SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB
CURRENT REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 28, 1997
[ ] 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 33-31092-C
METRO OPTICS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 36-3689332
(State or other jurisdiction of (I.R.S. Identification
Employer corporation or organization) Number)
1101 Stewart Avenue, Garden City, New York 11530
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (516) 227-1262
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.01 par value
Check whether the issuer: (1) filed all reports to be filed by Section 13
or 15(d) of the Exchange Act during the past 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____ No __X__
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation SB contained in this form, and no disclosure will be
contained, to the best of registrant's
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knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X]
Issuer's revenues were $2,555,422 for its most recent fiscal year.
On November 12, 1997, the aggregate market value of the voting and
non-voting common equity held by non-affiliates was $0.
The number of shares of Common Stock outstanding as of October 15, 1997 was
14,363,754.
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PART I
Item 1. Description of Business.
Organizational History
The Company was incorporated in the State of Delaware on April 11,
1989. The Company's headquarters are located at 1101 Stewart Avenue, Garden
City, New York 11530, telephone no. (516) 227-1262.
In January 1995, the Company, formerly known as Oakbrook Capital, Inc.,
acquired 100% of the issued and outstanding stock of Metrovision Enterprises,
Inc. ("Metrovision") in exchange for an aggregate of 5,206,666 shares of the
Company's Common Stock and warrants to purchase 693,666 shares of Common Stock
at $1.50 per share. The acquisition was accounted for as a reverse acquisition
and the historical financial statements of Metrovision are now those of the
Company. Immediately after the aforesaid acquisition, the Company changed its
name to Metro Optics, Ltd.
Between 1989 and 1994, Metrovision opened eight retail optical stores
in New York State. These stores were located in Rego Park (1989), Carle Place
(1991), Hempstead (1991), Hicksville (1992), Garden City (1994), Staten Island
(1994), Massapequa Park (1994) and Hartsdale (1994), respectively. Such stores
targeted price conscious shoppers in the New York Metropolitan area. On April
14, 1994, the Company entered into a license agreement with The Caldor
Corporation ("Caldor"), pursuant to which it became the exclusive optical
concessionaire in certain Caldor locations. The Company operated thirteen (13)
Caldor optical centers until Caldor declared bankruptcy in 1995. The closing of
these Caldor optical centers had a material adverse effect on the Company. These
closings resulted in the Company sustaining significant losses from unsold
inventory and substantial indebtedness. As of the date of this report, only the
Rego Park, Carle Place, Hempstead, Hicksville and Staten Island locations are
still in operation. These subsidiaries were incorporated under the laws of the
State of New York.
The Company desires to expand its operations through the acquisition or
merger of certain retail optical centers currently owned by the principals of
the Company, Dr. Kolman Brown and Dr. Harris Mann, as well as centers owned by
non-affiliated parties. Drs. Brown and Mann currently own and operate eight
optical centers in New York under various names. The Company intends to merge
with five of the eight entities owned by Dr. Mann and Dr. Brown (see "Certain
Transactions"). The Company also intends to pursue the acquisition of other
optical stores which are not controlled by Drs. Brown and Mann.
Acquisitions of Additional Retail Outlets
The Company intends to acquire three retail vision centers currently
owned by Drs. Brown and Mann. The Company will simultaneously acquire two other
retail vision centers, one of which is majority owned by Drs. Brown and Mann.
These subsidiaries are Eye Encounter
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Inc., Eye Works Optical Inc., Harkoloptics MV Operating Inc., RM Eyewear Inc.
and Fordham Eyes, Inc. The Company intends to issue to Drs. Brown and Mann, and
others, an aggregate of 12,257,929 shares of the Company's Common Stock in
exchange for the acquisition of 100% of each eye care facility. These facilities
are located in Bronx and Brooklyn, New York. The Company believes that the
addition of these facilities will allow the Company to experience savings in
connection with inventory purchases, thereby allowing its pricing to consumers
to be more attractive. The terms of the Company's acquisition of the
subsidiaries were not negotiated at arms-length. Drs. Brown and Mann, and
members of their family, have interests in other eye care centers which are not
being acquired by the Company. There can be no assurance that such other
facilities in which Drs. Brown, Mann and/or their families have an interest will
not be acquired by the Company in the future. The terms of any future
transactions between the Company and Drs. Brown, Mann and/or their families will
not be the result of arms-length negotiations.
Products and Services
The Company is primarily engaged in the operation and management of
five retail vision centers located in Long Island and Staten Island, New York.
Each vision center provides a full spectrum of eyewear products and eye care
services to the general public. The Company maintains an on-premises inventory
of approximately 2,500 eyeglass frames, 3,000 pairs of spectacle lenses and 300
contact lenses of varying prescriptions, along with a variety of sunglasses,
eyeglasses, eyeglass cases, eyeglass accessories and contact lens accessories
and solutions in each of its visions centers. The Company's goal is to provide
one-hour service to customers in most instances. The Company's assortment of
products include both moderately priced and designer eyeglass frames and branded
and private label contact lenses. The Company seeks to offer a broad selection
of products which are generally priced below competitor prices.
A licensed optometrist or, in some cases, an ophthalmologist is
available on the premises of each optical outlet at such times as may be
appropriate for a particular location. An optometrist or ophthalmologist will
either be employed by the Company directly or self-employed at a company
location. The licensed optometrist or ophthalmologist will provide eye exams,
fit contact lenses and offer other similar services. Such services enable
customers to determine their prescription and other eye care requirements and to
obtain eyewear in a single visit.
The Company seeks to replenish its in-store inventory on a weekly
basis. This is intended to limit its aggregate inventory carrying requirements
while offering an ample selection of product for customers. For eyeglasses or
contact lenses in sizes or prescriptions not in stock on-premises, the Company
is usually able to obtain such items within 24 hours. Inventory is purchased
from various suppliers with alterative sources available for most products.
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Marketing Strategy
The Company seeks to offer a full complement of affordable eyewear in a
comfortable and attractive setting. Management believes that retail optical
stores offering discount prices often compensate for the low prices with a
low-end appearance. The Company believes that the concept of affordable eyewear
being sold in an upscale setting has worked well in its established market. A
typical Company retail outlet occupies 800 to 1,000 sq. ft. with ample room for
well-designed merchandise displays, ophthalmologist's or optometrist's office
and other equipment necessary to provide prompt service to customers seeking
rapid turnaround. The Company believes that optical goods are viewed by
consumers to be a necessity and are therefore less sensitive to economic
conditions.
The Company's marketing strategy is aimed at emphasizing guaranteed low
pricing convenience of location, superior service, attractive customer-oriented
store design, knowledgeable sales and professional personnel and a broad range
of quality merchandise. The Company believes that customers who comparison shop
generally find advantages from shopping at the Company's optical outlets. The
Company displays signs in its optical outlets advising that the Company will
guarantee the lowest price available and guarantee customer satisfaction. In
addition to a broad selection of products, the Company offers eye exams by
licensed optometrists or ophthalmologists and eyeglass fittings and repair by
opticians, with rapid turnaround on most orders. Returns are accepted
unconditionally when customers are not satisfied. The Company believes its
merchandising philosophy has enabled it to develop a solid reputation as a
discounter of quality eyewear products.
The Company's growth strategies include marketing programs, such as
selective use of direct mail fliers and radio/television advertising during
holiday periods. The Company has implemented a program of collecting and
maintaining a computerized data base of customer information that it can utilize
for target mailings to increase the frequency of shopping. In addition, the
Company has undertaken new marketing programs, such as enhanced displays of gift
items and an expanded range of children's products. Point-of-sale literature
concentrating on the benefits of specific products are also prominently
displayed on counters.
The Company is a member of several managed health care programs and
provides optical services to program members. The Company is a panel member of
Vision Screenings, Inc. and Comprehensive Professional Systems, Inc., two large
optical managed health care programs serving the metropolitan area. The Company
believes that its continued participation in these programs and other managed
care programs will provide a constant source of patients and positive exposure
in the optical industry.
The Company utilizes a wide variety of other promotional techniques,
including free spare pairs and 20% discount cards with an eyeglass order. The
Company also utilizes state-of-the-art diagnostic procedures such as auto
refractors, which allow the customer to compare their old prescriptions with
potential new prescription prior to examination. The most popular and successful
program includes an offer to pay for a customer's eye examination if the
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patient makes a purchase at a Company location. This program is designed to
increase awareness of the availability of doctors of optometry at Company
locations and to perpetuate customer loyalty.
In order to encourage personnel to emphasize customer satisfaction, the
Company intends to hold monthly training seminars given by regional supervisors
that stress customer service, courteous salesmanship and technical product
knowledge. Periodically, the Company offers contests and other incentive plans
to increase sales and maintain favorable morale among its employees.
Purchasing
The Company's inventory purchases include eyeglass frames, lenses,
contact lenses, contact lens solutions and other supplies. The Company desires
to expand its operations in order to be in a position to make high volume
purchases from its suppliers in order to obtain preferential pricing programs
from such suppliers.
It is the intent of the Company to develop a system whereby purchasing
is done by a central purchasing department that will maintain computer records
tracking sales by product and remaining inventory on a store-by-store basis. The
purchasing department will also obtain ongoing feedback from district managers
and regional supervisors regarding product trends and sales. Outlet managers
will have the authority to reorder only certain fast moving items.
The Company has found that direct drop shipping by suppliers to vision
centers is more efficient than maintaining a warehouse of inventory, since most
products can be obtained from suppliers within 24 hours. Nevertheless, the
Company continually reevaluates the benefits of creating a central warehouse.
Competition
The Company competes with optical chains, department stores, optical
stores and private optometrists in a highly fragmented market. Some of its
larger competitors include Cohen's Optical, Sterling Optical and Pearl Vision.
The majority of the Company's competitors possess greater financial resources
than the Company. Some of the Company's retail chain competitors engage in
marketing and promotional programs which are national in scope and which are far
more extensive than the Company's. Large competitors also benefit from quantity
discounts with respect to inventory purchases which are not available to the
Company. The Company attempts to compete with its competition in the quality and
consistency of its services, price, convenience, speed of delivery and
selection.
Quality Control
The Company emphasizes quality in both its products and customer
service. Defective or damaged merchandise is returned for manufacturer refunds.
Customer service is enhanced
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through an on-going program of evaluations by outlet managers, district
managers, regional supervisors and senior management. The Company utilizes the
services of an independent shopping company to conduct periodic unannounced
telephone and on-site inspections of its optical outlets.
Governmental Regulation
The Company is subject to a variety of federal, state and local laws,
regulations and ordinances, including state and local laws and regulations
regarding advertising, zoning, qualifications and practices of the opticians
employed by the Company, and relations between independent optometrists and
optical firms. These state and local legal requirements vary widely among
jurisdictions and are subject to frequent change. In addition, certain products
sold by the Company, specifically contact lenses and contact lens solutions,
must comply with quality control standards set by the United States Food and
Drug Administration.
In New York, the Company is required to staff vision centers with one
or more licensed opticians who fit and dispense eyeglasses or contact lenses.
The Company, as well as the independent optometrists providing services in the
Company's vision centers, from time to time receive inquiries from regulatory
bodies and industry competitors regarding compliance with applicable state and
local regulations. The Company anticipates that it and the independent
optometrists will continue to receive and be required to respond to such
inquiries and defend their practices from time to time in the future. The
Company believes it is in substantial compliance with all material governmental
regulations applicable to its operations.
Although governmental regulation has increased the cost to the Company
of commencing operations and decreased its flexibility in managing its business,
governmental regulation has not, to date, had a material adverse effect on the
Company's overall operations or financial performance, or on its overall
relationships with independent optometrists. It is nevertheless possible that
new regulations or new interpretations of current regulations could materially
increase the Company's cost of doing business or have a material adverse impact
on the Company's sales by restricting or eliminating the services of optometrist
in the Company's vision centers.
Employees
As of November 12, 1997, the Company employed 24 full-time employees
and 26 part-time employees in its five retail optical centers in various phases
of its operations including, but not limited to, sales, purchasing and
management. At Company locations, independent optometrists perform eye
examinations and prescribe corrective lenses (whether eyeglasses or contact
lenses) as needed. All doctors of optometry are required to be licensed by the
jurisdiction where they conduct their practice. As the number of the Company
optical outlets grows, it will be necessary to hire regional supervisors to
oversee district managers. It is anticipated that for every 15-20 optical
outlets, the Company will have four district managers
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and one regional supervisor overseeing those outlets. The Company considers Its
present labor relations to be satisfactory.
Item 2. Description of Property.
The Company leases its principal executive offices located at 1101
Stewart Avenue, Suite 203, Garden City, New York 11530. The Company's business
is conducted at its five (5) wholly-owned subsidiaries. Each subsidiary leases
the space where the retail optical store is located from non-affiliated third
parties. The following is a list of the Company Optical leaseholds:
1. 165 Old Country Road, Carle Place, NY 11514 (expires 2001)
2. 216A North Franklin Avenue, Hempstead, NY 11550 (expires 2002)
3. Delco Plaza, 265-1 Broadway, Hicksville, NY 11801 (expires 2001)
4. 95-19 63rd Drive, Rego Park, NY 11374 (expires 1998)
5. Staten Island Mall, 2655 Richmond Avenue, Staten Island, NY 10314
(expires 2003)
Leases for these location are generally for terms of ten (10) years.
The Company believes that its relationships with its lessors are good.
Item 3. Legal Proceedings.
The Company is not currently a party to any legal proceedings the
results of which it believes could have a material adverse effect upon its
business or financial condition. Other than routine litigation incidental to its
business, there are no such proceedings pending against it. The Company,
however, is significantly delinquent in the payment of trade payables and other
debt. Accordingly, litigation may be instituted against the Company by such
creditors. There can be no assurance that future litigation will not have an
adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
During the last quarter of the period covered by this report, the
Company did not submit any matter to the vote of its shareholders.
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PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
There is currently no public market for the Company's securities
As of October 15, 1997, there were 103 holders of record of the
Company's Common Stock. The number of record holders does not include holders
whose securities are held in street name.
The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
Item 6. Management's Discussion and Analysis and Results of Operations.
Background
The Company is primarily engaged in the operation and management of
five retail vision centers located in Long Island and Staten Island, New York.
Each vision center provides a full spectrum of eyewear products and eye care
services to the general public. The Company intends to acquire three retail
vision centers currently owned by Drs. Brown and Mann. The Company will
simultaneously acquire two other retail vision centers, one of which is majority
owned by Drs. Brown and Mann. These subsidiaries are Eye Encounter Inc., Eye
Works Optical Inc., Harkoloptics MV Operating Inc., RM Eyewear Inc. and Fordham
Eyes, Inc. The Company currently maintains an on-premises inventory of
approximately 2,500 eyeglass frames, 3,000 pairs of spectacle lenses and 300
contact lenses of varying prescriptions, along with a variety of sunglasses,
eyeglasses, eyeglass cases, eyeglass accessories and contact lens accessories
and solutions in each of its visions centers. The Company's goal is to provide
one-hour service to customers in most instances. The Company's assortment of
products include both moderately priced and designer eyeglass frames and branded
and private label contact lenses. The Company seeks to offer a broad selection
of products which are generally priced below competitor prices.
Results of Operations
Year Ended February 28, 1997 ("Fiscal 1997)
Compared to February 28, 1996 ("Fiscal 1996)
The Company's revenues for the Fiscal 1997 decreased to $2,555,422 from
$3,654,875 for the prior year, a decrease of approximately 30%. This decrease is
primarily attributable to the insolvency and bankruptcy of Caldor in Fiscal
1996. Also, the Company focused its attention and efforts on (i) reorganizing
the Company through acquisitions; (ii) privately raising funds to pay down debt
and increase working capital; and (iii) attempting to bring the Company current
with respect to filing the required Securities Exchange Act of 1934 reports.
Revenues
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are generated through the Company's sale of eyeglass wear and related services.
The Company has an accumulated deficit of $3,470,293, an increase of $498,698
from the prior year.
Liquidity and Capital Resources
The Company's cash position was $47,504 at February 28, 1997, as
compared with ($55,849) at February 28, 1996, an increase of $103,353. The
Company's working capital at February 28, 1997 was ($1,797,628) as compared to a
working capital of ($778,766) at February 28, 1996, an increase of $1,018,862.
The increase in cash and working capital primarily resulted from the raising of
$300,000 in a private offering of the Company's securities, as described below,
and from the Company satisfying certain outstanding liabilities.
In February 1997, the Company completed a private offering of its
securities pursuant to Regulation D of the Securities Act of 1933, as amended,
and Rule 506 promulgated thereunder. The Company sold 30 Units at $10,000 per
Unit. Each Unit consisted of 233,334 shares of Common Stock, 233,334 Class A
Warrants and 233,334 Class B Warrants. The Company raised $300,000 pursuant to
the aforesaid offering. The proceeds were used to pay down certain delinquent
obligations of the Company, including tax liabilities.
In July 1997, the Company offered to the public 25 Units at $10,000 per
Unit in a private offering of its securities pursuant to Regulation D of the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Each
Unit consisted of a $10,000 promissory note, 70,000 Class A Warrants and 70,000
Class B Warrants. As of October 15, the Company has accepted subscriptions for
10 Units.
Fiscal 1996 Compared to
Year Ended February 28, 1995 ("Fiscal l995")
The Company did not have significant revenues in Fiscal 1995. The
Company's public offering closed in January 1995 and the Company began
generating significant revenues from its Caldor license. Although the Company
generated revenues during Fiscal 1996, the Company experienced significant
losses from unsold inventory and incurred substantial due to the bankruptcy of
Caldor. The Company's only revenues in prior years from inception to the end of
Fiscal 1995 were generated from interest income earned on the proceeds of the
Company's initial public offering, which closed in July 1990, and on a note
receivable.
Item 7. Financial Statements
The financial statements of the Company, including the notes thereto,
together with the report of the independent certified public accountant thereon,
are presented beginning at page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not Applicable.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.
Directors and Officers
The following table sets forth the names and ages of all current
directors and officers of the Company and their respective positions in the
Company.
Name Age Position
- ---- --- --------
Kolman Brown 52 Chairman and President
Harris Mann 56 Vice President, Secretary, Treasurer and Director
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Kolman Brown was appointed the Chairman of the Board and President of
the Company in January 1995. From 1988 to the present, Dr. Brown has also acted
as Chairman of the Board and President of the Company. From 1979 to 1988, Dr.
Brown developed and operated the Statewide Optical chain of Vision Centers, with
seventeen of such outlets optical stores located throughout New York City and
Nassau County. Dr. Brown sold his interest in Statewide Optical in 1988. From
1980 to date, Dr. Brown co-developed and operates the Eye Encounter Optical
chain with Dr. Harris Mann. Dr. Brown attended Fairleigh Dickinson University
and received an O.D. (Doctor of Ophthalmology) from Pennsylvania College of
Optometry in May 1968.
Harris Mann was appointed Vice-President, Secretary, Treasurer and a
Director of the Company in January 1995. From 1988 to the present, Dr. Mann has
also acted as Vice President, Secretary, Treasurer and a Director of the
Company. From 1980 to date, Dr. Mann co- developed and operates the Eye
Encounter Optical chain with Dr. Brown. Dr. Mann received a Bachelor of Science
degree from the City College of New York in 1963 and an O.D. degree from the
Pennsylvania College of Optometry in 1967.
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company
during its most recent fiscal year, the Company believes that there were no
Section 16(a) reports filed untimely during the Company's year ended February
28, 1997.
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Item 10. Executive Compensation
The Company's Summary Compensation Table for the years ended February
28, 1997, 1996 and 1995 is provided herein. There are no Option/SAR Grants,
Aggregated Option/SAR Exercises or Fiscal Year-End Option/SAR Value Table for
the years ended February 28, 1997, 1996 and 1995. There are no long-term
incentive plan ("LTIP") awards, or stock option or stock appreciation rights
except as discussed below.
SUMMARY COMPENSATION TABLE
For the Years Ended February 28, 1997, 1996 and 1995
Annual Compensation Awards Payouts
Other
Name Annual
and Compen- Compen-
Principal Year sation sation
Position Ended Salary ($)(1)
- -------- ----- ------- ------
Kolman Brown 1997 -- $1,704.19
1996 $19,200 $4,536.26
1995 -- --
Harris Mann 1997 -- $1,704.19
1996 $19,200 $4,536.26
1995 -- --
(1) Represents health insurance payment.
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Item 11. Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth, as of October 15, 1997, the record and
beneficial ownership of Common Stock of the Company by each officer and
director, all officers and directors as a group, and each person known to the
Company to own beneficially or of record five percent or more of the outstanding
shares of the Company:
Shares
Officers, Directors and Beneficially Percent of Shares
Principal Stockholders Owned Beneficially Owned(1)
- ---------------------- ----- ---------------------
Kolman Brown 2,066,667 14.4%
Harris Mann 2,066,667 14.4%
I. Robert Altman and 2,800,008(2) 17.3%
Arline Altman
3151 Hewlett Avenue
Merrick, NY 11566
Albert L. Dorf and 2,800,008(2) 17.3%
Rhona S. Dorf
1137 Bloomingdale Rd.
Philadelphia, PA 19115
Joyce Ann Parker 2,800,008(2) 17.3%
3170 Jason Drive
Bellmore, NY 11710
Phyllis Sherman 2,800,008(2) 17.3%
2970 Lee Place
Bellmore, NY 11710
All directors, 4,133,334 28.8%
executive officers
as a group (2 persons)
(1) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Common Stock which such
person has the right to acquire within 60 days of October 15, 1997. For
purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons has or have the right to acquire within
such date is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person. Except as indicated
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in the footnotes to this table and pursuant to applicable community
property laws, the Company believes based on information supplied by
such persons, that the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock which they
beneficially own.
(2) Includes 933,336 shares of Common Stock underlying Class A Warrants and
933,336 shares of Common Stock underlying Class B Warrants. The Class A
Warrants and Class B Warrants are exercisable at $.21 and $.36,
respectively, and expire on February 11, 2000.
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Item 12. Certain Relationships and Related Transactions.
The Company intends to acquire three retail vision centers currently
owned by Drs. Brown and Mann. The Company will simultaneously acquire two other
retail vision centers, one of which is majority owned by Drs. Brown and Mann.
These subsidiaries are Eye Encounter Inc., Eye Works Optical Inc., Harkoloptics
MV Operating Inc., RM Eyewear Inc. and Fordham Eyes, Inc. The Company intends to
issue to Drs. Brown and Mann, and others, an aggregate of 12,257,929 shares of
the Company's Common Stock in exchange for the acquisition of 100% of each eye
care facility. These facilities are located in Bronx and Brooklyn, New York. The
Company believes that the addition of these facilities will allow the Company to
experience savings in connection with inventory purchases, thereby allowing its
pricing to consumers to be more attractive. The terms of the Company's
acquisition of the subsidiaries were not negotiated at arms-length. Drs. Brown
and Mann, and members of their family, have interests in other eye care centers
which are not being acquired by the Company. There can be no assurance that such
other facilities in which Drs. Brown, Mann and/or their families have an
interest will not be acquired by the Company in the future. The terms of any
future transactions between the Company and Drs. Brown, Mann and/or their
families will not be the result of arms-length negotiations.
Drs. Mann and Brown, and members of their respective families, have
advanced monies to the Company in the aggregate amount of approximately
$170,000. These loans are payable on demand and bear interest at the rate of 8%
per annum.
The Company entered into a three year management agreement dated July
1, 1994 ("Management Agreement") with Calmet, Ltd. ("Calmet"), which is wholly
owned by Drs. Kolman Brown and Harris Mann. Pursuant to the terms of the
Management Agreement, Calmet managed and operated all retail optical locations
owned either directly by the Company or indirectly through its subsidiaries. Dr.
Brown agreed to devote substantially all of his business time and attention to
the management of the Company, and Dr. Mann agreed to devote so much of his
business time and attention to the management of the Company as in the judgment
of the Chief Executive Officer of the Company was reasonably required. The
Company agreed to pay Calmet a management fee of $400,000 per year. In addition,
Calmet was to receive 6% of the pre-tax profits of the Company for each year
that the Management Agreement was in effect. Calmet agreed that neither it nor
its principals would, during the term of the Management Agreement or for two
years immediately following its termination, directly or indirectly, operate any
optical or eyewear facility or business within 10 miles of any location at which
the Company has an existing optical location. Calmet and Drs. Brown and Mann
agreed that they would offer to the Company the opportunity to acquire any
retail vision center that they may became aware of after the effective date of
the Agreement (other than any such vision center (i) owned by them as of the
date of the Agreement, or (ii) which, at the time it came to their attention,
derived 50% or more of its revenues from Medicare, Medicaid or other similar
government entitlement program and which is expected to remain in such market
segment) prior to entering into any agreement to acquire such retail vision
center. During the term of the Management Agreement the Company agreed to
maintain in effect a life insurance policy in the face amount of at least
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$2,000,000 on the life of Dr. Brown, naming the Company as beneficiary and
provide family medical insurance for Drs. Brown and Mann. Effective February 28,
1997, Calmet forgave all management fees accruing since the inception of the
Management Agreement. The Management Agreement terminated on July 1, 1997 and
was not extended.
Certain of the Company's subsidiaries have liabilities to Fleet Bank in
the aggregate amount of approximately $217,000. Such liabilities have been
personally guaranteed by Drs. Brown and Mann. In addition, such liabilities are
secured by all of the personal property, both tangible and intangible, of the
respective subsidiaries to which the loans representing such liabilities were
made.
In the event, any of the Company's Class A Warrants or Class B Warrants
are exercised, Dr. Kolman Brown and Dr. Harris Mann would be entitled to receive
aggregate additional shares of Common Stock equal to the number of Shares issued
on exercise of such Warrants, provided however, that the Company reported gross
revenues of (i) $9,000,000 in the fiscal year prior to the exercise of the
Warrants; (ii) $9,000,000 in the fiscal year after exercise of the Warrants; or
(iii) $4,500,000 in any two consecutive fiscal quarter after exercise of the
Warrant.
Item 13. Exhibits List and Reports on Form 8-K.
Exhibit No. Description
----------- -----------
*2 Agreement and Plan of reorganization dated November 18,
1994, by and among the company, Metrovision and the
Shareholders of Metrovision.
*3.1 Articles of Incorporation
*3.2 Bylaws
*4.1 Articles of Incorporation
*4.2 Bylaws
*4.3 Specimen Common Stock Certificates
*4.4 Form of Warrant
*4.5 Loan Note dated November 16, 1993 between Metrovision of
Staten Island, Inc. and National Westminster Bank U.S.A.
*4.6 Continuing General Security Agreement dated November 16,
1993 between Metrovision of Staten Island Inc. and National
Westminster Bank U.S.A.
16
<PAGE>
*4.7 Corporate Guaranty Agreement dated August 12, 1993 executed
by Metrovision of Hicksville, Inc. Metrovision of Carle
Place, Inc., Metrovision of Rossevelt Field, Inc. and
Metrovision of Hempstead, Inc. with respect to the loan from
National Westminster Bank, U.S.A. to Metrovision of Staten
Island, Inc.
*4.8 Loan Note dated November 16, 1993 between Metrovision of
rossevelt Field, Inc. and National Westminster Bank, U.S.A.
*4.9 Continuing General Security Agreement dated November 16,
1993 between Metrovision of rossevelt Field, Inc. and
National Westminster Bank, U.S.A.
*4.10 Corporate Guaranty Agreement dated August 12, 1993 whereby
the loan of National Westminster Bank, U.S.A. to Metrovision
of Rossevelt Field, Inc. was guaranteed by Metrovision of
Hicksville, Inc., Metrovision of Carle Place, Inc.
Metrovision of Roosevelt Field, Inc. and Metrovision of
Hempstead, Inc.
*10.1 Stock Option Plan dated April 11, 1989
*10.2 Management Agreement dated as of July 1, 1994 by and among
Metrovision Enterprises, Inc. Calmet, Ltd., Kolman Brown and
Harris Mann.
*10.3 First Modification to Management Agreement dated as of
January 4, 1995 among Metrovision Enterprises, Inc., Calmet,
Ltd., Kolman Brown and Harris Mann.
*10.4 License Agreement dated as of April 14, 1994 between
Metrovision Enterprises, Inc. and the Caldor Corporation.
*10.5 First Modification to License Agreement dated as of
September (undated) 1994 between Metrovision Enterprises,
Inc. and The Caldor Corporation.
*10.6 Letter Agreement dated May 24, 1994 among Metrovision
Enterprises, Inc., U.S. Sachem Financial Consultants, L.P.
and Andrew Todd Industries, Inc.
*10.7 Agreement dated June 16, 1994 between the Company and U.S.
Sachem Financial Consultants, L.P.
17
<PAGE>
*10.8 Financial Advisory Agreement dated Une 23, 1994 between
Metrovision Enterprises, Inc. and U.S. Sachem financial
consultants, L.P.
*10.9 Agreement dated June 30, 1994 between Eye Care Centers of
America, Inc. and Metrovision Enterprises, Inc.
*10.10 Placement Agent Agreement dated November 18, 1994 among the
Company, Metrovision Enterprises, Inc. and U.S. Sanchem
Financial Consultants, L.P.
*10.11 Option Agreement dated January 4, 1995, by and among Kolman
Brown, Harris Mann and the Company.
*10.12 Transfer Agent Appointment dated December 13, 1994.
*10.13 Management Agreement dated March 17, 1995 between RK
Eyecare, Inc. and Metro Optics Ltd.
*16.1 Letter of Wright & Seibert, P.C. dated March 28, 1995
regarding change in certifying accountants.
*21 Subsidiaries of Company
* Previously filed with the Securities and Exchange Commission
(b) No Current Reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this Report.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
METRO OPTICS, LTD.
By: /s/ Kolman Brown
--------------------------------
Kolman Brown, President
Dated: November 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Kolman Brown November 24, 1997
- ----------------------------------------
Kolman Brown, Chairman of the Board and
President (Principal Executive Officer)
/s/ Harris Mann November 24, 1997
- ----------------------------------------
Harris Mann, Vice President, Secretary and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
19
<PAGE>
METRO OPTICS, LTD.
FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
FEBRUARY 28, 1997
<PAGE>
METRO OPTICS, LTD.
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
YEAR ENDED FEBRUARY 28, 1997
Table of Contents
Financial Statements:
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Stockholders' Deficiency 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 14
Supplementary Information:
Accountants' Report 15
Analysis of Cost of Goods Sold 16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Metro Optics, Ltd.
Garden City, New York
We have audited the accompanying balance sheet of Metro Optics, Ltd. as of
February 28, 1997, and the related statements of operations and accumulated
deficit, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of misstatements. 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 the significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe
that our audit provides 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 Metro Optics, Ltd. as of February
28, 1997 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Ives & Sultan, LLP
-----------------------------------------
IVES & SULTAN, LLP
Certified Public Accountants
June 25, 1997
Page 1
<PAGE>
METRO OPTICS, LTD.
BALANCE SHEET
FEBRUARY 28, 1997
Assets
Current Assets
Cash and Cash Equivalents (Note 1c) $ 47,504
Accounts Receivable 73,903
Inventory 269,847
Prepaid Expenses and Other Current Assets 4,010
-----------
395,264
-----------
Fixed Assets (Note 3) 1,568,538
Less: Accumulated Depreciation 493,846
-----------
1,074,692
-----------
Other Assets
Security Deposits 30,866
-----------
$ 1,500,822
===========
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts Payable $ 1,173,293
Accrued Expenses and Taxes (Note 4) 555,186
Current Portion of Long-Term Debt (Note 5) 110,345
Current Portion of Leases Payable (Note 6) 91,402
Due to Affiliate (Note 2) 20,749
Due to Stockholders (Note 7) 241,917
-----------
2,192,892
-----------
Long-Term Debt
Long-Term Debt - Less: Current Maturities (Note 5) 88,955
Leases Payable - Less: Current Maturities (Note 6) 146,848
-----------
235,803
-----------
Stockholders' Deficiency
Common Stock, $.01 Par Value - 25,000,000 Shares
Authorized, 7,363,734 Shares Issued and Outstanding 73,637
Paid-in Capital 2,468,783
Retained Deficit (3,470,293)
-----------
(927,873)
-----------
$ 1,500,822
===========
The accompanying notes are an integral part of the financial statements
Page-2
<PAGE>
METRO OPTICS, LTD.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED FEBRUARY 28, 1997
Sales and Services $ 2,555,422
Cost of Goods Sold 1,362,205
-----------
Gross Profit 1,193,217
-----------
Expenses
Payroll 539,103
Doctors Fees and Commissions 142,856
Rent 451,229
Professional Fees 21,918
Insurance 29,278
Repairs and Maintenance 14,882
Payroll Taxes 56,788
Bad Debt Expense 37,000
Office and Miscellaneous 192,021
Credit Card Fees and Bank Charges 82,137
Utilities 52,126
Telephone 33,412
Advertising and Promotion 34,629
Depreciation 53,713
-----------
1,741,092
-----------
Loss From Operations (547,875)
Other Expenses
Interest 13,823
-----------
Net Loss (Per Share $0.076) (561,698)
Accumulated Deficit - Beginning
of Year (as restated - Note 14) (2,908,595)
-----------
Accumulated Deficit - End of Year $(3,470,293)
===========
The accompanying notes are an integral part of the financial statements.
Page-3
<PAGE>
METRO OPTICS, LTD.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED FEBRUARY 28, 1997
Retained
Common Stock Paid-in Earnings/
Shares Amount Capital (Deficit)
Balance -
February 28, 1996 7,363,734 $73,637 $2,468,783 *$(3,082,980)
Net Loss -- -- -- (1,271,570)
--------- ------- ---------- -----------
Balance -
February 28, 1997 7,363,734 $73,637 $2,468,783 $(4,354,550)
========= ======= ========== ===========
* As stated - See Note 12.
The accompanying notes are an integral part of the financial statements.
Page-4
<PAGE>
METRO OPTICS, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 28, 1997
Operations
Cash Provided By (Used For) Operations:
Net Loss $(561,698)
-----------
Adjustment to Reconcile Net Loss to
Net Cash Provided By (Used For) Operations:
Depreciation and Amortization 53,713
Prior Period Adjustment 192,473
Abandonment of Fixed Assets (552,568)
Accounts Receivable (36,903)
Inventory 144,431
Prepaid Expenses and Other Current Assets 145,013
Security Deposits 10,999
Accounts Payable 358,369
Accrued Expenses and Taxes 403,849
Due to Affiliate 83,240
---------
802,616
---------
Total Cash Provided By Operations 240,918
---------
Financing
Cash Provided By (Used For) Financing:
Proceeds From Investors 100,000
Principal Payments on Debt (213,331)
Payments on Stockholder Loans (80,083)
---------
Total Cash Used For Financing (193,414)
---------
Net Increase in Cash and Cash Equivalents 47,504
Cash and Cash Equivalents - At Beginning --
---------
Cash and Cash Equivalents - At End $ 47,504
=========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During The Period For:
Interest $ 13,823
=========
The accompanying notes are an integral part of the financial statements.
Page-5
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1997
1. Summary of Significant Accounting Policies
a. Type of Organization
Metro Optics, Ltd.(Company) was incorporated in the State of Delaware
on April 11, 1989 under the name of Oakbrook Capital, Inc. In January,
1995, the Company acquired 100% of the issued and outstanding shares
of stock of Metrovision Enterprises, Inc. and changed its name to
Metro Optics, Ltd. The acquisition was accounted for as a reverse
acquisition.
The Company provides retail optical services through five wholly-owned
subsidiaries located throughout the Metropolitan New York area. The
Company offers a broad selection of high quality eyewear and contact
lenses at discount prices.
b. Current Assets and Current Liabilities
Current assets and current liabilities include such items expected to
be realized or liquidated during the next year.
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturity of three months or less at
acquisition to be cash equivalents.
d. Inventory
Inventory primarily is comprised of direct material cost consisting of
eyeglass frames, contact lenses, ophthalmic lenses and optical
laboratory supplies and is stated at the lower of first-in, first-out
("FIFO") cost or market.
e. Income Taxes
The Company provides for deferred income taxes under the asset and
liability method, whereby deferred income taxes result from temporary
differences between tax bases of assets and liabilities and their
reported amounts in the financial statements.
f. Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Provisions for depreciation and
amortization are computed using the straight-line method based upon
the estimated useful lives of the assets, ranging from seven to ten
years. Leasehold improvements are amortized over the shorter of their
economic lives or the terms of the leases.
g. Income Recognition
A sale and related costs are recognized upon delivery of eyewear. Exam
revenue is recognized when the professional service is rendered.
h. Fair Value of Financial Instruments
The Company has fixed rates on certain of its debt. The fair value of
the debt, based on current interest rates approximates the carrying
value at February 28, 1997.
The estimated fair values of the financial instruments which are
presented herein have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts that could be
realized in a current market exchange.
Page-6
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1997
1. Summary of Significant Accounting Policies (Continued)
i. Management and Consulting Agreements
On April 7, 1994, the Company signed a financial consulting agreement
with William Kravitz, as president of Andrew Todd Industries, Inc. The
agreement was amended by letter dated May 24, 1994.
On July 1, 1994, the Company entered into a management agreement (the
"Management Agreement") with Calmet, Ltd. ("Calmet"), which is wholly
owned by Doctors Brown and Mann. Pursuant to the terms of the
Management Agreement, Calmet will manage and operate all retail
optical locations owned by the Company. The term of the Management
Agreement is for three years commencing July 1, 1994. The Company has
agreed to pay Calmet, as a management fee, $400,000 per year. In
addition, Calmet will receive 6% of the pretax profits of the Company
for each year that the agreement is in effect. Calmet has agreed that
neither it nor its principals will, during the term of the Management
Agreement or for two years immediately following its termination,
directly or indirectly, operate any optical or eyewear facility or
business within 10 miles of any retail optical facility owned by the
Company as of the termination date of the Management Agreement. Calmet
and Doctors Brown and Mann have each agreed that they will offer to
the Company the opportunity to acquire any retail vision center that
they may become aware of after the effective date of the Management
Agreement with limitations as outlined in such agreement. The Company
has agreed that during the term of the Management Agreement it shall
maintain in effect a life insurance policy in the face amount of
$2,000,000 on the life of Doctor Brown naming it as a beneficiary and
to provide family medical insurance for Doctors Brown and Mann.
Effective February 28, 1997, Calmet has forgiven all management fees
accruing since the inception of the management agreement.
j. Loss Per Share
Net loss per share data was computed by dividing the net loss by the
weighted average number of common shares outstanding during the
period.
2. Due to Affiliate
Due to affiliate consists of the following:
Eye Encounter, Inc. $20,749
=======
Eye Encounter, Inc. is wholly-owned by the stockholders, Dr. Brown and Dr.
Mann.
Page-7
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1997
3. Fixed Assets
Fixed assets consist of the following:
Estimated
Useful Life
Furniture and Fixtures 7 Years $ 856,884
Leasehold Improvements 10 Years 711,654
----------
1,568,538
Less: Accumulated Depreciation 493,846
----------
$1,074,692
==========
Depreciation expense for the year ended February 28, 1997 was $53,713.
4. Accrued Expenses and Taxes
Accrued expenses and taxes consist of the following:
Payroll $ 9,070
Payroll Taxes 546,116
--------
$555,186
========
5. Long-Term Debt
Long-term debt consists of the following:
Metro Optics, Ltd. of Roosevelt Field; loan payable to
Fleet Bank (formerly Nat West Bank); monthly
installments of $5,112 through November 27, 1998
at 8.25% per annum. $ 99,650
Metro Optics, Ltd. of Staten Island; loan payable to
Fleet Bank (formerly Nat West Bank); monthly
installments of $5,112 through November 27, 1998
at 8.25% per annum. 99,650
--------
199,300
Less: Current Maturities 110,345
--------
Long-Term Debt $ 88,955
========
The loans are secured by all of the personal property, both tangible and
intangible, owned by the Company and have been guaranteed by the principal
stockholders, Doctors Brown and Mann.
Page-8
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997
6. Leases Payable
Leases payable consists of the following:
Vanguard Financial Services; 3 optical equipment
leases; monthly payments of $3,420 payable
through December, 2001. $159,014
G.E. Capital Corp.; ophthalmic equipment lease;
monthly payments of $1,262 payable through
October, 2000. 40,374
AT&T Credit Corp.; equipment lease; monthly
payments of $482 payable through January, 1998. 5,303
AT&T Capital Leasing Services; equipment lease; monthly
payments of approximately $1,215
payable through May, 1998. 18,224
First United Leasing Corp.; 3 computer leases; monthly
payments of $2,375 payable through September, 1997. 15,335
--------
238,250
Less: Current Maturities 91,402
--------
$146,848
========
All leases are secured by their respective equipment and have been
personally guaranteed by Drs. Brown and Mann.
Principal payments on leases payable are estimated as follows:
Twelve Months Ended
February 28,
1998 $ 91,402
1999 59,829
2000 51,138
2001 35,881
---------
$ 238,250
=========
7. Due to Shareholders
Due to shareholders represents monies owed to Drs. Brown and Mann. As of
the date of this report no terms for repayment have been made and no
interest has been accrued.
Page-9
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1997
8. Stock Option Plan
On April 11, 1989, the Company adopted an incentive Stock Option Plan
("Plan") under which options granted are intended to qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code of 1986, as
amended ("Code"). Pursuant to the Plan, options to purchase up to 5,000,000
shares of the Company's Common Stock may be granted to employees of the
Company. The Plan is administered by the Board of Directors, which is
empowered to determine the terms and conditions of each option, subject to
certain limitations. As of the date of this report, no options have been
granted under this Plan, but the Company may elect to grant options under
the Plan in the future.
9. Leases and Commitments
Operating Leases - The Company leases all of its stores. These leases
expire at various dates through 2003. None of the leases contain options to
renew. The leases on stores generally provide for payment of real estate
taxes, common area charges and for additional rent based primarily on
percentage of sales.
Future minimum lease payments at February 28, 1997 for each of the next
five fiscal years and thereafter are as follows:
1998 $ 431,643
1999 363,467
2000 341,142
2001 283,432
2002 and Thereafter 41,771
----------
$1,461,455
==========
10. Public Securities Offering
The Company is offering for sale 30 Units of its securities at an offering
price of $10,000 per Unit. Each Unit consists of 233,334 shares of common
stock. 233,334 Class A warrants and 233,344 Class B warrants. The Company
is authorized to issue an aggregate of 25,000,000 shares of common stock,
$.01 par value, and 5,000,000 shares of preferred stock, $.01 par value
("preferred stock").
Common Stock
The authorized capital stock of the Company presently consists of
25,000,000 shares of $.01 par value of common stock. All such shares have
equal voting rights and are not assessable. Voting rights are not
cumulative, and, therefore, the holders of more than 50% of the outstanding
shares of common stock of the Company can, if they choose to do so, elect
all the Directors.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after the payout of liabilities and after the satisfaction of
all claims by preferred shareholders, will be distributed pro rata to the
holders of the common stock. The holders of the common stock do not have
preemptive rights to subscribe for any securities of the Company and have
no right to require the Company redeem or purchase their shares. The shares
of common stock presently outstanding are, and the shares of common stock
to be sold pursuant to the offering will be, upon issuance, fully paid and
nonassessable.
Page-10
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997
10. Public Securities Offering (Continued)
Holders of common stock are entitled to share equally in dividends when,
and as if declared by the Board of Directors of the Company, out of funds
legally available therefore after payment of any dividends to the holders
of the Company's preferred stock. The Company has not paid any cash
dividends on its common stock and it is unlikely that any such dividends
will be declared in the foreseeable future.
Preferred Stock
The Company is presently authorized to issue 5,000,000 shares of preferred
stock, $0.1 par value. The preferred stock may be issued in series from
time to time with such designation, rights, preferences and limitations as
the Board of Directors of the Company may determine by resolution. The
rights, preferences and limitations of separate series of Preferred Stock
may differ with respect to such matters as may be determined by the Board
of Directors, including, without limitation, the rate of dividends, method
and nature of payment of dividends, terms of redemption, amounts payable on
liquidation, sinking fund provisions (if any), conversion rights (if any),
and voting rights. The potential exists, therefore, that preferred stock
might be issued which would grant dividend preferences and liquidation
preferences to preferred shareholders over common shareholders. Unless the
nature of a particular transaction and applicable statues require such
approval, the Board of Directors has the authority to issue these shares
without shareholder approval. The issuance of Preferred Stock my have the
affect of delaying or preventing a change in control of the Company without
any further action by shareholders.
Class A Warrants
The Company has authorized the issuance of 233,344 Class A Warrants to
purchase shares of common stock and has reserved an equivalent number of
shares of common stock for issuance upon exercise of such Class A Warrants.
No fractional shares will be issued upon the exercise of the Class A
Warrants. The Company will pay cash in lieu of fractional shares.
Each Class A Warrant entitles the holder thereof to purchase one share of
common stock at a price of $.21 per share during the three year period
commencing on the date of the Offering Memorandum. The Class A Warrants
contain provision that protect the Class A Warrant holders against dilution
by adjustment of the exercise price in certain events including but not
limited to, stock dividends, stock splits, reclassification or mergers. A
Class A Warrant holder will not possess any rights as a shareholder of the
Company solely by virtue of the ownership of a Class A Warrant. The shares
of common stock, when issued upon the exercise of the Class A Warrant in
accordance with the terms thereof, will be fully paid and non-assessable.
However, such shares will be deemed restricted securities under the Act and
not available for public resale unless registered by the Company or upon
satisfaction of the provisions of Rule 144 promulgated under the Act. The
Company has no obligation to register the Class A Warrants or the Shares
underlying the Class A Warrants.
The Company may redeem the Class A warrants at a price of $.01 per Class A
warrant at any time upon 30 days prior written notice if the average
closing bid price of the common stock has been at least $3.00 per share
during the 30 consecutive trading days ending on the third day prior to the
day on which notice of redemption is given.
Page-11
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1997
10. Public Securities Offering (Continued)
At any time when the Class A warrants are exercisable, the Company is
required to have a current registration statement on file with the
Commission and to effect appropriate qualifications under the laws and
regulations of the states in which the holders of Class A warrants reside
in order to comply with applicable laws in connection with the exercise of
the Class A warrants and the resale of the common stock issued upon such
exercise. There can be no assurance that the Company will be in a position
to effect such action under the federal and applicable state securities
laws, and the failure of the Company to effect such action may preclude the
exercise thereof. The Company may amend the terms of the Class A warrants
but only by extending the termination date or lowering the exercise price
thereof. The Company has no present intention of amending such terms.
In the event, any of the Company's Class A warrants or Class B warrants are
exercised, Dr. Kolman Brown and Dr. Harris Mann would be entitled to
receive aggregate additional shares of common stock equal to the number of
shares issued on exercise of such warrants, provided however, that the
Company reported gross revenues of (i) $9,000,000 in the fiscal year prior
to the exercise of the warrants; (ii) $9,000,000 in the fiscal year after
exercise of the warrants; or (iii) $4,500,000 in any two consecutive fiscal
quarter after exercise of the warrant.
Class B Warrants
The Company has authorized the issuance of 233,344 Class B warrants to
purchase shares of common stock and has reserved an equivalent number of
shares of common stock for issuance upon exercise of such Class B warrants.
No fractional shares will be issued upon the exercise of the Class B
Warrants. The Company will pay cash in lieu of fractional shares.
Each Class B warrant entitles the holder thereof to purchase one share of
common stock at a price of $.36 per share during the three year period
commencing on the date of the Offering Memorandum. The Class B warrants
contain provisions that protect the Class B warrant holders against
dilution by adjustment of the exercise price in certain events including
but not limited to, stock dividends, stock splits, reclassification or
mergers. A Class B warrant holder will not possess any rights as a
shareholder of the Company solely by virtue of the ownership of a Class B
warrant. The shares of common stock, when issued upon the exercise of the
Class B warrants in accordance with the terms thereof, will be fully paid
and non-assessable. However, such shares will be deemed restricted
securities under the Act and not available for public resale unless
registered by the Company or upon satisfaction of the provisions of Rule
144 promulgated under the Act. The Company has no obligation to register
the Class B Warrants or the shares underlying the Class B Warrants.
The Company may redeem the Class B warrants at a price of $.01 per Class B
warrant at any time upon 30 days prior written notice if the average
closing bid price of the common stock has been at least $4.00 per share
during the 30 consecutive trading days ending on the third day prior to the
day on which notice of redemption is given.
Page-12
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1997
10. Public Securities Offering (Continued)
At any time when the Class B warrants are exercisable, the Company is
required to have a current registration statement on file with the
Commission and to effect appropriate qualifications under the laws and
regulations of the states in which the holders of Class B warrants reside
in order to comply with applicable laws in connection with the exercise of
the Class B warrants and the resale of the common stock issued upon such
exercise. There can be no assurance that the Company will be in a position
to effect such action under the federal and applicable state securities
laws, and the failure of the Company to effect such action may preclude the
exercise thereof. The Company may amend the terms of the Class B warrants
but only by extending the termination date or lowering the exercise price
thereof. The Company has no present intention of amending such terms.
In the event, any of the Company's Class A warrants or Class B warrants are
exercised, Dr. Kolman Brown and Dr. Harris Mann would be entitled to
receive additional shares of common stock equal to the number of shares
issued on exercise of such warrants, provided however, that the Company
reported gross revenues of (i) $9,000,000 in the fiscal year prior to the
exercise of the warrants; (ii) $9,000,000 in the fiscal year after exercise
of the warrants; or (iii) $4,500,000 in any two consecutive fiscal quarter
after exercise of the warrants.
Additional Warrants
The Company also has outstanding an aggregate of 7,210,000 additional
common stock purchase warrants exercisable through February 2002 at a price
of $.043 per share.
Reverse Split
Upon consummation of the offering, the Company intends to authorize a 1 for
7 reverse split of its common stock, Class A and B warrants and additional
warrants, thereby substantially reducing the Company's outstanding
securities.
11. Going Concern
The Company's financial statements have been prepared assuming that it will
continue as a going concern which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
Due to insufficient assets, the Company has been unable to prepare the
financial statements necessary to file required reports under the Exchange
Act. Accordingly, the Company is not current in its reporting obligations
under the Exchange Act. The Company's last filed report was its annual
report on Form 10-K for the year ended December 31, 1994 and Form 8-K filed
on January 18, 1995.
The Company is substantially delinquent in the payment of outstanding
accounts payables and tax obligations. The Company has failed to pay
franchise taxes due to the State of Delaware for the tax years 1994, 1995
and 1996. This failure has resulted in the Company's Articles of
Incorporation being declared void. Accordingly, the Company is not in good
standing in the State of Delaware. The Company will be required to file a
Certificate of Renewal and pay applicable franchise taxes in order to
reinstate the Company's charter and obtain good standing status.
Page-13
<PAGE>
METRO OPTICS, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1997
12. Concentrations of Credit
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Accounts receivable arise from the sale of eyewear and contact
lenses products to Unions. The Company performs ongoing credit evaluations
of its customers' financial condition, and generally requires no collateral
from its customers. The Company's credit losses are subject to general
economic conditions of the optical industry.
13. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
14. Prior Period Adjustment
Prior period adjustment represents adjustments to the books of Metro
Optics, Ltd for years prior to fiscal year ended February 28, 1997. They
consist of the following:
Beginning Inventory $340,945
Operating Expenses 23,612
Deferred Taxes 68,633
Payroll Taxes 151,337
Prepaid Expenses 17,590
Leasehold Improvements (Net of
Depreciation) for Closed Stores 1,260,496
Loss on Investment 6,000
----------
1,868,613
Accumulated Deficit - Originally Reported 1,039,982
----------
Accumulated Deficit - Restated $2,908,595
==========
13. General
For purposes of the statement of cash flows, the prior year's financial
statements have been reclassified for prior period adjustments.
Page-14
<PAGE>
ACCOUNTANTS' REPORT ON ADDITIONAL INFORMATION
Board of Directors
Metro Optics, Ltd.
Garden City, New York
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The analysis of cost of goods sold is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic Financial Statements, and,
accordingly, we express no opinion on them.
/s/ Ives & Sultan, LLP
-----------------------------------------
IVES & SULTAN, LLP
Certified Public Accountants
June 25, 1997
Page-15
<PAGE>
METRO OPTICS, LTD.
SUPPLEMENTARY INFORMATION
YEARS ENDED FEBRUARY 28, 1997
ANALYSIS OF COST OF GOODS SOLD
Inventory - At Beginning (as restated) $ 414,278
Purchases 1,217,774
----------
1,632,052
Less: Inventory - At End 269,847
----------
$1,362,205
==========
See accountants' report on supplementary information.
Page-16
<PAGE>
METRO OPTICS, LTD.
BALANCE SHEETS
FEBRUARY 28, 1996
ASSETS
Current Assets:
Cash $ (55,849)
Inventory 414,278
Accounts Receivable 37,000
Due from Affiliates 93,577
----------
Total Current Assets 489,006
----------
Fixed Assets:
Fixed Assets (net of Accumulated Depreciation) 1,128,405
----------
Total Fixed Assets 1,128,405
----------
Other Assets:
Security Deposits 41,865
----------
Total Other Assets 41,865
----------
TOTAL ASSETS $1,659,276
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 759,073
Deferred Rent 131,894
Current Portion - LT Dept 11,545
Payroll Taxes Payable 365,260
----------
Total Current Liabilities 1,267,772
----------
Long Term Liabilities:
Loan Payable 652,725
Loan Payable - Affiliates 15,187
Loan Payable - Shareholders 189,766
----------
Total Other Liabilities 857,678
----------
Shareholders' Equity:
Capital Stock 73,637
Paid in Capital 2,368,784
Accumulated Deficit (2,908,595)
----------
Total Shareholders' Equity (466,174)
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,659,276
==========
Page-17
<PAGE>
METRO OPTICS, LTD.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED FEBRUARY 28,1996
Sales and Services $3,654,875
Cost of Goods Sold 1,792,368
-----------
Gross Profit 1,862,507
-----------
Operating Expenses:
Payroll Expense 174,123
Telephone 60,522
Advertising and Promotion 33,463
Cleaning and Rubbish Removal 6,697
Repairs and Maintenance 4,902
Architect Fees 8,000
Security Systems 7,711
Professional Fees 24,200
Common Expense 837
Gross Salaries 1,653,950
Utilities 60,632
Rent 432,417
Postage 6,695
Insurance 51,021
Equipment Leasing 147,063
Auto Expense 977
Office Expenses 304,797
Temporary Personnel 5,252
Charitable Contributions 265
Bank Charges 22,272
Fees and Penalties 2,827
Interest Expense 35,376
Miscellaneous 125,523
Depreciation Expense 255,912
-----------
Total Expenses 3,425,434
-----------
Net Loss Before Disposition of Assets (1,562,927)
Disposition of Assets (1,260,496)
-----------
Net Loss (2,823,423)
Accumulated Deficit at March 1, 1995 (85,172)
-----------
Accumulated Deficit at February 28, 1996 $(2,908,595)
===========
