<PAGE>
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 March 31, 1996
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
STERLING VISION, INC.
--------------------------------------------------
(Exact name of Registrant as specified in charter)
New York 11-3096941
- - - ------------------------ -------------------
(State of Incorporation) (IRS Employer
Identification No.)
1500 Hempstead Turnpike
East Meadow, NY 11554
------------------------------------------------------------
(Address of Principal Executive Offices, including Zip Code)
(516) 390-2100
----------------------------------------------------
(Registrant's telephone number, including area code)
10 Peninsula Boulevard, Lynbrook, New York 11563
- - - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 /_/
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes /_/ No /_/
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 12,307,495 shares outstanding of the Registrant's Common Stock,
par value $.01 per share, as of May 8, 1996.
<PAGE>
Item 1. Financial Statements
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31,
1996 December 31,
ASSETS (Unaudited) 1995
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,294 $ 15,493
Accounts receivable, net of allowance for
doubtful accounts 4,321 3,370
Franchise and other notes receivable -
current, net 3,651 3,326
Inventories 4,011 4,102
Indebtedness of related parties - current 176 176
Prepaid expenses and other current assets 432 405
-------- --------
Total Current Assets 25,885 26,872
-------- --------
Property and equipment - net of accumulated
depreciation 8,031 7,815
Franchise and other notes receivable - net 9,374 9,294
Indebtedness of related parties 283 295
Other assets 2,430 2,179
-------- --------
Total Assets $ 46,003 $ 46,455
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,500 $ 2,511
Accounts payable and accrued liabilities 5,836 6,824
Franchise related obligations - current 842 824
Deferred income taxes payable - current 401 401
-------- --------
Total Current Liabilities 9,579 10,560
-------- --------
Long-term debt 11,066 11,389
Deferred income taxes payable 1,750 1,681
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $.01 par value per share;
authorized 5,000,000 shares
Common stock, $.01 par value per share;
authorized 28,000,000 shares; issued
12,307,495 in 1996 and 12,207,495 in 1995 123 122
Additional paid-in capital 24,386 23,762
Retained earnings (901) (1,059)
-------- --------
Total Shareholders' Equity 23,608 22,825
-------- --------
Total Liabilities and Shareholders' Equity $ 46,003 $ 46,455
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
<PAGE>
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Systemwide sales $30,885 $28,361
======= =======
Revenues:
Net sales - Company stores $ 7,273 $ 6,688
Franchise royalties 1,830 1,720
Net gains and fees from the conveyance of
Company-owned assets to franchisees - unrelated parties 534 86
Other income 390 385
------- -------
10,027 8,879
------- -------
Costs and expenses:
Cost of sales 1,891 1,905
Selling expenses 4,817 3,964
General and administrative expenses 2,736 1,901
Interest expense 320 179
------- -------
9,764 7,949
------- -------
Net income before provisions for income taxes 263 930
Provision for income taxes 105 63
------- -------
Net income $ 158 $ 867
======= =======
Weighted average number of common shares outstanding 12,277 9,963
======= =======
Earnings per common share .01 .09
======= =======
Pro forma income statement data (see Note 5):
Net income before provision for income taxes $ 263 $ 930
Provision for income taxes 105 372
------- -------
Net income $ 158 $ 558
======= =======
Weighted average number of common shares outstanding 12,277 12,277
======= =======
Earnings per common share .01 .05
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
4
<PAGE>
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Net cash (used in) provided by operating activities $ (2,055) $ 211
-------- -------
Cash flows from investing activities:
Franchise notes receivable issued (955) (112)
Repayment of franchise notes receivable 450 447
Purchase of property and equipment (594) (823)
Conveyance of property and equipment 664 400
-------- -------
Net cash used in investing activities (435) (88)
-------- -------
Cash flows from financing activities:
Sale of common stock and other
capital contributions 625 --
Borrowing on revolving credit note 225
Payments on other debt (559) (897)
Borrowing of other debt -- 800
Distributions to shareholders -- (1,800)
-------- -------
Net cash provided by (used in)
financing activities 291 (1,897)
-------- -------
Net decrease in cash and
cash equivalents (2,199) (1,774)
Cash and cash equivalents -
beginning of year 15,493 3,495
-------- -------
Cash and cash equivalents -
end of period $ 13,294 $ 1,721
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 314 $ 181
======== =======
Taxes $ 38 $ 12
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
5
<PAGE>
STERLING VISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The accompanying consolidated condensed financial statements have been prepared
in accordance with generally accepted accounting principals for interim
financial information and 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 generally accepted accounting principles 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 financial statements and notes thereto included in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
There have been no changes in significant accounting policies since December 31,
1995. In addition, certain amounts applicable to prior periods have been
reclassified to conform to classifications followed in 1996.
NOTE 2
Income tax provisions are based on estimated annual effective tax rates. The
effective income tax rate used for the three months ended March 31, 1996 was
approximately 40%.
A reconciliation between the statutory Federal income tax rate and the effective
income tax rate based on continuing operations is as follows:
1996 1995
---- ----
Statutory Federal income tax rate 34% 34%
State and local income taxes, net of
Federal tax benefit 6 6
Reduction in tax liability due to status
as Subchapter S Corporation for
Federal and certain state taxes - (33)
-- ---
Effective income tax rate 40% 7%
== ===
NOTE 3
In December, 1995, the Company issued 2,200,000 shares of its Common Stock at
$7.50 per share in an initial public offering (the "Offering").
As part of the Offering, the Company granted the Underwriters a 30-day option to
purchase up to an aggregate of 330,000 additional shares of Common Stock, on the
terms and conditions set forth in the Prospectus, to cover over-allotments, if
any. In January, 1996, the Company issued to the Underwriters an additional
100,000 shares of its Common Stock at $7.50 per share pursuant to such
over-allotment option. Proceeds, net of commissions and expenses totaling
approximately $125,000, were approximately $625,000.
NOTE 4
The pro forma income tax provision for the three months ended March 31, 1996 and
1995 have been prepared assuming an effective, combined Federal and state income
tax rate of 40%.
6
<PAGE>
NOTE 5
Proforma income statement data reflects adjustments to the income statement data
assuming the Company had not elected S Corporation status for income tax
purposes. The provision for income taxes assumes an effective tax rate of 40%
for the three months ended March 31, 1996 and March 31, 1995, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All statements contained herein that are not historical facts including, but not
limited to, statements regarding the Company's future development plans, the
Company's ability to generate cash from its operations, and the operations of
Insight and any losses related thereto, are based upon current expectations.
These statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: competition
in the retail optical industry; the ability of the Company to acquire, at
favorable prices, retail optical chains; the uncertainty of the acceptance of
PRK; the availability of new and better ophthalmic laser technologies or other
technologies that serve the same purpose as PRK; the inability of the Company to
finalize favorable agreements with ophthalmologists to render services at its
Insight Laser Centers; competition; cost over-runs; lack of experience in
developing or managing PRK centers and ophthalmological practices; the inability
of the Company to enter into amendments to the Credit Agreement (as hereinafter
defined) and the default related therefrom; and general business and economic
conditions.
Results of Operations
For the Three Months Ended March 31, 1996 Compared to March 31, 1995
Systemwide sales represent combined retail sales generated by Company-owned and
franchised stores, as well as revenues generated by VisionCare of California, a
wholly owned subsidiary of the Company licensed by the California Department of
Corporations as a specialized health maintenance organization ("VCC"). There
were 231 and 180 Sterling Stores in operation as of March 31, 1996 and March 31,
1995, respectively, of which 160 and 140 were franchised. Such stores operate
under various tradenames including Sterling Optical, Site for Sore Eyes, IPCO
Optical, Benson Optical, Superior Optical and Southern Optical. Systemwide sales
increased by $2,524,000, or 8.9%, to $30,885,000 for the first three months of
1996, as compared to $28,361,000 for the same period in 1995. On a same store
basis (for stores that operated as either a Company-owned or franchised store
during the entirety of both of the three month periods ended March 31, 1996 and
1995), systemwide sales increased by $169,000, or .7%, to $25,980,000 for the
first three months of 1996 as compared to $25,811,000 for the same period in
1995. There were 183 stores that operated as either a Company-owned or
franchised store during the entirety of both of the three month periods ended
March 31, 1996 and 1995. Despite such sales increase, the Company believes that
systemwide sales were negatively impacted by the degree of inclement weather
that occurred during the first three months of 1996 in certain of its key
markets, such as the Northeast and the Midwest sections of the United States,
where a substantial number of Sterling Stores operate.
Aggregate sales generated by Company-owned stores increased by $585,000, or
8.7%, to $7,273,000 during the first three months of 1996, as compared to
$6,688,000 for the same period in 1995. Such increase was primarily due to the
acquisition in the fourth quarter of 1995, (the "Benson Transaction") of 32
Company-owned stores from Benson Optical Co. Inc., OCA Acquisition Inc. and
Superior Optical Company Inc., debtors-in-possession under Chapter 11 of the
U.S. Bankruptcy Code (collectively, the "Debtors"), which was partially offset
by the conveyance of the assets of Company-owned stores to franchisees. On a
same store basis, aggregate sales generated by Company-owned stores in operation
during the entirety of both of the three month periods ended March 31, 1996 and
1995, decreased by $144,000, or 2.7%, to $5,243,000 for the three months ended
March 31, 1996, as compared to $5,387,000 for the same period in 1995. This
decrease resulted primarily the Company's change in its employment arrangements
with certain of its optometrists from that of a salaried employee to an
independent optometrist subleasing the professional office located within the
Sterling Store in question. This change resulted in the loss of eye examination
fee income for the Company, since such doctors now collect such fees as part of
their income, although this contributed to the reduction in selling expenses
described below.
Aggregate sales generated by franchised stores increased by $1,939,000, or 8.9%,
to $23,612,000 for the first three months of 1996, as compared to $21,673,000
for the same period in 1995, due to an increase in the number of franchised
stores, as well as higher sales volume per store. On a same store basis,
aggregate sales generated by franchised stores in operation during the entirety
of both three months periods ended March 31, 1996 and 1995, increased by
$313,000, or 1.5%, to $20,737,000 for the first three months of 1996, as
compared to $20,424,000 for the same period in 1995.
7
<PAGE>
Aggregate ongoing franchise royalties increased by $110,000, or 6.4%, to
$1,830,000 for the first three months of 1996, as compared to $1,720,000 for the
same period in 1995, due to an increase in the number of franchised stores, as
well as an increase in the sales volume per franchised store.
Net gains on the conveyance of the assets of Company-owned stores to franchisees
increased by $448,000, or 520.9%, to $534,000 for the three months ended March
31, 1996, due to the conveyance of the assets of two Company-owned stores to
franchisees and a purchase price adjustment related to a Company-owned store
previously conveyed during 1995, as compared to net gains on the conveyance of
the assets of one Company-owned store to a franchisee, in the aggregate amount
of $86,000, for the same period in 1995.
The Company's gross profit margin increased by 2.5 percentage points, to 74.0%,
for the three months ended March 31, 1996, as compared to 71.5% for the same
period in 1995. This increase resulted primarily from the Company having
discontinued, in the Fall of 1995, two marketing programs: (i) a test program
which changed the product mix in Company-owned stores by increasing the
quantities of higher priced/lower margin designer frames and specialty
ophthalmic lenses; and (ii) a promotional program in response to certain
promotional incentives offered by certain major competitors of the Company. To
match such incentives, the Company offered similar types of promotional programs
to its customers, which resulted previously in lower gross profit margins. In
the future, the Company's gross profit margin may fluctuate depending upon the
extent and timing of changes in the product mix in Company-owned stores,
competition and promotional incentives. In addition, the Company experienced a
reduction in its ophthalmic lens surfacing costs as a result of the operation of
its ophthalmic lens manufacturing facility, which commenced operations in the
second quarter of 1995.
Selling expenses increased by $853,000, or 21.5%, to $4,817,000 for the three
months ended March 31, 1996, as compared to $3,964,000 for the same period in
1995, due to the inclusion of the selling expenses incurred by the stores
acquired in connection with the Benson Transaction (which occurred during the
fourth quarter of 1995), which was partially offset by a decrease in selling
expenses of approximately $346,000, due to the change in the Company's
employment arrangements (as described above) with certain of its optometrists,
and the conveyance of the assets of Company-owned stores to franchisees.
General and administrative expenses (including interest expense, depreciation
and bad debt expense) increased by $976,000, or 46.9%, to $3,056,000 for the
three months ended March 31, 1996, as compared to $2,080,000 for the same period
in 1995. This increase was due primarily to an increase in administrative costs
of approximately $325,000 related to the business of its wholly-owned
subsidiary, Insight Laser Centers, Inc. ("Insight"), approximately $226,000
related to the Company's operation of an ophthalmic lens manufacturing facility,
each of which operations had not incurred expenses until the second quarter of
1995, and approximately $224,000 in administrative costs related to the Benson
Transaction. Interest expense, which is included in general and administrative
expenses, increased by $141,000, or 78.8%, to $320,000 for the three months
ended March 31, 1996, as compared to $179,000 for the same period in 1995. This
increase was due to increased indebtedness incurred by the Company in connection
with the leasing, in 1995, of five excimer lasers (which are capital leases and,
accordingly, such payments include interest expense), and an additional loan of
$1,670,000 to fund the Benson Transaction at the end of the fourth quarter of
1995. The Company's provision for doubtful accounts, which is included in
general and administrative expenses, decreased by $12,800, or 38.6%, to $20,400
for the three months ended March 31, 1996, as compared to $33,200 for the same
period in 1995.
The Company's net income before income taxes decreased by $667,000, or 71.7%, to
$263,000 for the three months ended March 31, 1996, as compared to $930,000 for
the same period in 1995. During the fourth quarter of 1995, the Company
consummated the Benson Transaction and thereby acquired substantially all of the
assets and certain continuing expenses of the Debtors. In addition, the Company
incurred costs in anticipation of establishing Insight. As a result, certain
aspects of the Company's operations during the three months ended March 31, 1996
were not comparable to its operations for the same period in 1995. Net profit
from the Company's operations, excluding the losses applicable to the operation
of the stores acquired in the Benson Transaction and the start up costs of
Insight, increased by $77,000, or 8.3%, to $1,007,000 for the three month period
ended March 31, 1996, as compared to $930,000 for the same period in 1995. This
increase was offset primarily by the following two factors: (i) the Company
incurred a $420,000 loss from the operation of the stores acquired in the Benson
Transaction during the three month period ended March 31, 1996, due, in part, to
losses incurred in maintaining Benson's administrative office and warehouse
facilities, which were eventually closed in the first quarter of 1996; and (ii)
the Company incurred a $325,000 loss in establishing the operations of Insight,
which has yet to generate revenues, although it incurred payroll costs and
interest expense with respect to its leasing of five excimer lasers. For the
second quarter of 1996, the Company anticipates a reduction in the loss
attributable to the operation of the stores acquired in the Benson Transaction.
In addition, through at least the end of the second quarter of 1996, the Company
believes that it will continue to incur losses from the operation of Insight.
8
<PAGE>
Liquidity and Capital Resources
In the second quarter of 1994, the Company entered into a Term Loan and
Revolving Credit Agreement (the "Credit Agreement") with Chemical Bank (the
"Bank") which, as of March 31, 1996, provided for term loans totaling $6,297,782
and a $2,500,000 revolving line of credit.
The term loans are divided into two separate classes or tranches (collectively,
the "Tranches"). Tranche A was in the original principal amount of $5,000,000
and is being amortized over five years with equal monthly payments of principal.
Interest is fixed at 8.07% per annum on the outstanding balance and is payable
monthly. Tranche B was in the original principal amount of $2,500,000 and is
being amortized over five years with equal monthly payments of principal.
Interest is calculated on the outstanding balance at 3/4% over the prime rate in
effect from time to time and is payable monthly. As of March 31, 1996, the
outstanding principal balance of Tranche A was $3,166,652, and the outstanding
principal balance of Tranche B was $1,583,326. In addition, on November 30,
1995, the Bank converted an existing demand loan into a term loan to be repaid
over the remaining term of the Tranches, with interest payable monthly at a
fixed rate of 7.9% per annum. Such loan, in the original amount of $1,670,000,
was incurred by the Company to fund the Benson Transaction. As of March 31,
1996, the outstanding principal balance of such loan was $1,547,804.
In addition to the term loans mentioned above, the Bank also initially provided
a $1,000,000 revolving line of credit. The Company is required to pay 1/4% per
annum on the unused portion of this line of credit, regardless of whether any
actual borrowing occurs. On November 30, 1995, the Bank: (i) converted an
existing bridge loan, in the principal amount $1,670,000, into the term loan
mentioned above, which will be amortized over the remaining term of the
Tranches; (ii) increased the Company's line of credit by an additional
$1,500,000, of which $2,500,000 was outstanding as of March 31, 1996; and (iii)
extended the maturity date of the line of credit to April 5, 1997. Loans
outstanding under the line of credit bear interest at the prime rate in effect
from time to time.
In addition, the Company must comply with certain financial covenants relating
to: (i) the ratio of total assets to total revenues; (ii) minimum net worth plus
subordinated indebtedness; (iii) the ratio of total unsubordinated liabilities
to net worth; (iv) its current ratio; (v) its debt service coverage ratio; (vi)
maximum net loss; and (vii) the ratio of funded debt to net operating cash flow,
all as such terms are defined in the Credit Agreement. For the three months
ended March 31, 1996, the Company was in compliance with all of the terms and
conditions of the Credit Agreement.
In connection with the Company's acquisition, in July 1992, of substantially all
of the assets of Sterling Optical Corp. (f/k/a IPCO Corporation), a
debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code ("IPCO"), the
Company acquired IPCO's right to cash collateral and certain franchise
promissory notes pledged to, and securing loans made to, IPCO by Sanwa Business
Credit Corporation ("Sanwa") and The CIT Group/Equipment Finance, Inc. ("CIT").
The residual value of such franchise notes receivable (i.e., the sums remaining
payable on such franchise notes after payment in full of the indebtedness owed
to CIT and Sanwa, which obligations were not assumed by the Company) represent
notes acquired from IPCO and are currently being held by Sanwa and CIT as
collateral against obligations incurred by IPCO. The indebtedness payable to CIT
is scheduled to be repaid in or about July, 2000, at which time it is
anticipated that the notes pledged to CIT will be returned to the Company. The
Company's right to the return of the notes pledged to Sanwa (after payment of
the indebtedness incurred by IPCO and subject to which the Company acquired such
notes) is the subject of litigation between Sanwa and the Company. The Company
maintains that it is entitled to a return of the franchise notes held by Sanwa
upon the repayment of the indebtedness owed to Sanwa, based upon the advice
given to it by its outside counsel. The residual value of the franchise notes
held by Sanwa and CIT as of March 31, 1996 was $1,325,000 and $679,000,
respectively.
Franchise accounts receivable increased by $951,000, or 28.2%, to $4,321,000 as
of March 31, 1996, as compared to $3,370,000 as of December 31, 1995, due
primarily to slower collections of certain amounts owed to the Company by a
number of its franchisees, as well as an increase in royalties generated by
higher sales volume at franchised stores. The Company is working with these
franchisees in an attempt to remedy the problem relating to the outstanding
receivables through the following means: (i) the possible restructuring of the
repayment of such obligations; or (ii) if necessary, exercising its rights under
the various documents pursuant to which each such franchisee occupies its
Sterling Store, including the possible termination of the applicable Franchise
Agreement.
Franchise and other notes receivable as of March 31, 1996 were $13,025,000. The
Company believes that the underlying value of the collateral securing its
franchise accounts and notes receivable together, in most cases, with the
personal guarantees of the principal owners of each of the Company's franchised
stores, will be sufficient to support the collectibility of these receivables.
9
<PAGE>
Inventories at Company-owned stores decreased by $91,000, or 2.2%, to $4,011,000
as of March 31, 1996, as compared to $4,102,000 as of December 31, 1995. This
decrease was due to the conveyance of the assets of two Company-owned stores to
franchisees.
As of March 31, 1996, Insight had leased, with $1.00 purchase options, five
excimer lasers. Aggregate lease payments pursuant to such leases will
approximate $613,000, $685,000, $685,000, $685,000 and $291,000 for the periods
ended March 31, 1997, 1998, 1999, 2000 and 2001, respectively. In addition, in
January, 1996, the Company entered into a purchase order to acquire an
additional two excimer lasers.
In December, 1995, the Company completed the Offering and raised approximately
$14,791,000, net of commissions and expenses, based upon the sale of 2,200,000
shares of Common Stock at a price of $7.50 per share. In January, 1996, the
Company raised an additional approximately $625,000, net of commissions and
expenses, based upon the sale of an additional 100,000 shares of its Common
Stock at $7.50 per share pursuant to an over-allotment option entered into
between the Underwriters and the Company in connection with the Offering. As of
March 31, 1996 and December 31, 1995, the Company had $16,306,000 and
$16,312,000, respectively, in working capital. Although the Company anticipates
that its operations during the calendar year ending December 31, 1996 will
produce, in the aggregate, positive cash flow, there can be no assurance with
respect thereto. During such 12-month period, the Company anticipates having the
following capital requirements: constructing, equipping and opening
approximately seven Insight Laser Centers, at a cost of approximately
$5,000,000; upgrading the Company's Management Information System in conjunction
with the acquisition of a point of sale computer system being installed in its
Company-owned stores, in the aggregate, approximate amount of $750,000;
acquiring retail optical stores in furtherance of the Company's business
strategy, in amounts that cannot be currently projected by the Company at this
time; and opening new retail optical stores in furtherance of the Company's
business strategy, also in amounts that cannot be currently projected by the
Company at this time. Based upon the forgoing, while there can be no assurance
as to the foregoing, the Company believes that it will have sufficient liquidity
to meet its capital needs during 1996. If the Company's capital needs exceed its
cash, cash equivalents and availability under its revolving line of credit, the
Company believes it could meet such needs through additional borrowings, sale of
notes receivable or additional sales of equity, although there can be no
assurance that the Company would be successful in obtaining any such additional
borrowings, selling any of its notes receivable and/or selling additional
equity, or on what terms such transactions could be effected. Further, the
Credit Agreement currently restricts the Company's ability to obtain additional
financing except in certain events.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matter to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- - - -------
<S> <C>
10.56 Employment Agreement, dated March 8, 1996, between Sterling Vision, Inc.
and Mr. Ali Akbar.
10.57 Employment Agreement, dated March 29, 1996, between Sterling Vision,
Inc., Insight Laser Centers, Inc. and Dr. Francis A. L'Esperance, Jr.,
M.D.
10.58 Laser Access Agreement, dated March 28, 1996, between Insight Laser
Centers, Inc. and Nassau Ophthalmic Services, P.C.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
b.) Reports on Form 8-K
</TABLE>
On March 7, 1996, the Company filed a Report on Form 8-K with respect to
a change in its Certifying Accountants.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING VISION, INC.
(Registrant)
By:/s/Sebastian Giordano
--------------------------------
Sebastian Giordano
Chief Financial Officer,
Executive Vice President-Finance
and Treasurer
Signing on behalf of the Registrant and
as Principal Financial Officer.
Date: May 14, 1996
12
<PAGE>
EXHIBIT 10.56
March 8, 1996
Mr. Ali Akbar
6408 Barfield Drive
Dallas, Texas 75252
Dear Al:
I am pleased that we are able to work out an agreement, pursuant to which you
will become the Vice President - Managed Care of Sterling Vision, Inc. As
previously discussed, our Company is committed to expanding this segment of our
business and we believe that your background and experience will help accelerate
our results.
To sum up the terms of our understanding, we have agreed to enter into a more
formal Employment Agreement, which will provide for the following:
1. A base salary of $100,000.00 per year;
2. An initial term of eighteen (18) months, subject to the right of
cancellation by either party, during the month of January 1997. If the
Company decides to cancel the Agreement, it will provide 90 day notice,
during which time you will agree to report to work and perform your duties,
in accordance with the initial Agreement. The compensation shall remain the
same during the notice period, as the initial period, including all
expenses and benefits;
3. During the initial nine (9) month period, all expenses relating to your
required commuting to our office in New York, including transportation,
lodging and living expenses, consistent with our standard program for
travel, shall be born by our Company;
4. As of February 1, 1997, unless the Agreement is cancelled by either party
during January 1997, the parties will enter into an extend Employment
Agreement. In that Agreement, the Company will increase the base salary by
20% and provide a reasonable relocation package, with actual relocation
taking place at the request of the Company, during June or July 1997.
Should the Company decide not to relocate you to the Long Island area, you
will be provided with your expenses as outlined in item #3 of the
Agreement;
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March 8, 1996
PAGE TWO
Upon execution of the Employment Agreement, the Company will provide you
with a stock option program that would vest 8,333 options, at the market
price, at the end of each twelve (12) month period, over three (3) years,
with such options totalling 25,000 in the aggregate. The foregoing stock
option and compensation package is subject to the approval of Sterling
Vision, Inc.'s, Compensation Committee and I will present the total program
to the members of the Committee next week. A formal and detailed options
understanding will be provided in conjunction with the Employment
Agreement;
5. Any incentives or performance bonuses shall be determined by the
Compensation Committee.
I believe that your experience with Sterling Vision will be special because of
the pace in which we operate and make decisions. We do anticipate expanding the
Company's Managed Care Program, under your direction, as soon as possible and,
as we both agree, the ability to offer total eye care shall present excellent
opportunities for generating future revenues.
If the above is consistent with your understanding, please sign below,
representing your acceptance of the terms, and fax a copy of this letter back to
my attention.
I would like to set up a time for you to visit us, as our new Vice President,
and we plan to have a training program, for all executives, which I would like
you to attend. Lastly, I anticipate making an announcement of your employment to
the industry, that will let people know of our mutual decision to work together.
I look forward to working with you closely.
Very truly yours,
Robert B. Greenberg
President
RBG/td AGREED TO AND ACCEPTED BY:
-----------------------------------------
Ali Akbar Date
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EXHIBIT 10.57
Sterling Vision, Inc.
10 Peninsula Boulevard
Lynbrook, New York 11563
March 29, 1996
Francis A. L'Esperance Jr., M.D.
1 East 71st Street
New York, New York 10021
Dear Dr. L'Esperance:
The following will constitute a letter agreement between Insight Laser
Centres, Inc., its parent Sterling Vision, Inc. and you:
1. you will serve a Chairman of the Board of Directors of Insight and, in
that role, will be a senior adviser to the company, but without any
day-to-day operating responsibilities;
2. your salary will be $75,000 for the first year, payable in three equal
installments: $25,000 immediately on the signing of this letter
agreement, $25,000 six months from that and $25,000 twelve months from
that date --- your salary will be revised upward in subsequent years,
and may also be revised upward in the first year if you spend more
time than is presently anticipated on the affairs of Insight;
3. 300,000 options in Sterling Vision, Inc. will be granted to you at $6
per share: 100,000 to vest immediately on the signing of this letter
agreement, the balance to vest in 50,000 share increments on the
first, second, third and fourth anniversaries of this letter
agreement;
4. you will be expected to spend several hours per week, but not more
than the equivalent of one day per week, on the affairs of Insight;
5. you will have an office and secretarial help as needed at the company
offices in Trump Plaza;
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Francis A. L'Esperance Jr., M.D.
March 29, 1996
Page 2
6. you will be indemnified for any and all claims, liabilities,
judgments etc., to the fullest extent permitted by law, by the parent
corporation, Sterling Vision, Inc.;
7. all entitlements under this letter agreement are guaranteed by the
parent corporation, Sterling Vision, Inc.;
8. you and we will have the option to terminate this letter agreement on
written notice at any time, but the indemnification provision shall
survive the termination.
If the foregoing is acceptable to you, please so indicate by signing below.
Sincerely yours,
/s/Robert Greenberg
Robert Greenberg
President, Insight Laser Centres, Inc.
President, Sterling Vision, Inc.
Satisfactory and Agreed:
/s/Francis A. L'Esperance Jr., M.D.
- - - -----------------------------------
Francis A. L'Esperance Jr., M.D.
15
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EXHIBIT 10.58
LASER ACCESS AGREEMENT
This Laser Access Agreement ("Agreement") is made and entered into as of
the 28th day of March, 1996, by and between Insight Laser Centers, Inc., a
Delaware corporation ("Insight"), and Nassau Ophthalmic Services, P.C., a New
York professional corporation ("PC").
RECITALS
WHEREAS, PC provides refractive laser surgery through its duly licensed
physicians (each individually referred to as a "Physician" and, collectively, as
the "Physicians"); and
WHEREAS, Insight has installed a Summit Excimer Laser Workstation (each
hereinafter referred to as a "Laser") in each of the PC's offices located at 450
Endo Boulevard, Garden City, New York and 140 Adams Avenue, Hauppauge, New York
(each individually referred to as a "Practice Site" and, collectively, as the
"Practice Sites"); and
WHEREAS, PC, through one or more of its Physicians, desires to provide
refractive laser surgery services ("Laser Surgery") to the P.C.'s patients
(collectively, the "Patients") at each of the Practice Sites; and
WHEREAS, Insight desires to permit the PC's Physicians to use the Laser to
perform Laser Surgery on the PC's Patients.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants and conditions contained herein, the parties hereto do hereby agree as
follows:
1. COVENANTS OF PHYSICIAN
1.1 Professional Licensure.
(a) PC represents and warrants that all Physicians using the Laser
shall be ophthalmologists duly licensed by the State of New York and that each
such Physician shall maintain such license, in good standing, throughout the
term of this Agreement. PC further represents and warrants that each other
health care professional and other person retained by PC to assist in the
provision of Laser Surgery and related services to Patients ("Physician
Personnel") shall be duly licensed or certified, as required by law, and shall
maintain such license or certification, in good standing, throughout the term of
this Agreement. Upon request, PC promptly shall furnish Insight with copies of
each Physician's professional license and the license or certification of each
Physician Personnel.
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(b) PC represents and warrants that it shall cause each Physician and
all Physician Personnel to perform Laser Surgery and related services solely in
a manner consistent with all 15 applicable medical and ethical practice
standards, and with the protocols adopted by PC, from time to time.
1.2 Credentials and Training.
(a) Prior to a Physician performing Laser Surgery at either of the
Practice Sites, PC shall provide Insight with documentary evidence, acceptable
to Insight, that such Physician has successfully completed the following
training: (i) didactic training ("FDA Didactic Training") provided by a "Center
of Excellence" acceptable to PC, and/or such other training, provided by a third
party(ies) acceptable to PC, that such Physician is required to obtain pursuant
to FDA requirements; and (ii) one (1) surgical wet-lab training session
("Surgical Wet-Lab Training") which meet or exceed the standards established by
the FDA for wet-lab training, it being understood that a Physician shall not be
allowed to perform Laser Surgery at either of the Practice Sites without
completing the required training.
(b) Patient Education. Physician shall be solely responsible for
determining which Patients are appropriate candidates for, and for educating
Patients about, Laser Surgery. However, upon request, Insight shall provide
Physician with such materials and information regarding Laser Surgery as is
available, from time to time, to Insight.
1.3 Insurance.
PC shall maintain, in full force and effect during the term of this
Agreement, at its sole cost and expense, comprehensive professional liability
insurance coverage, including malpractice insurance coverage to protect against
any liability related to the rendering of Laser Surgery and/or related services
by its Physicians and/or Physician Personnel. Such insurance coverage shall be
either "occurrence" coverage or "claims made" coverage with additional "tail"
coverage, in coverage limits of not less than One Million Dollars
($1,000,000.00) per incident and Three Million Dollars ($3,000,000.00) in the
aggregate. Prior to any Physician performing any Laser Surgery at either of the
Practice Sites, PC shall furnish to Insight certificate(s) evidencing such
insurance coverage(s), naming Insight as an additional insured thereunder.
1.4 Indemnification.
Intentionally deleted.
1.5 Licenses and Permits.
PC shall maintain, in full force and effect during the term of this
Agreement, all licenses and permits required by law or regulation and necessary
for the operation of each of the Practice Sites.
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1.6 Restrictions.
PC covenants and agrees, and shall require all Physicians and
Physician Personnel to so agree, that it and they will not, directly or
indirectly, during the term of this Agreement, or at any time following its
termination, for any reason:
(a) Use the name of Insight, or any of its successors or assigns or
shareholders, in announcements or advertising of any kind, or in any other
manner whatsoever, without the prior written consent of Insight;
(b) Disclose to any person or entity, or use for its or their own
behalf or on behalf of other(s), any trade secret or proprietary information of
Insight, without the prior written consent of Insight; or
(c) Hire or attempt to hire any person who is then engaged by or
who, within two (2) years prior thereto, was engaged by Insight to provide
services to or on behalf of Insight.
2. COVENANTS OF INSIGHT
2.1 Insurance.
Insight shall provide casualty insurance for the Laser against loss or
damage by fire and against loss or damage by other risks now embraced by the all
risk extended coverage endorsements in an amount equal to the full insurable
value thereof. Amounts payable under such insurance shall be payable to Insight.
2.2 Repairs to Laser.
Insight, at its sole cost and expense, shall be responsible for
maintaining each of the Lasers in good working order and condition and shall
bear all costs of maintenance and repairs thereto, other than such repairs as
may be necessitated as a direct result of the acts and/or negligence of the PC,
its Physicians and/or any of its Physician's Personnel, in operating and/or
using each such Laser.
2.3 Indemnification.
Each party shall indemnify, defend and hold each other, and each of
its affiliates, and each of their respective officers, directors, shareholders
and employees, harmless from and against any and all liability, loss, damage and
expense (including reasonable attorneys' fees, costs and disbursements)
resulting from any breach of, or misrepresentation by, such party relating to
this Agreement, and from any act of negligence of misfeasance of either party
and/or any of its agents, employees or contractors. To be entitled to such
indemnification, either party shall give prompt written notice of the assertion,
by a third party, of any claim with respect to which such party might
18
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bring a claim for indemnification hereunder, and in all events must have
provided such notice within the applicable period for defense of such claim by
such party. Each party shall have the right, at its own expense, to defend and
litigate any such third party claim, using attorneys selected by such party.
3. FEES AND BILLING
3.1 Usage Fee.
For each Laser Surgery performed by Physician on a Patient at the
Practice Site, PC shall pay Insight a fee ("Usage Fee") of Four Hundred Fifty
($450.00) Dollars, plus the amount of all Pillar Point royalty fees payable to
unaffiliated third parties as a condition to the use of each Laser. Said Usage
Fee shall be payable to Insight within ten (10) days after the expiration of
each month in which Laser Surgery is performed.
3.2 Billing and Collection.
PCS shall be solely responsible for billing and collecting from
Patients, third party payors and/or other third parties for all professional,
and ancillary services provided in connection with a Laser Surgery performed by
a Physician on a Patient at a Practice Site.
PC shall be obligated to pay Insight all amounts due hereunder,
regardless of whether PC actually collects any or all amounts billed to or
otherwise due from a Patient, a third party payor and/or another third party for
Laser Surgery and/or related services.
4. RELATIONSHIP OF PARTIES
In the performance of this Agreement, it is mutually understood and
agreed that all persons acting on behalf of a party are at all times acting and
performing as employees, contractors or agents of such party and not as
employees, contractors or agents of the other party. Insight shall neither have
nor exercise any control or direction over the methods by which the PC and/or
its Physicians shall provide Laser Surgery, related services or other services
to Patients.
5. TERM AND TERMINATION
5.1 Term.
The term of this Agreement shall commence on the date first stated
above and shall continue for a term of one (1) year unless sooner terminated as
provided herein.
5.2 Termination.
(a) This Agreement may be terminated by mutual agreement of the
parties.
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(b) This Agreement may be terminated by either party, on ten (10)
days prior written notice to the other party, upon a material breach of this
Agreement by the other party, which breach is not cured by such other party
within ten (10) days after receipt of written notice of such breach, if the
breach if susceptible to cure, or within (60) days after receipt of written
notice of such breach, if such breach is not susceptible to cure within said
(10) day period but may reasonably be cured within such sixty (60) day period,
provided that the breaching party thereafter actively continues to seek to cure
such breach and diligently pursues the cure thereof to completion.
6. GENERAL PROVISIONS
6.1 Notice. Any notice, request, demand or other communication required or
permitted to be given hereunder by one party to the other party shall be made in
writing and shall be deemed to have been duly made or given when hand delivered,
one (1) business day after being transmitted by telecopier (confirmed by mail),
or sent by overnight courier against receipt, or five (5) days after being
mailed by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom such communication is to be given, at the
address set forth below, which address may be changed by notice given in
accordance with this Section:
If to PC: Nassau Ophthalmic Services, P.C.
450 Endo Boulevard
Garden City, New York 11530
Attn.: Dr. Norman Stahl
If to Insight: Insight Laser Centers, Inc.
10 Peninsula Boulevard
Lynbrook, New York 11563
Attn.: General Counsel
6.2 Entire Agreement. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the subject matter hereof, and
replaces all prior understandings and agreements between the parties related to
such subject matter.
6.3 Waiver. No waiver or modification of any of the terms or conditions
hereof shall be valid unless set forth in a writing signed by the party to be
charged and, then, only to the extent set forth therein. The waiver of any term
or condition hereof by either party shall not prevent such party from later
insisting upon full performance of the same or any other term or condition
hereof.
6.4 Rights of Parties. The rights of the parties hereunder are cumulative
and no exercise or enforcement by a party of any right or remedy hereunder shall
preclude the exercise or enforcement by such party of any other right or remedy
to which it may be entitled by law.
6.5 Costs and Attorneys' Fees. Each party shall promptly reimburse the
other for all costs and expenses, including actual attorneys' fees and expenses,
incurred by such party in enforcing any provision of this Agreement, or any of
such party's obligations hereunder.
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6.6 Partial Invalidity. If any one or more of the terms or provisions of
this Agreement, or the application thereof to any person or circumstance shall
be adjudged, to any extent, to be invalid, unenforceable, void or voidable for
any reason whatsoever by a court of competent jurisdiction, each of the
remaining terms and provisions hereof, and the application thereof to any person
or circumstance, shall not be affected thereby and shall be valid, binding and
enforceable to the fullest extent permitted by law.
6.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to the
application of choice of law rules.
6.8 Survival and Assignability. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, administrators,
executors, successors and permitted assigns. This Agreement may not be assigned
by PC without the prior written consent of Insight.
6.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
INSIGHT LASER CENTERS, INC.
By/s/ Robert Greenberg
-------------------------------
Robert Greenberg, President
NASSAU OPHTHALMIC SERVICES, P.C.
By:/s/ Norman Stahl
------------------------------
Dr. Norman Stahl, President
21
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Exhibit 11
STERLING VISION, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
March 31,
1996 1995
---- ----
<S> <C> <C>
PRIMARY EARNINGS
Net income $ 158 $ 867
======= ======
Weighted average number of common
shares outstanding 12,277 9,963
Incremental shares based on the treasury
stock method for stock options, using
the average market price 104 --
------- ------
Weighted average number of common share
and common share equivalents outstanding 12,381 9,963
======= ======
Primary earnings per common share $ .01 $ .09
======= ======
FULLY DILUTED EARNINGS *
Net income $ 158 $ 867
======= ======
Weighted average number of common
shares outstanding 12,277 9,963
Incremental shares based on the treasury
stock method for stock options, using
the average market price 71 --
------- ------
Weighted average number of common share
and common share equivalents outstanding 12,348 9,963
======= ======
Fully diluted earnings per common share $ .01 $ .09
======= ======
</TABLE>
* This calculation is submitted in accordance with Security Exchange Act of
1934 Release No. 9083 although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,294
<SECURITIES> 0
<RECEIVABLES> 18,126
<ALLOWANCES> 321
<INVENTORY> 4,011
<CURRENT-ASSETS> 25,885
<PP&E> 10,145
<DEPRECIATION> 2,114
<TOTAL-ASSETS> 46,003
<CURRENT-LIABILITIES> 9,579
<BONDS> 13,566
0
0
<COMMON> 123
<OTHER-SE> 23,485
<TOTAL-LIABILITY-AND-EQUITY> 46,003
<SALES> 7,273
<TOTAL-REVENUES> 10,027
<CGS> 1,891
<TOTAL-COSTS> 9,764
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 263
<INCOME-TAX> 105
<INCOME-CONTINUING> 158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<FN>
Amounts inapplicable or not disclosed as a separate line on the Statement of
Financial Position or Results of Operations are reported as 0 herein.
* Notes and accounts receivable - trade are reported net of allowances for
doubtful account in the Statement of Financial Position.
</FN>
</TABLE>
