DRAFT 10/21/97
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended_______________________________________________________
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from 12/31/96 to 06/30/97
Commission File No. 0-19670
OCEAN OPTIQUE DISTRIBUTORS, INC.
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(Name of small business issuer in its charter)
FLORIDA 65-0052592
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 N.E. 40TH STREET, MIAMI, FLORIDA 33137
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(Address of principal executive offices) (Zip Code)
(305) 573-0222
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(Issuer's telephone number)
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
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(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___
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 the reported transition period: $1,706,315.
As of October 20, 1997, the aggregate market value of the common stock held by
non-affiliates of the registrant was approximately $3,140,438, based on the
average of the closing bid and asked prices on that date of $1. As of that date,
there were 7,784,879 shares of the issuer's Common Stock outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format. YES____ NO X
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PART I
Ocean Optique Distributors, Inc. ("Ocean" or the "Company") was formed
in May 1988 under the laws of the State of Florida. The address of its principal
place of business is 2 N.E. 40th Street, Miami, Florida 33137, and its telephone
number is (305) 573-0222. Ocean currently has three wholly-owned subsidiaries
through which its business is conducted: Classic Optical, Inc., a Michigan
corporation ("Classic"), European Manufacturers Agency, Inc., a Florida
corporation ("EMA"), and Solovision Optical, Inc., a Florida corporation
("Solovision").
References to the Company include Ocean and its wholly-owned
subsidiaries. Except as otherwise expressly provided, the historical information
set forth in this report regarding the Company's business and operations relate
to Ocean and only its subsidiaries Classic and EMA, and does not reflect the
consummation in June 1997 of the acquisition of Solovision (see "Acquisition of
Solovision," below).
The Company cautions readers that certain important factors may affect
the Company's actual results and could cause such results to differ materially
from any forward-looking statements that may be deemed to have been made in this
report or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative other
variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that may affect the Company's results
include, but are not limited to, the Company's prior operating losses; risks of
increases in the costs of the Company's products; the Company's relationships
with its suppliers and licensors; risks related to purchasing inventory from
foreign suppliers; the financial condition and operations of the Company's
customers; changes in fashions and preferences of purchasers of eyewear;
competitive and general economic factors in the markets where the Company's
products are manufactured or sold; and the impact of, and changes in, government
regulations such as trade restrictions or prohibitions, or import and other
charges and taxes. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company is engaged in importing, marketing and distributing
high-quality ophthalmic (or eyeglass) frames and sunglasses in the mid- and
premium-priced categories and, with the acquisition of Solovision, in the low-
to mid-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
currently is the exclusive or non-exclusive licensee (with respect to eyewear)
of certain well-recognized labels, including Crayola.
ACQUISITION OF SOLOVISION
Effective June 27, 1997, the Company consummated the acquisition of
Solovision, a privately held, Miami-based company engaged in importing,
exporting, marketing and distributing low to moderately priced eyeglass frames
and importing and distributing optical equipment. In connection with the
acquisition of Solovision (the "Solovision Acquisition"), the Company issued to
the shareholders of Solovision shares of the Company's Common Stock and the
Company's Series C Non-Cumulative Convertible Preferred Stock (the "Series C
Preferred Stock") with an aggregate voting power equal to 60% of the outstanding
voting capital stock of the Company, on a fully diluted basis, after giving
effect to the Solovision Acquisition. The Company consummated the Solovision
Acquisition pursuant to the Agreement and Plan of Merger dated as of June 26,
1997 (the "Solovision Agreement and Plan of Merger") by and among the Company,
Ocean Acquisition Corporation ("OAC"), Solovision, Solomon Ovadia, Leon
Wildstein, and Ovadia Family Trust.
The Company believes that the consummation of the Solovision
Acquisition will enable the Company to strengthen its marketing and distribution
capabilities, increase its product lines and the markets for its products, and
strengthen its management team.
The Solovision Acquisition was effected as follows: (1) Solovision
and an affiliated corporation, Sorrento Eyewear, Inc. ("Sorrento"), were merged
pursuant to Florida law, with Solovision as the surviving corporation (the
"Solovision-Sorrento Merger"); (2) immediately thereafter, Solovision was merged
with and into OAC pursuant to Florida law, with Solovision as the surviving
corporation (the "Merger"); and (3) the shares of the common stock, $1.00 par
value per share, of Solovision (the "Solovision Common Stock") outstanding at
the effective time of the Merger were converted into an aggregate of 3,137,977
shares of the Company's Common Stock and 1,000,000 shares of Series C Preferred
Stock (each share of Solovision Common Stock being converted as a result of the
Merger into 21,346.78 shares of Common Stock and 6,802.72 shares of Series C
Preferred Stock). Each share of Series C Preferred Stock will be entitled to
vote together with the Common Stock as a single class on all
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matters presented to a vote of shareholders, except as provided by law, with
each share of Series C Preferred Stock entitled to 7.155058 votes. Each share of
Series C Preferred Stock will be automatically converted into 7.155058 shares of
Common Stock upon the filing of an amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of Common Stock to not
less than 25,000,000 shares. As a result, the shareholders of Solovision
received, on a pro rata basis, shares with an aggregate voting power equal to
60% of the outstanding voting capital stock of the Company, on a fully diluted
basis, after giving effect to the Solovision Acquisition.
In connection with the Solovision Acquisition, Leon Wildstein, one of
the Solovision shareholders, and Solomon Ovadia, Solovision's President, were
appointed to the Company's Board of Directors. Additionally, Mr. Ovadia was
named the Company's President.
For accounting purposes, the Solovision Acquisition has been treated
as an acquisition of Ocean and its subsidiaries, Classic and EMA, by Solovision.
See "Item 6. Management's Discussion and Analysis or Plan of Operation" for a
further discussion of the accounting treatment of the Solovision Acquisition and
the impact on the financial statements of the Company included under Item 7
hereof.
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 more than $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 $11.4 billion in 1990, and finally, to
approximately $14.6 billion in 1996. Also, the average eyeglass sale (frame and
lenses) at retail has grown to $147.98 in 1996 from $126.66 in 1991. The Company
believes that the U.S. plano sunglass market grew from approximately $0.7
billion in 1995 to approximately $0.8 billion in 1996. Plano sunglasses
comprised 5.8% of the optical retail sales in 1996, which increased from 4.9% in
1995.
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 ("HMOs") are accounting for a gradually increasing market share.
The Company believes that in 1996 the U.S. market's total retail eyewear sales
were distributed as follows: independent professionals collectively accounted
for approximately 63% of the $14.6 billion total, retail chains accounted for
approximately 35.5% and HMOs accounted for approximately 1.5%. 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.
In 1996, approximately 159 million Americans, just over 60% of the
nation's population, needed some form of vision correction (either eyeglass
frames with corrective lenses or contact lenses). The table below demonstrates
how the demand for vision correction increases with age.
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<TABLE>
<CAPTION>
AGE BREAKDOWN OF U.S. POPULATION NEEDING VISION CORRECTION
AGE GROUP OF
1996 PURCHASERS AS % OF % OF AGE GROUP
POPULATION TOTAL PURCHASERS OF NEEDING VISION
AGE (IN MILLIONS) VISION CORRECTION CORRECTION
- ------------------------ ------------------------ -------------------------------- ----------------------------
<S> <C> <C> <C>
0-14................. 58.0 5.4% 15.5%
15-24................. 35.9 11.4 51.0%
25-44................. 83.7 32.0 62.8%
45-64................. 53.7 32.0 95.0%
65 and up............. 33.9 19.2 93.1%
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Total.............. 265.2 100.0%
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</TABLE>
The average age of the United States population is expected to
increase over the next 25 years, due to the aging of the "baby-boomers" who were
born between 1946 and 1964. As more of the baby-boomers exceed age 45, the
Company believes sales of corrective eyewear should increase.
Total eyewear sales are also increasing due to the evolution of
eyewear into a fashion accessory. Until the mid-1970s, eyeglass frames were
viewed as medical implements which were "dispensed" but never "sold." Because
styling was not emphasized, successful frames often remained popular for years,
and sometimes for decades. In the mid-1970s, experts from other industries
introduced designer names and consumer advertising to the optical industry, as
well as sweeping design changes. These changes resulted in increased consumer
demand for the new products. Although eyeglass frames are a fashion accessory
for many people, the styles are not subject to seasonal changes, and they change
less rapidly than styles in the apparel industry.
The Company believes that the fastest growing sunglass market
segments are represented by the premium-priced and mid-priced sunglasses, which
are sold at retail primarily by department stores and by specialty boutiques and
independent dispensing opticians located in shopping malls.
PRODUCT LINES
The Company is currently the exclusive or non-exclusive licensee of
certain high-profile labels under which it designs and markets, or is in the
process of developing products to be marketed, including: Crayola (exclusive in
the United States, Canada, Mexico, Central and South America, and the
Caribbean); Chevrolet (United States, Canada and Brazil, on a non-exclusive
basis); Gitano (exclusive licensee in the United States, Puerto Rico, and
Canada); and Jacques Fath (exclusive in the United States). The Company is
currently renegotiating its license agreement with Gitano, which expired on June
30, 1997. See "Item 6. Management's Discussion and Analysis or Plan of
Operation."
In addition, products are produced and marketed under the Company's
"Ocean" and "Nino Balli" labels, which the Company believes have developed
recognition in the market place. Also, with the addition of EMA (see "Prior
Acquisitions"), the Company distributes private label products 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
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of products marketed under well-known labels or "superbrands," as attractive
opportunities to acquire licenses are presented.
SALES AND MARKETING
The Company's sales efforts are made directly by its officers and
currently by four 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 18 commissioned sales
representatives, who may also carry non-competing lines. EMA's sales efforts are
made directly by its officers and the Classic sales representatives.
Solovision's sales efforts are made directly by its officers and five sales
representatives.
For the fiscal year ended June 30, 1997, the Company had one customer
whose net sales represented approximately 10.2% 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, 1997.
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.
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, 1995. With the acquisition of EMA and
Solovision in June 1995 and June 1997, respectively, the Company's customer base
increased to more than 4,200 at June 30, 1997.
To date, the Company's marketing and promotional efforts have been
limited. Advertising expenses for each of the fiscal years ended June 30, 1997
and 1996 amounted to 3% of Ocean's, Classic's and EMA's net sales. The Company
currently intends to exhibit its products at three national trade shows
annually. The Company has decided to limit its exhibition at certain regional
trade shows in order to control costs.
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, management believes that the future success of the
Company will depend on enhanced promotional efforts led by a marketing team. The
Company has retained two advertising agencies to work in conjunction with the
marketing team to increase name recognition of the Company's licensed and
proprietary names. 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.
With the addition of Solovision's sales force and Solovision's
expertise in certain markets not previously exploited by the Company, the
Company believes that it will have additional resources by which to increase its
sales and its name-recognition in the industry.
SOURCES OF SUPPLY
Management believes that the high quality of the Company's products
is a consequence of the manufacturers chosen by the Company. More than 20.8% of
the Company's ophthalmic frames are currently manufactured by Societe Francaise
de Lunetterie ("SFL"), a principal shareholder of the Company, located in
France, and a significant portion of EMA's frames are currently manufactured by
D'Arrigo Moda Italia SRL ("D'Arrigo"), also a principal shareholder of the
Company. The remainder of the Company's ophthalmic frames are manufactured by a
number of other vendors in Europe and the Far East. Subsequent to the Solovision
Acquisition, management has increased its purchases from vendors in the Far
East. The
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Company believes that it currently enjoys a good relationship with its
vendors, and does not anticipate the loss of any material supplier in the near
future. In the event the Company is unable to procure its products from certain
present suppliers, however, the Company believes its business will not be
adversely affected, due to adequate alternative sources of product supply. For
further discussion, see "Item 5. Management's Discussion and Analysis or Plan of
Operation" and "Item 12. Certain Relationships and Related Transactions."
PRIOR ACQUISITIONS
In October 1992, the Company acquired all 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.
In June 1995, the Company acquired all of the outstanding capital
stock of EMA. As a result of the acquisition, the Company's 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 brought additional experienced management to the Company. Also as a
result of the EMA acquisition, D'Arrigo, EMA's major supplier, has become a
principal shareholder of Common Stock and convertible preferred stock in the
Company.
The EMA acquisition agreement provided 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. 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.
In October 1996, the Company and the Winns reached an agreement regarding
certain EMA product that was sold prior to the acquisition date but returned by
the buyer for credit in 1996. Under this agreement, the Winns agreed to pay the
Company $75,000 and the Company agreed to release the remaining shares from
escrow.
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 Signature Eyewear,
Inc. and 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.
Currently, there are two methods of correcting vision impairment
that compete with prescription eyeglasses: contact lenses and refractive
(optical) surgery. Although retail sales of contact lenses remained flat from
1995 through 1996 at $1.9 billion, sales of contact lenses as a percentage of
total retail sales decreased from 13.5% in 1995 to 13.0% in 1996. The Company
believes that sales of contact
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lenses do not currently materially threaten eyeglass frame sales because many
people who wear contact lenses need a pair of eyeglasses for nighttime and for
the days when they decide not to wear their lenses.
A number of surgical techniques have been developed to correct vision
problems such as myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. The Company does not believe that these techniques will materially
and adversely affect sales of prescription eyewear in the near future. The
Company believes that a number of people who have had successful eye surgery may
still need some form of corrective eyeglasses, and others may need eyeglasses at
a later date due to the onset of presbyopia (inability of the eye to focus
sharply on nearby objects).
EMPLOYEES
As of September 30, 1997, the Company had 46 full-time employees, in
addition to its 22 independent manufacturers' representatives. The Company is
not a party to a collective bargaining agreement. The Company considers its
relationship with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
In connection with the Solovision Acquisition, the Company entered
into a lease for 16,550 square feet of office space located at 2 N.E. 40 Street,
Miami, Florida with Miami Opti Mart, Inc. as lessor. Miami Opti Mart, Inc. is a
Florida corporation controlled by Solomon Ovadia, the Company's President and a
member of the Board of Directors. The Company relocated its executive offices
and storage facilities to this location in October 1997. This lease is for a
term of five years commencing on the later of July 1, 1997 or on the date of
occupancy by the Company, and ending on June 30, 2002, with a renewal option for
an additional five-year term. The monthly rent is $10,300.
The Company continues to lease 11,000 square feet for its former main
office and warehouse space from a third party for a five-year term expiring in
February 1998 at a monthly rate of $7,570. In addition, the Company continues to
lease a small warehouse storage facility across the street from that location,
at a monthly rate of $812 for which the lease expires in November 1997. Notice
has been given to both landlords that the leases will not be renewed.
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, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
The Common Stock of the Company is currently trading on the Nasdaq
SmallCap Market 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:
COMMON STOCK
QUARTER ENDED HIGH BID LOW BID
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June 30, 1997 $2.7500 $2.4375
March 31, 1997 1.8100 .5000
December 31, 1996 2.1300 1.6900
September 30, 1996 2.2500 1.8800
June 30, 1996 2.7500 1.5000
March 31, 1996 2.7500 1.4375
December 31, 1995 2.7500 1.8750
September 30, 1995 2.5000 1.7500
HOLDERS
The approximate number of record holders of the Company's Common Stock
as of October 20, 1997 was 61. The Company believes that its Common Stock is
beneficially held by more than 400 holders.
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 currently 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
GENERAL
The following is an analysis of the Company's results of operations
and its liquidity and capital resources and
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should be read in conjunction with the Company's Consolidated Financial
Statements and the related notes thereto, included elsewhere herein.
ACCOUNTING IMPACT OF SOLOVISION ACQUISITION
The presentation of the Company's Consolidated Financial Statements
included in this report reflects the consummation of the Solovision Acquisition
on June 27, 1997. Because the Company issued to the shareholders of Solovision
shares of the Company's Common Stock and Series C Preferred Stock with an
aggregate voting power equal to 60% of the outstanding voting capital stock of
the Company, on a fully diluted basis, after giving effect to the Solovision
Acquisition, Solovision is considered for accounting purposes as the accounting
acquirer. While the balance sheet presentation reflects the consolidation of the
Company and Solovision at June 30, 1997, the statement of operations reflects
only the results of Solovision for the six months ended June 30, 1997 (excluding
the results of operations of Ocean for the three days following the Solovision
Acquisition, which results were de minimis), the six months ended June 30, 1996
(unaudited), and the fiscal years ended December 31, 1996 and 1995.
OVERVIEW OF THE 1997 FISCAL YEAR
With the consummation of the Solovision Acquisition in June 1997, the
Company acquired an additional operating subsidiary and strengthened its
management team. The Company is in the process of assimilating its new
subsidiary, including coordination of accounting and computer systems and
deployment of personnel. The Company is not able at this time to estimate the
timetable for completion of such assimilation. Therefore, there can be no
assurances of the Company's ability to realize significant operating
efficiencies, if any, from the Solovision Acquisition in the near future. See
"Item 1. Description of Business - Acquisition of Solovision."
During February 1997, the Company's license agreement with Revlon was
terminated. Nevertheless, management currently believes that the Company's
overall gross margin will be enhanced with the termination of this contract, as
all of the Company's other lines carry larger margins than did the Revlon
product. In addition, JH Collectibles, one of the Company's other licensors,
filed for bankruptcy relief under Chapter 11 of the Bankruptcy Code during the
first quarter of 1997. The Company's licensing agreement with JH Collectibles
expired on March 31, 1997, and as a result of the bankruptcy, was not renewed.
The Company believes that there will be no material adverse effect on the
Company's long-term future business from the loss of this licensing agreement.
In May 1997, the Company refinanced its credit facility. See
"Liquidity and Capital Resources," below.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(SOLOVISION ONLY)
Net sales for the six months ended June 30, 1997 were $1,706,315, an
increase of $339,964 or 24.9% from the same period in 1996. The increase was due
primarily to the addition of experienced sales representatives.
The Company's overall gross profit margin increased to 36.4% for the
six-month period ended June 30, 1997 from 35.4% for the same period a year ago.
This increase was primarily due to more selective purchasing.
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Selling, general and administrative ("SG&A") expenses for the six
months ended June 30, 1997 increased by $92,552 (25.6%) over the same period in
1996, which was due to the addition of experienced sales representatives. SG&A
as a percent of sales, however, decreased to 27.8% for the six months ended June
30, 1997, compared to 37.2% for the same period a year ago.
The Company recognized a net profit of $87,311 for the six months
ended June 30, 1997 compared to a net profit of $78,843 for the same period in
1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SOLOVISION ONLY)
Net sales for the year ended December 31, 1996 were $2,661,718, an
increase of $1,387,077 or 108.8% from the same period in 1995. This increase was
primarily due to the fact that the Company began operations in 1995. Therefore,
there was not a full year of revenues in 1995.
The Company's gross profit margin decreased to 32.8% from 36.6% for
the 1995 calendar year. This decrease was primarily due to sales efforts by
management to sell slow-moving and obsolete inventory resulting in lower
margins.
SG&A for the year ended December 31, 1996 was 9.8% lower as a
percentage of sales compared to the same period in 1995. This was primarily due
to the large increase in sales and a close monitoring of SG&A expenses.
The Company recognized a net profit of $97,994 in 1996 compared to a
net loss in 1995 of $14,919. This increase was primarily due to the usual
start-up costs and lower sales in 1995 of a new entity.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's working capital was $810,019 and its
current ratio was 1.11:1, as compared to working capital of $2,165,117 and a
current ratio of 1.32:1 at June 30, 1996.
The change in net cash provided by operating activities was primarily
due to the net profit from operations of $87,311, bad debt expense of $62,251,
increases in inventory of $321,193, a decrease in accounts receivable of
$59,510, and decreases in accounts payable and accrued expenses of $50,814. The
change in net cash used in investing activities was primarily due to
expenditures for property and equipment of $89,769, cash from acquired business
of $166,290 and acquisition costs of $100,000. Also, the change in net cash
provided by financing activities was primarily due to proceeds from notes
payable of $176,568.
During the quarter ended September 30, 1996, the Company, in
consideration of 10,000 eyeglass frames tendered by SFL, granted to SFL an
option to purchase 110,000 shares of the Company's Common Stock at a price of
$1.30 per share. This option is exercisable for three years. Also during the
quarter ended September 30, 1996, D'Arrigo forgave the Company six monthly
payments amounting to $239,729. In return, the Company agreed to reduce by 20%
the conversion price of $3.00 on 70% of the shares of convertible preferred
stock owned by D'Arrigo. During the quarter ended March 31,1997 the Company
agreed to exchange $300,000 of debt to D'Arrigo for 300,000 shares of the
Company's Common Stock. The Company also during the quarter negotiated the
settlement of certain accounts payable, resulting in a write-off of
approximately $96,000 of the Company's outstanding accounts payable and the
issuance of 77,419 shares of the Company's Common Stock at $1 - 15/16 per share,
the then-current market price.
- 9 -
<PAGE>
On May 28, 1997, the Company refinanced its credit facility through a
Loan and Security Agreement with Coast Business Credit, a division of Southern
Pacific Thrift & Loan Association ("Coast"). Loans outstanding under this
agreement at any time may not exceed the lesser of either: (a) $4,000,000 or (b)
the sum of: (i) 70% of the Company's receivables deemed by Coast to be eligible
for borrowing (which may be increased to 75% if dilution is less than 15%,
subject to certain restrictions); and (ii) the lesser of up to 55% of the value
of the Company's inventory deemed by Coast to be eligible for borrowing, or
$2,000,000. The interest rate on all loans made under the credit facility is 2%
above the prime rate, with a minimum monthly interest amount equal to said rate
charged on an outstanding daily balance of $2,000,000. The maturity date is June
30, 2000, subject to automatic renewal for additional one-year terms upon
payment of a renewal fee. The Company also issued to Coast warrants to acquire
187,500 shares of Common Stock at an exercise price of $1.625 per share. The
credit facility is secured by all of the Company's assets. Inability to repay
the loans under the credit facility in a timely manner as they become due would
have a materially adverse effect on the Company's ability to continue its
operations and could cause the Company to lose most of its assets. There can be
no assurances that income generated from operations will be sufficient to cover
all operating expenses and meet present and future debt service payments.
In October 1997, the Company's Chairman of the Board invested
$250,000 in shares of the Company's Series D 7% Cumulative Convertible Preferred
Stock.
Management currently believes that cash from operations and from
available credit sources is sufficient for the Company to maintain its
operations at current levels, including the operations acquired in the
Solovision Acquisition and EMA acquisition. The Company from time to time
investigates other sources of financing to provide additional working capital.
There can be no assurances that such other financing will be available and, if
available, will be at terms favorable to the Company.
ITEM 7. FINANCIAL STATEMENTS
The following Consolidated Financial Statements are set forth in
Appendix A hereto:
Report of Independent Certified Public Accountants (Grant Thornton LLP)
Report of Independent Certified Public Accountants (Rachlin Cohen & Holtz)
Consolidated Balance Sheet as of June 30, 1997
Consolidated Statements of Operations for the Six Months Ended June 30,
1997 and 1996 and the Years Ended December 31, 1996 and 1995
Consolidated Statement of Stockholders' Equity for the Year Ended
June 30, 1997
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and 1996 and the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants.
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 October 20, 1997, 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 director are as follows:
- 10 -
<PAGE>
<TABLE>
<CAPTION>
OFFICER
EXPIRATION OR
OF CURRENT DIRECTOR
NAME AGE POSITION WITH THE COMPANY BOARD TERM SINCE
- ---- --- ------------------------- ---------- --------
<S> <C> <C> <C> <C>
Kenneth J. Gordon 57 Chief Financial Officer, Secretary, 1998 1992
Treasurer and Director
Solomon A. Ovadia 45 President and Director 1998 1997
Richard Russo 64 Operations Manager and Director 1997 1997
Leon Wildstein 69 Director 2000 1997
Robert D. Winn 46 Senior Vice President - Sales and 1999 1995
Marketing, President of EMA and Director
Mary S. Winn 43 Vice President of EMA ____ 1995
</TABLE>
The expiration dates of the terms of the Company's Board of Directors
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 appointed annually by the Board of
Directors and serve at the pleasure of the Board.
BUSINESS EXPERIENCE
MR. GORDON was recently reappointed to the Board of Directors of the
Company, on which he had previously served as a member from 1993 through 1996.
Mr. Gordon has been employed as the Chief Financial Officer of the Company since
December 1991. Mr. Gordon served briefly as the President and Chief Executive
Officer of the Company, in addition to his duties as Chief Financial Officer,
during the period between May 30, 1997 and June 26, 1997, replacing Neil B.
Lande, who resigned as Chief Executive Officer and Chairman of the Board of the
Company for personal reasons as of May 30, 1997. From December 1991 through
mid-September 1992, Mr. Gordon 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 from bankruptcy shortly thereafter. From
1982 to 1987, he was Secretary, Treasurer and Chief Financial Officer of Royal
International Optical Corporation, the securities of which were traded on the
New York Stock Exchange.
MR. OVADIA became President and a director of the Company in June
1997 pursuant to the Solovision Agreement and Plan of Merger. Mr. Ovadia has
engaged in the wholesale and retail optical business since 1974. From November
1995 through June 1997, Mr. Ovadia was the first
- 11 -
<PAGE>
President and sales director of Solovision. From 1990 until November 1995, Mr.
Ovadia was President and a director of South American Optical, Inc.
MR. RUSSO has been a director of the Company since March 1997.
Between March 1991 and 1997, he was a private investor, and prior thereto was
President of Admire Fashions, Inc. in New York, from 1960 to 1991.
MR. WILDSTEIN became a director of the Company in June 1997 pursuant
to the Solovision Agreement and Plan of Merger and is the Company's Chairman of
the Board of Directors. Mr. Wildstein has been a real estate developer for the
past 30 years, with residential and commercial projects in Canada and the United
States.
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 in 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. Ms. Winn was a director of the Company from April 1996 to July 1997.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Securities and Exchange Commission has implemented a rule that
requires companies to disclose information with respect to reports that are
required to be filed pursuant to Section 16 of the Securities Exchange Act of
1934, as amended, by directors, officers and 10% shareholders of each company,
if any of those reports are not filed timely. Based solely upon a review of
Forms 3 and 4 and amendments thereto furnished to the Company during the fiscal
year ended June 30, 1997 and Form 5, if any, with respect to that year, the
Company has determined that a Form 3 for Richard Russo was not made in a timely
manner and is unaware of any other delinquent filings.
FAMILY RELATIONSHIPS
Mary Winn and Robert Winn are husband and wife.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information about compensation paid
or accrued by the Company to the individuals serving as the Company's Chief
Executive Officer during the fiscal year ended June 30, 1997 and to the other
most highly compensated executive officers of the Company whose cash
compensation for the fiscal year ended June 30, 1997 exceeded $100,000 (such
individuals are sometimes collectively referred to herein as the "named
executive officers").
- 12 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ------------------------------------
OTHER SECURITIES
NAME ANNUAL RESTRICTED UNDER- ALL OTHER
AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
-------- ---- ----- ------ ----- ----- -------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Solomon Ovadia(1) 1997 (1) - - - - - -
Chief Executive
Officer
Kenneth Gordon(2) 1997 85,000 - - - 140,000(4) - -
Chief Financial 1996 85,000 - - - 107,221(4) - -
Officer 1995 85,000 - - - 107,221(4) - -
Neil B. Lande(3) 1997 - - - - 150,000(4) - -
Chief Executive 1996 - - - - 50,000(4) - -
Officer
Robert D. Winn 1997 104,000 - - - 12,500(4) - -
President of 1996 104,000 - - - - - -
EMA
Mary S. Winn 1997 104,000 - - - 12,500(4) - -
Vice President 1996 104,000 - - - - - -
of EMA
</TABLE>
- -----------------
(1) Mr. Solomon was appointed Chief Executive Officer of the Company
upon the consummation of the Solovision Acquisition on June 27, 1997
(2) Mr. Gordon served as Chief Executive Officer upon Mr. Lande's
resignation from such position as of May 30, 1997 until Mr. Ovadia's
appointment.
(3) Mr. Lande was appointed Chief Executive Officer of the Company in
April 1996, and resigned from such position as of May 30, 1997.
(4) Includes the options that were repriced in March 1997 by the
Company's Board of Directors.
- 13 -
<PAGE>
The following tables set forth information concerning options granted
to and exercised by the named executive officers during the last fiscal year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR PRICE ($/SH) DATE
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Ray Hyman 124,384 3.125 5/5/01
24,100 3.625 8/5/01
30,000 2.50 12/22/01
50,000 2.00 5/23/02
Neil B. Lande(2) 50,000(3) .75(3) 5/20/02
100,000(3) .75(3) 12/2/03
Robert D. Winn 12,500(3) .75(3) 12/2/03
Mary S. Winn 12,500(3) .75(3) 12/2/03
Kenneth J. Gordon 140,000(3) .75(3) 12/2/03
</TABLE>
------------
(1) All information provided relates to option grants with the
exception of the information provided for Neil B. Lande, which
involves warrants. The Company does not grant SARs.
(2) Mr. Lande resigned as Chief Executive Officer effective May 30, 1997.
(3) The options reflect the repricing by the Company's Board of
Directors. See "Stock Option Repricing."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/
SAR VALUES(1)
<TABLE>
<CAPTION>
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(1) UNEXERCISABLE
---- ----- ----- ------------- -------------
<S> <C> <C> <C> <C>
Ray Hyman 0 0 124,384/0 0
0 0 24,100/0 0
0 0 30,000/0 0
0 0 50,000/0 0
Neil B. Lande(2) 0 0 50,000/0 100,000/0
0 0 100,000/0 200,000/0
Robert D. Winn 0 0 12,500/0 25,000/0
Mary S. Winn 0 0 12,500/0 25,000/0
Kenneth J. Gordon 0 0 140,000/0 280,000/0
</TABLE>
--------------------
(1) All information provided relates to option grants with the exception
of the information provided for Neil B. Lande, which involves
warrants. The Company does not grant SARs.
(2) Mr. Lande resigned as Chief Executive Officer effective May 30, 1997.
STOCK OPTION REPRICING
In March 1997, the Company's Board of Directors approved an
adjustment to the exercise prices of certain outstanding options held by the
named executive officers and a consultant to the Company. The exercise prices
were reduced to the then current market price of $.75 per share from $1.875 for
the aggregate of 595,000 options held by the foregoing persons.
The Board approved the option repricings because it believes that
equity interests are a significant factor in the Company's ability to attract
and retain key employees and consultants that are critical to the Company's
long-range success. During the last fiscal year, the market value of the Common
Stock had fallen. As a result of the decrease in the fair market value of the
Common Stock, the Board believed that the Company's ability to retain existing
management would be impaired. Accordingly, the Board approved the option
repricings as a means of ensuring that optionees have a meaningful equity
interest in the Company.
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.
- 14 -
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENTS
EMA entered into four-year agreements with Robert D. Winn and Mary S.
Winn at a base annual salary of $104,000 each. These agreements also provide
that the officers may participate in such profit sharing, pension or other
incentive compensation plans as may be provided by the Company to its
executives. Effective June 27, 1997, in connection with the Solovision
Acquisition, the Company entered into an employment agreement with its new
President, Solomon Ovadia. Mr. Ovadia's employment agreement is for a term of
three years from the effective date of the agreement, and his gross annual base
salary is $175,000, with eligibility for a discretionary bonus as well as
certain fringe benefits, including performance-based stock options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information sets forth certain information as of
October 20, 1997, by each person who is known to the Company to be the
beneficial owner of more than 5% 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(1)
- ---------------- ----------- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Kenneth J. Gordon 144,800(2) 1.82
2 N.E. 40th Street
Miami, Florida 33137
Robert D. Winn 341,667(3) 4.38
2 N.E. 40th Street
Miami, Florida 33137
Mary S. Winn 341,666(4) 4.38
2 N.E. 40th Street
Miami, Florida 33137
Solomon Ovadia 6,951,308(5) 55.09
2 N.E. 40th Street
Miami, Florida 33137
- 15 -
<PAGE>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP CLASS(1)
- ---------------- ---------- --------
<S> <C> <C>
Richard Russo 50,000(6) *
2 N.E. 40th Street
Miami, Florida 33137
Leon Wildstein 2,640,772(7) 27.45
3577 Atwater Avenue, Suite 615
Montreal, Quebec, Canada H3H2R2
All executive officers and 10,470,213(8) 71.38
directors as a group
(consisting of 6 persons)(15)
OTHER PRINCIPAL SHAREHOLDERS:
Ray Hyman 413,984(9) 5.17
12131 S.W. 103rd Street
Miami, Florida 33186
Societe Francaise de 500,154(10) 6.33
Lunetterie
F 39150 Chaux du Domdief
St. Laurent en Grandvaux
France
D'Arrigo Moda Italia SRL 635,417(11) 7.82
Via Giava 11/12
32040 Lorenzago Di Cadore
Italy
Kevin Fischer 420,985(12) 5.21
1527 E. Tipton
Seymour, Indiana 47274
Ovadia Family Trust 5,901,418(13) 49.65
2 N.E. 40th Street
Miami, Florida 33137
Ovadia Family Trust, 1,049,890(14) 12.33
Kevin Fischer and Linda Fischer,
as tenants in common
</TABLE>
- ------------------
*Less than one percent.
(FOOTNOTES CONTINUED ON NEXT PAGE.)
- 16 -
<PAGE>
(1) 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 60 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.
(2) Mr. Gordon is the owner of 4,800 shares of the Company's Common
Stock, and has options to acquire 140,000 shares at an exercise price of $.75
per share, the market prices of the Common Stock on the dates of grant.
(3) Mr. Winn is the owner of 329,167 shares of the Company's Common
Stock, and has options to purchase 12,500 shares of Common Stock at $.75 per
share. Excludes 329,166 shares and options to purchase 12,500 shares owned by
Mr. Winn's wife, Mary, of which shares Mr. Winn disclaims beneficial ownership.
(4) Mrs. Winn is the owner of 329,166 shares of the Company's Common
Stock, and has options to purchase 12,500 shares of Common Stock at $.75 per
share. Excludes 329,167 shares and options to purchase 12,500 shares owned by
Ms. Winn's husband, Robert, of which shares Ms. Winn disclaims beneficial
ownership.
(5) Mr. Ovadia is the Trustee of the Ovadia Family Trust which is the
sole owner of 1,799,130 shares of the Company's Common Stock, and 573,341 shares
of the Company's Series C Preferred Stock. Additionally, the Ovadia Family Trust
owns 320,074 shares of the Company's Common Stock and 102,000 shares of the
Company's Series C Preferred Stock as tenants-in-common with Kevin Fischer and
Linda Fischer, which are included herein. See notes (13) and (14) below. Each
share of Series C Preferred Stock is automatically convertible into 7.155058
shares of the Company's Common Stock upon the filing of Articles of Amendment to
the Company's Articles of Incorporation to increase the number of authorized
shares of Common Stock of the Company to not less than 25,000,000.
(6) Mr. Russo owns options to purchase 50,000 shares of Common Stock at
$.75 per share.
(7) 2974711 Canada, Inc., of which Mr. Wildstein is the controlling
shareholder, is the owner of 805,077 shares of the Company's Common Stock and
256,559 shares of the Company's Series C Preferred Stock. Each share of Series C
Preferred Stock is automatically convertible into 7.155058 shares of the
Company's Common Stock upon the filing of Articles of Amendment to the Company's
Articles of Incorporation to increase the number of authorized shares of Common
Stock of the Company to not less than 25,000,000.
(8) Includes shares issuable upon exercise of all options and warrants
beneficially owned by such persons, and excludes shares of which beneficial
ownership is disclaimed.
(9) Mr. Hyman owns 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
(FOOTNOTES CONTINUED ON NEXT PAGE.)
- 17 -
<PAGE>
on the dates of grant. Excludes 125,000 shares owned by Mr. Hyman's wife,
JoAnne, of which shares Mr. Hyman disclaims beneficial ownership.
(10) SFL owns 390,154 shares of the Company's Common Stock and has
Warrants to acquire 110,000 shares of Common Stock at an exercise price of $1.30
per share.
(11) D'Arrigo owns of record 300,000 shares of the Company's Common Stock
as well as the outstanding shares of the Company's Series B-1 Preferred Stock,
which pursuant to its terms is convertible into 335,417 shares of the Company's
Common Stock.
(12) Mr. Fischer owns 128,343 shares of the Company's Common Stock and
40,900 shares of the Company's Series C Preferred Stock. Excludes 85,353 shares
of the Company's Common Stock and 27,200 shares of the Company's Series C
Preferred Stock owned by Mr. Fischer's wife, Linda Fischer, individually, of
which shares he disclaims beneficial ownership. Also excludes 320,074 shares of
the Company's Common Stock and 102,000 shares of the Company's Series C
Preferred Stock held as tenants-in-common with Ovadia Family Trust and Mr.
Fischer's wife, Linda Fischer, which are listed separately herein. Each share of
Series C Preferred Stock is automatically convertible into 7.155058 shares of
the Company's Common Stock upon the filing of Articles of Amendment to the
Company's Articles of Incorporation to increase the number of authorized shares
of Common Stock of the Company to not less than 25,000,000.
(13) Ovadia Family Trust is the sole owner of 1,799,130 shares of the
Company's Common Stock and 573,341 shares of the Company's Series C Preferred
Stock. Also includes 320,074 shares of the Company's Common Stock and 102,000
shares of the Company's Series C Preferred Stock owned as tenants-in-common by
the Ovadia Family Trust, Kevin Fischer and Linda Fischer. See note (14). Solomon
Ovadia is the Trustee of the Ovadia Family Trust. See note (5). Each share of
Series C Preferred Stock is automatically convertible into 7.155058 shares of
the Company's Common Stock upon the filing of Articles of Amendment to the
Company's Articles of Incorporation to increase the number of authorized shares
of Common Stock of the Company to not less than 25,000,000.
(14) Ovadia Family Trust, Kevin Fischer and Linda Fischer are co-owners
as tenants-in-common of 320,074 shares of the Company's Common Stock and 102,000
shares of the Company's Series C Preferred Stock. Excludes 1,799,130 shares of
the Company's Common Stock and 573,341 shares of the Company's Series C
Preferred Stock owned individually by the Ovadia Family Trust. See note (13).
Solomon Ovadia is the Trustee of the Ovadia Family Trust. See note (5). Each
share of Series C Preferred Stock is automatically convertible into 7.155058
shares of the Company's Common Stock upon the filing of Articles of Amendment to
the Company's Articles of Incorporation to increase the number of authorized
shares of Common Stock of the Company to not less than 25,000,000.
(15) Consists of Kenneth Gordon, Solomon Ovadia, Richard Russo, Leon
Wildstein, Mary S. Winn and Robert D. Winn.
- 18 -
<PAGE>
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, 1997 and
1996, the Company's purchases from SFL amounted to $1,769,528 or 20.8% and
$3,318,000 or 35%, respectively, of total purchases. Due to related parties at
June 30, 1997 and 1996 includes approximately $196,000 and $450,000,
respectively, of amounts due to this affiliated party for these purchases. The
Company believes that its purchases of products from SFL have been on terms and
conditions at least as favorable to the Company as could have been obtained
elsewhere.
D'Arrigo, the holder of the outstanding shares of the Company's
Series B-1 Preferred Stock, is a large supplier of ophthalmic frames for EMA,
which the Company acquired in June 1995. The Company currently anticipates that
it will continue to purchase significant quantities of frames from D'Arrigo, and
anticipates that such purchases will be on terms as least as favorable to the
Company as could be obtained elsewhere.
During the year ended June 30, 1996, D'Arrigo agreed to exchange
$1,150,000 of EMA's accounts payable balance for $1,150,000 in Series B
Preferred Stock, which was subsequently reclassified as 162,478 shares of Series
B-1 Preferred Stock and 67,522 shares of Series B-2 Preferred Stock. Each share
of Series B-1 Preferred Stock is convertible into 2.064384 shares of the
Company's Common Stock, and each share of the Company's Series B-2 Preferred
Stock is convertible into 3.096635 shares of the Company's Common Stock. In the
event of any liquidation, the holders of shares of the Series B-1 Preferred
Stock and Series B-2 Preferred Stock are entitled to receive out of assets of
the Company available for distribution to shareholders before any distribution
of assets is made to holders of Common Stock, a 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 $1,128,674, payable in 32 equal monthly payments, and $250,000 in
cash. The Series B Preferred was reclassified into 162,478 shares of Series B-1
Preferred Stock and 67,522 shares of Series B-2 Preferred Stock to reflect a 20%
discount on the conversion price of $3.00 on 70% of the original Series B
Preferred Stock given by the Company to D'Arrigo in exchange for D'Arrigo's
forgiveness of six monthly payments amounting to $239,729 on July 2, 1996
resulting in a gain of approximately $100,000 to the Company. As of the quarter
ended June 30, 1997, $415,397 principal amount of the note remained
outstanding. Also in March 1997, the Company agreed to exchange $300,000 of
debt to D'Arrigo for 300,000 shares of the Company's Common Stock. All of the
shares of Series B-2 Preferred Stock were converted to shares of Common Stock in
June 1997.
In 1996, the Company issued 246,154 shares of Common Stock to a
vendor in settlement of $400,000 of accounts payable.
At June 30, 1996, the Company has accrued $130,000 for amounts due
to the former Chief Executive Officer of the Company under a compensation
settlement agreement. As of the year ended June 30, 1997, the Company had paid
$67,924 of the accrued amount due.
- 19 -
<PAGE>
In April 1997, Trevi S.p.A., a supplier of frames, exchanged
approximately $185,000 of the Company's accounts payable to it for 125,000
shares of the Company's Common Stock.
In connection with the Solovision Acquisition, the Company entered
into a commercial lease with Miami Opti Mart, Inc., as lessor, for 16,550 square
feet of commercial real property located at 2 N.E. 40 Street, Miami, Florida
33137. Miami Opti Mart, Inc. is a Florida corporation controlled by Solomon
Ovadia, the Company's President and member of the Board of Directors. The lease
is for a term of five years commencing on the later of July 1, 1997 or on the
date of occupancy by the Company, and ending on June 30, 2002, with a renewal
option for an additional five-year term. The monthly rent is $10,300. The
Company relocated its executive offices to this location during October 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of June 26,
1997 by and among Ocean Optique Distributors, Inc.;
Ocean Acquisition Corporation; Solovision Optical,
Inc.; Solomon Ovadia; and Leon Wildstein and Ovadia
Family Trust.(5)
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 Business Property Lease, dated August 19, 1993,
between Turnpike-McNeil Development, Ltd., and Ocean
Optique Distributors, Inc.(3)
10.4 License Agreement between Classic Optical, Inc.,
and Hallmark Cards, Incorporated (Crayola License),
dated January 29, 1991.(3)
10.5 License Agreement between Classic Optical, Inc.,
and Chevrolet (Geo), dated March 25, 1992.(3)
10.6 Commercial Lease between Miami Opti Mart, Inc.
and Ocean Optique Distributors, Inc. dated as of June
27, 1997.(6)
10.7 Form of Robert D. Winn and Mary S. Winn Employment
Agreement.(4)
- 20 -
<PAGE>
10.8 Employment Agreement dated as of June 26, 1997
between Ocean Optique Distributors, Inc. and Solomon
Ovadia.(6)
10.9 EMA Acquisition Agreement.(4)
10.10 Loan and Security Agreement between Ocean
Optique Distributors, Inc., Classic Optical, Inc.,
European Manufacturers Agency, Inc., and Coast
Business Credit, dated as of May 28, 1997.(6)
10.11 First Amendment to Schedule to Loan and
Security Agreement dated as of June 25, 1997.(6)
10.12 Second Amendment to Schedule to Loan and
Security Agreement dated as of August 6, 1997.*
11.1 Statement re: Computation of Per Share Earnings.*
21.1 Subsidiaries of the Registrant.(6)
23.1 Consent of Grant Thornton LLP.*
23.2 Consent of Rachlin, Cohen & Holtz.*
27.1 Financial Data Schedule (for Commission use only).*
(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, 1997.
- ----------------------
* Filed herewith.
(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) Incorporated by reference to the Registrant's Current Report on Form
8-K, dated June 27, 1997.
(6) Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 (File No. 333-331469) declared effective August 4,
1997.
- 21 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused its Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997 to be signed on its behalf by the undersigned, thereunto duly
authorized.
OCEAN OPTIQUE DISTRIBUTORS, INC.
Dated: October 22, 1997 By: /s/ KENNETH J. GORDON
-----------------------------------------
Kenneth J. Gordon, Principal Accounting
Officer and Chief Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SOLOMON OVADIA President and Director October 22, 1997
- ------------------------------------
Solomon Ovadia
/s/ KENNETH J. GORDON Principal Accounting October 22, 1997
- ------------------------------------ Officer, Chief Financial
Kenneth J. Gordon Officer and Director
/s/ RICHARD RUSSO Director October 22, 1997
- ------------------------------------
Richard Russo
/s/ LEON WILDSTEIN Director October 22, 1997
- ------------------------------------
Leon Wildstein
/s/ ROBERT D. WINN Senior Vice President Sales October 22, 1997
- ------------------------------------ and Marketing and Director
Robert D. Winn
</TABLE>
- 22 -
<PAGE>
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants (Grant Thornton LLP).....F-2
Report of Independent Certified Public Accountants (Rachlin Cohen & Holtz)..F-3
Consolidated Balance Sheet as of June 30, 1997..............................F-4
Consolidated Statements of Operations for the Six Months Ended June 30,
1997 and 1996 and the Years Ended December 31, 1996 and 1995...........F-5
Consolidated Statement of Stockholders' Equity for the Year Ended
June 30, 1997..........................................................F-6
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and 1996 and the Years Ended December 31, 1996 and 1995.....F-7 - F-8
Notes to Consolidated Financial Statements..................................F-9
F-1
<PAGE>
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 (the "Company") as of June 30, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the six months 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, 1997, and the consolidated
results of their operations and their consolidated cash flows for the six months
then ended, in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Miami, Florida
September 22, 1997 (except for Note 18, as
to which the date is October 17, 1997)
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Solovision Optical, Inc.
Miami, Florida
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Solovision Optical, Inc. (including the accounts of Sorrento
Eyewear, Inc., which was merged into the Company on June 27, 1997) for each of
the two years in the period ended December 31, 1996. 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 aspects, the results of operations and cash flows of Solovision
Optical, Inc. for each of the two years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ RACHLIN COHEN & HOLTZ
Miami, Florida
June 10, 1997 except for the merger of
Sorrento Eyewear, Inc. into the Company,
as to which the date is June 27, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 54,868
Certificate of deposit - restricted 65,000
Accounts receivable, net of allowance for doubtful accounts of $289,865 2,535,435
Inventory 4,994,655
Prepaid expenses and other current assets 89,929
Deferred income taxes 130,229
---------------
Total current assets 7,870,116
Property, plant and equipment, net 370,795
Security deposits and other assets 23,983
Debt issue costs, net 76,522
Deferred income taxes 4,303
Intangible assets 1,928,980
---------------
Total assets $ 10,274,699
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 3,233,534
Accounts payable 2,570,818
Accrued expenses 407,023
Income tax payable 94,029
Current portion of long-term debt 614,693
Note payable officers 140,000
---------------
Total current liabilities 7,060,097
8% Convertible subordinated debentures 341,250
Long-term debt 56,869
Deferred income taxes 96,432
Stockholders' equity
Preferred stock, no par value, 5,000,000 shares authorized; shares issued:
Series A cumulative convertible 3% preferred stock, 214,500 shares
outstanding (liquidation value-$536,250) 95,151
Series B-1, 2% convertible preferred stock, 162,478 shares outstanding
(liquidation value-$812,390) 64,016
Series C non-cumulative convertible preferred stock, 1,000,000 shares
outstanding 1,697,037
Common stock, no par value; 10,000,000 shares authorized, 7,569,550
issued and outstanding -
Paid-in capital 744,265
Retained earnings 119,582
---------------
Total stockholders' equity 2,720,051
---------------
Total liabilities and stockholders' equity $ 10,274,699
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND YEARS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 1,706,315 $ 1,366,351 $ 2,636,718 $ 1,274,641
Cost of sales 1,084,670 882,548 1,762,753 808,676
--------------- --------------- ---------------- ---------------
Gross profit 621,645 483,803 873,965 465,965
Selling, general and
administrative expenses 448,757 362,237 711,767 480,198
Depreciation and
amortization 14,826 8,794 17,912 3,686
--------------- --------------- ---------------- ---------------
463,583 371,031 729,679 483,884
--------------- --------------- ---------------- ---------------
Income (loss) from
operations 158,062 112,772 144,286 (17,919)
Interest expense 14,801 1,929 10,692 -
--------------- --------------- ---------------- ---------------
Income (loss) before
income taxes 143,261 110,843 133,594 (17,919)
Provision (credit) for
income taxes 55,950 32,000 35,600 (3,000)
--------------- --------------- ---------------- ---------------
Net income (loss) 87,311 78,843 97,994 (14,919)
--------------- --------------- ---------------- ---------------
Net income (loss) per
share of common
stock $ .01 $ .01 $ .01 $ -
=============== =============== ================ ===============
Weighted average
number of common
shares outstanding 10,342,255 10,293,035 10,293,035 10,293,035
=============== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1997
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------------------- ---------------------------- --------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------- ------------ --------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1,
1995 as restated - $ - - $ - $ -
Net loss - - - - - -
----------- ----------- ----------- ----------- ------------ -----------
Balance December 31,
1995 - - - - -
Net income - - - - - -
----------- ----------- ----------- ----------- ------------ -----------
Balance December 31,
1996 - - - - -
Capitalization of related-
party debt - - - - - -
Merger of Ocean Optique 214,500 95,151 162,478 64,016 1,000,000 1,697,037
Net income for the six
months ended June 30,
1997 - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30,
1997 214,500 $ 95,151 162,478 $ 64,016 1,000,000 $ 1,697,037
=========== =========== =========== =========== =========== ===========
COMMON STOCK
-------------------------- RETAINED
COMMON COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT)
-------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Balance January 1, 1,000 $ 100 $ 299,900 $ (50,804)
1995 as restated
- - - (14,919)
Net loss ----------- ----------- ----------- -------------
Balance December 31, 1,000 100 299,900 (65,723)
1995
- - - 97,994
Net income ----------- ----------- ----------- -------------
Balance December 31, 1,000 100 299,900 32,271
1996
Capitalization of related- - - 216,311 -
party debt
7,568,550 (100) 228,054 -
Merger of Ocean Optique
Net income for the six
months ended June 30, - - - 87,311
1997 ----------- ----------- ----------- -------------
Balance, June 30, 7,569,550 - $ 744,265 $ 119,582
1997 =========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 87,311 $ 80,842 $ 97,994 $ (14,919)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Provision for inventory obsolescence 10,000 44,438 88,875 -
Depreciation and amortization 14,826 8,794 17,912 3,686
Bad debt expense 62,251 - - -
Deferred income taxes (38,100) 19,500 19,500 (3,000)
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable 59,510 (66,093) (17,470) (136,562)
Inventory (321,193) 245,925 69,757 (320,406)
Prepaid expenses and other
current assets 19,873 (11,805) (23,811) 9,594
Other assets - (1,085) (2,613) 3,693
Increase (decrease) in:
Accounts payable and accrued
expenses (50,814) (221,731) (156,294) 429,129
Bank overdraft - 6,042 - -
Income tax payable 77,929 10,500 16,100 -
------------- ------------- ------------- -------------
Net cash provided by
(used in) operating
activities (78,407) 115,327 109,950 (28,785)
------------- ------------- ------------- -------------
Cash flows from investing activities
Expenditures for property and
equipment (89,769) (11,010) (10,825) (7,245)
Advances to affiliates (23,775) (140,691) (146,739) (13,104)
Cash from acquired business 166,290 - - -
Acquisition costs (100,000) - - -
Repayment of advances to affiliates - - 13,104 -
------------- ------------- ------------- -------------
Net cash used in
investing activities (47,254) (151,701) (144,460) (20,349)
------------- ------------- ------------- -------------
Cash flows from financing activities
Increase (decrease) in bank overdraft - - (24,473) 24,473
Proceeds from notes payable 176,568 43,234 13,198 -
Repayments of notes payable (24,217) - (28,034) -
Borrowings from affiliates 85,775 - 80,722 17,496
------------- ------------- ------------- -------------
Net cash provided by
financing activities 238,126 43,234 41,413 41,969
------------- ------------- ------------- -------------
</TABLE>
(continued)
F-7
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease in cash) $ 112,465 $ 6,860 $ 6,903 (7,165)
Cash, beginning 7,403 500 500 7,665
------------- ------------- ------------- -------------
Cash, ending $ 119,868 $ 7,360 $ 7,403 $ 500
============= ============= ============= =============
Supplemental disclosure of cash flows
information
Cash paid during the period for
interest $ 14,801 $ 1,929 $ 14,316 $ -
============= ============= ============= =============
Taxes paid during the year $ 5,000 $ - $ - $ -
============= ============= ============= =============
Non cash financing and investing activities:
Conversion of related party debt
to equity $ 216,311 $ - $ - $ -
============= ============= ============= =============
Conversion of accounts receivable
to stockholder loans $ 57,304 $ - $ - $ -
============= ============= ============= =============
Issuance of Note Payable to
stockholders in exchange for
property and equipment $ - $ - $ 10,000 $ -
============= ============= ============= =============
Settlement of Stock Subscription
receivable by receipt of inventory $ - $ - $ - $ 50,000
============= ============= ============= =============
Acquisition of inventory
Forgiveness of note receivable
from related parties $ - $ - $ 101,000 $ -
Issuance of a note payable to a
related party - - 100,000 -
------------- ------------- ------------- -------------
$ - $ - $ 201,000 $ -
============= ============= ============= =============
Acquisition of property
Write-off of a due to a related party $ - $ - $ (24,000) $ -
Assumption of a note payable of a
related party - - 43,000 -
Issuance of a note payable to a
related party - - 71,000 -
------------- ------------- ------------- -------------
$ $ - $ 90,000 $ -
============= ============= ============= =============
Acquisition of business
Fair value of assets acquired $ 6,964,468 $ - $ - $ -
============= ============= ============= =============
Liabilities assumed $ 6,877,210 $ - $ - $ -
============= ============= ============= =============
Cost in excess of net assets
acquired $ 1,928,980 $ - $ - $ -
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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 27, 1997, the Company acquired all of the common stock of
Solovision Optical, Inc. ("Solo"), a Florida corporation. For accounting
purposes the acquisition has been treated as a recapitalization of Solo
with Solo as the acquirer (reverse acquisition) (see Note 3). Solo is
engaged in importing, exporting, marketing and distributing moderately
priced eyeglass frames and importing and distributing optical equipment.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS FOR CONSOLIDATION
The consolidated financial statements include the accounts of Ocean
Optique Distributors, Inc., and its wholly owned subsidiaries,
Classic Optical, Inc. ("Classic"), European Manufactures Agency, Inc.
("EMA") and Solo. The results of operations of the Company represents
that of Solo only in as much as the acquisition is treated as a
reverse acquisition. 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 TRANSACTIONS
The Company purchases inventory from certain foreign vendors in
foreign currency. Foreign currency totaling $1,516,951 at June 30,
1997 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.
(continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
F-9
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
(D) INCOME TAXES
Deferred income taxes have been provided for elements of income and
expenses 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.
(E) USE OF ESTIMATES
In preparing the Company's financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
estimated fair values of financial instruments. These estimated fair
values are to be disclosed whether or not they are recognized in the
balance sheet, provided it is practical to estimate such values. The
Company estimates that the fair value of its financial instruments
approximates the carrying value of its financial instruments at June
30, 1997.
(G) 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.
(H) 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.
(continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(I) INTANGIBLE ASSETS
F-10
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
Intangible asset is comprised of goodwill as a result of the
acquisition of Solo which was accounted for as a reverse acquisition
(ie. Solo is the accounting acquirer) (see Note 3). Goodwill of
$1,928,980 resulted from this acquisition. Since the acquisition of
Solo took place on June 27, 1997 no amortization expense has been
recorded for the six months ended June 30, 1997. Goodwill will be
amortized over a period of ten years on a straight-line basis
beginning July 1997.
(J) REVENUE RECOGNITION
Revenue is recognized when earned as goods are shipped to customers.
(K) ADVERTISING
The costs of advertising, promotion and marketing programs are
charged to operations in the year incurred.
(L) 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 and common stock
equivalents outstanding during the year. Included in the weighted
average number of shares calculation is the retroactive effect of the
3,137,977 Common shares and the 1,000,000 Series C non-cumulative
Convertible Preferred shares issued in the acquisition of Solovision
Optical, Inc.
(M) ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets and certain intangibles held
and used for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Impairment
is recognized when the carrying amounts of such assets and
liabilities cannot be recovered by the undiscounted net cash flow
they will generate.
(continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(N) STOCK OPTIONS
F-11
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
Options granted under the Company's Stock Option Plans are accounted
for under APB 25, "Accounting for Stock Issued to Employees," and
related interpretations. In October 1995, the Financial Accounting
Standards Board issued Statement 123, "Accounting for Stock-Based
Compensation," which require additional proforma disclosures for the
Company which will continue to account for employee stock options
under the intrinsic value method specified in APB 25 (see Note 16).
NOTE 3 - ACQUISITIONS
On June 27, 1997, the Company acquired all the outstanding common stock of
Solo for 3,137,977 shares of common stock and 1,000,000 shares of Series C
non-cumulative preferred stock. For accounting purposes the acquisition has
been treated as a recapitalization of Solo with Solo as the acquirer
(reverse acquisition). The historical financial statements prior to June
27, 1997 are those of Solo. Pro forma information giving effect to the
acquisition as if the acquisition took place January 1, 1996 are as
follows:
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
PRO FORMA
OCEAN SOLOVISION ADJUSTMENTS COMBINED
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 5,564,742 $ 1,706,315 $ - $ 7,271,057
Cost of goods sold 4,528,210 1,084,670 - 5,612,880
Gross profit 1,036,532 621,645 - 1,658,177
Selling, general and administrative
expenses 2,043,664 463,583 96,449 (1) 2,603,696
Interest expense, net 149,429 14,801 - 164,230
Income tax expense (benefit) - 55,950 - 55,950
Dividends paid on convertible preferred
stock 24,273 - - 24,273
-------------- ------------- ------------- -------------
Net income (loss) applicable to common
stockholders $ (1,180,834) $ 87,311 $ (96,449) $ (1,189,972)
============== ============= ============= =============
Net loss per share $ (.12)
=============
Weighted average number of common
shares outstanding 10,337,735
=============
</TABLE>
F-12
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
NOTE 3 - ACQUISITIONS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
PRO FORMA
OCEAN SOLOVISION ADJUSTMENTS COMBINED
-------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 13,723,575 $ 2,636,718 $ - $ 16,360,293
Cost of goods sold 11,725,797 1,762,753 - 13,488,550
Gross profit 1,997,778 873,965 - 2,871,743
Selling, general and administrative
expenses 9,291,783 729,679 192,898 (2) 10,214,360
Interest expense, net 416,277 10,692 - 426,969
Income tax (benefit) expense (53,096) 35,600 - (17,496)
Dividends paid on convertible preferred
stock 62,684 - - 62,684
-------------- ------------- ------------- -------------
Net income (loss) applicable to common
stockholders $ (7,719,870) $ 97,994 $ (192,898) $ (7,814,774)
============== ============= ============= =============
Net loss per share $ (.76)
=============
Weighted average number of common
shares outstanding 10,293,035
=============
</TABLE>
(1) To record six months of goodwill amortization based on goodwill of
$1,928,980 amortized over ten years.
(2) To record one year of goodwill amortization based on goodwill of $1,928,980
amortized over ten years.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1997:
Furniture and fixtures $ 501,216
Machinery and equipment 363,132
Leasehold improvements 66,002
Automobiles 128,772
-----------
1,059,122
Less: Accumulated deprecation 688,327
-----------
Property and equipment, net $ 370,795
===========
F-13
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
NOTE 5 - INCOME TAXES
As of June 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $4,482,714, which subject to
limitations are available to offset taxable income and income taxes, if
any, through the year 2012. The annual limitation on deductability of the
net operating loss carryforward is approximately $350,000. The net change
in the valuation allowance was $3,189 for the six months ended June 30,
1997. The net increase in the valuation allowance is necessary because it
is more likely than not that the related deferred tax assets will not be
realized.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
JUNE 1997 1996 1995
--------------- ---------------- ---------------
<S> <C> <C> <C>
Current
Federal $ 79,960 $ 17,709 $ -
State 14,100 1,891 -
--------------- ---------------- --------------
Total current
provision $ 94,050 $ 19,600 $ -
=============== ================ ==============
Deferred
Federal $ (38,100) $ 14,457 $ (2,710)
State - 1,543 (290)
--------------- ---------------- --------------
Total deferred
provision
(benefit) $ (38,100) $ 16,000 $ (3,000)
=============== ================ ==============
Total provision
(benefit) $ 55,950 $ 35,600 $ (3,000)
=============== ================ ==============
</TABLE>
The provision of Federal income taxes for the years ended June 30, 1997
differs from that computed at the statutory federal corporate tax rate as
follows:
Provision at statutory rate $ 48,709
State tax, net of federal benefit 7,879
Other (638)
---------------
$ 55,950
===============
The reconciling items in the prior years are insignificant and therefore a
reconciliation between the provision (benefit) for federal income taxes and that
computed at the statutory rates for the years ended December 31, 1996 and 1995
will not be presented.
(continued)
F-14
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
NOTE 5 - INCOME TAXES - CONTINUED
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Deferred assets
Accounts receivable principally due to
allowance for bad debts $ 108,135
Inventories principally due to additional
costs inventoried for tax purposes and
reserve for slow moving inventories 1,947,645
Net operating loss carryforwards 1,666,845
Other 75,565
---------------
Total gross deferred tax assets 2,818,190
Less: Valuation allowance (2,683,659)
---------------
Net deferred tax assets $ 134,532
===============
Deferred liabilities
Property and equipment $ (96,432)
---------------
Total gross deferred tax liabilities (96,432)
---------------
Net deferred tax assets $ 38,100
===============
</TABLE>
NOTE 6 - LINES OF CREDIT
On May 28, 1997, the Company obtained a new line of credit. The line of
credit allows the Company to borrow up to $4,000,000 and is collateralized
by a pledge of all of the Company's assets. Borrowings under this agreement
are limited to the sum of 70% of eligible accounts receivable and 55% of
eligible inventory, (not to exceed $2,000,000). Interest on the line of
credit is 2% over the prime lending rate of the Bank of America (10-1/2% at
June 30, 1997), and is payable monthly. The credit line matures on June 30,
2000 subject to automatic annual renewal but can be terminated by either
party within a 120 day written notice of the renewal date. The available
amount that can be borrowed at June 30, 1997 was $337,726.
F-15
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
NOTE 7 - LONG-TERM DEBT
Notes payable as of June 30, 1997 is comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank bearing interest at 3% over the certificate of
deposit rate (4.75%), due on demand, collateralized by certificate of
deposit of $65,000 $ 65,000
Notes payable bearing interest ranging from 9.75% to 11.1%, payable
in monthly installments ranging from $333 to $2,484 including
interest, maturing through April 2000. 22,976
Note payable to bank bearing interest at 9.5%, payable in monthly
installments of $1,484 including interest, maturing in April 2002. 68,814
Note payable to bank bearing interest at 2% over certificate of
deposit rate (7.5%), payable monthly, due on demand, collateralized
by certificate of deposit. 99,375
Note payable due to related party, noninterest bearing, payable
monthly in equal installments of $39,954, maturing in February 1998,
net of unamortized discount of $145,060. 415,397
----------
671,562
Less: Current portion 614,693
----------
Long-term portion $ 56,869
==========
</TABLE>
The aggregate maturities of notes payable at June 30, 1997 are summarized
as follows:
1998 $ 614,693
1999 16,445
2000 16,596
2001 15,643
2002 8,185
-------------
$ 671,562
=============
NOTE 8 - NOTE PAYABLE - OFFICERS
F-16
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
Notes payable - officers consists of $140,000 of loans payable to officers
of Solovision. The loans bear no interest and $100,000 of these loans is
secured by debentures. The loans mature in fiscal 1998.
NOTE 9 - CONCENTRATION OF CREDIT RISK
Approximately eighty percent of the Company's customers are required to pay
for goods on delivery. The Company extends credit to the remaining twenty
percent of its customers based on an evaluation of the customer's financial
condition. The Company monitors exposure to credit losses and maintains
allowances for anticipated losses necessary under the circumstances.
NOTE 10 - RELATED PARTY TRANSACTIONS
During the six month ended June 30, 1997, the Company purchased
approximately $2,097,706 of eyeglass frames from affiliated parties through
the ownership of common stock. At June 30, 1997, accounts payable includes
approximately $1,107,046 of amounts due to this affiliated party for these
purchases. The Company also has notes payable to an affiliated party of
$415,397.
In April 1997, Trevi S.P.A., a supplier of frames, forgave approximately
$185,000 of the Company's accounts payable and received 125,000 shares of
the Company's common stock to offset same.
In June 1997, $216,311 of related party loans were capitalized into equity.
NOTE 11 - CAPITAL TRANSACTION
Effective as of June 21, 1995, Ocean Optique Distributors, Inc. 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.
NOTE 11 - CAPITAL TRANSACTION - CONTINUED
F-17
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
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 maximum of
600,000 shares, depending on the average market price of the stock, as
defined.
On June 21, 1996, the first anniversary of the closing as stated above,
125,000 shares have been released from escrow. As of June 30, 1997, all
shares have been released from escrow.
NOTE 12 - PREFERRED STOCK
SERIES A PREFERRED STOCK
The Company has designated 800,000 shares of Preferred Stock as Series A
Preferred Stock. As of June 30, 1997, 388,500 shares of Series A Preferred
Stock have been converted to a like number of shares of Common Stock.
Holders of the Series A Preferred Stock are entitled to receive cumulative
cash dividends or, in the Company's sole discretion, cash equivalent stock
dividends in the form of shares of Common Stock, at the annual rate of
$0.075 per share. Each share of Series A Preferred Stock is convertible at
any time into one share of Common Stock, subject to adjustment in certain
events, including: the issuance of stock as a dividend on the Common Stock;
stock splits, subdivisions or combinations of the Common Stock; or the
distribution to all holders of the Common Stock, of evidences of
indebtedness of the Company, cash (excluding ordinary cash dividends),
other assets or rights or warrants to subscribe for or purchase any
securities (other than those referred to above).
The Series A Preferred Stock may not be redeemed by the Company. Holders of
the Series A Preferred Stock do not vote on matters submitted to the
Company's shareholders generally, except as may otherwise be required by
law.
SERIES B-1 AND SERIES B-2 PREFERRED STOCK
Pursuant to an amendment to the Company's Articles of Incorporation filed
in June 1997, the Company re-designated 162,478 shares of Preferred Stock
previously designated Series B Preferred Stock as shares of Series B-1
Preferred Stock and 67,522 shares Series B-2 Preferred Stock.
(continued)
NOTE 12 - PREFERRED STOCK - CONTINUED
F-18
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
SERIES B-1 AND SERIES B-2 PREFERRED STOCK - CONTINUED
As of June 30, 1997, all of the Series B-2 Preferred Stock has been
converted to shares of Common Stock, leaving the 162,478 shares of Series
B-1 Preferred Stock outstanding. Each share of Series B-1 Preferred Stock
is convertible into 2.064384 shares of the Company's Common Stock, and is
entitled to a cumulative annual dividend of $0.10 per share, if and when
dividends are declared by the Board of Directors of the Company. In the
event of any liquidation, the holders of shares of Series B-1 Preferred
Stock are entitled to receive out of assets of the Company available for
distribution to shareholders before any distribution of assets is made to
holders of Common Stock.
The Series B-1 and Series B-2 Preferred Stock may not be redeemed by the
Company. Holders of the Series B-1 and Series B-2 Preferred Stock do not
vote on matters submitted to the Company's shareholders generally, except
as may otherwise be required by law.
SERIES C PREFERRED STOCK
In connection with the acquisition of Solo (see Note 3), the Company issued
1,000,000 shares of Series C non-cumulative preferred stock. Pursuant to an
amendment to the Company's Articles of Incorporation filed in June 1997,
the Company will increase the number of authorized shares of the Company's
stock to not less than 25,000,000 shares. In addition, each share of Series
C Preferred Stock shall be automatically converted into 7.155058 shares of
the Company's common stock. Such conversion shall be made as of the
effective date of such Articles of Amendment and the rights of the
converting holder of the shares of the Series C Preferred Stock are to be
issued for all purposes as the record holder or holders of such Common
Stock at the close of business of such date.
On conversion, no payment or adjustment for dividends shall be made. The
conversion rate will be subject to adjustment in certain events, including:
the issuance of stock as a dividend on common stock; or the distribution to
all holders of Common Stock of evidences of indebtedness of the Company,
cash (excluding ordinary cash dividends), other assets or rights or
warrants to subscribe for or purchase any securities.
(continued)
NOTE 12 - PREFERRED STOCK - CONTINUED
F-19
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
SERIES C PREFERRED STOCK - CONTINUED
No fractional shares of Common Stock will be issued upon conversion, but in
lieu thereof, the Company at its option may round up the fractional share
or pay an appropriate amount in cash based upon the reported last sales
price of the shares of Common Stock on the day of conversion. Any shares of
Series C Preferred Stock that at any time should have been converted have
the status of authorized but unissued shares of Series C Preferred Stock,
without designation as to series until such shares are once more designated
as part of a particular series by the Board of Directors.
NOTE 13 - CONVERTIBLE DEBENTURES
The Debentures are unsecured debt securities, subordinated in right of
payment to any debt of the Company (defined in the Debentures as any
indebtedness, borrowed money or guarantee of such indebtedness) except debt
that by its terms is not senior ("Senior Debt") in right of payment to the
Debentures. The Debentures bear interest at the annual rate of 8% and
mature in 1999. Interest is payable semi-annually in arrears on June 30th
and December 31st of each year; provided, however, that the Company may, in
its sole discretion, defer payment of any installment of interest for a
period of six months until the next interest payment date.
Pursuant to the terms of the Debentures as originally issued, the
Debentures were convertible into shares of Common Stock at the rate of one
share of Common Stock for each $3.50 of principal amount, subject to
adjustment in the event of certain events, including: dividends or
distributions on the Common Stock payable in shares of Common Stock;
subdivisions, combinations or certain reclassifications of Common Stock;
distributions to all holders of the Common Stock at less than the current
market price at the time; or distributions to such holders of Common Stock
of assets or debt securities of the Company or certain rights to purchase
securities of the Company (excluding cash dividends or distributions from
current retained earnings).
In May 1996, the Company's Board of Directors authorized a change in the
conversion rate of the Debentures to one share of Common Stock for each
$1.65 of principal amount of Debentures. As of June 30, 1997, holders of
Debentures totaling $1,233,750 in aggregate principal amount of Debentures
have converted their debentures into 747,727 shares of Common Stock.
(continued)
NOTE 13 - CONVERTIBLE DEBENTURES - CONTINUED
F-20
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
The Debentures may not be redeemed by the Company. Holders of the
Debentures do not have voting rights and are not entitled to dividends. In
the event of liquidation, dissolution or winding up of the Company, holders
of Debentures will be junior to the holders of Senior Debt of the Company
in any distribution of the Company's assets, but will be senior to the
holders of shares of the Company's Common Stock and Preferred Stock.
NOTE 14 - WARRANTS
As of June 30, 1997, the Company had outstanding Warrants to purchase an
aggregate of 1,282,500 shares of the Company's Common Stock with exercise
prices ranging from $.75 to $2.00 and maturity dates through December 31,
2003. Holders of the Warrants will be protected against dilution upon the
occurrence of certain events, including, but not limited to, stock
dividends, stock splits, reclassifications, recapitalizations, stock
combinations or similar transactions. Holders of the Warrants have no
voting rights and are not entitled to dividends. In the event of
liquidation, dissolution or winding up of the Company, holders of Warrants
will not be entitled to participate in any distribution of the Company's
assets.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company currently leases their main office and warehouse space, on a
five year term, at a monthly rent of $7,570. In addition, the Company
leases a small warehouse storage facility, at a monthly rent of $812. This
six month lease is renewable, and expires in November 1997. In connection
with the Solovision Acquisition, the Company entered into a Commercial
Lease with Miami Opti Mart, Inc. for 16,550 square feet of commercial real
property located in Miami, Florida. Miami Opti Mart, Inc., is a Florida
corporation controlled by Solomon Ovadia, the Company's new President and
member of the Board of Directors. The lease is for a term of five years
commencing on July 1, 1997 or on the date of occupancy by the Company,
whichever is later, and ending on June 30, 2002, with a renewal option for
an additional five year-year term. The monthly rent is $10,300. The Company
currently anticipates relocating its executive offices to this location
during the 1997 fiscal year.
(continued)
NOTE 15 - COMMITMENTS AND CONTINGENCIES - CONTINUED
F-21
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
The following is a schedule of future minimum lease payments as of June 30,
1997, for operating leases having initial nocancelable lease terms in
excess of one year:
YEAR ENDING JUNE 30,
-------------------
1998 $ 246,649
1999 219,600
2000 155,600
2001 123,600
2002 123,600
Thereafter 30,900
---------------
Total minimum
payments $ 899,949
===============
Rent expense charged to operations was approximately $123,000 for the six
months ended June 30, 1997.
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 7.5 percent on
the sales of the specified license products with guaranteed minimum
royalties aggregating to $37,500.
As of June 30, 1997, the Company owes $60,000 to the Company's former Chief
Executive Officer and two other key employees under termination settlement
agreements.
In June 1995, the Company entered into a four year employment agreement
with the Director of the Company and his spouse, an employee. Pursuant to
their employment agreements, they are to receive annual compensation of
$104,000 each. In the event either of them dies or is deemed permanently
disabled during his/her term of employment with the Company, then the
annual compensation of the surviving shall be increased to $150,000 per
annum.
NOTE 16 - STOCK OPTION PLAN
F-22
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
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 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.
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.
Prior the June 30, 1996, the Company accounted for such options under APB
Opinion 25 and related Interpretations. Commencing July 1, 1996, the
Company accounts for non-qualified options issued to non-employees, under
SFAS 123, Accounting for Stock Based Compensation.
The exercise price of all options granted by the Company equals the market
price at the date of grant. No compensation expense has been recognized.
Had compensation cost for the Employees' Stock Option Plan's options issued
to employees been determined based on the fair value of the options at the
grant dates consistent with the method of SFAS 123, the Company's net
income (loss) and income (loss) per share would have been changed to the
pro forma amounts indicated below:
1997 1996
---------- ---------
(Unaudited)
Net earnings (loss)
As reported $ 87,311 $ 78,843
Pro forma 38,450 78,843
Primary earnings (loss) per share
As reported $ .01 $ .01
Pro forma $ .01 $ .01
(continued)
NOTE 16 - STOCK OPTION PLAN - CONTINUED
F-23
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
The above pro forma disclosures may not be representative of the effects on
reported net income (loss) for future years as options vest over several
years and the Company may continue to grant options to employees. There
were no options granted in 1996.
The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions used for grants in 1997: dividend yield of 0.0 percent;
expected volatility 63.61 percent; risk-free interest rate of 6.86 percent;
and expected holding periods ranging up to 7 years.
A summary of the status of the Company's fixed stock options as of June 30,
1997 and 1996, and changes during the years ending on those dates is as
follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
WEIGHTED - WEIGHTED -
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 723,639 $ 2.81 741,639 $ 2.81
Granted 234,000 .75 - -
Exercised - - - -
Expired (480,871) 2.81 (18,000) 3.125
------------- -------------
Outstanding at end of year 476,768 1.45 723,639 2.81
============= =============
Options exercisable at end
of year 476,768 23,639
Weighted-average fair value
of options granted during
the year $ .34 $ -
</TABLE>
The following information applies to options outstanding at June 30, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
WEIGHTED -
AVERAGE WEIGHTED - WEIGHTED -
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
--------------- --------- ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$0 - $.75 234,000 6.17 $ .75 234,000 $ .75
$2.00 - $2.50 87,500 4.74 2.19 87,500 2.19
$3.125 - $3.625 155,268 3.89 3.21 155,268 3.21
</TABLE>
F-24
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997
NOTE 17 - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128, Earnings Per Share (SFAS 128). SFAS
128 requires public companies to present basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully
diluted EPS. It requires entities with complex capital structures to
present basic and diluted EPS on the face of the income statement.
Provisions of SFAS 128 are effective for financial statements issued for
periods ending after December 15, 1997. The Company has made no assessment
of the potential impact of adopting SFAS 128 at this time.
NOTE 18 - SUBSEQUENT EVENT
On October 17, 1997, a Director of the Company contributed $250,000 for
2,500 shares of Series D cumulative Convertible Preferred Stock.
F-25
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
INDEX TO EXHIBITS*
EXHIBIT NO.
- ----------
10.12 Second Amendment to Schedule to Loan and
Security Agreement dated as of August 6, 1997.
11.1 Statement re: Computation of Per Share Earnings
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Rachlin, Cohen & Holtz.
27.1 Financial Data Schedule (for Commission use only).
- ------------------------------
* All other exhibits listed in Item 13 of the Form 10-KSB are
incorporated by reference to documents previously filed as indicated
therein.
COAST BUSINESS CREDIT/Registered trademark/
SECOND AMENDMENT TO SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower: Ocean Optique Distributors, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Borrower: Classic Optical, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Borrower: European Manufacturers Agency, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Date: August 6, 1997
THIS SECOND AMENDMENT TO THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT is
entered into as of the above date between COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association ("Coast"), a California corporation,
with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles, California
90025, and Ocean Optique Distributors, Inc., Classic Optical, Inc. and European
Manufacturers Agency, Inc., jointly and severally, the "Borrower" whose chief
executive office is located at the above address ("Borrower's Address"). This
Amendment shall for all purposes be deemed to be a part of the Schedule to the
Loan and Security Agreement ("Schedule"), and the same is an integral part of
the Schedule.
CONSENT AND APPROVAL
Coast hereby consents and approves Borrower's request to add Solovision Optical,
Inc., a Florida Corporation ("Solovision") as a co-borrower under the Loan and
Security Agreement and all documents related thereto ("Loan Documents").
Solovision agrees to be bound by all of the terms and conditions in the Loan
Documents.
AMENDMENT
The Loan Documents are hereby amended in all respects define to include
Solovision as a named Borrower. All other terms and conditions shall remain the
same.
<PAGE>
CONDITIONS PRECEDENT TO EFFECTIVENESS OF FIRST AMENDMENT
1. Solovision shall comply with each and every condition precedent
contained in the Loan Documents.
2. Borrower and each of them, shall execute the Joint and Several Borrower
Rider, a copy of which is attached hereto as Exhibit "A" and
incorporated herein by this reference.
Borrower: Coast:
OCEAN OPTIQUE DISTRIBUTORS, INC. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By: /s/ SOLOMON OVADIA By: /s/ ROBERT MARKS
---------------------------- --------------------------------------
Solomon Ovadia, President Robert Marks, Vice President
Borrower:
CLASSIC OPTICAL, INC.
By: /s/ SOLOMON OVADIA
----------------------------
Solomon Ovadia, President
Borrower:
EUROPEAN MANUFACTURERS AGENCY, INC.
By: /s/ SOLOMON OVADIA
----------------------------
Solomon Ovadia, President
Borrower:
SOLOVISION OPTICAL, INC.
By: /s/ SOLOMON OVADIA
----------------------------
Solomon Ovadia, President
2
<PAGE>
COAST BUSINESS CREDIT/Registered trademark/
JOINT AND SEVERAL BORROWER RIDER
Borrower: Ocean Optique Distributors, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Borrower: Classic Optical, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Borrower: European Manufacturers Agency, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Borrower: Solovision Optical, Inc.
Address: 14250 S.W. 119th Avenue
Miami, Florida 33186
Date: August 6,1997
This JOINT AND SEVERAL BORROWER RIDER (this "Rider"),
dated as of August __, 1997, is executed by and among Ocean Optique
Distributors, Inc., Classic Optical Inc., European Manufacturers Agency, Inc.
and Solovision Optical, Inc. are (collectively referred to herein as "Borrowers"
and individually as a "Borrower"), in favor of and delivered to COAST BUSINESS
CREDIT/Registered trademark/ ("Coast"), a division of Southern Pacific Thrift &
Loan Association, a California corporation.
WHEREAS, Borrowers are contemporaneously herewith
executing and delivering to Coast a Second Amendment to Schedule to Loan and
Security Agreement to add Solovision Optical, Inc. as an additional Borrower
under that certain Loan and Security Agreement, dated as of May 28, 1997 (the
"Agreement"), (the Agreement together with any and all other agreements,
instruments and documents executed by Borrowers in connection therewith, and as
all of the foregoing may be amended, restated, supplemented or modified from
time to time in accordance with their terms, are collectively referred to herein
as the ("Loan Documents"):
WHEREAS, each Borrower is interested in the financial success
of the other Borrowers and each Borrower will directly and materially benefit
from the financial accommodations which Coast will extend to all Borrowers
pursuant to the Loan Documents; and
<PAGE>
WHEREAS, in order to induce Coast to extend financial
accommodations to Borrower and in consideration thereof, Borrowers have agreed
to execute and deliver this Rider to Coast, which Rider shall be a rider to the
Loan Documents.
NOW, THEREFORE, the parties hereto agree as follows:
1. Each Borrower agrees that it is jointly and severally,
directly and primarily liable to Coast for payment in full of all amounts owing
to Coast under the Loan Documents, whether for principal, interest or otherwise
(collectively, the "Obligations") and that such liability is independent of the
duties, obligations, and liabilities of the other Borrowers. Coast may bring a
separate action or actions on each, any, or all of the Obligations against any
Borrower, whether action is brought against the other Borrowers or whether the
other Borrowers are joined in such action. In the event that any Borrower fails
to make any payment of any Obligations on or before the due date thereof, the
other Borrowers immediately shall cause such payment to be made or each of such
Obligation to be performed, kept, observed, or fulfilled.
2. The Loan Documents are a primary and original obligation of
each Borrower, are not the creation of a surety relationship, and are an
absolute, unconditional, and continuing promise of payment and performance which
shall remain in full force and effect without respect to future changes in
conditions, including any change of law or any invalidity or irregularity with
respect to the Loan Documents. Each Borrower agrees that its liability under the
Loan Documents shall be immediate and shall not be contingent upon the exercise
or enforcement by Coast of whatever remedies it may have against the other
Borrowers, or the enforcement of any lien or realization upon any security Coast
may at any time possess. Each Borrower consents and agrees that Coast shall be
under no obligation to marshal any assets of any Borrower against or in payment
of any and all of the Obligations.
3. Each Borrower acknowledges that it is presently informed as
to the financial condition of the other Borrowers and of all other circumstances
which a diligent inquiry would reveal and which bear upon the risk of nonpayment
of the Obligations. Each Borrower hereby covenants that it will continue to keep
informed as to the financial condition of the other Borrowers, the status of the
other Borrowers and of all circumstances which bear upon the risk of nonpayment.
Absent a written request from any Borrower to Coast for information, such
Borrower hereby waives any and all rights it may have to require Coast to
disclose to such Borrower any information which Coast may now or hereafter
acquire concerning the condition or circumstances of the other Borrowers.
4. The liability of each Borrower under the Loan Documents
includes Obligations arising, under successive transactions continuing,
compromising, extending, increasing, modifying, releasing or renewing the
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Obligations, changing the
interest rate, payment terms, or other terms and conditions thereof, or creating
new or additional Obligations after prior Obligations have been satisfied in
whole or in part. To the maximum extent permitted by law, each Borrower hereby
waives any right to revoke its liability under the Loan Documents as to future
indebtedness, and in connection therewith, each Borrower hereby waives any
rights it may have under Section 2815 of the California Civil Code. If such
2
<PAGE>
a revocation is effective notwithstanding the foregoing waiver, each Borrower
acknowledges and agrees that (a) no such revocation shall be effective until
written notice thereof has been received by Coast, (b) no such revocation shall
apply to any Obligations in existence on such date (including, any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof), (c) no such revocation
shall apply to any Obligations made or created after such date to the extent
made or created pursuant to a legally binding commitment of Coast in existence
on the date of such revocation, (d) no payment by such Borrower or from any
other source prior to the date of such revocation shall reduce the maximum
obligation of the other Borrowers, hereunder, and (e) any payment by such
Borrower or from any source other than Borrowers, subsequent to the date of such
revocation, shall first be applied to that portion of the Obligations as to
which the revocation is effective and which are not, therefore, guaranteed
hereunder, and to the extent so applied shall not reduce the maximum obligation
of each Borrower hereunder.
5. (a) Each Borrower absolutely, unconditionally, knowingly,
and expressly waives:
(i) (1) notice of acceptance hereof; (2)
notice of any loans or other financial accommodations made or extended under the
Loan Documents or the creation or existence of any Obligations; (3) notice of
the amount of the Obligations, subject, however, to each Borrower's right to
make inquiry of Coast to ascertain the amount of the Obligations at any
reasonable time; (4) notice of any adverse change in the financial condition of
the other Borrowers or of any other fact that might increase such Borrower's
risk hereunder; (5) notice of presentment for demand, protest, and notice
thereof as to any instruments among the Loan Documents; (6) notice of any
unmatured event of default or event of default under the Loan Documents; and (7)
all other notices (except if such notice is specifically required to be given to
Borrowers hereunder or under the Loan Documents) and demands to which such
Borrower might otherwise be entitled.
(ii) its right, under Sections 2845 or 2850
of the California Civil Code, or otherwise, to require Coast to institute suit
against, or to exhaust any rights and remedies which Coast has or may have
against, the other Borrowers or any third party, or against any collateral for
the Obligations provided by the other Borrowers, or any third party. In this
regard, each Borrower agrees that it is bound to the payment of all Obligations,
whether now existing or hereafter accruing, as fully as if such Obligations were
directly owing to Coast by such Borrower. Each Borrower further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Obligations shall have been fully and finally performed and
indefeasibly paid) of the other Borrowers or by reason of the cessation from any
cause whatsoever of the liability of the other Borrowers in respect thereof.
(iii) (1) any rights to assert against Coast
any defense (legal or equitable), set-off, counterclaim, or claim which such
Borrower may now or at any time hereafter have against the other Borrowers or
any other party liable to Coast; (2) any defense, set-off, counterclaim, or
claim, of any kind or nature, arising directly or indirectly from the present or
future lack of perfection, sufficiency, validity, or enforceability of the
Obligations or any security therefor; (3) any defense such Borrower has to
performance hereunder, and any right such Borrower has to performance hereunder,
and any right such Borrower has to be exonerated,
3
<PAGE>
provided by Sections 2819, 2822, or 2825 of the California Civil Code, or
otherwise, arising, by reason of. the impairment or suspension of Coast's rights
or remedies against the other Borrowers; the alteration by Coast of the
Obligations; any discharge of the other Borrower's obligations to Coast by
operation of law as a result of Coast's intervention or omission; or the
acceptance by Coast of anything in partial satisfaction of the Obligations; (4)
the benefit of any statute of limitations affecting such Borrower's liability
hereunder or the enforcement thereof, any act which shall defer or delay the
operation of any statute of limitations applicable to the Obligations shall
similarly operate to defer or delay the operation of such statute of limitations
applicable to such Borrower's liability hereunder.
(b) Each Borrower absolutely, unconditionally,
knowingly, and expressly waives any defense arising by reason of or deriving
from (i) any claim or defense based upon an election of remedies by Coast
including any defense based upon an election of remedies by Coast under the
provisions of Sections 590a 580b, 580d, and 726 of the California Code of Civil
Procedure or any similar law of California or any other jurisdiction; or (ii)
any election by Coast under Bankruptcy Code Section 1111(b) to limit the amount
of, or any collateral securing, its claim against the Borrowers. Pursuant to
California Civil Code Section 2856(b):
"Each Borrower waives all rights and
defenses arising out of an election of
remedies by the creditor; even though that
election of remedies, such as a nonjudicial
foreclosure with respect to security for a
guaranteed obligation, has destroyed such
Borrower's rights of subrogation and
reimbursement against the other Borrowers by
the operation of Section 580(d) of the
California Code of Civil Procedure or
otherwise."
If any of the Obligations at any time are secured by a mortgage or deed of trust
upon real property, Coast may elect, in its sole discretion, upon a default with
respect to the Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicial in any manner permitted by law, before or after
enforcing the Loan Documents, without diminishing or affecting, the liability of
any Borrower hereunder except to the extent the Obligations are repaid with the
proceeds of such foreclosure. Each Borrower understands that (a) by virtue of
the operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by Coast nonjudicial to foreclosure such a mortgage or
deed of trust probably would have the effect of impairing or destroying rights
of subrogation, reimbursement, contribution, or indemnity of such Borrower
against the other Borrowers or other Guarantors of sureties, and (b) absent the
waiver given by such Borrower, such an election would prevent Coast from
enforcing the Loan Documents against such Borrower. Understanding the foregoing,
and understanding that such Borrower is hereby relinquishing a defense to the
enforceability of the Loan Documents, such Borrower hereby waives any right to
assert against Coast any defense to the enforcement of the Loan Documents,
whether denominated "estoppel" or otherwise, based on or arising from an
election by Coast nonjudicial to foreclose any such mortgage or deed of trust.
Each Borrower understands that the effect of the foregoing waiver may be that
each Borrower may have liability hereunder for amounts with respect to which
such Borrower may be left without rights of subrogation, reimbursement,
contribution, or indemnity against the other Borrower or other guarantors or
sureties. Each
4
<PAGE>
Borrower also agrees that the "fair market value" provisions of Section 580a of
the California Code of Civil Procedure shall have no applicability with respect
to the determination of such Borrower's liability under the Loan Documents.
(c) Each Borrower hereby absolutely, unconditionally,
knowingly, and expressly waives: (i) any right of subrogation such Borrower has
or may have as against the other Borrowers with respect to the Obligations; (ii)
any right to proceed against the other Borrowers or any other person or entity,
now or hereafter, for contribution, indemnity, reimbursement, or any other
suretyship rights and claims, whether direct or indirect, liquidated or
contingent, whether arising under express or implied contract or by operation of
law, which such Borrower may now have or hereafter have as against the other
Borrowers with respect to the Obligations; and (iii) any night to proceed or
seek recourse against or with respect to any property or asset of the other
Borrowers.
(d) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS RIDER, EACH BORROWER HEREBY
ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO
ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY
ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2908, 2809, 2810, 2815,
2919, 2820, 2821, 2822, 2825, 2839, 2945, 2849, 2949, AND 2850, CALIFORNIA CODE
OF CIVIL PROCEDURE SECTIONS 580a, 580b, 580c, 580d, AND 726, AND CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
6. Each Borrower consents and agrees that without notice to or
by such Borrower, and without affecting, or impairing the liability of such
Borrower hereunder, Coast may, by action or inaction:
(a) compromise, settle, extend the duration or the
time for the payment of, or discharge the performance of, or may refuse to or
otherwise not enforce the Loan Documents, or any part thereof, with respect to
the other Borrowers;
(b) release the other Borrowers or grant other
indulgences to the other Borrowers in respect thereof, or
(c) release or substitute any other guarantor, if
any, of the Obligations, or enforce, exchange, release, or waive any security
for the Obligations or any other guaranty of the Obligations, or any portion
thereof.
7. Coast shall have the right to seek recourse against each
Borrower to the fullest extent provided for herein, and no election by Coast to
proceed in one form of action or proceeding, or against any party, or on any
obligation, shall constitute a waiver of Coast's right to proceed in any other
form of action or proceeding or against other parties unless Coast has expressly
waived such right in writing. Specifically, but without limiting the generality
of the foregoing, no action or proceeding by Coast under the Loan Documents
shall serve to diminish
5
<PAGE>
the liability of any Borrower under this Rider except to the extent that Coast
finally and unconditionally shall have realized indefeasible payment by such
action or proceeding.
8. The Obligations shall not be considered indefeasibly paid
for purposes of this Rider unless and until all payments to Coast are no longer
subject to any right on the part of any person, including any Borrower, any
Borrower as a debtor in possession, or any trustee (whether appointed pursuant
to 11 U.S.C., or otherwise) of any Borrowers' assets to invalidate or set aside
such payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential. Upon such full and
final performance and indefeasible payment of the Obligations, Coast shall have
no obligation whatsoever to transfer or assign its interest in the Loan
Documents to any Borrower. In the event that, for any reason, any portion of
such payments to Coast is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, then the obligation intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made, and each Borrower shall be liable
for the full amount Coast is required to repay plus any and all costs and
expenses (including attorneys' fees and attorneys' fees incurred pursuant to 11
U.S.C.) paid by Coast in connection therewith.
9. Requests for advances under the Agreement may be made by
any Borrower, pursuant to the terms thereof. Each Borrower expressly agrees and
acknowledges that Coast shall have no responsibility to inquire into the
correctness of the apportionment or allocation of or any disposition by any of
Borrowers of (a) any advances or loans under the Agreement, or (b) any of the
expenses and other items charged to Borrowers pursuant to the Agreement. All
such advances and loans and such expenses and other items shall be made for the
collective, joint, and several account of Borrowers.
10. Each Borrower agrees and acknowledges that the
administration of the Agreement on a combined basis, as set forth in this Rider,
is being, done as an accommodation to Borrower and at their request, and that
Coast shall incur no liability to any of Borrowers as a result thereof. To
induce Coast to do so, and in condition thereof, each of Borrowers hereby agrees
to indemnify and hold Coast harmless from and against any and all liability,
expense, loss, damage, claim of damage, or injury, made against Coast by any of
Borrowers or by any other person or entity, arising from or incurred by reason
of such administration of the Agreement.
11. Each Borrower represents and warrants to Coast that the
collective administration of the loans is being undertaken by Coast pursuant to
this Rider because Borrowers are integrated in their operation and
administration and require financing on a basis permitting the availability of
credit from time to time to each of Borrowers. Each Borrower will derive
benefit, directly and indirectly, from such collective administration and
continued successful performance of the integrated group.
12. This Rider shall append and be part and parcel of the
Loan Documents; and this Rider shall be governed by and construed in accordance
with all of the terms of the Loan Documents.
6
<PAGE>
IN WITNESS WHEREOF, this Rider has been executed and delivered
as of the date first above written.
Borrower: Coast:
OCEAN OPTIQUE DISTRIBUTORS, INC. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By: /s/ SOLOMON OVADIA By: /s/ ROBERT MARKS
---------------------------- --------------------------------------
Solomon Ovadia, President Robert Marks, Vice President
Borrower:
CLASSIC OPTICAL, INC.
By: /s/ SOLOMON OVADIA
----------------------------
Solomon Ovadia, President
Borrower:
EUROPEAN MANUFACTURERS AGENCY, INC.
By: /s/ SOLOMON OVADIA
----------------------------
Solomon Ovadia, President
Borrower:
SOLOVISION OPTICAL, INC.
By: /s/ SOLOMON OVADIA
----------------------------
Solomon Ovadia, President
7
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Six Months Ended
6/30/97 6/39/96
------- -------
Common Stock 10,329,459 10,293,035
Common stock equivalents
Dilutive stock options 1,923 -0-
Common stock equivalents
Dilutive stock warrants 6,353 -0-
Common stock equivalents
Dilutive Preferred A Stock 1,763 -0-
Common stock equivalents
Dilutive Preferred B Stock 2,757 -0-
---------- ----------
Weighted average shares
and Comon Stock equivalents 10,342,255 10,293,035
========== ==========
Earnings per share
Net Income 0.01 0.01
==== ====
We have issued our report dated September 22, 1997 (except for Note 18, as to
which the date is October 17, 1997), accompanying the consolidated financial
statements included in the Annual Report of Ocean Optique Distributors, Inc. on
Form 10-KSB for the year ended June 30, 1997. We hereby consent to the
incorporation by reference of said report in the Registration Statement of Ocean
Optique Distributors, Inc. on Form S-3 (File No. 33-98678).
/S/ GRANT THORNTON LLP
- -----------------------
GRANT THORNTON LLP
Miami, Florida
October 22, 1997
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 10, 1997 (except for the merger of Sorrento
Eyewear, Inc. into the Company, as to which the date is June 27, 1997)
accompanying the statements of operations, stockholders' equity and cash flows
of Solovision Optical Inc. included in the Form 10-KSB of Ocean Optique
Distributors, Inc. We hereby consent to the incorporation by reference of said
report in the Registration Statement of Ocean Optique Distributors, Inc. on Form
S-3 (File No. 33-98678).
/s/ RACHLIN COHEN & HOLTZ
Miami, Florida
October 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OCEAN OPTIQUE DISTRIBUTORS, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 2,825
<ALLOWANCES> 290
<INVENTORY> 4,995
<CURRENT-ASSETS> 7,870
<PP&E> 1,059
<DEPRECIATION> 688
<TOTAL-ASSETS> 10,275
<CURRENT-LIABILITIES> 7,060
<BONDS> 0
0
1,856
<COMMON> 0
<OTHER-SE> 864
<TOTAL-LIABILITY-AND-EQUITY> 10,275
<SALES> 1,706
<TOTAL-REVENUES> 1,706
<CGS> 1,085
<TOTAL-COSTS> 1,085
<OTHER-EXPENSES> 464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 143
<INCOME-TAX> 56
<INCOME-CONTINUING> 87
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
