UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2003
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)
New York 11-3096941
- ------------------------- -----------------------
(State of Incorporation) (IRS Employer Identification No.)
100 Quentin Roosevelt Boulevard
Garden City, New York 11530
(Address of Principal Executive Offices, including Zip Code)
(516) 390-2100
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
As of August 11, 2003, there were 79,890,620 outstanding share of the
Registrant's Common Stock, par value $0.01 per share.
Item 1. Financial Statements
EMERGING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
June 30, December 31,
2003 2002
(Unaudited)
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,208 $ 664
Franchise receivables, net of allowance of $1,023 and $1,063, respectively 1,348 1,133
Other receivables, net of allowance of $125 and $101, respectively 378 447
Current portion of franchise notes receivable, net of allowance of $453 and $442,
respectively 541 612
Inventories, net 379 456
Prepaid expenses and other current assets 265 321
---------- ---------
Total current assets 4,119 3,633
---------- ---------
Property and equipment, net 569 693
Franchise notes and other receivables, net of allowance of $972 and $1,486, respectively 686 781
Goodwill 1,266 1,266
Other assets 241 277
---------- ---------
Total assets $ 6,881 $ 6,650
========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 194 $ 626
Accounts payable and accrued liabilities 5,507 5,945
Accrual for store closings 498 1,109
Related party borrowings 31 377
Net liabilities of discontinued operations 187 208
---------- ---------
Total current liabilities 6,417 8,265
---------- ---------
Long-term debt 105 260
---------- ---------
Related party borrowings 156 231
---------- ---------
Franchise deposits and other liabilities 1,275 1,709
---------- ---------
Commitments and Contingencies (Note 10)
Shareholders' deficit:
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized:
Senior Convertible Preferred Stock, $100,000 liquidation preference per share;
1 share issued and outstanding 74 74
Common stock, $0.01 par value per share; 150,000,000 shares authorized; 80,072,957
and 29,422,957 shares issued, respectively, and 79,890,620 and 29,740,620 shares
outstanding, respectively 801 299
Treasury stock, at cost, 182,337 shares (204) (204)
Additional paid-in capital 121,714 120,345
Accumulated deficit (123,457) (124,329)
---------- ----------
Total shareholders' deficit (1,072) (3,815)
---------- ----------
Total liabilities and shareholders' deficit $ 6,881 $ 6,650
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
2
EMERGING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
--------------------------- --------------------------
Revenues:
Net sales $ 1,692 $ 2,084 $ 3,609 $ 5,074
Franchise royalties 1,596 1,690 3,197 3,387
Other franchise related fees 25 7 206 7
Interest on franchise notes receivable 44 89 93 174
Other income 32 66 36 96
-------- -------- -------- --------
Total revenues 3,389 3,936 7,141 8,738
-------- -------- -------- --------
Costs and expenses:
Cost of sales 145 626 468 1,402
Selling, general and administrative expenses 2,637 3,648 5,424 8,168
Interest expense 96 59 157 98
-------- -------- -------- --------
Total costs and expenses 2,878 4,333 6,049 9,668
-------- -------- -------- --------
Income (loss) from continuing operations before
provision for income taxes 511 (397) 1,092 (930)
Provision for income taxes - - - -
-------- -------- -------- --------
Income (loss) from continuing operations 511 (397) 1,092 (930)
-------- -------- -------- --------
Discontinued operations (Note 3):
Income (loss) from discontinued operations 2 (120) (220) (120)
-------- -------- -------- --------
Net income (loss) $ 513 $ (517) $ 872 $(1,050)
======== ======== ======== ========
Per share information - basic and diluted (Note 5):
Income (loss) from continuing operations $ 0.01 $ (0.02) $ 0.02 $ (0.04)
Income (loss) from discontinued operations 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Net income (loss) $ 0.01 $ (0.02) $ 0.02 $ (0.04)
======== ======== ======== ========
Weighted-average number of common shares outstanding -
Basic 72,668 28,396 51,238 27,700
======== ======== ======== ========
Diluted 79,161 28,396 56,141 27,700
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
statements.
3
EMERGING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the Six Months Ended
June 30,
---------------------------------
2003 2002
----------------- ---------------
Cash flows from operating activities:
Income (loss) from continuing operations $ 1,092 $ (930)
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities:
Depreciation and amortization 155 246
Provision for doubtful accounts 35 106
Amortization of debt discount 103 41
Charges related to long-lived assets - 36
Changes in operating assets and liabilities:
Franchise and other receivables (189) 195
Inventories 77 154
Prepaid expenses and other current assets 56 (129)
Other assets 36 53
Accounts payable and accrued liabilities (663) (595)
Franchise deposits and other liabilities (434) 82
Accrual for store closings (611) (492)
--------- ----------
Net cash used in operating activities (343) (1,233)
--------- ----------
Cash flows from investing activities:
Franchise notes receivable issued (10) (31)
Proceeds from franchise and other notes receivable 184 948
Purchases of property and equipment (31) (118)
--------- ----------
Net cash provided by investing activities 143 799
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of options 12 20
Proceeds from borrowings 249 1,300
Payments on borrowings (1,360) (1,061)
Net proceeds from Rights Offering 1,859 -
--------- ----------
Net cash provided by financing activities 760 259
--------- ----------
Net cash provided by (used in) continuing operations 560 (175)
--------- ----------
Net cash used in discontinued operations (16) (135)
--------- ----------
Net increase (decrease) in cash and cash equivalents 544 (310)
Cash and cash equivalents - beginning of period 664 1,053
--------- ----------
Cash and cash equivalents - end of period $ 1,208 $ 743
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 54 $ 61
========= ==========
Taxes $ 61 $ 47
========= ==========
The accompanying notes are an integral part of these consolidated
statements.
4
EMERGING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(In Thousands, Except Share Data)
Treasury
Senior Convertible Stock, Additional Total
Preferred Stock Common Stock at cost Paid-In Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ---------- -------- ------ ------ ---------- ----------- ------------
BALANCE - DECEMBER 31, 2002 1 $ 74 29,922,957 $ 299 182,337 $(204) $120,345 $(124,329) $ (3,815)
------ ------ ---------- -------- ------- ----- -------- --------- ---------
Exercise of stock options - - 150,000 2 - - 10 - 12
Issuance of common shares in
connection with Rights
Offering (Note 7) - - 50,000,000 500 - - 838 - 1,338
Issuance of warrants in connection
with Rights Offering (Note 7) - - - - - - 521 - 521
Net income - - - - - - - 872 872
------ ------ ---------- -------- ------- ----- -------- --------- --------
BALANCE - JUNE 30, 2003 (Unaudited) 1 $ 74 80,072,957 $ 801 182,337 $(204) $121,714 $(123,457) $ (1,072)
====== ====== ========== ======== ======= ===== ======== ========= ========
The accompanying notes are an integral part of this consolidated statement.
5
EMERGING VISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying Consolidated Financial Statements of Emerging Vision, Inc.
and subsidiaries (collectively, the "Company") have been prepared in accordance
with accounting principles generally accepted for interim financial statement
presentation and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted for complete
financial statement presentation. In the opinion of management, all adjustments
for a fair statement of the results of operations and financial position for the
interim periods presented have been included. All such adjustments are of a
normal recurring nature. This financial information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2002. There have been no changes in significant accounting policies since
December 31, 2002.
NOTE 2 - MANAGEMENT'S LIQUIDITY PLANS:
As of June 30, 2003 (exclusive of net liabilities of discontinued
operations), the Company had reduced its negative working capital from
$4,632,000 (as of December 31, 2002) to $2,298,000, and had cash on hand of
$1,208,000. During the six months ended June 30, 2003, the Company used $343,000
of cash in its operating activities. This usage was a result of a decrease in
the accrual for store closings of $611,000 (Note 6), a decrease of $434,000 in
franchise deposits and other liabilities, a decrease of $663,000 in accounts
payable and accrued liabilities, and a net increase of $189,000 in franchise and
other receivables, offset, in part, by income from continuing operations of
$1,092,000. Management anticipates that it will continue to make significant
payments against existing liabilities associated with the closure of
non-profitable Company-owned stores.
Management plans to continue to improve its cash flows during 2003 by
improving store profitability through increased monitoring of store-by-store
operations, continuing to implement reductions of administrative overhead
expenses where necessary and feasible, actively supporting development programs
for franchisees, and continuing to add new franchise stores to the system.
Management believes that with the successful execution of the aforementioned
plans to improve cash flows, its existing cash, and the collection of
outstanding receivables, there will be sufficient liquidity available for the
Company to continue in operation through the third quarter of 2004. However,
there can be no assurance that management will be able to successfully execute
the aforementioned plans.
NOTE 3 - DISCONTINUED OPERATIONS:
As of June 30, 2003, there was approximately $359,000 of expenses
associated with the Company's discontinued operations accrued as part of
accounts payable and accrued liabilities on the accompanying Consolidated
Balance Sheet. The majority of this amount (of which $225,000 was provided for
during the six months ended June 30, 2003) relates to certain potential ongoing
liabilities that the Company agreed to guarantee in connection with its sale of
Insight Laser Centers N.Y.I., Inc. (the "Ambulatory Center") (Note 7).
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES:
Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No. 123." This
Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based
6
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
Company has adopted the provisions of SFAS No. 148 prospectively from January 1,
2003.
Prior to 2003, the Company accounted for stock-based employee compensation
under the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based compensation cost is reflected in the 2002 net
loss, as all options granted to employees had an exercise price equal to the
market value of the underlying common stock on the date of grant. Stock-based
compensation cost of approximately $1,000 is reflected in the 2003 net income as
a result of the grant, on May 30, 2003, of an aggregate of 700,000 stock options
to each of the Company's directors and Co-Chief Operating Officers. The
following table illustrates the effect on net income (loss) and net income
(loss) per share as if the fair value-method had been applied to all outstanding
and unvested awards in each period:
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) (In thousands)
--------------------------------
---------------- --------------- --------------- ----------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) - as reported $ 513 $ (517) $ 872 $ (1,050)
Deduct: Total stock-based employee compensation
expense determined under
fair value method for all awards (61) (1,081) (855) (2,162)
-------- -------- -------- ---------
Pro forma net income (loss) $ 452 $(1,598) $ 17 $ (3,212)
======== ======== ======== =========
Earnings per share:
Basis and diluted - as reported $ 0.01 $ (0.02) $ 0.02 $ (0.04)
======= ======== ======== =========
Basis and diluted - pro forma $ 0.01 $ (0.06) $ 0.00 $ (0.12)
======= ======== ======== =========
Revenue Recognition
The Company 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
generated by each franchised location and are recorded as earned, subject to
meeting all of the requirements of SAB 101 described below.
The Company derives its revenues from the following four principal sources:
Net sales - Represents sales from eye care products and related services;
Franchise royalties - Represents continuing franchise royalty fees based
upon a percentage of the gross revenues generated by each franchised location;
Other franchise related fees - Represents certain fees collected by the
Company under the terms of franchise agreements (including, but not limited to,
initial franchise fees, transfer fees and renewal fees).
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 store or a qualified refinancing of a
franchisee's obligations to the Company.
The Company recognizes revenues in accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101").
Accordingly, revenues are recorded when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the Company's
price to the buyer is fixed or determinable, and collectibility is reasonably
7
assured. To the extent that collectibility of royalties and/or interest on
franchise notes is not reasonably assured, the Company recognizes such revenue
when the cash is received.
In addition, the Company accounts for discounts, coupons and promotions
(that are offered to its customers) as a direct reduction of sales.
NOTE 5 - PER SHARE INFORMATION:
In accordance with SFAS No. 128, "Earnings Per Share", basic net income
(loss) per common share ("Basic EPS") is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding. Diluted net income
(loss) per common share ("Diluted EPS") is computed by dividing the net income
(loss) 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 Company's
Consolidated Statements of Operations. Common stock equivalents totaling
9,894,656 were excluded from the computation for the three and six months ended
June 30, 2002, as their impact would have been anti-dilutive. Common stock
equivalents totaling 9,069,324 (of an aggregate of 59,769,324 and 59,069,324 for
the six and three months ended June 30, 2003, respectively) were excluded from
the computation for the three and six months ended June 30, 2003, as their
impact would have been anti-dilutive.
The following table sets forth the computation of basic and diluted per
share information:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(In thousands) (In thousands)
---------------- ---------------- --------------- ----------------
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
Income (loss) from continuing operations $ 511 $ (397) $ 1,092 $ (930)
Income (loss) from discontinued operations 2 (120) (220) (120)
-------- --------- --------- ---------
Net income (loss) $ 513 $ (517) $ 872 $ (1,050)
======== ========= ========= =========
Denominator:
Weighted average common shares outstanding 72,668 28,396 51,238 27,700
Dilutive effect of:
Stock options 36 - 28 -
Warrants issued in connection with Rights
Offering 6,457 - 4,875 -
-------- --------- --------- ---------
Weighted average common shares
outstanding, assuming dilution 79,161 28,396 56,141 27,700
======== ========= ========= =========
Basic and Diluted Per Share Information:
Income (loss) from continuing operations $ 0.01 $ (0.02) $ 0.02 $ (0.02)
Income (loss) from discontinued operations 0.00 0.00 0.00 0.00
-------- --------- --------- ---------
Net income (loss) $ 0.01 $ (0.02) $ 0.02 $ (0.02)
======== ========= ========= =========
NOTE 6 - RELATED PARTY TRANSACTION:
On April 4, 2003, the Board of Directors authorized the Company to borrow
$100,000 from one of its principal shareholders and directors. The loan was
payable immediately after the closing of the Company's Rights Offering (Note 7),
together with interest in an amount equal to 1% of the principal amount of such
loan. The Company repaid this loan, in full, on April 22, 2003, with a portion
of the proceeds from the Rights Offering.
8
NOTE 7 - SHAREHOLDER RIGHTS OFFERING:
On February 12, 2003, a registration statement filed by the Company in
connection with its shareholder rights offering (the "Rights Offering") was
declared effective by the Securities and Exchange Commission. The Rights
Offering consisted of 50,000,000 units, with each unit consisting of one share
of the Company's Common Stock, and a warrant, having a term of 12 months, to
purchase one additional share of Common Stock at an exercise price of $0.05,
which was determined based on certain closing price and volume requirements
during the subscription period.
The terms of the Rights Offering provided that each shareholder was granted
1.67 non-transferable rights for every share of Common Stock owned as of the
record date, February 25, 2003. Each right was exercisable for one unit at a
price of $0.04, the proceeds of which were to be used to repay the amounts
outstanding under the Company's existing credit facility and secured term note
(Note 11), to fund the completion of its store closure plan (Note 9), and for
general corporate and working capital purposes.
On April 14, 2003, the subscription period ended and the Company completed
the Rights Offering. Approximately 92,700,000 units were subscribed for in the
Rights Offering, and, as a result, 50,000,000 new shares of Common Stock, and
warrants to purchase 50,000,000 additional shares of Common Stock, were issued,
resulting in gross proceeds of $2,000,000. The issuance costs associated with
the Rights Offering were approximately $141,000. The net proceeds received in
the Rights Offering (approximately $1,859,000) were allocated based on the
relative fair values of the Common Stock and the warrants. Accordingly,
approximately $1,338,000 was allocated to the Common Stock and approximately
$521,000 was allocated to the warrants.
NOTE 8 - OFFER TO ACQUIRE OUTSTANDING CAPITAL STOCK:
On June 6, 2003, the Company received an unsolicited offer, from Horizons
Investors Corp. ("Horizons"), Drs. Robert and Alan Cohen, and certain of the
Cohen family members (the "Offering Group"), to acquire all of the outstanding
capital stock of the Company.
The offer provides that the Offering Group would purchase all of the
outstanding Common Stock of the Company for a price per share of $0.07 (the
"Offered Price"), payable in cash, and that holders of vested employee options
and warrants would be entitled to receive, in cash, the difference, if a
positive number, between the Offered Price and the exercise price of such
options and warrants.
Horizons, Drs. Robert and Alan Cohen and certain of the Cohen family
members are the holders of, in the aggregate, approximately seventy-four (74%)
percent of the Company's outstanding Common Stock, and Drs. Robert and Alan
Cohen, and Benito R. Fernandez, a principal shareholder of Horizons Investors
Corp., are members of the Board of Directors of the Company.
The Company is in the process of evaluating the Offering Group's offer but
has not yet made any determinations with respect thereto.
NOTE 9 - ACCRUAL FOR STORE CLOSINGS:
Effective January 1, 2003, the Company adopted the provisions of SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities," which
supercedes Emerging Issues Task Force Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity." In
accordance therewith, the Company records a liability for a cost associated with
an exit or disposal activity when the liability is incurred. Prior to January 1,
2003, a provision was recorded at the time the determination was made to close a
particular store and was based on the expected net proceeds, if any, to be
generated from the disposition of the store's assets, as compared to the
carrying value (after consideration of impairment, if any) of such store's
9
assets and the estimated costs (including lease termination costs and other
expenses) that were anticipated to be incurred in the closing of the store in
question. As of December 31, 2002, the Company had accrued approximately
$1,109,000 related to its anticipated closure of 11 stores. During the six
months ended June 30, 2003, the Company successfully closed ten of such stores.
As of June 30, 2003, $498,000 remained as an accrual for store closings on the
accompanying Consolidated Balance Sheet. The Company anticipates completing its
closure plan by the end of the third quarter of 2003. No additional provision
was provided during the six months ended June 30, 2003.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
Litigation
In 1999, Apryl Robinson commenced an action in Kentucky against, among
others, the Company, seeking an unspecified amount of damages and alleging
numerous claims, including fraud and misrepresentation. The claims that are the
subject of this action were subsequently tried in an action in New York that
resulted in a judgment in favor of the Company, and against Ms. Robinson and Dr.
Larry Joel, a co-defendant in such action. Subsequently, Ms. Robinson and Dr.
Joel filed for bankruptcy in Kentucky, and the Company is proceeding with its
efforts to enforce its judgment against Ms. Robinson and Dr. Joel.
In 1999, Berenter Greenhouse and Webster, the advertising agency previously
utilized by the Company, commenced an action, against the Company, in the New
York State Supreme Court, New York County, for amounts alleged to be due for
advertising and related fees. The amounts claimed by the plaintiff are in excess
of $200,000. In response to this action, the Company filed counterclaims of
approximately $500,000, based upon estimated overpayments allegedly made by the
Company pursuant to the agreement previously entered into between the parties.
As of the date hereof, this action was still in the discovery stage.
In April 2000, the Company commenced an action in the Supreme Court of the
State of New Jersey against Preit-Rubin, Inc. and Cumberland Mall Associates,
the landlord of the former Sterling Optical Store located in Cumberland Mall,
Vineland, New Jersey, seeking damages of approximately $200,000 as a result of
the defendants alleged wrongful eviction of the Company from this location. In
response thereto, the defendants asserted counterclaims of approximately
$100,000 plus legal fees based upon the Company's alleged breach of the lease
pursuant to which it occupied such store. Thereafter, the defendant filed a
motion for summary judgment seeking a dismissal of the Company's claims, which
motion was decided by the Court, in a favor of the defendant. In May 2003, the
Company and Preit-Rubin settled the action, the terms of which provide, in
material part, that the Company pay Preit-Rubin the aggregate sum of $187,500
and, upon the parties' full performance of their respective obligations under
such settlement, the action will be dismissed with prejudice.
In July 2001, the Company commenced an Arbitration Proceeding, in the
Ontario Superior Court of Justice, against Eye-Site, Inc. and Eye Site
(Ontario), Ltd., as the makers of two promissory notes (in the aggregate
original principal amount of $600,000) made by one or more of the makers in
favor of the Company, as well as against Mohammed Ali, as the guarantor of the
obligations of each maker under each note. The notes were issued, by the makers,
in connection with the makers' acquisition of a Master Franchise Agreement for
the Province of Ontario, Canada, as well as their purchase of the assets of, and
a Sterling Optical Center Franchise for, four of the Company's retail optical
stores then located in Ontario, Canada. In response, the defendants
counterclaimed for damages, in the amount of $1,500,000, based upon, among other
items, alleged misrepresentations made by representatives of the Company in
connection with these transactions. The Company believes that it has a
meritorious defense to each counterclaim. As of the date hereof, these
proceedings were in the discovery stage.
In February 2002, Kaye Scholer, LLP, the law firm previously retained by
the Company as its outside counsel, commenced an action in the New York State
Supreme Court seeking unpaid legal fees of approximately $122,000. As of the
date hereof, the Company has answered the Complaint in such action. The Company
believes that it has a meritorious defense to such claim.
In May 2002, a class action was commenced in the California Superior Court,
Los Angeles County, against the Company and VisionCare of California, Inc.
("VCC"), a wholly owned subsidiary of the Company, by Consumer Cause, Inc.,
seeking a preliminary and permanent injunction enjoining the defendants from
their continued alleged violation of the California Business and Professions
Code (the "California Code"), and restitution based upon the defendants' alleged
10
illegal charging of dilation fees during the four year period immediately
preceding the date of the plaintiff's commencement of such action. In its
complaint, the plaintiff alleged that VCC's employment of licensed optometrists,
as well as its operation (under the name Sterling VisionCare) of optometric
offices in locations which are usually situated adjacent to the Company's retail
optical stores located in the State of California, violates certain provisions
of the California Code and was seeking to permanently enjoin VCC from continuing
to operate in such manner. On motion of the Company, which included a claim that
VCC is a specialized Health Care Maintenance Organization that has been
specifically licensed, under the California Knox Keene Health Care Service Plan
Act of 1975, as amended, to provide the identical services that the plaintiff
was seeking to enjoin, the court dismissed this action, with prejudice, and
without liability to the Company. In April 2003, the plaintiff filed a Notice of
Appeal of the decision of the lower court dismissing this action. The Company
intends to vigorously pursue its opposition of this appeal.
In August 2002, Sterling Advertising, Inc. ("SAI"), a wholly owned
subsidiary of the Company, commenced an action in the New York State Supreme
Court, Nassau County, against Harvey Herman Associates, Inc. ("HHA"), an
advertising agency previously retained by SAI, seeking damages, in the estimated
amount of $150,000, as a result of HHA's alleged failure to provide certain of
the services otherwise required of it pursuant to the terms of a certain
Client-Agency Agreement, dated July 9, 2001, between SAI and HHA. Thereafter,
HHA, on August 6, 2002, commenced an action in the New York State Supreme Court,
New York County, against the Company, seeking damages in the approximate amount
of $90,000, based upon one or more additional agreements allegedly entered into
between HHA and SAI, which, in the opinion of SAI, required HHA to perform
certain services which were already included within the scope of the services
required to be performed, by HHA, under such Client-Agency Agreement. As of the
date hereof, the parties have agreed, in principal, to settle such litigation
without the payment of any additional compensation.
In October 2002, an action was commenced against the Company and its wholly
owned subsidiary, Sterling Vision of Eastland, Inc. (the "Tenant"), in the North
Carolina General Court of Justice, in which Charlotte Eastland Mall, LLC, as the
Landlord of the Tenant's former Sterling Optical Center located in Charlotte,
North Carolina, is seeking, among other things, damages against the Company, in
the approximate amount of $81,000, under its Limited Guaranty of the Tenant's
obligations under the Lease for such Center. The Company believes that it has a
meritorious defense to such action. As of the date hereof, these proceedings
were in the discovery stage.
In November 2002, ADD of North Dakota, ADD of Jamestown, Inc., each former
franchisees of the Company, and Aron Dinesen, their principal shareholder,
commenced an action against the Company, in the United States District Court,
District of North Dakota, Southeastern Division, alleging, among other things,
that the Company breached certain of its obligations under each of their
respective Franchise Agreements. In response thereto, the defendant asserted
counterclaims based upon the defendants alleged breach of each such franchise
agreement and of certain of the other agreements executed by the defendants in
connection therewith. The Company believes that it has a meritorious defense to
plaintiffs' claims in such action. The Company's time to answer the Complaint
has not yet expired.
In December 2002, Pyramid Champlain Company ("Pyramid") commenced an action
against the Company, in the Supreme Court of the State of New York, Onondaga
County, in which Pyramid, as the landlord of the Company's former Sterling
Optical Center located in Plattsburg, New York, is seeking, among other things,
damages against the Company, in the approximate amount of $230,000, under the
lease for such Center. The Company believes that it has a meritorious defense to
such action. There was pending a motion, by Pyramid, to grant Pyramid partial
summary judgment on certain of its claims raised in said action, which motion
was denied by the Court. Both Pyramid and the Company have until the end of
September 2003 to complete discovery as it relates to this action.
On or about January 15, 2003, Wells Fargo Financial Leasing, Inc. commenced
an action against the Company, in the United States District Court, Eastern
District of New York, as the lessor of certain office equipment allegedly leased
to the Company, and is seeking therein, among other things, damages against the
Company, in the approximate amount of $100,000, in respect of claims arising
under such lease. In August 2003, the Company and Wells Fargo settled the
action, the terms of which provide, in material part, that the Company pay Wells
Fargo the aggregate sum of $75,000 and, upon the parties' full performance of
their respective obligations under such settlement, the action will be dismissed
with prejudice.
11
On or about May 12, 2003, General Electric Capital Corporation commenced an
action against Sterling Vision of California, Inc. and the Company, in the
Supreme Court of the State of New York, County of Nassau, as the lessor of
certain office equipment allegedly leased to Sterling Vision of California,
Inc., and is seeking therein, among other things, damages against the Company,
in the approximate amount of $266,000, in respect of claims arising under such
lease. On June 3, 2003, the plaintiff's motion for an order of seizure and
preliminary injunction, which was not opposed by the defendants, was granted by
the Court. The defendants believe that they have a meritorious defense to such
action. As of the date hereof, these proceedings were in the discovery stage.
On May 20, 2003, Irondequoit Mall, LLC commenced an action against the
Company and Sterling Vision of Irondequoit, Inc. alleging, among other things,
that the Company had breached its obligations under its guaranty of the lease
for the former Sterling Optical store located in Rochester, New York. The
defendants believe that they have a meritorious defense to such action. As of
the date hereof, these proceedings were in the discovery stage.
On May 21, 2003, SMB Operating Company, LLC, the landlord of the Company's
former Sterling Optical store located in Edina, Minnesota, commenced an action
against the Company and its subsidiary, Sterling Vision of Southdale, Inc.,
alleging that the Company had breached its obligations under its guaranty of the
lease for such store. The defendants believe that they have a meritorious
defense to such action. As of the date hereof, the defendants' time to answer
the complaint has not yet expired.
On or about July 1, 2003, Eighth Street Tower Corporation commenced an
action against the Company, in the District Court of the County of Hennepin,
State of Minnesota, in which the plaintiff, as the Landlord of the Company's
former Sterling Optical store located in Minneapolis, Minnesota, is seeking,
among other things, damages against the Company, in the approximate amount of
$50,000, under the lease for such store. The Company believes that it has a
meritorious defense to such action. As of the date hereof, these proceedings
were in the discovery stage.
In addition to the foregoing, the Company is a defendant in certain
lawsuits alleging various claims incurred in the ordinary course of business,
certain of which claims are covered by various insurance policies, subject to
certain deductible amounts and maximum policy limits. In the opinion of
management, the resolution of these claims 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
to, which, in the opinion of management, will have a material adverse effect on
the Company. Additionally, with respect to the landlord-tenant actions described
herein, the Company has already accounted for the estimated possible costs
(including possible judgments) associated with such actions as part of the
accrual for store closings as of June 30, 2003.
Guarantees
In connection with the Company's sale of the Ambulatory Center on May 31,
2001 (Note 2), the Company agreed to guarantee certain of the potential ongoing
liabilities of the Ambulatory Center. As of December 31, 2002, the Company had
accrued $159,000 for estimated guaranteed liabilities in 2002. During the six
months ended June 30, 2003, the Company accrued an additional $225,000 for such
estimated guaranteed liabilities, representing the estimated cash flow losses of
the Ambulatory Center through June 30, 2003, based on information provided by
the owner. Although the term of the Company's guarantee (of such liabilities)
will not expire until April 2008, the Company's exposure hereunder may, in the
future, be reduced, on a pro-rata basis, based upon the ability of the current
owner to attract additional investors who agree to guarantee all or a portion
thereof. However, there can be no assurance that such liabilities will be so
reduced and, as a result, the Company could in the future continue to incur
further costs associated with such guarantee should the Ambulatory Center
continue to generate cash flow losses.
As of June 30, 2003, the Company was a guarantor of certain leases of
retail optical stores franchised and subleased to its franchisees. In the event
that all of such franchisees defaulted on their respective subleases, the
Company would be obligated for aggregate lease obligations of approximately
$7,234,000.
12
Executive Compensation
On May 30, 2003, the Compensation Committee (the "Committee") of the Board
granted 100,000 stock options to each of the three Co-Chief Operating Officers
of the Company. The options have an exercise price of $0.05, a term of 10 years,
and are immediately exercisable. One of the Co-Chief Operating Officers (who is
also the Company's Chief Financial Officer) has an employment agreement that
provides for an incentive bonus based on the Company's achievement of certain
EBITDA targets, as defined in his agreement. The Committee also resolved that
each of the Company's two other Co-Chief Operating Officers would also receive
an incentive bonus based on substantially the same terms as provided to the
other Co-Chief Operating Officer, pursuant to his employment agreement.
NOTE 11 - FINANCING ARRANGEMENTS:
In January 2002, the Company secured two separate financing arrangements as
follows:
Secured Term Note
The Company entered into a secured term note for $1,000,000 with an
independent financial institution. This note was repayable in 24 equal monthly
installments of $41,666, and beared interest as defined (4.95% at the inception
of the note, and subsequently amended on April 1, 2002 to 3.95%). The note was
fully collateralized by a $1,000,000 certificate of deposit posted by Horizons,
at the same financial institution.
Credit Facility
The Company entered into an agreement with Horizons to borrow up to a
maximum of $1,000,000. This credit facility beared interest at the prime rate
plus 1% (5.5% as of the date of the loan agreement), provided for an initial
advance of $300,000, required minimum incremental advances of $150,000, was to
mature on January 22, 2004, required ratable monthly principal and interest
payments of each borrowing, was amortizable through the maturity date of the
facility, was fully collateralized by a pledge of certain of the Company's
qualifying franchise notes, and required the payment of a facility fee of 2% per
annum, payable monthly, on the unused portion of the credit facility.
In consideration for providing access to the credit facility and posting
collateral for the term note, the Company granted Horizons an aggregate of
2,500,000 warrants, the fair value of which was $234,000. The net proceeds
received were allocated based on the relative fair values of the debt and the
warrants. Accordingly, $810,000 was allocated to the debt, and $190,000 was
allocated to the warrants as a discount to the debt to be amortized as interest
expense over the term of the note (2 years). For the six months ended June 30,
2003, approximately $103,000 (representing the entire remainder of the discount)
was amortized and recognized as interest expense in the accompanying
Consolidated Statement of Operations. On April 22, 2003, with a portion of the
proceeds from its Rights Offering, the Company paid off $417,000 and $407,000,
respectively, representing, at that time, the remaining principal amounts due
under the secured term note and the credit facility.
13
Item 2. 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 are/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. 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,
among other items: product demand and market acceptance risks; the effect of
economic conditions; the impact of competitive products, services and pricing;
product development, commercialization and technological difficulties; and the
outcome of pending and future litigation. 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.
Results of Operations
For the Three and Six Months Ended June 30, 2003, as Compared to the Comparable
Period in 2002
Net sales for Company-owned stores, including revenues generated by the
Company's wholly-owned subsidiary, VisionCare of California, Inc., a specialized
health care maintenance organization licensed by the State of California
Department of Managed Health Care, decreased by approximately $392,000, or
18.8%, to $1,692,000 for the three months ended June 30, 2003, as compared to
$2,084,000 for the comparable period in 2002, and decreased by approximately
$1,465,000, or 28.9%, to $3,609,000 for the six months ended June 30, 2003, as
compared to $5,074,000 for the comparable period in 2002. These decreases were
primarily due to the lower average number of Company-owned stores in operation
during the three and six months ended June 30, 2003, as compared to the same
periods in 2002. This decrease was in line with management's expectations due to
the closing of non-profitable Company-owned stores.
As of June 30, 2003, there were 173 stores in operation, consisting of 13
Company-owned stores (including 6 Company-owned stores being managed by
franchisees) and 159 franchised stores, as compared to 187 stores in operation
as of June 30, 2002, consisting of 31 Company-owned stores (including 10
Company-owned stores being managed by franchisees) and 156 franchised stores. On
a same store basis (for those stores that the Company will continue to operate
as Company-owned stores), comparative net sales increased by $51,000, or 6.7%,
to $814,000 for the three months ended June 30, 2003, as compared to $763,000
for the comparable period in 2002, and decreased by $45,000, or 2.6%, to
$1,678,000 for the six months ended June 30, 2003, as compared to $1,723,000 for
the comparable period in 2002. Management believes that the year-to-date decline
was a direct result of the general downturn in the economy, offset by a slight
improvement of business late in the second quarter.
Franchise royalties decreased by $94,000, or 5.6%, to $1,596,000 for the
three months ended June 30, 2003, as compared to $1,690,000 for the comparable
period in 2002, and decreased by $190,000, or 5.6%, to $3,197,000 for the six
months ended June 30, 2003, as compared to $3,387,000 for the comparable period
in 2002. These decreases were primarily a result of a lower average number of
franchised stores in operation during the three and six month periods ended June
30, 2003 as compared to 2002, offset by a slight increase in franchise sales for
the stores that were open during both of the comparable periods.
For the three and six months ended June 30, 2003, there were $25,000 and
$206,000 of other franchise related fees, respectively. For the three and six
month periods ended June 30, 2002, the Company recognized $7,000 of such fees.
These increases were directly attributable to the Company entering into ten new
franchise agreements during the six months ended June 30, 2003.
14
Interest on franchise notes receivable decreased by $45,000, or 50.6%, to
$44,000 for the three months ended June 30, 2003, as compared to $89,000 for the
comparable period in 2002, and decreased $81,000, or 46.6%, to $93,000 for the
six months ended June 30, 2003, as compared to $174,000 for the comparable
period in 2002. These decreases were primarily due to numerous franchise notes
maturing during the past 12 months and only one new note being generated during
the three and six month periods ended June 30, 2003, as compared to the
comparable periods in 2002.
Excluding revenues generated by the Company's wholly-owned subsidiary,
VisionCare of California, Inc., the Company's gross profit margin increased by
14.4%, to 83.2%, for the three months ended June 30, 2003, as compared to 68.8%
for the comparable period in 2002, and increased by 4.8%, to 76.7% for the six
months ended June 30, 2003, as compared to 71.9% for the comparable period in
2002. These increases were mainly a result of improved inventory management and
control, improved purchasing at lower average product costs, and improved
discounts obtained in 2003 from certain of the Company's vendors. Additionally,
during the three months ended June 30, 2003, the Company settled liabilities
with certain of its vendors at lower amounts than originally anticipated, which
had a positive effect on its gross profit margin. 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, competitive pricing, and
promotional incentives.
Selling, general and administrative expenses decreased by $1,011,000, or
27.7%, to $2,637,000 for the three months ended June 30, 2003, as compared to
$3,648,000 for the comparable period in 2002, and decreased by $2,744,000, or
33.6%, to $5,424,000 for the six months ended June 30, 2003, as compared to
$8,168,000 for the comparable period in 2002. These decreases were primarily due
to management's plan to reduce administrative expenses, where necessary and
feasible, and to close non-profitable Company-owned stores. Included in these
decreases were reductions in salaries and related expenses of $270,000 and
$900,000, facility and other overhead charges of $621,000 and $1,686,000, and
professional fees of $95,000 and $150,000 for the three and six-month periods
ended June 30, 2003, respectively.
Interest expense increased by $37,000, to $96,000, for the three months
ended June 30, 2003, as compared to $59,000 for the comparable period in 2002,
and increased by $59,000, to $157,000, for the six months ended June 30, 2003,
as compared to $98,000 for the comparable period in 2002. These increases were
primarily due to the amortization of the debt discount associated with the full
payment of the Company's debt to Horizons and North Fork Bank.
Liquidity and Capital Resources
As of June 30, 2003 (exclusive of net liabilities of discontinued
operations), the Company had reduced its negative working capital from
$4,632,000 (as of December 31, 2002) to $2,298,000, and had cash on hand of
$1,208,000. During the six months ended June 30, 2003, the Company used $343,000
of cash in its operating activities. This usage was a result of a decrease in
the accrual for store closings of $611,000 (Note 6), a decrease of $434,000 in
franchise deposits and other liabilities, a decrease of $663,000 in accounts
payable and accrued liabilities, and a net increase of $189,000 in franchise and
other receivables, offset, in part, by income from continuing operations of
$1,092,000. Management anticipates that it will continue to make significant
payments against existing liabilities associated with the closure of
non-profitable Company-owned stores.
For the six months ended June 30, 2003, cash flows provided by investing
activities were $143,000, as compared to $799,000 for the comparable period in
2002. This was principally due to the maturing of numerous of the Company's
franchise notes receivable during the past twelve months and early repayment of
four franchise notes during the three months ended June 30, 2002.
For the six months ended June 30, 2003, cash flows provided by financing
activities were $760,000, principally due to the completion of the shareholder
rights offering, offset by the repayment of the Company's debt financing and
related party borrowings.
In April 2003, the Company completed its shareholder rights offering,
resulting in net proceeds of $1,859,000. With a portion of the proceeds, the
Company paid off $417,000, $407,000 and $100,000, respectively, representing the
remaining principal amounts due under a secured term note, a credit facility and
a director loan.
15
Management plans to continue to improve its cash flows during 2003 by
improving store profitability through increased monitoring of store-by-store
operations, continuing to implement reductions of administrative overhead
expenses where necessary and feasible, actively supporting development programs
for franchisees, and continuing to add new franchise stores to the system.
Management believes that with the successful execution of the aforementioned
plans to improve cash flows, its existing cash, and the collection of
outstanding receivables, there will be sufficient liquidity available for the
Company to continue in operation through the third quarter of 2004. However,
there can be no assurance that management will be able to successfully execute
the aforementioned plans.
16
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company presently has outstanding certain equity instruments with
beneficial conversion terms. Accordingly, the Company, in the future, could
incur non-cash charges to equity (as a result of the exercise of such beneficial
conversion terms), which would have a negative impact on future per share
calculations.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation of the Company's disclosure controls and
procedures as of the end of the period covered by this Quarterly Report on Form
10-Q, the Co-Chief Operating Officers (one of which is also the Company's Chief
Financial Officer) have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and include controls and
procedures designed to ensure that information required to be disclosed by the
Company in such reports is accumulated and communicated to the Company's
management, including the Co-Chief Operating Officers, as appropriate to allow
timely decisions regarding required disclosure.
b) Changes in Internal Controls
There were no changes that occurred during the fiscal quarter covered by
this Quarterly Report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about May 12, 2003, General Electric Capital Corporation commenced an
action against Sterling Vision of California, Inc. and the Company, in the
Supreme Court of the State of New York, County of Nassau, as the lessor of
certain office equipment allegedly leased to Sterling Vision of California,
Inc., and is seeking therein, among other things, damages against the Company,
in the approximate amount of $266,000, in respect of claims arising under such
lease. On June 3, 2003, the plaintiff's motion for an order of seizure and
preliminary injunction, which was not opposed by the defendants, was granted by
the Court. The defendants believe that they have a meritorious defense to such
action. As of the date hereof, these proceedings were in the discovery stage.
On May 20, 2003, Irondequoit Mall, LLC commenced an action against the
Company and Sterling Vision of Irondequoit, Inc. alleging, among other things,
that the Company had breached its obligations under its guaranty of the lease
for the former Sterling Optical store located in Rochester, New York. The
defendants believe that they have a meritorious defense to such action. As of
the date hereof, these proceedings were in the discovery stage.
On May 21, 2003, SMB Operating Company, LLC, the landlord of the Company's
former Sterling Optical store located in Edina, Minnesota, commenced an action
against the Company and its subsidiary, Sterling Vision of Southdale, Inc.,
alleging that the Company had breached its obligations under its guaranty of the
lease for such store. The defendants believe that they have a meritorious
defense to such action. As of the date hereof, the defendants' time to answer
the complaint has not yet expired.
In May 2003, the Company and Preit-Rubin settled their action, the terms of
which provide, in material part, that the Company pay Preit-Rubin the aggregate
sum of $187,500 and, upon the parties' full performance of their respective
obligations under such settlement, the action will be dismissed with prejudice.
On or about July 1, 2003, Eighth Street Tower Corporation commenced an
action against the Company, in the District Court of the County of Hennepin,
State of Minnesota, in which the plaintiff, as the Landlord of the Company's
former Sterling Optical store located in Minneapolis, Minnesota, is seeking,
among other things, damages against the Company, in the approximate amount of
$50,000, under the lease for such store. The Company believes that it has a
meritorious defense to such action. As of the date hereof, these proceedings
were in the discovery stage.
In August 2003, the Company and Wells Fargo settled their action, the terms
of which provide, in material part, that the Company pay Wells Fargo the
aggregate sum of $75,000 and, upon the parties' full performance of their
respective obligations under such settlement, the action will be dismissed with
prejudice.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
18
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
31.1 Certification of Co-Chief Operating Officer and Chief Financial
Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14
31.2 Certification of Co-Chief Operating Officer pursuant to Securities
Exchange Act Rules 13a-14 and 15d-14
31.3 Certification of Co-Chief Operating Officer pursuant to Securities
Exchange Act Rules 13a-14 and 15d-14
32.1 Certification of Co-Chief Operating Officers and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
B. Reports on Form 8-K
On April 25, 2003, the Company filed a Report on Form 8-K regarding the
issuance of a press release, on April 24, 2003, regarding the announcement of
the completion of its shareholder rights offering.
On June 19, 2003, the Company filed a Report on Form 8-K regarding the
issuance of a press release, on June 6, 2003, regarding the announcement of the
receipt of an unsolicited offer to acquire all of the outstanding capital stock
of the Company.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.
EMERGING VISION, INC.
(Registrant)
BY: /s/ Christopher G. Payan
-----------------------------------
Christopher G. Payan
Senior Vice President,
Co-Chief Operating Officer and
Chief Financial Officer
(Co-Principal Executive Officer
and Principal Financial Officer)
BY: /s/ Brian P. Alessi
-----------------------------------
Brian P. Alessi
Corporate Controller
(Principal Accounting Officer)
Dated: August 14, 2003
20
Exhibit 31.1
I, Christopher G. Payan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerging Vision,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: August 14, 2003
/s/ Christopher G. Payan
- -------------------------------
Christopher G. Payan
Co-Chief Operating Officer and
Chief Financial Officer
21
Exhibit 31.2
I, Myles S. Lewis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerging Vision,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: August 14, 2003
/s/ Myles S. Lewis
- ---------------------------
Myles S. Lewis
Co-Chief Operating Officer
22
Exhibit 31.3
I, Samuel Z. Herskowitz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerging Vision,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: August 14, 2003
/s/ Samuel Z. Herskowitz
- -----------------------------
Samuel Z. Herskowitz
Co-Chief Operating Officer
23
Exhibit 32.1
(Company Letterhead)
CERTIFITCATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Emerging Vision, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Christopher G. Payan
- ------------------------------------------
Name: Christopher G. Payan
Title: Co-Chief Operating Officer and
Chief Financial Officer
Date: August 14, 2003
/s/ Myles S. Lewis
- ------------------------------------------
Name: Myles S. Lewis
Title: Co-Chief Operating Officer
Date: August 14, 2003
/s/ Samuel Z. Herskowitz
- ------------------------------------------
Name: Samuel Z. Herskowitz
Title: Co-Chief Operating Officer
Date: August 14, 2003
This certification accompanies this Form 10-Q and shall not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that Section.
A signed original of this written statement required by Section 906 has
been provided to, and will be retained by, Emerging Vision, Inc. and furnished
to the Securities and Exchange Commission or its staff upon request.