UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 its 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)
(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 12,384,867 shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of August 8, 1996.
Item 1. Financial Statements
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,994 $15,493
Restricted Cash 4,150 --
Accounts receivable, net allowance
for doubtful accounts 5,112 3,370
Franchise and other notes receivable -
current, net 2,891 3,326
Inventories 4,765 4,102
Indebtedness of related parties - current 175 176
Prepaid expenses and other current assets 1,219 405
-------- --------
Total Current Assets 23,306 26,872
-------- --------
Property and equipment - net of
accumulated depreciation 8,379 7,815
Franchise and other notes receivable - net 14,531 9,294
Indebtedness of related parties 271 295
Other assets 3,106 2,179
-------- --------
Total Assets $ 49,593 $ 46,455
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt - current portion $ 6,644 $ 2,511
Accounts payable and accrued liabilities 5,125 6,824
Franchise related obligations - current 902 824
Deferred income taxes payable - current 401 401
-------- --------
Total Current Liabilities 13,072 10,560
-------- --------
Long term debt 10,465 11,389
Deferred income taxes payable 2,015 1,681
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $.01 par value per share;
authorized 5,000,000 shares; none issued
Common stock, $.01 par value per share; authorized
28,000,000 shares; issued 12,384,867 in 1996 and
12,207,495 in 1995 124 122
Additional paid-in capital 24,965 23,762
Retained earnings (1,048) (1,059)
-------- --------
Total Shareholders' Equity 24,041 22,825
-------- --------
Total Liabilities and Shareholders' Equity $ 49,593 $ 46,455
======== ========
</TABLE>
The accompanying notes are an integral part of
these Consolidated Condensed Financial Statements.
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Systemwide sales $ 32,621 $ 28,652 $ 63,506 $ 57,013
======== ======== ======== ========
Revenues:
Net sales - Company stores $ 7,104 $ 6,833 $ 14,377 $ 13,521
Franchise royalties 1,930 1,728 3,760 3,448
Net gains and fees from the conveyance of
Company-owned assets to franchisees 1,028 576 1,562 662
Other income 307 844 697 1,229
-------- -------- -------- --------
Total Revenue 10,369 9,981 20,396 18,860
-------- -------- -------- --------
Costs and expenses:
Cost of sales 1,849 1,827 3,740 3,732
Selling expenses 5,058 4,439 9,875 8,403
General and administrative expenses 3,424 2,313 6,160 4,214
Interest expense 283 176 603 355
-------- -------- -------- --------
Total Costs and Expenses 10,614 8,755 20,378 16,704
-------- -------- -------- --------
Net income (loss) before provisions for
income taxes (245) 1,226 18 2,156
Provision (benefit) for income taxes (98) 62 7 125
-------- -------- -------- --------
Net income (loss) $ (147) $ 1,164 $ 11 $ 2,031
======== ======== ======== ========
Weighted average number of common
shares outstanding 12,294 9,963 12,294 9,963
======== ======== ======== ========
Earnings (loss) per common share (.01) .12 0 .20
======== ======== ======== ========
Pro forma income statement data (see Note 5):
Net income (loss) before provision (benefit)
for income taxes $ (245) $ 1,226 18 2,156
Provision (benefit) for income taxes (98) 490 7 862
-------- -------- -------- --------
Net income (loss) $ (147) $ 736 $ 11 $ 1,294
======== ======== ======== ========
Weighted average number of common
shares outstanding 12,294 9,963 12,294 9,963
======== ======== ======== ========
Earnings (loss) per common share (.01) .07 0 .13
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these Consolidated Condensed Financial Statements.
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the
Six Months Ended
June 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 11 $ 2,014
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 436 322
Allowance for doubtful accounts 110 --
Net gain from the conveyance
of Company-owned assets
to franchisees (1,371) (462)
Deferred income taxes payable 334 --
Changes in assets and liabilities:
Accounts receivable (1,853) (1,203)
Inventories 82 (512)
Prepaid expenses and other
current assets (814) 97
Other assets (380) (489)
Accounts payable and accrued liabilities (1,698) 978
Franchise related obligations 78 25
--------- ---------
Net cash (used in) provided by operating activities $ (5,065) $ 770
--------- ---------
Cash flows from investing activities:
Acquisition, net of cash acquired (4,715) --
Franchise notes receivable issued (2,494) (1,198)
Repayment of franchise notes receivable 1,121 445
Purchase of property and equipment (1,398) (617)
Conveyance of property and equipment 2,369 690
--------- ---------
Net cash used in investing activities (5,117) (680)
--------- ---------
Cash flows from financing activities:
Sale of common stock and other
capital contributions 625 --
Borrowing on revolving credit note 225 200
Payments on other debt (1,328) (1,096)
Restricted cash related to acquisition (4,150) --
Borrowings related to acquisition of a
retail optical chain 4,311 --
Distributions to shareholders -- (1,800)
--------- ---------
Net cash used in financing activities (317) (2,696)
--------- ---------
Net decrease in cash and
cash equivalents (10,499) (2,606)
Cash and cash equivalents - beginning of year 15,493 3,495
--------- ---------
Cash and cash equivalents - end of period $ 4,994 $ 889
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 603 $ 355
========= =========
Taxes $ 423 $ 119
========= =========
Acquisition, net of cash acquired:
Working capital, other than cash 1,324 --
Property, plant and equipment 600 --
Other assets 2,791 --
--------- ---------
Acquisition, net of cash acquired $ 4,715 --
========= =========
</TABLE>
The accompanying notes are an integral part of
these Consolidated Condensed Financial Statements.
STERLING VISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The accompanying Consolidated Condensed Financial Statements of Sterling Vision,
Inc. and Subsidiaries (collectively, the "Company") have been prepared in
accordance with generally accepted accounting principals for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by 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 six months ended June 30, 1996 was
approximately 40%.
A reconciliation between the statutory Federal income tax rate and the effective
income tax rate based on continuing operations for the six months ended June 30,
1996 is as follows:
1996 1995
---- ----
Statutory Federal income tax rate 34% 34%
State and local income taxes, net of
Federal income tax benefit 6 6
Reduction in tax liability due to status
as Subchapter S Corporation for
Federal and certain state taxes -- (34)
== ===
Effective income tax rate 40% 6%
== ===
NOTE 3
In December, 1995, the Registrant 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 Registrant 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 Registrant 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.
In June, 1996, the Registrant issued 77,372 shares of its Common Stock to
certain of the franchisees of those franchised stores, in existence on the date
of the consummation of the Offering, in consideration of future services and
performance, in accordance with terms of their respective Franchise Agreements.
NOTE 4
The pro forma income tax provision for the six months ended June 30, 1996 and
1995 have been prepared assuming an effective, combined Federal and state income
tax rate of 40%.
NOTE 5
Pro forma 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 each of the six months ended June 30, 1996 and June 30, 1995.
NOTE 6
On May 26, 1996, Sterling Vision DKM, Inc. ("DKM"), a wholly-owned subsidiary of
the Registrant, entered into an Asset Purchase Agreement with Norwest Investment
Services, Inc. ("Norwest") and a series of other arrangements (collectively the
"VCA Transaction") which resulted in its acquisition of substantially all of the
retail optical assets (collectively, the "Assets"), other than leases, of Vision
Centers of America, Ltd., D & K Optical, Inc., Monfried Corporation and Duling
Finance Corporation (collectively, "VCA"), which Assets were subject to a lien
in favor of Norwest. The closing of the transaction occurred on May 30, 1996.
Norwest was entitled to exercise its rights as a secured creditor of VCA as a
result of VCA's default with respect to its obligations to Norwest. The Assets
acquired include: (i) furniture and fixtures, machinery, equipment and inventory
located in 13 company-owned and operated retail optical stores and in an
ophthalmic lens manufacturing facility and several warehouses; and (ii) all of
VCA's general intangibles (other than store leases), including franchise
agreements, promissory notes and accounts receivable related to approximately 75
franchised retail optical stores. DKM purchased the Assets at a private
foreclosure sale subject to certain liens, claims and encumbrances; however,
Norwest indemnified DKM, in an amount up to $400,000, for certain of such liens,
claims and encumbrances. The purchase price for the Assets was $4,150,000, which
was paid by DKM's delivery to Norwest of a ninety (90) day, direct pay letter of
credit to Norwest.
In addition, DKM initially entered into three Assignment and Assumption of Lease
Agreements (two with respect to an aggregate of 13 company store leases and one
with respect to 45 stores subleased to franchisees), pursuant to which VCA
assigned to DKM all of its right, title and interest in and to each of the
leases, in exchange for DKM's payment to VCA of $50,000 and the assumption of
all of the obligations under the company store leases, only, subject to DKM's
right, in its sole discretion, to reject the lease for any such location on or
before September 30, 1996.
DKM also received an option, which expires on November 1, 1996, to purchase the
stock of VCA for $100. Additionally, DKM entered into an oral consulting
agreement with Dr. Larry Joel, the President of VCA, whereby DKM will pay to him
the sum of $25,000 per month for consulting services provided to DKM. Such
consulting arrangement is on a month-to-month basis and each party has the right
to terminate the agreement at any time. Dr. Joel is also the President and a
shareholder of Fast Cast Corporation, an entity also owned in part, by certain
of the Registrant's principal shareholders and from which the Company purchases
machinery, equipment and supplies.
DKM also subsequently purchased from Bank One Kentucky, N.A., for the
approximate sum of $111,000, all of its right, title and interest in and to
certain additional prior liens (held by the Bank) against VCA's inventory,
accounts receivable and franchise agreements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All statements contained herein, other than 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
the Registrant's subsidiary, Insight Laser Centers, Inc.("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 photo refractive
keratectomy ("PRK"), a procedure being offered by Insight to correct the vision
of individuals experiencing certain degrees of myopia; 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 in the PRK market; 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 possible defaults related therefrom; the inability of the
Company to obtain additional financing to meet its capital needs; and general
business and economic conditions.
Results of Operations
For the Six Months Ended June 30, 1996 Compared to June 30, 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")and
Insight. There were 317 and 182 Sterling Stores in operation as of June 30, 1996
and June 30, 1995, respectively, of which 242 and 144 were franchised. Such
stores operate under various tradenames including Sterling Optical, Site for
Sore Eyes, IPCO Optical, Benson Optical, Superior Optical, Southern Optical,
Nevada Optical, Duling Optical, Monfried Optical, Edwards Optical and Kindy
Optical. Systemwide sales increased by $6,493,000, or 11.4%, to $63,506,000 for
the first six months of 1996, as compared to $57,013,000 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 six month periods ended
June 30, 1996 and 1995), systemwide sales, which showed no variance, were
$49,278,000 for both six month periods ended June 30, 1995 and 1996,
respectively. There were 150 stores that operated as either a Company-owned or
franchised store during the entirety of both of the six month periods ended June
30, 1996 and 1995. The Company believes that systemwide sales for the six months
ended June 30, 1996, 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 $856,000, or
6.3%, to $14,377,000 for the first six months of 1996, as compared to
$13,521,000 for the same period in 1995. Such increase was primarily due to the
acquisition, in the fourth quarter of 1995, (the "Benson Transaction") of the
assets and leases 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"), and the
acquisition, in the second quarter of 1996, of substantially all of the assets
of VCA (see Note 6), which was partially offset by the conveyance of the assets
of Company-owned stores to franchisees. Historical comparisons of retail sales
generated by Company-owned stores can become distorted due to the conveyance of
Company-owned store assets to franchisees. When Company-owned store assets are
conveyed to franchisees, sales generated by such franchised stores are no longer
reflected in the sales of Company-owned stores. In turn, the Company receives
on-going royalties on the sales generated by such franchised stores. On a same
store basis, aggregate sales generated by Company-owned stores in operation
during the entirety of both of the six month periods ended June 30, 1996 and
1995, decreased by $120,000, or 1.4%, to $8,700,000 for the six months ended
June 30, 1996, as compared to $8,820,000 for the same period in 1995. This
decrease resulted primarily from 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. Such change resulted in the loss of eye
examination fee income to the Company of approximately $197,000, since such
doctors now collect such fees as part of their income, although this contributed
to the reduction in the Company's selling expenses as described below.
Aggregate sales generated by franchised stores increased by $5,637,000, or
13.0%, to $49,129,000 for the first six months of 1996, as compared to
$43,492,000 for the same period in 1995, due primarily to an increase in the
number of Company-owned stores conveyed to franchisees, the addition of
approximately 75 franchise stores acquired in the VCA Transaction (which
occurred during the end of the second quarter of 1996) and higher sales volume
per store. On a same store basis, aggregate sales generated by franchised stores
in operation during the entirety of both six month periods ended June 30, 1996
and 1995, increased by $120,000, or .3%, to $40,578,000 for the first six months
of 1996, as compared to $40,458,000 for the same period in 1995.
Aggregate ongoing franchise royalties increased by $312,000, or 9.0%, to
$3,760,000 for the first six months of 1996, as compared to $3,448,000 for the
same period in 1995, due primarily to an increase in the number of Company-owned
stores conveyed to franchisees, the addition of approximately 75 franchised
stores acquired in the VCA Transaction and 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 $900,000, or 136%, to $1,562,000 for the six months ended June 30,
1996, as compared to $662,000 for the same period in 1995, due to the conveyance
of the assets of seven 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 four Company-owned
stores to franchisees for the same period in 1995.
The Company's gross profit margin increased by 1.6 percentage points, to 74.0%,
for the six months ended June 30, 1996, as compared to 72.4% 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 initially
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 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. In the future, the Company's gross
profit margin may fluctuate depending upon the extent and timing of changes in
the product mix in Company-owned stores, competition and promotional incentives.
Selling expenses increased by $1,472,000, or 17.5%, to $9,875,000 for the six
months ended June 30, 1996, as compared to $8,403,000 for the same period in
1995, due to the inclusion of selling expenses, of approximately $2,479,000,
incurred by the stores acquired in connection with the Benson and VCA
Transactions, and selling expenses of approximately $152,000 related to the
business of Insight, which were partially offset by a decrease in selling
expenses of approximately $1,000,000, due primarily from the conveyance of the
assets of Company-owned stores to franchisees, as well as a decrease in selling
expenses of approximately $150,000 in connection with the change in the
Company's employment arrangements (as described above) with certain of its
optometrists.
General and administrative expenses (including interest expense, depreciation
and bad debt expense) increased by $2,194,000, or 48.0%, to $6,763,000 for the
six months ended June 30, 1996, as compared to $4,569,000 for the same period in
1995. This increase was due primarily to the following four factors: (i) an
increase in administrative costs of approximately $940,000 related to the
business of Insight and approximately $350,000 related to the Company's
operation of an ophthalmic lens manufacturing facility, each of which operations
had not incurred expenses until the end of the second quarter of 1995;(ii)
approximately $318,000 of administrative costs related to the Benson
Transaction;(iii) approximately $100,000 in administrative costs related to the
VCA Transaction; and (iv) approximately $150,000 in occupancy and moving
expenses related to the Company's relocation of its administrative offices in
the second quarter of 1996. Interest expense increased by $248,000, or 69.9%, to
$603,000 for the six months ended June 30, 1996, as compared to $355,000 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, increased by
$98,000, or 73.7%, to $231,000 for the six months ended June 30, 1996, as
compared to $133,000 for the same period in 1995.
The Company's net income before income taxes decreased by $2,138,000, or 99.2%,
to $18,000 for the six months ended June 30, 1996, as compared to $2,156,000 for
the same period in 1995. This decrease was primarily due to the following two
factors which were not comparable to its operations for the same period in 1995:
(i) the Company consummated the Benson Transaction during the fourth quarter of
1995 and thereby acquired substantially all of the assets and certain continuing
expenses of the Debtors. Consequently, the Company incurred an $878,000 loss for
the six months ended June 30, 1996 from the operation of the stores acquired in
the Benson Transaction due, in part, to the 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 $1,200,000
loss, for the six months ended June 30, 1996, in establishing the operations of
Insight. Insight began generating revenues during the second quarter of 1996,
although it had incurred payroll costs and interest expense (with respect to its
leasing of five excimer lasers) since its inception, which occurred during the
end of the second quarter of 1995. This decrease was partially offset by a net
profit of $450,000 from the operation of the stores acquired in the VCA
Transaction on May 30, 1996, which includes a net gain on the conveyance of the
assets of one Company-owned store to a franchisee in the amount of $350,000. Net
profit from the Company's operations (excluding the losses applicable to the
operation of the stores acquired in the Benson Transaction, Insight and the
income applicable to the operation of the stores acquired in the VCA
Transaction), decreased by $557,000, or 25.8%, to $1,599,000 for the six months
ended June 30, 1996, as compared to $2,156,000 for the same period in 1995. This
decrease was due primarily to the increase in general and administrative
expenses (including interest expense, depreciation and bad debt expense, as
explained above, but excluding such expenses applicable to the operation of
Insight and the stores acquired in the Benson and VCA Transactions). This
increase in general and administrative expenses was partially offset by an
increase in net gains on the conveyance of the assets of Company-owned stores to
franchisees, (excluding such gain applicable to the conveyance of the assets of
one Company-owned store acquired in the VCA Transaction). For the third quarter
of 1996, the Company anticipates a reduction in the losses attributable to the
operation of the stores acquired in the Benson Transaction and from the
operation of Insight.
For the Three Months Ended June 30, 1996 compared to June 30, 1995
Systemwide sales increased by $3,969,000, or 13.9%, to $32,621,000 for the three
months ended June 30, 1996, as compared to $28,652,000 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
June 30, 1996 and 1995), systemwide sales increased by $83,000, or .3%, to
$24,458,000 for the three months ended June 30, 1996, as compared to $24,375,000
for the same period in 1995. There were 153 stores that operated as either a
Company-owned or franchised store during the entirety of both of the three month
periods ended June 30, 1996 and 1995.
Aggregate sales generated by Company-owned stores increased by $271,000, or
4.0%, to $7,104,000 for the three months ended June 30, 1996, as compared to
$6,833,000 for the same period in 1995. Such increase was primarily due to the
VCA Transaction at the end of the second quarter of 1996, which resulted in the
Company's acquisition, among other assets, of the assets and leases for 13
company-owned stores (see Note 6), which was partially offset by the conveyance
of the assets of Company-owned stores to franchisees. Historical comparisons of
aggregate sales generated by Company-owned stores can become distorted due to
the conveyance of Company-owned store assets to franchisees. When Company-owned
store assets are conveyed to franchisees, sales generated by such franchised
store are no longer reflected in Company-owned store sales; however, the Company
receives on-going royalties on the sales generated by such franchised stores. On
a same store basis, aggregate sales generated by Company-owned stores in
operation during the entirety of both three month periods ended June 30, 1996
and 1995, decreased by $77,000, or 1.8%, to $4,120,000 for the three months
ended June 30, 1996, as compared to $4,197,000 for the same period in 1995. This
decrease resulted primarily from 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 of approximately $82,000, 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 $3,698,000, or
17.0%, to $25,517,000 for the three months ended June 30, 1996, as compared to
$21,819,000 for the same period in 1995, due primarily to an increase in the
number of Company-owned stores conveyed to franchisees, the addition of
approximately 75 franchised stores acquired in the VCA Transaction and higher
sales volume per store. On a same store basis, aggregate sales generated by
franchised stores in operation during the entirety of both three month periods
ended June 30, 1996 and 1995, increased by $160,000, or .8%, to $20,338,000 for
the three months ended June 30, 1996, as compared to $20,178,000 for the same
period in 1995.
Aggregate ongoing franchise royalties increased by $202,000, or 11.7%, to
$1,930,000 for the three months ended June 30, 1996, as compared to $1,728,000
for the same period in 1995, due primarily to an increase in the number of
Company-owned stores conveyed to franchisees, the addition of approximately 75
franchised stores acquired in the VCA Transaction and 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 $452,000, or 78.5%, to $1,028,000 for the three month period ended
June 30, 1996, as compared to $576,000 for the same period in 1995, due to the
conveyance of the assets of five Company-owned stores to franchisees, as
compared to net gains on the conveyance of the assets of three Company-owned
stores to franchisees for the same period in 1995.
The Company's gross profit margin increased by .7 percentage points, to 74.0%,
for the three month period ended June 30, 1996, as compared to 73.3% 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 initially 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
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. In the
future, the Company's gross profit margin may fluctuate depending upon the
extent and timing of changes in the product mix in Company-owned stores,
competition and promotional incentives.
Selling expenses increased by $619,000, or 13.9%, to $5,058,00 for the three
months ended June 30, 1996, as compared to $4,439,000 for the same period in
1995, due to the inclusion of selling expenses of approximately $1,336,000
incurred by the stores acquired in connection with the Benson and VCA
Transactions, which were partially offset by a decrease in selling expenses of
approximately $657,000, due primarily from the conveyance of the assets of
Company-owned stores to franchisees, as well as a decrease in selling expenses
of approximately $65,000 in connection with the change in the Company's
employment arrangements (as described above) with certain of its optometrists.
General and administrative expenses (including interest expense, depreciation
and bad debt expense) increased by $1,218,000, or 48.9%, to $3,707,000 for the
three months ended June 30, 1996, as compared to $2,489,000 for the same period
in 1995. This increase was due primarily to the following four factors: (i) an
increase in administrative costs of approximately $615,000 related to Insight
and approximately $124,000 related to the Company's operation of an ophthalmic
lens manufacturing facility, each of which operations had not incurred expenses
until the end of the second quarter of 1995; (ii) approximately $100,000 in
administrative costs related to the Benson Transaction; (iii) approximately
$100,000 in administrative costs related to the VCA Transaction; and (iv)
approximately $150,000 in occupancy and moving expenses related to the Company's
relocation of its administrative offices. Interest expense, which is included in
general and administrative expenses, increased by $107,000, or 60.8%, to
$283,000 for the three months ended June 30, 1996, as compared to $176,000 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,
increased by $111,000, or 111.0%, to $211,000 for the three months ended June
30, 1996, as compared to $100,000 for the same period in 1995, primarily due to
an increase in franchise accounts receivable (see Liquidity and Capital
Resources).
The Company's net income before income taxes decreased by $1,471,000 or 120.0%,
to a loss of $245,000 for the three months ended June 30, 1996, as compared to
income of $1,226,000 for the same period in 1995. This decrease was primarily
due to the following two factors which were not comparable to its operations for
the same period in 1995: (i) the Company consummated the Benson Transaction
during the fourth quarter of 1995 and thereby acquired substantially all of the
assets and certain continuing expenses of the Debtors. Consequently, the Company
incurred a $457,000 loss for the three month period ended June 30, 1996 from the
operation of the stores acquired in the Benson Transaction; and (ii) the Company
incurred a $865,000 loss for the three month period ended June 30, 1996 in
establishing the operations of Insight, although it began generating minimal
revenues during the three months ended June 30, 1996. This decrease was
partially offset by a net profit of $450,000 from the operation of the stores
acquired in the VCA Transaction during the second quarter of 1996 which includes
a net gain on the conveyance of the assets of one Company-owned store to a
franchisee in the amount of $350,000. The net profit from the Company's
operations (excluding the losses applicable to the operations of the stores
acquired in the Benson Transaction, Insight, and the income applicable to the
operation of the stores acquired in the VCA Transaction) decreased by $640,000,
or 52.2%, to $586,000 for the three months ended June 30, 1996, as compared to
$1,226,000 for the same period in 1995. This decrease was primarily due to the
increase in general and administrative expenses (including interest expense,
depreciation and bad debt expense), as explained above, (excluding such expenses
applicable to the operation of Insight and the stores acquired in the Benson and
VCA Transactions). This increase in general and administrative expenses was
partially offset by an increase in net gains from the conveyance of the assets
of Company-owned stores to franchisees, (excluding such gain applicable to the
conveyance of the assets of one Company-owned store acquired in the VCA
Transaction).
Liquidity and Capital Resources
The Company is a party to a Term Loan and Revolving Credit Agreement (the
"Credit Agreement") with Chemical Bank (the "Bank") which, as of June 30, 1996,
provided for term loans totaling $5,800,583 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 June 30, 1996, the
outstanding principal balance of Tranche A was $2,916,650, and the outstanding
principal balance of Tranche B was $1,458,325. 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 June 30, 1996,
the outstanding principal balance of such loan was $1,425,608.
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 borrowings occur. On November 30, 1995, the Bank: (i) converted an
existing bridge loan, in the principal amount of $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 June 30, 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 June 30, 1996, the Company did not maintain the required ratios described
in (v) and (vii) above primarily due to the decrease in net income before taxes
for the six months ended June 30, 1996, as compared to the same period in 1995,
and the increase in the Company's short-term debt, in the amount of $4,150,000,
incurred in connection with to the VCA Transaction during the second quarter of
1996. The Company has requested a waiver from the Bank with respect to such
non-compliance with the Credit Agreement; and although the Company anticipates
receiving such waiver from the Bank subsequent to the filing of this Form 10-Q,
there can be no assurance that the Bank will issue such waiver to the Company.
Such default gives the Bank the right to accelerate the payment of the then
outstanding balance under the Company's term loans and line of credit. In the
event the Bank exercises its right to accelerate the repayment of such loans,
the Company does not have, at this time, adequate cash available to repay such
loans, although the Company anticipates being able to obtain sufficient
financing to repay such loans.
In connection with the Company's acquisition, which occurred in May 1996, of
substantially all of the assets of VCA (see Note 6), the Company delivered to
Norwest, the Seller, a ninety (90) day direct pay letter of credit, in the
amount of $4,150,000, representing the purchase price for such assets.
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 June 30, 1996 was $1,325,000 and $679,000,
respectively.
Franchise and other accounts receivable increased by $1,742,000, or 51.7%, to
$5,112,000 as of June 30, 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 obtain collection of outstanding receivables on a
more timely basis through the following means: (i) 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 June 30, 1996 were $17,422,000, which
includes approximately $3,400,000 of franchise notes acquired in connection with
the VCA Transaction. 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.
Inventories at Company-owned stores increased by $663,000, or 16.2%, to
$4,765,000 as of June 30, 1996, as compared to $4,102,000 as of December 31,
1995. This increase was due primarily to approximately $750,000 of inventory
acquired in connection with the VCA Transaction, which was partially offset by a
decrease related to the conveyance of the assets of 7 Company-owned stores to
franchisees.
As of June 30, 1996, Insight had leased, with $1.00 purchase options, five
excimer lasers. Aggregate lease payments pursuant to such leases will
approximate $685,000, $685,000, $685,000, $685,000 and $150,700 for the periods
ended June 30, 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 an initial public offering ("the
Offering") and raised approximately $14,791,000, net of commissions and
expenses, from the sale of 2,200,000 shares of Common Stock at a price of $7.50
per share. In January, 1996, the Company raised approximately $625,000, net of
commissions and expenses, from the sale of an additional 100,000 shares of its
Common Stock at $7.50 per share pursuant to an over-allotment option granted the
Underwriters in connection with the Offering. As of June 30, 1996 and December
31, 1995, the Company had $10,234,000 and $16,312,000, respectively, in working
capital, and $4,994,000 and $889,000, respectively, of cash and cash
equivalents. During the six months ending December 31, 1996, the Company
anticipates having the following capital requirements: constructing, equipping
and opening approximately three additional Insight Laser Centers, at an
aggregate cost of approximately $1,000,000; 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, subject to the
availability of qualified opportunities, in furtherance of the Company's
business strategy, in amounts that cannot be projected by the Company; and
opening new retail optical stores in the furtherance of the Company's business
strategy, also in amounts that cannot be projected by the Company at this time.
The Company experienced negative cash flow during the first six months of 1996
resulting, in part, from losses attributable to the stores acquired in the
Benson Transaction (the "Benson Stores") and the Company's Insight Laser
Centers. The Company, however, believes based , in part, on reduced losses
attributable to the Benson Stores during July 1996 and in part from the Insight
Laser Centers beginning to produce increased revenues during July 1996, that the
magnitude of the losses stemming from the Benson Stores and Insight will be
reduced. Further, the Company anticipates higher cash flow from the stores
acquired in the VCA Transaction and continued positive cash flow from the
remainder of the Company's retail optical operations. The Company believes that
the magnitude of these improvements in operating cash flow will be sufficient to
result in positive cash flow for the second half of 1996. Accordingly, the
Company believes that its current cash resources are sufficient to fund its
anticipated capital expenditures. If the Company's capital needs exceed its
cash, cash equivalents and availability under its revolving line of credit or if
the Company generates negative cash flow, 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
circumstances.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
At the time of DKM's acquisition, from Norwest, of VCA's Franchise Agreements
and Franchisee Promissory Notes, approximately ten franchisees had initiated
actions against VCA seeking recission of their respective Franchise Agreements,
as well as damages for VCA's failure to comply with its obligations under such
Franchise Agreements. DKM has intervened in each such action and is in the
process of conducting discovery. In July, 1996, DKM reached an agreement with
one such franchisee (operating four franchised retail optical stores) to settle
such action. Based upon advice given to DKM by its special litigation counsel,
DKM is of the opinion that it will not be responsible for any damage award
rendered, in any such action, against VCA.
Item 4. Submission of Matter to a Vote of Security Holders
(a) The first Annual Meeting of Shareholders of the Company was held on
June 14, 1996.
(c)
(i) The election of the nominees for four Class I Directors who will serve
for a term to expire at the 1998 Annual Meetings of Shareholders or
until each of their respective successors shall have been duly elected
and qualified was voted on by the shareholders. The Four Class I
nominees, all of whom were elected, were Robert Greenberg, Jay
Fabricant, Edward Cohen and Francis L'Esperance, Jr. The Inspectors of
Election certified the following vote tabulations with respect
thereto:
Class I Director For Withheld
---------------- --- --------
Robert Greenberg 10,283,054 18,300
Jay Fabricant 10,283,254 18,100
Edward Cohen 10,283,054 18,300
Francis L'Esperance, Jr. 10,282,654 18,700
(ii) A proposal to approve Amendment No. 1 to the Company's 1995 Stock
Incentive Plan was approved by the Shareholders. The Inspectors of
Election certified the following vote tabulations:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
8,752,897 153,680 22,350 1,372,427
(iii) A proposal to approve the reappointment of Deloitte & Touche LLP,
independent certified public accountants, as auditors of the Company
for the calendar year ending December 31, 1996 was approved by the
Shareholders. The Inspectors of Election certified the following vote
tabulations:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
10,264,054 22,800 14,500 0
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
EXHIBIT INDEX
Exhibit
Number
10.59 Assignment and Assumption of Lease Agreement ("VCA Company Store
Leases"), dated June 7, 1996, between VCA and certain of its
affiliates and DKM.
10.60 Assignment and Assumption of Lease Agreement ("VCA Company Store
Leases"), as amended by a Letter Agreement, dated June 10, 1996,
between VCA and certain of its affiliates and DKM.
10.61 Assignment and Assumption of Lease Agreement ("VCA Franchised Store
Leases") as amended by a Letter Agreement, dated July 11, 1996.
10.62 Assignment, dated June 19, 1996, by Bank One Kentucky, N.A.
("Assignor") to DKM, all of the Assignor's right, title and
interest in and to that certain Revolving Credit Loan Agreement and
Security Agreement, dated January 10, 1992, between the Assignor
and Duling Optical Corporation, et. al.
10.63 First Amendment to the Registrant's 1995 Stock Incentive Plan.
11 Computation of Earnings (Loss) Per Common Share.
27 Financial Data Schedule.
b.) Reports on Form 8-K
On May 30, 1996, the Registrant filed a Report on Form 8-K with
respect to the transactions embodied in DKM's Asset Purchase
Agreement with Norwest and a series of other arrangements which
resulted in DKM's acquisition of substantially all of the retail
optical assets of VCA.
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: August 14, 1996
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASES
(COMPANY STORE LEASES)
This Assignment and Assumption of Lease Agreement (the "Agreement") is
being entered into as of the 7th day of June, 1996, by and between Duling
Optical Corporation, a Delaware corporation, having an office at 4415 Poplar
Level Road, Louisville, Kentucky 40213 (the "Assignor"), and Sterling Vision
DKM, Inc., a Delaware corporation having its principal office at 1500 Hempstead
Turnpike, East Meadow, New York 11554 (the "Assignee").
W I T N E S S E T H:
WHEREAS, the Assignor is the Tenant under each of the leases described in
Exhibit "A" annexed hereto (each individually referred to as a "Lease" and,
collectively, as the "Leases") relating to the premises specified in each Lease
(the "Premises"); and
WHEREAS, the Assignee desires to purchase from the Assignor all of the
Assignor's right, title and interest as the Tenant under each of the Leases and,
in connection therewith, to assume the obligations of the Assignor under each
such Lease; and
WHEREAS, the Assignor is so willing to sell and assign to the Assignee all
of its right, title and interest under each of the Leases.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee hereby covenant and agree, as follows:
1. Assignment. Subject to the provisions of Paragraph 9 hereof, the
Assignor, as of the date hereof (the "Effective Date"), hereby grants, bargains,
sells, conveys, assigns, transfers, set over and delivers to Assignee, its
successors and assigns, all of the Assignor's right, title and interest in and
to each of the Leases more particularly described on Exhibit A annexed hereto,
including any security deposit and advance rental payments held by the Landlord
thereunder, and such Assignor's leasehold interest in the Premises covered
thereby.
2. Representations and Warranties of Assignor. The Assignor hereby
represents and warrants as to each such Lease
1
<PAGE>
that, as of the date hereof: (i) the Assignor is the owner and holder of the
Tenant's interest under such Leases;
(ii) the Assignor has made no prior assignments of such Lease or of any rights
therein; (iii) since January 1, 1996, such Lease has not been modified or
amended, except as specifically set forth in Exhibit A annexed hereto and except
as to the certain arrangements regarding the payment of past due rents; (iv)
such Lease is in full force and effect and the term thereof has commenced
pursuant to the provisions thereof; (v) the Assignor is in possession of the
Premises; (vi) the Assignor has not commenced any action or given or served any
notice for the purpose of terminating such Lease; and (vii) the Assignor has
full power and authority to execute, deliver and perform this Agreement, and
this Agreement constitute the valid and binding obligation of such Assignor,
enforceable in accordance with its terms, and no consent or approval of any
third party is required with respect to this Agreement except for the consent of
the Landlord under each of said Leases.
3. Indemnification. Assignor hereby covenants and agrees to indemnify and
hold Assignee harmless from and against any and all liability, loss or damage
(including, but not limited to, reasonable attorneys' fees) which Assignee may
incur by reason of any breach by the Assignor of any of its representations
and/or warranties contained herein and/or the failure of the Assignor to comply
with its obligations as set forth in Paragraph 5 hereof.
4. Assumption. Subject to the provisions of Paragraph 9 hereof, the
Assignee hereby covenants and agrees to assume all of the obligations on the
part of the Tenant under each of the Leases to be performed or observed, and
whether or not the same arose and/or became payable prior to the Effective Date
hereof.
5. Cooperation. Assignor covenants and agrees to promptly cooperate with
the Assignee and to take such further action and to execute such further
documents and instruments as may be reasonably requested by Assignee in order to
carry out the provisions and purposes of the Agreement.
6. Binding Nature. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto, and each of their respective legal
representatives, successors and/or assigns.
7. Invalidity. If any term, covenant or condition of this Agreement shall
be held to be invalid, illegal or unenforceable, in any respect, this Agreement
shall be construed without such provision.
2
<PAGE>
8. Counterparts; Governing Law; No Modification. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument and, as
to each Lease assigned hereunder, shall be governed by, and construed in
accordance with, the internal laws of the State in which the Premises covered by
such Lease is located. No modification or amendment of any provision of this
Agreement or any waiver of any term hereof shall, in any event, be effective
unless made by an instrument, in writing, signed by all of the parties hereto.
9. Right to Reject. Notwithstanding anything to the contrary contained
herein, it is specifically understood and agreed that Assignee, by notice, in
writing, giving to the Assignor at any time prior to July 24, 1996, shall have
the right to exclude (reject) any one or more of the Leases assigned hereby;
provided, however, that notwithstanding any such exclusion (rejection) of any
such Lease by the Assignee, the Assignee shall nevertheless be required to pay
all rent due the Landlord of such excluded Lease(s) arising and/or accruing
during the period, only, from the date hereof to the date of any such notice to
the Assignor.
IN WITNESS WHEREOF, Assignors and Assignee have caused this Agreement to be
duly executed as of the day and year first above written.
ASSIGNOR: DULING OPTICAL CORPORATION
By: /s/ Larry Joel
-------------------------
Larry Joel, President
ASSIGNEE: STERLING VISION DKM, INC.
By: /s/ Joseph Silver
-------------------------
Joseph Silver,
Executive Vice President &
General Counsel
3
<PAGE>
STATE OF KENTUCKY )
) ss.:
COUNTY OF JEFFERSON )
On this 12th of June, 1996, before me personally came Larry Joel, an
individual residing at 8910 Cromwell Lane, Louisville, Kentucky 40222 who, being
by me duly sworn, did depose and say that he is the President of each of the
Duling Optical Corporation, D & K Optical, Inc. and Monfried Optical Company,
the corporations named in and which executed the above instrument, and that he
signed his name thereto pursuant to the authority granted him by the Board of
Directors of each of said corporations.
/s/ Apryl L. Robinson
--------------------------------
Notary Public, State of Kentucky
My Commission Expires: 3-27-98
(Notary Seal)
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this 10th day of June, 1996, before me personally came Joseph Silver, an
individual residing at 12 South Drive, Great Neck 11021 who, being by me duly
sworn, did depose and say that he is an Executive Vice President of Sterling
Vision DKM, Inc., the corporation named in and which executed the above
instrument, and that he signed his name thereto pursuant to the authority
granted him by the Board of Directors of said corporation.
/s/ Deborah L. Kahm
--------------------------------
Notary Public, State of New York
My Commission Expires: DEBORAH L. HAHM
NOTARY PUBLIC, State of New York
(Notary Seal) No. 30-47[Illegible]
Qualified in Nassau County
Commission Expires 12/31/96
4
<PAGE>
Exhibit A
Store No: 1120
Lease Agreement, dated January 17, 1990, between The Equitable Life Assurance
Society of the United States, as Landlord and Duling Optical Corporation, as
Tenant, covering the Premises located at Crossroad Center, Waterloo, Iowa.
Store No: 1233
Lease Agreement, undated, between Grand Center Limited Partnership, a limited
partnership, as Landlord and Duling Optical Corporation, as Tenant, covering the
Premises located at Grand Central Mall, Parkersburg, West Virginia.
Store No.: 1270
Lease Agreement, dated May 31, 1989, between Governor's Square Company, a
General Partnership, as Landlord and Duling Optical Corporation, as Tenant,
covering the Premises located at Governor's Square Mall, Clarksville, Tennessee.
7
<PAGE>
[Letterhead of Sterling Optical (R)]
June 10, 1996
Via FAX and Overnight Mail
Dr. Larry Joel, President
Duling Optical Corporation
4415 Poplar Level Road
Louisville, Kentucky 40213
Re: ASSIGNMENT AND ASSUMPTION OF LEASES
Dear Larry:
In accordance with your understanding and agreement with Robert Greenberg, I am
enclosing an additional, partially executed form of Assignment and Assumption of
Leases Agreement pursuant to which Duling Optical Corporation will assign to
Sterling Vision DKM, Inc. ("DKM") all of its right, title and interest in and to
the Leases for the following locations;
1. Store No. 1120 Crossroad Center
Waterloo, Iowa
2. Store No. 1233 Grand Central Mall
Parkersburg, West Virginia
3. Store No. 1270 Governor's Square Mall
Clarksville, Tennessee
With respect to the foregoing, this letter will serve to confirm DKM's agreement
that, in consideration of Duling Optical Corporation's assignment of said Leases
to DKM: (i) DKM (subject to its right to reject any such Lease on or before July
24, 1996 and, in such event, to pay only the rental accruing from and after June
7, 1996 through the date of any such rejection) will assume all outstanding
obligations and/or liabilities to the Landlord named in each such Lease; (ii)
DKM will pay and discharge all amounts due the employees of the Premises covered
by each such lease for the period commencing from and after May 30, 1996; and
(iii) DKM will pay and discharge all amounts due the employees of Store No.
1124, Dubque, Iowa, and Store No.
1
<PAGE>
Dr. Larry Joel
June 10, 1996
Page 2
1122, Jefferson City, Missouri, for the period commencing from and after May 30,
1996 through the date that DKM removes therefrom all personal property located
in each of said locations.
It would be greatly appreciated if you would execute, have notarized and
re-transmit to me a duplicate copy of the enclosed Agreement, as soon as
possible.
Very truly yours,
STERLING VISION DKM, INC.
By: /s/ Joseph Silver
------------------
Joseph Silver,
Executive Vice President &
General Counsel
JS/pas
Enclosure
cc: Thomas Fafinsky, Esq.
2
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASES
(COMPANY STORE LEASES)
This Assignment and Assumption of Lease Agreement (the "Agreement") is
being entered into as of the 7th day of June, 1996, by and between Duling
Optical Corporation, a Delaware corporation, having an office at 4415 Poplar
Level Road, Louisville, Kentucky 40213 (the "Assignor"), and Sterling Vision
DKM, Inc., a Delaware corporation having its principal office at 1500 Hempstead
Turnpike, East Meadow, New York 11554 (the "Assignee").
W I T N E S S E T H:
WHEREAS, the Assignor is the Tenant under each of the leases described in
Exhibit "A" annexed hereto (each individually referred to as a "Lease" and,
collectively, as the "Leases") relating to the premises specified in each Lease
(the "Premises"); and
WHEREAS, the Assignee desires to purchase from the Assignor all of the
Assignor's right, title and interest as the Tenant under each of the Leases and,
in connection therewith, to assume the obligations of the Assignor under each
such Lease; and
WHEREAS, the Assignor is so willing to sell and assign to the Assignee all
of its right, title and interest under each of the Leases.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee hereby covenant and agree, as follows:
1. Assignment. Subject to the provisions of Paragraph 9 hereof, the
Assignor, as of the date hereof (the "Effective Date"), hereby grants, bargains,
sells, conveys, assigns, transfers, set over and delivers to Assignee, its
successors and assigns, all of the Assignor's right, title and interest in and
to each of the Leases more particularly described on Exhibit A annexed hereto,
including any security deposit and advance rental payments held by the Landlord
thereunder, and such Assignor's leasehold interest in the Premises covered
thereby.
2. Representations and Warranties of Assignor. The Assignor hereby
represents and warrants as to each such Lease
3
<PAGE>
that, as of the date hereof: (i) the Assignor is the owner and holder of the
Tenant's interest under such Leases;
(ii) the Assignor has made no prior assignments of such Lease or of any rights
therein; (iii) since January 1, 1996, such Lease has not been modified or
amended, except as specifically set forth in Exhibit A annexed hereto and except
as to the certain arrangements regarding the payment of past due rents; (iv)
such Lease is in full force and effect and the term thereof has commenced
pursuant to the provisions thereof; (v) the Assignor is in possession of the
Premises; (vi) the Assignor has not commenced any action or given or served any
notice for the purpose of terminating such Lease; and (vii) the Assignor has
full power and authority to execute, deliver and perform this Agreement, and
this Agreement constitute the valid and binding obligation of such Assignor,
enforceable in accordance with its terms, and no consent or approval of any
third party is required with respect to this Agreement except for the consent of
the Landlord under each of said Leases.
3. Indemnification. Assignor hereby covenants and agrees to indemnify and
hold Assignee harmless from and against any and all liability, loss or damage
(including, but not limited to, reasonable attorneys' fees) which Assignee may
incur by reason of any breach by the Assignor of any of its representations
and/or warranties contained herein and/or the failure of the Assignor to comply
with its obligations as set forth in Paragraph 5 hereof.
4. Assumption. Subject to the provisions of Paragraph 9 hereof, the
Assignee hereby covenants and agrees to assume all of the obligations on the
part of the Tenant under each of the Leases to be performed or observed, and
whether or not the same arose and/or became payable prior to the Effective Date
hereof.
5. Cooperation. Assignor covenants and agrees to promptly cooperate with
the Assignee and to take such further action and to execute such further
documents and instruments as may be reasonably requested by Assignee in order to
carry out the provisions and purposes of the Agreement.
6. Binding Nature. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto, and each of their respective legal
representatives, successors and/or assigns.
7. Invalidity. If any term, covenant or condition of this Agreement shall
be held to be invalid, illegal or unenforceable, in any respect, this Agreement
shall be construed without such provision.
4
<PAGE>
8. Counterparts; Governing Law; No Modification. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument and, as
to each Lease assigned hereunder, shall be governed by, and construed in
accordance with, the internal laws of the State in which the Premises covered by
such Lease is located. No modification or amendment of any provision of this
Agreement or any waiver of any term hereof shall, in any event, be effective
unless made by an instrument, in writing, signed by all of the parties hereto.
9. Right to Reject. Notwithstanding anything to the contrary contained
herein, it is specifically understood and agreed that Assignee, by notice, in
writing, giving to the Assignor at any time prior to July 24, 1996, shall have
the right to exclude (reject) any one or more of the Leases assigned hereby;
provided, however, that notwithstanding any such exclusion (rejection) of any
such Lease by the Assignee, the Assignee shall nevertheless be required to pay
all rent due the Landlord of such excluded Lease(s) arising and/or accruing
during the period, only, from the date hereof to the date of any such notice to
the Assignor.
IN WITNESS WHEREOF, Assignors and Assignee have caused this Agreement to be
duly executed as of the day and year first above written.
ASSIGNOR: DULING OPTICAL CORPORATION
By: /s/ Larry Joel
-------------------------
Larry Joel, President
ASSIGNEE: STERLING VISION DKM, INC.
By: /s/ Joseph Silver
-------------------------
Joseph Silver,
Executive Vice President &
General Counsel
5
<PAGE>
STATE OF KENTUCKY )
) ss.:
COUNTY OF JEFFERSON )
On this 12th of June, 1996, before me personally came Larry Joel, an
individual residing at 8910 Cromwell Lane, Louisville, Kentucky 40222 who, being
by me duly sworn, did depose and say that he is the President of each of the
Duling Optical Corporation, D & K Optical, Inc. and Monfried Optical Company,
the corporations named in and which executed the above instrument, and that he
signed his name thereto pursuant to the authority granted him by the Board of
Directors of each of said corporations.
/s/ Apryl L. Robinson
--------------------------------
Notary Public, State of Kentucky
My Commission Expires: 3-27-98
(Notary Seal)
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this 10th day of June, 1996, before me personally came Joseph Silver, an
individual residing at 12 South Drive, Great Neck 11021 who, being by me duly
sworn, did depose and say that he is an Executive Vice President of Sterling
Vision DKM, Inc., the corporation named in and which executed the above
instrument, and that he signed his name thereto pursuant to the authority
granted him by the Board of Directors of said corporation.
/s/ Deborah L. Kahm
--------------------------------
Notary Public, State of New York
My Commission Expires: DEBORAH L. HAHM
NOTARY PUBLIC, State of New York
(Notary Seal) No. 30-47[Illegible]
Qualified in Nassau County
Commission Expires 12/31/96
6
<PAGE>
Exhibit A
Store No: 1120
Lease Agreement, dated January 17, 1990, between The Equitable Life Assurance
Society of the United States, as Landlord and Duling Optical Corporation, as
Tenant, covering the Premises located at Crossroad Center, Waterloo, Iowa.
Store No: 1233
Lease Agreement, undated, between Grand Center Limited Partnership, a limited
partnership, as Landlord and Duling Optical Corporation, as Tenant, covering the
Premises located at Grand Central Mall, Parkersburg, West Virginia.
Store No.: 1270
Lease Agreement, dated May 31, 1989, between Governor's Square Company, a
General Partnership, as Landlord and Duling Optical Corporation, as Tenant,
covering the Premises located at Governor's Square Mall, Clarksville, Tennessee.
7
<PAGE>
[Letterhead of Sterling Optical (R)]
July 11, 1996
Duling Optical Corporation
D & K Optical, Inc.
Monfried Optical Company
4413 Poplar Level Road
Louisville, Kentucky 40213
Re: ASSIGNMENT OF LEASES
Gentlemen:
Reference is made to that certain Letter Agreement, dated May 24, 1996, a copy
of which is annexed hereto, pursuant to which each of Duling Optical
Corporation, D & K Optical, Inc. and Monfried Optical Company, together with
certain of their respective affiliates (collectively, the "Assignors") granted
to Sterling Vision DKM, Inc. ("DKM") the right, on or before July 24, 1996, to
notify the Assignors, in writing, of DKM's election not to include one or more
of the leases (referred to in said Letter Agreement) in the group of leases
assigned to DKM.
When fully executed, this letter will serve to confirm our understanding and
agreement that the date set forth in said Letter Agreement shall be extended
from July 24, 1996 to September 30, 1996.
If the foregoing correctly sets forth our understanding and agreement, kindly
indicate such acceptance by signing, in the space below, and returning to the
undersigned a duplicate copy of this letter.
Very truly yours,
STERLING VISION DKM, INC.
By: /s/ Joseph Silver
-----------------
Joseph Silver,
Executive Vice President
& General Counsel
<PAGE>
AGREED AND CONSENTED TO:
July __, 1996
DULING OPTICAL CORPORATION
MONFRIED OPTICAL COMPANY
D & K OPTICAL, INC., a Delaware corporation
D & K OPTICAL, INC., a Minnesota corporation
VISION OPTICAL CO., INC.
VISION OPTICAL CO.
KINDY OPTICAL COMPANY, an Iowa corporation
KINDY OPTICAL COMPANY, a Delaware corporation
D & K OPTICAL CO. OF SOUTH DAKOTA
DULING OPTICAL, INC.
By: /s/ Larry Joel
--------------
Larry Joel, President
JS/pas
Enclosure
2
<PAGE>
ASSIGNMENT
In consideration of the sum of $111,009.50 to be in hand paid by the
undersigned to Bank One Kentucky, N.A., f/k/a Liberty National Bank and Trust
Company of Louisville, ("Assignor"), a National Banking Association registered
with the office of the Controller of the Currency, having an address at P. O.
Box 32500, Louisville, Kentucky 40232, the Assignor does hereby sell, transfer,
convey, assign and set over to Sterling Vision DKM, Inc., a Delaware
corporation, whose address is 1500 Hempstead Turnpike, East Meadow, New York
11554, its successors and assigns ("Assignee") all of the Assignor's rights,
title and interest in and to that certain Revolving Credit Loan Agreement and
Security Agreement, dated January 30, 1992, between D&K Optical, Inc., Duling
Optical Corporation, Duling Optical of South Dakota, Inc., Vision Optical Co.
and Kindy Optical Company (collectively, the "Debtors") and the Assignor (a true
and correct copy of which is attached hereto as Exhibit "A"), together with all
Form UCC-1 Financing Statements and all promissory notes executed by any one or
more of the Debtors and delivered to the Assignor in connection therewith
(collectively, the "Revolving Credit Agreement"). Assignor does hereby further
sell, transfer, assign, sets over and convey to Assignee all rights which it may
have which may flow from the various UCC-1 Financing Statement filings and
security agreements which are listed in Exhibit "B" attached hereto (which
Assignor hereby agrees to assign to Assignee), together with all other such
Financing Statements and security agreements executed by any of the Debtors in
favor of the Assignor.
Included in this Assignment are all rights to sue for, collect and receipt
for all indebtedness due or to become due under the Revolving Credit Agreement,
with power to enforce, in its own name, any and all rights given to Assignor
thereunder or which may be deemed necessary by Assignee to enforce the terms
thereof.
1
<PAGE>
Assignor hereby represents and warrants to Assignee, as follows:
1. The Revolving Credit Agreement was executed by Dr. Larry Joel on behalf
of each of the Debtors;
2. The Assignor is the owner of the Revolving Credit Agreement and warrants
that it has not conveyed an interest in same to any third party;
3. The total balance due Assignee, as of May 31, 1996, under the Revolving
Credit Agreement was $117,841.03;
4. The Revolving Credit Agreement is in full force and effect and is the
valid and binding obligation of the Debtors, enforceable against each of the
Debtors in accordance with its terms;
5. To the best of Assignor's knowledge and belief, there are no offsets,
counterclaims or other defenses to the Debtors' obligations and liabilities
under the Revolving Credit Agreement;
6. Assignor is a National Banking Association registered with the Office of
the Controller and has all requisite corporation power to enter into this
Agreement and the other documents and instruments to be executed and delivered
by Assignor pursuant hereto, and to carry out the terms and provisions hereof
and thereof. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by the Assignor pursuant
hereto, together with the consummation of the transactions contemplated hereby,
having been duly authorized by all necessary acts of Assignor. This Agreement
does, and the other document and instruments to be executed and delivered by the
Assignor pursuant hereto will, constitute the legal, valid and binding
agreements of the Assignor, enforceable against the Assignor in accordance with
the terms; and
2
<PAGE>
7. Assignor has the full right, power and authority to sell, convey, assign
and transfer to Assignee the assets described herein.
This Assignment represents the entire agreement between Assignor and
Assignee and no oral representations alleged, whether made or not made, shall
have any force or effect.
It is agreed that Assignee, forthwith, shall forward its check, in the
amount of $111,009.50, which shall represent the entire sum payable by Assignee
to Assignor hereunder, which check shall be payable to, and held in escrow in,
the Escrow Account of Mapother and Mapother, P.S.C., counsel to the Assignor,
until such time as this Agreement, together with all such Form UCC-3 Assignment
Agreements which are necessary to assign to Assignee all of the Assignor's
right, title and interest in and to the Form UCC-1 Financing Statements referred
to herein, are fully executed and delivered by the Assignor to the Assignee.
In Witness Whereof, this Assignment has been executed as of the 19th day of
June, 1996.
BANK ONE KENTUCKY, N.A. STERLING VISION DKM, INC.
By: /s/ David A Frances By: /s/ Robert Greenberg
------------------------------- ---------------------------
David A Frances, Vice President Robert Greenberg, President
This document prepared by:
/s/ Charles M. Friedman
- -----------------------
Charles M. Friedman
Counsel for Bank One Kentucky, N.A.
801 West Jefferson Street
Louisville, Kentucky 40202
(502) 587-5426
3
<PAGE>
STATE OF KENTUCKY )
) ss.:
COUNTY OF JEFFERSON )
Subscribed and sworn to before me by David A. Frances, Vice
President, Bank One, Kentucky, N.A. this 20th day of June, 1996.
My Commission expires: 8-14-97
/s/ Nancy L. Pool
---------------------------------
NOTARY PUBLIC, STATE-AT-LARGE, KY.
4
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On the 19th day of June, 1996, before me personally came Robert Greenberg,
to me known and known to me, who, being by me duly sworn, did depose and say
that he resides at 58 Starling Court, Roslyn, New York; that he is the President
of Sterling Vision DKM, Inc., the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was to be
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
/s/ Joseph Silver
-------------------
Notary Public
JOSEPH SILVER
Notary Public, State of New York
No. 3667925
Qualified in Nassau County
Commission Expires January 31, 1998
5
FIRST AMENDMENT OF
THE STERLING VISION, INC.
1995 STOCK INCENTIVE PLAN
WHEREAS, Sterling Vision, Inc. (the "Company") has adopted its 1995 Stock
Incentive Plan (the "1995 Plan"); and
WHEREAS, pursuant to Section 7.2 of the 1995 Plan, the Company's Board of
Directors or Compensation Committee may amend the 1995 Plan, provided, among
other things, that such amendment shall be effective only upon approval by the
shareholders of the Company where the failure to obtain such approval would
increase the limit imposed in Section 2.1 (other than as adjusted due to stock
splits and similar transactions) on the maximum number of shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), which may
be issued upon exercise of an option; and
WHEREAS, there are currently reserved for issuance under the 1995 Plan,
1,239,241 shares of Common Stock; and
WHEREAS, the Company's Board of Directors deems it in the best interest of
the Company to increase the total number of shares of Common Stock reserved for
issuance under the 1995 Plan.
NOW THEREFORE, by resolution of the Company's Board of Directors, the 1995
Plan is hereby amended as follows, subject to approval by the Company's
shareholders:
1. The second sentence of Section 2.1 is hereby amended to read as
follows:
"The maximum aggregate number of such shares which may be issued
under the Plan shall be 2,000,000 shares."
STERLING VISION, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY EARNINGS (LOSS)
Net income (loss) $ (147) $ 1,164 $ 11 $ 2,031
======== ======== ======== ========
Weighted average
number of common
shares outstanding 12,294 9,963 12,294 9,963
Incremental shares
based on the
treasury stock
method for stock
options, using the
average market
price 35 -- 35 --
-------- -------- -------- --------
Weighted average
number of common
share and common
share equivalents
outstanding 12,329 9,963 12,329 9,963
======== ======== ======== ========
Primary earnings
(loss) per common
share $ (.01) $ .12 $ .00 $ .20
======== ======== ======== ========
FULLY DILUTED EARNINGS (LOSS)*
Net income (loss) $ (147) $ 1,164 $ 11 $ 2,031
======== ======== ======== ========
Weighted average
number of common
shares outstanding 12,294 9,963 12,294 9,963
Incremental shares
based on the
treasury stock
method for stock
options, using the
average market
price 223 -- 223 --
-------- -------- -------- --------
Weighted average
number of common
share and common
share equivalents
outstanding 12,517 9,963 12,517 9,963
======== ======== ======== ========
Fully diluted
earnings (loss)
per common share $ (.01) $ .12 $ .00 $ .20
======== ======== ======== ========
* This calculation is submitted in accordance with Securities 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%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,144
<SECURITIES> 0
<RECEIVABLES> 23,512
<ALLOWANCES> 532
<INVENTORY> 4,765
<CURRENT-ASSETS> 23,306
<PP&E> 10,481
<DEPRECIATION> 2,102
<TOTAL-ASSETS> 49,593
<CURRENT-LIABILITIES> 13,072
<BONDS> 17,109
0
0
<COMMON> 124
<OTHER-SE> 23,917
<TOTAL-LIABILITY-AND-EQUITY> 49,593
<SALES> 14,377
<TOTAL-REVENUES> 20,396
<CGS> 3,740
<TOTAL-COSTS> 20,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 231
<INTEREST-EXPENSE> 603
<INCOME-PRETAX> 18
<INCOME-TAX> 7
<INCOME-CONTINUING> 11
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<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.
</TABLE>
