<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(An Amendment to Form 8-K filed on August 7, 1998)
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): July 31, 1998
VISION TWENTY-ONE, INC.
----------------------
(Exact name of registrant as specified in its charter)
FLORIDA 0-22977 59-3384581
- ------------------------------ ------------------- ---------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
7360 BRYAN DAIRY ROAD, STE. 200
LARGO, FLORIDA 33777
- -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 813-545-4300
<PAGE> 2
This Form 8-K/A is filed to provide financial statements of
businesses acquired and pro forma financial information related to same
previously omitted from the Company's Form 8-K filed on August 7, 1998, and to
file the Company's press release related to the completion of its secondary
public offering of common stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements of businesses acquired by the
Company which were omitted from the Form 8-K filed on August 7, 1998, are
filed with this Amendment as follows:
FINANCIAL STATEMENTS OF VWSC CORPORATION (FORMERLY VISION WORLD, INC.)
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants........................................................
Balance Sheets as of December 28, 1996 and January 3, 1998
and July 4, 1998 (Unaudited)..............................................................................
Statements of Earnings for the Fiscal Years Ended December 30, 1995,
December 28, 1996 and January 3, 1998 and the Six Months Ended June 28, 1997 and July 4, 1998 (Unaudited).
Statements of Stockholders' Equity for the Fiscal Years Ended December 30, 1995,
December 28, 1996 and January 3, 1998 and the Six Months Ended July 4, 1998 (Unaudited)...................
Statements of Cash Flows for the Fiscal Years Ended December 30, 1995,
December 28, 1996 and January 3, 1998 and the Six Months Ended June 28, 1997 and July 4, 1998 (Unaudited).
Notes to Financial Statements.............................................................................
</TABLE>
2
<PAGE> 3
Report of Independent Certified Public Accountants
Board of Directors
VWSC Corporation (Formerly Vision World, Inc.)
We have audited the accompanying balance sheets of VWSC Corporation (Formerly
Vision World, Inc.- a Minnesota S corporation) as of January 3, 1998 and
December 28, 1996, and the related statements of earnings, stockholders' equity
and cash flows for each of the three years ended January 3, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VWSC Corporation (Formerly
Vision World, Inc.) as of January 3, 1998 and December 28, 1996, and the results
of its operations and its cash flows for each of the three years ended January
3, 1998, in conformity with generally accepted accounting principles.
/s/ Divine, Scherzer & Brody, Ltd.
Minneapolis, Minnesota
August 21, 1998
3
<PAGE> 4
VWSC Corporation
(Formerly Vision World, Inc.)
BALANCE SHEETS
ASSETS (Note E)
<TABLE>
<CAPTION>
December 28, January 3, July 4,
1996 1998 1998
------------ ---------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (notes A1 and B) $ 396,532 $2,505,092 $1,114,242
Marketable securities - available for sale (note A2) -- 451,582 --
Accounts receivable, less allowance for doubtful
accounts of $30,000, $70,000 and $70,000,
respectively 234,629 405,182 389,378
Inventories (notes A3 and C) 2,525,115 2,164,665 2,050,056
Prepaid expenses and other 41,635 59,505 69,605
---------- ----------- ----------
Total current assets 3,197,911 5,586,026 3,623,281
PROPERTY AND EQUIPMENT - AT COST (note D)
Furniture and fixtures 4,352,649 4,714,660 4,771,722
Equipment and vehicles 904,280 1,304,955 1,311,073
Leasehold improvements 2,410,163 2,333,136 2,337,293
---------- ----------- ----------
7,667,092 8,352,751 8,420,088
Less accumulated depreciation and amortization
(note A4) 5,422,162 5,728,883 6,032,940
---------- ----------- ----------
2,244,930 2,623,868 2,387,148
OTHER ASSETS
Net assets to be contributed to affiliate
(notes A4 and D) 1,841,932 2,002,867 --
Investment in affiliate (notes A5 and D) -- -- 299,230
Security deposits and other 24,482 28,892 31,298
---------- ----------- ----------
1,866,414 2,031,759 330,528
---------- ----------- ----------
$7,309,255 $10,241,653 $6,340,957
========== =========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 28, January 3, July 4,
1996 1998 1998
------------ ---------- ----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 706,055 $ 1,036,824 $ 930,231
Accrued liabilities
Compensation 272,283 567,626 593,959
MinnesotaCare taxes 92,310 119,387 76,695
Rents -- -- 32,610
Other 62,525 90,281 92,599
Customer deposits (note A7) 262,260 362,556 365,131
Due to stockholders, principally accrued
distributions (note A6) -- 762,512 --
---------- ----------- ----------
Total current liabilities 1,395,433 2,939,186 2,091,225
COMMITMENTS AND CONTINGENCIES (note F) -- -- --
STOCKHOLDERS' EQUITY
Common stock - authorized, 14,000 shares of no
par value
Voting - issued and outstanding, 6,100 shares 6,100 6,100 6,100
Non-voting - issued and outstanding, 6,000
shares 6,000 6,000 6,000
Retained earnings (note D) 5,901,722 7,290,367 4,237,632
---------- ----------- ----------
5,913,822 7,302,467 4,249,732
---------- ----------- ----------
$7,309,255 $10,241,653 $6,340,957
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
VWSC Corporation
(Formerly Vision World, Inc.)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended Six Months Ended
------------------------------------------------ --------------------------
December 30, December 28, January 3, June 28, July 4,
1995 1996 1998 1997 1998
------------ ------------ ---------- -------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales (note A7) $ 21,934,539 $ 22,999,085 $ 25,836,032 $12,424,884 $13,955,410
Cost of sales 9,062,581 9,770,885 10,622,176 5,002,978 5,594,974
------------ ------------ ------------ ----------- -----------
Gross profit 12,871,958 13,228,200 15,213,856 7,421,906 8,360,436
Selling, general and administrative
expenses 11,817,821 12,658,399 13,490,062 6,504,764 7,159,915
------------ ------------ ------------ ----------- -----------
Operating profit 1,054,137 569,801 1,723,794 917,142 1,200,521
Other income (expense)
Net rental income (note I) 186,433 252,466 311,807 163,350 61,092
Interest income 98,158 47,821 92,862 25,593 57,861
Interest expense (50,964) (33,748) (20,770) (11,655) (16,214)
Gain (loss) on disposal
of fixed assets 107,223 (31,120) (22,940) (10,475) --
Equity in earnings of affiliate
(note D) -- -- -- -- 58,115
Other -- (6,406) -- -- 18,101
------------ ------------ ------------ ----------- -----------
340,850 229,013 360,959 166,813 178,955
------------ ------------ ------------ ----------- -----------
NET EARNINGS
(note A6) $ 1,394,987 $ 798,814 $ 2,084,753 $ 1,083,955 $ 1,379,476
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
VWSC Corporation
(Formerly Vision World, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 30, 1995, December 28, 1996 and January 3, 1998, and
the six months ended July 4, 1998 (unaudited)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Voting Non-Voting
--------------------- --------------------- Retained
Shares Amount Shares Amount earnings Total
------ ------ ------ -------- -------- -----
(note D)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 7,000 $7,000 5,100 $ 5,100 $ 5,618,460 $ 5,630,560
Net earnings -- -- -- -- 1,394,987 1,394,987
Distributions -- -- -- -- (811,611) (811,611)
----- ------ ----- ------- ----------- -----------
Balance, December 30, 1995 7,000 7,000 5,100 5,100 6,201,836 6,213,936
Net earnings -- -- -- -- 798,814 798,814
Distributions -- -- -- -- (1,098,928) (1,098,928)
----- ------ ----- ------- ----------- -----------
Balance, December 28, 1996 7,000 7,000 5,100 5,100 5,901,722 5,913,822
Net earnings -- -- -- -- 2,084,753 2,084,753
Distributions -- -- -- -- (696,108) (696,108)
----- ------ ----- ------- ----------- -----------
Balance, January 3, 1998 7,000 7,000 5,100 5,100 7,290,367 7,302,467
Net earnings (unaudited) -- -- -- -- 1,379,476 1,379,476
Distributions (unaudited) -- -- -- -- (4,432,211) (4,432,211)
----- ------ ----- ------- ----------- -----------
Balance, July 4, 1998 (unaudited) 7,000 $7,000 5,100 $ 5,100 $ 4,237,632 $ 4,249,732
===== ====== ===== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
VWSC Corporation
(Formerly Vision World, Inc.)
STATEMENTS OF CASH FLOWS (Note J)
<TABLE>
<CAPTION>
Years ended Six months ended
------------------------------------------------ -------------------------
December 30, December 28, January 3, June 28, July 4,
1995 1996 1998 1997 1998
------------ ------------ ---------- -------- ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash and
cash equivalents (note A1)
Cash flows from operating activities
Net earnings $ 1,394,987 $ 798,814 $ 2,084,753 $1,083,955 $ 1,379,476
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization (note A4) 903,259 784,163 822,299 447,282 338,344
Provision for doubtful receivables -- 30,000 40,000 -- --
Equity in earnings of affiliate (note D) -- -- -- -- (58,115)
Loss (gain) on disposition of assets (107,223) 31,120 22,940 10,475 --
Decrease (increase) in value of
marketable securities (4,673) 7,001 (2,653) -- 3,679
Change in assets and liabilities:
Accounts receivable (17,934) (117,262) (210,553) 83,404 15,804
Inventories (489,348) 8,989 360,450 259,798 114,609
Prepaid expenses and other (137,248) 153,374 (13,780) (31,921) (12,506)
Accounts payable 443,239 (365,310) 353,154 132,580 (156,813)
Accrued liabilities 2,103 12,805 322,858 15,127 39,869
Customer deposits 5,253 4,194 100,296 (22,819) 2,575
----------- ----------- ----------- ---------- -----------
597,428 549,074 1,795,011 893,926 287,446
----------- ----------- ----------- ---------- -----------
Net cash provided by operating
activities 1,992,415 1,347,888 3,879,764 1,977,881 1,666,922
Cash flows from investing activities
Sale of marketable securities 100,000 256,200 -- -- 447,903
Purchase of marketable securities -- -- (448,929) -- --
Capital expenditures (889,941) (1,252,415) (1,112,052) (408,972) (70,217)
Proceeds from disposition of assets 350,896 20,889 4,470 -- --
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in)
investing activities (439,045) (975,326) (1,556,511) (408,972) 377,686
Cash flows from financing activities
Principal payments under long-term
obligations (583,965) (82,541) (281,097) (45,568) (6,235)
Proceeds from issuance of long-term
obligations -- -- -- -- 1,800,000
Distributions (811,611) (1,098,928) -- -- (4,432,211)
Finance costs -- -- -- -- (34,500)
Change in due to stockholders -- -- 66,404 -- (762,512)
----------- ----------- ----------- ---------- -----------
Net cash used in financing
activities (1,395,576) (1,181,469) (214,693) (45,568) (3,435,458)
----------- ----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 157,794 (808,907) 2,108,560 1,523,341 (1,390,850)
Cash and cash equivalents, beginning
of period 1,047,645 1,205,439 396,532 396,532 2,505,092
---------- ----------- ----------- ---------- -----------
Cash and cash equivalents, end of period $ 1,205,439 $ 396,532 $ 2,505,092 $1,919,873 $ 1,114,242
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
VWSC Corporation (Formerly Vision World, Inc.), a Minnesota S
Corporation, is an eyewear retailer that also provides optical
examinations through 37 company owned retail outlets principally in
enclosed malls located in Minnesota, Wisconsin, Iowa and North Dakota.
The Company's headquarters are in Roseville, Minnesota, where it
maintains a central laboratory for processing customer eyewear orders.
The Company uses a 52/53 week fiscal year ending on the Saturday
nearest December 31. The accompanying financial statements include 53
weeks for the period ended January 3, 1998 and 52 weeks for the periods
ended December 30, 1995 and December 28, 1996.
During July 1998, the Company changed its name to VW Crocus Lane, Inc.
and in August 1998 the Company changed its legal name to VWSC
Corporation.
Unaudited Interim Financial Statements
The interim financial statements as of July 4, 1998 and for the
six-month periods ended June 28, 1997 and July 4, 1998 do not provide
all disclosures included in the annual financial statements. These
interim statements should be read in conjunction with the annual
audited financial statements and the footnotes thereto. Results for the
interim periods are not necessarily indicative of the results for the
year ended January 3, 1998. However, the accompanying interim financial
statements reflect all adjustments which are, in the opinion of
management, of a normal and recurring nature necessary for a fair
presentation of the financial position and results of operations of the
Company.
Summary of Significant Accounting Policies
1. Cash Equivalents
The Company considers bank certificates of deposit and money market
funds, which can be cashed on demand, and other highly liquid
investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
8
<PAGE> 9
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
2. Investments
These financial statements reflect the application of Statements of
Financial Accounting Standards No. 115 - "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
requires classification of debt and equity securities in three
categories: trading securities, available-for-sale securities and
held-to-maturity securities. Trading securities are measured at fair
value, with unrealized holding gains and losses included in earnings.
Available-for-sale securities are measured at fair value, with net
unrealized gains and losses reported in stockholders' equity.
Held-to-maturity securities are carried at amortized cost. Gains and
losses are recognized using the specified identification method.
The Company's investments are classified as available-for-sale
securities. Cost of the Company's investments approximated fair value
as of January 3, 1998. Therefore, no unrealized gains or losses were
recorded as of January 3, 1998.
3. Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Certain costs
are expensed for financial reporting purposes that are capitalized for
income tax reporting purposes.
4. Depreciation and Amortization
Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives,
principally using the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes. The
estimated useful lives over which these assets are depreciated are five
to seven years.
Amortization is provided for in amounts sufficient to relate the cost
of leasehold improvements to operations over their estimated service
lives, principally using the straight-line method for financial
reporting purposes and accelerated methods for tax reporting purposes.
The estimated useful lives over which these leasehold improvements are
depreciated are seven years.
Included in net assets contributed to affiliate is a building being
depreciated over 31.5 years.
5. Investment in Affiliate
The Company's investment in affiliate is stated at cost plus equity in
undistributed earnings since date of acquisition.
9
<PAGE> 10
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- CONTINUED
6. Income Taxes
Income taxes on net earnings and tax benefits from net losses accrue
personally to the stockholders pursuant to an election under Subchapter
S of the Internal Revenue Code not to have the Company taxed as a
corporation. Accordingly, no provision has been made for income taxes.
Had such taxes been payable by the Company, the income tax provision
would have approximated:
<TABLE>
<CAPTION>
For the year ended
------------------
<S> <C>
December 30, 1995 $ 559,000
December 28, 1996 320,000
January 3, 1998 835,000
</TABLE>
<TABLE>
<CAPTION>
For the six months ended
------------------------
<S> <C>
June 28, 1997 (unaudited) $ 434,000
July 4, 1998 (unaudited) 552,000
</TABLE>
The Company makes distributions to its stockholders as deemed necessary
for payment of individual income taxes related to the net earnings of
the Company. Accrued distributions to stockholders are non-interest
bearing and are due on demand.
7. Revenue Recognition
Examination revenues are recognized upon completion of the exam.
Eyeware sales are recognized upon delivery to the customer.
Accordingly, eyewear deposits made by customers when placing an order
are treated as unearned and reported as customer deposits.
8. Advertising
The company expenses the cost of advertising as incurred. Advertising
expense is as follows:
<TABLE>
<CAPTION>
For the year ended
------------------
<S> <C>
December 30, 1995 $ 1,173,092
December 28, 1996 1,226,891
January 3, 1998 995,475
</TABLE>
10
<PAGE> 11
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- CONTINUED
8. Advertising - Continued
<TABLE>
<CAPTION>
For the six months ended
------------------------
<S> <C>
June 28, 1997 (unaudited) $ 587,894
July 4, 1998 (unaudited) 669,764
</TABLE>
9. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from such
estimates.
NOTE B - CONCENTRATIONS
The Company maintains its primary cash balances in one financial
institution located in Minneapolis, Minnesota. These balances are
insured by the Federal Deposit Insurance Corporation up to $100,000.
NOTE C - INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
December 28, January 3, July 4,
1996 1998 1998
------------ ---------- -----------
(unaudited)
<S> <C> <C> <C>
Frames $ 1,588,771 $ 1,151,802 $ 1,044,094
Sunglasses 275,167 125,751 104,216
Lenses 327,181 352,953 358,093
Contact lenses 206,216 368,969 399,976
Solutions and supplies 73,275 83,777 59,689
Work in process 54,505 81,413 83,988
------------ ----------- -----------
$ 2,525,115 $ 2,164,665 $ 2,050,056
============ =========== ===========
</TABLE>
11
<PAGE> 12
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE D - INVESTMENT IN AFFILIATE
During March 1998, the Company contributed their Roseville building,
net of a $1,800,000 mortgage obtained subsequent to January 3, 1998,
and other related net liabilities (approximate net book value of
contribution of $200,000) for an approximate 50% limited partnership
interest in the Trenholme Family Limited Partnership (Partnership). The
general partner of the Partnership is a corporation owned by the two
stockholders of the Company. See note F for discussion of the Roseville
building lease between the Company and the Partnership.
Simultaneous with the Company's contribution of net assets to the
partnership, the Company declared and paid a $2,000,000 dividend to the
stockholders of the Company, who in turn contributed this money to the
Partnership.
In addition, the Company entered into a property management agreement
with the Partnership, whereby the Company will manage the Roseville
building for an annual fee of 5% of gross rents (including the
Company's portion) through January 1, 1999. The total amount charged by
the Company to the Partnership for the six month period ended July 4,
1998 was $18,101 (unaudited).
The Partnership was formed, and commenced operations, in March 1998.
Summarized financial data is as follows:
<TABLE>
<CAPTION>
June 30, 1998
-------------
(unaudited)
<S> <C>
Assets $ 4,319,713
=============
Liabilities $ 1,963,113
Partners' equity 2,356,600
-------------
$ 4,319,713
=============
Six-month
period ended
June 30, 1998
-------------
(unaudited)
Revenues $ 362,046
Operating expenses (218,848)
Other expense, net (26,969)
-------------
NET EARNINGS $ 116,229
=============
</TABLE>
12
<PAGE> 13
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE D - INVESTMENT IN AFFILIATE - CONTINUED
The net assets to be contributed to the Partnership have been
segregated in the balance sheet and are stated at the Company's
historical cost basis for periods prior to the actual contribution to
the Partnership. These net assets consist of:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ ----------
<S> <C> <C>
Property and equipment $ 2,081,412 $ 2,156,242
Less accumulated depreciation and amortization 459,283 650,708
------------ ------------
1,622,129 1,505,534
Land 682,100 682,100
Current liabilities and other (181,200) (184,767)
Mortgage and note payable (281,097) --
------------ ------------
$ 1,841,932 $ 2,002,867
============ ============
</TABLE>
NOTE E - REVOLVING CREDIT AGREEMENT
The Company had a $500,000 revolving credit agreement with a bank which
expired in June 1998. Borrowings were limited to a borrowing base of
eligible receivables and inventory. Interest on the borrowings under
the agreement were at the bank's reference rate. As of December 28,
1996, January 3, 1998 and July 4, 1998, there were no borrowings under
this agreement. Collateral for the revolving credit agreement included
substantially all assets of the Company.
NOTE F - COMMITMENTS AND CONTINGENCIES
Commitments
Effective March 1, 1998, the Company leased its Roseville office and
central laboratory facility from a related partnership under an
operating lease which expires December 31, 2002 (see note D for further
information). The lease provides for monthly payments of $32,610 which
includes executory costs such as property taxes, maintenance and
insurance. In connection with a subsequent bank financing, also
described at note D, the Company has agreed to renew this lease for an
additional five-year term. Total rent expense for the six months ended
July 4, 1998 related to the Roseville lease between the Company and the
Partnership was $130,440 (unaudited).
13
<PAGE> 14
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE F - COMMITMENTS AND CONTINGENCIES - CONTINUED
Commitments - Continued
The Company conducts its retail operations through leased locations.
The leases expire at various dates through January 31, 2008. In
addition to base monthly rental, the leases provide for percentage
rents and certain executory costs, including property taxes,
maintenance and insurance.
The minimum rental commitments under operating leases with initial
terms of one year or more for the years following January 3, 1998 are
as follows (including the March 1998 Roseville office and central
laboratory lease discussed above):
<TABLE>
<S> <C>
January 2, 1999 $ 1,897,000
January 1, 2000 1,685,000
December 30, 2000 1,463,000
December 29, 2001 1,285,000
December 28, 2002 1,141,000
Thereafter 3,692,000
--------------
$ 11,163,000
==============
</TABLE>
Total rent expense including property taxes and common area costs was
as follows:
<TABLE>
<CAPTION>
For the year ended
------------------
<S> <C>
December 30, 1995 $ 2,320,113
December 28, 1996 2,677,343
January 3, 1998 2,866,968
</TABLE>
<TABLE>
For the six months ended
------------------------
<S> <C>
June 28, 1997 (unaudited) $ 1,388,006
July 4, 1998 (unaudited) 1,504,256
</TABLE>
14
<PAGE> 15
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE F - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company has an agreement with an employee to pay $500,000 in
connection with the sale of the Company.
Contingencies
The Company is required to make payments to two officers in the event
of a change in control and termination, as defined. The aggregate
amount of such commitment approximates $215,000 as of January 3, 1998.
NOTE G - EMPLOYEE BENEFIT PLAN AND TRUST
The Company has a savings and profit-sharing plan covering
substantially all full-time employees. The plan allows employees to
contribute up to 19% of their compensation. Employer contributions are
at the discretion of the Company and were as follows:
<TABLE>
<CAPTION>
For the year ended
------------------
<S> <C>
December 30, 1995 $ 25,877
December 28, 1996 36,951
January 3, 1998 40,505
</TABLE>
<TABLE>
For the six months ended
------------------------
<S> <C>
June 28, 1997 (unaudited) $ 19,517
July 4, 1998 (unaudited) 21,884
</TABLE>
NOTE H - ACQUISITION BY VISION TWENTY-ONE, INC.
On July 31, 1998, the Company entered into an asset purchase agreement
with Vision Twenty-One, Inc. (Vision) to sell substantially all assets
and liabilities of the Company for $18,550,000 in cash (less a $300,000
integration fee paid to Vision) if certain performance targets are met.
The Company received $16,650,000 at closing (July 31, 1998). In
addition, the Company estimates it will receive approximately $800,000
by September 30, 1998, and has the opportunity to receive up to
$600,000 in additional consideration during calendar year 2000 if
certain sales performance targets are met for the year ending December
31, 1999.
15
<PAGE> 16
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE H - ACQUISITION BY VISION TWENTY-ONE, INC. - CONTINUED
The Company remains contingently obligated for certain representations
and warranties associated with this transaction.
NOTE I - NET RENTAL INCOME
The Company records rental income net of allocated occupancy costs. Net
rental income consists of:
<TABLE>
<CAPTION>
Years ended Six months ended
------------------------------------------------ --------------------------
December 30, December 28, January 3, June 28, July 4,
1995 1996 1998 1997 1998
------------ ------------ ---------- -------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Gross rental income $ 572,252 $ 707,042 $ 685,308 $ 375,266 $ 124,238
Allocated occupancy
costs 385,819 454,576 373,501 211,916 63,146
--------- --------- --------- --------- ---------
$ 186,433 $ 252,466 $ 311,807 $ 163,350 $ 61,092
========= ========= ========= ========= =========
</TABLE>
NOTE J - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest expense was as follows:
<TABLE>
<CAPTION>
For the year ended
------------------
<S> <C>
December 30, 1995 $ 50,964
December 28, 1996 33,748
January 3, 1998 20,770
</TABLE>
<TABLE>
For the six months ended
------------------------
<S> <C>
June 28, 1997 (unaudited) $ 11,655
July 4, 1998 (unaudited) 16,214
</TABLE>
Included in distributions to stockholders for the year ended January 3,
1998 is an accrual of $696,108 (see note A6).
16
<PAGE> 17
VWSC Corporation
(Formerly Vision World, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 30, 1995, December 28, 1996 and January 3, 1998, and
June 28, 1997 and July 4, 1998 (unaudited)
NOTE J - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION - CONTINUED
During the six months ended July 4, 1998, the Company transferred the
following assets and liabilities to the Partnership (see note D) in
exchange for a 50% limited partnership interest:
<TABLE>
<S> <C>
Property and equipment $ 2,159,122
Less accumulated depreciation and amortization 684,320
-----------
Property and equipment - net 1,474,802
Land 682,100
Finance and organization costs, net of accumulated
amortization 33,825
Current liabilities and other (155,847)
Mortgage payable (1,793,765)
-----------
$ 241,115
===========
</TABLE>
NOTE K - FINANCIAL INSTRUMENTS
The following information about estimated fair values as of December
28, 1996 and January 3, 1998 is required by FASB Statement 107 and
pertains to the Company's financial instruments. This information is
based on the requirements set forth in that Statement and does not
purport to represent the aggregate net fair value of the Company.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value:
CASH: The carrying amount approximates fair value based on the
demand nature of the deposits.
SHORT-TERM INVESTMENTS AND RECEIVABLES: The carrying amount
approximates fair value based on the short maturity of these
instruments.
17
<PAGE> 18
(b) Pro Forma Financial Information.
The pro forma financial information required pursuant to Article 11
of Regulation S-X previously omitted from the Company's Form 8-K filed on
August 7, 1998 is filed with this Amendment as follows:
UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Basis of Presentation ....................................................................................
Unaudited Pro Forma Statement of Earnings - Year Ended
December 31, 1997 ...................................................................................
Unaudited Pro Forma Statement of Earnings - Six Month Period Ended
June 30, 1998 ......................................................................................
Unaudited Pro Forma Balance Sheet as of June 30, 1998 ....................................................
Notes to Unaudited Pro Forma Financial Information .......................................................
</TABLE>
18
<PAGE> 19
Vision Twenty-One, Inc. and Subsidiaries
Unaudited Pro Forma
Consolidated Financial Information
Basis of Presentation
The accompanying unaudited pro forma consolidated balance sheet as of June 30,
1998 and the statement of operations for the six month period ended June 30,
1998 includes the historical and pro forma effects of the VWSC Corporation
transaction, which was effected on June 30, 1998. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 1997
includes the historical and pro forma effects of the transaction described
above.
The pro forma effects are based on the historical financial statements of the
acquired business giving effect to the transaction described above. The total
cost of the acquisition will be allocated to the net tangible and intangible
assets acquired and liabilities assumed based upon their respective fair values
at the effective date of the transaction.
The unaudited pro forma consolidated financial information does not purport to
indicate what the results of operations or financial condition of the Company
would have been if the VWSC Corporation transaction had been effected on the
dates indicated or to project the future results of operations or financial
condition of the Company. Such unaudited pro forma financial information should
be read in conjunction with the consolidated financial statements of the Company
and the financial statements of VWSC Corporation.
19
<PAGE> 20
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(3)
VWSC CORPORATION
(2) (FORMERLY VISION
HISTORICAL WORLD, INC.)
COMPANY FOR THE
FOR THE YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1997 JANUARY 3, 1998 SUB-TOTAL ADJUSTMENTS CONSOLIDATED
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
LADS operations, net revenues 43,521,243 25,836,032 69,357,275 -- 69,357,275
Managed care 18,762,158 -- 18,762,158 -- 18,762,158
Buying group 7,260,797 -- 7,260,797 -- 7,260,797
Other -- 381,729 381,729 (312,000)(4) 30,729
(93,000)(5)
54,000
-----------------------------------------------------------------------------------------------
69,544,198 26,217,761 95,761,959 (351,000) 95,410,959
--
OPERATING EXPENSES: --
LADS operating expenses 28,408,416 23,405,136 51,813,552 (240,000)(6) 51,964,552
391,000 (6)
Medical claims 14,090,250 -- 14,090,250 -- 14,090,250
Cost of buying group sales 6,882,199 -- 6,882,199 -- 6,882,199
General and administrative 16,310,177 -- 16,310,177 16,310,177
Depreciation and amortization 2,195,668 707,102 2,902,770 449,000 (7) 2,965,770
(386,000)(6)
Merger costs -- -- -- -- --
-----------------------------------------------------------------------------------------------
67,886,710 24,112,238 91,998,948 214,000 92,212,948
Income (loss) from operations 1,657,488 2,105,523 3,763,011 (565,000) 3,198,011
Amortization of loan fees 178,677 -- 178,677 -- 178,677
Interest expense 1,072,589 20,770 1,093,359 950,000 (8) 2,043,359
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes 406,222 2,084,753 2,490,975 (1,515,000) 975,975
Income taxes -- -- 214,000 (19) 214,000
-----------------------------------------------------------------------------------------------
Income (loss) before extraordinary
charge 406,222 2,084,753 2,490,975 (1,729,000) 761,975
Extraordinary charge - early
extinguishment of debt 323,346 -- 323,346 -- 323,346
--------------------------------------------------------- -----------------------------------
Net income (loss) 82,876 2,084,753 2,167,629 (1,729,000) 438,629
--------------------------------------------------------- -----------------------------------
Earnings (loss) per common
share- assuming dilution:
Income (loss) before
extraordinary charge $ 0.05 $ 0.24 $ 0.29 $ 0.09
Extraordinary charge (0.04) 0.00 (0.04) (0.04)
--------------------------------------------------------- ---------------
Net income (loss) per common share $ 0.01 $ 0.24 $ 0.25 $ 0.05
========================================================= ===============
</TABLE>
20
<PAGE> 21
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(10)
VWSC CORPORATION
(9) (FORMERLY VISION
HISTORICAL WORLD, INC.)
COMPANY FOR THE
FOR THE SIX MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PRO FORMA PRO FORMA
JUNE 30, 1998 JULY 4, 1998 SUB-TOTAL ADJUSTMENTS CONSOLIDATED
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
LADS operations, net revenues 43,233,052 13,955,410 57,188,462 57,188,462
Managed care 26,820,294 -- 26,820,294 26,820,294
Buying group 29,328,826 -- 29,328,826 29,328,826
Other -- 195,169 195,169 (61,000)(11) 18,158
(58,000)(11)
(58,000)(12)
---------------------------------------------------------------------------------------------
99,382,172 14,150,579 113,532,751 (177,000) 113,355,740
OPERATING EXPENSES:
LADS operating expenses 34,704,490 12,416,545 47,121,035 47,121,035
Medical claims 19,591,293 -- 19,591,293 19,591,293
Cost of buying group sales 27,440,070 -- 27,440,070 27,440,070
General and administrative 7,932,542 -- 7,932,542 7,932,542
Depreciation and amortization 2,910,969 338,344 3,249,313 225,000 (13) 3,474,313
Merger costs 508,443 -- 508,443 508,443
---------------------------------------------------------------------------------------------
93,087,807 12,754,889 105,842,696 225,000 106,067,696
Income (loss) from operations 6,294,365 1,395,690 7,690,055 (402,000) 7,288,044
Amortization of loan fees -- -- --
Interest expense 1,705,488 16,214 1,721,702 475,000 (14) 2,196,688
---------------------------------------------------------------------------------------------
Income (loss) before income taxes 4,588,877 1,379,476 5,968,353 (877,000) 5,091,356
Income taxes 1,720,000 -- 1,720,000 188,000 (19) 1,908,000
---------------------------------------------------------------------------------------------
Income before extraordinary
charge 2,868,877 1,379,476 4,248,353 (1,065,000) 3,183,356
Extraordinary charge - early
extinguishment of debt 397,190 -- 397,190 397,190
---------------------------------------------------------------------------------------------
Net income 2,471,687 1,379,476 3,851,163 (1,065,000) 2,786,166
=============================================================================================
Earnings per common
share- assuming dilution:
Income before extraordinary
charge $ 0.20 $ 0.10 $ 0.30 $ 0.22
Extraordinary charge (0.03) 0.00 (0.03) (0.03)
--------------------------------------------------------- ---------------
Net income per common share $ 0.17 $ 0.10 $ 0.27 $ 0.19
========================================================= ===============
</TABLE>
21
<PAGE> 22
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
VWSC CORPORATION
HISTORICAL (FORMERLY VISION
COMPANY WORLD, INC.)
AS OF AS OF PRO FORMA PRO FORMA
ASSETS JUNE 30, 1998 JULY 4, 1998 SUB-TOTAL ADJUSTMENTS CONSOLIDATED
----------------- ------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 7,035,530 1,114,242 8,149,772 (17,420,000)(15) 229,772
9,500,000 (16)
Accounts receivable due from:
Buying group members 8,165,683 -- 8,165,683 8,165,683
Patients 7,954,364 389,378 8,343,742 8,343,742
Managed Professional Associations 9,077,742 -- 9,077,742 9,077,742
Managed health benefit payors 1,763,568 -- 1,763,568 1,763,568
Other receivables 622,292 -- 622,292 622,292
Inventories 1,417,801 2,050,056 3,467,857 3,467,857
Prepaid expenses and other
current assets 3,000,424 69,605 3,070,029 3,070,029
--------------------------------------------------------------------------------------
Total Current Assets 39,037,404 3,623,281 42,660,685 (7,920,000) 34,740,685
Fixed assets, net 10,592,935 2,387,148 12,980,083 12,980,083
Intangible Assets 111,108,490 -- 111,108,490 13,469,268 (13) 124,577,758
Deferred tax asset 1,882,000 -- 1,882,000 1,882,000
Cash surrender value of life
insurance -- -- -- --
Other Assets 2,029,778 330,528 2,360,306 (299,000)(17) 2,061,306
--------------------------------------------------------------------------------------
Total assets 164,650,607 6,340,957 170,991,564 5,250,268 176,241,832
======================================================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable 9,284,317 930,231 10,214,548 10,214,548
Accrued expenses 6,254,107 201,904 6,456,011 6,456,011
Customer deposits -- 365,131 365,131 365,131
Accrued compensation 2,457,391 593,959 3,051,350 3,051,350
Due to managed professional
associations 2,927,276 -- 2,927,276 2,927,276
Due to selling shareholder 3,359,793 -- 3,359,793 3,359,793
Current portion of deferred
leasehold incentive 23,046 -- 23,046 23,046
Current portion of long-term debt 152,295 -- 152,295 152,295
Current portion of obligations
under capital leases 416,436 -- 416,436 416,436
Medical claims payable 3,713,472 -- 3,713,472 3,713,472
--------------------------------------------------------------------------------------
Total current liabilities 28,588,133 2,091,225 30,679,358 30,679,358
Deferred rent payable 261,117 -- 261,117 261,117
Obligations under capital leases 534,998 -- 534,998 534,998
Long-term debt, less current portion 48,374,836 -- 48,374,836 9,500,000 (16) 57,874,836
Deferred leashold incentive 173,657 -- 173,657 173,657
Deferred income taxes 6,111,000 -- 6,111,000 6,111,000
Stockholders' equity:
Common stock 14,686 12,100 26,786 (12,100)(18) 14,686
Additional paid-in capital 86,969,285 86,969,285 86,969,285
Deffered compensation (354,585) -- (354,585) (354,585)
Accumulated deficit (5,849,536) 4,237,632 (1,611,904) (4,237,632)(18) (5,849,536)
Notes receivable from officer (172,984) -- (172,984) (172,984)
Total stockholders equity 80,606,866 4,249,732 84,856,598 (4,249,732) 80,606,866
--------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity 164,650,607 6,340,957 170,991,564 5,250,268 176,241,832
======================================================================================
</TABLE>
22
<PAGE> 23
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(1) The unaudited pro forma consolidated statements of earnings for the year
ended December 31, 1997 and the six month period ended June 30, 1998 do not give
effect to any potential cost savings that could result from the VWSC Corporation
transaction.
(2) This column represents the historical consolidated results of operations for
Vision Twenty-One, Inc. for the year ended December 31, 1997.
(3) This column represents the operating results for VWSC Corporation for the
year ended January 3, 1998.
(4) This adjustment represents the elimination of rental income and to reflect
the new property management fee to be earned by Vision Twenty-One, Inc.
(5) This adjustment represents the elimination of interest income to reflect the
absence of the cash for the full year.
(6) This adjustment represents the reduction in occupancy costs and depreciation
expense and the increase in lease expense related to the new facility lease
effective March 1, 1998.
(7) This adjustment represents the additional amortization expense that would
have been incurred in connection with the VWSC Corporation transaction. For
purposes of the pro forma presentation, it is assumed that the excess of the
purchase price over the net tangible assets acquired will ultimately be
allocated to either identifiable intangibles or goodwill with an amortization
period of 30 years.
(8) This adjustment represents the interest expense related to borrowings on
Credit Facility for the transaction consideration.
23
<PAGE> 24
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(9) This column represents the historical consolidated results of operations for
Vision Twenty-One, Inc. for the six month period ended June 30, 1998.
(10) This column represents the operating results for VWSC Corporation for the
six month period ended July 4, 1998.
(11) This adjustment represents the elimination of rental income and interest
income.
(12) This adjustment represents the elimination of earnings from investment.
(13) This adjustment represents the additional amortization expense that would
have been incurred in connection with the VWSC Corporation transaction. For
purposes of the pro forma presentation, it is assumed that the excess of the
purchase price over the net tangible assets acquired will ultimately be
allocated to either identifiable intangibles or goodwill with an amortization
period of 30 years.
(14) This adjustment represents the interest expense related to borrowings on
Credit Facility for the transaction consideration.
(15) This adjustment represents the consideration for the VWSC Corporation
transaction excluding cash acquired of approximately $1.5 million.
(16) This adjustment represents borrowings on Credit Facility for the
transaction consideration.
(17) This adjustment represents the elimination of asset not acquired in the
transaction.
(18) This adjustment represents the elimination of the common stock and retained
earnings of VWSC Corporation.
(19) The adjustment represents the income tax expense that would have been
recorded if the transaction had occurred on January 1, 1997. The expense is
calculated using an estimated average income tax rate of approximately 38%.
24
<PAGE> 25
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.
25
<PAGE> 26
SIGNATURE
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 hereunto duly authorized.
VISION TWENTY-ONE, INC.
By: /s/ Richard T. Welch
-------------------------------
Richard T. Welch
Its: Chief Financial Officer
Dated: October 13, 1998
26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------- --------
<S> <C>
23 Consent of Divine Scherzer & Brody, Ltd.
</TABLE>
27
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 21, 1998 accompanying the financial
statement of VWSC Corporation (formerly Vision World, Inc.) included in the Form
8-K/A (Amendment No. 1) of Vision Twenty-One, Inc. for each of the three years
ended January 3, 1998, which are incorporated by reference into the Vision
Twenty-One Registration Statements on Form S-8 (No. 333-38285) as filed on
October 20, 1997 and Form S-1 (No. 333-51437) as amended by post effective
amendment No. 1 on Form S-3 as filed on August 20, 1998. We consent to the
incorporation by reference in the above mentioned Registration Statements of the
aforementioned report.
/s/ Divine, Scherzer & Brody, Ltd.
- ----------------------------------
Divine, Scherzer & Brody, Ltd.
Minneapolis, Minnesota
October 13, 1998
