SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 27, 1997
OCEAN OPTIQUE DISTRIBUTORS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 0-19670 65-0052592
- --------------- ------------ -------------------
State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
14250 S.W. 119TH AVENUE, MIAMI, FLORIDA 33186
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 255-3272
<PAGE>
In connection with the acquisition by Ocean Optique Distributors, Inc.
(the "Company") of Solovision Optical, Inc. ("Solovision"), which was the
surviving company following a merger of Solovision and its affiliate, Sorrento
Eyewear, Inc. ("Sorrento"), the Company hereby amends its current Report on Form
8-K dated June 27, 1997 to provide the following required financial statements
and pro forma financial information:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
Set forth herein in Appendix A are the audited financial
statements, including the notes thereto, for Solovision and Sorrento as of March
31, 1997 (Unaudited) and December 31, 1996, and for the three months ended March
31, 1997 and 1996 (Unaudited) and for the years ended December 31, 1996 and
1995.
(b) Pro Forma Financial Information:
Set forth herein in Appendix B are pro forma financial
statements and the notes thereto reflecting the Company's acquisition of
Solovision as of March 31, 1997 and for the year ended June 30, 1996.
(c) Exhibits:
23.1 Consent of Rachlin, Cohen & Holtz.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OCEAN OPTIQUE DISTRIBUTORS, INC.
By:/s/ KENNETH GORDON
-----------------------------
Kenneth Gordon,
Chief Financial Officer
Dated: September 11, 1997
-3-
<PAGE>
APPENDIX A
SOLOVISION OPTICAL, INC.
PAGE
----
Report of Independent Certified Public Accountants........................A-2
Balance Sheets as of March 31, 1997 (Unaudited)
and December 31, 1996.....................................................A-3
Statements of Operations and Retained Earnings (Deficit)
for the Three Months Ended March 31, 1997 and 1996 (Unaudited)
and for the Years Ended December 31, 1996 and 1995........................A-4
Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (Unaudited) and for the Years
Ended December 31, 1996 and 1995..........................................A-5
Notes to Financial Statements.....................................A-6 to A-12
SORRENTO EYEWEAR, INC.
Report of Independent Certified Public Accountants.......................A-13
Balance Sheets as of March 31, 1997 (Unaudited)
and December 31, 1996....................................................A-14
Statements of Operations and Retained Earnings for the
Three Months Ended March 31, 1997 and 1996 (Unaudited) and
from Inception (October 25, 1996) to December 31, 1996...................A-15
Statements of Cash Flows for the Three Months Ended
March 31, 1997 (Unaudited) and from Inception
(October 25, 1996) to December 31, 1996..................................A-16
Notes to Financial Statements....................................A-17 to A-20
A-1
<PAGE>
APPENDIX A
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Solovision Optical, Inc.
Miami, Florida
We have audited the accompanying balance sheet of Solovision Optical, Inc. as of
December 31, 1996, and the related statements of operations and retained
earnings (deficit) and cash flows for each of the two years in the period 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 aspects, the financial position of Solovision Optical, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
June 10, 1997
A-2
<PAGE>
<TABLE>
<CAPTION>
SOLOVISION OPTICAL, INC.
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 55,232 $ 6,295
Accounts receivable 123,643 139,126
Due from affiliates 35,254 39,352
Inventory 420,271 497,244
Deferred income taxes 6,000 -
Prepaid expenses and other current assets 3,811 3,811
------------- ----------
Total current assets 644,211 685,828
Property and Equipment 110,235 115,559
Other Assets 10,655 10,830
------------- ----------
$ 765,101 $ 812,217
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 52,922 $ 163,467
Income taxes payable 5,500 13,500
Accrued liabilities 106,010 111,261
Notes payable to affiliates 285,409 176,654
Current maturities of long-term debt 13,105 19,851
------------- ----------
Total current liabilities 462,946 484,733
------------- ----------
Long-Term Debt 7,238 8,313
------------- ----------
Commitments and Subsequent Events
Stockholders' Equity:
Common stock, $1.00 par value, 1,000 shares
authorized, 100 shares issued and outstanding 100 100
Additional paid-in capital 299,900 299,900
Retained earnings (deficit) (5,083) 19,171
------------- ----------
Total stockholders' equity 294,917 319,171
------------- ----------
$ 765,101 $ 812,217
============= ==========
</TABLE>
See notes to financial statements.
A-3
<PAGE>
<TABLE>
<CAPTION>
SOLOVISION OPTICAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ -------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 499,135 $ 667,855 $ 2,593,962 $ 1,274,641
Cost of Goods Sold 342,947 427,687 1,741,571 808,676
----------- ----------- ----------- -----------
Gross Profit 156,188 240,168 852,391 465,965
----------- ----------- ----------- -----------
Selling, General and Administrative Expenses 171,277 155,992 706,243 480,198
Depreciation and Amortization 5,499 4,319 17,562 3,686
----------- ----------- ----------- -----------
176,776 160,311 723,805 483,884
----------- ----------- ----------- -----------
Income (Loss) from Operations (20,588) 79,857 128,586 (17,919)
Interest Expense 9,666 1,034 10,692 -
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (30,254) 78,823 117,894 (17,919)
Provision (Credit) for Income Taxes (6,000) 24,500 33,000 (3,000)
----------- ----------- ----------- -----------
Net Income (Loss) (24,254) 54,323 84,894 (14,919)
Retained Earnings (Deficit), Beginning 19,171 (65,723) (65,723) (50,804)
----------- ----------- ----------- -----------
Retained Earnings (Deficit), Ending $ (5,083) $ (11,400) $ 19,171 $ (65,723)
=========== =========== =========== ===========
Earnings (Loss) Per Share $ (242.54) $ 543.23 $ 848.94 $ (149.19)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
A-4
<PAGE>
<TABLE>
<CAPTION>
SOLOVISION OPTICAL, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (24,254) $ 54,323 $ 84,894 $ (14,919)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for inventory obsolescence - 22,219 88,875 -
Depreciation and amortization 5,499 4,319 17,562 3,686
Deferred income taxes (6,000) 19,500 19,500 (3,000)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 15,483 (26,837) 10,777 (136,562)
Inventory 76,973 118,669 131,726 (320,406)
Prepaid expenses and other current assets - (17,320) (3,811) 9,594
Other assets - - (1,230) 3,693
Increase (decrease) in:
Accounts payable (110,545) (148,614) (191,824) 349,508
Accrued liabilities (5,251) (9,354) 7,486 79,621
Income taxes payable (8,000) 5,000 13,500 -
--------- -------- --------- ---------
Net cash provided by (used in) operating activities (56,095) 21,905 177,455 (28,785)
--------- -------- --------- ---------
Cash Flows From Investing Activities:
Expenditures for property and equipment - - (10,825) (7,245)
Advances to affiliates - (5,062) (140,352) (13,104)
Repayment of advances to affiliates 4,098 - 13,104 -
--------- -------- --------- ---------
Net cash provided by (used in) investing activities 4,098 (5,062) (138,073) (20,349)
--------- -------- --------- ---------
Cash Flows From Financing Activities:
Increase (decrease) in bank overdraft - (9,771) (24,473) 24,473
Proceeds from notes payable - - 13,198 -
Repayment of notes payable (7,821) (6,420) (28,034) -
Borrowing from affiliates 108,755 - 5,722 17,496
--------- -------- --------- ---------
Net cash provided by (used in) financing activities 100,934 (16,191) (33,587) 41,969
--------- -------- --------- ---------
Increase (Decrease) in Cash 48,937 652 5,795 (7,165)
Cash, Beginning 6,295 500 500 7,665
--------- -------- --------- ---------
Cash, Ending $ 55,232 $ 1,152 $ 6,295 $ 500
========= ======== ========= =========
Supplemental Disclosure of Cash Flows Information:
Cash paid during the period
Interest: $ 7,542 $ 1,000 $ 4,316 $ -
========= ======== ========= =========
Income Taxes $ 8,000 $ - $ - $ -
========= ======== ========= =========
</TABLE>
See notes to financial statements.
A-5
<PAGE>
SOLOVISION OPTICAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITALIZATION
Solovision Optical, Inc., (the "Company") was incorporated under
the laws of the State of Florida on October 10, 1994. The Company's
articles of incorporation provide for the issuance of 1,000
authorized shares of common stock, with a par value of $1.00 per
share.
BUSINESS
The Company is engaged in importing, exporting, marketing and
distributing eyeglass frames and, to a lesser degree, optical
equipment.
INVENTORY
Inventory, which consists of eyeglass frames and optical equipment,
is stated at the lower of cost or market.
Cost is determined by the first-in, first-out method, and market by
estimated net realizable value. Cost of goods sold during 1996
includes a provision for inventory obsolescence of approximately
$89,000.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on the
straight line method over the estimated useful lives of the assets.
Gain or loss on disposition of assets is recognized currently.
Maintenance and repairs are charged to expense as incurred. Major
replacements and betterments are capitalized and depreciated over
the remaining useful lives of the assets.
INCOME TAXES
Deferred income taxes result primarily from timing differences in
the recognition of expenses for tax and financial reporting
purposes and from operating losses that are available to offset
future taxable income. These timing differences and operating
losses are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109, "ACCOUNTING FOR INCOME TAXES",
which requires the liability method of computing deferred income
taxes. Under the liability method, deferred taxes are adjusted for
tax rate changes as they occur.
A-6
<PAGE>
SOLOVISION OPTICAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 considered necessary under the circumstances. As
of December 31, 1996 and March 31, 1997 (unaudited), no allowance
for losses was considered necessary.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and related notes to the financial
statements. Actual results may differ from those estimates.
UNAUDITED INFORMATION
The accompanying financial statements as of and for the three
months ended March 31, 1997 and 1996 are unaudited. However, in the
opinion of management, all adjustments (consisting of normal
recurring accruals and adjustments) necessary for a fair
presentation of financial position, results of operations and cash
flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share has been computed based upon the weighted
average number of shares of common stock outstanding during the
periods. The number of shares used in the computation was 100
shares for all periods.
NOTE 2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE MARCH 31, DECEMBER 31,
(YEARS) 1997 1996
------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures 10 $ 10,378 $ 10,378
Equipment 5 70,734 70,734
Auto and trucks 5 17,210 17,210
Leasehold improvements 10 38,157 38,157
-------- --------
136,479 136,479
Less accumulated depreciation 26,244 20,920
-------- --------
$110,235 $115,559
======= =======
</TABLE>
A-7
<PAGE>
NOTE 3. NOTES PAYABLE TO AFFILIATES
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
Due to stockholder $168,962 $ 71,000
Due to related entity 100,000 100,000
Other 16,447 5,654
-------- ---------
$285,409 $176,654
======== =========
NOTE 4. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Note payable to finance company; interest at 9.75%; monthly payments
of $333; final maturity in April 2000; secured by an automobile. $10,609 $11,338
Note payable to an individual, assumed from a related entity (see
note 7); interest at 10%; monthly payments of $2,484; final maturity
in July 1997; unsecured 9,734 16,826
------- ------
20,343 28,164
Less current portion 13,105 19,851
------ ------
Long-term debt $ 7,238 $ 8,313
======= =======
</TABLE>
Maturities of notes payable for the respective twelve month periods
are as follows:
<TABLE>
<S> <C> <C>
1997 $ - $ 19,851
1998 13,105 3,334
1999 3,417 3,674
2000 3,491 1,305
2001 330 -
------- -------
$20,343 $28,164
======= =======
</TABLE>
NOTE 5. INCOME TAXES
The provision (credit) for income taxes is comprised of the following:
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
Current $ - $ 8,500 $17,000 $ -
Deferred (6,000) 16,000 16,000 (3,000)
------- ------ ------ ------
$(6,000) $24,500 $33,000 $(3,000)
====== ====== ====== ======
A-8
<PAGE>
NOTE 5. INCOME TAXES
In 1995 and 1994, the Company incurred net losses and accordingly
recorded a deferred tax asset because the realization of such loss
carryforward was considered to be more likely than not. The provision
(credit) for deferred income taxes in 1995 resulted from the change in
the deferred tax asset arising from the increase in the loss
carryforward and in 1996 from subsequent utilization of the loss
carryforward.
NOTE 6. STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
<S> <C>
Non-cash financing and investing activities are as follows:
Year Ended December 31, 1996
Acquisition of inventory:
Forgiveness of notes receivable from related entities $101,000
Issuance of a note payable to a related entity 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 entity 43,000
Issuance of a note to a related party 71,000
--------
$ 90,000
========
Year Ended December 31, 1995
Settlement of stock subscription receivable by receipt of inventory $ 50,000
========
Three Months Ended March 31, 1996 (unaudited)
Acquisition of property:
Write off of a due to a related party $ (24,000)
Assumption of a note payable of a related entity 43,000
Issuance of a note to a related party 71,000
--------
$ 90,000
========
</TABLE>
NOTE 7. RELATED PARTY TRANSACTIONS
ACQUISITION OF PROPERTY AND EQUIPMENT
During 1996, the Company acquired approximately $90,000 of property
and equipment from an entity affiliated through common ownership.
In connection with this acquisition, the Company satisfied a
$24,000 due to this related entity. In addition, the Company
incurred a liability of approximately $71,000 to this related
entity's sole stockholder (included in notes payable to affiliates
at December 31, 1996), and assumed a note payable to a third party
of approximately $43,000. At December 31, 1996, the balance on the
note was $16,826 (see Note 5).
A-9
<PAGE>
NOTE 7. RELATED PARTY TRANSACTIONS
SALES TO AFFILIATES
During the year ended December 31, 1996, the Company sold
approximately $25,000 of eyeglass frames to an entity affiliated
through common ownership.
ACQUISITION OF INVENTORY
During 1996, the Company acquired approximately $201,000 of
inventory from an entity affiliated through common ownership. The
Company recorded this transaction by writing off approximately
$101,000 of receivables from two related entities and recording a
note payable of $100,000 to another related entity. This note is
due on demand, bears interest at the rate of 8.5% and is included
in notes payable to affiliates at December 31, 1996. Interest
expense for the year ended December 31, 1996 amounted to $6,375.
STOCK SUBSCRIPTION RECEIVABLE
During 1995, $50,000 of inventory was received in payment for a
stock subscription receivable which was outstanding at December 31,
1994.
DUE TO AFFILIATES
During 1995, the Company borrowed money from an entity affiliated
through common ownership for working capital purposes. At December
31, 1995, approximately $24,000 was due to this related entity.
EXPENSE ALLOCATION
The Company is covered under an umbrella policy which also covers
other entities affiliated to the Company through common ownership.
Insurance costs are allocated to each entity based on square
footage. Insurance expense for 1996 and 1995 was $12,595 and
$14,276, respectively.
In addition, certain other expenses such as legal, accounting and
salaries are allocated between the Company and other affiliated
entities. These expenses are allocated based upon management's
estimate of the actual costs incurred and time devoted by
individual employees to the respective activities of the companies.
LEASE
The Company rents office, warehouse and showroom space from an
entity affiliated to the Company through common ownership. Rent
expense for the years ended December 31, 1996 and 1995 was $93,325
and $56,435, respectively, and for the three months ended March 31,
1997 and 1996 was $24,000 and $21,325 (unaudited), respectively. At
December 31, 1996, approximately $24,000 of accrued rent was due to
this related entity and is included in accrued liabilities.
A-10
<PAGE>
NOTE 7. RELATED PARTY TRANSACTIONS
The lease expires on October 1, 1999 and is renewable for an
additional sixty months. Minimum rental commitments for the
remaining three year term of the lease are as follows:
1997 $ 96,000
1998 96,000
1999 72,000
--------
$264,000
========
NOTE 8. PENSION AND PROFIT SHARING PLANS
Effective January 1, 1996, the Company adopted a defined contribution
profit sharing plan and a defined contribution pension plan. Both plans
cover all employees who have attained the age of twenty-one and have
completed one year of employment. Employer contribution under the
profit sharing plan is determined each plan year by the Company.
Employer contributions under the pension plan is 10% of the annual
compensation of all participants. Participant vesting in Company
contributions under both plans are as follows:
VESTED PERCENT
--------------
Years of Service:
1 0%
2 20
3 40
4 60
5 80
6 and thereafter 100
For the year ended December 31, 1996, the Company accrued contributions
to the profit sharing plan and the pension plan of $32,093 and $21,227,
respectively.
NOTE 9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of the Company's financial instruments presented in
accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 107. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information
available to management as of December 31, 1996 and March 31, 1997
(unaudited). Since the reported fair values of financial instruments
are based upon a variety of factors, they may not represent actual
values that could have been realized as of December 31, 1996 and March
31, 1997 (unaudited) or that will be realized in the future.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash, accounts receivable, accounts payable and debt maturing
within one year. Fair values were assumed to approximate carrying
values for these financial instruments since they are short-term in
nature and their carrying amounts approximate fair values or they are
receivable or payable on demand.
A-11
<PAGE>
NOTE 9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
The fair value of non-current debt instruments have been estimated
using discounted cash flow models incorporating discount rates based on
current market interest rates for similar types of instruments or
quoted market prices, when applicable. At December 31, 1996 and March
31, 1997 (unaudited), the differences between the estimated fair value
and the carrying value of non-current debt instruments were considered
immaterial in relation to the Company's financial position.
NOTE 10. SUBSEQUENT EVENTS
RELATED PARTY TRANSACTIONS
Subsequent to December 31, 1996, the Company borrowed $100,000 from
a major stockholder for working capital purposes. The note is due
on demand and is non-interest bearing.
Subsequent to December 31, 1996, the Company advanced $20,000 to an
entity affiliated to the Company through common ownership.
PENDING MERGER
On April 16, 1997, the Company and an affiliated company entered
into a non-binding letter of intent to merge with Ocean Optique
Distributors, Inc. (Ocean). Ocean is a publicly-held company that
is engaged in importing, marketing and distributing high quality
ophthalmic frames and sunglasses in the mid- and premium-priced
categories. Following the consummation of the merger, the Company
and the affiliate will become wholly-owned subsidiaries of Ocean,
and the present stockholders of the Company and the affiliated
company will own shares that shall in no event equal less than 60%
of the total voting power of Ocean's then outstanding capital
stock.
A-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Sorrento Eyewear, Inc.
Miami, Florida
We have audited the accompanying balance sheet of Sorrento Eyewear, Inc. as of
December 31, 1996, and the related statements of operations and retained
earnings and cash flows from inception (October 25, 1996) to 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 financial position of Sorrento Eyewear, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
period then ended, in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
June 10, 1997
A-13
<PAGE>
<TABLE>
<CAPTION>
SORRENTO EYEWEAR, INC.
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1996
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ - $ 1,108
Accounts receivable 116,173 28,247
Due from affiliates 14,800 6,387
Stock subscription receivable (subsequently received) - 1,000
Inventory 187,978 61,969
Prepaid expenses and other current assets 10,000 20,000
---------- -----------
Total current assets 328,951 118,711
========== ===========
Property and Equipment 9,494 9,650
Other Assets 1,310 1,383
---------- -----------
$ 339,755 $ 129,744
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 18,411 $ 25,733
Bank overdraft 15,862 -
Income taxes payable 7,500 2,600
Accrued liabilities 4,818 2,311
Notes payable to affiliates 148,294 85,000
---------- -----------
Total current liabilities 194,885 115,644
---------- -----------
Long-Term Debt 100,000 -
---------- -----------
Commitments and Subsequent Events
Stockholders' Equity:
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Retained earnings 43,870 13,100
---------- -----------
Total stockholders' equity 44,870 14,100
---------- -----------
$ 339,755 $ 129,744
========== ===========
</TABLE>
See notes to financial statements.
A-14
<PAGE>
SORRENTO EYEWEAR, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND
FROM INCEPTION (OCTOBER 25, 1996) TO DECEMBER 31, 1996
1997 1996
---- ----
(UNAUDITED)
Net Sales $ 313,801 $ 67,756
Cost of Goods Sold 236,857 46,182
---------- ----------
Gross Profit 76,944 21,574
---------- ----------
Operating Expenses:
Selling, general and administrative 38,318 5,524
Depreciation 356 350
---------- ----------
38,674 5,874
---------- ----------
Income before Income Taxes 38,270 15,700
Provision for Income Taxes 7,500 2,600
---------- ----------
Net Income 30,770 13,100
Retained Earnings, Beginning 13,100 -
---------- ----------
Retained Earnings, Ending $ 43,870 $ 13,100
========== ==========
Earnings Per Share $ 30.77 $ 13.10
========== ==========
See notes to financial statements.
A-15
<PAGE>
<TABLE>
<CAPTION>
SORRENTO EYEWEAR, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND
FROM INCEPTION (OCTOBER 25, 1996) TO DECEMBER 31, 1996
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 30,770 $ 13,100
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 350 350
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable (87,926) (28,247)
Inventory (126,009) (61,969)
Other current assets 10,000 (20,000)
Other 73 (1,383)
Increase (decrease) in:
Accounts payable (7,322) 25,733
Income taxes payable 4,900 2,600
Accrued liabilities 2,507 2,311
---------- ----------
Net cash used in operating activities (172,657) (67,505)
---------- ----------
Cash Flows From Investing Activities:
Expenditures for property and equipment (194) -
Advances to affiliates (7,413) (6,387)
---------- ----------
Net cash used in investing activities (7,607) (6,387)
---------- ----------
Cash Flows From Financing Activities:
Borrowing from affiliates 63,294 75,000
Increase in bank overdraft 15,862 -
Proceeds from note payable 100,000 -
---------- ----------
Net cash provided by financing activities 179,156 75,000
---------- ----------
Increase (Decrease) in Cash (1,108) 1,108
Cash, Beginning 1,108 -
---------- ----------
Cash, Ending $ - $ 1,108
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for Income Taxes $ 2,600 $ -
========== ==========
Issuance of note payable to stockholder in
exchange for property and equipment $ - $ 10,000
========== ==========
</TABLE>
See notes to financial statements.
A-16
<PAGE>
SORRENTO EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITALIZATION
Sorrento Eyewear Inc., (the "Company") was incorporated under the
laws of the State of Florida on October 25, 1996. The Company's
articles of incorporation provide for the issuance of 1,000
authorized shares of common stock, with a par value of $1.00 per
share.
BUSINESS
The Company is engaged in importing, exporting, marketing and
distributing eyeglass frames.
INVENTORY
Inventory, which consists of eyeglass frames, is stated at the
lower of cost or market. Cost is determined by the first-in,
first-out method, and market by estimated net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on the
straight line method over the estimated useful lives of the assets.
Gain or loss on disposition of assets is recognized currently.
Maintenance and repairs are charged to expense as incurred. Major
replacements and betterments are capitalized and depreciated over
the remaining useful lives of the assets.
INCOME TAXES
Income tax expense is based on pre-tax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts. There were no
temporary differences as of December 31, 1996 and March 31, 1997
(unaudited).
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 considered necessary under the circumstances. As
of December 31, 1996 and March 31, 1997 (unaudited), no allowance
for losses was considered necessary.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and related notes to the financial
statements. Actual results may differ from those estimates.
A-17
<PAGE>
SORRENTO EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INFORMATION
The accompanying financial statements as of and for the three
months ended March 31, 1997 are unaudited. However, in the opinion
of management, all adjustments (consisting of normal recurring
accruals and adjustments) necessary for a fair presentation of
financial position, results of operations and cash flows have been
made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Comparative financial statements for the interim period for 1996
are not presented inasmuch as the Company was not in existence
during such period.
EARNINGS PER SHARE
Earnings per share has been computed based upon the weighted
average number of shares of common stock outstanding during the
periods. The number of shares used in the computation was 1,000
shares for all periods.
NOTE 2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE MARCH 31, DECEMBER 31,
(YEARS) 1997 1996
------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures 7 $ 7,434 $ 7,240
Equipment 5 2,760 2,760
-------- --------
10,194 10,000
Less accumulated depreciation 700 350
-------- --------
Property and equipment, net $ 9,494 $ 9,650
======== ========
</TABLE>
NOTE 3. NOTES PAYABLE TO AFFILIATES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Note payable to major stockholder;
secured by all assets of the Company
(see Note 4) $ 75,000 $ 75,000
Note payable to major stockholder for
acquisition of property and equipment
(see Note 4) 10,000 10,000
Note payable to major stockholder for
working capital purpose (see Note 6) 63,294
-------- --------
$148,294 $ 85,000
======== ========
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS
PURCHASES FROM RELATED PARTY
During the year ended December 31, 1996, the Company purchased
approximately $25,000 of eyeglass frames from an entity affiliated
to the Company through common ownership.
ACQUISITION OF PROPERTY AND EQUIPMENT
During 1996, one of the Company's major stockholders sold certain
property and equipment to the Company. These items were recorded at
their estimated fair market value of $10,000 at the date of
transfer. The Company issued a note payable to this stockholder for
the same amount. The note is due on demand and is non-interest
bearing.
A-18
<PAGE>
SORRENTO EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO AFFILIATES
At December 31, 1996, due to related parties includes $75,000 of
notes payable to one of the Company's major stockholders. These
notes are due in October 1997, are non-interest bearing, and are
secured by all assets of the Company.
LEASE
The Company rents office, warehouse and showroom space on a
month-to-month basis from an entity related to the Company through
common ownership. Rent expense for 1996 was $2,236 and for 1997 was
$7,242 (unaudited).
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of the Company's financial instruments presented in
accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 107. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information
available to management as of December 31, 1996 and March 31, 1997
(unaudited). Since the reported fair values of financial instruments
are based upon a variety of factors, they may not represent actual
values that could have been realized as of December 31, 1996 and March
31, 1997 (unaudited) or that will be realized in the future.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash, accounts receivable, accounts payable and debt maturing
within one year. Fair values were assumed to approximate carrying
values for these financial instruments since they are short-term in
nature and their carrying amounts approximate fair values or they are
receivable or payable on demand.
The fair value of non-current debt instruments have been estimated
using discounted cash flow models incorporating discount rates based on
current market interest rates for similar types of instruments or
quoted market prices, when applicable. At December 31, 1996 and March
31, 1997 (unaudited), the differences between the estimated fair value
and the carrying value of non-current debt instruments were considered
immaterial in relation to the Company's financial position.
NOTE 6. SUBSEQUENT EVENTS
RELATED PARTY TRANSACTIONS AND LONG-TERM DEBT
Subsequent to December 31, 1996, the Company borrowed $100,000 from
a bank, evidenced by a promissory note. The note is secured by a
certificate of deposit purchased by one of the
A-19
<PAGE>
SORRENTO EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
company's major stockholders. The note bears interest at the bank's
six-month certificate of deposit rate plus two percent (capped at
eighteen percent), and matures on January 2002.
Subsequent to December 31, 1996, the Company borrowed approximately
$63,000 from one of the Company's major stockholders for working
capital purposes.
Subsequent to December 31, 1996, the Company borrowed $20,000 from
an entity affiliated through the ownership of common stock.
PENDING MERGER
On April 16, 1997, the Company and an affiliated company entered
into a non-binding letter of intent to merge with Ocean Optique
Distributors, Inc. (Ocean). Ocean is a publicly-held company that
is engaged in importing, marketing and distributing high quality
ophthalmic frames and sunglasses in the mid- and premium- priced
categories. Following the consummation of the merger, the Company
and the affiliate will become wholly-owned subsidiaries of Ocean,
and the present stockholders of the Company and the affiliated
company will own shares that shall in no event equal less than 60%
of the total voting power of Ocean's then outstanding capital
stock.
A-20
<PAGE>
APPENDIX B
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
as of March 31, 1997......................................................B-3
Pro Forma Condensed Statement of Operations (Unaudited)
for the Nine Months Ended March 31, 1997..................................B-4
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
for the Year Ended June 30, 1996..........................................B-5
Notes to Pro Forma Condensed Consolidated
Financial Statements (Unaudited)..........................................B-6
B-1
<PAGE>
APPENDIX B
PRO FORMA FINANCIAL INFORMATION
BASIS OF PRESENTATION. The following Pro Forma Condensed Consolidated
Balance Sheet as of March 31, 1997 and the Pro Forma Condensed Consolidated
Statements of Operations for the year ended June 30, 1996 and the nine months
ended March 31, 1997 give effect to the Solovision Acquisition. For accounting
purposes, the acquisition has been treated as a recapitalization of Solovision
with Solovision as the acquiror (a reverse acquisition). The Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997 is presented as if the
Solovision Acquisition took place on March 31, 1997. The Pro Forma Condensed
Consolidated Statements of Operations for the year ended June 30, 1996 and for
the nine months ended March 31, 1997 present the pro forma results assuming the
Solovision Acquisition had occurred on July 1, 1995.
The Pro Forma Condensed Consolidated Financial Statements have been
prepared based upon the historical financial statements of the Company and the
acquired subsidiary, for the periods stated above. Such pro forma financial
statements may not be indicative of the results that would have occurred if the
Solovision Acquisition actually had been consummated on the indicated date, or
of the operating results that may be achieved by the combined companies in the
future.
B-2
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
ASSETS
OCEAN SOLOVISION SORRENTO PRO FORMA
HISTORICAL HISTORICAL(1) HISTORICAL(1) ADJUSTMENTS COMBINED
---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 176,866 $ 55,232 - $ 232,098
Certificate of deposit - restricted 65,000 - - 65,000
Due from affiliate 35,254 14,800 50,054
Accounts receivable (net) 2,403,327 123,643 116,173 2,643,143
Inventory 4,235,713 420,271 187,978 4,843,962
Prepaid expenses and other current
assets 1,279,248 3,811 10,000 1,283,059
Deferred income taxes 93,100 6,000 - 99,100
-------------- ------------- ------- -------------
Total current assets 8,253,254 644,211 328,951 9,226,416
Property, plant and equipment, net 185,282 110,235 9,494 305,011
Security deposits and other assets 14,853 10,655 1,310 26,818
Debt issue costs, net 122,282 - - 122,282
Goodwill - - $ 4,526,425 (2) 4,300,104
(226,321) (3)
-------------- ------------- ------- ------------- --------------
Total assets $ 8,575,671 $ 765,101 339,755 $ 4,300,104 $ 13,980,631
============== ============= ======= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 2,766,500 $ - - $ 2,766,500
Bank overdraft - - 15,862 15,862
Accounts payable 1,843,599 52,922 18,411 1,914,932
Due to related parties 712,522 - 712,522
Accrued expenses and taxes
payable 450,371 111,510 12,318 574,199
Note payable to related party,
current 391,975 285,409 148,294 825,678
Notes payable, current portion 77,136 13,105 - 90,241
Capital lease obligations, current
portion 449 - - 449
-------------- ------------- ------- -------------
Total current liabilities 6,242,552 462,946 194,885 6,900,383
Convertible subordinated debentures 743,752 - - 743,752
Notes payable, long-term - 7,238 100,000 107,238
Notes payable to related party, long-term 146,031 - - 146,031
Deferred income taxes 93,100 - - 93,100
-------------- ------------- ------- -------------
Total liabilities 7,225,435 470,184 294,885 7,990,504
Stockholders' equity
Preferred stock - Series A 1,409,398 - - $ (91,898) (4) 1,317,500
Preferred stock - Series B 1,150,000 - - 7,080 (4) 1,157,080
Common stock 7,920,476 100 1,000 (7,921,576) (5) -
Paid-in capital - 299,900 7,921,576 (5) 3,703,081
4,526,424 (2)
(9,129,638) (6)
84,819 (4)
Retained Earnings (Accumulated deficit) (9,129,638) (5,083) 43,870 9,129,638 (6) (187,534)
(226,321) (3)
-------------- ------------- ------- ------------- -------------
Total stockholders' equity 1,350,236 294,917 44,870 5,990,127
-------------- ------------- ------- ------------- -------------
Total liabilities and stock-
holders' equity $ 8,575,671 $ 765,101 339,755 $ 7,992,492 $ 13,980,631
============== ============= ======= ============= =============
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1997
OCEAN SOLOVISION SORRENTO PRO FORMA
HISTORICAL HISTORICAL(1) HISTORICAL(1) ADJUSTMENTS COMBINED
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 9,473,152 $ 1,726,746 381,557 $ 11,581,455
Cost of goods sold 6,436,893 1,201,970 283,039 7,921,902
-------------- ------------- -------- -------------
Gross profit 3,036,259 524,776 98,518 3,659,553
Selling, general and administrative
expenses 3,190,283 529,550 44,548 $ 226,321 (3) 3,990,702
Interest expense, net 285,167 18,429 - 303,596
Income tax expense - (5,000) 10,100 5,100
Dividends paid on convertible
preferred stock 19,500 - - 19,500
-------------- ------------- -------- ------------- -------------
Net income (loss) applicable to common
stockholders' $ (458,691) $ (18,203) 43,870 $ (226,321) $ (659,345)
============== ============= ======== ============= =============
Weighted average number of common
shares outstanding 2,778,500 3,137,977 5,916,477
Net loss per share $ (.17) $ (.11)
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED JUNE 30, 1996
OCEAN SOLOVISION PRO FORMA
HISTORICAL HISTORICAL(1) ADJUSTMENTS COMBINED
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 14,363,180 $ 2,244,495 $ 16,607,675
Cost of goods sold 11,901,450 1,450,066 13,351,516
-------------- ------------- -------------
Gross profit 2,461,730 794,429 3,256,159
Selling, general and administrative
expenses 9,854,600 651,493 $ 301,762 (7) 10,807,855
Interest expense, net 492,011 1,929 493,940
Income tax (benefit) expense (53,096) 35,750 (17,346)
Dividends paid on convertible
preferred stock 67,003 - - 67,003
-------------- ------------- ------------- -------------
Net income (loss) applicable to common
stockholders' $ (7,898,788) $ 105,257 $ (301,762) $ (8,095,293)
============== ============= ============= =============
Weighted average number of common
shares outstanding 1,700,906 3,137,977 4,838,883
Net loss per share $ (4.64) $ (1.67)
</TABLE>
B-5
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(1) Immediately prior to the merger of Solovision with and into
OAC, Solovision and Sorrento were merged in the Solovision-
Sorrento Merger. See "Structure of the Acquisition," above.
Sorrento was incorporated in October 1996, and accordingly
its results of operations are only reflected in the Pro Forma
Condensed Consolidated Statement of Operations for the nine
months ended March 31, 1997.
(2) To record goodwill which resulted from the cost (determined
based on the fair value of the Company's Common Stock)
exceeding the fair value of the net assets acquired. The fair
value of the Company's Common Stock for this purpose has been
based on an independent valuation of the shares issued in the
Solovision Acquisition.
(3) To record amortization of goodwill over a period of 15 years.
Nine months of amortization was recorded for the period ended
March 31, 1997.
(4) To adjust the Series A and Series B Preferred Stock to market
based on the fair value of the Company's Common Stock. The
fair value of the Company's Common Stock for this purpose
has been based on an independent valuation of the shares
issued in the Solovision Acquisition.
(5) To reclass capital stock in paid-in capital.
(6) To eliminate the accumulated deficit of the acquired company.
(7) To record amortization of goodwill over a period of 15 years.
B-6
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
23.1 Consent of Rachlin, Cohen & Holtz.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated June 10, 1997, accompanying the financial
statements of Solovision Optical Inc. and Sorrento Eyewear, Inc. included in the
Form 8-K/A of Ocean Optique Distributors, Inc. We hereby consent to the
incorporation by reference of said reports in the Registration Statement of
Ocean Optique Distributors, Inc. on Form S-3 (File No. 33-98678).
/s/ RACHLIN COHEN & HOLTZ
RACHLIN COHEN & HOLTZ
Miami, Florida
September 12, 1997
