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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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: 4,887,436 (as of August 7, 1998)
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NEW WEST EYEWORKS, INC.
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INDEX Page
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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
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................................. 14
PART II -- OTHER INFORMATION.....................................................................................15
Item 1. Legal Proceedings.......................................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.....................................................15
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NEW WEST EYEWORKS, INC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
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June 27, December 27,
1998 1997
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(Unaudited)
ASSETS
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Current Assets:
Cash and cash equivalents $ 42,000 $ 577,000
Accounts receivable, net 2,620,000 1,741,000
Inventory 4,074,000 3,519,000
Deferred tax assets 303,000 579,000
Other current assets 317,000 400,000
------------ ------------
Total current assets 7,356,000 6,816,000
Property and equipment, net 11,183,000 9,108,000
Goodwill 371,000 416,000
Other assets 13,000 12,000
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Total assets $ 18,923,000 $ 16,352,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 4,028,000 4,022,000
Accrued expenses 1,665,000 1,948,000
Line of credit 2,483,000 30,000
Deferred warranty revenues 287,000 271,000
Notes payable and capital lease obligations, current portion 248,000 338,000
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Total current liabilities 8,711,000 6,609,000
Notes payable and capital lease obligations 339,000 291,000
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Total liabilities 9,050,000 6,900,000
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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,
4,887,436 and 4,868,436 shares issued and outstanding at
June 27, 1998 and December 27, 1997, respectively 49,000 49,000
Paid-in capital 15,746,000 15,630,000
Accumulated deficit (11,382,000) (11,687,000)
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Total stockholders' equity 9,873,000 9,452,000
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Total liabilities and stockholders' equity $ 18,923,000 $ 16,352,000
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The accompanying notes are an integral part of these
consolidated financial statements.
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NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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Three Months Ended Six Months Ended
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(Unaudited) (Unaudited)
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
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Net sales $ 13,590,000 $ 12,470,000 $ 27,317,000 $ 25,261,000
Cost of sales 6,836,000 6,123,000 13,474,000 12,245,000
------------ ------------ ------------ ------------
Gross profit 6,754,000 6,347,000 13,843,000 13,016,000
Selling, general and administrative expenses 6,585,000 6,042,000 13,021,000 12,018,000
------------ ------------ ------------ ------------
Operating income 169,000 305,000 822,000 998,000
Interest income 29,000 42,000
Interest expense 51,000 32,000 78,000 85,000
------------ ------------ ------------ ------------
Income before income taxes 118,000 302,000 744,000 955,000
Income tax expense 61,000 7,000 277,000 27,000
------------ ------------ ------------ ------------
Net income 57,000 295,000 467,000 928,000
Preferred stock dividends 81,000 81,000 162,000 162,000
------------ ------------ ------------ ------------
Net income (loss) applicable to common shares $ (24,000) $ 214,000 $ 305,000 $ 766,000
============ ============ ============ ============
Basic and diluted income per share $ 0.00 $ 0.04 $ 0.06 $ 0.17
============ ============ ============ ============
Weighted average shares outstanding - Basic 4,879,000 4,868,000 4,875,000 4,565,000
Weighted average shares outstanding - Diluted 4,879,000 4,898,000 5,007,000 4,598,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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SIX MONTHS ENDED
(Unaudited)
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June 27, June 28,
1998 1997
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CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 467,000 $ 928,000
Adjustment to reconcile net income to net cash from (used in)
Operating activities:
Depreciation and amortization 945,000 764,000
Deferred income taxes 276,000
Loss on disposal of fixed assets 14,000
Changes in assets and liabilities:
Accounts receivable (879,000) (334,000)
Inventory (555,000) (254,000)
Other current assets 83,000 229,000
Accounts payable 6,000 (1,594,000)
Accrued expenses (283,000) 590,000
Deferred warranty revenues 16,000 (16,000)
Other assets and liabilities (1,000) 11,000
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Net cash from operating activities 89,000 324,000
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment (2,839,000) (874,000)
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Net cash used in investing activities (2,839,000) (874,000)
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CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from revolving line of credit 30,514,000 5,126,000
Payment on revolving line of credit (28,061,000) (7,094,000)
Payment of bridge loans (358,000)
Payment on capital leases (192,000) (159,000)
Payment of preferred stock dividends (162,000) (162,000)
Net proceeds from common stock offering 5,553,000
Exercise of stock options 116,000
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Net cash from financing activities 2,215,000 2,906,000
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (535,000) 2,356,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 577,000 256,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,000 $ 2,612,000
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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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 27, 1997. 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 27, 1998 are not
necessarily indicative of the results to be expected for the full year.
3. In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS No. 128). Basic earnings per share is
computed by dividing income applicable to common shares by the weighted
average number of common shares outstanding for the year. Diluted
earnings per share is similar to basic earnings per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if potentially dilutive common
shares (i.e., stock options and warrants) had been issued using the
treasury stock method.
In March 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1, which
must be adopted no later than January 1, 1999, requires that preliminary
project costs and post implementation costs be expensed as incurred while
costs incurred in application development should be capitalized and
amortized over the application's estimated useful life. The Company does
not believe that the implementation of SOP 98-1 will have a significant
impact on its financial position or results of operations.
In April 1998, AcSEC also issued SOP 98-5, Reporting on the Costs of
Start-up Activities, which requires that all costs incurred in start-up
activities be expensed as incurred. The implementation of SOP 98-5, which
is also required no later than January 1, 1999, will not impact the
Company's financial position or results of operations due to its
long-standing policy of expensing such costs, including new store opening
costs, as incurred.
4. In February 1997, the Company completed a public offering (the
"Offering") of 1,505,400 shares of its common stock, including shares
sold upon the exercise of the underwriters' over allotment option. Gross
proceeds, direct costs, and net proceeds of this Offering totaled
approximately $6,626,000, $1,085,000, and $5,541,000, respectively. 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.
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5. On July 13, 1998, the Company signed a definitive agreement for National
Vision Associates, Ltd. (NASDAQ: NVAL) ("National Vision") to acquire all
of the outstanding stock, options and warrants of the Company for $13.00
per share of common stock or approximately $77 million in the aggregate
(including approximately $2 million of indebtedness). To effect the
transaction, National Vision has commenced a cash tender offer for all
the shares of the Company.
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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 1998 and 1997 relate to the periods ended June 27, 1998 and June 28,
1997.
OVERVIEW
The Company's everyday value-pricing strategy features its "signature"
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.
In the first half of 1998, the Company opened 14 stores in Florida
malls, one store in a Washington mall, one store in a Washington Fred Meyer,
Inc. ("Fred Meyer") host store and one store in an Idaho strip shopping center.
The Company also closed two stores in Washington malls, and one store in a Fred
Meyer in Idaho. As of August 1, 1998, the Company operated 177 stores in 13
states. As a part of the Company's strategy to expand into new geographic
markets, approximately 16 of the 20 to 25 stores planned to open in 1998 will be
in Florida, a new market for the Company. Opening stores in new markets,
including Florida, may adversely impact profitability in the short-term. 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 lead to increased sales and
profitability in such markets.
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 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. Costs relating to the opening of 17 new stores during the first half
of 1998 totaled $344,000 while opening costs associated with the six new stores
opened during the first half of 1997 totaled $79,000.
The Company's managed optical care business, Vista Eyecare Network,
LLC, a wholly owned subsidiary of the Company ("Vista Eyecare Network"), is an
increasingly important component of its overall business. In the first half of
1998, net sales generated by the Vista Eyecare Network were $7.7 million (or
approximately 28.1% of net sales), a 4.4% increase over the first half of 1997.
Vista Eyecare Network sales have a negative impact on the Company's gross profit
margin because they are generally transacted at a small discount from the
Company's everyday value prices, and the Company expects this negative impact to
continue. There is no
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assurance that sales generated under Vista Eyecare Network will continue to
increase at all or at the historical rates experienced by the Company.
RECENT EVENTS
On July 13, 1998, the Company signed a definitive agreement for
National Vision Associates, Ltd. (NASDAQ: NVAL) ("National Vision") to acquire
all of the outstanding stock, options and warrants of the Company for $13.00 per
share of common stock or approximately $77 million in the aggregate (including
approximately $2 million of indebtedness). To effect the transaction, National
Vision has commenced a cash tender offer for all the shares of the Company.
YEAR 2000 COMPLIANCE
Based on a preliminary study by management, the Company does not expect
that material costs will be required to modify its computer information systems
to enable proper processing of transactions relating to the year 2000 and
beyond. In its study, management identified specific information systems which
will require modification and developed a project plan to help ensure proper
processing of those systems for the year 2000 and beyond. Additionally, the
Company is identifying significant vendors and business partners to assess their
year 2000 compliance. The Company continues to evaluate the extent to which, if
any, corrective action will be necessary. There was no amount incurred in the
first half of 1998 for year 2000 technology.
RESULTS OF OPERATIONS
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
Net sales increased $1.1 million or 9.0% to $13.6 million during the
second quarter of 1998 from $12.5 million during the second quarter of 1997. The
net sales increase in the second quarter of 1998 was primarily attributable to
the addition of 23 net new stores since the second quarter of 1997 and, to a
lesser extent, an increase of 1.1% in comparable store sales.
Gross profit increased $407,000 to $6.8 million during the second
quarter of 1998, a 6.4% increase over gross profit of $6.3 million during the
second quarter of 1997. The gross profit margin decreased to 49.7% in the second
quarter of 1998 from 50.9% in the second quarter of 1997. This decrease was
primarily due to increased store occupancy costs, partially offset by a price
increase implemented in January 1998.
Selling, general and administrative expenses increased to $6.6 million
during the second quarter of 1998 compared to $6.0 million during the second
quarter of 1997. As a percentage of sales, these expenses were 48.5% during the
second quarter of 1998 and the second quarter of 1997. An increase in costs
associated with opening nine new stores in the second quarter of 1998 compared
to three new stores in the second quarter of 1997 was partially offset by
decreased advertising costs in the second quarter of 1998 compared to the second
quarter of 1997.
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Interest income decreased by $29,000 in 1997 to no interest income in
1998 due to decreased cash balances.
Interest expense increased by $19,000 to $51,000 in the second quarter
of 1998 from $32,000 in the second quarter of 1997 primarily as a result of a
higher average revolving line of credit balance.
Income tax expense increased by $54,000 to $61,000 in the second
quarter of 1998 compared to $7,000 in the second quarter of 1997. The effective
income tax rate of 2.3% in the second quarter of 1997 was unusually low as the
Company was able to substantially offset taxable income generated by a reduction
of a portion of the valuation allowance relating to its deferred tax assets. See
"Net Operating Loss Carryforwards."
As a result of the foregoing, net income decreased by $238,000 or 80.7%
to $57,000 in the second quarter of 1998 compared to net income of $295,000 in
the second quarter of 1997.
Dividends were accrued and paid on the Company's Series A and Series B
6% cumulative convertible preferred stock in the aggregate amount of $81,000 in
the second quarter of 1998 and the second quarter of 1997.
FIRST SIX MONTHS OF 1998 COMPARED TO FIRST SIX MONTHS OF 1997
Net sales increased $2.1 million or 8.1% to $27.3 million during the
first six months of 1998 from $25.3 million during the first six months of 1997.
The net sales increase in the first six months of 1998 was primarily
attributable to the addition of 23 net new stores since the first half of 1997
and, to a lesser extent, an increase of 1.0% in comparable store sales.
Gross profit increased $827,000 to $13.8 million during the first six
months of 1998, a 6.4% increase over gross profit of $13.0 million during the
first six months of 1997. The gross profit margin decreased to 50.7% in the
first six months of 1998 from 51.5% in the first six months of 1997. This
decrease was primarily due to increased store occupancy costs, partially offset
by a price increase implemented in January 1998.
Selling, general and administrative expenses increased to $13.0 million
during the first six months of 1998 compared to $12.0 million during the first
six months of 1997. As a percentage of sales, these expenses increased to 47.7%
during the first six months of 1998, from 47.6% during the first six months of
1997. This increase was primarily due to increased costs associated with opening
17 new stores in the first half of 1998 compared to six new stores in the first
half of 1997 partially offset by decreased advertising costs in the first half
of 1998 compared to the first half of 1997.
Interest income decreased by $42,000 in 1997 to no interest income in
1998 due to decreased cash balances.
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Income tax expense increased by $250,000 to $277,000 in the first six
months of 1998 compared to $27,000 in the first six months of 1997. The
effective income tax rate of 2.8% in the first six months of 1997 was unusually
low as the Company was able to substantially offset taxable income generated by
a reduction of a portion of the valuation allowance relating to its deferred tax
assets. See "Net Operating Loss Carryforwards."
As a result of the foregoing, net income decreased by $461,000 or 49.7%
to $467,000 in the first six months of 1998 compared to net income of $928,000
in the first six months of 1997.
Dividends were accrued and paid on the Company's Series A and Series B
6% cumulative convertible preferred stock, in the aggregate amount of $162,000
in the first six months of 1998 and in the first six months of 1997.
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, bank loans, lease financing of equipment, and vendor trade
credit.
In early 1997, the Company completed the Offering. Net proceeds to the
Company from the Offering were $5.5 million. Of the shares sold in the Offering,
400,000 shares were sold by selling stockholders. The Company did not receive
any proceeds from the sale of the shares by the selling stockholders. With the
proceeds, the Company accelerated its store expansion program, remodeled two
stores, reduced the amount outstanding on the Company's then-existing revolving
line of credit by approximately $2.0 million and retired a $350,000 bridge loan
from the Second National Bank of Warren (Ohio). The line of credit matured on
May 31, 1997.
The Company entered into a new $3.0 million revolving line of credit
agreement and a $2.0 million term loan agreement with a major national bank in
August 1997. The revolving line of credit matures on August 1, 1999, and is
secured by the Company's inventory, accounts receivable, and general
intangibles. The revolving line of credit bears interest at a rate of prime plus
one-eighth percent (8.625% at June 27, 1998) or, at the Company's option, a rate
equal to the then current London Interbank Offered Rate ("LIBOR") for the term
selected by the Company plus 2.35% on any principal outstanding; interest is
payable on a monthly basis. The Company was able to request advances on the term
loan until August 1, 1998, at which time the balance began amortizing over a 48
month period. The term loan is secured by the Company's property and equipment,
and bears interest at a rate of prime plus one-half percent or, at the Company's
option, a rate equal to LIBOR for the term selected by the Company plus 2.75% on
any principal outstanding. At June 27, 1998, $2.5 million was outstanding on the
revolving line of credit while no amounts were outstanding under the term loan.
On June 29, 1998, the
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Company transferred $2.0 million from the revolving line of credit to the term
loan. As of August 1, 1998, the $2.0 million balance began amortizing over a 48
month period.
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. 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 its 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 $89,000 in the first half of
1998 compared to $324,000 in the first half of 1997. This fluctuation is
primarily attributable to an increase in accounts payable of $6,000 in the first
half of 1998 compared to a decrease of $1.6 million in the first half of 1997, a
decrease in accrued expenses of $283,000 in the first half of 1998 compared to
an increase of $590,000 in the first half of 1997, a decrease in accounts
receivable of $879,000 in the first half of 1998 compared to a decrease of
$334,000 in the first half of 1997, and net income of $467,000 in the first half
of 1998 compared to net income of $928,000 in the first half of 1997.
Cash flows used in investing activities, primarily for store expansion,
renovation and relocation, were $2.8 million in the first half of 1998 compared
to $874,000 in the first half of 1997. The increase is primarily attributable to
opening 17 new stores in the first half of 1998 compared to six new stores in
the first half 1997.
Cash flows from financing activities were $2.2 million in the first
half of 1998 compared to $2.9 million in the first half of 1997. Cash flows from
financing activities in the first half of 1998 primarily reflect $2.5 million of
net proceeds from the revolving credit facility. Cash flows from financing
activities in the first half of 1997 primarily reflect net proceeds from the
Offering of $5.5 million, partially offset by repayment of the Company's
previous revolving line of credit of $2.0 million and repayment of other debt of
$358,000.
The Company currently anticipates opening approximately 20 to 25 new
stores in 1998. Assuming the Company opens 25 new stores in 1998, including 24
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 optometry
equipment, will be approximately $3.5 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 1998, the Company plans to remodel four of its
mall and strip shopping center stores at an estimated cost of approximately
$500,000.
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The Company believes that the cash flow from operations, funds
available from the revolving line of credit, 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. However, the
Company may seek additional equity or debt financing if it determines that such
financing is necessary. There is no assurance that the Company would be able to
obtain such financing on terms that are acceptable to the Company.
NET OPERATING LOSS CARRYFORWARDS
The Company experienced operating losses prior to 1996 and as a result,
established a 100% valuation allowance against its deferred tax assets,
including its net operating loss (NOL) carryforwards, as of December 30, 1995.
The Company generated taxable income in 1996 which it was able to
substantially offset with NOL carryforwards. As the related deferred tax assets
had been fully reserved, the Company's effective income tax rate in 1996 was
unusually low as expected income tax expense was substantially offset by the
reversal of a portion of the valuation allowance. Due to the lack of sustained
profitability, the Company maintained the 100% valuation allowance against its
remaining deferred tax assets as of December 28, 1996.
The Company also generated taxable income in 1997 which it was able to
substantially offset with NOL carryforwards. Utilization of the related deferred
tax assets which had been fully reserved served to reduce the Company's
effective income tax rate in 1997 to an unusually low rate. The Company's
effective income tax rate was also impacted by the reversal in the fourth
quarter of 1997 of $579,000 of the valuation allowance relating to a portion of
the Company's remaining deferred tax assets as of December 27, 1997 as the
Company anticipated that the related tax benefits will be realized.
The Company will consider further reductions to or elimination of the
remaining valuation allowance as profitable operations continue. As the
valuation allowance is reduced or eliminated, it is anticipated that the
Company's effective income tax rate will return to more normalized levels.
As of December 27, 1997, the Company had net operating loss
carryforwards of $5.7 million and $4.9 million for regular tax and alternative
minimum tax purposes, respectively, which begin to expire in 2006.
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 may continue to incur net losses and lower net sales
during the Company's fourth quarter because of reduced demand for eyewear during
the holiday season.
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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, including Florida, 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) uncertainty
as to whether the tender offer transaction with National Vision will be
completed; (2) the effect of the price point increase which occurred in January
1998; (3) market acceptance risks, including whether or not the Company will be
able to successfully implement its value-pricing concept in new geographic
markets, most of which include competitors of the Company that have financial
and other resources substantially greater than that 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; (4) 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
will have an adverse impact on managed care; (5) laboratory capacity and supply
constraints, including whether or not as the Company expands into new geographic
markets whether it will be able to successfully integrate its new markets into
its existing eyewear laboratory manufacturing and distribution system; (6) the
negative impact of an accelerated store expansion program on the Company's
profitability and operating margins; (7) the Company's ability to attract and
retain qualified optometrists; (8) 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 (9) 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is 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 June 16, 1998, the Company held its annual Stockholders' Meeting.
The first matter voted on was the election of Barry J. Feld and Norman C.
Harbert. Mr. Feld and Mr. Harbert were re-elected as Directors of the Company
for a term expiring in 2001, receiving 4,593,288 votes for election, no votes
against, 11,312 abstentions, and 267,836 broker non-votes. The following
individuals also continue as Directors of the Company: (1) Ronald E. Weinberg,
Chairman of the Board, and Larry I. Pollock (whose terms expire in 1999); (2)
Byron S. Krantz (whose term expires in 2000); and (3) Donald M. Gleklen and
William P. Sutter, Jr. (who are elected by holders of the Company's Series A and
Series B 6% cumulative convertible preferred stock).
The second proposal was for the ratification of the selection of
PricewaterhouseCoopers LLP (successor to Price Waterhouse LLP) as independent
accountants. The proposal was approved with 4,593,588 votes in favor of the
appointment, no votes against, 11,012 abstentions, and 267,836 broker non-votes.
15
<PAGE> 16
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, 1998 By: /s/ Barry J. Feld
------------------------------------------
Barry J. Feld
President and Chief Executive Officer
Date: August 11, 1998 By: /s/ Darius J. DiTallo
------------------------------------------
Darius J. DiTallo
Vice President-Finance and Administration
Chief Financial Officer
16
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