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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 September 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 November 17, 2003, there were 80,319,410 outstanding shares 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)
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,192 $ 664
Franchise receivables, net of allowance of $770 and $1,063,
respectively 1,378 1,133
Other receivables, net of allowance of $125 and $101, respectively 372 447
Current portion of franchise notes receivable, net of allowance
of $214 and $442, respectively 321 612
Inventory, net 369 456
Prepaid expenses and other current assets 471 321
----------- ----------
Total current assets 4,103 3,633
----------- ----------
Property and equipment, net 518 693
Franchise notes and other receivables, net of allowance of $549 and $1,486,
respectively 612 781
Goodwill 1,266 1,266
Other assets 242 277
----------- ----------
Total assets $ 6,741 $ 6,650
=========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 180 $ 626
Accounts payable and accrued liabilities 5,105 5,945
Accrual for store closings 337 1,109
Related party borrowings 29 377
Net liabilities of discontinued operations 125 208
----------- ----------
Total current liabilities 5,776 8,265
----------- ----------
Long-term debt 79 260
----------- ----------
Related party borrowings 150 231
----------- ----------
Franchise deposits and other liabilities 1,203 1,709
----------- ----------
Contingencies (Note 9)
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;
80,193,197 and 29,422,957 shares issued, respectively, and 80,010,860
and 29,740,620 shares outstanding, respectively 801 299
Treasury stock, at cost, 182,337 shares (204) (204)
Additional paid-in capital 121,720 120,345
Accumulated deficit (122,858) (124,329)
----------- ----------
Total shareholders' deficit (467) (3,815)
----------- ----------
Total liabilities and shareholders' deficit $ 6,741 $ 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 Nine Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
--------------------- ---------------------
Revenues:
Net sales $ 1,756 $ 2,773 $ 5,365 $ 7,847
Franchise royalties 1,631 1,769 4,828 5,156
Other franchise related fees 51 49 257 56
Interest on franchise notes receivable 33 80 126 254
Other income 15 136 51 232
--------- --------- --------- ---------
Total revenues 3,486 4,807 10,627 13,545
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 188 612 656 2,014
Selling, general and administrative expenses 2,705 6,031 8,129 14,199
Costs associated with evaluation of Offer (Note 7) 38 - 38 -
Interest expense 12 59 169 157
--------- --------- --------- ---------
Total costs and expenses 2,943 6,702 8,992 16,370
--------- --------- --------- ---------
Income (loss) from continuing operations before
provision for income taxes 543 (1,895) 1,635 (2,825)
Provision for income taxes - - - -
--------- --------- --------- ---------
Income (loss) from continuing operations 543 (1,895) 1,635 (2,825)
--------- --------- --------- ---------
Discontinued operations (Note 3):
Income (loss) from discontinued operations 56 287 (164) 167
--------- --------- ---------- ---------
Net income (loss) $ 599 $ (1,608) $ 1,471 $ (2,658)
========= ========= ========== =========
Per share information - basic and diluted (Note 5):
Income (loss) from continuing operations $ 0.01 $ (0.06) $ 0.02 $ (0.10)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
--------- --------- ---------- ---------
Net income (loss) $ 0.01 $ (0.05) $ 0.02 $ (0.09)
========= ========= ========== =========
Weighted-average number of common shares outstanding -
Basic 79,914 29,433 60,937 28,286
========= ========= ========== =========
Diluted 100,593 29,433 70,354 28,286
========= ========= ========== =========
The accompanying notes are an integral part of these consolidated
statements.
3
EMERGING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
For the Nine Months Ended
September 30,
---------------------------------
2003 2002
--------------- ---------------
Cash flows from operating activities:
Income (loss) from continuing operations $ 1,635 $ (2,825)
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities:
Depreciation and amortization 224 372
Provision for doubtful accounts 37 724
Amortization of debt discount 103 63
Charges related to long-lived assets - 181
Changes in operating assets and liabilities:
Franchise and other receivables (216) 346
Inventory 87 320
Prepaid expenses and other current assets (150) (271)
Other assets 35 57
Accounts payable and accrued liabilities (1,065) (593)
Franchise deposits and other liabilities (506) (167)
Accrual for store closings (772) (63)
----------- -----------
Net cash used in operating activities (588) (1,856)
----------- -----------
Cash flows from investing activities:
Franchise notes receivable issued (21) (71)
Proceeds from franchise and other notes receivable 490 1,234
Purchases of property and equipment (49) (245)
----------- -----------
Net cash provided by investing activities 420 918
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of options and
warrants 18 23
Proceeds from borrowings 249 1,900
Payments on borrowings (1,408) (1,589)
Net proceeds from Rights Offering 1,859 -
----------- -----------
Net cash provided by financing activities 718 334
----------- -----------
Net cash provided by (used in) continuing operations 550 (604)
----------- -----------
Net cash (used in) provided by discontinued operations (22) 152
----------- -----------
Net increase (decrease) in cash and cash equivalents 528 (452)
Cash and cash equivalents - beginning of period 664 1,053
----------- -----------
Cash and cash equivalents - end of period $ 1,192 $ 601
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 65 $ 97
=========== ===========
Taxes $ 72 $ 55
=========== ===========
The accompanying notes are an integral part of these consolidated
statements.
4
EMERGING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 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 and
warrants - - 270,240 2 - - 16 - 18
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 - - - - - - - 1,471 1,471
------ ------ ---------- -------- ------- ----- -------- --------- ---------
BALANCE - SEPTEMBER 30, 2003 1 $ 74 80,193,197 $ 801 182,337 $(204) $121,720 $(122,858) $ (467)
(Unaudited) ====== ====== ========== ======== ======= ===== ======== ========= =========
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 September 30, 2003 (exclusive of net liabilities of discontinued
operations), the Company had reduced its negative working capital from
$4,424,000 (as of December 31, 2002) to $1,548,000, and had cash on hand of
$1,192,000. During the nine months ended September 30, 2003, the Company used
$588,000 of cash in its operating activities. This usage was a result of a
decrease in the accrual for store closings of $772,000 (Note 8), a decrease of
$506,000 in franchise deposits and other liabilities, a decrease of $1,065,000
in accounts payable and accrued liabilities, an increase of $150,000 in prepaid
expenses and other current assets, and a net increase of $216,000 in franchise
and other receivables, offset, in part, by income from continuing operations of
$1,635,000.
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 fourth 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 September 30, 2003, there was approximately $284,000 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 nine months ended September 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 9).
These expenses were offset by income from discontinued operations during the
three months ended September 30, 2003, resulting from the reversal of certain
liabilities that existed at the time such operations were discontinued.
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
6
value based method of accounting for stock-based 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 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 Nine Months Ended
September 30, September 30,
(In thousands) (In thousands)
---------------- --------------- --------------- ----------------
2003 2002 2003 2002
---------------- --------------- --------------- ----------------
Net income (loss) - as reported $ 599 $ (1,608) $ 1,471 $ (2,658)
Deduct: Total stock-based employee compensation
expense determined under fair value method
for all awards (9) (1,081) (864) (3,243)
---------- ---------- ---------- ----------
Pro forma net income (loss) $ 590 $ (2,689) $ 607 $ (5,901)
========== ========== ========== ==========
Earnings per share:
Basic and diluted - as reported $ 0.01 $ (0.05) $ 0.02 $ (0.09)
========== ========== ========== ==========
Basic and diluted - pro forma $ 0.01 $ (0.09) $ 0.01 $ (0.21)
========== ========== ========== ==========
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 revenues from the sale of 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
assured. To the extent that collectibility of royalties and/or interest on
7
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 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
9,477,658 were excluded from the computation for the three and nine months ended
September 30, 2002, as their impact would have been anti-dilutive. Common stock
equivalents totaling 9,062,323 (of an aggregate of 59,642,083 for the nine and
three months ended September 30, 2003, respectively) were excluded from the
computation for the three and nine months ended September 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 Nine Months Ended
September 30, September 30,
(In thousands) (In thousands)
---------------- ---------------- --------------- ----------------
2003 2002 2003 2002
---------------- ---------------- --------------- ----------------
Numerator:
Income (loss) from continuing operations $ 543 $ (1,895) $ 1,635 $ (2,825)
Income (loss) from discontinued operations 56 287 (164) 167
---------- ---------- ----------- -----------
Net income (loss) $ 599 $ (1,608) $ 1,471 $ (2,658)
========== ========== =========== ===========
Denominator:
Weighted average common shares outstanding 79,914 29,433 60,937 28,286
Dilutive effect of:
Stock options 286 - 95 -
Warrants issued in connection with Rights
Offering 20,393 - 9,322 -
---------- ---------- ----------- -----------
Weighted average common shares
outstanding, assuming dilution 100,593 29,433 70,354 28,286
========== ========== =========== ===========
Basic and Diluted Per Share Information:
Income (loss) from continuing operations $ 0.01 $ (0.06) $ 0.02 $ (0.10)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.01
---------- ---------- ----------- -----------
Net income (loss) $ 0.01 $ (0.05) $ 0.02 $ (0.09)
========== ========== =========== ===========
NOTE 6 - 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
8
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.
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.
As a result of the acquisition of shares in the Rights Offering, the
percentage ownership, of the Company, of certain of the Company's shareholders
has increased or, upon the exercise of warrants obtained in the Rights Offering
such percentage ownership could increase, to 5% or more. Such transactions, as
well as past, and possible future, sales, acquisitions, transfers, conversions,
exercises and/or other dispositions of stock, options, warrants and other
securities in or of the Company, by existing and/or future owners of 5% or more
of the Company, may have resulted, or could in the future result, in an
"ownership change" (as defined in Section 382 of the Internal Revenue Code of
1986, as amended). The occurence of a Section 382 "ownership change" could
significantly limit the Company's use of its net operating loss carry-forwards
and similar corporate tax attributes (to offset future federal taxable income),
which, as of December 31, 2002, were approximately $44,000,000 in the aggregate.
NOTE 7 - OFFER TO ACQUIRE OUTSTANDING CAPITAL STOCK:
On June 6, 2003, the Company received an unsolicited offer (the "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 provided 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, are members
of the Board of Directors of the Company.
On November 5, 2003, the Offering Group rescinded the Offer in all
respects. The Company has no additional information with respect to the Offering
Group's rescission of the Offer.
NOTE 8 - 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
9
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
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 nine
months ended September 30, 2003, the Company successfully closed ten of such
stores. As of September 30, 2003, $337,000 remained as an accrual for store
closings on the accompanying Consolidated Balance Sheet. The Company anticipates
completing its closure plan by the end of 2003. No additional provision was
provided during the nine months ended September 30, 2003.
NOTE 9 - 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, these proceedings were 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.,
10
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
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. In November 2002, the plaintiffs filed an amended
complaint removing VCC as a defendant in this action. In January 2003, on motion
of the Company, 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. As of the date hereof, these proceedings were
in the discovery stage.
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. As of the date hereof, these proceedings were in the
discovery stage. While the Company believes that it has a meritorious defense to
such action, a settlement, in principal, of the action has been reached with
Pyramid, the terms of which provide that the Company will pay to Pyramid the
aggregate sum of $125,000, in consideration for Pyramid's dismissal of the
action, with prejudice, and the exchange of mutual general releases. There can
be no assurance, however, that this settlement will be consummated.
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 was 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
11
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.
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 ("SMB"), 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. While the Company believes that it has a
meritorious defense to such action, a settlement, in principal, of the action
has been reached with SMB, the terms of which provide that the Company will pay
to SMB the aggregate sum of $70,000, in consideration for SMB's dismissal of the
action, with prejudice, and the exchange of mutual general releases. There can
be no assurance, however, that this settlement will be consummated.
On or about July 1, 2003, Eighth Street Tower Corporation ("ESTC")
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 $55,000, under the lease for such store. As of the date hereof, these
proceedings were in the discovery stage. While the Company believes that it has
a meritorious defense to such action, a settlement, in principal, of the action
has been reached with ESTC, the terms of which provide that the Company will pay
to ESTC the aggregate sum of $45,000, in consideration for ESTC's dismissal of
the action, with prejudice, and the exchange of mutual general releases. There
can be no assurance, however, that this settlement will be consummated.
In August 2003, Developers Diversified Realty Corporation ("DDRC")
commenced an action against the Company, in the Iowa District Court of Wapello
County, in which DDRC, as the Landlord of the Company's former Sterling Optical
store located in Ottumwa, Iowa, is seeking, among other things, damages against
the Company, in the approximate amount of $115,000, 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 October 2003, Luzerne Optical Laboratories, Ltd. ("Luzerne") commenced
an action against the Company in the State of Pennsylvania, seeking payment of
the approximate sum of $240,000 for ophthalmic lenses and laboratory services
allegedly purchased by the Company. On November 6, 2003, the Company filed a
motion to remove such action, from the Court of Common Pleas of Luzerne County,
to the United States District Court, Eastern District of Pennsylvania and,
accordingly, the Company's time to answer the complaint in this action has not
yet expired. The Company believes that is has a meritorious defense to such
action.
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
12
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 September 30, 2003.
Guarantees
In connection with the Company's sale of the Ambulatory Center on May 31,
2001 (Note 3), 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 nine
months ended September 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 September 30, 2003, based on information
provided by the owner.
In September 2003, the Company entered into a series of agreements, with
the owner of the Ambulatory Center and the landlord of the premises, pursuant to
which the Company's future guarantee is now expressly limited to that of the
minimum base rent and additional rent, payable under the lease for the premises,
as adjusted in accordance with the agreements. In connection with the
agreements, the Company agreed to settle its outstanding liabilities allegedly
due under its guarantee, which liabilities were settled at lower amounts than
the Company had originally accrued for.
As of September 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
$5,003,000.
NOTE 10 - 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. On
November 11, 2003 and November 13, 2003, respectively, two of the Company's
Co-Chief Operating Officers exercised the aforementioned 100,000 stock options
granted to each of them.
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: potential conflicts of interest that could occur with certain
of our directors; the retention of certain members of our management team; our
inability to control the management of our franchised stores; the effects of new
state, local and federal regulations that affect the health care industry; our
ability to continue to enter favorable arrangements with health care providers;
increased competition from other eyewear providers; the acceptance of refractive
laser surgery; 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; our
ability, or lack thereof, to secure additional financing in the future, if
necessary, due to the potential lack of liquidity of our common stock; the
potential limitation on the use of our net operating loss carry-forwards in
accordance with Section 382 of the Internal Revenue Code of 1986, as amended,
based on certain future changes in ownership that could occur; the possibility
that we will be unable to successfully execute our business plan; 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 Nine Months Ended September 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 $1,017,000, or
36.7%, to $1,756,000 for the three months ended September 30, 2003, as compared
to $2,773,000 for the comparable period in 2002, and decreased by approximately
$2,482,000, or 31.6%, to $5,365,000 for the nine months ended September 30,
2003, as compared to $7,847,000 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 nine months ended September 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 September 30, 2003, there were 172 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 186 stores in operation
as of September 30, 2002, consisting of 31 Company-owned stores (including 13
Company-owned stores being managed by franchisees) and 155 franchised stores. On
a same store basis (for those stores that the Company continues to operate as
Company-owned stores), comparative net sales decreased by $41,000, or 5.0%, to
$784,000 for the three months ended September 30, 2003, as compared to $825,000
for the comparable period in 2002, and decreased by $108,000, or 4.2%, to
$2,441,000 for the nine months ended September 30, 2003, as compared to
$2,549,000 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.
Franchise royalties decreased by $138,000, or 7.8%, to $1,631,000 for the
three months ended September 30, 2003, as compared to $1,769,000 for the
comparable period in 2002, and decreased by $328,000, or 6.4%, to $4,828,000 for
the nine months ended September 30, 2003, as compared to $5,156,000 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 nine
months ended September 30, 2003 as compared to 2002.
For the three and nine months ended September 30, 2003, there were $51,000
and $257,000 of other franchise related fees, respectively. For the three and
nine months ended September 30, 2002, the Company recognized $49,000 and $56,000
14
of such fees, respectively. These increases were primarily attributable to the
Company entering into thirteen new franchise agreements during the nine months
ended September 30, 2003.
Interest on franchise notes receivable decreased by $47,000, or 58.8%, to
$33,000 for the three months ended September 30, 2003, as compared to $80,000
for the comparable period in 2002, and decreased $128,000, or 50.4%, to $126,000
for the nine months ended September 30, 2003, as compared to $254,000 for the
comparable period in 2002. These decreases were primarily due to numerous
franchise notes maturing during the past 12 months and only two new notes being
generated during the three and nine months ended September 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
14.9%, to 76.5%, for the three months ended September 30, 2003, as compared to
61.6% for the comparable period in 2002, and increased by 13.6%, to 76.6% for
the nine months ended September 30, 2003, as compared to 63.0% 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 nine months ended September 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 $3,326,000, or
55.1%, to $2,705,000 for the three months ended September 30, 2003, as compared
to $6,031,000 for the comparable period in 2002, and decreased by $6,070,000, or
42.7%, to $8,129,000 for the nine months ended September 30, 2003, as compared
to $14,199,000 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 $706,000 and
$1,596,000, facility and other overhead charges of $803,000 and $2,490,000,
professional fees of $252,000 and $410,000, provision for doubtful accounts of
$616,000 and $687,000, and provision for store closings of $617,000 for the
three and nine-month periods ended September 30, 2003, respectively.
Interest expense decreased by $47,000, to $12,000, for the three months
ended September 30, 2003, as compared to $59,000 for the comparable period in
2002, and increased by $12,000, to $169,000, for the nine months ended September
30, 2003, as compared to $157,000 for the comparable period in 2002. The
decrease during the three months ended September 30, 2003 was a result of the
Company paying off the majority of its debt obligations in April 2003 with the
proceeds received from its shareholder rights offering. During the entire
comparable period in 2002, the Company was incurring interest on those same debt
obligations. The increase during the nine months ended September 30, 2003, was
primarily due to the amortization of the remaining debt discount resulting from
aforementioned debt payment in April 2003.
Liquidity and Capital Resources
As of September 30, 2003 (exclusive of net liabilities of discontinued
operations), the Company had reduced its negative working capital from
$4,424,000 (as of December 31, 2002) to $1,548,000, and had cash on hand of
$1,192,000. During the nine months ended September 30, 2003, the Company used
$588,000 of cash in its operating activities. This usage was a result of a
decrease in the accrual for store closings of $772,000 (Note 8), a decrease of
$506,000 in franchise deposits and other liabilities, a decrease of $1,065,000
in accounts payable and accrued liabilities, an increase of $150,000 in prepaid
expenses and other current assets, and a net increase of $216,000 in franchise
and other receivables, offset, in part, by income from continuing operations of
$1,635,000.
For the nine months ended September 30, 2003, cash flows provided by
investing activities were $420,000, as compared to $918,000 for the comparable
period in 2002. This was principally due to the maturing of numerous of the
Company's franchise notes receivable during the twelve months ended March 31,
2003 and the early repayment of four franchise notes during the nine months
ended September 30, 2002.
15
For the nine months ended September 30, 2003, cash flows provided by
financing activities were $718,000, principally due to the completion of the
shareholder rights offering, offset by the repayment of the Company's long term
debt 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.
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 fourth 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 (each of whom are Principal Executive
Officers, and one of whom 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
In August 2003, Developers Diversified Realty Corporation ("DDRC")
commenced an action against the Company, in the Iowa District Court of Wapello
County, in which DDRC, as the Landlord of the Company's former Sterling Optical
store located in Ottumwa, Iowa, is seeking, among other things, damages against
the Company, in the approximate amount of $115,000, 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 October 2003, Luzerne Optical Laboratories, Ltd. ("Luzerne") commenced
an action against the Company in the State of Pennsylvania, seeking payment of
the approximate sum of $240,000 for ophthalmic lenses and laboratory services
allegedly purchased by the Company. On November 6, 2003, the Company filed a
motion to remove such action, from the Court of Common Pleas of Luzerne County,
to the United States District Court, Eastern District of Pennsylvania and,
accordingly, the Company's time to answer the complaint in this action has not
yet expired. The Company believes that is has a meritorious defense to such
action.
In October 2003, the Company reached a settlement, in principal, of the
action by SMB Operating Company, LLC ("SMB"), the terms of which provide that
the Company will pay to SMB the aggregate sum of $70,000, in consideration for
SMB's dismissal of the action, with prejudice, and the exchange of mutual
general releases. There can be no assurance, however, that this settlement will
be consummated.
In November 2003, the Company reached a settlement, in principal, of the
action by Pyramid Champlain Company ("Pyramid"), the terms of which provide that
the Company will pay to Pyramid the aggregate sum of $125,000, in consideration
for Pyramid's dismissal of the action, with prejudice, and the exchange of
mutual general releases. There can be no assurance, however, that this
settlement will be consummated.
In November 2003, the Company reached a settlement, in principal, of the
action by Eighth Street Tower Corporation ("ESTC"), the terms of which provide
that the Company will pay to ESTC the aggregate sum of $45,000, in consideration
for ESTC's dismissal of the action, with prejudice, and the exchange of mutual
general releases. There can be no assurance, however, that this settlement will
be consummated.
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.
Item 5. Other Information
Not applicable.
18
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
None.
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: November 21, 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: November 21, 2003
/s/ Christopher G. Payan
- ------------------------------------
Christopher G. Payan
Co-Chief Operating Officer and
Chief Financial Officer
(Co-Principal Executive Officer and
Principal Financial Officer)
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: November 21, 2003
/s/ Myles S. Lewis
- ---------------------------------
Myles S. Lewis
Co-Chief Operating Officer
(Co-Principal Executive Officer)
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: November 21, 2003
/s/ Samuel Z. Herskowitz
- -----------------------------------
Samuel Z. Herskowitz
Co-Chief Operating Officer
(Co-Principal Executive Officer)
Exhibit 32.1
CERTIFICATION 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 September 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
(Co-Principal Executive Officer and
Principal Financial Officer)
Date: November 21, 2003
/s/ Myles S. Lewis
- ---------------------------------------------
Name: Myles S. Lewis
Title: Co-Chief Operating Officer
(Co-Principal Executive Officer)
Date: November 21, 2003
/s/ Samuel Z. Herskowitz
- ---------------------------------------------
Name: Samuel Z. Herskowitz
Title: Co-Chief Operating Officer
(Co-Principal Executive Officer)
Date: November 21, 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.