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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File No. 0-19670
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OCEAN OPTIQUE DISTRIBUTORS, INC.
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(Name of small business issuer in its charter)
<TABLE>
<S> <C>
FLORIDA 65-0052592
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14250 S.W. 119TH AVENUE, MIAMI, FLORIDA 33186
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(Address of principal executive offices) (Zip Code)
(305) 255-3272
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(Issuer's telephone number)
</TABLE>
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
--------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required 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 X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( )
State issuer's revenues for its most recent fiscal year: $9,752,264.
As of September 10, 1995, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $2,191,400, based on the
average of the closing bid and asked prices on that date of $2.1250. As of
that date, there were 2,194,420 shares of the issuer's Common Stock
outstanding.
Documents incorporated by reference: Certain exhibits listed in Part III of
this Annual Report on Form 10-KSB are incorporated by reference from the
Company's Registration Statement on Form S-18, dated September 24, 1991, and
from the Company's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1994.
Transitional Small Business Disclosure Format. YES NO X
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PART I
Ocean Optique Distributors, Inc. (the "Company") was formed in May
1988 under the laws of the State of Florida. The address of its principal
place of business is 14250 S.W. 119th Avenue, Miami, Florida and its telephone
number is (305) 255-3272. References to the Company include the Company's
wholly owned subsidiaries, Classic Optical, Inc., a Michigan corporation
("Classic"), and European Manufacturers Agency, a Florida corporation ("EMA"),
unless the context indicates otherwise.
ITEM 1. DESCRIPTION OF BUSINESS
The Company is engaged in importing, marketing and distributing
high-quality ophthalmic (or eyeglass) frames and sunglasses in the mid- and
premium-priced categories. The Company's products, which are currently
manufactured in Europe and the Far East, include more than 400 styles in metal
or plastic in an array of colors and sizes. As described below, the Company is
the exclusive or non-exclusive licensee (with respect to eyewear) of several
well-recognized labels, including Revlon, Crayola, Gitano, J.H. Collectibles
and Jacques Fath, and is the exclusive distributor for Carl Zeiss Optical
eyeglass frames and sunglasses in the United States. See "Item 6, Management's
Discussion and Analysis or Plan of Operation." The Company also has the
exclusive distribution rights for Chevrolet eyewear and currently is developing
product for that brand.
Acquisition of Classic Optical, Inc.
In October 1992, the Company acquired one hundred percent of the
outstanding capital stock of Classic. As a result of the acquisition, the
Company's method of distribution was expanded to include direct sales to
independent optical retailers, as well as markets not previously served by the
Company. In addition, the Company acquired certain licenses to well-recognized
labels.
Acquisition of European Manufacturers Agency, Inc.
On June 21, 1995, the Company acquired one hundred percent of the
outstanding capital stock of European Manufacturers Agency, Inc. ("EMA"). As a
result of the acquisition, the Company's present method of distribution was
expanded to include markets not previously serviced by the Company, primarily
private label products for retailers, which is EMA's forte. EMA also brings
additional talented top management to the Company. Also as a result of the EMA
acquisition, D'Arrigo Moda Italia, EMA's major supplier located in Italy, has
become a principal shareholder of convertible preferred stock in the Company.
The EMA acquisition agreement provides for the escrow of 500,000 of
the 533,333 total shares of the Company's Common Stock issued in exchange for
the EMA shares, with a portion of such escrowed shares to be released to the
former EMA shareholders, Robert D. Winn and Mary S. Winn, on each of the first,
second, third and fourth anniversaries of the acquisition date. The
acquisition agreement provides that the number of shares to be released on any
such date will be determined by dividing 375,000 by the then-current market
value of the Company's Common Stock, provided that the number of shares to be
released on any anniversary date will not be less than 62,500 shares nor more
than 150,000 shares. In the event that the number of shares of the Company's
Common Stock to be released from escrow on an anniversary date is greater than
the number of shares then held in escrow, the acquisition agreement provides
that the Company will issue additional shares in the amount of any such
shortfall, and such shares will be deemed to be issued as part of the original
purchase price set forth in the acquisition agreement. Any shares of Common
Stock remaining in escrow subsequent to the fourth
<PAGE> 3
anniversary of the acquisition date will be released to and cancelled by the
Company. The acquisition agreement further provides that the Winns, as
beneficial owners of the escrowed shares, are entitled to all voting, dividend
and liquidation rights, preferences and privileges applicable to all of the
escrowed shares, but will be unable to transfer such shares until released from
escrow.
Pursuant to the acquisition agreement, EMA entered into employment
agreements with Robert Winn and Mary Winn relating to their continued service
as executive officers of EMA. Under the terms of the acquisition agreement, if
either of such employment agreements is terminated by the Company without
cause, all shares then maintained in escrow in the name of the terminated
executive officer will be released and delivered to that person. If either
such agreement is terminated for cause or by the officer, the officer's shares
will be released from escrow according to the above- described schedule.
This escrow arrangement is intended primarily to assure the Company
of a remedy in the event of a claim by the Company to the indemnification
provided by the former EMA shareholders under the acquisition agreement.
Pursuant to the terms of the agreement, any claim to such indemnification is to
be first applied to the escrowed shares. As of the date hereof, no such claim
has been made by the Company.
Industry Overview
The Company believes that the United States market for eyeglass
frames is divisible into three price categories: low priced frames selling at
retail prices below $40; mid-priced frames retailing at prices ranging from $40
to $160; and high- or premium-priced frames retailing at over $160. The
Company believes that the mid-priced category is the largest of these segments.
The Company believes that the U.S. retail optical market has grown from
approximately $9.4 billion in 1987 to approximately $12.9 billion in 1994, with
a projection of approximately $13.6 billion in 1995. Also, the average
eyeglass sale (frame and lenses) at retail has grown to $135.86 in 1995 from
$126.66 in 1991. The Company believes that the U.S. plano sunglass market grew
from approximately $1.9 billion in 1990 to approximately $2.2 billion in 1994.
Most of the mid- and premium-priced eyeglass frames purchased at
retail in the United States are sold through independent dispensing opticians,
although optical chains, optical superstores and health maintenance
organizations ("HMO's") account for a gradually increasing market share. The
Company believes that in 1994 the U.S. market's total retail eyewear sales were
distributed as follows: independent professionals collectively accounted for
approximately 61% of the $12.9 billion total; chains accounted for
approximately 34%; and HMO's accounted for approximately 5%. Independent
opticians typically maintain a small frame inventory and, accordingly, must
place frequent orders with distributors in response to sales. While the larger
retail optical chains and optical superstores generally maintain somewhat
larger frame inventories, their greater volume of sales per store requires them
to place frequent orders against actual sales in order to maintain frame
selection availability. Distributors of eyeglass frames, consequently, must
maintain substantial inventories of the product in order to provide prompt
shipment.
The Company believes that the fastest growing sunglass market
segments are represented by the premium-priced and medium-priced sunglasses,
which are sold at retail primarily by department stores and by specialty
boutiques and independent dispensing opticians located in shopping malls.
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The Company's Product Lines
The Company is the exclusive or non-exclusive licensee of a number of
high-profile labels under which it designs and markets, or is in the process of
developing products to be marketed, including: Revlon (exclusive in the United
States and Canada); Crayola (exclusive in the United States, Canada, Mexico,
Central and South America, and the Caribbean); J.H. Collectibles (exclusive
worldwide, except Japan); Chevrolet (United States, Canada and Brazil, on non-
exclusive basis); Gitano (exclusive licensee in the United States, Puerto Rico,
and Canada); and Jacques Fath (exclusive in the United States). See "Item 6.
Management's Discussion and Analysis or Plan of Operation."
In addition, products are produced and marketed under the "Ocean"
label, which the Company believes has developed recognition in the market
place. The Company also is the exclusive United States distributor for all
Carl Zeiss Optical eyeglass frames and sunglasses. Now, with the addition of
EMA, the Company distributes private label product to retailers.
The Company designs the products it markets with the approval of the
licensors where applicable, stressing styles with popular, broad-based appeal
and durability. The Company believes that its products are of the highest
quality in their price categories. The Company intends to expand its line of
products marketed under well-known labels or "superbrands," as attractive
opportunities to acquire licenses are presented.
Sales and Marketing
Ocean Optique Distributors, Inc.'s ("Ocean") sales efforts are made
directly by its officers and currently by five independent manufacturers'
representatives who do not sell competing products and are compensated on a
commission basis. Classic, which sells directly to independent opticians,
optometrists and ophthalmologists, as well as to certain chain stores, uses
approximately 25 commissioned sales representatives, who may also carry
non-competing lines. EMA's sales efforts are made directly by its officers and
one independent representative.
For the fiscal year ended June 30, 1995, the Company had two
customers whose net sales represented 11% and 13% of the Company's total net
sales for the year. No other customers accounted for more than 10% of the
Company's sales in the fiscal year ended June 30, 1995.
Prior to the acquisition of Classic in October 1992, the number of
the Company's customers had shown a steady growth: from 147 customers in the
fiscal year ended June 30, 1990, to 405 in the fiscal year ended June 30, 1992.
This increase generally was a result of an increase in the number of
independent representatives who sell the Company's products. As a result of
the acquisition of Classic, and its direct method of distribution to
independent opticians, optometrists, and ophthalmologists, the Company's active
customers numbered more than 4,000 throughout the United States and Canada at
the fiscal year ended June 30, 1994. With the acquisition of EMA, the
Company's customer base has increased to more than 4,200 at the fiscal year
ended June 30, 1995.
To date, the Company's marketing and promotional efforts have been
limited, although they have increased from prior years following the
acquisition of Classic and certain labels. Advertising expenses for the years
ended June 30, 1995, and 1994 amounted to 7% and 4% of net sales, respectively.
The Company is exhibiting its products at three national trade shows annually.
The Company has determined to limit its exhibitions at certain regional trade
shows in order to control costs.
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The Company is aware that desirable product lines and styling, and
durable products, will not be sufficient to fully capitalize on the Company's
strengths. To a large extent, the future success of the Company will depend on
enhanced promotional efforts led by a marketing team. The Company intends to
commit future resources, as available, to national marketing programs and to
increasing the name recognition of the Company's licensed and proprietary
names.
Sources of Supply
Much of the allure of the Company's products is a consequence of the
manufacturers chosen by the Company. In excess of 63% of the ophthalmic frames
are manufactured by Societe' Francaise de Lunetterie ("SFL"), a principal
shareholder of the Company, located in France, and the remainder of its
ophthalmic frames are manufactured by a number of vendors in Europe and the Far
East. As a result of the acquisition of EMA, D'Arrigo Moda Italia, EMA's major
supplier located in Italy, has become a principal shareholder of convertible
preferred stock in the Company. The Company enjoys a strong relationship with
its vendors, and does not anticipate the loss of any material supplier in the
near future. In the unlikely event the Company is unable to procure its
products from certain present suppliers, the Company believes its business will
not be adversely affected, due to adequate alternative sources of product
supply.
Competition
The Company occupies a minor, but growing place among a multitude of
competitors, many of which are considerably larger, with greater financial
marketing and distribution resources than the Company. The Company believes
that its principal competitors of eyeglass frames and sunwear in the United
States, some of which manufacture the frames they distribute, include the
Italian companies, Safilo Group, S.p.A. (operating in the United States through
a number of subsidiaries), Luxottica Group S.p.A. (operating in the United
States through its subsidiaries), and Marchon Eyewear, Inc.
The Company's primary methods of competing include advertising in
trade journals, point-of-sale displays, exhibitions at trade shows, and direct
marketing to optical wholesalers and retailers by its officers and sales
representatives.
Employees
As of September 30, 1995, the Company had 40 full-time employees, in
addition to its 30 independent manufacturers' representatives. The Company is
not a party to a collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases 11,000 square feet for its main office
and warehouse space from a third party for a five-year term expiring in
February 1998, at a monthly rate of $7,383. In addition, the Company leases a
small warehouse storage facility across the street from the main location, at a
monthly rate of $865. This six-month lease is renewable, and expires in May
1996. EMA's 2,700 square foot main office and warehouse are located in
Clearwater, Florida, and are leased from an unrelated third party at a monthly
rate of $1,625, expiring December 31, 1996 with an annual renewal option. The
Company's offices and warehouse facilities are in good condition.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding, nor is
the Company aware of any such proceeding to which the Company's property is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1995.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Common Stock of the Company is currently trading on the automated
quotation system of the National Association of Securities Dealers, Inc.
("Nasdaq") under the symbol "OPTQ."
The following table sets forth the range of high and low bid prices
for the Company's Common Stock for each quarterly period indicated, as reported
by brokers and dealers making a market in the Common Stock. Such quotations
reflect inter-dealer prices without retail markup, markdown or commissions, and
may not necessarily represent actual transactions:
<TABLE>
<CAPTION>
COMMON STOCK
QUARTER ENDED HIGH BID LOW BID
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<S> <C> <C>
June 30, 1995 $3.1250 $1.8750
March 31, 1995 3.6250 2.7500
December 31, 1994 4.2500 2.5000
September 30, 1994 4.2500 3.3750
June 30, 1994 4.1250 3.0000
March 31, 1994 4.6250 3.8750
December 31, 1993 5.8750 4.6250
September 30, 1993 6.3750 4.5000
</TABLE>
Holders
The approximate number of record holders of the Company's Common Stock
as of September 28, 1995 was 36. The Company believes that its Common Stock is
beneficially held by more than 400 holders.
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Dividends
The Company never has paid cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. The Company presently intends
to retain all of its earnings for the operation and expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto included
elsewhere herein.
Overview:
The fiscal years ended June 30, 1995 and June 30, 1994, were
significant in the development of the Company's operations, most noticeably in
connection with or as a result of the prior acquisition of Classic in the
fiscal year ended June 30, 1993, and EMA in the fiscal year ended June 30,
1995. Through the use of the licenses to market products under the Revlon,
Crayola, Chevrolet, Gitano and J.H. Collectibles labels and employing the
efforts of a substantially larger sales force, the Company has expanded its
customer base and product lines, and has implemented a national marketing plan.
In addition, the Company believes that the acquisition of EMA will enable it to
continue to expand its customer base and product lines through the sales of
private labels to retailers, i.e., product labeled with brand names limited to
specific retailers. The Company's customers of this product currently include
a national retail chain and a regional optical chain.
Subsequent to the end of its 1995 fiscal year, the Company's license
agreement with Revlon was renewed for a one-year term ending December 31, 1996.
The license agreement may be renewed for additional one-year terms if certain
criteria are met. No assurance can be given that such criteria will be met and
that therefore such renewals will be entered into. However, the Company
believes that there would be no material adverse effect on the Company's
long-term future business should the agreement expire and not be renewed.
Results of Operations:
Net sales for the fiscal year ended June 30, 1995, were $9,752,264, a
slight decrease of $233,314, or approximately 2% from the 1994 fiscal year.
Included in the sales for the fiscal year ended June 30, 1995, are the results
of nine days of sales by EMA, which totalled $570,760, primarily comprised of
the shipment of a large sales order during the period. Classic's sales volume
remained relatively steady, with sales of $5,665,834 and $5,667,673 for the
fiscal years ended June 30, 1995 and June 30, 1994 respectively. Excluding the
sales of Classic and EMA, the Company's net sales decreased by $802,235 or 19%
from the previous fiscal year. This decrease in sales volume is mainly
attributed to the loss of business from one key customer during the current
fiscal year, which was not yet replaced at fiscal year end 1995.
Selling, general and administrative ("SG&A") expenses for the fiscal
year ended June 30, 1995, increased by $203,798, or approximately 5% over the
previous fiscal year. The increase in SG&A expenses was primarily due to an
increase in advertising ($83,000), sales payroll ($88,000) and trade show
expenses ($28,400) over the same period last year. The advertising increase
primarily reflected
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an approximately $77,000 write-off of a worldwide distribution licensing
prepayment to Revlon pursuant to its licensing agreement with the Company. The
increase in sales payroll was due to the addition of three middle-management
sales supervisors during fiscal year 1995. These supervisory positions were
eliminated subsequent to June 30, 1995 in connection with the Company's efforts
to streamline operations in order to control expenses. Trade show expenses
increased due to an increased emphasis on this marketing activity by the
Company during fiscal year 1995. The Company is in the process of reviewing
its SG&A expenses in an effort to control such expenses.
The Company's overall gross profit margin decreased from 46% to 42%
from fiscal 1994 to fiscal 1995. In fiscal 1994, the Company recovered
$200,000 from the selling shareholders of Classic, as a result of an inventory
valuation. This amount reduced the cost of goods sold, and reflected a 2%
higher gross profit margin in fiscal 1994. The remaining percentage decrease
in the gross profit margin is mainly due to the devaluation of the U.S. dollar
verses the German mark (18.1%), the French franc (15.8%), and the Japanese yen
(22.9%), and to a lesser extent the selling of slow-moving inventory at a lower
gross profit margin. While the Company purchases more than 63% of its product
from France, mostly in U.S. dollars, approximately 20% of purchases are from
manufacturers located in Germany, Italy and Japan in the applicable foreign
currencies. Beginning with the 1995 fiscal year, the Company has been
selectively purchasing foreign currency in advance of anticipated inventory
purchases in order to stabilize the Company's cost of goods sold. Prior to
fiscal year 1995, the Company purchased currency as needed for payment of
current inventory payables. Management believes at the present time that its
current foreign currency holdings are sufficient for the Company's anticipated
inventory purchases for the next 12 months. The Company's advance purchases of
foreign currencies, however, may limit the Company's ability to benefit from
further favorable changes in exchange rates and may not offset the impact of
possible future increases in the prices of inventories purchased.
The following table sets forth the amount of foreign currencies held
at the dates indicated:
<TABLE>
<CAPTION>
At June 30, 1995 At June 30, 1994
---------------------------------- ------------------------------------
Foreign U.S. Foreign U.S.
Currency Dollar Currency Dollar
Denominated Equivalent Denominated Equivalent
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Italian lira . . . . . . . . . . . 1,709,166,018.18 $ 1,043,128.00 1,128,250.18 $ 713.00
Japanese yen . . . . . . . . . . . 7,753,008.20 91,567.00 2,479,215.29 25,042.00
French franc . . . . . . . . . . . 937,336.31 193,405.00 892,887.34 160,398.00
German mark . . . . . . . . . . . . -- .00 68,763.06 40,669.00
---------------- ---------------
Total U.S. dollar
equivalents . . . . . . . . . $ 1,328,100.00 $ 226,822.88
================ ===============
</TABLE>
For the fiscal year ended June 30, 1995, the Company recognized a net
gain of $57,840 related to its foreign currency transactions, and for the
fiscal year ended June 30, 1994, the Company recognized a net gain of $16,253.
Such net gains were included in the cost of goods sold for the respective
years. The Company purchases foreign currencies at a 2 1/2% margin from a
foreign currency dealer who finances up to 97 1/2% of the purchase price. The
Company pays interest on the U.S. dollar equivalent balance, at a rate of
6.706% for fiscal year 1995 and 4.888% for fiscal year 1994. The Company earns
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interest on the foreign currency denominated balances, which for the fiscal
years 1995 and 1994 was at the rates indicated below:
<TABLE>
<CAPTION>
For the Fiscal Year For the Fiscal Year
Ended June 30, 1995 Ended June 30, 1994
------------------- -------------------
<S> <C> <C>
Italian lira . . . . . . . . . 9.8130% 6.947%
Japanese yen . . . . . . . . . .5580% 1.390%
French franc . . . . . . . . . 6.7080% 4.770%
German mark . . . . . . . . . . 3.8113% 4.366%
</TABLE>
The Company incurred a net loss of $735,049 for the fiscal year ended
June 30, 1995, compared to a net loss of $159,960, which includes the $200,000
adjustment from Classic's selling shareholders, for the fiscal year ended June
30, 1994. The fiscal year ended June 30, 1994 also reflected a $130,000
financing expense relating to termination fees, facility fees and closing fees
associated with refinancing the Company's line of credit in June 1994. This
decrease of approximately $500,000 in net income for fiscal year 1995,
excluding the $200,000 recovery related to Classic and the $130,000 financing
expense in 1994, is mainly due to lower revenues, lower gross margins, and
higher SG&A expenses. Contributing to such results for fiscal year 1995 were
fourth quarter adjustments of approximately $125,000 to increase the provision
for slow-moving inventory, approximately $55,000 to increase the provision for
doubtful accounts receivable, approximately $219,000 to expense certain prepaid
assets, and an income tax benefit of approximately $145,000 to adjust income
tax accounts based on the Company's results of operations. The increase to the
provision for slow-moving inventory was made pursuant to an in-depth analysis
of the Company's inventory levels during the fourth quarter of fiscal year
1995. The increase to the provision for doubtful accounts receivable was made
by the Company based on management's assessment of the likelihood of
recoverability of several delinquent trade accounts receivable identified
during the fourth quarter. The fourth quarter adjustment to expense
approximately $219,000 of prepaid expenses was composed of a $77,000 write-off
of a worldwide distribution licensing payment to Revlon for rights expiring on
December 31, 1995 and $142,000 of primarily trade show expenses. Management
continually monitors its inventory levels and the collectibility of accounts
receivable. Management currently believes that the fourth quarter adjustments
to the provision for slow-moving inventory and the provision for doubtful
accounts receivable resulted in adequate allowances for slow-moving inventory
and doubtful accounts receivable at June 30, 1995. Management will continue to
evaluate the reasonableness of these allowances on an ongoing basis, however,
and no assurances can be given that future provisions to the allowances will
not be necessary.
Liquidity and Capital Resources:
At June 30, 1995, the Company's working capital was $6,157,874, and
its current ratio was 1.8:1, as compared to working capital of $5,933,353 and a
current ratio of 2.3:1 at June 30, 1994.
During the March quarter of 1994, the Company raised $3,175,000 from a
private placement, and during the June quarter of 1994, the Company raised
$1,108,532 with the issuance of 341,087 shares upon the exercise of the Series
A Warrants.
The change in net cash provided by operating activities was primarily
due to the net loss from operations of $735,049, depreciation and amortization
of $320,343, an increase in accounts receivable of $670,845, a decrease in
inventory of $261,350, a decrease in accounts payable and accrued expenses of
$235,802, and an increase in amounts due to foreign currency dealer of
$1,254,008. The increase in
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<PAGE> 10
accounts receivable and the decrease in inventory were primarily due to a large
sale by EMA in the latter part of the fourth quarter of fiscal year 1995. The
decrease in accounts payable and accrued expenses resulted from faster payments
to vendors. Amounts due to foreign currency dealer increased for fiscal year
1995 because the Company began purchasing foreign currency on margin in advance
of anticipated inventory purchases in order to stabilize the Company's cost of
goods sold.
During the fiscal year ended June 30, 1995, the Company increased its
borrowings on its line of credit by $387,042, the funds from which were used
for operating capital, and utilized $318,750 in cash to repurchase 75,000
shares of Common Stock in the open market.
During the Company's 1994 fiscal year, it maintained a $3,500,000 line
of credit agreement with Congress Financial Corporation ("CFC"), which was
secured by a pledge of all of the Company's assets. On June 29, 1994, the
Company paid off the balance due to CFC, and refinanced the $3,500,000 credit
facility with Republic National Bank ("RNB"), which offered lower interest
rates, and, in management's opinion, more equitable lending formulas. As of
June 30, 1995, total available credit under this line was $476,200. As of
September 12, 1995, the unused balance on this facility was $270,000. Interest
on the line of credit is 3/4% above the prime lending rate. The Company has a
$150,000 line of credit with Barnett Bank that matures in December 1995. On
September 27, 1995 the credit facility with RNB was renewed through September
1996. In connection with the renewal, EMA was added to the loan agreement as
an additional guarantor and the Company agreed to pay-off the Barnett Bank loan
by December 31, 1995, if not paid-off previously. Subsequent to December 31,
1995, the Company paid down $75,000 of the line of credit with Barnett Bank and
informed RNB it would pay down the balance by March 10, 1996. As of the date
hereof, RNB has not indicated its approval of this payment schedule or whether
it intends to provide to the Company notice of occurrence of an event of
default under the terms of the RNB credit agreement. The credit agreement
provides for a 10-day cure period following the giving of such notice. If such
notice is given by RNB, there can be no assurances that the Company can cure
such default, although the Company currently believes that it has sufficient
cash on hand to pay the remaining balance of the line of credit.
Effective as of June 21, 1995, the Company consummated the acquisition
through its wholly-owned subsidiary, Ocean Private Label, Inc. ("Ocean Private
Label"), of all of the issued and outstanding capital stock of European
Manufacturers Agency, Inc. In accordance with the terms of that certain
Agreement and Plan of Reorganization (the "Agreement"), dated as of June 21,
1995, by and among the Company, Ocean Private Label and the shareholders of
EMA, the acquisition of the capital stock of EMA was structured as a tax free
reorganization within the meaning of the Internal Revenue Code of 1986, as
amended. Pursuant to said Agreement, EMA was merged into Ocean Private Label
and Ocean acquired all of the issued and outstanding capital stock of EMA in
exchange for an aggregate 533,333 shares of Common Stock of Ocean (the "Ocean
Shares") and $400,000 in cash.
The acquisition of EMA was accounted for using the purchase method of
accounting. In connection with the acquisition of EMA for $2,011,902, the
Company recorded goodwill of $1,962,340, representing the cost in excess of net
assets acquired, as of the date of acquisition. See Note 3 to the Company's
Consolidated Financial Statements included under Item 7 hereof.
With respect to the Ocean Shares, 500,000 of said Ocean Shares were
placed in escrow to be released on each of the four subsequent anniversary
dates of the closing in accordance with a formula based on the then market
price of Ocean Common Stock. The Company has agreed to file a registration
statement covering said shares, and has agreed to repurchase certain Ocean
Shares from the holders thereof in the event the registration statement is not
declared effective by the Securities and Exchange Commission within one year
after the closing of the transaction.
- 9 -
<PAGE> 11
D'Arrigo Moda Italia ("D'Arrigo"), a major supplier of EMA, agreed to
exchange $1,150,000 of EMA's accounts payable balance for $1,150,000 in Series
B Convertible 2% Preferred Stock. In addition, the remaining accounts payable
balance at June 20, 1995 of $1,523,734 was converted into a note payable to
D'Arrigo in the principal amount of $1,273,734, payable in 32 equal monthly
payments, and the remaining balance of $250,000 was paid in cash.
Management currently believes that cash from operations and from
available financing sources are sufficient for the Company to maintain its
operations at current levels, including the additional operations acquired in
the EMA acquisition.
ITEM 7. FINANCIAL STATEMENTS
The following Consolidated Financial Statements are attached hereto:
Consolidated Financial Statements (Consisting of pages F-1 through
F-23):
<TABLE>
<CAPTION>
Page
--------------
<S> <C>
Reports of Independent Certified Public Accountants F-1 to F-2
Consolidated Balance Sheets at June 30, 1995 and 1994 F-3
Consolidated Statements of Operations
For the Years Ended June 30, 1995 and 1994 F-4
Consolidated Statement of Stockholders' Equity
For the Years Ended June 30, 1995 and 1994 F-5
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1995 and 1994 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-23
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 16, 1995, the Company dismissed the firm of KPMG Peat Marwick
LLP ("KPMG"), as its independent public accountants. The reports of KPMG on
the financial statements of the Company for the fiscal years ended June 30,
1993 and 1994, the last two years audited by KPMG, contained no adverse
opinions and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The Company's Board of Directors authorized the change
of the accountants. In connection with it's audit for the fiscal year ended
June 30, 1993 and 1994 and through May 16, 1995, there have been no
disagreements with the former accountants on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of the
former accountants, would have caused them to make reference to the subject
matter of the disagreement in their report on the financial statements for such
period.
On May 16, 1995, the Company engaged Grant Thornton LLP, Certified
Public Accountants, to audit the Company's financial statements for the fiscal
year ended June 30, 1995. The Company received no written or oral advice from
Grant Thornton LLP which the Company concluded was an important factor in
reaching a decision as to an accounting, auditing or financial reporting issue.
As set forth above, the Company had no specific disagreements with KPMG.
- 10 -
<PAGE> 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
As of September 1, 1995, the Directors and Executive Officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as Director or Executive Officer, and the expiration of
the terms as Directors are as follows:
<TABLE>
<CAPTION>
OFFICER
EXPIRATION OR
OF CURRENT DIRECTOR
NAME AGE POSITION WITH THE COMPANY BOARD TERM SINCE
- ---- --- ------------------------- ---------- -----
<S> <C> <C> <C> <C>
Ray Hyman(1) 64 Chairman of the Board and 1996 1988
and Chief Executive Officer
Ray Hyman, Jr. 39 President and Director 1996 1988
Kenneth J. Gordon(1) 55 Chief Financial Officer and Director 1996 1992
H. James Daigle 65 Director 1997 1991
H. Doug Barnes, O.D.(2) 47 Director 1996 1991
Lee Huntley(1) 42 Director 1997 1992
Patricia Hyman 36 Vice President - Administration and Secretary -- 1988
Margaret Hyman Schmidt 33 Vice President - Marketing -- 1988
Robert D. Winn 45 President - EMA and Director 1996 1995
Mary S. Winn(1) 42 Vice President - EMA -- 1995
</TABLE>
- -------------------
(1) At the Company's Annual Meeting of Shareholders held on April 12, 1996
(the "Annual Meeting"), Mr. Hyman was not reelected to the Board and
subsequently resigned as an executive officer of the Company. Mr. Gordon
was not renominated for election to another term on the Board, but
continues to serve as Chief Financial Officer of the Company. Subsequent
to the Annual Meeting, Mr. Huntley resigned from the Board for personal
reasons and Mary Winn was elected to the Board.
(2) On October 31, 1995, Dr. Barnes resigned from the Board for personal
reasons.
-------------------------------------------------
The expiration dates of the Company's Board of Directors' terms are
staggered. Each year one class (typically one-third) of the Company's
Directors are elected at the annual meeting of shareholders and hold office for
three years or until their successors are elected and qualified.
The Company's officers are elected annually by the Board of Directors
and serve at the pleasure of the Board.
- 11 -
<PAGE> 13
Family Relationships
The Company's Chairman of the Board is the father of its President and
of Ms. Hyman and Ms. Schmidt, as well as the cousin of Mr. Daigle. Mary Winn
and Robert Winn are husband and wife.
Business Experience
Mr. Hyman has been Chairman of the Board and Chief Executive Officer
of the Company since October 30, 1992. Prior to this date, he served as
Chairman of the Board and President since its inception in 1988. Prior
thereto, he was employed as President of Style-Rite, a Miami manufacturer and
distributor of optical frames, for more than seven years.
Mr. Hyman, Jr., has been employed by the Company as President and
Director since October 30, 1992. Prior to that date, he served as Vice
President-Sales and Director since the Company's inception in 1988. Prior
thereto, he was employed as a sales representative by Style-Rite for six years.
Mr. Gordon has been employed as the Chief Financial Officer of the
Company since December 1991. From December 1991 through mid-September 1992, he
was employed by the Company on a part-time basis, during which time he also was
employed part-time as the controller of a closely held business. He currently
is employed by the Company full-time. From 1987 until December 1991, Mr.
Gordon was the President of CBT Optical Corporation ("CBT"), and HNJ Optical
Corporation, which companies operated a retail optical business. In March
1993, CBT filed a proceeding under Chapter 7 of the U.S. Bankruptcy Code, and
was discharged therefrom shortly thereafter. From 1982 to 1987, he was
Secretary, Treasurer and Chief Financial Officer of Royal International
Optical, Corporation, the securities of which are traded on the Nasdaq.
Mr. Daigle was employed by IBM for 33 years in various managerial
capacities until his retirement in 1987. From 1982 to 1984, he was National
Manager of Maintenance Marketing, with responsibilities including promotional
sales programs, advertising activities, and recommending alternative service
concepts and maintenance delivery concepts. From 1984 to 1987, he was Branch
Manager for Rhode Island, southern Massachusetts and eastern Connecticut,
responsible for financial planning and expenditures relating to customer
satisfaction, personnel, employee training and resolution of technical and
programming problems.
Dr. Barnes was engaged in private practice as an optometrist from 1975
until 1985. In 1985, he founded and became Chief Executive Officer of Vision
Express, which grew in three years to a chain of 28 optical superstores and was
sold in 1988 to Pearle, Inc., by which Dr. Barnes was employed in an executive
capacity until 1989. In 1990, Dr. Barnes organized EyeMart Express, a chain of
optical superstores headquartered in Dallas, of which he is sole owner and
Chief Executive Officer. On October 31, 1995, Dr. Barnes resigned from the
Board for personal reasons.
Mr. Huntley was the Senior Vice President and Chief Operating Officer
of Phoebe Putney Memorial Hospital in Albany, Georgia from 1993 through 1995.
Prior to joining that hospital in 1993, Mr. Huntley was the Senior Vice
President of Baptist Hospital in Miami, Florida, where he was employed for 15
years. Mr. Huntley rejoined Baptist Hospital subsequent to September 1, 1995.
Ms. Hyman has been employed by the Company as its Vice President since
its inception in 1988 and Secretary since May 1991. She was employed from 1985
to 1987 by the Silver Turtle, an import and distributing company, as an office
manager, and during 1987 by Liborio Capital, an insurance company, in its new
accounts processing department.
- 12 -
<PAGE> 14
Ms. Schmidt has been a Vice President of the Company since October
1988. Prior thereto, she was employed by Style-Rite for more than three years,
the last two as National Sales Liaison with all major customers and sales
representatives.
Mr. Winn has been the President of EMA since its inception in late
1990. Prior thereto he was Executive Vice President of Indo USA from 1987 to
1990, after several years in marketing/management within the homebuilding
industry. Mr. Winn has been a director of the Company since July 1995.
Ms. Winn has been the Vice President of EMA since its inception in
late 1990. Prior thereto she was Director of Marketing for Bay Area
Renaissance Festivals from 1987 to 1990 after several years as an independent
business owner.
To the best of the Company's knowledge, and except with respect to the
filings on Form 3 of their equity ownership by Mr. and Mrs. Winn, none of the
Company's Executive Officers, Directors or principal shareholders were
delinquent in filing any required Forms 3, 4 or 5 during the fiscal year ended
June 30, 1995.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information about compensation paid
or accrued by the Company during the fiscal years ended June 30, 1995, 1994 and
1993 to the Company's Chief Executive Officer and President. None of the
Company's other Executive Officers earned over $100,000 during the fiscal year
ended June 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
-------------------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ray Hyman
Chief Executive
Officer 1995 $177,404 - - - 228,484(1) - -
1994 170,064 - - - 124,384(1) - -
1993 160,000 - - -
- (1) - -
Ray Hyman, Jr.
President 1995 $112,115 - - - 130,054(1) - -
1994 102,692 - - - 73,814(1) - -
1993 86,260 - - - - (1) - -
</TABLE>
- ---------------------
(1) Does not include options issued and subsequently canceled by the
Company.
- 13 -
<PAGE> 15
The following table sets forth information concerning options granted
in the last fiscal year to the persons named in the preceding Summary
Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees in or Base Expiration
Name Granted(#) Fiscal Year Price ($/Sh) Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ray Hyman 124,384 30.0 3.1250 May 5, 2001
24,100 30.1 3.6250 August 5, 2001
30,000 30.0 2.5000 December 22, 2001
50,000 33.3 2.0000 May 23, 2002
Ray Hyman Jr. 73,814 17.8 3.1250 May 5, 2001
14,240 17.8 3.6250 August 5, 2001
17,000 17.0 2.5000 December 22, 2001
25,000 16.7 2.0000 May 23, 2002
</TABLE>
The following table also sets forth information concerning the value
of unexercised stock options at the end of the 1995 fiscal year for the persons
named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired Value ------------- -------------
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ray Hyman 0 0 228,484/0 12,500/0
Ray Hyman Jr. 0 0 130,054/0 6,250/0
</TABLE>
- 14 -
<PAGE> 16
Compensation of Directors
Directors who are not employees of the Company receive $250 for each
meeting attended in person. Employees of the Company receive no additional
cash compensation for service as a Director. All Directors are reimbursed for
expenses incurred in attending Board meetings. In addition, during 1995, the
Company's Directors were granted certain options to acquire the Company's
Common Stock. See "Stock Option Plans," below.
Profit Sharing Plan
In 1989, the Company adopted a qualified profit sharing plan covering
all employees 21 years of age and older who have completed one year of
employment. The plan permits the Company to contribute, at its election, up to
15% of the annual compensation of all participants to the profit sharing trust,
of which Ray Hyman and Jo Anne Hyman, his wife, are the trustees. The
Company's contributions to the trust vest for the accounts of the respective
participants at the rate of 20% per year commencing with the completion of two
years of employment. During the fiscal year ended June 30, 1990, the Company
contributed a total of approximately $43,000 pursuant to this plan, of which
$26,010 and $10,437 were allocated to the accounts of Ray Hyman and Ray Hyman,
Jr., respectively. For the five years ended June 30, 1995, the Company elected
not to contribute to the profit sharing plan.
Stock Option Plans
In July 1991, the Board of Directors and shareholders of the Company
adopted a Stock Option Plan (the "1991 Plan") pursuant to which 54,000
(adjusted for stock dividend) shares of Common Stock of the Company were
reserved for issuance. In November 1992, the Board adopted a new plan (the
"1992 Plan"; the 1991 Plan and the 1992 Plan are collectively referred to as
the "Plans"), which was approved by the shareholders in February 1993, and
which provided for the issuance of 240,000 (adjusted for stock dividend)
shares. The number of shares issuable under the 1992 Plan was increased to
750,000 at the Company's Annual Shareholders' Meeting held in December 1993.
Both Plans are intended to promote the growth and profitability of the Company,
to provide employees of the Company who are largely responsible for the
management, growth and protection of its business with an incentive to continue
to make substantial contributions to the success of the Company, and to provide
those key employees with an equity interest in the Company.
The Plans are administered by a Stock Option Committee appointed by
the Company's Board of Directors (the "Committee"). The Committee has the
authority to designate the key employees eligible to participate in the Plans,
to prescribe the terms of award, to interpret the Plans, and to make all other
determinations for administering the Plans.
The Plans provide for granting of stock options that may be either
"Incentive Stock Options" within the meaning of Section 422A of the Internal
Revenue Code of 1986 as amended (the "Code") or "Non-Statutory Stock Options"
which do not satisfy the provisions of Section 422A of the Code. Incentive
Stock Options are required to be issued at an option exercise price per share
equal to the fair market value of a share of Common Stock on the date of grant,
except that the exercise price of options granted to any employee who owns (or,
under pertinent Code provisions, is deemed to own) more than 10% of the
outstanding Common Stock must equal at least 110% of fair market value on the
date of grant. Non-Statutory Stock Options may be issued at such option
exercise price as the Committee determines. Exercise of a stock option will be
subject to terms and conditions established by the
- 15 -
<PAGE> 17
Committee and set forth in the instrument evidencing the stock option. Stock
options may be exercised with either cash or shares of the Company's Common
Stock or other form of payment authorized by the Committee. The date of
expiration of a stock option will be fixed by the Committee but may be longer
than ten years from the date of the Plans.
Employment Agreements
In April 1994, the Company entered into three-year agreements with its
executive officers at base annual salaries ranging from $46,000 each for its
two Vice Presidents to $175,000 for its Chief Executive Officer. EMA entered
into a four-year agreement with its two executive officers at a base annual
salary of $104,000 each. The executive officers may participate in such
profit-sharing, pension or other incentive compensation plans, as may be
provided by the Company to its executives.
- 16 -
<PAGE> 18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information sets forth certain information as of
September 1, 1995 by each person who is known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, the
beneficial ownership by each director, and the beneficial ownership of all
directors and officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP(1) CLASS(2)
- ---------------- ------------- --------
<S> <C> <C>
Ray Hyman 413,984(3) 17.1%(3)
14250 S.W. 119th Avenue
Miami, Florida 33186
JoAnne Hyman 125,000(4) 5.7(4)
14250 S.W. 119th Avenue
Miami, Florida 33186
Ray Hyman, Jr. 131,854(5) 5.7(5)
14250 S.W. 119th Avenue
Miami, Florida 33186
Margaret Hyman Schmidt 108,016(6) 4.7(6)
14250 S.W. 119th Avenue
Miami, Florida 33186
Patricia Hyman 107,836(7) 4.7(7)
14250 S.W. 119th Avenue
Miami, Florida 33186
Kenneth J. Gordon 111,021(8) 4.8(8)
14250 S.W. 119th Avenue
Miami, Florida 33186
Robert D. Winn 266,667(9) 12.2(9)
21951 U.S. 19 North
Clearwater, Florida 34625
Mary S. Winn 266,666(10) 12.2(10)
21951 U.S. 19 North
Clearwater, Florida 34625
H. James Daigle 10,200(11) *(11)
320 West Reach Drive
Jamestown, Rhode Island 02835
(Table continued on next page.)
</TABLE>
- 17 -
<PAGE> 19
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP(1) CLASS(2)
- ---------------- ------------ --------
<S> <C> <C>
Lee Huntley 9,000(12) *(12)
Phoebe Putney Memorial Hospital
417 Third Avenue
P.O. Box #1828
Albany, Georgia 31703
H. Doug Barnes 21,000(13) 1.0(13)
1325 Capital Parkway
Suite #130
Carrollton, Texas 75006
Societe Francaise de 144,000(14) 6.6(14)
Lunetterie ("SFL")
F 39150 Chaux du Domdief
St. Laurent en Grandvaux
France
The Global Eye 171,600(15) 7.8(15)
5628 Amersham Way
Boca Raton, Florida 33486
D'Arrigo Moda Italia SRL 230,000(16) 9.5(16)
Via Giava 11/12
32040 Lorenzago Di Cadore
Italy
All Executive Officers and 1,446,244(17) 49.8(17)
Directors as a group (17)
(consisting of ten persons)
</TABLE>
- ---------------------------------
*Less than one percent.
(1) Unless otherwise noted, the security ownership disclosed in
the table is of record and beneficial.
(2) In accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), shares which are not
outstanding but which are subject to options, warrants, rights or conversion
privileges pursuant to which such shares may be acquired in the next sixty days
have been deemed to be outstanding for the purpose of computing the percentage
of outstanding shares owned by the individual having such right but have not
been deemed outstanding for the purpose of computing the percentage for any
other person.
(3) Mr. Hyman is the owner of record of 185,500 shares of the
Company's Common Stock, and options to acquire an additional 124,384 shares at
$3.125 per share, 24,100 shares at $3.625 per share, 30,000 shares at $2.50 per
share and 50,000 shares at $2.00 per share, the market prices of the Common
Stock on the dates of grant. Excludes 125,000 shares owned by Mr Hyman's wife,
JoAnne, of which shares Mr. Hyman disclaims beneficial ownership.
- 18 -
(Footnotes continued on next page.)
<PAGE> 20
(4) Excludes shares owned by Ms. Hyman's husband, Ray, of which
shares she disclaims beneficial ownership. See note (1) above.
(5) Mr. Hyman is the owner of record of 1,800 shares of the
Company's Common Stock and options to acquire an additional 73,814 shares at
$3.125 per share, 14,240 shares at $3.625 per share, 17,000 shares at $2.50 per
share, and 25,000 shares at $2.00 per share, the market prices of the Common
Stock on the dates of grant.
(6) Ms. Schmidt is the owner of record of 360 shares of the
Company's Common Stock and options to acquire an additional 61,736 shares at
$3.125 per share, 11,920 shares at $3.625 per share, 15,000 shares at $2.50 per
share, and 19,000 shares at $2.00 per share, the market prices of the Common
Stock on the dates of grant.
(7) Ms. Hyman is the owner of record of 180 shares of the
Company's Common Stock, and options to acquire 61,736 shares at an exercise
price of $3.125 per share, 11,920 shares at $3.625 per share, 15,000 shares at
$2.50 per share, and 19,000 shares at $2.00 per share, the market prices of the
Common Stock on the dates of grant.
(8) Mr. Gordon is the owner of 3,800 shares of the Company's
Common Stock, and has options to acquire 61,301 shares at an exercise price of
$3.125 per share, 11,920 shares at $3.625 per share, 15,000 shares at $2.50 per
share, and 19,000 shares at $2.00 per share, the market prices of the Common
Stock on the dates of grant.
(9) Mr. Winn is the owner of 266,667 shares of the Company's
Common Stock (12.2% based on 2,194,420 shares outstanding), 250,000 of which
shares were placed in escrow to be released on each of the four subsequent
anniversary dates of the closing of EMA, in accordance with a formula based on
the then-market price of the Company's Common Stock. See "Item 6. -
Management's Discussion and Analysis or Plan of Operation." Excludes 266,666
shares owned by Mr. Winn's wife, Mary, of which shares Mr. Winn disclaims
beneficial ownership.
(10) Ms. Winn is the owner of 266,666 shares of the Company's
Common Stock (12.2% based on 2,194,420 shares outstanding), 250,000 of which
shares were placed in escrow to be released on each of the four subsequent
anniversary dates of the closing of EMA, in accordance with a formula based on
the then-market price of the Company's Common Stock. See "Item 6. -
Management's Discussion and Analysis or Plan of Operation." Excludes 266,667
shares owned by Ms. Winn's husband, Robert, of which shares Ms. Winn disclaims
beneficial ownership.
(11) Mr. Daigle owns 1,200 shares of the Company's Common Stock and
options to acquire 6,000 shares at $3.125, 1,000 shares at $3.625 per share,
1,000 shares at $2.50 per share, and 1,000 shares at $2.00 per share, the
market prices of the Common Stock on the dates of grant.
(12) Mr. Huntley does not own any shares of the Company's Common
Stock, however he has been granted options to acquire 6,000 shares at an
exercise price of $3.125, 1,000 shares at $3.625 per share, 1,000 shares at
$2.50 per share, and 1,000 shares at $2.00 per share, the market prices of the
Common Stock on the dates of grant.
(13) Dr. Barnes is the owner of record of 12,000 shares of the
Company's Common Stock, and has been granted options to acquire 6,000 shares at
an exercise price of $3.125, 1,000 shares at $3.625 per share, 1,000 shares at
$2.50 per share, and 1,000 shares at $2.00 per share, the market prices of the
Common Stock on the dates of grant. Dr. Barnes resigned from the Board on
October 31, 1995.
(14) SFL is the owner of record of 144,000 shares of the Company's
Common Stock.
- 19 -
(Footnotes continued on next page.)
<PAGE> 21
(15) The Global Eye is the owner of record of 156,000 shares of the
Company's Common Stock. The Global Eye is owned by Alan R. Ackerman, who also
owns 15,600 shares of the Company's Common Stock. Mr. Ackerman may therefore
be deemed to be the beneficial owner of 171,600 shares of the Company's Common
Stock.
(16) D'Arrigo Moda Italia owns of record the shares of the
Company's Series B Preferred Stock, which pursuant to its terms is convertible
into 230,000 shares of the Company's Common Stock.
(17) Includes shares issuable upon exercise of all options and
warrants beneficially owned by such persons, and excludes shares of which
beneficial ownership is disclaimed.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SFL, a principal shareholder of the Company, is the largest supplier
of the Company's ophthalmic frames. During the years ended June 30, 1995 and
1994, the Company's purchases from SFL amounted to $3,687,000 and $3,435,000,
respectively. The Company believes that its purchases of products and services
from SFL have been on terms at least as favorable to the Company as could have
been obtained elsewhere. Pierre Girod, a director of SFL and an officer,
director and controlling stockholder of a publicly owned French company,
Societe Francaise de Signalization (Signaux Girod), of which SFL is a wholly
owned subsidiary, was a Director of the Company until May 1991.
D'Arrigo, the shareholder of the Company's Series B 2% Convertible
Preferred Stock, is the largest supplier of ophthalmic frames for the recently
acquired company, EMA. The Company will continue to purchase large quantities
of frames from D'Arrigo, and believes that its purchases of product are on
terms at least as favorable to the Company as could have been obtained
elsewhere.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C>
3.1 Restated Articles of Incorporation.(1)
3.2 By-Laws.(1)
10.1 Stock Option Plan.(1)
10.2 Exclusive Licensing Agreement with Jacques Fath and translation.(1)
10.3 Employment Agreement with Ray Hyman (1)
10.4 Revolving Line of Credit from Republic National bank.(2)
10.5 Business Property Lease, dated August 19, 1993, between Turnpike-McNeil Development, Ltd., and
Ocean Optique Distributors, Inc.(3)
10.6 License Agreement between Classic Optical, Inc., and J.H. Collectibles, dated August 23,
1990.(3)
10.7 License Agreement between Classic Optical, Inc., and Hallmark Cards, Incorporated (Crayola
License), dated January 29, 1991.(3)
</TABLE>
- 20 -
<PAGE> 22
<TABLE>
<S> <C>
10.8 License Agreement between Classic Optical, Inc., and Chevrolet (Geo), dated March 25, 1992.(3)
10.9 License Agreement between Classic Optical, Inc., and Revlon, Inc., dated July 15, 1992.(3)
10.10 Amendment to Loan Amendment with Republic National Bank for the Revolving Line of Credit dated
September 27, 1995. (5)
10.11 Business Property Lease, dated August 7, 1992 between Clearwater 19 Commerce Center and EMA.(5)
10.12 Robert Winn Employment Agreement.(4)
10.13 EMA Acquisition Agreement.(4)
10.14 Third Amendment to License Agreement between Revlon Consumer Products Corporation and Classic
Optical, Inc. dated as of December 20, 1995.(6)
11.1 Statement re: Computation of Per Share Earnings.(7)
21.1 Subsidiaries of the Registrant.(5)
27.1 Financial Data Schedule (for SEC use only).(7)
</TABLE>
(b) Reports on Form 8-K
A current report on Form 8-K was filed during the last
quarter of the Company's fiscal year ended June 30, 1995.
- ------------------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-18 (SEC File No. 33-41164), declared effective September
24, 1991.
(2) Incorporated by reference to the Registrant's Current Report on Form
8-K, dated August 8, 1994.
(3) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1993.
(4) Incorporated by reference to the Registrant's Current Report on Form
8-K, dated June 21, 1995.
(5) Filed with the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1995.
(6) Filed with Amendment No. 1 on Form 10-KSB/A to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended June 30,
1995.
(7) Filed with Amendment No. 2 on Form 10-KSB/A to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended June 30,
1995.
- 21 -
<PAGE> 23
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Ocean Optique Distributors, Inc.
We have audited the accompanying consolidated balance sheet of Ocean Optique
Distributors, Inc. and Subsidiaries as of June 30, 1995, and the related
consolidated statements of operations, stockholders' equity, 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
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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ocean Optique
Distributors, Inc. and Subsidiaries as of June 30, 1995, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ----------------------
Miami, Florida
September 22, 1995
22
<PAGE> 24
KPMG Peat Marwick LLP
One Biscayne Tower Telephone 305 358 2300 Telefax 305 577 0544
Suite 2900
2 South Biscayne Boulevard
Miami, FL 33131
Independent Auditors' Report
The Board of Directors and Stockholders
Ocean Optique Distributors, Inc.
and Subsidiary:
We have audited the accompanying consolidated balance sheet of Ocean Optique
Distributors, Inc. and subsidiary as of June 30, 1994, and the related
consolidated statements of operations, stockholders' equity, 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 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ocean Optique
Distributors, Inc. and subsidiary, as of June 30, 1994, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Miami, Florida
August 29, 1994
23
<PAGE> 25
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
Current assets
<S> <C> <C> <C>
Cash and cash equivalents
Certificate of deposit - restricted
Short-term investments
Accounts receivable (net of allowance for doubtful accounts $ 1,748,781 $ 1,784,746
of $214,693 in 1995 and $82,424 in 1994) 65,000 65,000
Inventory 1,018,308 944,647
Prepaid expenses and other current assets
Deferred income taxes 2,571,026 1,670,518
Income tax receivable 7,373,705 5,497,557
376,627 366,380
Total current assets 166,626 102,016
257,240 159,553
Property and equipment, net ----------- -----------
Security deposits 13,577,313 10,590,417
Debt issue costs, net
Intangible assets, net 328,702 307,464
14,728 13,893
176,013 205,168
Total assets 3,673,207 1,688,281
----------- -----------
$17,769,963 $12,805,223
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 3,173,800 $ 2,541,592
Accounts payable 1,350,708 842,300
Due to related parties 920,000 881,000
Due to foreign currency dealer 1,254,008 -
Accrued expenses 124,048 186,613
Note payable to related party, current portion 391,975 -
Notes payable, current portion 71,275 160,165
Capital lease obligations, current portion 46,143 45,394
----------- -----------
Total current liabilities 7,331,957 4,657,064
8% Convertible subordinated debentures 1,575,000 1,587,500
Note payable to related party, long-term portion 736,699 -
Notes payable, long-term portion 17,317 -
Capital lease obligations, long-term portion 33,356 75,750
Deferred income taxes 124,168 127,656
----------- -----------
Total liabilities 9,818,497 6,447,970
Commitments and contingencies - -
Stockholders' equity
Preferred stock, no par value, 5,000,000 shares
authorized; shares issued:
Series A cumulative convertible 3% preferred stock
(liquidation value - $1,575,000 in 1995 and $1,587,500 in 1994) 1,474,398 1,486,898
Series B 2% convertible preferred stock
(liquidation value - $1,150,000) 1,150,000 -
Common stock, no par value; 10,000,000 shares
authorized 2,119,420 and 1,658,547 issued and
outstanding in 1995 and 1994, respectively 6,099,228 4,860,027
Retained earnings (accumulated deficit) (772,160) 10,328
----------- -----------
Total stockholders' equity 7,951,466 6,357,253
----------- -----------
Total liabilities and stockholders' equity $17,769,963 $12,805,223
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 26
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net sales $9,752,264 $9,985,578
Cost of goods sold 5,680,055 5,405,193
---------- ----------
Gross profit 4,072,209 4,580,385
Selling, general and administrative expenses 4,694,571 4,490,773
---------- ----------
(622,362) 89,612
Interest expense, net (257,687) (321,880)
Other income - 7,275
---------- ----------
Loss before income taxes (880,049) (224,993)
Income tax (benefit) expense (145,000) (65,033)
---------- ----------
Net loss (735,049) (159,960)
Dividends paid on convertible preferred stock 47,439 -
---------- ----------
Net loss applicable to common stockholders $ (782,488) $ (159,960)
========== ==========
Net loss per share of common stock $ (0.48) $ (0.12)
========== ==========
Weighted average number of common shares outstanding 1,619,602 1,330,716
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE> 27
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock
---------------------- -------------------------- ---------------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
--------- ------ -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1993 - $ - - $1,320,000 $3,789,399
Issuance of Series A
preferred stock proceeds
of private placement 635,000 1,486,898 - - - -
Exercise of Series A
warrants, net - - - - 338,547 1,070,628
Net loss - - - - -
----- ---------- ------- --------------- --------- ---------
Balance, June 30, 1994 635,000 1,486,898 - - 1,658,547 4,860,027
Exercise of Series A
warrants, net - - - - 2,540
Repurchase and cancellation
of common stock - - - - (75,000) (318,750)
Issuance of Series B
preferred stock for debt - - 230,000 1,150,000 - -
Redemption of Series A
preferred stock (5,000) (12,500) - - - -
Dividends paid on Series A
preferred stock - - - - - -
Issuance of common stock
for acquisition of EMA - - - - 533,333 1,600,000
Net loss - - - - - -
------- ---------- -------- --------------- -------- ----------
Balance, June 30, 1995 630,000 $1,474,398 230,000 $ 1,150,000 2,119,420 $6,099,228
======= ========== ======== =============== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings Total
(Accumulated Stockholders'
Deficit) Equity
--------------- -------------
<S> <C> <C>
Balance, July 1, 1993 $ 170,288 $3,959,687
Issuance of Series A
preferred stock proceeds
of private placement - 1,486,898
Exercise of Series A
warrants, net 1,070,628
Net loss (159,960) (159,960)
--------- ----------
Balance, June 30, 1994 10,328 6,357,253
Exercise of Series A
warrants, net (42,049)
Repurchase and cancellation
of common stock - (318,750)
Issuance of Series B
preferred stock for debt - 1,150,000
Redemption of Series A
preferred stock - (12,500)
Dividends paid on Series A
preferred stock (47,439) (47,439)
Issuance of common stock
for acquisition of EMA - 1,600,000
Net loss (735,049) (735,049)
--------- ----------
Balance, June 30, 1995 $(772,160) $7,951,466
========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
26
<PAGE> 28
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (735,049) $ (159,960)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Loss on disposal of fixed assets - 38,192
Depreciation and amortization 320,343 300,973
Deferred income taxes, net (68,097) 13,835
Changes in assets and liabilities, net of
effects from acquisition of business
Increase in short-term investments (73,661) (944,647)
(Increase) decrease in accounts receivable, net (670,845) 276,319
(Increase) decrease in inventory 261,350 (285,637)
Decrease in prepaid expenses, security deposits
and intangible assets 41,461 49,407
Decrease in accounts payable and accrued
expenses, net (235,802) (998,464)
Increase (decrease) in due to related parties 39,000 (133,000)
Increase in income taxes (97,687) (399,835)
---------- -----------
Net cash provided by (used in) operating activities (1,218,987) (2,242,817)
Cash flows from investing activities:
Goodwill adjustments - 136,781
Cash received from acquisition of business 103,703 -
Capital expenditures (86,848) (57,312)
Net disposal of fixed assets - 14,353
---------- -----------
Net cash provided by investing activities 16,855 93,822
Cash flows from financing activities:
Net borrowings (payments) on line of credit 387,042 (177,129)
Proceeds from borrowings from foreign currency dealer 1,584,213 -
Repayments of borrowings from foreign currency dealer (330,205) -
Payments under capital lease obligations (41,645) (19,706)
Proceeds from exercise of stock warrants, net (42,049) 1,070,628
Repurchase of common stock (318,750) -
Redemption of 8% convertible subordinated debentures (12,500) -
Repurchase of Series A 3% preferred stock (12,500) -
Dividends paid on Series A 3% preferred stock (47,439) -
Net proceeds from the issuance of 8% convertible
subordinated debentures - 1,374,183
Net proceeds from the issuance of Series A
3% preferred stock - 1,486,898
---------- ----------
Net cash (used in) provided by financing activities 1,166,167 3,734,874
---------- ----------
Net increase (decrease) in cash and cash equivalents (35,965) 1,585,879
Cash and cash equivalents, beginning of year 1,784,746 198,867
---------- ----------
Cash and cash equivalents, end of year $1,748,781 $1,784,746
========== ==========
</TABLE>
(continued)
27
<PAGE> 29
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for income taxes, net $ 13,066 $ (65,178)
========== =========
Cash paid during the period for interest, net $ 426,217 $ 370,341
========== =========
Noncash investing and financing activities:
Capital lease obligations incurred $ - $ 140,850
========== =========
Acquisition of business
Fair value of assets acquired $2,566,631 $ -
========== =========
Liabilities assumed $2,733,911 $ -
========== =========
Cost in excess of net assets of business acquired,
and covenant not to compete agreement, net $2,167,280 $ -
========== =========
Issuance of common stock to acquire business $1,600,000 $ -
========== =========
Conversion of accounts payable to Series B
2% convertible preferred stock $1,150,000 $ -
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 30
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 1 - ORGANIZATION
Ocean Optique Distributors, Inc. (the "Company") was incorporated under the
laws of the State of Florida on May 31, 1988. The Company is an importer
and distributor of eyeglass frames.
On June 21, 1995, the Company acquired 100 percent of the capital stock of
European Manufacturers Agency ("EMA"), a Florida corporation. EMA is
engaged in the business of distributing and marketing private label
ophthalmic frames and related items and continues to conduct such business
as a wholly-owned subsidiary of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS FOR CONSOLIDATION
The consolidated financial statements include the accounts of Ocean
Optique Distributors, Inc., and it's wholly owned subsidiaries, Classic
Optical, Inc. ("Classic") and EMA. The results of operations of EMA are
included in the statement of operations for the period from June 21,
1995 (the date of acquisition) through June 30, 1995. All significant
intercompany transactions and balances have been eliminated.
(B) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit at banks, money market
funds, short-term highly liquid investments with original maturities of
three months or less and foreign currency.
(C) FOREIGN CURRENCY TRANSACTION
The Company purchases inventory from certain foreign vendors in foreign
currency. Foreign currency totalling $1,328,101 at June 30, 1995 is
carried at current market exchange rates. Gains or losses from changes
in exchange rates are recognized in the consolidated statement of
operations in the period of occurrence.
(D) SHORT-TERM INVESTMENTS
In fiscal 1994 the Company adopted Statement of Financial Accounting
Standards No. 115, which requires that investments in debt and equity
securities for which the Company does not have the positive intent to
hold to maturity, be reported at fair market value. Accordingly,
short-term investments, which include corporate bonds and United States
government securities, are carried at their market value at June 30,
1995 and 1994, as such securities are classified by the Company as
trading securities with unrealized gains and losses recognized in the
statement of operations in the period of occurrence.
(continued)
29
<PAGE> 31
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(E) INVENTORY
Inventory consists of finished goods and is stated at the lower of cost
or market. Cost is determined by the first-in, first-out (FIFO) method.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated
over the estimated useful lives (ranging from five to seven years) of
the assets using the straight line method. Property and equipment
acquired through acquisitions are stated at fair market value as of the
date acquired.
(G) INTANGIBLE ASSETS
Intangible assets are comprised of goodwill and the cost of covenant not
to compete agreements. Goodwill results from corporate acquisitions
accounted for using the purchase method of accounting and includes the
excess of cost over the fair market value of the net assets of the
acquired businesses. As of June 30, 1995, all goodwill is being
amortized over periods of twenty-five years on a straight line basis.
The Company had goodwill associated with the acquisition of Classic in
October 1992 of $1,467,038, net of accumulated amortization of $191,833
and $1,532,726, net of accumulated amortization of $126,145 as of June
30, 1995 and 1994, respectively. At June 30, 1995, the Company had
goodwill associated with the acquisition of EMA in June 1995 of
$1,817,280, with no accumulated amortization expense. The cost of the
Company's covenant not to compete agreements of $350,000 each, related
to the acquisitions of Classic and EMA, are being amortized on a
straight-line basis over their terms of three years and five years,
respectively. At June 30, 1995 and 1994, accumulated amortization
related to the Classic covenant not to compete agreement was $311,111
and $194,444, respectively. There was no accumulated amortization
related to the EMA covenant not to compete agreement at June 30, 1995.
On an ongoing basis, management reviews the valuation and amortization
of intangible assets. As part of this review, the Company considers
both the current and future undiscounted cash flows generated by the
related subsidiaries acquired to determine whether impairment has
occurred. The Company measures impairment of intangible assets as the
deficiency of the undiscounted cash flows compared to the carrying value
of the related intangible asset. Any write-downs of intangible assets
due to impairment are charged to operations at the time that impairment
is identified by management.
(continued)
30
<PAGE> 32
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(G) INTANGIBLE ASSETS - CONTINUED
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 establishes guidance for when to recognize and
how to measure impairment losses of long-lived assets and certain
identifiable intangible assets, such as goodwill. The Statement is
effective for fiscal years beginning after December 15, 1995. The
Company does not expect the implementation of SFAS 121 to have a
material effect on the Company's financial position or results of
operations.
(H) INCOME TAXES
Deferred income taxes have been provided for elements of income and
expense which are recognized for financial reporting purposes in periods
different than such items are recognized for income tax purposes. The
Company accounts for deferred taxes utilizing the liability method,
which applies the enacted statutory rates in effect at the balance sheet
date to differences between the book and tax basis of assets and
liabilities. The resulting deferred tax liabilities and assets are
adjusted to reflect changes in tax laws.
(I) REVENUE RECOGNITION
Revenue is recognized when earned as goods are shipped to customers.
(J) ADVERTISING
The costs of advertising, promotion and marketing programs are charged
to operations in the year incurred.
(K) NET (LOSS) INCOME PER SHARE OF COMMON STOCK
Net (loss) income per share of common stock is computed based upon the
weighted average number of common shares outstanding during the year.
Common stock issued and placed in escrow (the "Escrow Shares") as
described in Note 11, are treated as common stock equivalents for
purposes of computing net (loss) income per share of common stock.
Common stock equivalents are excluded from the net (loss) per share of
common stock computation due to their anti-dilutive effect in fiscal
1995 and 1994.
(continued)
31
<PAGE> 33
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(L) RECLASSIFICATIONS
Certain 1994 balances have been reclassified to conform with the 1995
financial statement presentation.
NOTE 3 - ACQUISITIONS
On June 21, 1995, the Company acquired 100% of the capital stock of EMA.
The purchase price consisted of the following:
<TABLE>
<S> <C>
Cash $ 400,000
Market value of common stock issued 1,600,000
Expenses incurred 11,902
----------
Total $2,011,902
==========
The acquisition was accounted for using the purchase method. The cost of the
acquisition has been allocated on the basis of the estimated fair value of
the assets acquired and liabilities assumed, at the date of acquisition as
follows:
Current assets $2,494,540
Other assets 83,993
Current liabilities (2,733,911)
Covenant not to compete agreement 350,000
Cost in excess of net assets acquired 1,817,280
----------
Total $2,011,902
==========
</TABLE>
The covenant not to compete agreement is being amortized on a straight line
basis over it's five year term. The cost in excess of net assets acquired
is being amortized over twenty-five years on a straight line basis.
EMA's results of operations have been included in the Company's consolidated
results of operations since the date of acquisition.
The following summarized, unaudited pro forma results of operations for the
fiscal years ended June 30, 1995 and 1994, assume the acquisition occurred
as of the beginning of the respective periods:
(continued)
32
<PAGE> 34
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 3 - ACQUISITIONS - CONTINUED
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Net Sales $ 12,960,815 $13,689,679
Net (loss) income $ (1,338,430) $ 79,190
Net (loss) income per share of common stock $ (0.81) $ 0.03
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1995 and 1994:
1995 1994
------------ -----------
Furniture and fixtures $ 245,785 $ 180,967
Machinery and equipment 339,591 303,669
Leasehold improvements 22,244 22,244
Automobiles 80,936 8,586
------------ -----------
688,556 515,466
Less: Accumulated depreciation 359,854 208,002
------------ -----------
Property and equipment, net $ 328,702 $ 307,464
============ ===========
</TABLE>
Included in machinery and equipment are various assets held under capital
leases with a net book value at June 30, 1995 and 1994 of approximately
$106,000 and $127,000, respectively. Assets under capital lease obligation
are amortized using a straight line method over the estimated useful lives,
or term of the lease, which ever is shorter.
NOTE 5 - INCOME TAXES
Components of income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------- ------------------------------
Current Deferred Total Current Deferred Total
--------- --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal $ (84,620) $ (65,381) $ (150,001) $ (93,868) $ 11,740 $ (82,128)
State 7,277 (2,716) 5,001 15,000 2,095 17,095
--------- --------- ---------- --------- -------- ---------
Total (benefit)
expense $ (77,343) $ (68,097) $ (145,000) $ (78,868) $ 13,835 $ (65,033)
========= ========= ========== ========= ======== =========
</TABLE>
(continued)
33
<PAGE> 35
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 5 - INCOME TAXES - CONTINUED
The provision for Federal income taxes for the years ended June 30, 1995 and
1994 differs from that computed at the statutory federal corporate tax rate
as follows:
<TABLE>
<CAPTION>
1995 1994
------------------- --------------------
Amount Percent Amount Percent
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Provision at statutory rate $(301,946) (34.3)% $ (76,497) (34.0)%
State income taxes,
net of Federal benefit 7,277 0.8 11,282 5.0
Over accrual of prior year
tax refund 70,020 7.9 - -
Expiration of replacement
period for involuntary
conversion of assets 37,630 4.3 - -
Goodwill amortization 28,480 3.3 5,194 2.3
Other 13,539 1.5 (5,012) (2.2)
--------- ----- --------- -----
$(145,000) (16.5)% $ (65,033) (28.9)%
========= ===== ========= =====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts
and sales returns $ 73,850 $ 30,909
Inventories, principally due to additional
costs inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 and reserve
for slow-moving inventories 324,738 65,667
Net operating loss carry forwards 338,670 306,000
Other 45,278 5,440
--------- ---------
Total gross deferred tax assets 782,536 408,016
Less: Valuation allowance (692,870) (306,000)
--------- ---------
Net deferred tax assets 89,666 102,016
</TABLE>
(continued)
34
<PAGE> 36
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 5 - INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation and the deferral
of gain recognized from insurance proceeds
on damage to property and equipment $ (47,209) $ (127,656)
--------- ----------
Total gross deferred tax liabilities (47,209) (127,656)
--------- ----------
Net deferred tax assets (liabilities) $ 42,457 $ (25,640)
========= ==========
</TABLE>
In connection with the acquisition of Classic, the Company has net operating
loss carryforwards for federal income tax purposes of approximately $900,000
at June 30, 1995 which expire in fiscal year 2008. Since such carryforwards
were acquired, any future benefit will be recorded as an adjustment to
goodwill.
In fiscal 1994, the Company realized tax benefits of $182,372 related to the
purchase of Classic. This amount was recorded as an adjustment to goodwill
in the accompanying financial statements.
NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE
Prior to June 29, 1994, the Company had a bank line of credit which limited
borrowings to the sum of 70 percent of accounts receivable, and 40% of
inventory, not to exceed $1,750,000. This line of credit was also
collateralized by a pledge of all the Company's assets. Interest on the line
of credit was 2 1/4% above the bank's prime lending rate.
On June 29, 1994, the Company refinanced its credit facility. The new line
of credit which allows the Company to borrow up to $3,500,000, is
collateralized by a pledge of all of the Company's assets. Borrowings under
this agreement are limited to the sum of 75% of accounts receivable, and 50%
of inventory on hand, not to exceed $2,000,000. Interest on the line of
credit is 3/4% above the bank's prime lending rate, which was 9% at June 30,
1995. The undrawn balance of the credit facility at June 30, 1995 was
$326,200. This credit facility, which matured on June 27, 1995, was renewed
subsequent to June 30, 1995 with a new maturity of September 1996. In
connection with the renewal, the Company agreed to pay-off the $150,000 line
of credit, as described below, collateralized by EMA's assets by December
31, 1995.
(continued)
35
<PAGE> 37
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE - CONTINUED
The Company has a $150,000 line of credit collateralized by all of the
assets of EMA. As of June 30, 1995, the Company was at the maximum
borrowings under the line of credit, which has a renewal date of November
30, 1995. Interest on the line of credit is at 1% above the bank's prime
interest rate which was 9% at June 30,1995.
Notes payable as of June 30, 1995 and 1994 are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C> <C>
Note payable to bank bearing interest at 3%
over the certificate of deposit rate, due on demand,
collateralized by certificate of deposit of $65,000. $ 65,000 $ 65,000
Note payable to vendor bearing interest at 8%,
payable in quarterly installments of $31,722,
matured in January 1995. - 95,165
Note payable to bank bearing interest at 8.5%,
payable in monthly installments of $225
including interest, maturing in July 1997. 5,092 -
Note payable to bank bearing interest at 11.1%,
payable in monthly installments of $483
including interest, maturing in August 1999. 18,500 -
Note payable due to vendor (related party),
non interest bearing, payable monthly in equal
installments of $39,804, maturing in February
1998, net of unamortized discount of $145,060. 1,128,674 -
---------- ---------
1,217,266 160,165
Less: Current portion (463,250) (160,165)
---------- ---------
Long-term portion $ 754,016 $ -
========== =========
The aggregate maturities of notes payable at June 30, 1995 are summarized as follows:
1996 $ 463,250
1997 433,492
1998 314,782
1999 5,263
2000 479
----------
$1,217,266
==========
</TABLE>
36
<PAGE> 38
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 7 - CAPITAL LEASE OBLIGATIONS
The Company leases office equipment under various capital leases. The
following schedule represents future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
June 30, 1995:
Year ending June 30,
--------------------
1996 $58,104
1997 29,734
-------
Total minimum lease payments 87,838
Less: Amounts representing interest (8,339)
-------
Present value of minimum lease payments 79,499
Less: Current portion (46,143)
-------
Long-term portion $33,356
=======
NOTE 8 - MAJOR CUSTOMER
Sales to one customer amounted to 11% and 10% of the Company's net sales for
the years ended June 30, 1995 and 1994, respectively. Sales to another
customer amounted to 13% of the Company's net sales for the year ended June
30, 1995. Sales to that same customer represented less than 10% of the
Company's net sales for the year ended June 30, 1994.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the years ended June 30, 1995 and 1994, the Company purchased
approximately $3,687,000 and $3,435,000, respectively, of eyeglass frames
from a party affiliated through the ownership of common stock. Due to
related parties at June 30, 1995 and 1994 includes approximately $520,000
and $881,000, respectively, of amounts due to this affiliated party for
these purchases.
Management brought to the attention of the selling shareholders of Classic
the devaluation of certain inventory sold during the fiscal year ended June
30, 1994. As a result, the selling shareholders paid $200,000 to the
Company in April 1994. This amount is included in cost of goods sold for
the year ended June 30, 1994 in the accompanying financial statements as the
related inventory was sold in the 1994 fiscal year.
Due to related parties at June 30, 1995 includes $400,000 due to the selling
principals of EMA in connection with the Company's acquisition of EMA. This
balance was paid by the Company in July 1995.
37
<PAGE> 39
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 10 - PROFIT-SHARING PLAN
The Company adopted a qualified profit-sharing plan effective July 1, 1989,
covering all employees who have attained twenty-one years of age and have
completed one year of employment. The plan permits the Company to
contribute, at its election, up to 15% of the annual compensation of all
participants. During the years ended June 30, 1995 and 1994, the Company
elected not to contribute to the profit-sharing plan. Participant vesting
in Company contributions is as follows:
<TABLE>
<CAPTION>
Years of Service Vested Percent
---------------- --------------
<S> <C>
1 0%
2 20
3 40
4 60
5 80
6 and thereafter 100
</TABLE>
NOTE 11 - CAPITAL TRANSACTIONS
On September 24, 1991, the Company sold 300,000 units of the Company's
securities at a price of $10.25 per unit. Each unit consists of two shares
of common stock, no par value and one Series A Warrant. Each Series A
Warrant entitles the holder to purchase one common share for $6.50 during
the three year exercise period ended September 24, 1995. The warrants are
transferable immediately upon issuance and are redeemable by the Company in
whole, but not in part, at a redemption price of $.01 per warrant upon 30
days' written notice, commencing 18 months from the date of the registration
statement at such time as the market price of the common stock has exceeded
the warrant exercise price by 10% for a period of 20 consecutive business
days. The warrants may be exercised anytime prior to the expiration of a 30
day redemption notice period.
In fiscal 1994, the Company reduced the exercise price of the Series A
warrants (the "Warrants"), issued in connection with the Company's initial
public offering in September 1991, from $5.42 per share to $3.125 per share.
The Company set a call date of May 31, 1994. Warrants not exercised by
such date were redeemed at $.01 per warrant, and ceased to exist. The
Company issued 338,547 shares of common stock, and raised $1,070,628 from
the exercise of these warrants.
(continued)
38
<PAGE> 40
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 11 - CAPITAL TRANSACTIONS - CONTINUED
On March 14, 1994 the Company completed a private placement consisting of
Series A Cumulative Convertible 3% Preferred Stock (the "Preferred Stock")
and $12,500 Principal Amount 8% Five Year Convertible Subordinated
Debentures (the "Debentures"). As a result of the private placement, the
Company raised, net of fees, $2,821,000. Each share of Preferred Stock is
convertible into one share of the Company's common stock. The Debentures
are convertible into the Company's common stock at $3.50 per share or 285.71
shares per $1,000 principal amount of the Debentures. In the event of any
liquidation, the holders of shares of the preferred stock, are entitled to
receive out of assets of the Company available for distribution to
stockholders before any distribution of assets is made to holders of common
stock, liquidating distribution in the amount of $2.50 per share plus
accumulated and unpaid dividends.
Effective as of June 21, 1995, the Company consummated the acquisition
through its wholly-owned subsidiary, Ocean Private Label, Inc. ("Ocean
Private Label"), of all of the issued and outstanding capital stock of
European Manufacturers Agency, Inc. ("EMA"). In accordance with the terms
of that certain Agreement and Plan of Reorganization (the "Agreement"),
dated as of June 21, 1995, by and among the Company, Ocean Private Label and
the shareholders of EMA, the acquisition of the capital stock of EMA was
structured as a tax free reorganization within the meaning of the Internal
Revenue Code of 1986, as amended. Pursuant to said Agreement, EMA was
merged into Ocean Private Label and Ocean acquired all of the issued and
outstanding capital stock of EMA in exchange for an aggregate 533,333 shares
of Common Stock of Ocean (the "Ocean Shares") and $400,000 in cash,
representing a purchase price of approximately $2,000,000.
With respect to the Ocean shares, 500,000 of said Ocean Shares were placed
in escrow (the "Escrow Shares"). The Escrow Shares were issued in the name
of the Selling Shareholders of EMA, who possess all voting, dividend and
liquidation rights, preferences and privileges for all of the 500,000 shares
at June 30, 1995. The Escrow Shares are to be released on each of the four
subsequent anniversary dates of the closing in accordance with a specified
formula, providing for a minimum of 250,000 shares and a maximum of 600,000
shares, depending on the average market price of the stock, as defined.
Concurrent with the sale of EMA, the Selling Shareholders separately entered
into employment agreements with EMA providing for a minimum four year term
and bonuses based upon the operational results of EMA. With regard to the
Escrow Shares, in the event that either Selling Shareholder's employment is
terminated by the Company with cause, or is terminated by said Selling
Shareholder voluntarily, the Escrow Shares will be
(continued)
39
<PAGE> 41
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 11 - CAPITAL TRANSACTIONS - CONTINUED
released in accordance with the anniversary dates and terms described above.
In the event either Selling Shareholder's employment is terminated by the
Company without cause, any and all Escrow Shares maintained in escrow shall
be released and delivered to said Selling Shareholder. The Company has
agreed to file a registration statement covering the Escrow Shares, and has
agreed to repurchase certain Escrow Shares from the holders thereof at a
price of $3.00 per share ( the approximate market price per share of the
Ocean Shares at the date of the EMA acquisition) in the event the
registration statement is not declared effective by the Securities and
Exchange Commission within one year after the closing of the acquisition.
D'Arrigo Moda Italia ("D'Arrigo"), a major supplier of EMA, agreed to
exchange $1,150,000 of EMA's accounts payable balance for $1,150,000 in
Series B Convertible 2% Preferred Stock. Each share of Preferred Stock is
convertible into one share of the Company's common stock. In the event of
any liquidation, the holders of shares of the Preferred Stock are entitled
to receive out of assets of the Company available for distribution to
stockholders before any distribution of assets is made to holders of common
stock, liquidating distribution in the amount of $5.00 per share. In
addition, the remaining accounts payable balance at June 30, 1995 of
$1,523,734 was converted into a non-interest bearing note payable due to
D'Arrigo of $1,273,734, payable in 32 equal monthly payments, and $250,000
in cash.
NOTE 12 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include approximately $719,000
and $1,002,000 of commissions expense, $1,282,000 and $1,194,000 of salaries
expense, and $488,000 and $405,000 of advertising expense during the years
ended June 30, 1995 and 1994, respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company currently leases their main office and warehouse space, on a
five year term, at a monthly rent of $7,383. In addition, the Company
leases a small warehouse storage facility, at a monthly rent of $865. This
six month lease is renewable, and expires in November 1995. EMA currently
leases it's main offices and warehouse space under a renewable lease which
expires in December 1995.
The following is a schedule of future minimum lease payments as of June 30,
1995, for operating leases having initial noncancelable lease terms in
excess of one year:
(continued)
40
<PAGE> 42
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 13 - COMMITMENTS AND CONTINGENCIES - CONTINUED
Year ending June 30,
--------------------
1996 $ 96,460
1997 92,251
1998 53,813
--------
Total minimum payments $242,524
========
Rent expense charged to operations was approximately $101,000 and $107,000
for the years ended June 30, 1995 and 1994, respectively.
The Company has acquired the exclusive rights to use certain trade names and
trademarks, for use in the manufacture and sale of certain optical products.
The agreements require the Company to maintain specified levels of product
liability insurance, and to pay royalties of 3 to 7 percent on the sales of
the specified license products with guaranteed minimum royalties aggregating
as follows:
Year ending June 30,
--------------------
1996 $348,500
1997 $310,850
1998 $135,000
On September 29, 1993, the Company and Revlon, Inc. amended the license
agreement between the parties made as of July 6, 1992, to extend the
territory of the Company's exclusive license to encompass the world. The
Company intends to sublicense these rights in certain countries to
distributors of eyeglass frames. In consideration for the expansion of the
license, the Company agreed to pay Revlon a non-refundable fee of Five
Hundred Thousand Dollars (U.S. $500,000), payable in full by the end of the
1995 calendar year as follows: $100,000 was paid during fiscal 1994, and
the balance of Four Hundred Thousand Dollars ($400,000) to be paid in
incremental amounts equal to the signing fees received by the Company from
foreign sublicenses. As of June 30, 1995, the Company had not received any
signing fees from foreign sublicenses. The Company's license agreement with
Revlon, Inc. has an expiration date of December 31, 1995. Although the
Company believes that the license agreement has been renewed for an
additional one year term, no assurance can be given that Revlon, Inc. will
share the Company's position. However, management believes that there would
be no material adverse effect on the Company's long-term future business
should the contract be deemed not to have been renewed.
(continued)
41
<PAGE> 43
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 13 - COMMITMENTS AND CONTINGENCIES - CONTINUED
In April 1994, the Company entered into three-year agreements with its
executive officers at base annual salaries ranging from $46,000 each for its
two Vice Presidents to $175,000 for its Chief Executive Officer. The
executive officers may participate in such profit-sharing, pension or other
incentive compensation plans as may be provided by the Company to its
executives.
In June 1995, EMA entered into a four year employment agreement with its
President, Robert D. Winn, and it's Vice President, Mary S. Winn. Pursuant
to their employment agreements, the President and Vice President of EMA are
to receive annual compensation of $104,000 each. In addition to the annual
compensation set forth in the employment agreements, the President and Vice
President shall be entitled to an annual bonus during the term of employment
equal to 7.5% of the earnings before income tax in excess of $300,000
generated by EMA for each given fiscal year. If either the President or
Vice President was employed by EMA for less than a full year, then the
amount of any said bonus shall be prorated. In the event either the
President or Vice President dies or is deemed permanently disabled during
his/her term of employment with EMA, then the annual compensation of the
surviving executive shall be increased to $150,000 per annum.
NOTE 14 - STOCK OPTION PLAN
In July 1991, the board of directors and stockholders of the Company adopted
a Stock Option Plan (the "1991 Plan"), pursuant to which 54,000 (adjusted
for stock dividend) shares of common stock of the Company were reserved for
issuance. In November 1992, the Board adopted a new plan (the "1992 Plan";
the 1991 Plan and the 1992 Plan are jointly known as the "Plan"), which was
approved by the stockholders in February 1993, and which provided the
issuance of 240,000 (adjusted for stock dividend) shares. The number of
shares issuable under the 1992 Plan was increased to 750,000 at the
Company's Annual Shareholders' Meeting held in December 1993. Both Plans
are intended to promote the growth and profitability of the Company, to
provide employees of the Company who are largely responsible for the
management, growth and protection of its business with an incentive to
continue to make substantial contributions to the success of the Company,
and to provide those key employees with an equity interest in the Company.
The Plans are administered by a Stock Option Committee appointed by the
Company's board of directors (the "Committee"). The Committee has the
authority to designate the key employees eligible to participate in the
Plan, to prescribe the terms of award, to interpret the Plan, and to make
all other determinations for administering the Plans.
(continued)
42
<PAGE> 44
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 14 - STOCK OPTION PLAN - CONTINUED
The Plan provides for granting of stock options that may be either
"Incentive Stock Options" within the meaning of Section 422A of the Internal
Revenue Code of 1986 (the "Code"), or "Non-Statutory Stock Options", which
do not satisfy the provisions of Section 422A of the Code. Incentive Stock
Options are required to be issued at an option exercise price per share
equal to the fair market value of a share of common stock on the date of
grant, except that the exercise price of options granted to any employee who
owns (or under pertinent Code provisions, is deemed to own) more than 10% of
the outstanding common stock must equal at least 110% of fair market value
at the date of grant. Non-Statutory Stock Options may be issued at such
option exercise price as the Committee determines. Exercise of a stock
option will be subject to terms and conditions established by the Committee
and set forth in the instrument evidencing the stock option. Stock options
may be exercised with either cash or shares of the Company's common stock or
any other form of payment authorized by the Committee. The date of
expiration of a stock option will be fixed by the Committee but may not be
longer than ten years from the date of the Plan.
In September and November of 1993, the Company issued 200,000 and 100,000
stock options, respectively. Due to the lower market price of the Company's
stock, the Company canceled and repriced all of the outstanding stock
options, and issued 414,000 options (an approximate 20% reduction in the
number of shares originally issued) in May 1994, at the lower market price
of $3.125 per share (which approximated the market value of the Company's
stock at the grant date), as a further incentive for the key employees of
the Company.
The following table is a summary of Stock Options:
<TABLE>
<CAPTION>
Number Exercise Price
of Options Per Option
---------- ----------------
<S> <C> <C>
Outstanding at July 1, 1993 257,800 $4.0630 - 5.6145
Non-Statutory Stock Options
Granted during fiscal year ended
June 30, 1994 714,000 $3.1250 - 6.0500
Expired or canceled during
fiscal year ended June 30, 1994 (557,800) $4.0630 - 6.0500
----------
Outstanding at June 30, 1994 414,000 $3.1250
</TABLE>
(continued)
43
<PAGE> 45
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1995 AND 1994
NOTE 14 - STOCK OPTION PLAN - CONTINUED
<TABLE>
<CAPTION>
Number Exercise Price
of Options Per Option
---------- ----------------
<S> <C> <C>
Non-Statutory Stock Options
Granted during fiscal year ended
June 30, 1995 330,000 $2.0000 - 3.6250
Expired or canceled during
fiscal year ended June 30, 1995 (2,361) $3.1250 - 3.6250
----------
Outstanding at June 30, 1995 741,639 $2.0000 - 3.6250
==========
Exercisable at June 30, 1995 741,639 $2.0000 - 3.6250
==========
</TABLE>
NOTE 15 - FOURTH QUARTER ADJUSTMENTS
The Company recorded fourth quarter adjustments in fiscal year 1995 of
approximately $125,000 to increase the provision for slow-moving inventory,
approximately $55,000 to increase the provision for doubtful accounts
receivable, approximately $219,000 to expense certain prepaid assets, and an
income tax benefit of approximately $145,000 to adjust income tax accounts
based upon the Company's results of operations.
44
<PAGE> 46
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Amendment No. 2 on Form 10-KSB/A to its Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1995 to be signed on its behalf
by the undersigned, thereunto duly authorized.
OCEAN OPTIQUE DISTRIBUTORS, INC.
Dated: June 28, 1996 By:/s/ Kenneth J. Gordon
---------------------------------
Kenneth J. Gordon, Principal
Accounting Officer and Chief
Financial Officer
- 45 -
<PAGE> 47
OCEAN OPTIQUE DISTRIBUTORS, INC.
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Page
- ---------- -------------
<S> <C>
11.1 Statement re: Computation of Per Share Earnings..........................
27.1 Financial Data Schedule (for SEC use only)...............................
</TABLE>
- ------------------------------
* All other exhibits listed in Item 13 of the Amendment No. 2 on Form
10-KSB/A are incorporated by reference to documents previously filed
as indicated therein.
- 46 -
<PAGE> 1
EXHIBIT 11.1
Ocean Optique Distributors, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
June 30, 1995 June 30, 1994
------------- -------------
<S> <C> <C>
Loss Per Share:
Net loss applicable to common stockholders........ $ (735,049) $ (159,960)
Shares:
Weighted average number of common
shares outstanding............................... 1,619,602 1,330,716
Net loss per share of common stock.................. $ (0.48) $ (0.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OCEAN OPTIQUE DISTRIBUTORS FOR THE TWELVE MONTHS ENDED
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,832
<SECURITIES> 0
<RECEIVABLES> 2,786
<ALLOWANCES> 215
<INVENTORY> 7,374
<CURRENT-ASSETS> 13,577
<PP&E> 872
<DEPRECIATION> 543
<TOTAL-ASSETS> 17,770
<CURRENT-LIABILITIES> 7,332
<BONDS> 0
0
2,624
<COMMON> 6,099
<OTHER-SE> (772)
<TOTAL-LIABILITY-AND-EQUITY> 17,770
<SALES> 9,752
<TOTAL-REVENUES> 9,752
<CGS> 5,680
<TOTAL-COSTS> 5,680
<OTHER-EXPENSES> 4,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> (880)
<INCOME-TAX> 145
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (782)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> 0
</TABLE>
