other expense:

 

 

Interest expense

 

(454)

 

 

(454)

 

 

 

Net income

$

126,742

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

STATEMENT OF SHAREHOLDERS’ EQUITY

 

 

 

 

Common Stock

 

 

Retained Earnings

 

Total Shareholder’ Equity

 

 

 

 

 

 

 

Balance as of December 31, 2005

$

1,000

$

15,411

$

16,411

Net income

 

-

 

126,742

 

126,742

Balance as of June 31, 2006, (Unaudited)

 

$

1,000

 

$

142,153

 

$

143,153

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

STATEMENT OF CASH FLOWS

 

 

 

 

For the seven months

 

 

ended July 31, 2006

 

 

(Unaudited)

Cash flows from operating activities:

 

 

Net income

$

126,742

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

6,349

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(362,811)

Prepaid expenses and other current assets

 

(19,315)

Accounts payable and accrued liabilities

 

326,903

Net cash provided by operating activities

 

77,868

 

 

 

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(27,649)

Net cash used in investing activities

 

(27,649)

 

 

 

Cash flows from financing activities:

 

 

Payments on borrowings

 

(8,000)

Net cash used in financing activities

 

(8,000)

Net increase in cash

 

42,219

Cash – beginning of year

 

-

Cash – end of year

$

42,219

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid during the year for:

 

 

Interest

$

454

Taxes

$

-

 

 

 

 

 

 

The accompanying notes are an integral part of this financial statement.

 

 

 

 

19

 

 

 

COMBINE OPTICAL MANAGEMENT CORPORATION

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 – ORGANIZATION:

 

Combine Optical Management Corporation (the “Company”) operates an optical group purchasing business which provides its members with vendor discounts on optical products. The Company currently has approximately 1,000 active members in its optical group purchasing business. The Company was incorporated as a subchapter “S” corporation in the State of Florida on October 10, 1996.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:

 

Revenue Recognition and Cost of Sales

 

The Company follows the requirements of SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” The Company derives its revenue from the product pricing extended to its members. The Company does not carry any inventory as members’ orders are shipped directly to the member from the suppliers.

 

Accordingly, revenues and the related cost of sales are recognized when delivery has occurred, prices to buyers are fixed or determinable, and collectibility is reasonably assured.

 

Cost of sales include the Company’s cost of product (based on the volume purchasing power from ordering for its members as a group) from its vendors, the associated shipping and freight costs, less certain discounts for the Company’s guaranteed prompt payment.

 

Fair Value of Financial Instruments

 

In determining the fair value of its financial instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing as of July 31, 2006. For the majority of financial instruments, including receivables and long-term debt, standard market conventions and techniques, such as discounted cash flow analysis, replacement cost and termination cost, are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

 

Property and Equipment, net

 

Property and equipment, net, are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are recorded using the accelerated method over the useful lives of the respective classes of assets. All depreciation and amortization costs are reflected in selling, general and administrative expenses in the Statement of Income for the seven months ended July 31, 2006.

 

Impairment of Long-Lived Assets

 

The Company follows the provisions of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, but amends the prior accounting and reporting standards for segments of a business to be disposed of. The Company periodically evaluates its long-lived assets based on, among other factors, the estimated, undiscounted future cash flows expected to be generated

 

20

 

 

from such assets in order to determine if impairment exists. For the seven months ended July 31, 2006, the Company did not record any impairment charges.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses primarily include payroll and related benefits, rent, other overhead, professional fees, depreciation, bank fees and bad debt expense.

 

Income Taxes

 

The Company is a subchapter “S” (small business) corporation. Income generated by the Company is taxed at the shareholder level. Therefore, no provision for income taxes is reflected in the Statement of Income for the year ended December 31, 2005.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of such financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, allowances on member receivables and the valuation of capitalized software.

 

Concentration of Credit Risk

 

Receivables

The Company operates predominantly in the United States, and its receivables are primarily from members that operate retail optical stores in the United States. The Company estimates an allowance for doubtful accounts based on its members’ financial condition and collection history. Management believes the Company’s allowances are sufficient to cover any losses related to its inability to collect its accounts receivable. Accounts receivable are written-off when significantly past due and deemed uncollectible by management.

 

Vendors

The Company utilizes certain key vendors to provide its members with a broad spectrum of product purchasing options. If one of these key vendors ceases to do business with the Company, or ceases to exist, the Company could see a decrease in the amount of product purchased by its members, thus decreasing sales and net income. Management believes that there is a sufficient amount of competing vendors and enough of a product mix to offset any changes to the Company’s key vendors.

 

NOTE 3 – PROPERTY AND EQUIPMENT, NET:

 

Property and equipment, net, consists of the following:

 

 

 

As of

 

Estimated

 

 

July 31, 2006

 

Useful Lives

 

 

 

 

 

Furniture and fixtures

$

24,637

 

5 years

Computer equipment

 

89,995

 

5 years

Software

 

66,000

 

3 years

 

 

180,632

 

 

Less: Accumulated depreciation and amortization

 

(102,872)

 

 

 

$

77,760

 

 

 

 

21

 

 

 

 

 

Depreciation expense totaled $3,549 and is included in selling, general and administrative expenses in the Statement of Income for the seven months ended July 31, 2006.

 

NOTE 4 – LONG-TERM DEBT (INCLUDING RELATED PARTY BORROWINGS):

 

As of July 31, 2006, principal payments due on the Company's long-term debt and related party borrowings are as follows:

 

 

 

Related Party

 

Other

 

 

Borrowings (1)

 

Debt (2)

 

 

 

 

 

August 1, 2006 – July 31, 2007

$

162,000

$

20,000

August 1, 2007 – July 31, 2008

 

-

 

20,000

August 1, 2008 – July 31, 2009

 

-

 

5,000

 

$

162,000

$

45,000

 

 

1)

The Company, from time-to-time, borrowed money from its shareholders during the ordinary course of business. In October 2006, the Company repaid all such borrowings.

 

2)

In January 2004, the Company settled an outstanding claim with Essilor USA Inc., a full service optical lab, for $100,000, payable in quarterly installments of $5,000.

 

 

22

 

 

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES:

 

Operating Lease Commitments

 

During 2006, the Company leased its executive and administrative offices, located in Boca Raton, Florida, from a related party. In June 2006, the Company terminated such lease and relocated its executive and administrative offices into a new building, located in Boca Raton, Florida, which is not owned by a related party. As of July 31, 2006, minimum future rental payments on the previous lease for the Company’s executive and administrative offices, in the aggregate, are as follows:

 

 

 

 

Total Lease Obligations

 

 

 

August 1, 2006 – July 31, 2007

$

33,431

August 1, 2007 – July 31, 2008

 

23,492

 

$

56,923

 

 

Litigation

 

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.

 

Letters of Credit

 

The Company holds three letters of credit with a financial institution in favor of certain of the Company’s vendors to ensure payment of any outstanding invoices not paid by the Company. The letters of credit each have a one-year term and are renewed annually. As of July 31, 2006, the three letters of credit totaled $535,000 and were secured by certain assets of the Company’s President.

 

NOTE 6 – RELATED PARTY TRANSACTIONS:

 

During 2006, the Company leased its administrative and executive offices, located in Boca Raton, Florida, from Old Shore Associates II LLC (“Old Shore”). Old Shore is owned by both of the Company’s shareholders. For the seven months ended July 31, 2006, the Company paid approximately $14,000 for rent and related charges under this lease. In June 2006, the Company terminated its lease with Old Shore and relocated its administrative and executive offices to a new building, located in Boca Raton, Florida, which is owned by an unrelated party.

 

At various times during 2006, the Company borrowed from each of its shareholders for working capital needs. As of July 31, 2006, the Company owed such shareholders $162,000. Such amount was paid in full in October 2006.

 

NOTE 7 – SHAREHOLDERS’ EQUITY:

 

The Company has 1,000 authorized, issued and outstanding common shares having no par value. As of July 31, 2006, there is one shareholder who owns all such shares.

 

 

23

 

 

 

NOTE 8 – RETIREMENT PLAN:

 

The Company sponsors a qualified profit sharing plan. The plan covers all employees who meet certain eligibility requirements. Employer contributions are subject to a vesting schedule. The 2006 contributions are due and payable during 2007. As such, there were no contributions made for the seven months ended July 31, 2006. These obligations were not assumed by COM Acquisition, Inc. (“COM”) during the sale of the Company as further discussed in Note 9.

 

NOTE 9 – SUBSEQUENT EVENT:

 

On September 29, 2006, effective August 1, 2006, the Company sold substantially all of the assets of the Company to COM, a wholly-owned subsidiary of Emerging Vision, Inc., for an aggregate purchase price of $2,410,000. The purchase price consisted of cash payable as follows: (i) $700,000 paid at closing; (ii) a promissory note (without interest) in the amount of $1,273,000 with $498,000 payable on October 1, 2007, $300,000 payable on October 1, 2008, $250,000 payable on October 1, 2009, and $225,000 payable on October 1, 2010; and (iii) a promissory note in the amount of $500,000 (with interest at 7% per annum) payable in sixty, equal monthly installments of $9,900.60 commencing October 1, 2007.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

b)

Pro Forma Financial Statements

 

 

Emerging Vision, Inc. and Subsidiaries, and Combine Optical Management Corporation

Pro Forma Consolidated Financial Statements

 

Unaudited Pro Forma Consolidated Financial Information

 

On September 29, 2006, and effective as of August 1, 2006, Emerging Vision, Inc. (“EVI”), through EVI’s wholly-owned subsidiary, COM Acquisition, Inc. (“COM”), acquired substantially all of the tangible and intangible assets and business of Combine Optical Management Corporation (“Combine”), a Florida corporation that operated an optical group purchasing business. In connection with this acquisition, EVI entered into a five-year Employment Agreement with Neil Glachman (“Glachman”), president and sole shareholder of Combine, pursuant to which Glachman will, among other things, serve as the President of COM. The Employment Agreement provided that Glachman will be paid a salary of $210,000 per annum, and will be entitled to receive an annual bonus, based upon an established formula, and to receive certain benefits.

 

The purchase price was as follows: (i) $2,473,000 in cash, $700,000 of which was paid at closing, and the aggregate balance of which ($1,773,000) is payable in accordance with the terms of two promissory notes, the first of which is in the original principal amount of $1,273,000 payable (without interest) in four annual installments commencing on October 1, 2007, and the second of which is in the original principal amount of $500,000 payable (with interest at 7% per annum) in sixty monthly installments of $9,960, and (ii) options issued to Glachman to purchase 3,515,625 shares of EVI’s common stock, at an exercise price per share of $0.15, of which 2,187,500 may be put back to EVI during the period commencing September 29, 2010 and ending on September 28, 2016, at a put price per share of $0.32. The fair value of such options, calculated using the Black-Scholes method, was approximately $139,000.

 

The purchase was accounted for as a business purchase transaction with the assets acquired recorded at fair values. The results of Combine’s operations are included in the Company’s consolidated financial statements from the effective date of the asset purchase.

 

The following unaudited pro forma consolidated financial information, with explanatory notes, present how the consolidated financial statements of EVI and its subsidiaries, and Combine may have appeared had the business actually been consolidated as of December 31, 2005 and for the year then ended, and as of July 31, 2006 and for the seven months then ended. The unaudited consolidated pro forma financial information includes the historical financial information of EVI and its subsidiaries, and Combine for the aforementioned dates and periods.

 

 

 

 

 

 

 

 

25

 

 

 

 

The unaudited pro forma consolidated financial statements may not be indicative of the actual results of the combined businesses had the acquisition occurred on January 1, 2005. The accompanying pro forma consolidated financial statements should be read in conjunction with the historical financial statements and the related notes of both EVI and Combine.

 

EMERGING VISION, INC. AND SUBSIDIARIES, AND COMBINE OPTICAL MANAGEMENT CORPORATION

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2005

(UNAUDITED)

(IN THOUSANDS)

 

 

 

ASSETS

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

816

$

-

$

467

$

1,283

Franchise receivables, net of allowance of $195

 

1,936

 

-

 

-

 

1,936

Optical purchasing group receivables, net of allowance of $41

 

-

 

1,890

 

-

 

1,890

Other receivables, net of allowance of $2

 

219

 

-

 

-

 

219

Current portion of franchise notes receivable, net of allowance of $150

 

158

 

-

 

-

 

158

Inventories, net

 

407

 

-

 

-

 

407

Prepaid expenses and other current assets

 

395

 

22

 

(22)

 

395

Total current assets

 

3,931

 

1,912

 

445

 

6,288

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

610

 

53

 

(53)

 

610

Franchise notes receivable, net of allowance of $41

 

129

 

-

 

-

 

129

Goodwill

 

1,266

 

-

 

-

 

1,266

Excess cost over net tangible assets acquired

 

-

 

-

 

2,320

 

2,320

Other assets, net

 

263

 

29

 

(29)

 

263

Total assets

$

6,199

$

1,994

$

2,683

$

10,876

 

 

 

 

 

 

 

26

 

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

4,012

 

$

1,763

 

$

-

 

$

5,775

Payables associated with proxy contest and related litigation

 

46

 

-

 

-

 

46

Accrual for store closings

 

37

 

-

 

-

 

37

Short-term debt

 

-

 

20

 

87

 

107

Related party borrowings

 

43

 

155

 

683

 

881

Total current liabilities

 

4,138

 

1,938

 

770

 

6,846

 

 

 

 

 

 

 

 

 

Long-term debt

 

385

 

40

 

1,485

 

1,910

Related party borrowings

 

191

 

-

 

-

 

191

Franchise deposits and other liabilities

 

667

 

-

 

-

 

667

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; Senior Convertible Preferred Stock, $100,000 liquidation preference per share; 0.74 shares issued and outstanding

 

74

 

-

 

-

 

74

Common stock, $0.01 par value per share; 150,000,000 shares authorized; 70,506,035 shares issued and 70,323,698 shares outstanding

 

705

 

-

 

-

 

705

Common stock, no par value; 1,000 shares authorized, issued and outstanding

 

-

 

1

 

(1)

 

-

Treasury stock, at cost, 182,337 shares

 

(204)

 

-

 

-

 

(204)

Additional paid-in capital

 

126,389

 

-

 

-

 

126,389

(Accumulated deficit) / Retained Earnings

 

(126,146)

 

15

 

429

 

(125,702)

Total shareholders’ equity

 

818

 

16

 

428

 

1,262

Total liabilities and shareholders’ equity

 

 

$

6,199

 

 

$

1,994

 

 

$

2,683

 

 

$

10,876

 

The accompanying notes are an integral part of this pro forma consolidated financial statement.

 

27

 

 

 

 

EMERGING VISION, INC. AND SUBSIDIARIES, AND COMBINE OPTICAL MANAGEMENT CORPORATION

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

Net sales

$

7,415

$

14,833

$

-

$

22,248

Franchise royalties

 

6,564

 

-

 

-

 

6,564

Other franchise related fees

 

123

 

-

 

-

 

123

Total revenue

 

14,102

 

14,833

 

-

 

28,935

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

1,029

 

13,882

 

-

 

14,911

Selling, general and administrative expenses

 

12,933

 

901

 

(385)

 

13,449

Total costs and expenses

 

13,962

 

14,783

 

(385)

 

28,360

 

 

 

 

 

 

 

 

 

Operating income

 

140

 

50

 

385

 

575

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest on franchise notes receivable

 

61

 

-

 

-

 

61

Other income

 

108

 

11

 

-

 

119

Interest expense

 

(43)

 

(2)

 

-

 

(45)

Total other income

 

126

 

9

 

-

 

135

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

266

 

59

 

385

 

710

Provision for income taxes

 

-

 

-

 

-

 

-

Net income

$

266

$

59

$

385

$

710

 

 

 

 

 

 

 

 

 

Net income per share – basic and diluted

 

$

0.00

 

$

0.00

 

$

0.00

 

$

0.01

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

70,324

 

70,324

 

70,324

 

70,324

Diluted

 

112,422

 

112,422

 

112,442

 

112,422

 

 

The accompanying notes are an integral part of this pro forma consolidated financial statement.

 

 

 

28

 

 

 

 

 

EMERGING VISION, INC. AND SUBSIDIARIES, AND COMBINE OPTICAL MANAGEMENT CORPORATION

PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2005

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

$

266

$

59

$

385

$

710

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

255

 

8

 

(8)

 

255

Provision for doubtful accounts

 

501

 

34

 

-

 

535

Non-cash compensation charges related to options and warrants

 

176

 

-

 

-

 

176

Charges related to long-lived assets

 

40

 

-

 

-

 

40

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Franchise and other receivables

 

(725)

 

1,207

 

(3,041)

 

(2,559)

Inventories

 

(11)

 

-

 

-

 

(11)

Prepaid expenses and other current assets

 

57

 

23

 

(23)

 

57

Other assets

 

(54)

 

-

 

-

 

(54)

Accounts payable and accrued liabilities

 

(150)

 

(1,228)

 

3,024

 

1,646

Payables associated with proxy contest and related litigation

 

(46)

 

-

 

-

 

(46)

Franchise deposits and other liabilities

 

8

 

-

 

-

 

8

Accrual for store closings

 

(5)

 

-

 

-

 

(5)

Net cash provided by operating activities

 

312

 

103

 

337

 

752

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Franchise notes receivable issued

 

(150)

 

-

 

-

 

(150)

 

 

29

 

 

 

 

Proceeds from franchise and other notes receivable

 

231

 

-

 

-

 

231

Purchases of property and equipment

 

(418)

 

(50)

 

50

 

(418)

Net cash used in investing activities

 

(337)

 

(50)

 

50

 

(337)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings

 

-

 

-

 

80

 

80

Payments on borrowings

 

(39)

 

(20)

 

-

 

(59)

Net cash (used in) provided by financing activities

 

(39)

 

(20)

 

80

 

21

Net (decrease) increase in cash and cash equivalents

 

(64)

 

33

 

467

 

436

Cash and cash equivalents – beginning of year

 

880

 

(33)

 

-

 

847

Cash and cash equivalents – end of year

 

$

816

 

$

-

 

$

467

 

$

1,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

$

12

$

2

$

-

$

14

Taxes

$

43

$

-

$

-

$

43

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accounts receivable and excess cost over net tangible assets acquired in connection with Combine Optical Management Corporation

 

 

 

 

 

 

$

-

 

 

 

 

 

 

$

-

 

 

 

 

 

 

$

2,410

 

 

 

 

 

 

$

2,410

 

 

The accompanying notes are an integral part of this pro forma consolidated financial statement.

 

 

 

 

 

 

 

 

30

 

 

 

 

The unaudited pro forma consolidated financial statements may not be indicative of the actual results of the combined businesses had the acquisition occurred on January 1, 2006. The accompanying pro forma consolidated financial statements should be read in conjunction with the historical financial statements and the related notes of both EVI and Combine.

 

EMERGING VISION, INC. AND SUBSIDIARIES, AND COMBINE OPTICAL MANAGEMENT CORPORATION

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF JULY 31, 2006

(UNAUDITED)

(IN THOUSANDS)

 

 

 

ASSETS

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,923

$

42

$

248

$

2,213

Franchise receivables, net of allowance of $183

 

1,476

 

-

 

-

 

1,476

Optical purchasing group receivables, net of allowance of $41

 

-

 

2.253

 

-

 

2,253

Other receivables, net of allowance of $2

 

251

 

-

 

-

 

251

Current portion of franchise notes receivable, net of allowance of $21

 

128

 

-

 

-

 

128

Inventories, net

 

389

 

-

 

-

 

389

Prepaid expenses and other current assets

 

383

 

41

 

(41)

 

383

Net assets from discontinued operations

 

14

 

-

 

-

 

14

Deferred tax asset – short-term

 

740

 

-

 

-

 

740

Total current assets

 

5,304

 

2,336

 

207

 

7,847

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

635

 

78

 

(78)

 

635

Franchise notes receivable, net of allowance of $38

 

200

 

-

 

-

 

200

Goodwill

 

1,266

 

-

 

-

 

1,266

Excess cost over net tangible assets acquired

 

-

 

-

 

2,320

 

2,320

Deferred tax asset – long-term

 

436

 

-

 

-

 

436

Other assets, net

 

229

 

26

 

(26)

 

229

Total assets

$

8,070

$

2,440

$

2,423

$

12,933

 

 

 

 

31

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

3,922

 

$

2,090

 

$

-

 

$

6,012

Accrual for store closings

 

37

 

-

 

-

 

37

Short-term debt

 

385

 

20

 

87

 

492

Related party borrowings

 

180

 

162

 

676

 

1,018

Total current liabilities

 

4,524

 

2,272

 

763

 

7,559

 

 

 

 

 

 

 

 

 

Long-term debt

 

-

 

25

 

1,485

 

1,510

Related party borrowings

 

32

 

-

 

-

 

32

Other long-term liabilities

 

546

 

-

 

-

 

546

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; Senior Convertible Preferred Stock, $100,000 liquidation preference per share; 0.74 shares issued and outstanding

 

74

 

-

 

-

 

74

Common stock, $0.01 par value per share; 150,000,000 shares authorized; 70,506,035 shares issued and 70,323,698 shares outstanding

 

705

 

-

 

-

 

705

Common stock, no par value; 1,000 shares authorized, issued and outstanding

 

-

 

1

 

(1)

 

-

Treasury stock, at cost, 182,337 shares

 

(204)

 

-

 

-

 

(204)

Additional paid-in capital

 

126,857

 

-

 

-

 

126,857

(Accumulated deficit) / Retained Earnings

 

(124,464)

 

142

 

176

 

(124,146)

Total shareholders’ equity

 

2,968

 

143

 

175

 

3,286

Total liabilities and shareholders’ equity

 

 

$

8,070

 

 

$

2,440

 

 

$

2,423

 

 

$

12,933

 

 

The accompanying notes are an integral part of this pro forma consolidated financial statement.

 

32

 

 

 

 

 

EMERGING VISION, INC. AND SUBSIDIARIES, AND COMBINE OPTICAL MANAGEMENT CORPORATION

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SEVEN MONTHS ENDED JULY 31, 2006

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

Net sales

$

4,168

$

9,407

$

-

$

13,575

Franchise royalties

 

4,069

 

-

 

-

 

4,069

Other franchise related fees

 

139

 

-

 

-

 

139

Total revenue

 

8,376

 

9,407

 

-

 

17,783

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

498

 

8,817

 

-

 

9,315

Selling, general and administrative expenses

 

7,345

 

463

 

(191)

 

7,617

Total costs and expenses

 

7,843

 

9,280

 

(191)

 

16,932

 

 

 

 

 

 

 

 

 

Operating income

 

533

 

127

 

191

 

851

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest on franchise notes receivable

 

26

 

-

 

-

 

26

Gain on sale of company-owned store to franchisee

 

218

 

-

 

-

 

218

Other income

 

38

 

-

 

-

 

38

Interest expense

 

(23)

 

-

 

-

 

(23)

Total other income

 

259

 

-

 

-

 

259

 

 

 

 

 

 

 

 

 

Income from continuing operations before (benefit from)/provision for income taxes

 

792

 

127

 

191

 

1,110

(Benefit from)/provision for income taxes

 

(1,042)

 

-

 

-

 

(1,042)

Income from continuing operations

 

1,834

 

127

 

191

 

2,152

 

 

 

 

 

 

 

 

 

(Loss) from discontinued operations

 

(250)

 

-

 

-

 

(250)

(Benefit from)/provision for income taxes

 

(98)

 

-

 

-

 

(98)

(Loss) from discontinued operations

 

(152)

 

-

 

-

 

(152)

Net income

$

1,682

$

127

$

191

$

2,000

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share – basic

$

0.02

$

0.00

$

0.00

$

0.03

Net income per share – diluted

$

0.02

$

0.00

$

0.00

$

0.02

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

70,324

 

70,324

 

70,324

 

70,324

Diluted

 

108,007

 

108,007

 

108,007

 

108,007

 

 

The accompanying notes are an integral part of this pro forma consolidated financial statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

 

EMERGING VISION, INC. AND SUBSIDIARIES, AND COMBINE OPTICAL MANAGEMENT CORPORATION

PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SEVEN MONTHS ENDED JULY 31, 2006

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

EVI

 

Combine

 

Pro Forma Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

$

1,834

$

127

$

191

$

2,152

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

153

 

6

 

(6)

 

153

Provision for doubtful accounts

 

97

 

-

 

-

 

97

Non-cash compensation charges related to options and warrants

 

468

 

-

 

-

 

468

Gain on sale of Company-owned store

 

(218)

 

-

 

-

 

(218)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Franchise and other receivables

 

159

 

(363)

 

(1,800)

 

(2,004)

Inventories

 

(43)

 

-

 

-

 

(43)

Prepaid expenses and other current assets

 

12

 

(19)

 

19

 

12

Deferred tax asset

 

(1,176)

 

-

 

-

 

(1,176)

Other assets

 

34

 

-

 

-

 

34

Accounts payable and accrued liabilities

 

(81)

 

327

 

1,763

 

2,009

Payables associated with proxy contest and related litigation

 

(46)

 

-

 

-

 

(46)

Other long-term liabilities

 

(121)

 

-

 

-

 

(121)

Net cash provided by (used in) operating activities

 

1,072

 

78

 

167

 

1,317

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Franchise notes receivable issued

 

(172)

 

-

 

-

 

(172)

Proceeds from franchise and other notes receivable

 

219

 

-

 

-

 

219

Proceeds from the sale of Company-owned store to franchisee

 

200

 

-

 

-

 

200

Purchases of property and equipment

 

(249)

 

(28)

 

28

 

(249)

Net cash used in investing activities

 

(2)

 

(28)

 

28

 

(2)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings

 

-

 

-

 

53

 

53

Payments on borrowings

 

(22)

 

(8)

 

-

 

(30)

Net cash (used in) provided by financing activities

 

(22)

 

(8)

 

53

 

23

Net increase provided by discontinued operations

 

59

 

-

 

-

 

59

Net increase in cash and cash equivalents

 

1,107

 

42

 

248

 

1,397

Cash and cash equivalents – beginning of year

 

816

 

-

 

-

 

816

Cash and cash equivalents – end of year

 

$

1,923

 

$

42

 

$

248

 

$

2,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

$

6

$

-

$

-

$

6

Taxes

$

25

$

-

$

-

$

25

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accounts receivable and excess cost over net tangible assets acquired in connection with Combine Optical Management Corporation

 

 

 

 

 

 

$

-

 

 

 

 

 

 

$

-

 

 

 

 

 

 

$

2,410

 

 

 

 

 

 

$

2,410

 

 

The accompanying notes are an integral part of this pro forma consolidated financial statement.

 

 

 

 

36

 

 

 

 

 

 

Emerging Vision, Inc. and Subsidiaries, and Combine Optical Management Corporation

Notes to the Unaudited Pro Forma Consolidated Financial Statements

 

 

NOTE 1 – BASIS OF PRO FORMA PRESENTATION

 

On September 29, 2006, and effective as of August 1, 2006, Emerging Vision, Inc. (“EVI”), through EVI’s wholly-owned subsidiary, COM Acquisition, Inc. (“COM”), acquired substantially all of the tangible and intangible assets and business of Combine Optical Management Corporation (“Combine”), a Florida corporation that operates an optical group purchasing business. The purchase price was as follows: (i) $2,473,000 in cash, $700,000 of which was paid at closing, and the aggregate balance of which ($1,773,000) is payable in accordance with the terms of two promissory notes, the first of which is in the original principal amount of $1,273,000 payable (without interest) in four annual installments commencing on October 1, 2007, and the second of which is in the original principal amount of $500,000 payable (with interest at 7% per annum) in sixty monthly installments of $9,960, and (ii) options issued to Glachman to purchase 3,515,625 shares of EVI’s common stock, at an exercise price per share of $0.15, of which 2,187,500 may be put back to EVI during the period commencing September 29, 2010 and ending on September 28, 2016, at a put price per share of $0.32. The fair value of such options, calculated using the Black-Scholes method, was approximately $139,000.

 

EVI accounted for the acquisition as a business purchase transaction with the assets acquired recorded at fair values. The results of Combine’s operations are included in the Company’s consolidated financial statements from the effective date of the asset purchase.

 

The accompanying unaudited pro forma consolidated financial statements give effect to the acquisition of Combine as if the acquisition had been completed as of January 1, 2005 or as of January 1, 2006. The pro forma consolidated financial statements may not be indicative of the actual results of the businesses had the acquisition occurred on January 1, 2005 or on January 1, 2006, as the case may be.

 

The accompanying unaudited consolidated pro forma financial statements should be read in conjunction with the historical financial statements and the related notes of both EVI and Combine.

 

NOTE 2 – PRO FORMA ADJUSTMENTS

 

The pro forma adjustments included in the unaudited pro forma consolidated financial statements are as follows:

 

(1)

The assets acquired in the Combine purchase have been reflected at their fair values and the excess cost over net tangible assets acquired is reflected on the consolidated balance sheet as an intangible. Additionally, the debt associated with the acquisition has been reflected on the consolidated balance sheets as of July 31, 2006 and December 31, 2005. Remaining assets, liabilities and equity balances of Combine have been adjusted accordingly.

 

(2)

Assets, liabilities and equity of Combine that were not acquired or assumed by EVI have been eliminated at the beginning of each period.

 

 

37

 

 

 

(3)

Certain salary and related benefits have been excluded from selling, general and administrative expenses on the consolidated statements of operations as the President of COM will be receiving a reduced salary from what he was receiving previously at Combine. In addition, certain other related expenses will be absorbed by EVI’s existing resources.

 

(4)

Certain professional fees have been excluded from selling, general and administrative expenses on the consolidated statements of operations as EVI will be able to utilize its existing accounting, consulting and legal resources to handle the professional service needs that were previously engaged with Combine.

 

(5)

Certain equipment leasing expenses have been excluded from selling, general and administrative expenses on the consolidated statements of operations as EVI will acquire and capitalize such equipment and depreciate over their respective useful lives.

 

 

 

 

 

 

38

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

EMERGING VISION, INC.

 

 

By: /s/ Brian P. Alessi

Name: Brian P. Alessi

Title: Chief Financial Officer

 

 

Date:

December 13, 2006

 

 

 

 

39