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)
Registrants 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 Companys 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 Companys 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 Boards (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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Boards (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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 EVIs 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 EVIs 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 Combines operations are included in the Companys 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 SHAREHOLDERS 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 SHAREHOLDERS 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 EVIs 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 EVIs 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 Combines operations are included in the Companys 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 EVIs 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