Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the fiscal year ended December 31, 2000.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______.
Commission File Number: 1-14128
EMERGING VISION, INC.
(Exact name of Registrant as specified in its Charter)
(formerly known as Sterling Vision, Inc.)
New York 11-3096941
(State of Incorporation) (IRS Employer Identification Number)
1500 Hempstead Turnpike
East Meadow, NY 11554
Telephone Number: (516) 390-2100
(Address and Telephone Number of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE
Common Stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock, par value
$.01 per share (the "Common Stock") held by nonaffiliates of the Registrant as
of March 26, 2001, (based upon the closing price of $0.25 per share as quoted on
the Nasdaq National Market System) was approximately $5,915,000. For purposes of
this computation, the shares of Common Stock held by directors, executive
officers and principal shareholders owning more than 5% of the Registrant's
outstanding Common Stock and for which a Schedule 13G was filed, were deemed to
be stock held by affiliates. As of March 26, 2001, there were approximately
23,667,000 outstanding shares of Common Stock held by nonaffiliates.
As of March 26, 2001, there were outstanding 25,336,316 shares of the
Registrant's Common Stock and 2.51 shares of the Registrant's Senior Convertible
Preferred Stock, par value $.01 per share (convertible into an aggregate of
334,166 shares of the Registrant's Common Stock).
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for the 2001 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission pursuant to Section 14
of the Securities Exchange Act of 1934 is incorporated herein by reference in
Part III of this Annual Report on Form 10-K.
ITEM 1. BUSINESS
Emerging Vision, Inc., formerly known as Sterling Vision, Inc. (the
"Registrant" and, together with its subsidiaries, hereinafter the "Company" or
"Emerging"), is one of the largest chains of retail optical stores and the
second largest franchise optical chain in the United States, based upon domestic
sales and the number of locations of Company-owned and franchised stores
(collectively referred to herein as "Sterling Stores"). The Company, during the
fiscal year 2000, also initiated the development of an Internet-based portal
business intended to supply a comprehensive supply-chain solution for
manufacturers, distributors and retailers in the optical industry (the "Internet
Division"), which development activities were ceased by the Company, and the
operations discontinued, as described herein.
The Registrant was incorporated under the laws of the State of New York
in January 1992 and, in February 1992, purchased substantially all of the assets
of Sterling Optical Corp., f/k/a IPCO Corporation ("IPCO"), a New York
corporation then a debtor-in-possession under Chapter 11 of the U.S. Bankruptcy
Code. Subsequently, the number of the Company's Sterling Stores has grown,
principally as a result of the Company's acquisition of smaller, retail optical
chains. These acquisitions included 26 retail optical stores under the name
"Site For Sore Eyes"; and most recently, in April 1997, the Company acquired, in
exchange for shares of its Common Stock, all of the issued and outstanding
capital stock of Singer Specs, Inc., a chain of approximately 30 franchised
retail optical stores (the "Singer Transaction").
On June 26, 2000, the Registrant's Board of Directors approved a plan to
sell the assets comprising the Company's retail optical division ("Sterling
Optical"), its majority-owned subsidiary, Insight Laser Centers, Inc. ("Insight
Laser"), and the assets comprising the Ambulatory Center (defined herein), and
subsequently engaged an investment banking firm to assist in the sale of such
segments of the Company's business. As a result, the net assets, operating
results and cash flows of Sterling Optical, Insight Laser and the Ambulatory
Center divisions were presented as discontinued operations in the Company's
Consolidated Condensed Financial Statements included in the Registrant's Forms
10-Q for the second and third quarters ended June 30, 2000 and September 30,
2000, respectively.
On March 21, 2001, the Company's Board of Directors resolved to no
longer pursue a sale of the net assets of its Sterling Optical division, but
rather to focus its efforts and resources on growing such division as its core
business. In connection therewith, the Company's Board of Directors approved a
plan to discontinue the further development of its Internet Division, while
pursuing its plan of disposal of the net assets of such division, as well as its
Insight Laser and Ambulatory Center divisions. Accordingly, the net assets,
operating results and cash flows of the Internet Division, Insight Laser and the
Ambulatory Center are presented as discontinued operations in the Consolidated
Financial Statements included in this Annual Report on Form 10-K for all periods
presented.
As of December 31, 2000, there were 233 Sterling Stores in operation,
consisting of 32 Company-owned stores (including 12 stores being managed by
franchisees), and 201 franchised stores (including 3 stores being managed by the
Company on behalf of the franchisees/owners thereof). The Company continually
seeks to expand both its Company-owned and franchised store operations. Sterling
Stores are located in 26 states, the District of Columbia, Ontario, Canada, and
the U.S. Virgin Islands.
The Company and its franchisees develop and operate retail optical stores
principally under the trade names "Sterling Optical," "IPCO Optical," "Site For
Sore Eyes," "Duling Optical," and "Singer Specs," although most stores (other
than the Company's Site for Sore Eyes stores located in Northern California)
operate under the name "Sterling Optical." The Company also operates VisionCare
of California ("VCC"), a specialized health care maintenance organization
licensed by the California Department of Corporations, which employs licensed
optometrists who render services in offices located immediately adjacent to, or
within, most Sterling Stores located in California.
Most Sterling Stores offer eye care products and services such as
prescription and non-prescription eyeglasses, eyeglass frames, ophthalmic
lenses, contact lenses, sunglasses and a broad range of ancillary items. To the
extent permitted by individual state regulations, an optometrist is employed by,
or affiliated with, most Sterling Stores to provide professional eye
examinations to the public. The Company fills prescriptions from these employed
or affiliated optometrists, as well as from unaffiliated optometrists and
ophthalmologists. Most Sterling Stores have an inventory of ophthalmic and
contact lenses, as well as on-site lab equipment for cutting and edging
ophthalmic lenses to fit into eyeglass frames, which, in many cases, allows
Sterling Stores to offer same-day service.
The Company strategically sells certain of its Company-owned stores to
qualified franchisees. By selling Company-owned Sterling Stores to franchisees,
the Company hopes to achieve three goals: (i) realize a profit on the conveyance
of the assets of such stores, (ii) create a stream of royalty payments based
upon a percentage of the gross revenues of the franchised locations, and (iii)
grow the Sterling Optical brand name. Sterling Optical currently derives its
retail optical store revenues principally from: the sale of eyecare products and
services at Company-owned stores; ongoing royalties based upon a percentage of
the gross revenues of franchised stores; and the conveyance of Company-owned
store assets to existing and new franchisees.
STERLING OPTICAL - CORE BUSINESS
The following chart sets forth the breakdown of Sterling Stores in
operation as of December 31, 2000 and 1999:
December 31
2000(*) 1999
------- ----
I. COMPANY-OWNED STORES:
--------------------
Company-Owned Stores in Operation.................... 20 30
Company-Owned Stores Being Managed by Franchisees.... 12 6
-- --
Total.................................. 32 36
== ==
(*)Existing store locations: California (3), Florida (1), Illinois
(4), Iowa (1), Kentucky (2), New York (17), North Dakota (1),
Pennsylvania (1), Virginia (1) and West Virginia (1).
II. FRANCHISED STORES:
-----------------
Franchised Stores in Operation....................... 198 213
Franchised Stores Being Managed by the Company....... 3 5
--- ---
Total.................................. 201 218
=== ===
(*)Existing store locations: California (25), Colorado (1),
Connecticut (1), Delaware (5), Florida (1), Illinois (4),
Kentucky (2), Maryland (20), Massachusetts (1), Minnesota (13),
Missouri (7), Montana (2), Nevada (1), New Jersey (9), New York
(44), North Dakota (5), Ontario, Canada (3), Pennsylvania (15),
South Dakota (3), Texas (1), Virginia (11), Washington, D.C.
(2), West Virginia (1), Wisconsin (22), and the U.S. Virgin
Islands (2).
Sterling Stores generally range in size from approximately 1,000 square
feet to 2,000 square feet, are similar in appearance and are operated under
certain uniform standards and operating procedures. Many Sterling Stores are
located in enclosed regional shopping malls and smaller strip centers; however,
some Sterling Stores are located on the ground floor of office buildings or
other commercial structures, with a limited number of Sterling Stores being
housed in freestanding buildings with adjacent parking facilities. Sterling
Stores are generally clustered within geographic market areas to maximize the
benefit of advertising strategies and minimize the cost of supervising
operations. Sterling Stores which are not clustered within geographic market
areas (e.g., Sterling Stores located in Texas and Massachusetts) have not
produced results from which any conclusion about consistent performance
standards can be drawn by the Company.
In response to the eyewear market becoming increasingly fashion-oriented
during the past decade, most Sterling Stores carry a large selection of designer
eyeglass frames. The Company continually test-markets various brands of
sunglasses, ophthalmic lenses, contact lenses and designer frames in an attempt
to maximize system-wide sales and profits from these categories of merchandise.
Small quantities of these items are usually purchased for selected stores that
test customer response and interest. If a product test is successful, the
Company attempts to negotiate a system-wide preferred vendor discount for the
product, which discount is made available to the Company's franchisees. In
addition, a full line of eyeglass and contact lens accessories is also available
at most Sterling Stores. For the year ended December 31, 2000, net sales at
Company-owned stores were approximately $12,115,000.
COMPANY-MANAGED STORES
For the years ended December 31, 2000, 1999 and 1998 the Company managed
a total of 3, 5, and 12 Sterling Stores, respectively, for franchisees under the
terms of management agreements entered into with each such franchisee. These
agreements generally provide for the operation of a Sterling Store by the
Company, with substantially all operating decisions being made by the Company.
The Company owns the inventory at these locations and is generally responsible
for the collection of all revenues and the payment of all expenses. For the
years ended December 31, 2000, 1999 and 1998, these stores generated revenues of
approximately $1,382,000, $1,524,000 and $4,503,000, respectively, and net
losses of approximately $(627,000), $(605,000) and $(792,000), respectively. The
net result of these operations is classified as loss from franchised stores
operated under management agreements in the Consolidated Statements of
Operations included in this Annual Report on Form 10-K.
FRANCHISE OPERATIONS
As of December 31, 2000, the Company had 201 franchised Sterling Stores
in operation, as compared to 218 franchised Sterling Stores as of December 31,
1999. An integral part of the Company's franchising system includes providing
what the Company believes to be a high level of marketing, financial, training
and administrative support to its franchisees. The Company provides "grand
opening" assistance for each new franchised location by consulting with its
franchisees with respect to store design, fixture and equipment requirements and
sources, inventory selection and sources, and initial marketing and promotional
programs. Specifically, the Company's grand opening assistance: (i) helps to
establish business plans and budgets; (ii) provides preliminary store designs
and plan approval prior to construction of a franchised store; and (iii)
provides initial training, an operations manual and a comprehensive business
review to aid the franchisee in attempting to maximize its sales and
profitability. In addition, the Company generally restricts itself from
operating or franchising other Sterling Stores within a specified radius of
existing franchised stores. Further, on an ongoing basis, the Company provides
training through regional seminars and an annual convention, offers assistance
in marketing and advertising programs and promotions, and consults with its
franchisees as to their management and operational strategies and business
plans.
Preferred Vendor Network. With the collective buying power of
Company-owned and franchised Sterling Stores, the Company has established a
network of preferred vendors (the "Preferred Vendors") whose products may be
purchased directly by franchisees at group discount prices, thereby providing
such franchisees with the opportunity for higher gross margins. In addition,
many Preferred Vendors pay promotional fees to the Company to be used to defray
a portion of the Company's costs in conducting certain meetings, training
seminars, conventions and other activities.
Franchise Agreements. Each franchisee enters into a franchise agreement
(the "Franchise Agreement") with the Company, the material terms of which
generally are as follows:
(a) Term. Generally, the term of each Franchise Agreement is ten years
and, subject to certain conditions, is renewable at the option of the
franchisee.
(b) Initial Fees. Generally, franchisees (except for any franchisees
converting their existing retail optical store to a Sterling Store, (a
"Converted Store"), and those entering into agreements for more than one
location) must pay the Company a non-recurring, initial franchise fee of
$20,000. The Company charges each franchisee of a Converted Store a
non-recurring, initial franchise fee of $10,000 per location; and, for each
franchisee entering into agreements for more than one location, the Company
charges a non-recurring, initial franchise fee of $15,000 for the second
location, and $10,000 for each location in excess of two. Initial fees collected
by the Company for the year ended December 31, 2000 were approximately $150,000.
(c) Ongoing Royalties. Typically, franchisees are obligated to pay the
Company ongoing royalties in an amount equal to a percentage (generally 8%) of
the gross revenues of their Sterling Store. Franchisees of Converted Stores,
however, pay ongoing royalties on their store's historical average base sales at
reduced rates increasing (in most cases) from 2% to 6% for the first three years
of the term of the Franchise Agreement. In addition, most of the Franchise
Agreements acquired by the Company in the Singer Transaction (the "Singer
Franchise Agreements") provide for ongoing royalties calculated at 7% of gross
revenues. Franchise Agreements entered into prior to January 1994 provide for
the payment of ongoing royalties on a monthly basis, while those entered into
after January 1994 provide for their payment on a weekly basis, in each case,
based upon the gross revenues for the preceding period. Gross revenues generally
include all revenues generated from the operation of the Sterling Store in
question, except for refunds to customers, sales taxes, a limited amount of bad
debts, and, to the extent required by state law, fees charged by independent
optometrists. Ongoing royalty fees earned by the Company for the year ended
December 31, 2000 were approximately $9,077,000.
(d) Advertising Fund Contributions. Most franchisees must make ongoing
contributions to one of two advertising funds (the "Advertising Fund") equal to
a percentage of their store's gross revenues. Except for the Singer Franchise
Agreements, which generally provide for contributions equal to 7% of gross
revenues, for Franchise Agreements entered into prior to August 1993, the rate
of contribution is generally 4% of the store's gross revenues, while Franchise
Agreements entered into after August 1993 generally provide for contributions
equal to 6% of the store's gross revenues. For the year ended December 31, 2000,
the Company received approximately $5,399,000 in Advertising Fund contributions
from franchisees. Generally, 50% of these funds are expended in accordance with
each individual franchisee's direction (for the particular Sterling Store in
question) with the balance being expensed on joint advertising campaigns for all
franchisees located within specific geographic areas.
(e) Financing. The Company generally has financed a majority of the
acquisition price of the assets (other than inventory) of Company stores sold to
franchisees, to be repaid over a period of seven years, together with interest
at the rate of 12% per annum. The Company generally does not finance the
initial, non-recurring franchise fee or rent security deposits, which are
generally required under a franchisee's sublease. The purchase price is
generally based upon the historical and projected cash flow of the Sterling
Store in question and, in 2000, the Company sold one franchise for approximately
$325,000. However, the Company has, on occasion, financed (and may in the future
finance) up to 100% of the acquisition price of a franchised store.
Substantially all such financing is personally guaranteed by the franchisee (or,
if a corporation, by the principals owning in excess of an aggregate of 51%
thereof) and is generally secured by all of the assets of the Sterling Store in
question, including subsequently acquired assets and the proceeds thereof. From
time to time, certain franchisees obtain financing from third parties. In such
cases, the Company generally subordinates its security interest in the assets of
the franchised location to the security interests granted to the provider of
such financing.
(f) Termination. Franchise Agreements may be terminated if the
franchisee has defaulted on its payment of monies due to the Company, or in its
performance of the other terms and conditions of the Franchise Agreement. During
2000, 12 franchised stores were closed, and an additional 3 franchised stores,
and substantially all of the assets located therein, were voluntarily
surrendered and transferred back to the Company in connection with the
termination of the related Franchise Agreements. The Company has, in certain
such instances, been able to re-convey the assets of such a store to a new
franchisee, requiring such new franchisee to enter into the Company's then
current form of Franchise Agreement. Subsequent to December 31, 2000, the
Company repossessed 7 franchised locations and currently operates them as
Company-owned Stores.
DISCONTINUED OPERATIONS - NON-CORE BUSINESSES
The Company intends to focus on the Sterling Optical franchise and retail
business. The Company's non-core businesses are classified as discontinued
operations and resulted in an aggregate discontinued operations charge in the
Company's Consolidated Statement of Operations for the year ended December 31,
2000 of $24,364,000. These discontinued operations consist of the following
three segments:
Insight Laser Centers, Inc.
Insight Laser, which is a 66.5% owned subsidiary of the Registrant,
initially owned and operated three laser vision correction centers located in
the New York metropolitan area. These centers specialized in offering the
refractive laser surgical procedure known as Laser Assisted In-Situ
Keratomileusis ("LASIK"). This procedure, which corrects certain degrees of
myopia (near-sightedness), hyperopia (far-sightedness) and astigmatisms with the
use of excimer lasers, is performed by licensed ophthalmologists in exchange for
their payment, to Insight Laser, of a fee for each procedure performed. During
the fourth quarter of 2000, Robert Greenberg, the President and CEO of Insight
Laser, and owner of an equity interest in Insight Laser, passed away. Mr.
Greenberg's knowledge and experience was integral to the development and
expansion of Insight Laser.
Subsequent to December 31, 2000, the Company closed two of its three
Insight Laser locations, continuing to operate from its flagship center located
in Trump Tower, 725 Fifth Avenue, New York City, which opened in the Spring of
1996. Insight Laser's net loss from operations for the year ended December 31,
2000 of $(1,083,000) is included in loss from discontinued operations in the
accompanying Consolidated Statement of Operations. Inclusive in this amount is
approximately $914,000 related to the closure of the two locations. As a result
of the death of Mr. Greenberg, the Company received $1,000,000 as the
beneficiary of a key-man life insurance policy on his life. The Company intends
to use a significant portion of these funds to effect the closure of these two
locations. The Company also continues to pursue a sale of the net assets of this
division, which, if successful, may allow the Company to retain a portion of
such funds.
Insight Laser leases equipment and office space and provides
administrative, marketing and other services to physicians ("Affiliated
Physicians") engaged in performing laser refractive eye surgery. It provides its
equipment and administrative services on an "open access" basis to multiple
Affiliated Physicians. In addition, it has installed one of its excimer lasers
in an ophthalmologist's office located in Long Island, New York, who pays
Insight Laser a fee for each procedure performed with such laser.
The market for providing refractive laser surgery is highly competitive.
Insight Laser competes with laser centers operated by local operators, as well
as with eye surgeons who have purchased their own laser. It also competes with
several other companies, including at least one manufacturer of laser equipment,
in providing access to excimer lasers in the U.S. Other companies are currently
in the process of gaining U.S. Food and Drug Administration ("FDA") approval for
their lasers, and these companies may elect to enter the laser center business
as well.
Ambulatory Center
On May 6, 1998, the Company, through its wholly-owned subsidiary, Insight
Laser Centers N.Y.I, Inc., purchased substantially all of the assets of an
ambulatory surgery center located in Garden City, New York (the "Ambulatory
Center"). In connection therewith, the Company entered into a long-term lease of
the premises in which the Ambulatory Center is located, and entered into an
agreement whereby it provides administrative and consulting services to the
Ambulatory Center's licensed owner/operator, on an interim basis, pending the
approval, from the New York State Department of Health, of the transfer of the
license and certificate of need ("C.O.N.") thereto, to an affiliate of the
Company, after which time it would continue to provide such services to such
affiliate. The Company has not filed for regulatory approval, and therefore,
been unable to transfer the C.O.N. from the licensed owner/operator to an
affiliate of the Company; and the Company's interim consulting and
administrative services agreement is due to expire on May 5, 2001, at which time
the Company will no longer have the right to participate in the administration
of the Center nor to purchase the C.O.N. therefor.
As a result of the foregoing, the Company is currently negotiating a
sale of the net assets of the Ambulatory Center to the current owner of the
C.O.N.. If the Company is unsuccessful in its attempt to sell the net assets of
the Ambulatory Center, it will, in all likelihood, close such facility,
whereupon it will be in default of its agreements with the current licensee, the
Company being a guarantor of certain liabilities associated with the Ambulatory
Center. The net loss from operations for the year ended December 31, 2000 of
$(3,708,000) is included in loss from discontinued operations in the
accompanying Consolidated Statement of Operations for the year ended December
31, 2000. This amount reflects a charge of approximately $2,594,000 for
write-downs of the Ambulatory Center's assets to their estimated net realizable
values, and $1,145,000 relating to certain future obligations and operations to
which the Company is guarantor.
Internet Division
During the second quarter of 2000, the Company initiated the development
of an Internet-based portal to capitalize on the robust growth potential in the
business-to-business, e-commerce market, by providing comprehensive e-commerce
solutions for the buyers and suppliers of business goods and services in the
optical industry. The Company hired dedicated personnel and engaged certain web
development companies to assist in the development of this Internet Division.
In December 1999, the Registrant issued to MY2000, LLC (the "Holder")
warrants to purchase 2,500,000 shares of its Common Stock in exchange for such
Holder's oral agreement to render advisory services to the Company's Board of
Directors with respect to its new Internet business and strategies. During the
first quarter of 2000, 1,000,000 of these warrants were exercised at $2.00 per
share. The remaining warrants, expiring December 2, 2004, are outstanding as of
December 31, 2000 and also provide for an exercise price of $2.00 per share.
In December 1999, the Company retained Rare Medium, Inc. ("Rare"), the web
consulting services arm of Rare Medium Group, Inc., to develop and launch an
extensive network of state-of-the-art web sites designed to provide information,
interaction and electronic business-to-business commerce. In December 1999, the
Company paid $1,000,000 in cash to Rare, and on February 29, 2000, issued to
Rare 1,000,000 unregistered shares of the Company's Common Stock (valued at
$9,750,000) for an aggregate of $10,750,000 of consideration, pursuant to the
terms of a certain Professional Services Master Agreement (the "Agreement")
entered into between Rare and the Company. Under the terms of this Agreement,
Rare was to provide professional services to assist the Company with its
web-based business strategy, including the development of multiple web sites,
operations planning and other services related to building its Internet
business. The terms of the Agreement afforded Rare a price-protection guarantee
on any such shares sold in the open market at a price of less than $3.00 per
share, and contained certain "lock-up" provisions regarding the ability to sell
such shares prior to certain dates. During the fourth quarter of 2000, the
Company ended the Agreement with Rare; as a consequence, Rare has made certain
assertions that the Company: (i) is in default in performing its obligations
under the Agreement as a result of the Company's refusal to permit the transfer
of the shares of its Common Stock issued to Rare and (ii) additionally owes
approximately $840,000 for past services and costs. See Item 3 - Legal
Proceedings.
To fund the development of the Internet Division, the Company completed a
private placement pursuant to which it sold an aggregate of 1,677,570 units (the
"Units"), each Unit consisting of one share of the Company's Series B
Convertible Preferred Stock, par value $.01 per share, with a liquidation
preference of $7.00 per share (the "Series B Preferred Stock"), and one warrant
(the "Series B Warrant") to purchase one-half share of Series B Preferred Stock
at an exercise price, per one-half share, equal to $7.5875, exercisable from and
after the expiration of the six-month period following the date of the first
issuance of such Series B Warrants, for a period of 5 years thereafter.
Each share of Series B Preferred Stock was automatically converted into
two shares of the Company's Common Stock upon the Company's filing of an
amendment to its Certificate of Incorporation (the "Amendment") increasing its
authorized Common Stock from 28,000,000 to 50,000,000 shares, which was subject
to the Company's receipt of the approval of a majority of its shareholders,
which approval was obtained on April 17, 2000. Each Series B Warrant was
initially exercisable for one-half share of Series B Preferred Stock; however,
upon the automatic conversion of the Series B Preferred Stock into Common Stock,
each Series B Warrant (to the extent not previously exercised) became
exercisable, at the same exercise price, for one share of Common Stock. The net
proceeds received in the private placement was approximately $10,618,000, of
which the Company's Internet Division used approximately $5,100,000 through
December 31, 2000 for web-site development costs, leasehold property, computer
equipment, payroll and office related expenses.
On March 21, 2001, the Company's Board of Directors resolved to
discontinue the further development of the Internet Division due to anticipated
difficulties in executing its business plan, future capital requirements and the
inability to raise funds for such purpose. The net loss from operations of the
Internet Division for the year ended December 31, 2000 of $(19,573,000), is
included in loss from discontinued operations in the accompanying Consolidated
Statement of Operations. This amount includes total web development costs of
$11,830,000, inclusive of the Rare consideration of $10,750,000, and other
operating expenses.
In connection with the decision to wind down the operations of the
Internet Division, the Company estimated it will need approximately $3,500,000
to complete its plan. This amount is expected to be used for normal recurring
operating costs through the anticipated disposal date of April 30, 2001, and
includes estimated severance costs for all of its associates located in the
Dallas, Texas office and certain employees of the New York City office. On March
2, 2001, Ms. Sara V. Traberman, the former Chief Financial Officer of the
Company, gave notice of her intention to terminate her employment as of May 31,
2001 on the grounds that the Company did not dispose of substantially all of its
non-Internet assets on or prior to March 1, 2001. Ms. Traberman claims that
under her Employment Agreement, as amended, she is entitled to receive full
vesting of 400,00 stock options previously granted to her, payment of her salary
through the original termination date of her Employment Agreement (approximately
$322,000 through February 23, 2003) and an additional payment of $1,000,000 as a
result of the failure by the Company to sell its non-Internet related assets by
March 1, 2001. The Company and Ms. Traberman are presently discussing her
claims. On March 27, 2001, in connection with the resignations of Mr. Gregory
Cook, the Company's former President and Chief Executive Officer, and Mr. Jim
Ewer, the Company's former Senior Vice President of Operations, the Company
obtained unconditional releases from both executives related to the termination
of their respective Employment Agreements. Messrs. Cook and Ewer's Employment
Agreements also contained a provision for payments similar to that of Ms.
Traberman's Employment Agreement, except that the additional amounts were
$2,000,000 and $500,000, respectively, under their respective Employment
Agreements. Messrs. Cook and Ewer, however, waived their rights in exchange for
lump sum severance payments of $277,000 and $205,000, respectively, and the
issuance to each such individual of additional stock options to purchase 250,000
shares of Common Stock. In addition, Mr. Cook, on such date tendered his
resignation as a director of the Company.
Competition
The optical business is highly competitive and includes chains of retail
optical stores, superstores, individual retail outlets, the operators of web
sites and a large number of individual opticians, optometrists and
ophthalmologists who provide professional services or may, in connection
therewith, dispense prescription eyewear. As retailers of prescription eyewear
generally service local markets, competition varies substantially from one
location or geographic area to another. Since 1994, certain major competitors of
the Company have been offering promotional incentives to their customers, and in
response to this, the Company has, from time to time, offered the same or
similar incentives to its customers. These competitive promotional incentives
may adversely affect the Company's results of operations in the future.
The Company believes that the principal competitive factors in the retail
optical business are convenience of location, on-site availability of
professional eye examinations, quality and consistency of product and service,
price, product warranties, a broad selection of merchandise and the
participation in third-party, managed care provider agreements. The Company
believes that it competes favorably in each of these areas.
Marketing and Advertising
The Company's marketing strategy emphasizes professional eye
examinations, value pricing (primarily through product promotions), convenient
locations, excellent customer service, customer-oriented store design and
product displays, knowledgeable sales associates, and a broad range of quality
products, including privately-labeled contact lenses and lens cleaning solutions
presently being offered by the Company and certain of its franchisees.
Examinations by licensed optometrists are generally available on the premises
of, or directly adjacent to, all Sterling Stores.
The Company continually prepares and revises its in-store,
point-of-purchase displays, which provide various promotional messages to
customers upon arrival at Sterling Stores. Both Company-owned and most
franchised Sterling Stores participate in advertising and in-store promotions,
which include visual merchandising techniques to draw attention to the products
displayed in the Sterling Store in question. The Company is also in the process
of refining its interactive web site on which its products are offered, and, in
many instances, also uses direct mail advertising to reach prospective, as well
as, existing consumers.
The Company annually budgets approximately 4% to 6% of system-wide sales
for advertising and promotional expenditures. Generally, franchisees are
obligated to contribute a percentage of their Sterling Store's gross revenues to
the Company's segregated advertising fund accounts, which the Company maintains
for advertising, promotions and public relations programs. In most cases, the
Company permits each franchisee to direct the expenditure of approximately 50%
of such contributions, with the balance being expended to advertise and promote
all Sterling Stores located within a specific geographic area, and/or on
national promotions and campaigns.
Management Information Systems
Over the past few years, management had conducted research as to the
availability and development of a point-of-sale computer system (the "POS
System" or the "System") for use in both Company-operated and franchised
Sterling Stores. The Company tested several systems available in the
marketplace, as well as developed and installed, on a trial basis, its own
Windows-based POS System. During 1995, as a result of this research, the Company
undertook the installation of ADD-POWER, a UNIX-based POS System (the "A-P
System"), that is presently utilized by various retail optical chains in
approximately 600 retail optical stores nationwide, to provide, among other
features, inventory and patient database management. The Company, however, has
recently completed a test of a "smart" cash register/computer system which it
intends to install in most of its Company operated Sterling Stores, which system
is far less expensive than the A-P System but is capable of providing the same
information and controls.
Government Regulation
Ophthalmic excimer lasers are considered medical devices and are subject
to regulation by the FDA. The Company understands that Summit Technology, Inc.
("Summit") and VISX Incorporated ("VISX"), the manufacturers of the excimer
laser systems that the Company currently uses in its Insight Laser Center or
makes available to its Affiliated Physicians, have received approval from the
FDA for their use to treat certain degrees of near-sightedness. This approval
contains restrictions on the use, labeling, promotion and advertising of the
excimer laser. In addition, as part of the FDA approval process, Summit and VISX
have agreed to conduct post-marketing studies on the long-term safety of the
excimer laser, including continuing to follow patients treated in existing
studies, for at least four years after FDA approval, to assure that those
parties' vision remains stable over long periods of time.
Manufacturers of lasers are also subject to regulation under the
Electronic Product Radiation Control Provisions of the Federal Food, Drug and
Cosmetic Act. This law requires laser manufacturers to file new product and
annual reports, maintain quality control, keep product testing and sales
records, incorporate certain design and operating features in lasers to
end-users, and certify and label each laser sold as belonging to one of four
classes based on the level of radiation (from the laser) that is accessible to
users. Certain maintenance levels at the user level are also required. Various
warning labels must be affixed and certain protective devices installed,
depending on the class of the product. The Federal Food, Drug and Cosmetic Act
applicable to all medical devices, imposes fines and other remedies for
violations of the regulatory requirements.
The Company and its operations (including those pertaining to its
provision of administrative and consulting services to the licensee of the
Ambulatory Center) are subject to extensive federal, state and local laws, rules
and regulations affecting the health care industry and the delivery of health
care, including laws and regulations prohibiting the practice of medicine and
optometry by persons not licensed to practice medicine or optometry, prohibiting
the unlawful rebate or unlawful division of fees and limiting the manner in
which prospective patients may be solicited. The regulatory requirements that
the Company must satisfy to conduct its business will vary from state to state.
In particular, some states have enacted laws governing the ability of
ophthalmologists and optometrists to enter into contracts to provide
professional services with business corporations or lay persons, and some states
prohibit the Company from computing its continuing royalty fees based upon a
percentage of the gross revenues of the fees collected by its affiliated
optometrists. Various federal and state regulations limit the financial and
non-financial terms of agreements with these health care providers; and the
revenues potentially generated by the Company differ among its various health
care provider affiliations.
The FDA and other United States state or local government agencies may
amend current rules and regulations, or adopt new rules and regulations that
could affect the use of ophthalmic excimer lasers for LASIK, and thereby
adversely affect the business of the Company.
The Company is also subject to certain regulations adopted under the
Federal Occupational Safety and Health Act with respect to its in-store
laboratory operations. The Company believes that it is in material compliance
with all such applicable laws and regulations.
As a franchisor, the Company is subject to various registration and
disclosure requirements imposed by the Federal Trade Commission and by many
states in which the Company conducts franchising operations. The Company
believes that it is in material compliance with all such applicable laws and
regulations.
Environmental Regulation
The Company's business activities are not significantly affected by
environmental regulations, and no material expenditures are anticipated in order
for the Company to comply with any environmental regulations. However, the
Company is subject to certain regulations promulgated under the Federal
Environmental Protection Act ("EPA") with respect to the grinding, tinting,
edging and disposal of ophthalmic lenses and solutions. In addition, the Company
is subject to additional EPA regulations as a result of its use of the excimer
laser approved by the FDA.
Seasonality
The Company's retail optical and laser correction businesses, as well as
the operation of the Ambulatory Center, are not seasonal.
Patents and Trademarks
The Company has registered, among others, the following trademarks and/or
service marks with the United States Patent and Trademark Office and the
Canadian Registrar of Trademarks: "Sterling Optical," "IPCO Optical" and "Site
For Sore Eyes". The Company believes that these trademarks and service marks
have acquired significant commercial value and have helped to promote the
Company's reputation, even though the Company intends to change the trade name
of most Sterling Stores (other than the Site for Sore Eyes stores located in
Northern California) to "Sterling Optical." In connection with the Company's
prior acquisition of the net assets or capital stock of five retail optical
chains, the Company also acquired several additional trademarks, some of which
its franchisees continue to utilize in connection with the operation of their
Sterling Stores.
Associates
As of December 31, 2000, the Company employed approximately 265
individuals, of which approximately 30% were employed on a full-time basis.
Except for those individuals employed at Company-operated/managed Sterling
Stores located in the New York metropolitan area, and except for those
individuals employed by the Registrant's wholly-owned subsidiary, Insight IPA of
New York, Inc. (which solicits managed care provider agreements in the State of
New York), no employees are covered by any collective bargaining agreement. The
Company considers its labor relations with its associates to be in good standing
and has not experienced any interruption of its operations due to disagreements.
ITEM 2. PROPERTIES
The Company's headquarters, approximately 11,887 square feet in size
(or approximately 33% of the entire building), are located in an office building
(beneficially owned by certain of the Company's principal shareholders) at 1500
Hempstead Turnpike, East Meadow, New York 11554, under a sublease which expires
in 2006. This facility houses the Company's principal executive and
administrative offices.
The Company leases the space occupied by all of its Company-owned
Sterling Stores and the majority of its franchised Sterling Stores. The balance
of the leases for franchised Sterling Stores are held in the names of the
individual franchisees.
Sterling Stores are generally located in commercial areas, including
major shopping malls, strip centers, free-standing buildings and other areas
conducive to retail trade. Sterling Stores range from 1,000 to 2,000 square feet
per location.
The Company also leases the space occupied by its laser center located
in Trump Tower, New York City.
ITEM 3. LEGAL PROCEEDINGS
On March 2, 2001, Sara V. Traberman, the former Chief Financial Officer
of the Company, notified the Company of her election to terminate her Employment
Agreement, as amended, as a result of the failure of the Company to dispose of
substantially all of its non-Internet related assets on or prior to March 1,
2001. Ms. Traberman demanded payment of severance, in the approximate amount of
$1,300,000, together with the immediate vesting of 400,000 stock options
previously granted to Ms. Traberman pursuant to her Employment Agreement. As of
the date hereof, the parties are attempting to reach an amicable settlement of
such claim.
In February 2001, five of the Company's Site for Sore Eyes Franchisees
(owning an aggregate of seven franchised Site for Sore Eyes Stores) commenced an
action in the United States District Court for the Northern District of
California seeking: (i) $35,000,000 of damages as a result of the Company's
alleged breach of the Franchise Agreement pursuant to which each such Franchisee
operates its Site for Sore Eyes Optical Center, (ii) fraud and violations of
California law; and (iii) a declaratory judgment that each such Franchise
Agreement has been modified to afford each plaintiff certain rights which are in
addition to those set forth in the applicable Franchise Agreements. As of the
date hereof, the Company's time to answer has been extended pending the parties
attempt to reach an amicable settlement of this dispute at a meeting to be held
on April 10, 2001.
In November 2000, Rare notified the Company that the Company was
allegedly in default of the terms of the Professional Services Master Agreement
(the "Agreement") entered into between the Company and Rare in February 2000, as
a result of the Company's refusal to permit the transfer of the 1,000,000 shares
of its Common Stock previously issued to Rare in partial consideration of the
services to be rendered to the Company pursuant to such Agreement. In February
2001, Rare additionally claimed that there was due and owing to it the
additional approximate sum of $840,000 for rent for office space utilized by the
Company, in both Dallas, Texas and New York City, pending the opening of the
Company's corporate offices in each such city, and for additional services
rendered to the Company by certain of its employees, all of which, the Company
believes were to be provided to it without additional cost. The Company has
advised representatives of Rare that, in their opinion, Rare failed failed to
provide the services required of it pursuant to such Agreement, which
necessitated the Company to end such Agreement. As of the date hereof, the
parties are attempting to reach an amicable settlement of this matter.
In 1999, the Company commenced an action, in the Supreme Court of the
State of New York, against Dr. Larry Joel and Apryl Robinson for amounts claimed
due, by the Company, on a series of five separate Negotiable Promissory Notes
issued by corporations owned by the defendants in connection with their purchase
of the assets of, and a Sterling Optical Center Franchise for, an aggregate of
four of the Company's retail optical stores and an optical laboratory, the
repayment of each of which Notes was personally guaranteed by each of the
defendants. In response thereto, the defendants asserted counterclaims in excess
of $13,000,000, based upon the Company's alleged failure to comply with the
terms of an oral, month-to-month consulting agreement between Dr. Joel and the
Company, as well as to purchase the assets of various companies owned by Dr.
Joel, including Duling Optical and D & K Optical, notwithstanding the fact that:
(i) the parties failed to agree upon the terms of any such purchase; (ii) the
parties failed to enter into any written agreement memorializing such
transaction; and (iii) the Company subsequently purchased such assets from
Norwest Bank (which held a first lien on substantially all of said assets as
collateral for various loans made to each of said entities, all of which were
then in default), in a private foreclosure sale. In March 2001, the Appellate
Division granted the Company's Motion for Summary Judgment on the issue of the
defendants' liability, as guarantors of each of such Notes, a hearing on damages
having been scheduled for May 14, 2001. In addition, in March, 2001, the Company
filed an additional Motion for Summary Judgment seeking dismissal of all of such
counterclaims; and the defendant, Dr. Joel, thereafter filed a cross-motion
seeking a determination that the Company breached such oral, month-to-month
consulting agreement and that he is, accordingly, entitled to damages of
approximately $1,500,000, both of which motions have not yet been decided by the
Court.
In addition to the foregoing, the Company is a defendant in certain
lawsuits alleging various claims incurred in the ordinary course of business.
These claims are generally covered by various insurance policies, subject to
certain deductible amounts and maximum policy limits. In the opinion of
management, the resolution of such additional, existing lawsuits should not have
a material adverse effect, individually or in the aggregate, upon the Company's
business or financial condition. Other than as set forth above, management
believes that there are no other legal proceedings pending or threatened to
which the Company is, or may be a party, or to which any of its properties are,
or may be, subject, which are likely to have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote by the Company's shareholders
during the fourth quarter ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's Common Stock has been listed on the Nasdaq National
Market System ("Nasdaq") under the trading symbol "ISEE" since December 25,
1995. The range of the high and low sales prices for the Registrant's Common
Stock for each quarterly period to date for the last two years is as follows:
2000 1999
----------------- ------------------
Quarter Ended: High Low High Low
- -------------- ------- ------- ------- -------
March 31 $15.13 $5.44 $5.50 $2.88
June 30 $8.19 $1.88 $4.94 $3.00
September 30 $2.63 $0.94 $4.13 $2.13
December 31 $1.50 $0.19 $7.69 $1.50
The approximate number of shareholders of record of the Company's Common
Stock at March 30, 2001 was 340.
The number of shareholders of record of the Company's Senior Convertible
Preferred Stock at March 20, 2001 was 2.
Historically, the Company has not paid dividends on its Common Stock,
including during 1999 or 2000, and has no intention to pay dividends on its
Common Stock in the foreseeable future. It is the present policy of the
Company's Board of Directors to retain earnings, if any, to finance the
Company's operations and expansion.
On December 16, 1999, the Company issued to MY2000, LLC (the "Holder")
warrants to purchase 2,500,000 shares of its Common Stock in exchange for such
Holder's oral agreement to render advisory services to the Company's Board of
Directors with respect to the development of its Internet business and
strategies. The warrants were immediately exercisable at $2.00 per share and
expire on December 2, 2004. The estimated fair value of the warrants as of the
date of issuance was approximately $2,000,000, as determined using the
Black-Scholes option-pricing model. These securities were issued pursuant to the
exemption available under Section 4(2) of the Securities Act of 1933, as
amended. During the first quarter of 2000, 1,000,000 of these warrants were
exercised at $2.00 per share. The remaining warrants were outstanding as of
December 31, 2000 and also provide for an exercise price of $2.00 per share.
The Nasdaq National Market System requires that the Company maintain a
minimum of $4,000,000 of net tangible assets to maintain its Nasdaq National
Market listing. The Company's net tangible assets at December 31, 2000 was
$2,101,000. Accordingly, the Company anticipates that it may require additional
funds to maintain the Nasdaq net tangible assets requirement; and there can be
no assurance that the Company will be able to generate adequate funds from
operations, that funds will be available from equity financings, or that if
available, any such financings will be available on favorable terms and
conditions. The Nasdaq National Market System also requires a minimum bid price
of $1.00 for continued listing. If at any time the bid price for the Company's
Common Stock falls below $1.00 for a period of thirty consecutive business days,
the Nasdaq National Market System has the right to notify the Company of its
intent to delist such stock if, within the ninety-day period thereafter, the bid
price for the stock is not at least $1.00 per share for a minimum of ten
consecutive business days. The Company's Common Stock has failed to trade at a
minimum bid price of $1.00 over the last thirty consecutive trading days. If the
Company's Common Stock were delisted, such delisting could have an adverse
affect on the trading prices of the Company's Common Stock and could adversely
affect the liquidity of the shares held by the Company's stockholders.
On February 11, 2000, the Company issued 1,000,000 shares of its Common
Stock to Rare Medium, Inc. ("Rare"), pursuant to the terms of the Professional
Services Master Agreement (the "Agreement") entered into between Rare and the
Company. Under the terms of this Agreement, Rare was to provide professional
services to assist the Company with its web-based business strategy, including
the development of multiple web sites, operations planning and other services
related to building its Internet business. The terms of the Agreement afforded
Rare a price-protection guarantee on any such shares sold in the open market at
a price of less than $3.00 per share, and contained certain "lock-up" provisions
regarding the ability to sell such shares prior to certain dates. At the time
these shares were issued to Rare, the Company's Common Stock was trading at
$9.75 (see Item 3 - Legal Proceedings). The Company also issued 10,000 shares of
its Common Stock to Teemwork Kommunikations GmbH, based in Hamburg, Germany, in
exchange for such company's agreement to provide certain investor relations
services for the Company. All of these securities were issued pursuant to the
exemption available under Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), but were subsequently registered (for resale) under the Act.
During the first quarter of 2000, certain of the original holders of the
Company's Senior Convertible Preferred Stock, par value $.01 per share
originally issued by the Registrant from the private placement completed in
February 1998 exercised their right to convert an aggregate of $1,851,250 stated
value of Senior Convertible Preferred Stock, into an aggregate of 2,468,334
shares of the Company's Common Stock. The Senior Convertible Preferred Stock has
a conversion price of $0.75. As of December 31, 2000, there were 2.51 shares of
Senior Convertible Preferred Stock outstanding, with a stated value of $287,000.
These securities were issued pursuant to the exemption available under Section
4(2) of the Act, but were subsequently registered (for resale) under the Act.
The warrants issued in connection with the Senior Convertible Preferred Stock
expired on February 28, 2001.
In the first quarter of 2000, the Company completed a private placement
pursuant to which it sold an aggregate of 1,677,570 Units. Each Unit consisted
of one share of the Company's Series B Convertible Preferred Stock with a
liquidation preference of $7.00 per share, and one Series B Warrant to purchase
one-half share of Series B Preferred Stock at an exercise price, per one-half
share, equal to $7.59, which Series B Warrants will expire on February 13, 2005.
Each share of Series B Preferred Stock was automatically converted into two
shares of the Company's Common Stock upon the Company's filing of an amendment
to its Certificate of Incorporation increasing its authorized Common Stock to
50,000,000 shares, which was approved by a majority of its shareholders on April
17, 2000. Each Series B Warrant was initially exercisable for one-half share of
Series B Preferred Stock; however, upon the automatic conversion of the Series B
Preferred Stock into an aggregate of 3,355,140 shares of the Company's Common
Stock, the Series B Warrants (to the extent not previously exercised) became
exercisable, at the same exercise price, for one share of Common Stock. At
December 31, 2000, 1,677,570 Series B Warrants were outstanding. In connection
with the private placement, the Company issued to the placement agents 500,000
warrants to purchase shares of the Company's Common Stock at an exercise price
of $7.59, which warrants will expire on February 13, 2005. The net proceeds from
such private placement of approximately $10,618,000 was intended to be used by
the Company in connection with the development of its new Internet business.
These securities were issued pursuant to the exemption available under Section
4(2) of the Act, but were subsequently registered (for resale) under the Act.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following Selected Financial Data is qualified by reference to, and
should be read in conjunction with Item. 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and the related notes thereto included in Item 8 of
this Report, which Consolidated Financial Statements have been examined and
reported on by Arthur Andersen LLP, independent public accountants, with respect
to the years ended December 31, 2000, 1999 and 1998. The financial statements
for the years ended December 31, 1997 and 1996 were audited by Deloitte & Touche
LLP, independent public accountants.
The Company, in March, 2000, commenced the development of its Internet
Division. On June 26, 2000, the Registrant's Board of Directors approved a plan
to sell the Company's Sterling Optical division, its majority-owned subsidiary,
Insight Laser, and the assets of the Ambulatory Center, and subsequently engaged
an investment banking firm to assist in the sale of such segments of the
Company's business. As a result, the net assets, operating results and cash
flows of Sterling Optical, Insight Laser and the Ambulatory Center divisions
were presented as discontinued operations in the Company's Consolidated
Condensed Financial Statements included in the Registrant's Forms 10-Q for the
second and third quarters ended June 30, 2000 and September 30, 2000,
respectively. On March 21, 2001, the Company's Board of Directors resolved to no
longer pursue a sale of the Sterling Optical division, but rather to focus on
growing such business; and, in connection therewith, the Company's Board of
Directors approved a plan to discontinue the further development of its Internet
Division, while pursuing its plan of disposal of the assets of such division, as
well as its Insight Laser and the Ambulatory Center divisions. The Company's
historical financial information has been restated to report the operating
results, net assets and cash flows of the Internet Division, Insight Laser and
Ambulatory Center as discontinued operations for all periods presented.
Statement of Operations Data: (In thousands except for per share data and number of stores)
Year Ended December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
System-wide sales (1) $128,775 $140,321 $147,402 $145,534 $131,063
======== ======== ======== ======== ========
Net revenues $ 23,058 $ 29,580 $ 32,582 $ 35,193 $ 38,832
-------- -------- -------- -------- --------
Loss from continuing operations (14,628) (2,691) (16,821) (12,670) (1,159)
-------- -------- -------- -------- --------
(Loss) income from discontinued operations (15,533) 430 (956) (1,492) (3,331)
-------- -------- -------- -------- --------
Loss on disposal of discontinued operations (8,831) - - - -
(Loss) income from discontinued operations (24,364) 430 (956) (1,492) (3,331)
-------- -------- -------- -------- --------
Net loss $(38,992) $ (2,261) $(17,777) $(14,162) $ (4,490)
-------- -------- -------- -------- --------
Loss per share attributable to common
shareholders - basic and diluted $ (3.07) $ (0.38) $ (1.23) $ (1.02) $ (0.36)
-------- -------- -------- -------- --------
Weighted-average common shares - basic and diluted 23,627 15,232 14,627 13,883 12,341
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital (deficit) $ (3,987) $ (4,795) $ (3,351) $ 3,472 $ (3,803)
Total assets 22,531 30,312 32,685 43,265 43,415
Total debt 754 7,347 9,751 11,120 9,857
Shareholders' equity 3,905 14,161 12,547 21,271 19,557
Sterling Store Data:
(In thousands except number of stores)
Year Ended December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- -----------
Company-owned stores bought, opened or reacquired 3 11 6 7 24
Company-owned stores sold or closed (13) (16) (21) (19) (33)
Company-owned stores at end of period 20 30 35 50 62
Company-owned stores being managed by Franchisees at end of
period 12 6 6 0 0
Franchised stores being managed by Company at end of period 3 5 12 6 6
Franchise-owned/managed stores at end of period 201 218 251 263 257
Average sales per store: (2)
Company-owned stores $396 $420 $478 $424 $395
Franchised stores $546 $495 $475 $478 $392
Average franchise royalties per franchised store (2) $ 42 $ 38 $ 35 $ 37 $ 43
(1) System-wide sales represent combined retail sales generated by Company
owned and franchised stores, as well as revenues generated by VCC.
(2) Average sales per store and average franchise royalties per franchised
store are computed based upon the weighted average number of Company-owned
and franchised stores, respectively, for each of the specified periods. For
periods less than a year, the averages have been annualized.
UNAUDITED QUARTERLY FINANCIAL DATA:
The following unaudited quarterly financial information for fiscal year
2000 and 1999 is set forth below, as if the Sterling Optical division was the
sole continuing operation during these periods. All dollar amounts are in
thousands, except per share data:
Re-stated
-----------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
---------- -------- ------------- ------------
Fiscal 2000
Net Revenues $ 6,533 $ 5,724 $ 5,653 $ 5,148
Net (loss) income from continuing operations $(1,767) $ 760 $ (181) $(13,440)
Loss from discontinued operations* $ (208) $(10,395) $(5,564) $ (8,197)
Net loss $(1,975) $ (9,635) $(5,745) $(21,637)
Net income (loss) per share, basic and $ (1.67) $ (0.56) $ (0.22) $ (0.92)
diluted
Re-stated
-----------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
Fiscal 1999
Net Revenues $8,200 $7,418 $6,944 $ 7,018
Net (loss) income from continuing operations $ 368 $ 48 $ (178) $(2,929)
(Loss) income from discontinued operations* $ 100 $ 244 $ 290 $ (204)
Net (loss) income $ 468 $ 292 $ 112 $(3,133)
Net income (loss) per share, basic $ 0.02 $ 0.02 $ 0.01 $ (0.32)
Net income (loss) per share, diluted $(0.08) $(0.06) $(0.08) $ (0.32)
*The following selected financial data provides a reconciliation between loss
from discontinued operations, as shown above, to that which was presented by the
Company in its previously filed Quarterly Reports on Form 10-Q:
Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------- -------- ------------- ------------
Fiscal 2000
Internet Division $(141) $ (4,612) $(1,574) $(13,246)
Insight Laser $ (66) $ (235) $ (240) $ (542)
Ambulatory Center $ (1) $ (43) $ 10 $ (3,674)
Accrued disposal costs $ - $ (5,505) $(3,760) $ 9,265
----- -------- ------- --------
(Loss) income from discontinued operations $(208) $(10,395) $(5,564) $ (8,197)
===== ======== ======= ========
Quarter Ended
--------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
Fiscal 1999
Insight Laser $ 58 $219 $267 $(117)
Ambulatory Center $ 42 $ 25 $ 23 $ (87)
---- ---- ---- -----
(Loss) income from discontinued operations $100 $244 $290 $(204)
==== ==== ==== =====
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Report contains certain forward-looking statements and information
relating to the Company that is based on the beliefs of the Company's
management, as well as assumptions made by and information currently available
to the Company's management within the meaning of Section 21E of the Securities
and Exchange Act of 1934, as amended. When used in this Report, the words
"anticipate", "believe", "estimate", "expect", and similar expressions, as they
relate to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events, are not guarantees of future performance
and are subject to certain risks and uncertainties. These risks and
uncertainties may include: product demand and market acceptance risks; the
effect of economic conditions; success of transactions with third parties; the
impact of competitive products, services and pricing; product development,
commercialization and technological difficulties; the outcome of current and
future litigation; delisting by Nasdaq; and other risks described elsewhere
herein. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated, or
expected. The Company does not intend to update these forward-looking
statements.
The Company's historical financial information has been restated to report
the operating results, net assets and cash flows of the Internet Division,
Insight Laser and Ambulatory Center through December 2000, as discontinued
operations for all periods presented. The following discussion and analysis
focuses on continuing operations, as restated, unless otherwise noted.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999
Net sales for Company-owned stores, as well as revenues generated by
VCC, a specialized health care maintenance organization licensed by the
California Department of Corporations, decreased by approximately $5,486,000, or
31.2%, to $12,115,000 for the year ended December 31, 2000, as compared to
$17,601,000 for the comparable period in 1999. This decrease was principally due
to a lower number of stores in operation for the year ended December 31, 2000,
as compared to the comparable period in 1999, as described below. As of December
31, 2000, there were 233 Sterling Stores in operation, consisting of 32
Company-owned stores (including 12 Company-owned stores being managed by
franchisees) and 201 franchised stores (including 3 franchised stores being
managed by the Company on behalf of franchisees), as compared to 254 Sterling
Stores in operation for the comparable period in 1999, consisting of 36
Company-owned stores (including 6 Company-owned stores being managed by
franchisees) and 218 franchised stores (including 5 stores being managed by the
Company on behalf of franchisees). On a same store basis (for stores that
operated as a Company-owned store during the entirety of both of the years ended
December 31, 2000 and 1999), comparative net sales decreased by $257,000, or
3.8%, to $6,524,000 for the year ended December 31, 2000, as compared to
$6,781,000 for the comparable period in 1999.
Franchise royalties decreased by $278,000, or 3.0%, to $9,077,000 for the
year ended December 31, 2000, as compared to $9,355,000 for the comparable
period in 1999. This decrease is a result of fewer franchised stores in
operation throughout fiscal year 2000 as compared to fiscal year 1999.
Net gains and fees on the conveyance of Company-owned store assets to
franchisees, including renewal fees and the fees related to the transfer of
ownership from one franchisee to another, decreased by $369,000, or 55.3%, to
$298,000 for the year ended December 31, 2000, as compared to $667,000 for the
comparable period in 1999. This decrease was principally due to the conveyance
of the assets of 3 Company-owned stores to franchisees during the year ended
December 31, 2000, as compared to the conveyance of the assets of 13
Company-owned stores to franchisees for the comparable period in 1999.
Management believes that this decrease was principally due to the Company's
decision to sell the assets of its Sterling Optical division, which was believed
to negatively impact the marketability of Sterling Stores to independent
franchisees.
Interest on franchise notes receivable decreased by $255,000, or 17.4%,
to $1,210,000 for the year ended December 31, 2000, as compared to $1,465,000
for the comparable period in 1999. This decrease was principally due to
reductions of the principal balance of several franchisees notes and fewer notes
being generated during fiscal 2000.
Other income (primarily initial franchise fees) decreased by $134,000, or
27.2%, to $358,000 for the year ended December 31, 2000, as compared to $492,000
for the comparable period in 1999, due to fewer stores being franchised during
fiscal year 2000.
The Company's gross profit margin decreased by 4.3%, to 68.1% for the
year ended December 31, 2000, as compared to 72.4% for the comparable period in
1999, due to the mix of products being sold during each respective period. In
the future, the Company's gross profit margin may fluctuate depending upon the
extent and timing of changes in the product mix in Company-owned stores,
competition and promotional incentives.
Selling, general and administrative expenses increased by $8,782,000, or
37.2%, to $32,391,000 for the year ended December 31, 2000, as compared to
$23,609,000 for the comparable period in 1999. This increase was primarily
related to an increase of approximately $5,960,000 in the provision for doubtful
accounts associated with accounts and notes receivable due from franchisees.
This increase was a direct result of a change in management philosophy, policy,
direction, and related course of action resulting from a change in the Company's
senior management personnel subsequent to year-end, to take back franchise
stores or reevaluate notes receivable due from various problem franchisees. The
Company has taken back 7 franchised store locations since December 31, 2000.
Additionally, the increase in selling, general and administrative expense
includes approximately $4,300,000 of impairment losses for advertising expenses
and related receivables incurred on behalf of franchisees in the current period
and in prior years, all of which was determined in fiscal year 2000 to be
unrealizable, or uncollectible, by the Company. A third factor for the increase
in selling, general and administrative expense was an approximate $1,100,000
charge related to the impairment of certain fixed assets. Offsetting this
increase was a decrease of approximately $2,200,000 in Company store related
operating costs due to the reduction in the number of Company-owned stores in
operation for the year ended December 31, 2000, as compared to the comparable
period in 1999.
Warrant issuance and induced conversion costs decreased by $2,005,000, or
84.6%, to $366,000 for the year ended December 31, 2000, from $2,371,000 for the
comparable period in 1999. This decrease was principally due to the incurrence,
during fiscal year 1999, of $2,000,000 of expenses related to the Company's
issuance of 2,500,000 warrants to the Holder, all of which vested immediately.
Loss from the operation of franchised stores managed by the Company
increased by approximately $22,000, or 3.6%, to approximately $(627,000) for the
year ended December 31, 2000, as compared to approximately $(605,000) for the
comparable period in 1999.
Interest expense decreased by $398,000, or 48.0%, to $432,000 for the
year ended December 31, 2000, as compared to $830,000 for the comparable period
in 1999. This decrease resulted from a decrease in long-term debt during the
year ended December 31, 2000, as compared to the comparable period in 1999.
The Company incurred a net loss from continuing operations of
$(14,628,000) for the year ended December 31, 2000 as compared to a net loss of
$(2,691,000) for the comparable period in 1999. These losses were a result of
the items discussed above.
Loss from discontinued operations represents the net loss from operating
results of the Company's Internet Division, Insight Laser and Ambulatory Center
of $(19,573,000), $(1,083,000) and $(3,708,000), respectively. The loss for the
Internet Division included a net operating loss of $15,409,000 (which included a
non-cash charge for web-site development costs of $9,750,000), a non-cash
impairment charge of $711,000 on the expected disposal of certain assets and
$3,453,000 for estimated future losses and liabilities through the anticipated
disposal date. The loss for Insight Laser included net operating losses of
$169,000, a non-cash impairment charge of $803,000 on the expected disposal of
certain assets and $111,000 for estimated future losses and liabilities through
the anticipated disposal date. The loss for the Ambulatory Center included net
operating income of $31,000, a non-cash impairment charge of $2,594,000 on the
expected disposal of certain assets, and $1,145,000 for estimated future losses
and liabilities through the anticipated disposal date.
FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
Net sales for Company-owned stores, as well as revenues generated by
VCC, a specialized health care maintenance organization licensed by the
California Department of Corporations decreased by approximately $3,017,000, or
14.6%, to $17,601,000 for the year ended December 31, 1999, as compared to
$20,618,000 for the comparable period in 1998. This decrease was principally due
to a lower number of stores in operation for the year ended December 31, 1999,
as compared to the comparable period in 1998 as described below. As of December
31, 1999, there were 254 Sterling Stores in operation, consisting of 36
Company-owned stores (including 6 Company-owned stores being managed by
franchisees) and 218 franchised stores (including 5 franchised stores being
managed by the Company on behalf of franchisees), as compared to 292 Sterling
Stores in operation for the comparable period in 1998, consisting of 41
Company-owned stores (including 6 Company-owned stores being managed by
franchisees) and 251 franchised stores (including 12 stores being managed by the
Company on behalf of franchisees). On a same store basis (for stores that
operated as a Company-owned store during the entirety of both of the years ended
December 31, 1999 and 1998), comparative net sales decreased by $545,000, or
5.7%, to $9,032,000 for the year ended December 31, 1999, as compared to
$9,577,000 for the comparable period in 1998.
Franchise royalties increased by $220,000, or 2.4%, to $9,355,000 for the
year ended December 31, 1999, as compared to $9,135,000 for the comparable
period in 1998.
Net gains and fees on the conveyance of Company-owned store assets to
franchisees, including renewal fees and the fees related to the transfer of
ownership from one franchisee to another, increased by $103,000, or 18.3%, to
$667,000 for the year ended December 31, 1999, as compared to $564,000 for the
comparable period in 1998. This increase was principally due to the conveyance
of the assets of 13 Company-owned stores to franchisees during the year ended
December 31, 1999, as compared to 4 Company-owned stores to franchisees for the
comparable period in 1998.
Interest on franchise notes decreased by $412,000 to $1,465,000 for the
year ended December 31, 1999, as compared to $1,877,000 for the comparable
period in 1998. This decrease was principally due to certain franchisees
voluntarily prepaying their notes prior to the scheduled maturity dates thereof.
Other income (primarily franchise fees) increased $104,000 to $492,000
for the year ended December 31, 1999, as compared to $388,000 for the comparable
period in 1998.
The Company's gross profit margin increased by 8.6%, to 72.4% for the
year ended December 31, 1999, as compared to 63.8% for the comparable period in
1998. This increase resulted principally from improved cost controls at the
store level. In the future, the Company's gross profit margin may fluctuate
depending upon the extent and timing of changes in the product mix in
Company-owned stores, competition and promotional incentives.
Selling, general and administrative expenses (including depreciation)
decreased by $11,428,000, or 32.6%, to $23,609,000, or 79.8% of revenues, for
the year ended December 31, 1999, as compared to $35,037,000 or 107.6% of
revenues for the comparable period in 1998. The decrease resulted principally
from a decrease of approximately $6,000,000 in the Company's provision for
doubtful accounts and store closings, a decrease of approximately $1,000,000 of
certain nonrecurring professional fees, a decrease of approximately $550,000 in
depreciation expenses, and a decrease in payroll costs at the store level for
the year ended December 31, 1999, as compared to the comparable period in 1998.
Warrant issuance and induced conversion costs increased by $1,949,000 to
$2,371,000 for the year ended December 31, 1999, from $422,000 for the
comparable period in 1998. This increase was principally due to the incurrence
of $2,000,000 of expenses related to the Company's issuance of 2,500,000
warrants, all of which vested immediately, to an outside consultant.
Loss from the operation of franchised stores managed by the Company
decreased by approximately $187,000, or 23.6%, to approximately $(605,000) for
the year ended December 31, 1999, as compared to approximately $(792,000) for
the comparable period in 1998. This decrease was principally due to a decrease
in the number of franchised stores managed by the Company, from 5, as of
December 31, 1999, to 12 for the comparable period in 1998.
Interest expense decreased by $444,000, or 34.9%, to $830,000 for the
year ended December 31, 1999, as compared to $1,274,000 for the comparable
period in 1998. This decrease resulted from a decrease in long-term debt for the
year ended December 31, 1999, as compared to the comparable period in 1998, and
from a decrease of amortization of debt issuance costs of $155,000 for the year
ended December 31, 1999.
The Company incurred a net loss from continuing operations of
$(2,691,000) for the year ended December 31, 1999 as compared to a net loss of
$(16,016,000) for the comparable period in 1998. In 1999, non-cash charges of
$2,371,000 were incurred relating to the issuance of warrants to an outside
consultant and induced warrant conversion costs. In 1998, certain non-cash
charges of approximately $10,700,000 were incurred related to the Company's
provision for doubtful accounts, provision for store closings, and amortization
of debt discount and extraordinary item.
Loss from discontinued operations represents the net loss from operating
results of the Company's Insight Laser and Ambulatory Center. The Internet
Division did not have any operations in 1999 or 1998. The Company, in fiscal
year 2000, decided to dispose of these two divisions and accordingly they have
been presented as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2000, cash flows used in operating
activities were $(1,915,000), as compared to cash flows used in operating
activities of $(1,006,000) for the year ended December 31, 1999. Net loss from
continuing operations was $(14,628,000), which included a provision for doubtful
accounts of approximately $6,967,000 and an asset impairment charge of
$1,131,000. These charges were taken as a direct result of a change in
management philosophy, policy, direction, and related course of action resulting
from a change in the Company's senior management personnel subsequent to
year-end to take back franchise stores or reevaluate notes receivable due from
various problem franchisees.
For the year ended December 31, 2000, cash flows used by investing
activities was $(131,000), as compared to cash provided of $1,604,000 for the
comparable period in 1999. This decrease was principally due to a decrease of
approximately $1,829,000, to $2,030,000, in proceeds from franchise and other
notes receivables, an increase in capital expenditures for computer related
equipment and a decrease in conveyance for cash of Company property and
equipment to franchisees.
For the year ended December 31, 2000, cash flows provided by financing
activities was $11,513,000, principally due to proceeds received from the
exercise of options and warrants of $7,692,000 and proceeds received from the
Company's private placement, completed in March, 2000, of $10,618,000; reduced
by payments on long-term debt of $6,594,000.
On October 31, 2000, the Company announced a program to repurchase, in
accordance with the applicable requirements of the Securities Exchange Act of
1934, as amended, up to 1,000,000 shares of its Common Stock at prevailing
prices in open market transactions effected during the one-year period
commencing November 1, 2000. The Company intends to fund such stock repurchase
program from available working capital. As of December 31, 2000, the Company had
repurchased 177,001 shares of its Common Stock at an average price of $1.14 per
share.
The Company's working capital deficit was $(3,987,000) at December 31,
2000. This amount includes approximately $1,475,000 of non-cash charges
primarily related to discontinued operation impairments, although such charges
do not require a cash payment in the future. Additionally, there was an
aggregate of approximately $2,000,000 of liabilities recorded for potential
settlements related to discontinued operations. These liabilities reflect a
range of possible settlements, which the Company will seek to resolve for a
lesser amount (but there can be no assurance that it will be able to do so).
Lastly, included in such working capital deficit was a reserve of approximately
$2,000,000 for potential leasehold obligations on the leases (for Sterling
Stores) on which the Company is guarantor or directly holds such lease with the
respective landlord. The Company believes that it will improve cash flows during
2001 by improving store profitability through increased monitoring of
store-by-store operations and actual results as compared to expected results; a
reduction of administrative overhead expenses, if necessary; development
programs for franchisees; and seeking additional financing, if available.
The Company believes that, in the furtherance of its business strategies,
the Company's future capital requirements will include (i) the renovating and/or
remodeling of Company-owned stores; (ii) acquiring retail optical stores,
subject to the availability of qualified opportunities; and (iii) continued
upgrading of management information systems for its Company operated Sterling
Stores. Additionally, the Company may provide financing of sales of
Company-owned store assets to franchisees, which is likely to defer the inflow
of cash relating to the sales of such assets.
The Company believes that, based on its current cash position, and the
implementation of the plans described above, sufficient resources will be
available for the Company to continue in operation through the end of the first
quarter of fiscal year 2002. However, there can be no assurance that the Company
will be able to generate positive cash flows and, even if it does, that such
cash flows will be sufficient to adequately fund its ongoing operations and
future plans. If the Company cannot generate sufficient cash flows from
operations, it may be required to seek alternative debt and/or equity financing.
However, there can be no assurance that such debt and/or equity financing will
be available to the Company when necessary, or at terms that are attractive to
the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains certain equity instruments with beneficial
conversion terms and certain contractual price-protection provisions that are
indexed to the performance of the Company's Common Stock. Accordingly, the
Company may bear a financial risk in the form of future cash or stock payments
made to equalize any stock price declines that are indexed to a specific
contractual stock price floor. Additionally, as a result of the above, the
Company could incur non-cash charges to equity, which would have a negative
impact on future per share calculations.
The Company is exposed to market risks from potential changes in interest
rates as they relate to the Company's investments in highly liquid marketable
debt securities. These investments are deposited with high quality financial
institutions. The Company believes that the amount of risk as it relates to its
investments is not material to the Company's financial condition or results of
operations because the Company does not use derivative financial instruments in
its investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 21
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2000 and 1999 22
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998 23
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998 24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 25
Notes to Consolidated Financial Statements 26
Information required by schedules called for under Regulation S-X is
either not applicable or is included in the financial statements or notes
thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Emerging Vision, Inc. (formerly known as Sterling Vision, Inc):
We have audited the accompanying consolidated balance sheets of Emerging Vision,
Inc. (a New York corporation) and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the three years ended December 31, 2000. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 audits provide 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 Emerging Vision, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the three years ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Melville, New York
March 29, 2001
EMERGING VISION, INC. (f/k/a STERLING VISION, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
December 31,
-----------------------
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents .................................................................... $ 5,215 $ 108
Franchise receivables, net of allowance of $3,521 and $2,443, respectively ................... 1,493 2,643
Other receivables, net of allowance for doubtful account of $323 and $0, respectively ........ 1,997 850
Current portion of notes receivable from franchisees ......................................... 2,622 2,670
Inventories .................................................................................. 1,033 1,913
Prepaid expenses and other current assets .................................................... 475 233
--------- ---------
Total current assets ............................................................. 12,835 8,417
--------- ---------
Property and equipment, net ........................................................................... 2,995 3,719
Franchise notes and other receivables, net of allowance of $3,019 and $400, respectively .............. 3,926 10,626
Intangible assets, net ................................................................................ 1,534 1,802
Other assets .......................................................................................... 401 731
Net assets of discontinued operations ................................................................. 840 5,017
--------- ---------
Total assets .......................................................... $ 22,531 $ 30,312
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................................................ $ 221 $ 5,995
Accounts payable and accrued liabilities ..................................................... 13,595 5,828
Accrual for store closings ................................................................... -- 299
Net liabilities of discontinued operations ................................................... 3,006 1,090
--------- ---------
Total current liabilities ........................................................ 16,822 13,212
--------- ---------
Long-term debt ........................................................................................ 533 1,352
--------- ---------
Excess of fair value of assets acquired over cost ..................................................... 317 665
--------- ---------
Franchise deposits and other liabilities .............................................................. 954 922
--------- ---------
Commitments and contingencies (Note 12)
Shareholders' equity
Preferred stock, $.01 par value per share; authorized 5,000,000 shares:
Senior Convertible Preferred Stock, $100,000 liquidation preference per
share; 3 and 21 shares issued and
outstanding, respectively ................................................................ 287 2,417
Common stock, $.01 par value per share; authorized 50,000,000 and 28,000,000 shares, resoectively;
issued 25,559,231 and 16,676,630, respectively, and 25,382,230
and 16,676,630 shares outstanding, respectively .......................................... 256 167
Treasury stock, at cost, 177,001 and 0 shares, respectively ...................................... (203) --
Additional paid-in capital ....................................................................... 119,453 55,023
Accumulated deficit .............................................................................. (115,888) (43,446)
--------- ---------
Total shareholders' equity ....................................................... 3,905 14,161
--------- ---------
Total liabilities and shareholders' equity ............................ $ 22,531 $ 30,312
========= =========
The accompanying notes are an integral part of these consolidated balance sheets.
EMERGING VISION, INC. (f/k/a STERLING VISION, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
For the Year Ended December 31,
--------------------------------
2000 1999 1998
--------- -------- --------
Revenues:
Net sales ............................................................................ $ 12,115 $ 17,601 $ 20,618
Franchise royalties .................................................................. 9,077 9,355 9,135
Net gains and fees from the conveyance of Company-store assets to franchisees ........ 298 667 564
Interest on franchise notes .......................................................... 1,210 1,465 1,877
Other income ......................................................................... 358 492 388
-------- -------- --------
23,058 29,580 32,582
-------- -------- --------
Costs and expenses:
Cost of sales ........................................................................ 3,870 4,856 7,463
Selling, general and administrative expenses ......................................... 32,391 23,609 35,037
Loss from franchise stores operated under management agreements ...................... 627 605 792
Provision for store closings ......................................................... - - 2,500
Non-cash charges for issuance of warrants and induced conversions of warrants ........ 366 2,371 422
Amortization of debt discount ........................................................ - - 1,110
Interest expense ..................................................................... 432 830 1,274
-------- -------- --------
37,686 32,271 48,598
-------- -------- --------
Loss from continuing operations before provision for income taxes ............................. (14,628) (2,691) (16,016)
Provision for income taxes .................................................................... - - -
-------- -------- --------
Loss from continuing operations ............................................................... (14,628) (2,691) (16,016)
-------- -------- --------
Extraordinary item - loss from early retirement of debt ....................................... - - (805)
-------- -------- --------
Discontinued operations: (Note 2)
(Loss) income from discontinued operations ............................................... (15,533) 430 (956)
Loss on disposal of discontinued operations .............................................. (8,831) - -
-------- -------- --------
(Loss) income from discontinued operations .......................................... (24,364) 430 (956)
-------- -------- --------
Net loss ...................................................................................... $(38,992) $ (2,261) $(17,777)
======== ======== ========
Per share information - basic and diluted: (Note 4)
Loss from continuing operations.................................................... $ (2.04) $ (0.41) $ (1.10)
Extraordinary item - loss from early retirement of debt ........................... - - (0.06)
(Loss) income from discontinued operations ........................................ (0.66) 0.03 (0.07)
Loss on disposal of discontinued operations ....................................... (0.37) - -
-------- -------- --------
Net loss per share ................................................................... $ (3.07) $ (0.38) $ (1.23)
======== ======== ========
Weighted-average number of common shares outstanding - basic and diluted ...................... 23,627 15,232 14,627
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
EMERGING VISION, INC. (f/k/a STERLING VISION, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands, Except Share Data)
Series B Convertible Senior Convertible
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ---------- --------
BALANCE - DECEMBER 31, 1997................................ - $ - - $ - 13,927,227 $ 139
----------- ------- ------ ------ ---------- --------
Issuance of common shares upon conversion of 1997
Debentures............................................ - - - - 395,630 4
Debt discount for the intrinsic value of the 1998
Debentures and the fair value of the 1998 Warrants.... - - - - - -
Issuance of common shares upon conversion of warrants...... - - - - 550,000 6
Issuance of Senior Convertible Preferred Stock............. - - 35 4,025 - -
Charge for payments related to stock price guarantees...... - - - - - -
Stock dividend on Senior Convertible Preferred Stock....... - - - - 47,494 -
Issuance of non-employee stock options..................... - - - - - -
Net loss................................................... - - - - - -
----------- ------- ------ ------ ---------- --------
BALANCE - DECEMBER 31, 1998................................ - - 35 4,025 14,920,351 149
Issuance of common shares upon induced conversion
of Senior Convertible Preferred Stock................. - - (14) (1,608) 1,172,500 12
Issuance of common shares to vendors and franchisees....... - - - - 61,273 1
Acquisition of RBG Consulting, Ltd......................... - - - - - -
Issuance of common shares upon exercise of warrants........ - - - - 500,000 5
Charge for payments related to stock price guarantees...... - - - - - -
Dividends on Senior Convertible Preferred Stock............ - - - - 22,506 -
Issuance of warrants for consulting services............... - - - - - -
Charge related to reductions in exercise price of warrants. - - - - - -
Net loss................................................... - - - - - -
----------- ------- ------ ------ ---------- --------
BALANCE - DECEMBER 31, 1999................................ - - 21 2,417 16,676,630 167
Issuance of common shares upon induced conversion
of Senior Convertible Preferred Stock................. - - (18) (2,130) 2,468,334 25
Exercise of stock options and warrants (Note 15)........... - - - - 2,048,460 20
Issuance of common shares for consulting services(Note 14). - - - - 1,010,000 10
Issuance of Series B Convertible Preferred Stock (Note 14). 1,677,570 - - - - -
Issuance of Common Stock warrants in connection with
Series B Convertible Preferred Stock (Note 14)........ - - - - - -
Accretion of dividends on Series B Convertible
Preferred Stock (Note 14)............................. - 11,743 - - - -
Issuance of common shares upon conversion of Series B
Convertible Preferred Stock (Note 14)................. (1,677,570) (11,743) - - 3,355,140 34
Issuance of common shares to franchisees................... - - - - 667 -
Issuance of warrants and options for consulting services... - - - - - -
Equity contribution related to extinguishment of
debt to related party (Note 13)....................... - - - - - -
Acquisition of treasury shares (Note 14)................... - - - - - -
Net loss................................................... - - - - - -
----------- ------- ------ ------ ---------- --------
BALANCE - DECEMBER 31, 2000................................ - $ - 3 $ 287 25,559,231 $ 256
=========== ======= ====== ====== ========== ========
The accompanying notes are an integral part of these consolidated statements.
EMERGING VISION, INC. (f/k/a STERLING VISION, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands, Except Share Data)
Treasury Stock, Additional Total
at cost Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ----- -------- --------- --------
BALANCE - DECEMBER 31, 1997................................. - $ - $ 40,843 $ (19,711) $ 21,271
------- ----- -------- --------- --------
Issuance of common shares upon conversion
of 1997 Debentures.................................... - - 1,648 - 1,652
Debt discount for the intrinsic value of the 1998
Debentures and the fair value of the 1998 Warrants.... - - 1,915 - 1,915
Issuance of common shares upon conversion of warrants....... - - 2,038 - 2,044
Issuance of Senior Convertible Preferred Stock.............. - - (525) - 3,500
Charge for payments related to stock price guarantees....... - - (285) - (285)
Stock dividend on Senior Convertible Preferred Stock........ - - 175 (175) -
Issuance of non-employee stock options...................... - - 227 - 227
Net loss.................................................... - - - (17,777) (17,777)
------- ----- -------- --------- --------
BALANCE - DECEMBER 31, 1998................................. - - 46,036 (37,663) 12,547
Issuance of common shares upon induced conversion
of Senior Convertible Preferred Stock.................. - - 5,035 (3,439) -
Issuance of common shares to vendors and franchisees........ - - 249 - 250
Acquisition of RBG Consulting, Ltd.......................... - - 640 - 640
Issuance of common shares upon exercise of warrants......... - - 995 - 1,000
Charge for payments related to stock price guarantees....... - - (386) - (386)
Dividends on Senior Convertible Preferred Stock............. - - 83 (83) -
Issuance of warrants for consulting services................ - - 2,000 - 2,000
Charge related to reductions in exercise price of warrants.. - - 371 - 371
Net loss.................................................... - - - (2,261) (2,261)
------- ----- -------- --------- --------
BALANCE - DECEMBER 31, 1999................................. - - 55,023 (43,446) 14,161
Issuance of common shares upon induced conversion
of Senior Convertible Preferred Stock.................. - - 23,812 (21,707) -
Exercise of stock options and warrants (Note 15)............ - - 7,672 - 7,692
Issuance of common shares for consulting services (Note 14). - - 9,798 - 9,808
Issuance of Series B Convertible Preferred Stock (Note 14).. - - 6,239 - 6,239
Issuance of Common Stock warrants in connection
with Series B Convertible Preferred Stock(Note 14).... - - 4,379 - 4,379
Accretion of dividends on Series B Convertible
Preferred Stock (Note 14).............................. - - - (11,743) -
Issuance of common shares upon conversion of Series B
Convertible Preferred Stock (Note 14).................. - - 11,709 - -
Issuance of common shares to franchisees.................... - - - - -
Issuance of warrants and options for consulting services.... - - 94 - 94
Equity contribution related to extinguishment of
debt to related party (Note 13)........................ - - 727 - 727
Acquisition of treasury shares (Note 14).................... 177,001 (203) - - (203)
Net loss.................................................... - - - (38,992) (38,992)
------- ----- -------- --------- --------
BALANCE - DECEMBER 31, 2000 177,001 $(203) $119,453 $(115,888) $ 3,905
======= ===== ======== ========= ========
The accompanying notes are an integral part of these consolidated statements.
EMERGING VISION, INC. (f/k/a STERLING VISION, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Year Ended December 31,
---------------------------------
2000 1999 1998
-------- -------- ---------
Cash flows from operating activities:
Net loss from continuing operations ...................................................... $(14,628) $ (2,691) $(16,821)
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization ..................................................... 1,440 1,653 2,018
Provision for doubtful accounts ................................................... 6,967 1,007 6,500
Provision for store closings ...................................................... - - 2,500
Net gains from the conveyance of Company-owned store assets to franchisees ........ (298) (667) (564)
Accrued interest .................................................................. - 83 72
Amortization of excess of fair value of assets acquired over cost ................. (348) (348) (349)
Non-cash compensation charges related to options and warrants ..................... 94 2,371 227
Amortization of debt discount ..................................................... - - 1,915
Impairment of long-lived assets ................................................... 1,131 - -
Changes in operating assets and liabilities:
Franchise receivable .............................................................. (35) (1,526) (645)
Inventories ....................................................................... 880 355 1,042
Prepaid expenses and other current assets ......................................... 95 69 120
Other assets ...................................................................... 330 (1,117) 1,152
Accounts payable and accrued liabilities .......................................... 2,788 (269) 207
Franchise deposits and other liabilities .......................................... (46) (86) 102
Deferred franchise income ......................................................... 14 (20) (6)
Accrual for store closings ........................................................ (299) 180 (2,318)
-------- -------- --------
Net cash used in operating activities ......................................................... (1,915) (1,006) (4,848)
-------- -------- --------
Cash flows from investing activities:
Franchise notes receivable issued ........................................................ (582) (2,816) (2,001)
Proceeds from franchise and other notes receivable ....................................... 2,030 3,859 4,968
Purchases of property and equipment ...................................................... (1,579) (1,386) (791)
Proceeds from conveyance of property and equipment ....................................... - 1,947 1,023
-------- -------- --------
Net cash(used in) provided by investing activities ............................................ (131) 1,604 3,199
-------- -------- --------
Cash flows from financing activities:
Sale of common stock and other capital contributions ..................................... - - 2,044
Payments related to stock price guarantees ............................................... - (386) (285)
Proceeds from the exercise of stock options and warrants ................................. 7,692 1,000 -
Proceeds form long-term debt ............................................................. - 981 1,610
Payments on long-term debt ............................................................... (6,594) (2,968) (3,051)
Net proceeds from the issuance of Series B Convertible Preferred Stock ................... 10,618 - -
Acquisition of treasury shares ........................................................... (203) - -
Issuance of convertible debentures - - 3,500
-------- -------- --------
Net cash provided by (used in) financing activities ........................................... 11,513 (1,373) 3,818
-------- -------- --------
Net cash provided (used) by continuing operations ............................................. 9,467 (775) 2,169
-------- -------- --------
Net cash (used in) provided by discontinued operations ........................................ (4,360) 55 (1,675)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .......................................... 5,107 (720) 494
Cash and cash equivalents - beginning of year ................................................. 108 828 334
-------- -------- --------
Cash and cash equivalents - end of year ....................................................... $ 5,215 $ 108 $ 828
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .............................................................................. $ 324 $ 699 $ 1,053
======== ========= ========
Taxes ................................................................................. $ 28 $ 62 $ 88
======== ========= ========
Non-cash investing and financing activities:
Franchise stores reacquired ........................................................... $ 416 $ 815 $ 1,480
Exchange of convertible debentures for Senior Convertible Preferred Stock ............. - - 4,025
Preferred stock dividend paid in common shares ........................................ - 83 175
The accompanying notes are an integral part of these consolidated statements.
EMERGING VISION, INC. (f/k/a STERLING VISION, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS:
Business
Emerging Vision, Inc., formerly known as Sterling Vision, Inc. (the
"Registrant" and, together with its subsidiaries, hereinafter the "Company"), is
one of the largest chains of retail optical stores in the United States, based
upon domestic sales and the number of locations of Company-owned and franchised
stores (collectively referred to herein as "Sterling Stores"). In addition, in
March 2000, the Company initiated the development of an Internet-based portal
business intended to supply a comprehensive supply-chain solution for
manufacturers, distributors and retailers in the optical industry (the "Internet
Division") see Note 2.
On June 26, 2000, the Registrant's Board of Directors approved a plan to
sell the assets comprising the Company's retail optical store division
("Sterling Optical"), its majority-owned subsidiary, Insight Laser Centers, Inc.
("Insight Laser"), and the assets owned by it and located in an ambulatory
surgery center situated in Garden City, New York, at which the Company renders
administrative and consulting services to the owner of the New York State
License (Certificate of Need) therefor, the premises of which center are leased
to the Company (the "Ambulatory Center"), and subsequently engaged an investment
banking firm to assist in the sale of such segments of the Company's business.
As a result, the net assets, operating results and cash flows of Sterling
Optical, Insight Laser and the Ambulatory Center divisions were presented as
discontinued operations in the Company's Consolidated Condensed Financial
Statements included in the Registrant's Quarterly Reports on Forms 10-Q for the
second and third quarters ended June 30, 2000 and September 30, 2000,
respectively.
On March 21, 2001, the Company's Board of Directors resolved to no longer
pursue a sale of the assets of its Sterling Optical division, but rather to
focus its efforts and resources on growing such division as its core business.
In connection therewith, the Company's Board of Directors approved a plan to
discontinue the further development of its Internet Division, while pursuing its
plan to wind down the operations of, and dispose of the net assets of, such
division. The Company is also continuing with its plan to sell its Insight Laser
and Ambulatory Center divisions (the Internet Division, Insight Laser and
Ambulatory Center are collectively hereinafter referred to as the "Discontinued
Operations - EVI"), see Note 2. Accordingly, the net assets, operating results,
including estimated losses associated with such dispositions, and cash flows of
the Internet Division, Insight Laser and Ambulatory Center are presented as
discontinued operations in the Consolidated Financial Statements for all periods
presented.
Basis of Presentation
The Consolidated Financial Statements reflect: (i) the operations of the
Company's retail optical division, Sterling Optical, as though the Company had
not decided to sell the assets thereof, thereby reversing its previous
presentation as discontinued operations (hereinafter referred to as "Reversal -
Discontinued Operations - Sterling Optical"; see Note 2 for the impact of this
decision on the fourth quarter results of operations; and (ii) the net assets,
the results of operations and cash flows of Insight Laser, the Ambulatory Center
and Internet Division in accordance with accounting for discontinued operations,
as provided in Accounting Principles Board ("APB") Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."
As of December 31, 2000, there were 233 Sterling Stores in operation,
consisting of 32 Company-owned stores (including 12 stores being managed by
franchisees), and 201 franchised stores (including 3 franchised stores being
managed by the Company on behalf of the franchisee/owners thereof).
Management's Liquidity Plans
The Company plans to improve cash flows during its cash flows during 2001
by improving store profitability through increased monitoring of store-by-store
operations and actual results as compared to expected results; by implementing a
reduction of administrative overhead expenses, if necessary; by actively
supporting development programs for franchisees; and seeking additional
financing, if available.
NOTE 2 - DISCONTINUED OPERATIONS:
Reversal - Discontinued Operations - Sterling Optical
Subsequent to December 31, 2000, the Company changed its previous
decision to sell the assets of its Sterling Optical division, thereby reversing
the presentation of the net assets and operations of this division as
discontinued operations during the second and third quarters of fiscal year
2000. This decision was based upon the Board of Directors' decision to
restructure the operations of Sterling Optical under the direction of new
management.
Sterling Optical was not presented as a discontinued operation prior to
June 26, 2000 (the measurement date); therefore, there are no effects of
reversal related to, or presented for, prior years (only prior quarters). Aside
from the charge related to operating results from the measurement date through
December 31, 2000, which results are now reflected as part of continuing
operations, all remaining components of the original accrued loss on disposal
were reversed during the fourth quarter of 2000. These components were as
follows (in thousands):
Estimated loss to recognize segment to its net realizable value $(2,743)
Estimated cost of disposal (4,443)
-------
Total loss on disposal reversed $(7,186)
=======
The originally recorded loss to recognize the Sterling Optical segment at
its net realizable value was based on the net assets of the division and the
estimated sales price based on solicited offers.
Discontinued Operations - EVI
On March 21, 2001, the Company's Board of Directors decided to
discontinue the further development of the Internet Division and focus the
Company's efforts on the Sterling Optical retail division (Note 18). The Company
continues to adhere to its previously announced formalized plan to sell the
assets of its Insight Laser and the Ambulatory Center divisions. Accordingly,
all of these segments are accounted for as discontinued operations. For the
years ended December 31, 2000 and 1999, net (liabilities) assets of $(2,166,000)
and $3,927,000, respectively, related to Discontinued Operations - EVI, have
been segregated on the accompanying Consolidated Balance Sheets. The results of
operations for 2000, 1999 and 1998 have been restated for Discontinued
Operations - EVI. The Company expects to complete its plan of disposal of the
assets of its Discontinued Operations - EVI by the end of the second quarter of
2001.
In connection with the foregoing, the Company has made an initial
provision of approximately $8,116,000 for such discontinued operations. This
provision includes future operating losses, expenses associated with the sale of
the assets of these divisions, and an estimate of loss upon disposition. During
the fourth quarter of 2000, the Company charged approximately $3,397,000 to the
provision accrual relating to the impairment of assets of these discontinued
operations. As of December 31, 2000, $4,719,000 of this provision remains
accrued as part of accounts payable and accrued liabilities on the accompanying
Consolidated Balance Sheet.
Summarized financial information for these discontinued operations is as
follows (in thousands):
As of and for the Years Ended December 31:
Internet Insight Ambulatory
Division Laser Center Total
-------- -------- ---------- --------
2000
Net revenues ........... $ 108 $ 2,610 $ 753 $ 3,471
======== ======= ======= ========
Loss before income taxes $(19,573) $(1,083) $(3,708) $(24,364)
======== ======= ======= ========
Net loss ............... $(19,573) $(1,083) $(3,708) $(24,364)
======== ======= ======= ========
Current assets ......... $ 36 $ 13 $ 10 $ 59
======== ======= ======= ========
Total assets ........... $ 36 $ 953 $ 10 $ 999
======== ======= ======= ========
Current liabilities .... $ 1,208 $ 1,857 $ - $ 3,065
======== ======= ======= ========
Net (liabilities) assets $ (1,172) $(1,004) $ 10 $ (2,166)
======== ======= ======= ========
1999
Net revenues ............. $ - $ 4,661 $ 780 $ 5,441
======== ======= ======= ========
Income before income taxes $ - $ 427 $ 3 $ 430
======== ======= ======= ========
Net income ............... $ - $ 427 $ 3 $ 430
======== ======= ======= ========
Current assets ........... $ - $ 215 $ 71 $ 286
======== ======= ======= ========
Total assets ............. $ 1,000 $ 2,268 $ 2,524 $ 5,792
======== ======= ======= ========
Current liabilities ...... $ - $ 1,326 $ 50 $ 1,376
======== ======= ======= ========
Net assets ............... $ 1,000 $ 453 $ 2,474 $ 3,927
======== ======= ======= ========
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Emerging
Vision, Inc. and its subsidiaries, all of which, except for the Company's 66.5%
owned subsidiary, Insight Laser (which is reflected as a discontinued
operation), are wholly-owned. All intercompany balances and transactions have
been eliminated in consolidation.
Company-Managed Stores
The Company accounts for the results of operations of certain franchised
Sterling Stores operated by the Company under management agreements, in
accordance with Emerging Issues Task Force Issue 97-2 ("EITF 97-2"),
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." In accordance with EITF 97-2, the results of
operations of Company managed stores are shown on a net basis, and are
classified as a loss from franchised stores operated under management agreements
in the accompanying Consolidated Statements of Operations.
For the years ended December 31, 2000, 1999 and 1998, the Company managed
3, 5 and 12 Sterling Stores, respectively, for franchisees, under the terms of
management agreements entered into with each such franchisee. Such agreements
generally provide for the operation of the Sterling Store by the Company, with
primarily all operating decisions to be made by the Company. The Company owns
the inventory at these locations and is generally responsible for the collection
of all revenues and the payment of all expenses associated therewith. For the
years ended December 31, 2000, 1999 and 1998, these stores generated revenues of
approximately $1,382,000, $1,524,000 and $4,503,000, respectively, and net
losses of ($627,000), ($605,000) and ($792,000), respectively.
Revenue Recognition
The Company generally charges franchisees a nonrefundable initial
franchise fee. Initial franchise fees are recognized at the time all material
services required to be provided by the Company have been substantially
performed. Continuing franchise royalty fees are based upon a percentage of the
gross revenues of each franchised location and are recorded as earned.
Beginning in the fourth quarter of 2000, the Company recognized revenues
in accordance with SEC Staff Accounting Bulletin No. 101, or other specific
authoritative literature, as applicable. Accordingly, revenues are recorded when
all four of the following criteria are met: (i) persuasive evidence of an
arrangement exists; (ii) delivery has occurred or services have been rendered;
(iii) the Company's price to the buyer is fixed or determinable; and (iv)
collectibility is reasonably assured.
The Company derives it revenues from the following four principal sources;
Net sales - Represents sales from eye care products and related services;
Franchise royalties - Represents continuing franchise fees based upon a
percentage of the gross revenues of each franchised location;
Net gains from the conveyance of Company-store assets to franchisees -
Represents the net gains from the Company's sale of store assets
to franchisees; and
Interest on franchise notes - Represents interest charged to franchisees
pursuant to promissory notes issued in connection with a franchisee's
acquisition of the assets of a Sterling Store or upon the restructuring
of a franchisee's obligation to the Company.
Cash and Cash Equivalents
Cash represents cash on hand for Company-owned stores and cash on deposit
with financial institutions. All highly liquid investments with an original
maturity (from date of purchase) of three months or less are considered to be
cash equivalents. The Company's cash equivalents are invested in various
investment-grade, money market accounts.
Fair Value of Financial Instruments
At December 31, 2000, the carrying value of the Company's financial
instruments, such as cash and cash equivalents, accounts and notes receivable
and long-term debt, approximated their fair value, based on the short-term
maturities and nature of these instruments.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value, and consist primarily of contact lenses,
ophthalmic lenses, eyeglass frames and sunglasses.
Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation and amortization. Depreciation is provided on a straight-line basis
over the estimated useful lives of the respective classes of assets.
Intangible Assets
Intangible assets are comprised of goodwill and other intangible assets.
These intangible assets are being amortized on a straight-line basis over their
estimated useful lives of between 3 and 20 years. Accumulated amortization on
intangible assets was approximately $1,007,000 and $738,000 at December 31, 2000
and 1999, respectively.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed
Of", requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. In accordance with SFAS No. 121, the Company periodically
evaluates the values assigned to its goodwill and other intangible assets and
assesses the realizability of long-lived assets (on a store-by-store basis)
based on, among other factors, the estimated, undiscounted future cash flows
expected to be generated from such assets in order to determine if an impairment
exists. Impairments of $1,131,000 were charged to the Consolidated Statement of
Operations during 2000, and a new basis, if any, for the impaired assets were
established. Management believes that there was no other impairment of
long-lived assets with respect to the Company's continuing operations at
December 31, 2000.
Web Site Development Costs
The Company accounts for web site development costs in accordance with
EITF Issue 00-02: "Accounting for Web Site Development Costs." This Issue
provides that the accounting for specific web site development costs be based on
a model consistent with AICPA Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
Under SOP 98-1, costs are expensed or capitalized according to the stage and
related process of web site development that they relate to. Amortization of
capitalized costs begins at the point in time that the web site becomes
operational. To date, expenditures for web site development have not been
material to Sterling Optical's continuing operations.
Comprehensive Income
The Company follows the provisions of SFAS 130, "Reporting Comprehensive
Income," which establishes rules for the reporting of comprehensive income and
its components. For the years ended December 31, 2000, 1999 and 1998, the
Company's operations did not give rise to items includible in comprehensive
income which were not already included in net loss. Therefore, the Company's
comprehensive loss is the same as its net loss for all periods presented.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability method specified by
SFAS No. 109, the deferred income tax amounts included in the Consolidated
Balance Sheet are determined based on the differences between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates that will be in effect when these differences reverse. Differences between
assets and liabilities for financial statement and tax return purposes are
principally related to inventories and depreciable lives of assets.
Stock-Based Compensation
The Company applies the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock, Issued to Employees" and FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation (and Interpretation of APB Opinion No. 25)" in connection with
stock-based compensation granted to employees and directors of the Company. The
Company provides the required pro forma disclosures as if the fair value method
under SFAS No. 123, "Accounting for Stock Based Compensation," was adopted. Any
stock-based compensation awards to non-employees are accounted for using the
provisions of SFAS No. 123 (Note 15).
Concentration of Risk
The Company operates retail optical stores in North America,
predominantly in the United States, and its receivables are primarily from
franchisees who also operate retail optical stores in the United States.
Start-up Costs
All start-up costs are expensed as incurred.
Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
For the years ended December 31, 2000, 1999 and 1998, the Company's continuing
operations were classified into one principal industry segment. All other
segments have been reflected as discontinued operations. Accordingly, the
disclosures required by SFAS No. 131 have not been provided.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform with the current year presentation.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS
No.133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138,
is effective for all fiscal years beginning after June 15, 2000, and will not
require retroactive restatement of prior period financial statements. This
statement requires the recognition of all derivative instruments as either
assets or liabilities in the balance sheet, measured at fair value. Derivative
instruments will be recognized as gains or losses in the period of change. The
Company adopted SFAS No. 133 beginning January 1, 2001 and such adoption did
have a material impact on its financial position or results of operations as the
Company does not presently make use of derivative instruments.
NOTE 4 - PER SHARE INFORMATION
The Company follows the provisions of SFAS No. 128, "Earnings Per Share".
Basic net loss per common share ("Basic EPS") is computed by dividing net loss
attributable to common shareholders by the weighted-average number of common
shares outstanding. Diluted net loss per common share ("Diluted EPS") is
computed by dividing net loss attributable to common shareholders by the
weighted-average number of common shares and dilutive common share equivalents
and convertible securities then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the consolidated
statements of operations. Common stock equivalents were excluded from the
computation for all periods presented, as their impact would be anti-dilutive.
The following table sets forth the computation of basic and dilute per
share information:
2000 1999 1998
--------------------------------------------
NUMERATOR:
Loss from continuing operations $(14,628) $(2,691) $(16,016)
Senior Convertible Preferred Stock dividends - (83) (175)
Induced conversion of Senior Convertible Preferred Stock (21,707) (3,439) -
Accretion of dividends on Series B Convertible Preferred Stock (11,743) - -
-------- ------- --------
Numerator for basic and diluted loss per share - loss attributable
to common shareholders (48,078) (6,213) (16,191)
-------- ------- --------
Basic and Diluted:
Loss attributable to common shareholders (48,078) (6,213) (16,191)
Extraordinary item - loss from early retirement of debt - - (805)
(Loss) income from discontinued operations (15,533) 430 (956)
Loss on disposal of discontinued operations (8,831) - -
-------- ------- --------
Net loss attributable to common shareholders $(72,442) $(5,783) $(17,952)
======== ======= ========
DENOMINATOR:
Denominatory for basic and diluted per share information - weighted-
average shares outstanding 23,627 15,232 15,627
====== ====== ======
BASIC AND DILUTED PER SHARE INFORMATION:
Loss attributable to common shareholders $(2.04) $(0.41) $(1.10)
Extraordinary item - loss from early retirement of debt - - (0.06)
(Loss) income from discontinued operations (0.66) 0.03 (0.07)
Loss on disposal of discontinued operations (0.37) - -
------ ------ ------
Net loss attributable to common shareholders $(3.07) $(0.38) $(1.23)
====== ====== ======
NOTE 5 - FRANCHISE NOTES RECEIVABLE:
Franchise notes held by the Company consist primarily of purchase money
notes related to Company-financed conveyances of Company-store assets to
franchisees, and certain franchise notes receivable acquired by the Company.
Substantially all notes are secured by the underlying assets of the related
franchised store, as well as, in most cases, the personal guarantee of the
principal owners of the franchisee. Interest is charged at various rates ranging
from 8% to 12%.
Scheduled maturities of such notes receivable as of December 31, 2000,
are as follows (in thousands):
2001 $ 2,622
2002 2,263
2003 1,860
2004 1,354
2005 635
Thereafter 833
-------
9,567
Less: allowance for doubtful accounts (3,019)
-------
$ 6,548
=======
NOTE 6 - VALUATION AND QUALIFYING ACCOUNTS:
Franchise receivables (such as royalties and franchise rents receivable),
franchise notes receivable, and other Company receivables, are shown in the
Consolidated Balance Sheets net of allowances for doubtful accounts. The
following is a breakdown, by major components, of the change in the allowance
for franchise receivables and notes, other receivables, store closings and
discontinued operations reserve, respectively:
(In thousands)
As of December 31,
----------------------------------
2000 1999 1998
-------- -------- --------
FRANCHISE RECEIVABLES:
Balance, beginning of year ........................................................... $ 2,443 $2,060 $ 514
Charged to expense .............................................................. 2,994 910 3,915
Reductions, principally write-offs .............................................. (1,916) (527) (2,369)
------- ------ -------
Balance, end of year ................................................................. $ 3,521 $2,443 $ 2,060
======= ====== =======
FRANCHISE NOTES RECEIVABLES:
Balance, beginning of year ........................................................... $ 400 $ 450 $ 562
Charged to expense .............................................................. 3,650 97 2,585
Reductions, principally write-offs .............................................. (1,031) (147) (2,697)
------- ------ -------
Balance, end of year ................................................................. $ 3,019 $ 400 $ 450
======= ====== =======
OTHER COMPANY RECEIVABLES:
Balance, beginning of year ........................................................... $ - $ - $ -
Charged to expense .............................................................. 323 - -
Reductions, principally write-offs .............................................. - - -
------- ------ -------
Balance, end of year ................................................................. $ 323 $ - $ -
======= ====== =======
ACCRUAL FOR STORE CLOSING:
Balance, beginning of year ........................................................... $ 299 $ 954 $ 453
Charged to expense .............................................................. - - 2,500
Reductions ...................................................................... (299) (655) (1,999)
------- ------ -------
Balance, end of year ................................................................. $ - $ 299 $ 954
======= ====== =======
ACCRUAL FOR COSTS OF DISPOSAL OF DISCONTINUED OPERATIONS:
Balance, beginning of year ........................................................... $ - $ - $ -
Charged to expense .............................................................. 11,919 - -
Reductions (includes reversal of Disconrinued Operations - Sterling Optical) .... (7,200) - -
------- ------ -------
Balance, end of year ................................................................. $ 4,719 $ - $
======= ====== =======
NOTE 7 - PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, consists of the following:
Estimated
(In thousands) Useful
As of December 31, Lives
--------------------
2000 1999
------- -------
Furniture and fixtures $ 703 $ 711 5 years
Machinery and equipment 3,524 4,629 3-5 years
Leasehold improvements 1,733 1,995 10 years*
------- -------
5,960 7,335
Less: accumulated depreciation (2,965) (3,616)
------- -------
Property and equipment, net $ 2,995 $ 3,719
======= =======
* Useful lives of leasehold improvements are based upon the lesser of the
assets' useful lives or the term of the lease of the related property.
The net book value of assets held under capital leases included in
property and equipment amounted to approximately $374,000 and $269,000 (net of
accumulated depreciation of approximately $146,000 and $59,000) as of December
31, 2000 and 1999, respectively. Depreciation expense for the years ended
December 31, 2000, 1999 and 1998 was $1,172,000, $1,304,000, and $1,423,000,
respectively.
NOTE 8 - PROVISION FOR STORE CLOSINGS:
The Company provides for losses anticipated to be incurred with respect
to those Company-owned stores which it has identified for closure in the future.
Such provision is recorded at the time the determination is made to close a
particular store and is based on the expected net proceeds to be generated from
the disposition of such store's assets, as compared to the carrying value (after
consideration of impairment, if any - see Note 3) of such store's assets and the
estimated costs (including the present value of remaining lease payments and
other expenses) that will be incurred in the closing of the store. This
evaluation resulted in charges to the Consolidated Statements of Operations of
$2,500,000 for the year ended December 31, 1998.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
As of December 31,
-------------------
2000 1999
------- ------
Accounts payable $ 5,811 $4,191
Accrued payroll and fringe benefits 490 448
Accrual for costs of disposal of discontinued operations 4,719 -
Accrued advertising 809 -
Other accrued expenses 1,766 1,189
------- ------
$13,595 $5,828
======= ======
NOTE 10 - INCOME TAXES:
The Company's effective tax rate differs from the statutory Federal
income tax rate of 34% primarily due to the impact of recording a valuation
allowance to offset the potential future tax benefit resulting from net
operating loss carryforwards for all years presented.
At December 31, 2000 and 1999, net deferred tax assets were approximately
$21,300,000 and $11,100,000, respectively, resulting primarily from the future
tax benefit of net operating loss carryforwards. In accordance with SFAS No.
109, the Company has fully reserved for its net deferred tax assets as of
December 31, 2000 and 1999 due to the uncertainty as to their future
realizability.
At December 31, 2000, the Company had net operating loss carryforwards
totaling approximately $49,700,000 which are available to offset future taxable
income for federal income tax purposes. The net operating loss carryforwards
expire in varying amounts through 2020 and may be limited in accordance with
Section 382 of the Internal Revenue Code of 1986, as amended, based on certain
changes in ownership that have occurred.
NOTE 11 - LONG-TERM DEBT:
(In thousands)
December 31,
---------------------
2000 1999
------- -------
STI Credit Corporation (a) $ - $ 3,184
Broadway Partners (b) - 2,090
Other Notes Payable (c) - 1,249
Capital equipment notes payable, due in monthly
installments with interest at 5.00% to 12.88%,
maturing at various rates through October, 2005(d) 754 824
----- -------
754 7,347
Less - current portion (221) (5,995)
----- -------
$ 533 $ 1,352
===== =======
(a) On June 30, 1997, the Company entered into a loan agreement (the
"Loan Agreement") with STI Credit Corporation ("STI") pursuant to
which STI established a $20,000,000 credit facility in favor of the
Company. On July 19, 2000, the Company and STI entered into a further
amendment to the Loan Agreement, as amended, which provided that STI
waived the default resulting from the Company's failure, as of
December 31, 1999, to comply with certain financial covenants as
originally contained in the Loan Agreement, which amendment also
required the Company to satisfy and discharge its loan from STI, in
full, on or prior to December 31, 2000, to which the Company
complied.
(b) On October 14, 1998, the Company's Board of Directors authorized the
Company to borrow up to $2,000,000 from Broadway Partners, a New York
general partnership owned by certain of the children of each of the
Company's Chairman and President, at such time. The loans were
payable on demand, together with interest calculated at the rate of
12% per annum. These loans were secured by a first lien upon, and
security interest in, the assets of the Company's ambulatory surgery
center. The Company repaid all outstanding amounts during 2000.
(c) In November 1995, the Company acquired substantially all of the
retail optical assets of Benson Optical Co., Inc. and its affiliates
(the "Benson Transaction"). As part of the Benson Transaction, the
Company issued a non-negotiable, subordinated convertible debenture
(the "Benson Debenture"), in the original principal amount of
$5,900,000, payable, without interest, on September 15, 2015. The
Benson Debenture was subordinated to all existing and future debts
and obligations of the Company. The Company had a right of offset
against the principal amount of the Benson Debenture in the event the
Company did not retain at least 40 of the 98 Benson stores acquired
in the Benson Transaction, which offset was $147,000 for each store
less than 40 that the Company retained. In December 1995, the
principal amount of the Benson Debenture was reduced by approximately
$1,176,000, to approximately $4,724,000, all in accordance with the
original purchase agreement. In November 1998, the Benson Debenture
was purchased from the then holder thereof, by Broadway Partners. As
of December 31, 1999, the Benson Debenture was recorded at its
present value of approximately $1,119,000 using an imputed internal
interest rate of approximately 8.5%. In March 2000, the Company
purchased the Benson Debenture from Broadway Partners for $550,000 in
full settlement of this debt (Note 13).
(d) Capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the underlying asset.
Principal payments due on the Company's capital leases, as of December
31, 2000, are as follows (in thousands):
Capital
Year Leases
---- -------
2001 $221
2002 239
2003 161
2004 131
2005 2
----
$754
====
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
Operating Lease Commitments
The Company leases locations for the majority of both its Company-owned
and franchised stores, as well as its executive and administrative offices.
Minimum future rental payments, as of December 31, 2000, for Company-owned
stores and administrative offices, as well as for stores leased by the Company
and subleased to franchisees, in the aggregate, are as follows (in thousands):
Total Lease Sublease Net Company
Obligations Rentals Obligations
------------- ---------- -------------
2001 $ 7,918 $ 5,638 $ 2,280
2002 6,850 4,702 2,148
2003 5,095 3,381 1,714
2004 4,473 2,875 1,598
2005 3,459 2,066 1,393
Thereafter 6,148 3,178 2,970
------- ------- -------
$33,943 $21,840 $12,103
======= ======= =======
The Company holds the master lease on substantially all franchised
locations and, as part of the franchise agreement, sublets the subject premises
to the franchisee. In addition to the fixed rent payable under such master
leases, most master leases require payment of a pro rata portion of common area
maintenance expenses and real estate taxes, as well as percentage rent based
upon sales volume. As required by SFAS No. 13 "Accounting for Leases," the
Company recognizes its rent expense on a straight-line basis over the life of
the related lease. Rent expense was approximately $3,444,000, $4,267,000, and
$5,303,000, net of sublease rentals of approximately $8,997,000, $9,190,000, and
$10,485,000, for the years ended December 31, 2000, 1999 and 1998, respectively.
Employment Agreement
The Company had one employment agreement for a certain officer of the
Company. Such agreement expired on February 28, 2001, and was not renewed.
Contingencies
As of December 31, 2000, the Company was a guarantor on certain leases of
franchised Sterling Stores. In the case all of such franchisees defaulted on
each lease, the Company would be obligated for aggregate lease obligations of
$5,451,000.
In February, 2001, five of the Company's Site for Sore Eyes Franchisees
(owing an aggregate of seven, franchised, Site for Sore Eyes Stores) commenced
an action in the United States District Court for the Northern District of
California seeking: (i) $35,000,000 of damages as a result of the Company's
alleged breach of the Franchise Agreement pursuant to which each such Franchisee
operates its Site for Sore Eyes Optical Center, (ii) fraud and violations of
California law; and (iii) a declaratory judgment that each such Franchise
Agreement had been modified to afford each plaintiff certain rights which are in
addition to those set forth in the applicable Franchise Agreements. As of the
date hereof, the Company's time to answer has been extended pending the parties
attempt to reach an amicable settlement of this dispute at a meeting to be held
on April 10, 2001.
In 1999, the Company commenced an action, in the Supreme Court of the
State of New York, against Dr. Larry Joel and Apryl Robinson for amounts claimed
due, by the Company, on a series of five separate Negotiable Promissory Notes
issued by corporations owned by the defendants in connection with their purchase
of the assets of, and a Sterling Optical Center Franchise for, an aggregate of
four of the Company's retail optical stores and an optical laboratory, the
repayment of each of which Notes was personally guaranteed by each of the
defendants. In response thereto, the defendants asserted counterclaims in excess
of $13,000,000 based upon the Company's alleged failure to comply with the terms
of an oral, month-to-month consulting agreement between Dr. Joel and the
Company, as well as to purchase the assets of various companies owned by Dr.
Joel, including Duling Optical and D & K Optical, notwithstanding the fact that:
(i) the parties failed to agree upon the terms of any such purchase; (ii) the
parties failed to enter into any written agreement memorializing such
transaction; and (iii) the Company subsequently purchased such assets from
Norwest Bank (which held a first lien on substantially all of said assets as
collateral for various loans made to each of said entities, all of which were
then in default), in a private foreclosure sale. In March 2001, the Appellate
Division granted the Company's Motion for Summary Judgment on the issue of the
defendants' liability, as guarantors of each of such Notes, a hearing on damages
having been scheduled for May 14, 2001. In addition, in March, 2001, the Company
filed an additional Motion for Summary Judgment seeking dismissal of all of such
counterclaims; and the defendant, Dr. Joel, thereafter filed a cross-motion
seeking a determination that the Company breached such oral, month-to-month
consulting agreement and that he is, accordingly, entitled to damages of
approximately $1,500,000, both of which motions have not yet been decided by the
Court.
In November 2000, Rare Medium, Inc. ("Rare"), notified the Company that
it was allegedly in default under the terms of the Professional Services Master
Agreement (the "Agreement") entered into between the Company and Rare in
February 2000, as a result of the Company's refusal to permit the transfer of
the 1,000,000 shares of its Common Stock previously issued to Rare in partial
consideration of the services to be rendered to the Company pursuant to such
Agreement; and, in February 2001, Rare additionally claimed that there was due
and owing to it the additional approximate sum of $840,000 for rent for office
space utilized by the Company, in both Dallas, Texas and New York City, pending
the opening of the Company's corporate offices in each such city, and for
additional services rendered to the Company by certain of its employees, all of
which, the Company believes were to be provided to it without additional cost.
The Company has advised representatives of Rare that, in their opinion, Rare was
not able to provide the services required of it pursuant to such Agreement,
which necessitated the Company to terminate such Agreement. As of the date
hereof, the parties are attempting to reach an amicable settlement of this
matter.
On March 2, 2001, Sara V. Traberman, the former Chief Financial Officer
of the Company, notified the Company of her election to terminate her Employment
Agreement as a result of the failure of the Company to dispose of substantially
all of its non-Internet related assets on or prior to March 1, 2001, and
demanded payment of her salary through the original termination date of her
Agreement (approximately $322,000 through February 23, 2003) and an additional
payment of $1,000,000, together with the immediate vesting of 400,000 stock
options previously granted to Ms. Traberman pursuant to such Employment
Agreement. As of the date hereof, the parties are attempting to reach an
amicable settlement of such dispute.
In addition to the foregoing, the Company is a defendant in certain
lawsuits alleging various claims incurred in the ordinary course of business.
These claims are generally covered by various insurance policies, subject to
certain deductible amounts and maximum policy limits. In the opinion of
management, the resolution of such additional, existing lawsuits should not have
a material adverse effect, individually or in the aggregate, upon the Company's
business or financial condition. Other than as set forth above, management
believes that there are no other legal proceedings pending or threatened to
which the Company is, or may be a party, or to which any of its properties are
or may be subject, which are likely to have a material adverse effect on the
Company.
NOTE 13 - RELATED PARTY TRANSACTIONS:
During the first quarter of 2000, Broadway Partners (a partnership owned
by certain of the children of certain of the Company's principal shareholders
and directors) accepted from the Company its $550,000 offer to purchase the
Benson Debenture (previously issued by the Company in connection with its
acquisition of substantially all of the assets of Benson Optical Co., Inc. and
affiliates, and subsequently purchased by Broadway Partners) having a then
discounted present value of approximately $1,277,000. The resulting gain of
$727,000 is reflected as a capital contribution, as it was shareholder related,
in the accompanying Consolidated Statement of Shareholders' Equity.
The Company shares an office building with, among other tenants, a retail
optical company which is owned by certain of the principal shareholders and
directors of the Company. Occupancy costs are appropriately allocated based upon
the applicable square footage leased by the respective tenants of the building.
For the years ended December 31, 2000, 1999 and 1998, the Company paid
approximately $420,000, $494,000 and $467,000, respectively, for rent and
related charges for this property.
During 1999, the Company transferred one of its store locations for a
store location of a retail optical company which is owned by certain of the
principal shareholders and directors of the Company, and purchased the lease and
assets for another store from such company for $100,000, payable over 7 years at
an interest rate of 10% per annum.
On October 31, 1995, as a condition of the Company's initial public
offering, it agreed to require three related party franchisees to reconvey their
franchises (and the assets of their respective Sterling Store) to independent
franchisees. During 1996, two stores were sold by the respective related party
franchisees; and in November 2000, the Company acquired the remaining store's
assets, subject to liabilities. Subsequently, in January 2001, the Company sold
such store's assets to an independent franchisee.
In November 1996, certain of the Company's principal shareholders
provided approximately $2,000,000 of short-term financing to the Company, which
was subsequently repaid by the Company. As part of the financing arrangement,
these principal shareholders received options, under the Company's Stock
Incentive Plan, to purchase an aggregate of 200,001 shares of the Company's
Common Stock at an exercise price of $6.375, which options expired, unexercised,
on December 31, 2000.
NOTE 14 - SHAREHOLDERS' EQUITY:
1998 DEBENTURES/CONVERTIBLE PREFERRED STOCK
In February 1998, the Company entered into Convertible Debentures and
Warrants Subscription Agreements with certain investors in connection with the
private placement of units consisting of an aggregate of $3,500,000 principal
amount of convertible debentures (collectively, the "1998 Debentures") and an
aggregate of 700,000 warrants (collectively, the "1998 Warrants"). The 1998
Warrants entitled the holders thereof to purchase up to 700,000 shares of the
Company's Common Stock at a price of $5.00 per share.
Subsequent to the date of the Company's issuance and sale of the 1998
Debentures and 1998 Warrants, the Company and the holders thereof (collectively,
the "Original Holders") determined that the issuance and sale of the 1998
Debentures and 1998 Warrants should be rescinded based upon a certain mutual
mistake of the Company and the Original Holders. Accordingly, on April 14, 1998,
the Company and the Original Holders entered into an Exchange Agreement,
effective as of February 17, 1998, whereby the 1998 Debentures were rescinded
and declared null and void from inception and were exchanged for $3,500,000
stated value (approximately $4,025,000 fair value) of a series of the Company's
Preferred Stock, par value $0.01 per share (the "Senior Convertible Preferred
Stock"), and the 1998 Warrants were exchanged for new warrants (the "New
Warrants"), entitling the Original Holders to purchase up to 700,000 shares of
Common Stock at a price of $5.00 per share until their expiration on February
17, 2001.
The Senior Convertible Preferred Stock originally required the Company to
pay quarterly dividends (in cash or Common Stock) calculated at the rate of 10%
percent per annum, commencing May 17, 1998. Additionally the Company was
required to redeem (in cash or Common Stock) all of the Senior Convertible
Preferred Stock at 105% of the then outstanding stated value, based on a
conversion price of $5.00, after February 17, 1999 or, in lieu thereof, at the
Company's option, pay dividends at the rate of 24% per annum. Finally, there was
a price-protection guarantee provision, whereby the Company, under certain
circumstances, would be required to pay to the Original Holders the difference
between the $5.00 conversion price and the selling price (net of commissions) of
any such shares sold.
As a result of the foregoing, the Company recorded, in its Consolidated
Financial Statements for the year ended December 31, 1998, amortization of debt
discount of approximately $1,110,000 and an extraordinary charge of
approximately $805,000 related to the early extinguishment of the 1998
Debentures. This debt discount represented the intrinsic value of the beneficial
conversion feature inherent in the 1998 Debentures (approximately $963,000), and
amortization of approximately $147,000 related to the fair value of the New
Warrants. The extraordinary charge of $805,000 represents the unamortized
discount related to the 1998 Warrants in connection with the early
extinguishment of the 1998 Debentures and the issuance of the Senior Convertible
Preferred Stock and New Warrants.
On August 18, 1998 and November 19, 1998, the Company issued 19,550 and
27,944 registered shares of its Common Stock, respectively, in payment of the
required dividends on the Senior Convertible Preferred Stock. During 1999, the
Company paid cash dividends (on its Senior Convertible Preferred Stock) in the
aggregate amount of $8,419 and, in addition, issued, in the form of stock
dividends, an aggregate of 22,506 registered shares of its Common Stock.
During 1999, certain holders of the Company's Senior Convertible
Preferred Stock exercised their right to convert an aggregate of $1,398,125
stated value of Senior Convertible Preferred Stock, into an aggregate of
1,172,500 registered shares of the Company's Common Stock .
In December 1999, certain holders of the New Warrants exercised their
right to acquire an aggregate of 500,000 registered shares of the Company's
Common Stock.
During the first quarter of 2000, certain of the original holders of the
Company's Senior Convertible Preferred Stock exercised their right to convert an
aggregate of $1,851,250 stated value of Senior Convertible Preferred Stock, into
an aggregate of 2,468,334 shares of the Company's Common Stock. As of December
31, 2000, there were 3 shares of Senior Convertible Preferred Stock outstanding
with a stated value of $287,000.
The Company, with shareholder approval, amended its Certificate of
Incorporation so that the holders of the Company's Senior Convertible Preferred
Stock have the right to vote, as a single class with the Common Stock, on an
as-converted basis, on all matters on which the holders of the Company's Common
Stock are entitled to vote.
SERIES B CONVERTIBLE PREFERRED STOCK
During the first quarter of 2000, the Company completed a private
placement pursuant to which it sold an aggregate of 1,677,570 units (the
"Units"), each Unit consisting of one share of the Company's Series B
Convertible Preferred Stock, par value $.01 per share, with a liquidation
preference of $7.00 per share (the "Series B Preferred Stock"), and one warrant
(the "Series B Warrant") to purchase one-half share of Series B Preferred Stock
at an exercise price, per one-half share, equal to $7.5875, exercisable from and
after the expiration of the six-month period following the date of the first
issuance of such Series B Warrants, for a period of 5 years thereafter.
Each share of Series B Preferred Stock was automatically converted into
two shares of the Company's Common Stock upon the Company's filing of an
amendment to its Certificate of Incorporation (the "Amendment") increasing its
authorized Common Stock from 28,000,000 to 50,000,000 shares, which was subject
to the Company's receipt of the approval of a majority of its shareholders,
which approval was obtained on April 17, 2000. Each Series B Warrant was
initially exercisable for one-half share of Series B Preferred Stock; however,
upon the automatic conversion of the Series B Preferred Stock into Common Stock,
the Series B Warrants (to the extent not previously exercised) became
exercisable, at the same exercise price of $7.5875, for one share of Common
Stock.
In accordance with EITF Issue 98-05, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," the net proceeds received in the private placement
(approximately $10,618,000) were allocated based on the relative fair values of
the Series B Preferred Stock and the Series B Warrants. Accordingly,
approximately $6,239,000 was allocated to the Series B Preferred Stock and
$4,379,000 was allocated to the Series B Warrants. The approximately $11,743,000
liquidation value of the 1,677,570 shares of Series B Preferred Stock was
recorded net of issuance costs of approximately $1,125,000, and net of a full
discount, of which approximately $4,379,000 was attributable to the fair value
of the Series B Warrants issued in connection therewith, and approximately
$6,239,000 was attributable to the beneficial conversion feature embodied in the
Series B Preferred Stock. This discount was accreted in its entirety as
preferred dividends through April 17, 2000, the date on which all of the Series
B Preferred Stock automatically converted into shares of the Company's Common
Stock (as discussed above) at a ratio of 1 to 2. In connection with the private
placement, the Company issued to the placement agents 500,000 warrants to
purchase shares of the Company's Common Stock at an exercise price of $7.59,
which warrants will expire on February 13, 2005. The fair value of these
warrants was treated as part of the issuance costs.
TREASURY STOCK PURCHASES
On October 31, 2000, the Company announced a program to possibly
repurchase, in accordance with the applicable requirements of the Securities
Exchange Act of 1934, as amended, up to 1,000,000 shares of its Common Stock at
prevailing prices in open market transactions effected during the one-year
period commencing November 1, 2000. The Company intends to fund such stock
repurchase program from available working capital. As of December 31, 2000, the
Company had acquired 177,001 shares of its Common Stock at an average price of
$1.14 per share. In addition, the Company reacquired 2,001 shares of its Common
Stock issued to franchisees whose agreements where terminated by the Company.
ISSUANCE OF COMMON STOCK FOR CONSULTING SERVICES
In February 2000, the Company issued 1,000,000 shares of its Common
Stock to Rare, pursuant to the terms of the Agreement entered into between Rare
and the Company, in connection with the development of the Internet-based portal
business for the Internet Division (Note 12). Under the terms of this Agreement,
Rare was to provide professional services to assist the Internet Division with
its web-based business strategy, including the development of multiple web
sites, operations planning and other services related to building the Internet
business. The terms of the Agreement afford Rare a price-protection guarantee on
any such shares sold in the open market at a price of less than $3.00 per share,
and contain certain "lock-up" provisions regarding the ability to sell such
shares prior to certain dates. Additionally, the Company paid Rare a cash fee of
$1,000,000 in December 1999. Of the above-mentioned consideration (valued, in
the aggregate, at $10,750,000), $4,275,000 had been expensed in 2000 for various
costs associated with the Company's development of its web site, and the entire
remainder was written-off as the Company terminated the Agreement. All such
charges are reflected in loss from discontinued operations on the accompanying
Consolidated Statement of Operations.
NOTE 15 - STOCK OPTIONS AND WARRANTS:
Sterling Stock Option Plan
In April 1995, the Company adopted a Stock Incentive Plan (the "Plan")
which permits the issuance of options to selected employees and directors of,
and consultants to, the Company. The Plan, as amended, reserves 7,000,000 shares
of Common Stock for grant and provides that the term of each award be determined
by the Compensation Committee of the Board of Directors (the "Committee")
charged with administering the Plan. Under the terms of the Plan, options may be
qualified or non-qualified and granted at exercise prices and for terms to be
determined by the Committee. Additionally, the Plan provides that certain
employees who are terminated retain the rights to options that have previously
vested until such time that the options expire in accordance with the terms of
the original grant.
A summary of the status of the Company's Plan is presented in the table
below:
2000 1999 1998
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- ----------- ---------
Options outstanding, beginning of period 3,571,624 $5.52 2,598,624 $5.89 2,175,302 $6.76
Granted 3,207,500 $7.32 1,090,500 $4.31 723,500 $3.38
Exercised (855,657) $5.44 - - - -
Canceled or expired (332,501) $6.24 (117,500) $6.01 (300,178) $7.36
--------- ------- --------- ------- --------- -------
Options outstanding, end of period 5,590,966 $6.54 3,571,624 $5.52 2,598,624 $5.89
--------- ------- --------- ------- --------- -------
Options exercisable, end of period 2,823,466 $6.24 2,992,791 $5.75 2,069,564 $5.98
========= ======= ========= ======= ========= =======
Of the total options outstanding at December 31, 2000, 2,037,454 are held
by current employees of the Company and 3,553,512 are held by directors of the
Company, outside consultants and former employees. Of the total options granted
during 2000, 1,982,500 were granted to employees of the Company and 1,225,000
were granted to directors of the Company and outside consultants.
The following table summarizes information about stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ------------------- --------- ----------- ---------
$0.41 to $3.75 1,147,000 7.31 $ 2.81 649,500 $3.21
$4.13 to $6.00 1,294,633 6.19 5.82 848,383 5.79
$6.06 to $8.00 454,333 4.03 6.71 365,583 6.82
$8.06 to $8.25 2,100,000 9.15 8.13 650,000 8.25
$8.94 300,000 1.27 8.94 300,000 8.94
$9.44 to $10.44 295,000 6.18 10.02 10,000 9.44
--------- ------- -------- --------- -------
5,590,966 7.09 $ 6.54 2,823,466 $6.24
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
---- ---- ----
Expected life (years) 5 5 5
Interest rate 6% 6% 6%
Volatility 108% 102% 102%
Dividend yield - - -
The Company has adopted the pro forma disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for those options issued, under the Plan, to employees.
Had compensation cost for the Company's Plan been determined under SFAS No. 123,
the Company's net loss and loss per share would approximate the pro forma
amounts presented below (in thousands):
2000 1999 1998
--------- --------- ---------
Net loss attributable to common shareholders:
As reported $ (72,442) $ (5,783) $ (17,952)
Pro forma $ (82,501) $ (10,009) $ (19,332)
Net loss per share - basic and diluted:
As reported $ (3.07) $ (0.38) $ (1.23)
Pro forma $ (3.49) $ (0.66) $ (1.32)
In 2000, 1999 and 1998, the Company recognized $94,000, $2,000,000 and
$227,000, respectively, of expense related to its issuance of stock options and
warrants to certain non-employee consultants to the Company.
Stock Purchase Warrants
In December 1999, the Company issued 2,500,000 warrants to MY2000, LLC,
an entity acting as an independent advisor to the Company in connection with the
Internet business and strategy, to purchase 2,500,000 shares of the Company's
Common Stock at a price of $2.00 per share, the fair value on the date of
issuance. The Company, in 1999, recognized approximately $2,000,000 in expense
representing the fair value of the warrants granted. A principal of MY2000, LLC,
is also an executive of the entity the Company had retained and paid, in cash
and stock, to develop and launch its business-to-business web sites and related
strategy. During the first quarter of 2000, MY2000, LLC exercised 1,000,000 of
these warrants; the remaining 1,500,000 were unexercised as of December 31,
2000.
In addition, there were 192,803 shares of Common Stock issued upon the
exercise of warrants exercised by various other holders during the first quarter
of fiscal year 2000.
NOTE 16 - 401(K) EMPLOYEE SAVINGS PLANS:
Emerging Vision, Inc., Sterling Vision of California, Inc. and VisionCare
of California, each sponsor a 401(k) Employee Savings Plan (the "401(k) Plan")
to provide all qualified employees of these entities with retirement benefits.
Presently, the administrative costs of each 401(k) Plan are paid entirely by
such qualified employees, without any matching contributions being paid by any
such entity.
NOTE 17 - FOURTH QUARTER CHARGES:
The fourth quarter of 2000 included adjustments (unrelated to any fourth
quarter discontinued operations charges as discussed in Note 1) to the
continuing operations of Sterling Optical of: (i) approximately $8,210,000 in
bad debt expense and other charges related to a change in management philosophy,
policy, direction, and related course of action resulting from a change in the
Company's senior management personnel subsequent to year-end, to take back
franchise stores or reevaluate notes receivable due from various problem
franchisees; and (ii) $1,131,000 related to impairment of certain fixed assets.
NOTE 18 - SUBSEQUENT EVENTS:
On March 28, 2001, the Company announced its Board of Director's decision
to discontinue further development of its Internet Division and focus its
efforts and resources on the Sterling Optical division. Accordingly, the net
assets, operating results and cash flows of the Internet Division have been
presented as discontinued operations in the accompanying Consolidated Financial
Statements for all periods presented. In connection with the decision to
discontinue the operations of the Internet Division, the Company has included a
charge of approximately $4,164,000 within its loss from discontinued operations
related to the Internet Division. This amount includes future operating losses
through the anticipated disposal date of April 30, 2001, severance costs for
certain Internet Division associates, and an estimate of loss upon disposition.
(See Notes 2 and 12). On March 27, 2001, in connection with the resignations of
Mr. Gregory T. Cook, the Company's former President and Chief Executive Officer,
and Mr. James E. Ewer, the Company's former Senior Vice President of Operations,
the Company obtained unconditional releases, from both executives, of its
obligations under their respective Employment Agreements, which provided, among
other things, for payments of $2,000,000 and $500,000, respectively, if the
Company did not sell substantially all of its non-Internet related assets on or
before March 1, 2001. The Company received such release in exchange for lump sum
severance payments to Messrs. Cook and Ewer of $277,000 and $205,000,
respectively, together with the issuance, to each such individual, of 250,000
additional employee stock options, exercisable for 5 years at the closing price
of the Company's Common Stock on the date of grant. In addition, Mr. Cook, on
such date, tendered his resignation as a director of the Company.
On January 16, 2001, the Company entered into an agreement with Goldin
Associates, L.L.C. ("Goldin") to provide interim management services for an
initial six-month period, with respect to Sterling Optical, Insight Laser and
the Ambulatory Center, (collectively, the "Divisions") at the direction of the
Board of Directors of the Company or its Chairman or other officers, pursuant to
delegated authority. In this regard, Michael C. McGeeney was initially appointed
Chief Executive Officer of Sterling Optical and subsequently, on March 28, 2001,
replaced Gregory T. Cook as the Company's President and Chief Executive Officer.
The fee for such services is $50,000 per month and an Incentive Fee, comprising,
in the aggregate, warrants (at an exercise price of $0.01 each) to purchase 5%
(subject to customary anti-dilution provisions) of the outstanding Common Stock
of the Company as of January 22, 2001. The Incentive Fee is to be provided to
Goldin in increments according to the following schedule: (1) warrants to
purchase 422,272 of such outstanding Common Stock on January 22, 2001 (the fair
value of these specific warrants were valued using the Black Scholes model,
which amounted to approximately $300,000, and will be recorded as a non-cash
charge to compensation expense in the first quarter of fiscal year 2001); (2)
warrants to purchase 1.11% of such outstanding Common Stock immediately
following a year in which the Divisions shall realize earnings before interest,
depreciation, taxes and amortization (EBIDTA) of $1 million; (3) warrants to
purchase 1.11% of such outstanding Common Stock immediately following a year in
which the Divisions shall realize EBIDTA of $2 million; (4) and warrants to
purchase 1.12% of Common Stock immediately following a year in which the
Divisions shall realize EBIDTA of $3 million. These warrants, except for
warrants previously referred to in this paragraph under (1) (which are
exercisable immediately), may be exercised only if the applicable EBITDA targets
are achieved within four years from January 12, 2001 and due to these
contingencies will result in a charge to the Company's results of operations in
future periods, if and when achieved. All warrants expire seven years after
their issuance.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's directors required by Item
401 and its directors and executive officers required by Item 405 of Regulation
S-K will be set forth in the Company's Proxy Statement for the 2001 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
pursuant to Section 14 of the Securities Exchange Act of 1934, and is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information required for executive compensation will be set forth in
the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission pursuant to Section 14 of the
Securities Exchange Act of 1934, and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial
owners and management will be set forth in the Company's Proxy Statement for the
2001 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission pursuant to Section 14 of the Securities Exchange Act of
1934, and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related
transactions is set forth in the Company's Proxy Statement for the 2001 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
pursuant to Section 14 of the Securities Exchange Act of 1934, and is
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements.
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All financial statement schedules have been omitted because they are not
applicable, are not required, or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation of Sterling Vision,
Inc., dated December 18, 1995 (incorporated by reference to Exhibit
3.1 to the Company's Annual Report on Form 10K/A for the calendar
year ended December 31, 1995, File No. 1-14128).
3.2 Amended and Restated By-Laws of Sterling Vision, Inc., dated December
18, 1995 (incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10K/A for the calendar year ended December 31,
1995, File No. 1-14128).
4.1 Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No. 33-98368).
4.2 Form of Convertible Debentures and Warrants Subscription Agreement
(incorporated by reference to Exhibit 4.2 of the Registrant's Current
Report on Form 8-K, dated February 17, 1998).
10.1 Credit Agreement between Sterling Vision, Inc. and Chemical Bank,
dated as of April 5, 1994 (the "Credit Agreement") (incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement No.
33-98368).
10.2 Sterling Vision, Inc.'s 1995 Stock Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement No.
33-98368).
10.3 Form of Sterling Vision, Inc.'s Franchise Agreement (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement No.
33-98368).
10.4 Settlement Agreement between Sterling Vision, Inc. and Neal Polan,
dated as of August 31, 1994 (incorporated by reference to Exhibit
10.4 to the Company's Registration Statement No. 33-98368)
10.5 Lease Agreements between Neptune Technology Leasing Corp. and
Sterling Vision, Inc., Sterling Vision of California, Inc. and
Sterling Vision, Inc., as successor in interest to CFO (incorporated
by reference to Exhibit 10.5 to the Company's Registration Statement
No. 33-98368).
10.6 Assignment and Assumption of Equipment Lease by and between Cohen
Fashion Optical, Inc. and Sterling Vision, Inc. (incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement No.
33-98368).
10.7 Form of Purchase Order between Summit Technology, Inc. and Sterling
Vision, Inc. (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement No. 33-98368).
10.8 Form of Summit Laser Patent License Agreement (incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement No.
33-98368).
10.9 Lease of 10 Peninsula Blvd., Lynbrook, N.Y. (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement No.
33-98368).
10.10 Underwriters' Warrant Agreement, including form of Warrant
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement No. 33-98368).
10.11 Referral Agreement between Cohen Fashion Optical, Inc. and Sterling
Vision, Inc. (incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement No. 33-98368).
10.12 Robert Greenberg Promissory Notes, dated August 19, 1994, as amended,
August 19, 1994, and August 31, 1994, respectively (incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement
No. 33-98368).
10.13 Purchase Agreement between Sterling Vision, Inc. and RJL Optical,
Inc. and Franchise Agreement related thereto (incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement
No. 33-98368).
10.14 Purchase Agreement between Sterling Vision, Inc. and Dani-Marc
Optical, Inc. and Franchise Agreement related thereto (incorporated
by reference to Exhibit 10.14 to the Company's Registration Statement
No. 33-98368).
10.15 Purchase Agreement between Sterling Vision, Inc. and Jeffrey Rubin,
and Franchise Agreement and Management Agreement related thereto
(incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement No. 33-98368).
10.16 Management Agreement, dated October 31, 1995, between Sterling
Vision, Inc. and RJL Optical, Inc. (incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement No. 33-98368).
10.17 Amended and Restated Management Agreement, dated October 31, 1995,
between Sterling Vision, Inc. and Jeffrey Rubin (incorporated by
reference to Exhibit 10.17 to the Company's Registration Statement
No. 33-98368).
10.18* Employment Agreement, dated November 27, 1995, between Sterling
Vision, Inc. and Joseph Silver (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement No. 33-98368).
10.19* Employment Agreement, dated November 18, 1995, between Sterling
Vision, Inc. and Kevin Cambra (incorporated by reference to Exhibit
10.19 to the Company's Registration Statement No. 33-98368).
10.20* Employment Agreement, dated November 18, 1995, between Sterling
Vision, Inc. and Sebastian Giordano (incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement No. 33-98368).
10.21* Employment Agreement, dated November 27, 1995, between Sterling
Vision, Inc. and Jerry Darnell (incorporated by reference to Exhibit
10.21 to the Company's Registration Statement No. 33-98368).
10.22* Employment Agreement, dated November 27, 1995, between Sterling
Vision, Inc. and Robert Greenberg (incorporated by reference to
Exhibit 10.22 to the Company's Registration Statement No. 33-98368).
10.23* Legal Fee Retainer Agreement, dated November 27, 1995, between
Sterling Vision BOS, Inc. and Sterling Vision of California, Inc.,
and Joseph Silver (incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement No. 33-98368).
10.24 Seventh Amendment to the Credit Agreement between Sterling Vision,
Inc. Chemical Bank (incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement No. 33-98368).
10.25 Waiver, dated as of November 28, 1995, to the Credit Agreement,
between Sterling Vision, Inc. and Chemical Bank (incorporated by
reference to Exhibit 10.25 to the Company's Registration Statement
No. 33-98368).
10.26 Sixth Amendment, dated as of October 24, 1995, to the Credit
Agreement between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.26 to the Company's
Registration Statement No. 33-98368).
10.27 Fifth Amendment and Waiver, dated as of September 15, 1995, to the
Credit Agreement between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement No. 33-98368).
10.28 Waiver, dated as of August 8, 1995, to the Credit Agreement between
Sterling Vision, Inc. and Chemical Bank (incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement No. 33-98368).
10.29 Fourth Agreement and Waiver, dated as of April 25, 1995, to the
Credit Agreement between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.29 to the Company's
Registration Statement No. 33-98368).
10.30 Third Amendment and Waiver, dated as of March 30, 1995, to the Credit
Agreement between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement No. 33-98368).
10.31 Second Amendment and Waiver, dated as of September 30, 1994, to the
Credit Agreement between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.31 to the Company's
Registration Statement No. 33-98368).
10.32 First Amendment and Waiver, dated as of July 26, 1994, to the Credit
Agreement between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement No. 33-98368).
10.33 Schedule No. 2 to Master Lease Agreement No. 1580, dated as of August
31, 1995, between BLT Leasing Corp. and Sterling Vision, Inc.
(incorporated by reference to Exhibit 10.33 to the Company's
Registration Statement No. 33-98368).
10.34 Order (1) Approving Sale of Assets and (2) Granting Related Relief in
Re: OCA Acquisition, Inc. Case No. 395-35856-RCM 11 and Benson
Optical Co., Inc. Case NO. 395-35857-SAF-11 and Superior Optical
Company, Inc. Case No. 395-36572-SAF 11, Jointly Administered under
Case No. 395-35856-RCM-11, filed November 6, 1995 in the Bankruptcy
Court for the Northern District of Texas, Dallas Division
(incorporated by reference to Exhibit 10.34 to the Company's
Registration Statement No. 33-98368).
10.35 Asset Purchase Agreement, dated August 26, 1994, between Pembridge
Optical Partners, Inc. and Sterling Vision, Inc. (incorporated by
reference to Exhibit 10.35 to the Company's Registration Statement
No. 33-98368).
10.36 Asset Purchase Agreement, dated October 24, 1995, between Sterling
Vision BOS, Inc. and Benson Optical Co., Inc., OCA Acquisition, Inc.
n/k/a Optical Corporation of America, and Superior Optical Company,
Inc. (incorporated by reference to Exhibit 10.36 to the Company's
Registration Statement No. 33-98368).
10.37 Convertible, Callable, Subordinated Debenture Due September 15, 2015,
made by Sterling Vision, Inc. and payable to Benson Eyecare Corp.
(incorporated by reference to Exhibit 10.37 to the Company's
Registration Statement No. 33-98368).
10.38 Assignment, by Benson Eyecare Corp. to Sterling Vision, Inc., of that
certain Security Agreement, dated October 20, 1994, between Benson
Eyecare Corp. and OCA Acquisition, Inc., dated September 15, 1995
(incorporated by reference to Exhibit 10.38 to the Company's
Registration Statement No. 33-98368).
10.39 Assignment, dated September 15, 1995, by Benson Eyecare Corporation
to Sterling Vision, Inc. of that certain Revolving Credit Note
(incorporated by reference to Exhibit 10.39 to the Company's
Registration Statement No. 33-98368).
10.40 Assignment, dated September 15, 1995, by Benson Eyecare Corporation
to Sterling Vision, Inc. of that certain Subordinated Promissory Note
made by OCA Acquisition Inc. (incorporated by reference to Exhibit
10.40 to the Company's Registration Statement No. 33-98368).
10.41 Assignment, dated September 15, 1995, by Benson Eyecare Corporation
to Sterling Vision, Inc. of Benson Eyecare Corporation's rights,
title and interest in certain trade receivables (incorporated by
reference to Exhibit 10.41 to the Company's Registration Statement
No. 33-98368).
10.42 Note Purchase Agreement, dated September 15, 1995, between Benson
Eyecare Corporation and Sterling Vision, Inc. (incorporated by
reference to Exhibit 10.42 to the Company's Registration Statement
No. 33-98368).
10.43* Employment Agreement, dated as of April 1, 1994, between VisionCare
of California and Martin J. Shoman, as amended by a Letter Agreement,
dated May 12, 1994 (incorporated by reference to Exhibit 10.44 to the
Company's Registration Statement No. 33-98368).
10.44 Eighth Amendment and Waiver, dated as of December 19, 1995, to the
Credit Agreement, between Sterling Vision, Inc. and Chemical Bank
(incorporated by reference to Exhibit 10.45 to the Company's
Registration Statement No. 33-98368).
10.45 Tax Agreement, dated as of December 19, 1995, between Sterling
Vision, Inc. and the shareholders of Sterling Vision, Inc.
(incorporated by reference to Exhibit 10.46 to the Company's
Registration Statement No. 33-98368).
10.46 Form of Franchisee Stockholder Agreement to be entered into between
Sterling Vision, Inc. and certain of its Franchisees (incorporated by
reference to Exhibit 10.47 to the Company's Registration Statement
No. 33-98368).
10.47 Non-Qualified Stock Option Agreement between Sterling Vision, Inc.
and Neal Polan (incorporated by reference to Exhibit 10.48 to the
Company's Registration Statement No. 33-98368).
10.48* Stock Purchase Agreement, dated as of December 18, 1995, between
Sterling Vision, Inc. and Robert Cohen, Alan Cohen, Edward Cohen,
Stefanie Cohen Rubin, Allyson Cohen, Jeffrey Cohen, Richard Cohen,
Abby Cohen May, Jennifer Cohen, Meryl Cohen a/c/f Gabrielle Cohen and
Meryl Cohen a/c/f Jaclyn Cohen (incorporated by reference to Exhibit
10.49 to the Company's Registration Statement No. 33-98368).
10.50 Stock Purchase Agreement, dated as of December 18, 1995, between
Sterling Vision, Inc. and Neal Polan (incorporated by reference to
Exhibit 10.51 to the Company's Registration Statement No. 33-98368).
10.51 Multiple Franchise Agreement, dated February 7, 1996, between Leonard
Vainio and the Company (incorporated by reference to Exhibit 10.51 to
the Company's Annual Report on Form 10K/A for the calendar year ended
December 31, 1995, File No. 1-14128).
10.52 Sublease, dated November 29, 1995, as amended, between Conopco, Inc.
and the Company with respect to the Insight Laser Center to be
located at 725 Fifth Avenue, New York, New York (incorporated by
reference to Exhibit 10.52 to the Company's Annual Report on Form
10K/A for the calendar year ended December 31, 1995, File No.
1-14128).
10.53 Sublease, dated February 27, 1996, between 1500 Hempstead Tpke.,
L.L.C. and the Company with respect to the Company's new office
facilities to be located at 1500 Hempstead Turnpike, East Meadow, New
York (incorporated by reference to Exhibit 10.53 to the Company's
Annual Report on Form 10 K/A for the calendar year ended December 31,
1995, File No. 1-14128).
10.54 Sales Agreement, dated January 31, 1996, between Insight Laser
Centers, Inc. and VISX Incorporated, together with the form of VISX
Patent and Software License Agreement to be entered into in
connection therewith (incorporated by reference to Exhibit 10.54 to
the Company's Annual Report on Form 10K/A for the calendar year ended
December 31, 1995, File No. 1-14128).
10.55 Waiver, dated as of March 25, 1996, to the Credit Agreement between
Sterling Vision, Inc. and Chemical Bank (incorporated by reference to
Exhibit 10.55 to the Company's Annual Report on Form 10K/A for the
calendar year ended December 31, 1995, File No. 1-14128).
10.56* Employment Agreement, dated March 8, 1996, between Sterling Vision,
Inc. and Mr. Ali Akbar (incorporated by reference to Exhibit 10.56 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, File No. 1-14128).
10.57 Employment Agreement, dated March 29, 1996, between Sterling Vision,
Inc., Insight Laser Centers, Inc. and Dr. Francis A. L'Esperance,
Jr., M.D. (incorporated by reference to Exhibit 10.57 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, File No. 1-14128).
10.58 Laser Access Agreement, dated March 28, 1996, between Insight Laser
Centers, Inc. and Nassau Ophthalmic Services, P.C. (incorporated by
reference to Exhibit 10.58 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, File No. 1-14128).
10.59 Assignment and Assumption of Lease Agreement ("VCA" Company Store
Leases"), dated June 7, 1996, between VCA and certain of its
affiliates and DKM (incorporated by reference to Exhibit 10.59 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, File No. 1-14128).
10.60 Assignment and Assumption of Lease Agreement ("VCA" Company Store
Leases"), as amended by a Letter Agreement, dated June 10, 1996,
between VCA and certain of its affiliates and DKM (incorporated by
reference by to Exhibit 10.60 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, File No. 1-14128).
10.61 Assignment and Assumption of Lease Agreement ("VCA Franchised Store
Leases") as amended by a Letter Agreement, dated July 11, 1996
(incorporated by reference to Exhibit 10.61 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
File No. 1-14128).
10.62 Assignment, dated June 19, 1996, by Bank One Kentucky, N.A.
(Assignor") to DKM, all of Assignor's right, title and interest in
and to that certain Revolving Credit Loan Agreement and Security
Agreement, dated January 10, 1992, between the Assignor and Duling
Optical Corporation, et. al. (incorporated by reference to Exhibit
10.62 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, File No. 1-14128).
10.63 First Amendment to the Company's 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.63 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
File No. 1-14128).
10.64 Purchase and Sale Agreement, dated September 30, 1996, between Eye
Site (Ontario) Ltd. And the Company (incorporated by reference to
Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 , File No. 1-14128).
10.65 Master Franchise Agreement, dated September 30, 1996, between Eye
Site, Inc., and Eye Site (Ontario) Ltd. and the Company (incorporated
by reference to Exhibit 10.65 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, File No.
1-14128).
10.66 Form of Promissory Notes, dated November 29, 1996, between the
Company and each of Drs. Edward, Robert and Alan Cohen. (incorporated
by reference to the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1996).
10.67 Ninth Amendment, dated November 29, 1996, to the Credit Agreement
between the Company and Chase Manhattan Bank. (incorporated by
reference to the Company's Current Report on Form 8-K, dated November
29, 1996).
10.68 Tenth Amendment and Waiver, dated February 26, 1997, to the Credit
Agreement between the Company and Chase Manhattan Bank. (incorporated
by reference to the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1996).
10.69 Form of Convertible Debentures and Warrants Subscription Agreement,
dated February 26, 1997 (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K, dated February 26, 1997).
10.70 Eleventh Amendment and Waiver, dated April 1, 1997, to the Credit
Agreement between the Company and Chase Manhattan Bank (incorporated
by reference to Exhibit 10.70 to the Company's Current Report on Form
8-K, dated April 7, 1997).
10.71 Agreement and Plan of Reorganization, dated February 19, 1997, as
amended, among the Company and Messrs., David, Alan and Sidney Singer
(incorporated by reference to Exhibit 10.71 to the Company's Current
Report on Form 8-K, dated April 7, 1997).
10.72 Loan Agreement, dated June 30, 1997, between the Company and STI
Credit Corporation (incorporated by reference to Exhibit 10.72 to the
Company's Current Report on Form 8-K, dated June 30, 1997).
10.73 Letter Agreement, dated July 2, 1997, among the Company and Messrs.
Sidney, Alan and David Singer (incorporated by referenced to Exhibit
10.73 to the Company's Current Report on Form 8-K, dated June 30,
1997).
10.74 Form of Non-Negotiable Judgment Note, dated July 1, 1997, among the
Company and Messrs. Sidney, Alan and David Singer (incorporated by
reference to Exhibit 10.74 to the Company's Current Report on Form
8-K, dated June 30, 1997).
10.75 First Amendment to Loan Agreement, dated October 9, 1997, between the
Company and STI Credit Corporation (Incorporated by reference to
Exhibit 10.75 to the Company's Current Report on Form 8-K, dated
September 30, 1997).
10.76 Stock Option Recission Letters, dated August 13, 1997, from each of
Drs. Robert, Alan and Edward Cohen and Mr. Jay Fabrikant
(Incorporated by reference to Exhibit 10.76 to the Company's Current
Report on Form 10-Q, dated September 30, 1997).
10.77 Waiver, dated April 14, 1998, to the Company's Loan Agreement, dated
June 30, 1997, as previously amended on October 9, 1997.
10.78 Exchange Agreement, dated April 14, 1998, between the Registrant and
the Original Holders of the Registrant's Convertible Debentures Due
February 17, 1999 (Incorporated by reference to Exhibit 10.78 to the
Company's Current Form on 8-K, dated April 14, 1998).
10.79 Contract of Sale, dated May 6, 1998, between Insight Laser Centers
N.Y.I, Inc. and Nassau Center for Ambulatory Surgery, Inc.
(Incorporated by reference to Exhibit 10.79 to the Company's Current
Report on Form 8-K, dated May 6, 1998).
10.80 Contract of Sale, dated May 6, 1998, between Insight AmSurg Centers,
Inc. and Nassau Center for Ambulatory Surgery, Inc. (Incorporated by
reference to Exhibit 10.80 to the Company's Current Report on Form
8-K, dated May 6, 1998).
10.81 Settlement Agreement, dated July 31, 1998, between the Registrant,
Singer Specs, Inc. and Messrs. Sidney, Alan and David Singer
(Incorporated by reference to Exhibit 10.83 to the Company's Current
Report on Form 8-K, dated July 31, 1998).
10.82* Employment Agreement, dated as of March 2, 1998, between the Company
and William J. Young (Incorporated by reference to Exhibit 10.82 of
the Company's Quarterly Report on Form 10K/A for the Quarter Ended
March 31, 1998).
10.83 Letter from Deloitte & Touche LLP, dated May 12, 1998, in response to
the Company's Current Report on Form 8-K, dated May 1, 1998
(Incorporated by reference to Exhibit 16 to the Company's Current
Report on Form 8-K/A, dated May 13, 1998).
10.84 First Amendment to Convertible Preferred Stock and Warrants
Subscription Agreement, dated January 4, 1999 (Incorporated by
reference to Exhibit 10.78 to the Company's Current Report on Form
8-K, dated January 4, 1999).
10.85 Second Amendment to Convertible Preferred Stock and Warrants
Subscription Agreement, dated March 4, 1999 (Incorporated by
reference to Exhibit 10.79 to the Company's Current Report on Form
8-K, dated March 4, 1999).
10.86 Waiver, dated April 13, 1999, to the Registrant's Loan Agreement with
STI Credit Corp., dated June 30, 1997, as previously amended on
October 9, 1997 and April 14, 1998 (Incorporated by reference to
Annual Report on Form 10-K for the year ended December 31, 1998).
10.87* Employment Agreement, dated as of August 20, 1999, between Insight
Laser Center, Inc. and Robert Greenberg (Incorporated by reference to
Exhibit 10.79 to the Company's Current Report on Form 8-K, dated
August 20, 1999).
10.88* Employment Agreement, dated as of August 20, 1999, between Insight
Laser Centers, Inc. and Kim Greenberg (Incorporated by reference to
Exhibit 10.88 to the Company's Current Report on Form 8-K, dated
August 20, 1999).
10.89 Press Release, dated December 7, 1999 (Incorporated by reference to
Exhibit 10.89 to the Company's Current Report on Form 8-K, dated
December 7, 1999).
10.90 Third Amendment to Convertible Preferred Stock and Warrants
Subscription Agreement, dated December 7, 1999 (Incorporated by
reference to Exhibit 10.90 to the Company's Current Report on Form
8-K, dated December 7, 1999).
10.91 Form of Engagement Letter, dated December 16, 1999, between the
Company and Rare Medium, Inc. (Incorporated by reference to Exhibit
10.91 to the Company's Current Report on Form 8-K/A, dated December
16, 1999).
10.92 Press Release, dated December 17, 1999 (Incorporated by reference to
Exhibit 10.92 to the Company's Current Report on Form 8-K/A, dated
December 16, 1999).
10.93 Form of Warrant, dated December 16, 1999, in favor of MY2000, LLC
(Incorporated by reference to Exhibit 10.93 to the Company's Current
Report on Form 8-K/A, dated December 16, 1999).
10.94 Form of Certificate of Amendment of the Certificate of Incorporation
of the Company, dated February 8, 2000 (Incorporated by reference to
Exhibit 10.94 to the Company's Current Report on Form 8-K, dated
February 8, 2000).
10.95 Press Release, dated February 15, 2000, with respect to the Agreement
entered into with RMI (Incorporated by reference to Exhibit 10.95 to
the Company's Current Report on Form 8-K, dated February 8, 2000).
10.96 Form of Certificate of Amendment of the Certificate of Incorporation
of the Company, dated February 4, 2000 (Incorporated by reference to
Exhibit 10.96 to the Company's Current Report on Form 8-K, dated
February 8, 2000).
10.97* Employment Agreement dated as of February 22, 2000, between
Sterling Vision, Inc. and Gregory T. Cook (incorporated by
reference to Exhibit 10.97 to the Company's Current Report on Form
8-K, dated February 22, 2000).
10.98* Employment Agreement dated as of February 22, 2000, between
Sterling Vision, Inc. and Sara V. Traberman (incorporated by
reference to Exhibit 10.98 to the Company's Current Report on Form
8-K, dated February 22, 2000).
10.99* Employment Agreement dated as of February 22, 2000, between
Sterling Vision, Inc. and James E. Ewer (incorporated by reference
to Exhibit 10.99 to the Company's Current Report on Form 8-K, dated
February 22, 2000).
10.100 Press Release, dated March 30, 2000, with respect to the Engagement
Letter entered into with McDonald Investments (incorporated by
reference to Exhibit 11.00 to the Company's Current Report on Form
8-K, dated March 23, 2000).
10.101* Employment Agreement dated February 29, 2000, between the Registrant
and Joseph Silver.
10.102* Legal Fee Retainer Agreement dated February 29, 2000, between
Sterling Vision of California, Inc. and Joseph Silver.
10.103 Press Release, dated October 31, 2000, with respect to the Stock
Repurchase Program authorized by the Registrant's Board of
Directors (incorporated by reference to Exhibit 11.03 to the
Registrants Current Report and Form 8-K, dated October 31, 2000).
10.104* Amendment, dated as of February 23, 2000, to the Employment Agreement
dated as of February 22, 2000, between Sterling Vision, Inc. and
Gregory T. Cook.
10.105* Amendment, dated as of February 23, 2000, to the Employment Agreement
dated as of February 22, 2000, between Sterling Vision, Inc. and Sara
V. Traberman.
10.106* Amendment, dated as of February 23, 2000, to the Employment Agreement
dated as of February 22, 2000, between Sterling Vision, Inc. and
James E. Ewer.
10.107* Form of Severance Agreement, dated as of March 27, 2001, between
Emerging Vision, Inc. and Gregory T. Cook.
10.108* Form of Severance Agreement, dated as of March 27, 2001, between
Emerging Vision, Inc. and James E. Ewer.
10.109 Form of Consulting Agreement, dated as of November 7, 2000, between
Emerging Vision, Inc. and Balfour Investors Incorporated.
10.110 Form of Consulting Agreement, dated as of December 18, 2000, between
Emerging Vision, Inc. and Balfour Investors Incorporated.
10.111 Form of Stock Option Agreement, dated as of November 7, 2000, between
Emerging Vision, Inc. and Balfour Investors Incorporated.
10.112 Form of Management Services Agreement, dated as of January 22, 2001,
between Emerging Vision, Inc. and Goldin Associates, L.L.C.
16.1 Letter, dated March 4, 1996, from Janover Rubinroit LLC, the former
independent certified public accountant for the Company
(incorporated by reference to Exhibit 16 to the Company's Current
Report on Form 8-K dated March 7, 1996).
21 List of Subsidiaries.
23.01 Consent of Independent Public Accountants
b.) Reports on Form 8-K
On October 31, 2000, the Registrant filed a Report on Form 8-K
regarding the Stock Repurchase Program authorized by the Registrant's Board of
Directors.
- -------------------
* Constitutes a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EMERGING VISION, INC.
By: /s/ Michael C. McGeeney
---------------------------
Michael C. McGeeney
President and Chief Executive Officer
Date: April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------------- ----------------------------- -------------
/s/ William Stasior Chairman of the
- -------------------------- Board of Directors April 2, 2001
William Stasior
/s/ Michael C. McGeeney President and
- ------------------------- Chief Executive Officer April 2, 2001
Michael C. McGeeney
/s/ George D. Papadopoulos Chief Financial Officer April 2, 2001
- --------------------------
George D. Papadopoulos
/s/ Alan Cohen Director April 2, 2001
- --------------------------
Alan Cohen
Director April , 2001
- --------------------------
Robert Cohen
/s/ Joel Gold Director April 2, 2001
- --------------------------
Joel Gold