UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K/A

Amendment No. 2

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2010

 

¨	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 000-17861

 

 

UNILENS VISION INC.

(Exact name of registrant as specified in its charter)

 

Delaware		27-2254517
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
10431 72nd Street North, Largo, Florida		33777-1511
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (727) 544-2531

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Title of Each Class:		Name of Each Exchange On Which Registered:
Common Stock, $.001 par value		None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  þ

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  þ    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨		Accelerated filer  ¨		Non-accelerated filer  ¨		Smaller reporting company  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  þ

As of December 31, 2009, the aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price on that date of $4.16, was approximately $9,072,145.

As of September 28, 2010, 2,369,354 shares of the registrant’s Common Stock were outstanding.

 

 

 

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EXPLANATORY NOTE

The registrant hereby amends its Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed on September 28, 2010, by the substitution of a revised Report of Independent Registered Public Accounting Firm with a conformed signature. In this Amendment No. 2, in accordance with the rules of the Securities and Exchange Commission, Item 8 is included in its entirety, which includes the unchanged audited financial statements along with the revised Report of the Independent Registered Public Accounting Firm.

Additionally, in connection with the filing of this Form 10-K/A Amendment No. 2 and pursuant to Commission rules, the registrant is including currently dated certifications.

All other sections of our original Form 10-K remain as they were filed. This Form 10-K/A Amendment No. 2 has not been updated for events or information subsequent to the date of filing of the original Form 10-K. Accordingly, this Form 10-K/A Amendment No. 2 should be read in conjunction with our other filings with the SEC subsequent to the filing of the original Form 10-K.

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements of

UNILENS VISION INC.

At June 30, 2010 and 2009 and

Years ended June 30, 2010, 2009 and 2008

Report date – September 28, 2010

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Unilens Vision Inc.

We have audited the accompanying consolidated balance sheets of Unilens Vision Inc. as of June 30, 2010 and 2009 and the related consolidated statements of income, stockholders’ equity, and cash flows for the years ended June 30, 2010, 2009 and 2008. These consolidated financial statements are the responsibility of the management of Unilens Vision Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required at this time, to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unilens Vision Inc. as of June 30, 2010 and 2009 and the results of its operations and its cash flows for the years ended June 30, 2010, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Pender Newkirk & Company LLP

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida

September 28, 2010

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Report of Independent Registered Public Accounting Firm on Schedule

Board of Directors and Stockholders

Unilens Vision Inc.

In connection with our audit of the consolidated financial statements of Unilens Vision Inc. referred to in our report dated September 28, 2010, we have also audited Schedule I for the year ended June 30, 2010. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

/s/ Pender Newkirk & Company LLP

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida

September 28, 2010

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UNILENS VISION INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

AS AT JUNE 30

 

		2010				2009
ASSETS
Current
Cash and cash equivalents		$	1,080,540			$	1,178,626
Certificates of deposit			—				500,000
Accounts receivable, net of allowance of $217,820 and $278,030 at June 30, 2010 and 2009, respectively			876,033				971,523
Royalties and other receivables			744,989				764,890
Inventories (Note 3)			679,024				849,898
Prepaid expenses			82,348				49,322
Deferred tax asset – current (Note 12)			361,400				664,800
Total current assets			3,824,334				4,979,059
Property, plant, and equipment, net (Note 4)			248,578				378,847
Deferred loan costs			67,826				—
Other assets			123,300				70,055
Deferred tax asset (Note 12)			203,300				321,700
Total assets		$	4,467,338			$	5,749,661
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Accounts payable		$	384,308			$	315,606
Accrued wages and employee benefits			371,649				425,549
Deferred income			359,194				248,724
Income taxes payable			115,697				—
Other accrued liabilities			88,665				66,433
Note payable - current			1,200,000				—
Total current liabilities			2,519,513				1,056,312
Note payable – long-term			4,300,000
Total liabilities			6,819,513				1,056,312
Commitments (Note 7)
Stockholders’ equity
Capital stock (Note 8)
Preferred shares, par value $0.001 per share; 3,000,000 shares authorized; no shares issued and outstanding			—				—
Common shares, par value $0.001 per share; 30,000,000 shares authorized; shares issued and outstanding 2,369,354 and 4,550,715 at June 30, 2010 and 2009, respectively			2,369				4,551
Additional paid-in capital			20,285,873				27,632,000
Deficit			(22,640,417	)			(22,943,202	)
Total stockholders’ (deficit) equity			(2,352,175	)			4,693,349
Total liabilities and stockholders’ (deficit) equity		$	4,467,338			$	5,749,661

The accompanying notes are an integral part of these consolidated financial statements.

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UNILENS VISION INC.

CONSOLIDATED STATEMENTS OF INCOME

(Expressed in U.S. Dollars)

 

YEAR ENDED JUNE 30		2010				2009				2008
Revenues:
Sales		$	6,217,245			$	6,724,181			$	6,665,566
Royalty income (Note 5)			2,976,945				2,874,028				2,629,123
Total revenue			9,194,190				9,598,209				9,294,689
Operating costs and expenses:
Cost of sales			3,608,608				3,622,539				3,705,581
Administration			1,336,246				1,294,229				1,294,701
Research and development			79,234				83,897				124,451
Sales and marketing			1,480,613				1,539,345				1,516,015
Total operating costs and expenses			6,504,701				6,540,010				6,640,748
Operating income			2,689,489				3,058,199				2,653,941
Other non-operating items:
Other expense			(47,951	)			(56,967	)			(45,236	)
Remeasurement (loss) income			(1,620	)			(6,060	)			1,805
Interest income			7,409				6,007				26,142
Interest expense and loan fees			(133,430	)			—				—
Total other non-operating items			(175,592	)			(57,020	)			(17,289	)
Income before income tax expense			2,513,897				3,001,179				2,636,652
Net income tax expense (Note 12)			965,500				1,131,052				1,006,060
Net income for the year		$	1,548,397			$	1,870,127			$	1,630,592
Net income per common share:
Basic		$	0.43			$	0.41			$	0.36
Diluted		$	0.43			$	0.41			$	0.36
Weighted average number of common shares outstanding:
Basic			3,588,916				4,550,715				4,546,733
Effect of dilutive options			3,127				5,463				7,328
Diluted			3,592,043				4,556,178				4,554,061

The accompanying notes are an integral part of these consolidated financial statements.

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UNILENS VISION INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Expressed in U.S. Dollars)

 

		Common Stock
		Number of shares				Amount				Additional Paid-in Capital				Deficit				Total
Balance, June 30, 2007			4,513,215			$	4,513			$	27,601,267			$	(20,436,977	)		$	7,168,803
Common stock issued for cash from exercise of stock options at $2.07 per share in August 2007			2,500				3				5,172								5,175
Common stock issued for cash from exercise of stock options at $0.91 per share in August 2007			15,000				15				13,671								13,686
Common stock issued for cash from exercise of stock options at $0.60 per share in August 2007			20,000				20				11,890								11,910
Common stock cash dividends paid															(3,003,472	)			(3,003,472	)
Income for the year															1,630,592				1,630,592
Balance, June 30, 2008			4,550,715				4,551				27,632,000				(21,809,857	)			5,826,694
Common stock cash dividends paid															(3,003,472	)			(3,003,472	)
Income for the year															1,870,127				1,870,127
Balance, June 30, 2009			4,550,715				4,551				27,632,000				(22,943,202	)			4,693,349
Common stock issued for cash from exercise of stock options at $2.07 per share in January 2010			7,500				7				15,518								15,525
Common stock repurchased for cash at $3.15 per share plus expenses in January 2010			(2,188,861	)			(2,189	)			(7,400,759	)							(7,402,948	)
Common stock cash dividends paid															(1,245,612	)			(1,245,612	)
Stock based compensation											39,114								39,114
Income for the year															1,548,397				1,548,397
Balance, June 30, 2010			2,369,354			$	2,369			$	20,285,873			$	(22,640,417	)		$	(2,352,175	)

The accompanying notes are an integral part of these consolidated financial statements.

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UNILENS VISION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

 

YEAR ENDED JUNE 30		2010				2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income for the year		$	1,548,397			$	1,870,127			$	1,630,592
Items not affecting cash:
Depreciation and amortization			161,849				179,310				191,301
Deferred tax expense			421,800				1,080,300				951,310
Remeasurement loss (gain)			1,620				6,060				(1,805	)
Income taxes payable			115,697				—				—
Stock based compensation			39,114				—				—
Change in non-cash working capital items (Note 9)			347,498				65,226				(76,984	)
Net cash provided by operating activities			2,635,975				3,201,023				2,694,414
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit			—				(500,000	)			—
Redemption of certificates of deposit			500,000				—
Purchase of property, plant and equipment and other assets			(31,580	)			(116,341	)			(81,754	)
Net cash provided by (used in) investing activities			468,420				(616,341	)			(81,754	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under term loan			6,000,000				—				—
Loan financing costs			(67,826	)			—				—
Repayment of borrowings under term loan			(500,000	)			—				—
Common stock issued for cash from exercise of stock options			15,525				—				30,771
Common stock repurchased			(7,402,948	)			—				—
Common stock dividends paid			(1,245,612	)			(3,003,472	)			(3,003,472	)
Net cash used in financing activities			(3,200,861	)			(3,003,472	)			(2,972,701	)
Change in cash and cash equivalents during the year			(96,466	)			(418,790	)			(360,041	)
Effect of exchange rate changes on cash and cash equivalents			(1,620	)			(6,060	)			1,805
Cash and cash equivalents, beginning of year			1,178,626				1,603,476				1,961,712
Cash and cash equivalents, end of year		$	1,080,540			$	1,178,626			$	1,603,476
Cash paid during the year for interest		$	115,531			$	—			$	—
Cash paid during the year for income taxes		$	429,100			$	50,752			$	54,750

Supplemental disclosure with respect to cash flows (Note 9)

The accompanying notes are an integral part of these consolidated financial statements.

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

1. NATURE OF BUSINESS

The business of Unilens Vision Inc. and subsidiaries (the “Company”) is to develop, license and sell optical products using proprietary design and manufacturing technology. The Company’s products are being sold primarily in the United States through a network of national distributors, independent sales representatives and in house sales personnel. The Company also licenses through one of its subsidiaries, one of its patented multifocal designs on an exclusive basis to Bausch and Lomb Inc. (“Bausch and Lomb”) (Note 5).

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and in United States dollars.

The significant accounting policies adopted by the Company are as follows:

Consolidation

These consolidated financial statements include the accounts of Unilens Vision Inc. and its wholly-owned subsidiary, Unilens Corp. USA and its wholly-owned subsidiary, Unilens Vision Sciences Inc.

All significant inter-company accounts and transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from these estimates.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. None of the reclassifications impacted the Company’s income for the year in any period.

Currency

These financial statements are expressed in United States dollars, as the Company and all its operations are based in the United States. On and effective April 1, 2010 the Company announced the change in domicile and the continuance of its corporate existence from British Columbia, Canada to the State of Delaware. Any amounts in prior years expressed in Canadian dollars are indicated as such.

The Company’s functional currency is the United States dollar. Prior to April 1, 2010, the Company followed the remeasurement method of translation since the Canadian records were kept in Canadian dollars. This method translates foreign monetary assets and liabilities at the rate of exchange at the balance sheet date. Foreign nonmonetary assets, liabilities, and stockholders’ equity were translated at the appropriate historical rate. Revenues and expenses from Canadian operations, other than those related to nonmonetary assets and liabilities were translated at the weighted average exchange rate for the period. The resulting remeasurement gain or loss is taken directly to the income statement.

Fair value of financial instruments

The Company’s financial instruments consist of cash and cash equivalents, certificates of deposit, accounts receivable, royalties and other receivables, accounts payable notes payable and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Company is not exposed except for variable rates on notes payable to significant interest, currency or credit risks arising from these financial instruments. The Company has been monitoring interest rates in anticipation of entering a swap agreement to fix the rates on it notes payable. On August 6, 2010, the Company entered into an interest rate swap agreement. Under the

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

interest rate swap agreement for the term note, we receive or make payments on a monthly basis, based on the differential between 5.16% and LIBOR plus 3.75% (Note 16). Due to their short maturities, the fair value of these financial instruments approximates their carrying values, unless otherwise noted. The carrying amount and estimated fair value of long-term notes payable was $4,300,000 and $4,300,000, respectively as of June 30, 2010. The fair value of long-term notes payable was estimated based on rates currently offered to the Company for debt with similar terms and maturities. There were no outstanding investments in derivative financial instruments as of June 30, 2010 and 2009.

Cash and cash equivalents

Cash and cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash and whose original maturity is three months or less when purchased.

Certificates of deposit

In February and April 2009, the Company invested in 9-month risk free FDIC insured certificates of deposit with its then primary bank. With the risk free certificate of deposit, after the first six days of the account term, any early withdrawal fee is waived when the amount withdrawn is reinvested in any deposit account of the primary bank.

Accounts receivable

Accounts receivable consist of amounts due from contact lens sales to customers. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends. Also included in this allowance is an amount for product returns, based on an analysis of the Company’s history of credit memos issued. Based on management’s review of accounts receivable, an allowance for doubtful accounts and product returns of $217,820 and $278,030 at June 30, 2010 and 2009, respectively, is considered adequate. Receivables are determined to be past due, based on payment terms of original invoices. The Company does not typically charge interest on past due receivables.

Inventories

Inventories are carried at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company provides reserves for inventory that management believes to be obsolete or slow moving.

Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation. Plant and equipment and office equipment are depreciated on a straight-line basis over the shorter of 5 years or the estimated useful life of the asset. Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful life of the asset. Expenditures for certain maintenance and repairs are charged to expense as incurred, and renewals and betterments are capitalized. Gains and losses on disposals are credited or charged to operations. For US income tax purposes, the Company uses accelerated methods of depreciation for all assets.

Long-lived assets that are subject to depreciation and amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. During the years ended June 30, 2010 and 2009, the Company determined that its property, plant and equipment were not impaired.

Revenue recognition and discounts

The Company recognizes revenue on sales of optical products upon shipment, when title passes, and ultimate collection is reasonably assured. At the same time, the Company charges operations for the estimated cost of future returns based on historical experience for the respective product types. The Company offers discounts on its products. The costs of these discounts are recognized at the date at which the related sales revenue is recognized and are recorded as a reduction of sales revenue.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

The Company offers our customers advanced sales commitments on certain of our optical products. The Company invoices the customer when the sale commitment is made and defers the revenue until the optical product is shipped.

Royalty income

The Company recognizes royalty income at the end of each quarter based on the net sales of licensed products sold during the quarter, which is provided by the licensee, times the royalty rate.

Shipping and handling

The Company records amounts billed to customers for shipping and handling costs as sales revenue. Costs incurred by the Company for shipping and handling is included in cost of sales.

Advertising costs

The Company expenses advertising costs when incurred. Advertising expense was $252,606, $268,853 and $269,311 for the years ended June 30, 2010, 2009 and 2008, respectively; there were no advertising costs that met the criteria for capitalization.

Research and development costs

Research and development costs are expensed as incurred. The amounts charged to operations during the years ended June 30, 2010, 2009 and 2008 were $79,234, $83,897 and $124,451, respectively.

Income per common share

Basic income per common share is calculated by dividing the income for the year by the weighted-average number of common shares outstanding during the year.

Diluted income per common share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted income per share assumes that the proceeds to be received on the exercise of dilutive stock options and warrants are used to repurchase common shares at the average market price during the year.

Stock-based compensation and stock options

Stock-based payments are recorded using the fair value method of accounting for stock options. Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining vesting period of awards that had been included in pro-forma disclosures in prior periods. There was $39,114 of stock compensation expense attributable to stock options charged against income for the year ended June 30, 2010. There was no compensation expense attributable to stock options charged against income for the years ended June 30, 2009 and 2008 since no options were granted during those years, and all options outstanding at the beginning of those years were fully vested.

See Note 8 for additional disclosure on the Company’s stock-based compensation.

Income taxes

Taxes on income are provided in accordance with US GAAP. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax basis of particular assets and liabilities, in addition to the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

rate is recognized as income or expense in the period that included the enactment date. A valuation allowance is provided to offset the net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Accounting for uncertainty in income taxes is determined based on US GAAP, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. US GAAP also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. As of June 30, 2010, the Company had no uncertain tax positions that require disclosure or accrual. The tax returns for the 2006 through 2009 tax years are still open for examination by the Internal Revenue Service.

Recent accounting pronouncements adopted

The FASB amended ASC Topic 105, Generally Accepted Accounting Principles. The FASB Accounting Standards Codification (the “Codification or ASC”) became the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. All of the Codification’s content carries the same level of authority, and the U.S. GAAP hierarchy will be modified to include only two levels: authoritative and non-authoritative. Topic 105 was effective for the company as of July 1, 2009 and did not have a material effect on its consolidated financial statements.

Other recent pronouncements issued by the FASB, the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

3. INVENTORIES

 

		2010				2009
Raw materials		$	270,388			$	275,454
Work in progress			26,685				22,039
Finished goods			406,091				593,616
			703,164				891,109
Less allowance for obsolescence			24,140				41,211
		$	679,024			$	849,898

All inventories are pledged as collateral on loans (Note 6)

4. PROPERTY, PLANT AND EQUIPMENT

 

		2010												2009
		Cost				Accumulated Depreciation				Net Book Value				Cost				Accumulated Depreciation				Net Book Value
Plant and equipment		$	4,665,800			$	4,567,054			$	98,746			$	4,667,244			$	4,508,240			$	159,004
Office equipment			484,555				383,553				101,002				482,092				326,621				155,471
Leasehold improvements			313,406				264,576				48,830				313,722				249,350				64,372
		$	5,463,761			$	5,215,183			$	248,578			$	5,463,058			$	5,084,211			$	378,847

Depreciation expense of property, plant and equipment was $161,849, $179,310 and $191,301 during 2010, 2009 and 2008, respectively. All property, plant and equipment are pledged as collateral on loans (Note 6).

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

5. ROYALTY AGREEMENT

On October 26, 2001, Bausch & Lomb licensed the exclusive worldwide rights to the Company’s multi-focal soft contact lens design. Under the terms of the agreement, Bausch & Lomb will develop, manufacture, and market a cast-molded multi-focal soft contact lens using the Company’s technology. For this, Bausch & Lomb will pay the Company a royalty ranging from two to five percent of the product’s worldwide net sales for as long as they manufacture and sell products utilizing the technology. During the years ended June 30, 2010, 2009 and 2008, the Company recorded $2,976,945, $2,874,028 and $2,629,123, respectively, in Bausch & Lomb royalty revenues. The principal United States patent related to this license is pledged as collateral on loans (Note 6).

6. LINE OF CREDIT AND TERM NOTE

On November 1, 2009, the Company’s previous line of credit of $1,500,000 expired. This line of credit was collateralized by all assets of Unilens Corp. USA, excluding, the Royalty Agreement with Bausch & Lomb. At June 30, 2009 there was no balance outstanding.

On November 9, 2009, the Company closed on a $6,900,000 5-year term loan facility and a new $1,500,000 line of credit with Regions Bank. The term loan facility, which had a six-month advance period, was entered into to fund the Stock Purchase Agreement (See Note 8) and the new line of credit replaced the previous line of credit. The term loan is payable in 60 monthly principal payments of $100,000 plus accrued interest. Both the term loan and the new line of credit bear interest at a floating rate of 30-day LIBOR plus 3.25% or 3.75% depending on whether the ratio of the Company’s funded debt to its EBITDA is less than 1-to-1 or equal to or greater than 1-to-1, with a minimum interest rate of 4.75%, (See Note 16 Subsequent Events). Under the new line of credit, at any time, the maximum borrowings shall not exceed the lesser of (i) $1,500,000 or (ii) a sum equal to 80% of Qualified Accounts Receivables plus 50% of Qualified Inventory. The line of credit expires in November 2010, but may be extended for up to two one-year terms.

The required principal payments under term loan facility over the next five years are as follows:

 

Year ended June 30,		Term loan principal payments
2011		$	1,200,000
2012			1,200,000
2013			1,200,000
2014			1,200,000
2015			700,000
Total term loan			5,500,000
Less: current maturities			1,200,000
Total long-term term loan		$	4,300,000

The term loan and the new line of credit are secured by a security interest in favor of Regions Bank in the Company’s inventory, accounts receivable, general intangibles, cash and principal United States patent. Under both the term loan facility and the new line of credit, the Company is required to meet customary covenants regarding, among other things, the maintenance of specified cash flow leverage and fixed charge coverage ratios and the requirement of lender consent for significant transactions such as mergers, acquisitions, dispositions and other financings.

The Company was in compliance with all financial covenants and has an outstanding balance on the term loan of $5,500,000 and no outstanding balance on the line of credit at June 30, 2010.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

7. OPERATING LEASES

The Company leases through Unilens Corp. USA, a combined office and manufacturing facility in Largo, Florida and a sales office in Clearwater, Florida.

During the fourth quarter of fiscal year 2008, the Company negotiated a new Largo lease agreement. Effective July 1, 2008 the five-year lease agreement, calls for approximate monthly rental payments of $16,276, and provides for escalation of rental payments in years four and five. The lease term is through June 30, 2013 with a five-year option. If there is a change of control of the Company after June 30, 2010, the lease can be terminated by the Company with four and one half months written notice, and under certain conditions may be subject to three months liquidating damages.

The Clearwater lease agreement expired on May 31, 2009, and the Company continued the lease on a month-to-month basis until the lease was renegotiated and amended in July 2009. The amended lease term is through July 31, 2012, and calls for approximate monthly rental payments of $2,343, with an escalation of rental payments based on increases in the landlord’s operating expenses, utility costs and real estate taxes.

The Company from time to time also rents certain office equipment under operating leases with lease terms of less than one year.

Rent expense under all operating leases was approximately $229,000, $240,000 and $277,000 for the years ended June 30, 2010, 2009 and 2008, respectively.

Minimum future lease payments under operating leases, which have an initial or remaining non-cancelable lease term in excess of one year, over the next five years and thereafter are approximately as follows:

 

Year ended June 30,		Operating leases
2011		$	225,407
2012			237,697
2013			217,097
2014			—
2015			—
Total		$	680,201

8. CAPITAL STOCK AND SUBSEQUENT EVENTS

On August 9, 2007, the Company issued 2,500, 15,000 and 20,000 common shares on exercise of employee stock options at exercise prices of $2.07, $0.91 ($0.95Cdn.) and $0.60 ($0.62Cdn.) per share raising gross proceeds of $5,175, $13,686 and $11,910, respectively.

On January 1, 2010 the Company issued 7,500 common shares on exercise of employee stock options at an exercise price of $2.07 per share raising gross proceeds of $15,525.

On January 20, 2010, the Company completed a Stock Purchase Agreement, were by 2,188,861 shares of its common stock, representing approximately 48% of it’s outstanding shares were repurchased from it’s largest shareholder Uniinvest Holding AG in Liquidation for an aggregate purchase price of $6,894,912 or $3.15 per share.

The Company funded the transaction primarily through a draw of $6.0 million against the $6.9 million 5-year term loan facility provided to the Company’s wholly owned subsidiary Unilens Corp., USA, by Regions Bank and cash on hand.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

Costs related to the Stock Purchase Agreement were $508,036 and costs related to the term loan facility and new line of credit were, $74,579. The costs related to the Stock Purchase Agreement were charged to stockholders’ equity and costs related to the term loan facility and new line of credit were charged to deferred loan costs and will be amortized over the life of the loan, which is five years.

Common stock

On and effective April 1, 2010 the Company completed the change in domicile and the continuance of its Corporate existence from British Columbia Canada to the State of Delaware, which resulted in authorized capital of 30,000,000 common shares with a par value of $.001 per share and 3,000,000 preferred shares with a par value of $.001 per share. The continuation to Delaware, which was overwhelmingly approved at the Annual General Meeting of Shareholders (“AGM”) held on March 25, 2010 caused a recapitalization that was applied retrospectively with no effect on total equity and, it did not result in any change in the business, assets, liabilities, net worth, or management of the Company.

The common stock of the Company is all of the same class, is voting and entitles the stockholders to receive dividends. In the event of a liquidation, dissolution or winding up, the common stockholders are entitled to receive equal distribution of net assets or any dividends, which may be declared.

On August 1, 2006 the Board of Directors declared the Company’s first special cash dividend of $0.25 per share. The Company also stated its plan to begin paying a regular quarterly dividend. Beginning on November 1, 2006 the Board of Directors declared its initial quarterly cash dividend of $0.075 per share. The table below shows all Company dividends paid per share from inception for each fiscal year.

 

Fiscal Year		Special Dividend				Quarterly Dividend				Total Dividend
2007		$	0.250			$	0.225			$	0.475
2008		$	0.300			$	0.360			$	0.660
2009		$	0.300			$	0.360			$	0.660
2010		$	0.000			$	0.360			$	0.360

On August 2, 2010 the Board of Directors declared the 2011 fiscal year first quarter cash dividend of $0.090 per share payable August 27, 2010 to shareholders of record on August 13, 2010.

The amount of future dividends will depend on earnings, cash flow, and all other aspects of our business as determined and declared by the Board of Directors.

Stock option plan and stock options

The Company has adopted a stock option plan (the “Stock Option Plan”). The purpose of the Stock Option Plan is to advance the interests of the Company by providing directors, officers, employees and consultants with a financial incentive for the continued improvement in the performance of the Company and encouragement for them to remain with the Company. The term of any option granted under the Stock Option Plan may not exceed 10 years. The exercise price of each option must equal or exceed the market price of the Company’s stock as calculated on the date of grant. The maximum number of common shares of the Company reserved for issuance under the Stock Option Plan cannot exceed ten percent of the Company’s issued and outstanding common shares. Options, in general, vest immediately except for options granted to consultants performing investor relations activities, vest at a minimum over a period of 12 months, 25% at the end of each three-month period. No more than 5% of the issued and outstanding capital of the Company may be granted to any one individual in any twelve-month period and no more than 2% of the issued and outstanding capital of the Company may be granted to any one consultant in any twelve-month period.

At the AGM held on March 25, 2010, the shareholders approved the Unilens’ Incentive Stock Option Plan. The initial maximum number of shares available for option grants under the adopted Stock Option Plan is 236,935.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

The following table, presented in US dollars describes the number and the exercise price of options that have been granted, exercised, or cancelled under the Incentive Stock Option Plan-2006 and the current Incentive Stock Option Plan during the years ended June 30, 2010 and 2009:

 

		Number of Options				Weighted Average Exercise Price (1)				Weighted  Average Remaining Contractual Term				Aggregate Intrinsic Value (1)
Outstanding, June 30, 2008			17,500			$	2.07
Exercised			—				—
Granted			—				—
Employees			—				—
Consultants			—				—
Sub-total granted			—				—
Expired/cancelled			—				—
Outstanding, June 30, 2009			17,500			$	2.07				0.52 Years			$	16,275
Exercised			(7,500	)		$	2.07
Granted
Employees			160,000			$	4.83
Consultants			—				—
Sub-total granted			160,000			$	4.83
Expired/cancelled			(10,000	)		$	2.07
Outstanding, June 30, 2010			160,000			$	4.83				9.67 Years			$	0.00
Options exercisable, June 30, 2010			155,000			$	4.83				9.67 Years			$	0.00

 

(1)

The intrinsic value of a stock option is the amount by which the market value (closing price at June 30, 2010 and June 30, 2009 - $4.20 and $3.00) exceeds the exercise price. The aggregate intrinsic value at June 30,2010 is $0.00 since the closing price is less then the exercise price on June 30, 2010.

As of June 30, 2010 the Company has 160,000 options outstanding, which expire March 1, 2020, and an additional 76,935 options available for future grants under the existing Incentive Stock Option Plan.

Cash proceeds, tax benefits and intrinsic value related to options exercised during the three years ended June 30, 2010, 2009 and 2008 are provided in the following table:

 

		2010				2009				2008
Proceeds from stock options exercised		$	15,525			$	0			$	30,771
Tax benefit related to stock options exercised		$	0			$	0			$	0
Intrinsic value of stock options exercised		$	15,675			$	0			$	138,079

The Company uses the Black-Scholes pricing model to estimate the fair value of stock-based awards. The expected volatilities are based on the historical volatility of the Company’s stock price. Historical data is used to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is based on historical exercise patterns of employees and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U S Treasury yield curve in effect at the time of the grant. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at zero percent for the period ended June 30, 2010.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

The weighted average assumptions outlined in the table below were utilized in the calculation of compensation expense from option grants in the year ended June 30, 2010. No options were granted during years 2009 and 2008.

 

Risk free interest rate			.52	%
Expected life			.94 Years
Expected volatility			22	%
Expected dividend yield			9.8	%
Grant date fair value		$	0.25

As of June 30, 2010 the Company had approximately $790 of unrecognized compensation expense related to non-vested share based compensation that is anticipated to be recognized over the next six months.

9. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

 

		2010				2009				2008
Cash provided by (used in):
Accounts and royalties and other receivables		$	115,392			$	(90,506	)		$	(77,708	)
Inventories			170,874				86,457				(145,966	)
Prepaid expenses and other assets			(86,272	)			(29,603	)			8,261
Accounts payable and accrued liabilities			147,504				98,878				138,429
Change in non-cash working capital items		$	347,498			$	65,226			$	(76,984	)

During the years ended June 30, 2010, 2009 and 2008 there were no significant non-cash investing or financing activities.

10. CONCENTRATIONS

Credit risk

Financial instruments, which potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company places its temporary cash investments with a high credit quality financial institution. Concentrations of credit risk with respect to uncollateralized trade receivables are limited due to the Company’s large number of customers and their geographic dispersion. The Company uses an allowance for doubtful accounts on an item-by-item basis to cover any collectibility issues. As a consequence, concentrations of credit risk, which could subject the Company to a loss are limited and are consistent with management’s expectations as reflected in the consolidated financial statements.

A significant portion of the Company’s net income is derived from the Company’s exclusive license of one of its patented multifocal designs to Bausch & Lomb. The Company collects royalties based on Bausch & Lomb’s worldwide net sales of products utilizing the Company’s technology. There can be no assurances that Bausch & Lomb will continue to sell products in the future utilizing the Company’s technology.

Volume of business risk

The Company has a supply agreement with one supplier for the manufacture of its molded C-Vue multifocal lens, which accounts for approximately 59% and 57% of the Company’s annual sales during years 2010 and 2009, respectively. The agreement is renewable from year to year and is terminable pursuant to customary termination clauses. The Company has concentrations in the volume of purchases it conducts with this supplier. For the year ended June 30, 2010, purchases from this supplier accounted for approximately 20% of the total cost of goods sold by the Company (2009-25%, 2008-24%). At June 30, 2010, the Company owed this supplier approximately $110,000 (2009- $119,000). There is no assurance that an alternate supplier can successfully manufacture these lenses to the Company’s specifications, on acceptable terms, or within the constraints of the exclusive license agreement with Bausch & Lomb.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

11. REVENUE INFORMATION

Substantially all of the Company’s assets are located in the United States. The Company currently conducts substantially all of its operations in the United States in one business segment. Revenue consists of the following lens categories for the years ended June 30:

 

		2010				2009				2008
Disposable lenses		$	3,927,782			$	3,978,360			$	3,617,697
Custom soft lenses			1,093,648				1,195,998				1,143,548
Gas permeable lenses			462,750				498,031				500,367
Replacement and other lenses			733,065				1,051,792				1,403,954
Total sales		$	6,217,245			$	6,724,181			$	6,665,566

12. INCOME TAXES

A reconciliation of income taxes at the Federal statutory rate to the Company’s effective rate for the years ended June 30, 2010, 2009 and 2008 is as follows:

 

		2010				2009				2008
Statutory expense at the federal rate of 34%		$	865,532			$	1,020,401			$	896,461
State tax expense, net of federal effect			87,398				108,943				95,710
Non-deductible (deductible) expenses			12,570				1,708				(44,042	)
Increase (decrease) in deferred income tax valuation allowance			—				—				57,931
		$	965,500			$	1,131,052			$	1,006,060

Income tax expense for the years ended June 30, 2010, 2009 and 2008 consists of the following:

 

		2010				2009				2008
Current income taxes		$	543,700			$	50,752			$	54,750
Change in net deferred income taxes			421,800				1,080,300				951,310
		$	965,500			$	1,131,052			$	1,006,060

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

The components giving rise to the deferred tax assets for the years ended June 30, 2010 and 2009 is as follows:

 

		2010				2009
Deferred tax assets
Inventory allowance		$	9,100			$	15,500
Allowance for bad debt, returns, and allowances			82,000				104,600
Tax depreciation of property, plant & equipment			40,500				35,600
Tax depreciation of intangibles			125,200				146,300
Tax credits			—				104,400
Deferred revenue			135,200				93,600
Other timing differences			172,700				134,200
Loss carry forward – United States			—				352,300
Loss carry forward - Canada			—				240,900
			564,700				1,227,400
Valuation allowance			—				(240,900	)
Net deferred tax asset			564,700				986,500
Less current portion			(361,400	)			(664,800	)
Long-term portion		$	203,300			$	321,700

As of June 30, 2009, a portion of the deferred tax asset was the result of net operating loss carryforwards which were available in future years to offset taxable income. During the second quarter of the year ending June 30, 2010 utilization of operating loss carry-forwards were exhausted, and income taxes payable have been recorded since then.

During the year ended June 30, 2010, the Company moved out of Canada. Accordingly, the deferred tax asset from the Canadian loss carryforwards and its corresponding valuation allowance have been removed.

13. RETIREMENT PLANS

The Company maintains a 401(k) profit-sharing plan that covers substantially all of its employees. Contributions are made at the Company’s discretion. For the years ended June 30, 2010, 2009 and 2008, the Company contributed to the plan $87,291, $80,739, and $60,601 respectively. The Company does not have any liabilities for the plan as of June 30, 2010.

14. CONTINGENCY

The Company has employment agreements with two members of senior management. These agreements contain terms for which certain benefits are payable upon termination or a change-of-control.

15. LEGAL PROCEEDINGS

On January 29, 2010, the Company and Unilens Corp. USA were served with a summons and complaint in an action brought by Ocular Insight, Inc. ("Ocular") in the Palm Beach County Florida Circuit Court against the Company, Unilens Corp., USA, each of our current directors and Elizabeth Harrison, formerly a director. Among other things, the complaint alleged that, in connection with the Company's purchase of its common shares owned by Uniinvest Holding AG, In Liquidation, then our largest shareholder, the Company, Unilens Corp., USA and the other defendants allegedly breached obligations under a non-disclosure agreement between Ocular and the Company and thereby caused Ocular damages in an unspecified amount. We believed that Ocular’s claims were totally without merit and vigorously opposed them. Pursuant to motions to dismiss, Ocular’s claims against all of the individual defendants were dismissed in May 2010. During the summer, we engaged in settlement discussions with Ocular. On September 22, 2010, Ocular voluntarily dismissed this litigation without prejudice.

 

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UNILENS VISION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in U.S. Dollars)

JUNE 30, 2010

 

 

16. SUBSEQUENT EVENTS

On August 6, 2010, the Company entered into an interest rate swap agreement facilitated by Regions Bank to manage its cash flow exposure to interest rate changes with a notional amount of $5,300,000 which is scheduled to mature in January 2015. The Company does not enter into this type of financial instrument for trading or speculative purposes. The swap effectively will convert the Company’s variable rate debt under the term loan of LIBOR plus 3.75% to a fixed rate of 5.16%, without exchanging the notional principal amount. This agreement was designed as a cash flow hedge and will be reflected at fair value in the Company’s consolidated balance sheet as a component of total liabilities, and the related gains or losses will be deferred in stockholders’ equity as a component of accumulated other comprehensive income.

 

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Unilens Vision Inc.

Schedule I

Valuation and Qualifying Accounts

Years Ended June 30, 2010 and 2009

 

						Additions
		Balance Beginning of Year				Charged to Cost and Expense				Charged to Other Accounts				Deductions				Balance End of Year
June 30, 2010
Allowance for doubtful accounts		$	193,844			$	16,195							$	(42,660	)(1)		$	167,379
Allowance for returns			84,186							$	689,149	(2)			(722,894	)			50,441
Total allowance for doubtful accounts and returns			278,030				16,195				689,149				(765,554	)			217,820
Allowance for inventory			41,211												(17,071	)(3)			24,140
Total		$	319,241			$	16,195			$	689,149			$	(782,625	)		$	241,960
June 30, 2009
Allowance for doubtful accounts		$	209,495			$	19,306							$	(34,957	)(1)		$	193,844
Allowance for returns			100,660							$	967,198	(2)			(983,672	)			84,186
Total allowance for doubtful accounts and returns			310,155				19,306				967,198				(1,018,629	)			278,030
Allowance for inventory			415,728												(374,517	)(3)			41,211
Total		$	725,883			$	19,306			$	967,198			$	(1,393,146	)		$	319,241

 

(1)	Uncollected receivables written-off, net of recoveries.

(2)	Returned product, offset to sales.

(3)	Obsolete inventory written-off.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				UNILENS VISION INC. A Delaware Corporation
Date: January 12, 2011				By:		/s/    MICHAEL J. PECORA
						Michael J. Pecora President and Chief Executive Officer (principal executive officer)

Pursuant to the requirements of the Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Position		Date
/s/    MICHAEL J. PECORA         Michael J. Pecora		President and Chief Executive Officer, Director (principal executive officer)		January 12, 2011
/s/    LEONARD F. BARKER         Leonard F. Barker		Vice President, Chief Financial Officer and Secretary (principal financial officer and principal accounting officer)		January 12, 2011
/s/    ALFRED W. VITALE         Alfred W. Vitale		Director and Chairman of the Board		January 12, 2011
/s/    NICHOLAS BENNETT         Nicholas Bennett		Director		January 12, 2011
/s/    ADRIAN LUPIEN         Adrian Lupien		Director		January 12, 2011