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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12740
NEW WEST EYEWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1589514
(State of incorporation) (I.R.S. Employer Identification No.)
2104 West Southern Avenue, Tempe, Arizona 85282
(Address of principal executive offices) (Zip Code)
(602) 438-1330
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value: 4,868,436 (as of August 8, 1997)
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NEW WEST EYEWORKS, INC.
INDEX Page
PART I--FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 8
PART II--OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 14
2
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NEW WEST EYEWORKS, INC.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1997 1996
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,612,000 $ 256,000
Accounts receivable, net 1,638,000 1,304,000
Inventory 3,444,000 3,190,000
Other current assets 80,000 309,000
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Total current assets 7,774,000 5,059,000
Property and equipment, net 7,777,000 7,518,000
Goodwill 461,000 506,000
Other assets 33,000 44,000
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Total assets $ 16,045,000 $ 13,127,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,798,000 $ 5,392,000
Accrued expenses 2,458,000 1,868,000
Line of credit 1,968,000
Deferred warranty revenues 263,000 279,000
Notes payable and capital lease obligations, current portion 371,000 320,000
Notes payable to related party 358,000
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Total current liabilities 6,890,000 10,185,000
Notes payable and capital lease obligations 410,000 516,000
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Total liabilities 7,300,000 10,701,000
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Stockholders' Equity:
Series A 6% Cumulative Convertible Preferred Stock, $1,000
par value, 3,960 shares authorized, issued and outstanding 3,960,000 3,960,000
Series B 6% Cumulative Convertible Preferred Stock, $1,000
par value, 1,500 shares authorized, issued and outstanding 1,500,000 1,500,000
Common stock, $0.01 par value, 25,000,000 shares authorized,
4,868,436 and 3,763,036 shares issued and outstanding at
June 28, 1997 and December 28, 1996, respectively 49,000 38,000
Paid-in capital 15,642,000 10,100,000
Accumulated deficit (12,406,000) (13,172,000)
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Total stockholders' equity 8,745,000 2,426,000
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Total liabilities and stockholders' equity $ 16,045,000 $ 13,127,000
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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(Unaudited) (Unaudited)
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net Sales $12,470,000 $10,866,000 $25,261,000 $22,369,000
Cost of sales 6,123,000 5,430,000 12,245,000 11,229,000
----------- ----------- ----------- -----------
Gross profit 6,347,000 5,436,000 13,016,000 11,140,000
Selling, general and administrative expenses 6,042,000 5,216,000 12,018,000 10,337,000
----------- ----------- ----------- -----------
Operating income 305,000 220,000 998,000 803,000
Interest income 29,000 42,000
Interest expense 32,000 46,000 85,000 82,000
----------- ----------- ----------- -----------
Income before income taxes 302,000 174,000 955,000 721,000
Income tax expense 7,000 22,000 27,000 126,000
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Net Income 295,000 152,000 928,000 595,000
Preferred stock dividends 81,000 81,000 162,000 162,000
----------- ----------- ----------- -----------
Net income applicable to holders of
common stock $ 214,000 $ 71,000 $ 766,000 $ 433,000
=========== =========== =========== ===========
Net income per common and common
equivalent share $ 0.04 $ 0.02 $ 0.17 $ 0.12
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares outstanding 4,893,000 3,763,000 4,594,000 3,763,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
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(Unaudited)
June 28, June 29,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 928,000 $ 595,000
Adjustments to reconcile net income to net cash from (used in)
operating activities:
Depreciation and amortization 764,000 602,000
Changes in assets and liabilities:
Accounts receivable (334,000) (235,000)
Inventory (254,000) (102,000)
Other current assets 229,000 (84,000)
Accounts payable (1,594,000) (396,000)
Accrued expenses 590,000 (960,000)
Deferred warranty revenues (16,000) (43,000)
Other assets and liabilities 11,000 (28,000)
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Net cash from (used in) operating activities 324,000 (651,000)
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment (874,000) (971,000)
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Net cash used in investing activities (874,000) (971,000)
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CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from revolving line of credit 5,126,000 1,839,000
Payment on revolving line of credit (7,094,000)
Proceeds from bridge loans 700,000
Payment of bridge loans (358,000) (700,000)
Payment on capital leases (159,000) (147,000)
Payment of preferred stock dividends (162,000) (162,000)
Net proceeds from common stock offering 5,553,000
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Net cash from financing activities 2,906,000 1,530,000
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,356,000 (92,000)
CASH AND CASH EQUIVALENTS, beginning of period 256,000 241,000
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CASH AND CASH EQUIVALENTS, end of period $ 2,612,000 $ 149,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
1. The unaudited consolidated financial information presented herein has been
prepared in accordance with the instructions to Form 10-Q and Regulation
S-X and does not include all of the information and note disclosures
required by generally accepted accounting principles. Therefore, this
information should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-K of New West
Eyeworks, Inc. (the "Company") for the year ended December 28, 1996. This
information reflects all adjustments that are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods reported. These adjustments are of a normal and recurring nature.
2. The results of operations for the periods ended June 28, 1997 are not
necessarily indicative of the results to be expected for the full year.
3. Income per common and common equivalent shares is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of warrants and
options using the treasury stock method. Common equivalent shares are
excluded from the computation if their effect is anti-dilutive.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128") issued in February 1997 and effective for financial
statements ending after December 15, 1997, establishes new standards for
computing and presenting earnings per share. The effect of the
implementation of SFAS No. 128 would be immaterial on a proforma basis.
4. In early 1997, the Company completed a secondary public offering of
1,505,400 shares of its common stock, $0.01 par value per share, including
shares sold upon the exercise of the underwriters' over-allotment option,
for $6.00 per share (the "Offering"). Net proceeds to the Company from the
Offering were approximately $5.6 million. Of the shares sold, 400,000
shares were sold by selling stockholders. The Company did not receive any
proceeds from the sale of shares by the selling stockholders.
5. In connection with the initial public offering in December 1993, the
Company sold warrants to its primary underwriter and two individuals at a
nominal price (the "1993 Warrants"). The 1993 Warrants, which are
exercisable for a four-year period commencing December 23, 1994, entitle
the holders to purchase a total of 106,563 shares of the Company's common
stock at an exercise price of 125% of the initial public offering price of
$7.00 per share ($8.75 per share). In conjunction with the Offering in
early 1997, the Company reduced the exercise price of the 1993 Warrants
from $8.75 to $8.00 per share.
In connection with the Offering, the Company granted to its primary
underwriter and certain individuals warrants (the "1997 Warrants") to
purchase a number of shares of common stock equal to the number of shares
of common stock that remain issuable and unexercised under the 1993
Warrants upon their termination. The 1997 Warrants are exercisable
beginning on December 23, 1998, the termination date of the 1993 Warrants,
for a period of three years terminating on December 23, 2001. The initial
exercise price
6
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for the 1997 Warrants will equal the exercise price under the 1993
Warrants upon their termination, which price is currently $8.00.
6. The Company had a $2.0 million bank revolving line of credit which expired
on May 31, 1997. The Company repaid the line of credit borrowings with a
portion of the proceeds of the Offering. The Company is currently
negotiating a new line of credit with a major bank.
In December 1996, to fund the Company's store expansion plans, the Company
entered into a bridge loan for $350,000 with The Second National Bank of
Warren (Ohio). The loan was guaranteed by Ronald E. Weinberg, the
Company's Chairman, and Barry J. Feld, President and Chief Executive
Officer of the Company, agreed to share in the obligations of the
guarantors. The Company repaid the loan in full with a portion of the
proceeds of the Offering.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Unless otherwise stated, references in this report to the second
quarter of 1997 and 1996 relate to the periods ended June 28, 1997 and June 29,
1996.
OVERVIEW
The Company's everyday value-pricing strategy features its "signature"
$59 price point for a wide selection of quality, brand name eyeglasses
(including frame and lenses) offered at attractive, convenient locations with
professional service. The Company focuses on opening new stores, primarily in
malls and strip shopping centers, entering new geographic markets, improving its
operating efficiency, expanding its managed optical care business and
establishing the informational and operational infrastructure necessary for
further expansion.
The Company believes that the success of its value-pricing strategy is
demonstrated by (1) its 22 consecutive quarters of positive comparable store
sales growth, including a 12.5% increase in the second quarter of 1997 compared
to the second quarter of 1996, and (2) an increasing number of repeat customers
and referral business. The Company ended the second quarter of 1997 with 152
stores in 12 western and midwestern states.
In the first six months of 1997, the Company opened three stores in
malls, two located in Iowa and one in Colorado, two in strip shopping center
locations, one in New Mexico and one in Alaska, and one in a Fred Meyer, Inc.
host store in Washington. Opening new stores in markets already served by the
Company may adversely impact existing store profitability and reduce comparable
store sales, although the Company believes that such new stores will increase
its total sales and profitability in such markets.
The Company's managed optical care business, Alexis Vision Plan, is an
increasingly important component of its overall business. In the first six
months of 1997, sales generated by the Alexis Vision Plan were $7.4 million (or
approximately 29.1% of net sales), a 30.7% increase over 1996. Alexis Vision
Plan sales have a negative impact on the Company's gross profit margin because
they are generally at a small discount from the Company's everyday value prices,
and the Company expects this negative impact to continue. There is no assurance
that sales generated under the Alexis Vision Plan will continue to increase at
all or at the rate of increase between 1996 and 1997.
In 1996, the Company reported its first full year of operating income
since implementing its value-pricing strategy. The Company believes that as
incremental sales occur, from both existing stores and new stores, the operating
leverage provided by its optical laboratory fixed cost structure will enhance
operating margins. However, because it is the Company's accounting policy to
expense pre-opening costs as they are incurred, the Company expects that, in the
short-term, its operating margins may be adversely affected by increased
operating costs associated with new store openings.
8
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RESULTS OF OPERATIONS
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
Net sales increased $1.6 million or 14.8% to $12.5 million during the
second quarter of 1997 from $10.9 million during the second quarter of 1996. The
net sales increase in the second quarter of 1997 was primarily attributable to
an increase of 12.5% in comparable store sales. The comparable store sales
increase was primarily due to increases in units sold and sales generated under
Alexis Vision Plan, the Company's managed optical care division.
Gross profit increased $911,000 to $6.3 million during the second
quarter of 1997, a 16.8% increase over gross profit of $5.4 million during the
second quarter of 1996. The gross profit margin increased to 50.9% in the second
quarter of 1997 from 50.0% in the second quarter of 1996. This increase was
primarily due to increased sales volume which covered more of the fixed cost
components of cost of goods, and increased sales in the second quarter of 1997
resulting from price increases on multiple pair purchases which were implemented
in the second quarter of 1996, and was partially offset by increased sales under
Alexis Vision Plan. Consistent with the Company's practice, Alexis Vision Plan
sales are generally at a small discount from the Company's everyday value
prices.
Selling, general and administrative expenses increased to $6.0 million
during the second quarter of 1997 compared to $5.2 million during the second
quarter of 1996. As a percentage of sales, these expenses increased to 48.5%
during the second quarter of 1997, from 48.0% during the second quarter of 1996.
This increase was primarily due to increased advertising costs in the Company's
Iowa market as well as expanded advertising coverage in the Company's other
major markets, coupled with higher retail employee compensation expenses
attributable to increased store manager incentives and a maturing employee base.
Interest income increased to $29,000 in 1997 from no interest income in
1996 due to the increased cash balances from the proceeds of the Offering.
Interest expense decreased by $14,000 to $32,000 in the second quarter
of 1997 from $46,000 in the second quarter of 1996 primarily as a result of two
bridge loans that were outstanding during the second quarter of 1996, and that
were paid in full in June 1996.
Income tax expense decreased by $15,000 to $7,000 in the second quarter
of 1997 compared to $22,000 in the second quarter of 1996. The Company's
effective tax rate was 2.3% in the second quarter of 1997 compared to 12.6% in
the second quarter of 1996. The effective tax rates are less than the expected
federal rate of 34% which is attributable to the Company's ability to utilize a
portion of its net operating loss carryforwards.
As a result of the foregoing, net income increased by $143,000 or 94.1%
to $295,000 in the second quarter of 1997 over net income of $152,000 in the
second quarter of 1996.
Dividends were accrued on the Company's convertible 6% cumulative
preferred stock, Series A, par value $1,000 per share, and the Company's
convertible 6% cumulative preferred stock, Series B, par value $1,000 per share,
in the aggregate amount of $81,000 in the second quarter of 1997 and the second
quarter of 1996.
9
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FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996
Net sales increased $2.9 million or 12.9% to $25.3 million during the
first six months of 1997 from $22.4 million during the first six months of 1996.
The net sales increase in the first six months of 1997 was primarily
attributable to an increase of 9.9% in comparable store sales. The comparable
store sales increase was primarily due to increases in units sold and sales
generated under Alexis Vision Plan.
Gross profit increased $1.9 million to $13.0 million during the first
six months of 1997, a 16.8% increase over gross profit of $11.1 million during
the first six months of 1996. The gross profit margin increased to 51.5% in the
first six months of 1997 from 49.8% in the first six months of 1996. This
increase was primarily due to increased sales volume which covered more of the
fixed cost components of cost of goods sold, and increased sales in the first
six months of 1997 resulting from price increases on multiple pair purchases
which were implemented in the second quarter of 1996, and was partially offset
by increased sales under Alexis Vision Plan. Consistent with the Company's
practice, Alexis Vision Plan sales are generally at a small discount from the
Company's everyday value prices.
Selling, general and administrative expenses increased to $12.0 million
during the first six months of 1997 compared to $10.3 million during the first
six months of 1996. As a percentage of sales, these expenses increased to 47.6%
during the first six months of 1997, from 46.2% during the first six months of
1996. This increase was primarily due to increased advertising costs in the
Company's Iowa market as well as expanded advertising coverage in the Company's
other major markets, coupled with higher retail employee compensation expenses
attributable to increased store manager incentives and a maturing employee base.
Interest income increased to $42,000 in 1997 from no interest income in
1996 due to the increased cash balances from the proceeds of the Offering.
Interest expense increased slightly to $85,000 in the first six months
of 1997 from $82,000 in the first six months of 1996.
Income tax expense decreased by $99,000 to $27,000 in the first six
months of 1997 over income tax expense of $126,000 in the first six months of
1996. The Company's effective tax rate was 2.8% in the first six months of 1997
compared with 17.5% in the first six months of 1996. The effective tax rates are
less than the expected federal rate of 34% which is attributable to the
Company's ability to utilize a portion of its net operating loss carryforwards.
As a result of the foregoing, net income increased by $333,000 or 56.0%
to $928,000 in the first six months of 1997 over net income of $595,000 in the
first six months of 1996.
Dividends were accrued and paid on the Company's convertible 6%
cumulative preferred stock, Series A, par value $1,000 per share, and the
Company's convertible 6% cumulative preferred stock, Series B, par value $1,000
per share, in the aggregate amount of $162,000 in the first six months of 1997
and in the first six months of 1996.
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LIQUIDITY AND CAPITAL RESOURCES
The Company requires liquidity and working capital primarily for
operations and the opening of new stores, and, to a lesser extent, management
information systems and optical laboratory equipment to support store growth and
improve operating efficiencies. The Company's primary sources of funds are cash
flow from operations, vendor trade credit, lease financing of equipment,
shareholder loans, and bank loans.
In early 1997, the Company completed a secondary public offering of
1,505,400 shares of its common stock, $0.01 par value per share, including
shares sold upon the exercise of the underwriters' over-allotment option, for
$6.00 per share. Net proceeds to the Company from the Offering were
approximately $5.6 million. Of the shares sold, 400,000 shares were sold by
selling stockholders. The Company did not receive any proceeds from the sale of
shares by the selling stockholders.
The Company's $2.0 million bank revolving line of credit expired on May
31, 1997. No funds had been borrowed on the line of credit since the Offering.
The Company is currently negotiating a new line of credit with a major bank.
Short-term trade credit represents a significant source of financing
for inventory. Trade credit arises from the willingness of the Company's vendors
to grant payment terms for inventory purchases. Inventory levels increased
$254,000 from December 28, 1996 to June 28, 1997, as a result of seasonality,
and to a lesser extent the opening of six new stores in the first six months of
1997. Although the Company has negotiated what it believes to be favorable
payment terms from its primary vendors, there is no assurance that the Company
will obtain such terms in the future.
The Company leases all of its retail space and the optical laboratory
and distribution facility near Portland, Oregon. The Company owns its executive
offices and optical laboratory and distribution facility in Tempe, Arizona.
Net cash from operating activities was $324,000 in the first six months
of 1997 compared to net cash used in operating activities of $651,000 in the
first six months of 1996. The increase was primarily attributable to a $590,000
increase in accrued expenses in the first six months of 1997 compared to a
$960,000 decrease in accrued expenses during the same period in 1996, coupled
with net income of $928,000 in the first six months of 1997 compared to net
income of $595,000 in the first six months of 1996. These increases were
partially offset by a decrease of $1.6 million in accounts payable in the first
six months of 1997 compared to a decrease in accounts payable of $396,000 in the
first six months of 1996.
Cash flows used in investing activities, primarily for store expansion
and renovation, were $874,000 in the first six months of 1997 compared to
$971,000 in the first six months of 1996.
Cash flows from financing activities were $2.9 million in the first six
months of 1997 compared to $1.5 million in the first six months of 1996. Cash
flows from financing activities in the first six months of 1997 reflect the
proceeds from the Offering, partially offset by the repayment of the line of
credit and a bridge loan from shareholders of the Company.
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The Company currently anticipates opening approximately 15-20 new
stores in 1997, three of which will be relocations. Assuming the Company opens
20 new stores in 1997, including 19 new stores in malls and strip shopping
centers and one new store within a Fred Meyer host store, the Company expects
that the costs of these new stores, including furniture, fixtures, leasehold
improvements, inventory and optometric equipment, will be approximately $2.5
million. Actual costs will vary based upon, among other factors geographic
location, the size of the store and the extent of the build-out required at the
selected site. In addition to opening new stores, the Company may relocate
stores within a mall or strip shopping center if sites become available with
better traffic patterns and better merchandising opportunities. In 1997, the
Company plans to remodel two of its mall stores at an estimated cost of
approximately $200,000.
The Company believes that the proceeds from the Offering, cash flow
from operations and existing capital lease financing will be sufficient to fund
its working capital needs and store expansion and renovation program for at
least the next 12 months. Although the Company is negotiating another revolving
line of credit, there can be no assurance that the Company will be able to
negotiate a revolving line of credit on terms acceptable to the Company, or that
the Company will be able to obtain other comparable financing. However, the
Company does not believe that obtaining a new revolving line of credit or other
financing is necessary for its current expansion plans and immediate working
capital needs.
NET OPERATING LOSS CARRYFORWARDS
As of December 28, 1996, the Company had net operating loss
carryforwards of $7.1 million and $6.3 million for regular tax and alternative
minimum tax purposes, respectively, which begin to expire in 2006. The Company's
initial public offering in 1993 caused the Company to experience an ownership
change as defined by Section 382(g) of the Internal Revenue Code. As a result,
there will be an annual limitation of approximately $1.0 million on the amount
of net operating loss carryforwards generated prior to the ownership change
which can be utilized to offset the Company's future taxable income. The
Offering did not cause the Company to experience a further ownership change;
however, future transactions involving the Company's stock (or rights to acquire
such stock) could result in additional restrictions on the Company's ability to
utilize its net operating loss carryforwards after the date of such ownership
change.
In assessing the realizability of its deferred tax assets, including
its net operating loss carryforwards, the Company considers whether it is more
likely than not that some or all of such assets will be realized. The ultimate
realization of the Company's deferred tax assets is dependent upon generation of
future taxable income. The Company has established a valuation allowance to
fully reserve its deferred tax assets. The Company will consider reducing or
eliminating the valuation allowance once profitable operations have been
sustained.
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SEASONALITY AND QUARTERLY RESULTS
Historically, the Company's operations have been seasonal, with the
highest sales in a given year occurring first in February, March and April and
then in August, September and, to a lesser extent, in October. The Company has
historically incurred and anticipates that it may continue to incur lower net
sales and net losses during the Company's fourth quarter because of reduced
demand for eyewear during the holiday season.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of sales contributed by new stores
and the integration of new stores into the operations of the Company, as well as
other factors, including bad weather. The addition of a large number of new
stores can therefore significantly affect quarterly results of operations.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about
the Company's confidence in its prospects and strategies and its expectations
about expansion into new markets, growth in existing markets, comparable store
sales and the Company's ability to attract new sources of financing, are
forward-looking statements that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to, (1) market acceptance risks,
including whether or not the Company will be able to successfully implement its
value-pricing strategy in new geographic markets, most of which markets include
competitors of the Company that have financial and other resources substantially
greater than those of the Company, and whether or not the Company will be able
to conduct a successful advertising campaign in new and existing markets against
better-financed competitors; (2) laboratory capacity and supply constraints,
including whether or not as the Company expands into new geographic markets it
will be able to successfully integrate its new markets into its existing eyewear
laboratory manufacturing and distribution system; (3) a slowdown in the growth
of managed care in the eyewear industry or in the Company's share of such
business, including whether or not federal or state health-care legislation or
regulation will have an adverse impact on managed care; (4) the Company's
ability to attract and retain qualified optometrists; (5) the ability of the
Company to negotiate a new revolving line of credit or obtain other comparable
financing; (6) leasing risks, including whether or not the Company will be able
to lease prime mall and strip shopping center locations at attractive rates for
its expansion into new markets and to fill out its store locations in the
Company's existing markets; and (7) the impact of government regulations on the
opticians employed by the Company and on the Company's advertising, locations
and design of stores, and products sold, which regulations are subject to
frequent change and vary widely throughout the states in which the Company
operates. These risks and others that are detailed in this Quarterly Report on
Form 10-Q must be considered by any investor or potential investor in the
Company.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is also involved in legal matters which
are incidental to its operations. In the opinion of management, the ultimate
resolution of these matters is not anticipated to have a material adverse effect
on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 16, 1997, the Company held its annual Stockholders' Meeting. The
first matter voted on was the election of Byron S. Krantz. Mr. Krantz was
re-elected as a Director of the Company for a term expiring in 2000, receiving
3,939,735 votes for election, and 100,450 votes against, and 775,920 broker
non-votes. The following individuals also continue as Directors of the Company:
(1) Barry J. Feld, President and Chief Executive Officer, and Norman C. Harbert
(whose terms expire in 1998); (2) Ronald E. Weinberg, Chairman of the Board, and
Larry I. Pollock (whose terms expire in 1999); and (3) Donald M. Gleklen and
William P. Sutter, Jr. (who are elected by the holders of the Company's Series A
and B 6% Cumulative Convertible Preferred Stock).
The second proposal was for the amendment of the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from 5,000,000 to 25,000,000. The proposal was approved with 3,997,875 votes in
favor of the amendments, 2,400 votes against, 1,000 abstentions, and 814,830
broker non-votes.
The third proposal was for the ratification of the selection of Price
Waterhouse LLP as independent accountants. The proposal was approved with
4,037,685 votes in favor of the appointment, 2,500 votes against and 775,920
broker non-votes.
14
<PAGE> 15
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 thereunto duly authorized.
NEW WEST EYEWORKS, INC.
Date: August 11, 1997 By: /s/ Barry J. Feld
-----------------------------------------
Barry J. Feld
President and Chief Executive Officer
Date: August 11, 1997 By: /s/ Darius J. DiTallo
-----------------------------------------
Darius J. DiTallo
Vice President-Finance and Administration
15
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