form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
one)
[X]
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the
quarterly period ended March 31,
2009
|
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: 1-14128
EMERGING
VISION, INC.
(Exact
name of Registrant as specified in its charter)
NEW
YORK
(State or
other jurisdiction of incorporation or organization)
11-3096941
(I.R.S.
Employer Identification No.)
100
Quentin Roosevelt Boulevard
Garden
City, NY 11530
(Address
and zip code of principal executive offices)
Telephone
Number: (516) 390-2100
(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:
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
|
Accelerated
filer
|
Non
accelerated filer
|
Smaller
reporting company X
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
As of May
15, 2009, there were 125,292,806 outstanding shares of the Issuer’s Common
Stock, par value $0.01 per share.
CONSOLIDATED
CONDENSED BALANCE SHEETS
(In
Thousands, Except Share Data)
|
|
ASSETS
|
|
March
31
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,090 |
|
|
$ |
2,090 |
|
Franchise
receivables, net of allowance of $140
|
|
|
1,861 |
|
|
|
1,744 |
|
Optical
purchasing group receivables, net of allowance of $170 and $172,
respectively
|
|
|
5,184 |
|
|
|
4,221 |
|
Other
receivables, net of allowance of $4 and $7, respectively
|
|
|
230 |
|
|
|
322 |
|
Current
portion of franchise notes receivable, net of allowance of
$29
|
|
|
102 |
|
|
|
107 |
|
Inventories
|
|
|
297 |
|
|
|
322 |
|
Prepaid
expenses and other current assets
|
|
|
583 |
|
|
|
543 |
|
Deferred
tax assets
|
|
|
351 |
|
|
|
351 |
|
Total
current assets
|
|
|
10,698 |
|
|
|
9,700 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,113 |
|
|
|
1,191 |
|
Franchise
notes receivable
|
|
|
287 |
|
|
|
302 |
|
Deferred
tax asset, net of current portion
|
|
|
803 |
|
|
|
803 |
|
Goodwill
|
|
|
4,127 |
|
|
|
4,127 |
|
Intangible
assets, net
|
|
|
3,194 |
|
|
|
3,218 |
|
Other
assets
|
|
|
274 |
|
|
|
296 |
|
Total
assets
|
|
$ |
20,496 |
|
|
$ |
19,637 |
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
4,540 |
|
|
$ |
4,362 |
|
Optical
purchasing group payables
|
|
|
4,253 |
|
|
|
3,709 |
|
Accrual
for store closings
|
|
|
135 |
|
|
|
146 |
|
Short-term
debt
|
|
|
14 |
|
|
|
14 |
|
Related
party obligations
|
|
|
354 |
|
|
|
353 |
|
Total
current liabilities
|
|
|
9,296 |
|
|
|
8,584 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
5,004 |
|
|
|
5,358 |
|
Related
party borrowings, net of current portion
|
|
|
391 |
|
|
|
417 |
|
Franchise
deposits and other liabilities
|
|
|
289 |
|
|
|
310 |
|
Total
liabilities
|
|
|
14,980 |
|
|
|
14,669 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value per share; 5,000,000 shares
authorized: Senior Convertible Preferred Stock, $100,000
liquidation preference per share; 0.74 shares issued and
outstanding
|
|
|
74 |
|
|
|
74 |
|
Common
stock, $0.01 par value per share; 150,000,000 shares authorized;
125,475,143 shares issued and 125,292,806 shares
outstanding
|
|
|
1,254 |
|
|
|
1,254 |
|
Treasury
stock, at cost, 182,337 shares
|
|
|
(204 |
) |
|
|
(204 |
) |
Additional
paid-in capital
|
|
|
128,059 |
|
|
|
128,059 |
|
Accumulated
comprehensive income (loss)
|
|
|
51 |
|
|
|
(267 |
) |
Accumulated
deficit
|
|
|
(123,718 |
) |
|
|
(123,948 |
) |
Total
shareholders' equity
|
|
|
5,516 |
|
|
|
4,968 |
|
Total
liabilities and shareholders' equity
|
|
$ |
20,496 |
|
|
$ |
19,637 |
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
CONSOLIDATED
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In
Thousands, Except Per Share Data)
|
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Optical
purchasing group sales
|
|
$ |
11,376 |
|
|
$ |
14,295 |
|
Franchise
royalties
|
|
|
1,490 |
|
|
|
1,651 |
|
Membership
fees – VisionCare of California
|
|
|
875 |
|
|
|
843 |
|
Retail
sales – Company-owned stores
|
|
|
530 |
|
|
|
1,142 |
|
Franchise
related fees and other revenues
|
|
|
78 |
|
|
|
230 |
|
Total
revenue
|
|
|
14,349 |
|
|
|
18,161 |
|
|
|
|
|
|
|
|
|
|
Costs
and operating expenses:
|
|
|
|
|
|
|
|
|
Cost
of optical purchasing group sales
|
|
|
10,785 |
|
|
|
13,533 |
|
Cost
of retail sales – Company-owned stores
|
|
|
160 |
|
|
|
265 |
|
Selling,
general and administrative expenses
|
|
|
3,113 |
|
|
|
3,718 |
|
Total
costs and operating expenses
|
|
|
14,058 |
|
|
|
17,516 |
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
291 |
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
on franchise notes receivable
|
|
|
7 |
|
|
|
7 |
|
(Loss)
gain on sale of company-owned stores to franchisees
|
|
|
(14 |
) |
|
|
30 |
|
Other
income
|
|
|
17 |
|
|
|
5 |
|
Interest
expense, net
|
|
|
(57 |
) |
|
|
(93 |
) |
Total
other income (expense)
|
|
|
(47 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
Income
before (provision for) benefit from income taxes
|
|
|
244 |
|
|
|
594 |
|
(Provision
for) benefit from income taxes
|
|
|
(14 |
) |
|
|
126 |
|
Net
income
|
|
|
230 |
|
|
|
720 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
318 |
|
|
|
(48 |
) |
Comprehensive
income
|
|
$ |
548 |
|
|
$ |
672 |
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
0.00 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
125,293 |
|
|
|
125,293 |
|
Diluted
|
|
|
125,587 |
|
|
|
131,537 |
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars
in Thousands)
|
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
230 |
|
|
$ |
720 |
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
148 |
|
|
|
154 |
|
Provision
for doubtful accounts
|
|
|
29 |
|
|
|
9 |
|
Deferred
tax assets
|
|
|
- |
|
|
|
(126 |
) |
Gain
on the sale of property and equipment
|
|
|
- |
|
|
|
(30 |
) |
Disposal
of property and equipment
|
|
|
16 |
|
|
|
- |
|
Non-cash
compensation charges related to options and warrants
|
|
|
- |
|
|
|
5 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Franchise
and other receivables
|
|
|
(56 |
) |
|
|
(188 |
) |
Optical
purchasing group receivables
|
|
|
(963 |
) |
|
|
(1,519 |
) |
Inventories
|
|
|
25 |
|
|
|
86 |
|
Prepaid
expenses and other current assets
|
|
|
(40 |
) |
|
|
(155 |
) |
Other
assets
|
|
|
- |
|
|
|
77 |
|
Accounts
payable and accrued liabilities
|
|
|
167 |
|
|
|
(705 |
) |
Optical
purchasing group payables
|
|
|
544 |
|
|
|
1,471 |
|
Franchise
deposits and other liabilities
|
|
|
(21 |
) |
|
|
(57 |
) |
Net
cash provided by (used in) operating activities
|
|
|
79 |
|
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from franchise and other notes receivable
|
|
|
41 |
|
|
|
57 |
|
Costs
associated with enhancing trademark value
|
|
|
(25 |
) |
|
|
(52 |
) |
Franchise
notes receivable issued
|
|
|
(19 |
) |
|
|
(20 |
) |
Purchases
of property and equipment
|
|
|
(15 |
) |
|
|
(71 |
) |
Net
cash used in investing activities
|
|
|
(18 |
) |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings
under credit facility
|
|
|
150 |
|
|
|
- |
|
Payments
under credit facility
|
|
|
(500 |
) |
|
|
- |
|
Payments
on related party obligations and other debt
|
|
|
(29 |
) |
|
|
(42 |
) |
Net
cash used in financing activities
|
|
|
(379 |
) |
|
|
(42 |
) |
Net
decrease in cash before effect of foreign exchange rate
changes
|
|
|
(318 |
) |
|
|
(386 |
) |
Effect
of foreign exchange rate changes
|
|
|
318 |
|
|
|
8 |
|
Net
decrease in cash and cash equivalents
|
|
|
- |
|
|
|
(378 |
) |
Cash
and cash equivalents – beginning of period
|
|
|
2,090 |
|
|
|
2,846 |
|
Cash
and cash equivalents – end of period
|
|
$ |
2,090 |
|
|
$ |
2,468 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
51 |
|
|
$ |
86 |
|
Taxes
|
|
$ |
16 |
|
|
$ |
31 |
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Notes
receivable in connection with the sale of two Company-owned stores
(inclusive of all inventory and property and equipment)
|
|
$ |
- |
|
|
$ |
124 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 – ORGANIZATION:
Emerging
Vision, Inc. and subsidiaries (collectively, the “Company”) operates one of the
largest chains of retail optical stores and one of the largest franchise optical
chains in the United States, based upon management’s beliefs, domestic sales and
the number of locations of Company-owned and franchised stores (collectively
“Sterling Stores”). The Company also targets retail optical stores
within the United States and within Canada to become members of its two optical
purchasing groups, Combine Buying Group, Inc. (“Combine”) and The Optical Group
(“TOG”). Additionally, the Company operates VisionCare of California,
Inc. (“VCC”), a wholly owned subsidiary that is a specialized health care
maintenance organization licensed by the State of California, Department of
Managed Health Care, which employs licensed optometrists who render services in
offices located immediately adjacent to, or within, most Sterling Stores located
in California. The Company was incorporated under the laws of the
State of New York in January 1992 and, in July 1992, purchased substantially all
of the assets of Sterling Optical Corp., a New York corporation, then a
debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code.
As of
March 31, 2009, there were 137 Sterling Stores in operation, consisting of 5
Company-owned stores (inclusive of 1 store operated under the terms of a
management agreement) and 132 franchised stores, 850 active members of COM, and
533 active members of TOG.
Principles
of Consolidation
|
The
Consolidated Condensed Financial Statements include the accounts of Emerging
Vision, Inc. and its operating and non-operating subsidiaries, all of which are
wholly-owned. All intercompany balances and transactions have been eliminated in
consolidation.
The
accompanying Consolidated Condensed Financial Statements of the Company have
been prepared in accordance with accounting principles generally accepted for
interim financial statement presentation and in accordance with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted for complete financial statement
presentation. In the opinion of management, all adjustments for a
fair statement of the results of operations and financial position for the
interim periods presented have been included. All such adjustments
are of a normal recurring nature. This financial information should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES:
Share-Based
Compensation
The
Company follows the provisions of Financial Accounting Standards Board’s
(“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123R,
“Share-Based Payment,” which revised SFAS No. 123 to require all share-based
payments to employees, including grants of employee stock options, to be
recognized based on their fair values.
Share-based
compensation cost of approximately $5,000 is reflected in selling, general and
administrative expenses on the accompanying Consolidated Condensed Statements of
Income for the three months ended March 31, 2008. There was no such
expense during the three months ended March 31, 2009. The Company
determined the fair value of options and warrants issued during 2008 using the
Black-Scholes option pricing model with the following assumptions: 1
to 5 year expected lives; 3 to 10 year expiration period; risk-free interest
rates ranging from 2.34% to 4.98%; stock price volatilities ranging from 54.00%
to 74.00%; with no dividends over the expected life.
Revenue
Recognition
The
Company recognizes revenues in accordance with the Securities and Exchange
Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue
Recognition.” Accordingly, revenues are recorded when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the Company’s prices to buyers are fixed or determinable, and
collectibility is reasonably assured.
The
Company derives its revenues from the following five principal
sources:
Optical purchasing group
sales – Represents product pricing extended to the Company’s
optical purchasing group members associated with the sale of vendor’s eye care
products to such members;
Franchise royalties –
Represents continuing franchise royalty fees based upon a percentage of the
gross revenues generated by each franchised location. To the extent
that collectibility of royalties is not reasonably assured, the Company
recognizes such revenue when the cash is received;
Retail sales – Company-owned stores
– Represents sales from eye care products and related services generated
at a Company-owned store;
Membership fees – VisionCare of
California – Represents membership fees generated by VisionCare of
California, Inc. (“VCC”), a wholly owned subsidiary of the Company, for
optometric services provided to individual patients (members). A
portion of membership fee revenues is deferred when billed and recognized
ratably over the one-year term of the membership agreement;
Franchise related fees and other revenues –
Represents certain franchise fees collected by the Company under the terms of
franchise agreements (including, but not limited to, initial franchise,
transfer, renewal and conversion fees). Initial franchise fees, which
are non-refundable, are recognized when the related franchise agreement is
signed. For the three months ended March 31, 2009 and 2008, the
Company recognized $71,000 and $150,000, respectively, of such franchise related
fees. Other revenues are revenues that are not generated by one of
the other five principal sources such as commission income and employee optical
sales.
The
Company also follows the provisions of Emerging Issue Task Force (“EITF”) Issue
01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including
a Reseller of the Vendor’s Products),” and accordingly, accounts for discounts,
coupons and promotions (that are offered to its customers) as a direct reduction
of sales.
Comprehensive
Income
The
Company follows the provisions of SFAS No. 130, “Reporting Comprehensive
Income,” which establishes rules for the reporting of comprehensive income and
its components. Comprehensive income is defined as the change in
equity from transactions and other events and circumstances other than those
resulting from investments by owners and distributions to owners. The
Company’s comprehensive income is comprised of the cumulative translation
adjustment arising from the translation of foreign currency denominated
financial statements.
Foreign
Currency Translation
The
financial position and results of operations of TOG were measured using TOG’s
local currency (Canadian Dollars) as the functional currency. Balance
sheet accounts are translated from the foreign currency into U.S. Dollars at the
period-end rate of exchange. Income and expenses are translated at
the weighted average rates of exchange for the period. The resulting
$318,000 translation gain and $48,000 translation loss from the conversion of
foreign currency to U.S. Dollars is included as a component of comprehensive
income for the three months ended March 31, 2009 and 2008, respectively, and is
recorded directly to accumulated comprehensive income (loss) within the
Consolidated Condensed Balance Sheet as of March 31, 2009 and 2008,
respectively.
Income
Taxes
The
Company follows the provisions of FASB’s Interpretation (“FIN”) No. 48,
“Accounting for Uncertainty in Income Taxes – an interpretation of FASB No.
109.” FIN 48 prescribes a recognition threshold and measurement
attribute for how a company should recognize, measure, present, and disclose in
its financial statements uncertain tax positions that the company has taken or
expects to take on a tax return. FIN 48 requires that the financial
statements reflect expected future tax consequences of such positions presuming
the taxing authorities’ full knowledge of the position and all relevant facts,
but without considering time values. There were no adjustments
related to uncertain tax positions recognized during the three months ended
March 31, 2009 and 2008, respectively.
The
Company recognizes interest and penalties related to uncertain tax positions as
a reduction of the income tax benefit. No interest and penalties
related to uncertain tax positions were accrued as of March 31, 2009 and 2008,
respectively.
The
Company operates in multiple tax jurisdictions within the United States of
America and Canada. Although the Company does not believe that the
Company is currently under examination in any major tax jurisdiction in which it
operates, the Company remains subject to examination in all of those tax
jurisdictions until the applicable statutes of limitation expire. As
of March 31, 2009, a summary of the tax years that remains subject to
examination in the Company’s major tax jurisdictions are: United
States – Federal and State – 2005 and forward. The Company does not
expect to have a material change to unrecognized tax positions within the next
twelve months.
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 reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities as of the dates of such financial statements,
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. Significant
estimates made by management include, but are not limited to, allowances on
franchise, notes and other receivables, allowances on optical purchasing group
receivables, costs of current and potential litigation, and the allowance on
deferred tax assets
Reclassification
Certain
reclassifications have been made to prior year’s consolidated condensed
financial statements to conform to the current year presentation.
NOTE
3 – PER SHARE INFORMATION:
In
accordance with SFAS No. 128, “Earnings Per Share”, basic earnings per share of
common stock (“Basic EPS”) is computed by dividing the net income by the
weighted-average number of shares of common stock
outstanding. Diluted earnings per share of common stock (“Diluted
EPS”) is computed by dividing the net income by the weighted-average number of
shares of common stock, and dilutive common stock equivalents and convertible
securities then outstanding. SFAS No. 128 requires the presentation
of both Basic EPS and Diluted EPS on the face of the Company’s Consolidated
Condensed Statements of Income. Common stock equivalents totaling
22,518,311 and 2,872,687 were excluded from the computation of Diluted EPS for
the three months ended March 31, 2009 and 2008, respectively, as their effect on
the computation of Diluted EPS would have been anti-dilutive.
The
following table sets forth the computation of basic and diluted per share
information:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
Net
income
|
|
$ |
230 |
|
|
$ |
720 |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
125,293 |
|
|
|
125,293 |
|
Dilutive
effect of stock options and warrants
|
|
|
294 |
|
|
|
6,244 |
|
Weighted-average
common shares outstanding, assuming dilution
|
|
|
125,587 |
|
|
|
131,537 |
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
0.00 |
|
|
$ |
0.01 |
|
NOTE
4 – CREDIT FACILITY:
On August
8, 2007, the Company entered into a Revolving Line of Credit Note and Credit
Agreement (the “Credit Agreement”) with M&T, establishing a revolving credit
facility (the “Credit Facility”), for aggregate borrowings of up to $6,000,000,
to be used for general working capital needs and certain permitted
acquisitions. This Credit Facility replaced the Company’s previous
revolving line of credit facility with M&T, established in August
2005. The Credit Facility is set to mature on April 1,
2010. All sums drawn by the Company under the Credit Facility are
repayable, interest only, on a monthly basis, commencing on the first day of
each month during the term of the Credit Facility, calculated at the variable
rate of three hundred (300) basis points in excess of LIBOR, and all principal
drawn by the Company is payable on April 1, 2010.
The
Credit Facility includes various financial covenants including minimum net
worth, maximum funded debt and debt service ratio requirements. As of
March 31, 2009, the Company had outstanding borrowings of $4,956,854 under the
Credit Facility, which amount was included in Long-term Debt on the accompanying
Consolidated Balance Sheet, and was utilizing $500,000 of the Credit Facility to
hold a letter of credit in favor of a key vendor of Combine to ensure payment of
any outstanding invoices not paid by Combine. The Company was not in
compliance with one of the financial covenants, however, on May 14, 2009,
M&T granted the Company a waiver and agreed that, as of March 31, 2009, it
was in compliance with such covenant. Additionally, the Company had
$543,146 available under the Credit Facility for future borrowings.
NOTE
5 – SEGMENT REPORTING
Business
Segments
Operating
segments are organized internally primarily by the type of services provided,
and in accordance with SFAS 131, “Disclosures About Segments of an
Enterprise and Related Information.” The Company has aggregated
similar operating segments into six reportable segments: Optical Purchasing
Group Business, Franchise, Company Store, VisionCare of California, Corporate
Overhead and Other.
The
Optical Purchasing Group Business segment consists of the operations of Combine
and TOG. Revenues generated by this segment represent the sale of
products and services, at discounted pricing, to Combine and TOG
members. The businesses in this segment are able to use their
membership count to get better discounts from vendors than a member could obtain
on its own. Expenses include direct costs for such product and
services, salaries and related benefits, depreciation and amortization, interest
expense on financing these acquisitions, and other overhead.
The
Franchise segment consists of 132 franchise locations as of March 31,
2009. Revenues generated by this segment represent royalties on the
total sales of the franchise locations, other franchise related fees such as
initial franchise, transfer, renewal and conversion fees, additional royalties
in connection with franchise store audits, and interest charged on franchise
financing. Expenses include the salaries and related
benefits/expenses of the Company’s franchise field support team, corporate
salaries and related benefits, convention related expenses, consulting fees, and
other overhead.
The
Company Store segment consists of five Company-owned retail optical stores
(including one under the terms of a management agreement) as of March 31,
2009. Revenues generated from such stores are a result of the sales
of eye care products and services such as prescription and non-prescription
eyeglasses, eyeglass frames, ophthalmic lenses, contact lenses, sunglasses and a
broad range of ancillary items. Expenses include the direct costs for
such eye care products, doctor and store staff salaries and related benefits,
rent, advertising, and other overhead.
The
VisionCare of California segment consists of optometric services provided to
patients (members) of those franchise retail optical stores located in the state
of California. Revenues consist of membership fees generated for such
optometric services provided to individual patients
(members). Expenses include salaries and related benefits for the
doctors that render such optometric services, and other overhead.
The
Corporate Overhead segment consists of expenses not allocated to one of the
other segments. There are no revenues generated by this
segment. Expenses include costs associated with being a publicly
traded company (including salaries and related benefits, professional fees,
board of director fees, and director and officer insurance), certain
Company-owned store overhead not allocated to that segment, other salaries and
related benefits, rent, other professional fees, and depreciation and
amortization.
The Other
segment includes revenues and expenses from other business activities that do
not fall within one of the other segments. Revenues generated by this
segment consist of employee optical benefit sales, commission income, and
residual income on credit card processing. Expenses primarily include
the direct cost of such employee optical benefit sales, salaries and related
benefits, commission expense, and advertising.
Certain
business segment information is as follows (in thousands):
|
|
As
of
March
31,
2009
|
|
|
As
of December 31, 2008
|
|
|
|
(unaudited)
|
|
|
|
|
Total
Assets:
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
13,114 |
|
|
$ |
12,246 |
|
Franchise
|
|
|
5,559 |
|
|
|
5,386 |
|
Company
Store
|
|
|
389 |
|
|
|
547 |
|
VisionCare
of California
|
|
|
698 |
|
|
|
632 |
|
Corporate
Overhead
|
|
|
721 |
|
|
|
814 |
|
Other
|
|
|
15 |
|
|
|
12 |
|
Total
assets
|
|
$ |
20,496 |
|
|
$ |
19,637 |
|
|
|
As
of
March
31,
2009
|
|
|
As
of December 31, 2008
|
|
|
|
(unaudited)
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
- |
|
|
$ |
42 |
|
Franchise
|
|
|
6 |
|
|
|
40 |
|
Company
Store
|
|
|
3 |
|
|
|
139 |
|
VisionCare
of California
|
|
|
- |
|
|
|
2 |
|
Corporate
Overhead
|
|
|
6 |
|
|
|
121 |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
capital expenditures
|
|
$ |
15 |
|
|
$ |
344 |
|
Total
Goodwill:
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
2,861 |
|
|
$ |
2,861 |
|
Franchise
|
|
|
1,266 |
|
|
|
1,266 |
|
Company
Store
|
|
|
- |
|
|
|
- |
|
VisionCare
of California
|
|
|
- |
|
|
|
- |
|
Corporate
Overhead
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
goodwill
|
|
$ |
4,127 |
|
|
$ |
4,127 |
|
Total
Intangible Assets:
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
2,258 |
|
|
$ |
2,307 |
|
Franchise
|
|
|
936 |
|
|
|
911 |
|
Company
Store
|
|
|
- |
|
|
|
- |
|
VisionCare
of California
|
|
|
- |
|
|
|
- |
|
Corporate
Overhead
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
intangible assets
|
|
$ |
3,194 |
|
|
$ |
3,218 |
|
Total
Intangible Asset Additions:
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
- |
|
|
$ |
- |
|
Franchise
|
|
|
25 |
|
|
|
601 |
|
Company
Store
|
|
|
- |
|
|
|
- |
|
VisionCare
of California
|
|
|
- |
|
|
|
- |
|
Corporate
Overhead
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
intangible asset additions
|
|
$ |
25 |
|
|
$ |
601 |
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
Revenues:
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
11,376 |
|
|
$ |
14,295 |
|
Franchise
|
|
|
1,561 |
|
|
|
1,801 |
|
Company
Store
|
|
|
530 |
|
|
|
1,142 |
|
VisionCare
of California
|
|
|
875 |
|
|
|
843 |
|
Corporate
Overhead
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
7 |
|
|
|
80 |
|
Net
revenues
|
|
$ |
14,349 |
|
|
$ |
18,161 |
|
Income
(Loss) before Provision for (Benefit from) Income Taxes:
|
|
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
223 |
|
|
$ |
325 |
|
Franchise
|
|
|
785 |
|
|
|
1,088 |
|
Company
Store
|
|
|
(102 |
) |
|
|
(20 |
) |
VisionCare
of California
|
|
|
16 |
|
|
|
2 |
|
Corporate
Overhead
|
|
|
(684 |
) |
|
|
(820 |
) |
Other
|
|
|
6 |
|
|
|
19 |
|
Income
before provision for (benefit from) income taxes
|
|
$ |
244 |
|
|
$ |
594 |
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization:
|
|
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
76 |
|
|
$ |
73 |
|
Franchise
|
|
|
30 |
|
|
|
28 |
|
Company
Store
|
|
|
6 |
|
|
|
19 |
|
VisionCare
of California
|
|
|
6 |
|
|
|
6 |
|
Corporate
Overhead
|
|
|
30 |
|
|
|
28 |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
depreciation and amortization
|
|
$ |
148 |
|
|
$ |
154 |
|
|
|
|
|
|
|
|
|
|
Interest
Expense:
|
|
|
|
|
|
|
|
|
Optical
Purchasing Group Business
|
|
$ |
43 |
|
|
$ |
84 |
|
Franchise
|
|
|
14 |
|
|
|
9 |
|
Company
Store
|
|
|
- |
|
|
|
- |
|
VisionCare
of California
|
|
|
- |
|
|
|
- |
|
Corporate
Overhead
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
interest expense
|
|
$ |
57 |
|
|
$ |
93 |
|
Geographic
Information
The
Company also does business in two separate geographic areas; the United States
and Canada. Certain geographic information is as
follows:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
Revenues:
|
|
|
|
|
|
|
United
States
|
|
$ |
6,459 |
|
|
$ |
10,312 |
|
Canada
|
|
|
7,890 |
|
|
|
7,849 |
|
Net
revenues
|
|
$ |
14,349 |
|
|
$ |
18,161 |
|
|
|
|
|
|
|
|
|
|
(Loss)
Income before Provision for (Benefit from) Income Taxes:
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
(16 |
) |
|
$ |
53 |
|
Canada
|
|
|
260 |
|
|
|
541 |
|
Income
before provision for (benefit from) income taxes
|
|
$ |
244 |
|
|
$ |
594 |
|
|
|
|
|
|
|
|
|
|
The
geographic information on Canada includes TOG’s business
activity. Canadian revenue is generated from the Company’s optical
purchasing group members located in Canada. TOG provides customer
management services, on behalf of the Company, to such members.
Additional
geographic information is summarized as follows for the three months ended March
31, 2009 (in thousands):
|
|
United
States
|
|
|
Canada
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
16,666 |
|
|
$ |
3,830 |
|
|
$ |
20,496 |
|
Property
and Equipment
|
|
|
1,082 |
|
|
|
31 |
|
|
|
1,113 |
|
Depreciation
and Amortization
|
|
|
146 |
|
|
|
2 |
|
|
|
148 |
|
Capital
Expenditures
|
|
|
15 |
|
|
|
- |
|
|
|
15 |
|
Goodwill
|
|
|
4,127 |
|
|
|
- |
|
|
|
4,127 |
|
Intangible
Assets
|
|
|
3,194 |
|
|
|
- |
|
|
|
3,194 |
|
Intangible
Asset Additions
|
|
|
25 |
|
|
|
- |
|
|
|
25 |
|
Interest
Expense
|
|
|
57 |
|
|
|
- |
|
|
|
57 |
|
Geographic
information is summarized as follows for the year ended December 31, 2008 (in
thousands):
|
|
United
States
|
|
|
Canada
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
16,678 |
|
|
$ |
2,959 |
|
|
$ |
19,637 |
|
Property
and Equipment
|
|
|
1,156 |
|
|
|
35 |
|
|
|
1,191 |
|
Depreciation
and Amortization
|
|
|
645 |
|
|
|
9 |
|
|
|
654 |
|
Capital
Expenditures
|
|
|
344 |
|
|
|
- |
|
|
|
344 |
|
Goodwill
|
|
|
4,127 |
|
|
|
- |
|
|
|
4,127 |
|
Intangible
Assets
|
|
|
3,218 |
|
|
|
- |
|
|
|
3,218 |
|
Intangible
Asset Additions
|
|
|
601 |
|
|
|
- |
|
|
|
601 |
|
Interest
Expense
|
|
|
346 |
|
|
|
- |
|
|
|
346 |
|
NOTE
6 – COMMITMENTS AND CONTINGENCIES:
Litigation
On May
20, 2003, Irondequoit Mall, LLC commenced an action against the Company and
Sterling Vision of Irondequoit, Inc. (“SVI”) alleging, among other things, that
the Company had breached its obligations under its guaranty of the lease for the
former Sterling Optical store located in Rochester, New York. The
Company and SVI believe that they have a meritorious defense to such
action. As of the date hereof, these proceedings were in settlement
discussions. Although the Company has recorded an accrual for
probable losses in the event that the Company shall be held liable in respect of
plaintiff’s claims, the Company does not believe that any such loss is
reasonably possible, or, if there is a loss, the Company does not believe that
it is reasonably possible that such loss would exceed the amount
recorded.
In August
2006, the Company and its subsidiary, Sterling Vision of California, Inc.
(“SVC”) (collectively referred to as the “Company”) filed an action against For
Eyes Optical Company (“For Eyes” or “Defendant”) in response to allegations by
For Eyes of trademark infringement for Plaintiff’s use of the trademark “Site
For Sore Eyes”. The Company claims, among other things, that (i)
there is no likelihood of confusion between the Company’s and Defendant’s mark,
and that the Company has not infringed, and is not infringing, Defendant’s mark;
ii) the Company is not bound by that certain settlement agreement, executed in
1981 by a prior owner of the Site For Sore Eyes trademark; and iii) Defendant’s
mark is generic and must be cancelled. For Eyes, in its Answer,
asserted defenses to the Company’s claims, and asserted counterclaims against
the Company, including, among others, that (i) the Company has infringed For
Eyes’ mark; (ii) the Company wrongfully obtained a trademark registration for
its mark and that said registration should be cancelled; and (iii) the acts of
the Company constitute a breach of the aforementioned settlement
agreement. For Eyes seeks injunctive relief, cancellation of the
Company’s trademark registration, trebled monetary damages, payment of any
profits made by the Company in respect of the use of such trade name, and costs
and attorney fees. The case is currently in the discovery
phase. The Company has not recorded an accrual for a loss in this
action, as the Company does not believe it is probable that the Company will be
held liable in respect of Defendant’s counterclaims.
In
September 2008, Pyramid Mall of Glen Falls Newco, LLC commenced an action
against the Company and its subsidiary Sterling Vision of Aviation Mall, Inc.,
in the Supreme Court of the State of New York, Onondaga County, alleging, among
other things, that the Company had breached its obligations under its lease for
the former Sterling Optical store located at Aviation Mall, New
York. The Company believes that it has a meritorious defense to such
action. As of the date hereof, these proceedings were in the
discovery stage. Although the Company has recorded an accrual for
probable losses in the event that the Company shall be held liable in respect of
plaintiff’s claims, the Company does not believe that any such loss is
reasonably possible, or, if there is a loss, the Company does not believe that
it is reasonably possible that such loss would exceed the amount
recorded.
In
October 2008, Crossgates Mall Company Newco, LLC commenced an action against the
Company’s subsidiary, Sterling Optical of Crossgates Mall, Inc., in the Supreme
Court of the State of New York, Onondaga County, alleging, among other things,
that the Company had breached its obligations under its lease for the former
Sterling Optical store located at Crossgates Mall, New York. The
Company believes that it has a meritorious defense to such action. As
of the date hereof, these proceedings were in the discovery
stage. The Company has not recorded an accrual for a loss in this
action, as the Company does not believe it is probable that the Company will be
held liable in respect of plaintiff’s claims.
Although
the Company, where indicated herein, believes that it has a meritorious defense
to the claims asserted against it (and its affiliates), given the uncertain
outcomes generally associated with litigation, there can be no assurance that
the Company’s (and its affiliates’) defense of such claims will be
successful.
In
addition to the foregoing, in the ordinary course of business, the Company is a
defendant in certain lawsuits alleging various claims incurred, certain of which
claims are covered by various insurance policies, subject to certain deductible
amounts and maximum policy limits. In the opinion of management, the
resolution of these claims should not have a material adverse effect,
individually or in the aggregate, upon the Company’s business or financial
condition. Other than as set forth above, management believes that
there are no other legal proceedings, pending or threatened, to which the
Company is, or may be, a party, or to which any of its properties are or may be
subject to, which, in the opinion of management, will have a material adverse
effect on the Company.
Guarantees
As of
March 31, 2009, the Company was a guarantor of certain leases of retail optical
stores franchised and subleased to its franchisees. Such guarantees
generally expire one year from the month the rent was last paid. In
the event that all of such franchisees defaulted on their respective subleases,
the Company would be obligated for aggregate lease obligations of approximately
$2,368,000. The Company continually evaluates the credit-worthiness
of its franchisees in order to determine their ability to continue to perform
under their respective subleases. Additionally, in the event that a
franchisee defaults under its sublease, the Company has the right to take over
operation of the respective location.
Employment
Agreements
The
Company has an Employment Agreement (“Agreement 1”) with its Chief Executive
Officer (“CEO”), which extends through November 2009. Agreement 1
provides for an annual salary of $275,000 and certain other
benefits. Additionally, as per Agreement 1, the CEO may be eligible
for bonus compensation as determined by the Company’s Board of
Directors.
Additionally,
in connection with the acquisition of Combine, the Company entered into a
five-year Employment Agreement (“Agreement 2”) with the existing President of
Combine. Agreement 2 provides for an annual salary of $210,000,
certain other benefits, and an annual bonus based upon certain financial targets
of Combine.
This
Quarterly Report, as of and for the three months ended March 31, 2009, (the
“Report”) contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of the Company’s management, as well
as assumptions made by, and information currently available to, the Company’s
management. When used in this Report, the words “anticipate”,
“believe”, “estimate”, “expect”, “there can be no assurance”, “may”, “could”,
“would”, “might”, “intends” and similar expressions and their negatives, as they
relate to the Company or the Company’s management, are intended to identify
forward-looking statements. Such statements reflect the view of the
Company at the date they are made with respect to future events, are not
guarantees of future performance and are subject to various risks and
uncertainties as identified in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 and those described from time to time in previous
and future reports filed with the Securities and Exchange
Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein with the forward-looking
statements referred to above and as set forth in this Report. The
Company does not intend to update these forward-looking statements for new
information, or otherwise, for the occurrence of future events.
In order
to more accurately detail our financial information and performance, the Company
has made changes to the format of this Report and changed its segment
reporting. The Company has simplified its Consolidated Condensed
Statements of Income to expand the segment reporting to detail each segment’s
revenue and expense. Management’s discussion and analysis of
financial conditions and results of operations concentrates on describing
segment performance through the use of new detailed financial tables, which will
assist the reader in understanding each business segment and how it relates to
the overall performance of the Company.
Segment
results for the three months ended March 31, 2009, as compared to the three
months ended March 31, 2008
Consolidated
Segment Results
Total
revenues for the Company decreased approximately $3,812,000, or 21.0%, to
$14,349,000 for the quarter ended March 31, 2009, as compared to $18,161,000 for
the quarter ended March 31, 2008. This decrease was mainly a result
of the decrease in Optical Purchasing Group revenues during the comparable
periods due to current economic trends in the US and Canadian economies as well
as currency fluctuations between the US and Canadian
dollars. Additionally, the Company experienced a decrease in the
average number of Company-owned stores in operation from 8 for the quarter ended
March 31, 2008 compared to 4 for the quarter ended March 31, 2009, and a
decrease in the average number of Franchise locations in operation from 146 for
the quarter ended March 31, 2008 compared to 132 for the quarter ended March 31,
2009, which resulted in decreased revenues for the Company-store and Franchise
segments.
Total
costs, and selling, general and administrative expenses for the Company
decreased approximately $3,458,000, or 19.7% to $14,058,000 for the quarter
ended March 31, 2009, as compared to $17,516,000 for the quarter ended March 31,
2008. This decrease was mainly a result of the decreases described
above.
Optical
Purchasing Group Business Segment
|
|
For
the Quarter Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical
purchasing group sales
|
|
$ |
11,376 |
|
|
$ |
14,295 |
|
|
$ |
(2,919 |
) |
|
|
(20.4 |
%) |
Cost
of optical purchasing group sales
|
|
|
10,785 |
|
|
|
13,533 |
|
|
|
(2,748 |
) |
|
|
(20.3 |
%) |
Gross
margin
|
|
|
591 |
|
|
|
762 |
|
|
|
(171 |
) |
|
|
(22.4 |
%) |
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and related benefits
|
|
|
99 |
|
|
|
123 |
|
|
|
(24 |
) |
|
|
(19.5 |
%) |
Depreciation
and amortization
|
|
|
76 |
|
|
|
73 |
|
|
|
3 |
|
|
|
4.1 |
% |
Rent
and related overhead
|
|
|
62 |
|
|
|
74 |
|
|
|
(12 |
) |
|
|
(16.2 |
%) |
Credit
card and bank fees
|
|
|
54 |
|
|
|
60 |
|
|
|
(6 |
) |
|
|
(10.0 |
%) |
Other
general and administrative costs
|
|
|
34 |
|
|
|
23 |
|
|
|
11 |
|
|
|
47.8 |
% |
Total
selling, general and administrative expenses
|
|
|
325 |
|
|
|
353 |
|
|
|
(28 |
) |
|
|
(7.9 |
%) |
Operating
Income
|
|
|
266 |
|
|
|
409 |
|
|
|
(143 |
) |
|
|
(35.0 |
%) |
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(43 |
) |
|
|
(84 |
) |
|
|
41 |
|
|
|
48.8 |
% |
Total
other expense
|
|
|
(43 |
) |
|
|
(84 |
) |
|
|
41 |
|
|
|
48.8 |
% |
Income
before provision for (benefit from) income taxes
|
|
$ |
223 |
|
|
$ |
325 |
|
|
$ |
(102 |
) |
|
|
(31.4 |
%) |
Optical
purchasing group revenues decreased approximately $2,919,000, or 20.4%, to
$11,376,000 for the quarter ended March 31, 2009, as compared to $14,295,000 for
the quarter ended March 31, 2008. Individually, Combine’s revenues
decreased approximately $515,000, or 12.9%, to $3,463,000 for the quarter ended
March 31, 2009, as compared to $3,978,000 for the quarter ended March 31,
2008. This decrease was due to a generally weaker economy during that
began to affect Combine in the 2nd half of
2008 and carried into the 1st quarter
of 2009, as well as a slight decrease in the total number of active members of
Combine. As of March 31, 2009, there were 850 active members, as
compared to 856 active members as of March 31, 2008. Individually,
TOG revenues decreased approximately $2,427,000, or 23.5%, to $7,890,000 for the
quarter ended March 31, 2009, as compared to $10,317,000 for the quarter ended
March 31, 2008. This decrease was mainly due to the fluctuation of
the foreign currency exchange rate between the Canadian and US
Dollar. The rate averaged $1.00 for every Canadian Dollar during the
1st
quarter of 2008, as compared to $0.80 for every Canadian Dollar during the
1st
quarter of 2009. Additionally, the Canadian economy experienced the
same downturn the US economy faced during the 2nd half of
2008.
Costs of
optical purchasing group sales decreased approximately $2,748,000, or 20.3% to
$10,785,000 for the quarter ended March 31, 2009, as compared to $13,533,000 for
the quarter ended March 31, 2008. Individually, Combine’s cost of
sales decreased approximately $417,000, or 11.3%, to $3,269,000 for the quarter
ended March 31, 2009, as compared to $3,686,000 for the quarter ended March 31,
2008. These fluctuations were a direct result of, and proportionate
to, the revenue fluctuations described above. Individually, TOG’s
cost of sales decreased approximately $2,346,000, or 23.8%, to $7,501,000 for
the quarter ended March 31, 2009, as compared to $9,847,000 for the quarter
ended March 31, 2008. Both of these decreases were a direct result
of, and proportionate to, the revenue fluctuations described above.
Operating
expenses of the optical purchasing group segment decreased approximately
$28,000, or 7.9%, to $325,000 for the quarter ended March 31, 2009, as compared
to $353,000 for the quarter ended March 31, 2008. This decrease was
mainly due to the fluctuation of the foreign currency exchange rate between the
Canadian and US Dollar.
Interest
expense related to the optical purchasing group segment decreased approximately
$41,000, or 48.8%, to $43,000 for the quarter ended March 31, 2009, as compared
to $84,000 for the quarter ended March 31, 2008. This decrease was
related to a decrease in the interest rates on the borrowings under the
Company’s Credit Facility with Manufacturers and Traders Trust Corporation
(“M&T”). Additionally, as the Company continues to pay down its
related party borrowings, the Company is continues to pay less
interest.
Franchise
Segment
|
|
For
the Quarter Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
$ |
1,490 |
|
|
$ |
1,651 |
|
|
$ |
(161 |
) |
|
|
(9.6 |
%) |
Franchise
and other related fees
|
|
|
71 |
|
|
|
150 |
|
|
|
(79 |
) |
|
|
(52.7 |
%) |
Net
revenues
|
|
|
1,561 |
|
|
|
1,801 |
|
|
|
(240 |
) |
|
|
(13.3 |
%) |
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and related benefits
|
|
|
421 |
|
|
|
456 |
|
|
|
(35 |
) |
|
|
(7.7 |
%) |
Professional
fees
|
|
|
126 |
|
|
|
110 |
|
|
|
16 |
|
|
|
14.5 |
% |
Convention
related expenses
|
|
|
83 |
|
|
|
65 |
|
|
|
18 |
|
|
|
27.7 |
% |
Rent
and related overhead
|
|
|
75 |
|
|
|
64 |
|
|
|
11 |
|
|
|
17.2 |
% |
Bad
debt
|
|
|
21 |
|
|
|
5 |
|
|
|
16 |
|
|
|
320.0 |
% |
Depreciation
and amortization
|
|
|
30 |
|
|
|
28 |
|
|
|
2 |
|
|
|
7.1 |
% |
Other
general and administrative costs
|
|
|
15 |
|
|
|
16 |
|
|
|
(1 |
) |
|
|
(6.3 |
%) |
Total
selling, general and administrative expenses
|
|
|
771 |
|
|
|
744 |
|
|
|
27 |
|
|
|
3.6 |
% |
Operating
Income
|
|
|
790 |
|
|
|
1,057 |
|
|
|
(267 |
) |
|
|
(25.3 |
%) |
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on franchise notes receivable
|
|
|
7 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
Other
(expense) income
|
|
|
2 |
|
|
|
33 |
|
|
|
(31 |
) |
|
|
(93.9 |
%) |
Interest
expense, net
|
|
|
(14 |
) |
|
|
(9 |
) |
|
|
(5 |
) |
|
|
(55.6 |
%) |
Total
other (expense) income
|
|
|
(5 |
) |
|
|
31 |
|
|
|
(36 |
) |
|
|
(116.1 |
%) |
Income
before provision for (benefit from) income taxes
|
|
$ |
785 |
|
|
$ |
1,088 |
|
|
$ |
(303 |
) |
|
|
(27.8 |
%) |
Franchise
royalties decreased approximately $161,000, or 9.6%, to $1,490,000 for the
quarter ended March 31, 2009, as compared to $1,651,000 for the quarter ended
March 31, 2008. Management believes this
decrease was due to current economic conditions, and a decrease in royalties
generated from franchise store audits of $25,000 for the quarter ended March 31,
2009, which audits were conducted over an equivalent sample size of franchise
locations for each period audited. Additionally, franchise sales
during both of the comparable periods decreased approximately $1,137,000, or
5.3%, which led to decreased royalty income, and on average, there were 14 fewer
stores in operation during the quarter ended March 31, 2009. On
average, those 14 stores would have generated approximately $237,000 of
royalties. As of March 31, 2009 and 2008, there were 132 and 146 franchised
stores in operation, respectively.
Franchise
related fees (which include initial franchise fees, renewal fees, conversion
fees and store transfer fees) decreased approximately $79,000, or 52.7%, to
$71,000 for the quarter ended March 31, 2009, as compared to $150,000 for the
quarter ended March 31, 2008. This fluctuation was primarily
attributable to 2 franchise agreement renewals ($20,000), 1 independent
store conversions ($10,000), and 2 new franchise agreements ($40,000) during the
first quarter of 2009, as compared to 3 franchise agreement renewals ($30,000),
2 independent store conversions ($20,000), and 5 new franchise agreements
($100,000) during the first quarter of 2008. In the future, franchise
fees are likely to fluctuate depending on the timing of franchise agreement
expirations, new store openings and franchise store transfers.
Operating
expenses of the franchise segment increased approximately $27,000, or 3.6%, to
$771,000 for the quarter ended March 31, 2009, as compared to $744,000 for the
quarter ended March 31, 2008. This increase was partially a result of
an increase in professional fees of $16,000 as the Company began utilizing
outside counsel to administer franchise agreement transactions (in the first
quarter 2008 the Company employed in-house counsel to handle such work), in rent
and related overhead of $11,000 due to a rent subsidy the Company is provided on
certain franchise locations in the first quarter of 2009, which was not provided
in the first quarter of 2008 and in convention related expenses of $18,000 as
the 2009 Vision Expo East was held in March 2009, as compared to April 2008 of
last year. These increases were offset, in part, by a decrease in
salaries and related expenses of $35,000 as the Company continued to stream-line
operations where necessary including franchise business development to
commission-based compensation. Additionally, the Company incurred
less expenses related to its external franchise store audit program due to
enhanced sales reporting under the Company’s new POS systems.
Company
Store Segment
|
|
For
the Quarter Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
sales
|
|
$ |
530 |
|
|
$ |
1,142 |
|
|
$ |
(612 |
) |
|
|
(53.6 |
%) |
Cost
of retail sales
|
|
|
160 |
|
|
|
265 |
|
|
|
(105 |
) |
|
|
(39.6 |
%) |
Gross
margin
|
|
|
370 |
|
|
|
877 |
|
|
|
(507 |
) |
|
|
(57.8 |
%) |
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and related benefits
|
|
|
253 |
|
|
|
500 |
|
|
|
(247 |
) |
|
|
(49.4 |
%) |
Rent
and related overhead
|
|
|
166 |
|
|
|
279 |
|
|
|
(113 |
) |
|
|
(40.5 |
%) |
Advertising
|
|
|
30 |
|
|
|
68 |
|
|
|
(38 |
) |
|
|
(55.9 |
%) |
Other
general and administrative costs
|
|
|
23 |
|
|
|
50 |
|
|
|
(27 |
) |
|
|
(54.0 |
%) |
Total
selling, general and administrative expenses
|
|
|
472 |
|
|
|
897 |
|
|
|
(425 |
) |
|
|
(47.4 |
%) |
Operating
Loss
|
|
$ |
(102 |
) |
|
$ |
(20 |
) |
|
$ |
(82 |
) |
|
|
(410.0 |
%) |
Retail
sales for the Company store segment decreased approximately $612,000, or 53.6%,
to $530,000 for the quarter ended March 31, 2009, as compared to $1,142,000 for
the quarter ended March 31, 2008. This decrease was mainly
attributable to fewer Company-owned store locations open during the comparable
periods. As of March 31, 2009, there were 5 Company-owned stores, as
compared to 11 Company-owned stores as of March 31, 2008 (both periods inclusive
of one store operated by a franchisee under the terms of a management
agreement). Over
the last 12 months, the Company has closed 2 Company-owned locations and
franchised 2 others that were part of the store count as of March 31,
2008. Those 4 stores generated retail sales of $1,586,000 for the
twelve months ended March 31, 2008, as compared to $926,000 for the twelve
months ended March 31, 2009. On a same
store basis (for stores that operated as a Company-owned store during the
entirety of both of the quarters ended March 31, 2009 and 2007), comparative net
sales decreased approximately $117,000, or 18.0%, to $534,000 for the quarter
ended March 31, 2009, as compared to $651,000 for the quarter ended March 31,
2008. The decrease was partially a result of the Company reserving,
in January 2009, the total amount of managed care receivables generated by such
stores and recognizing the income on such receivables when cash receipts are
recovered. Additionally, management believes that the decrease was a
direct result of current economic conditions, and changes to key personnel,
mainly optometrists, during the second quarter of 2008, which led to reduced
exam fee revenues.
The
Company-owned store’s gross profit margin, which calculation did not include the
exam fee revenues of $107,000 and $139,000 for the quarters ended March 31, 2009
and 2008, respectively, generated by such Company-owned stores, decreased by
12.7%, to 62.2%, for the quarter ended March 31, 2009, as compared to 74.9% for
the quarter ended March 31, 2008. The decrease was a direct result of
the decrease in managed care revenues as described
above. Additionally, management continues to work to improve the
profit margin through increased training at the Company-store level and improved
vendor partnerships, among other things, and anticipates these changes will
result in improvements in the Company’s gross profit margin in the
future. The Company’s gross margin may, however, fluctuate in the
future depending upon the extent and timing of changes in the product mix in the
Company-owned stores, competitive pricing, and promotional.
Operating
expenses of the Company store segment decreased approximately $425,000, or
47.4%, to $472,000 for the quarter ended March 31, 2009, as compared to $897,000
for the quarter ended March 31, 2008. This decrease was mainly a
result of having fewer Company-owned stores in operation during the quarter
ended March 31, 2009. Additionally, the Company streamlined certain
store payroll coverage in its stores to reduced salaries and related benefits,
and enhanced the media plans for each store, which reduced advertising costs on
a by-store basis.
VisionCare
of California Segment
|
|
For
the Quarter Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
fees
|
|
$ |
875 |
|
|
$ |
843 |
|
|
$ |
32 |
|
|
|
3.8 |
% |
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and related benefits
|
|
|
777 |
|
|
|
783 |
|
|
|
(6 |
) |
|
|
(0.8 |
%) |
Rent
and related overhead
|
|
|
39 |
|
|
|
37 |
|
|
|
2 |
|
|
|
5.4 |
% |
Other
general and administrative costs
|
|
|
44 |
|
|
|
23 |
|
|
|
21 |
|
|
|
91.3 |
% |
Total
selling, general and administrative expenses
|
|
|
860 |
|
|
|
843 |
|
|
|
17 |
|
|
|
2.0 |
% |
Operating
Income
|
|
|
15 |
|
|
|
- |
|
|
|
15 |
|
|
|
- |
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(50.0 |
%) |
Total
other income (expense)
|
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(50.0 |
%) |
Income
before provision for (benefit from) income taxes
|
|
$ |
16 |
|
|
$ |
2 |
|
|
$ |
14 |
|
|
|
700.0 |
% |
Revenues
generated by the Company’s wholly-owned subsidiary, VisionCare of California,
Inc. (“VCC”), a specialized health care maintenance organization licensed by the
State of California Department of Managed Health Care, increased approximately
$32,000, or 3.8%, to $875,000 for the quarter ended March 31, 2009, as compared
to $843,000 for the quarter ended March 31, 2008. This increase was a
direct result of an increase in the daily membership fee charged by VCC
effective June 2008.
Operating
expenses of the VCC segment remained consistent with last quarter’s expenses,
increasing only $17,000 to $860,000 for the quarter ended March 31, 2009, as
compared to $843,000 for the quarter ended March 31, 2008. Most of
the individual “line item” expenses for VCC remained consistent quarter over
quarter.
Corporate
Overhead Segment
|
|
For
the Quarter Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and related benefits
|
|
$ |
390 |
|
|
$ |
494 |
|
|
$ |
(104 |
) |
|
|
(21.1 |
%) |
Professional
fees
|
|
|
123 |
|
|
|
134 |
|
|
|
(11 |
) |
|
|
(8.2 |
%) |
Insurance
|
|
|
82 |
|
|
|
88 |
|
|
|
(6 |
) |
|
|
(6.8 |
%) |
Rent
and related overhead
|
|
|
55 |
|
|
|
55 |
|
|
|
- |
|
|
|
- |
|
Other
general and administrative costs
|
|
|
34 |
|
|
|
49 |
|
|
|
(15 |
) |
|
|
(30.6 |
%) |
Total
selling, general and administrative expenses
|
|
|
684 |
|
|
|
820 |
|
|
|
(136 |
) |
|
|
(16.6 |
%) |
Operating
Loss
|
|
$ |
(684 |
) |
|
$ |
(820 |
) |
|
$ |
136 |
|
|
|
16.6 |
% |
There
were no revenues generated by the corporate overhead segment.
Operating
expenses decreased approximately $136,000, or 16.6%, to $684,000 for the quarter
ended March 31, 2009, as compared to $820,000 for the quarter ended March 31,
2008. This decrease was partially a result of decreases to salaries
and related benefits of $104,000 related to decreases, in May 2008, in the
Company’s medical and dental insurance premiums. Additionally, the
Company began utilizing outside counsel to administer franchise agreement
transactions (in the first quarter 2008 the Company employed in-house counsel to
handle such work).
Other
Segment
|
|
For
the Quarter Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$ |
3 |
|
|
$ |
57 |
|
|
$ |
(54 |
) |
|
|
(94.7 |
%) |
Other
|
|
|
4 |
|
|
|
23 |
|
|
|
(19 |
) |
|
|
(82.6 |
%) |
Net
revenues
|
|
|
7 |
|
|
|
80 |
|
|
|
(73 |
) |
|
|
(91.3 |
%) |
Selling,
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
- |
|
|
|
42 |
|
|
|
(42 |
) |
|
|
- |
|
Salaries
and related benefits
|
|
|
1 |
|
|
|
19 |
|
|
|
(18 |
) |
|
|
(94.7 |
%) |
Total
selling, general and administrative expenses
|
|
|
1 |
|
|
|
61 |
|
|
|
(60 |
) |
|
|
(98.4 |
%) |
Operating
Income
|
|
$ |
6 |
|
|
$ |
19 |
|
|
$ |
(13 |
) |
|
|
(68.4 |
%) |
Revenues
generated by the other segment decreased approximately $73,000, or 91.3%, to
$7,000 for the quarter ended March 31, 2009, as compared to $80,000 for the
quarter ended March 31, 2008. The Company began generating
commission revenues in January 2008 under operations of the Company that do not
fall within one of the other operating segments. Those operations
ceased during the 2nd half of
fiscal 2008.
Operating
expenses of the other segment decreased approximately $60,000, or 98.4%, to
$1,000 for the quarter ended March 31, 2009, as compared to $61,000 for the
quarter ended March 31, 2008. The decrease was due to the cease in
operations as described above..
Use
of Non-GAAP Performance Indicators
The
following section expands on the financial performance of the Company detailing
the Company’s EBITDA. EBITDA is calculated as net earnings before
interest, taxes, depreciation and amortization. The Company refers to
EBITDA because it is a widely accepted financial indicator of a company’s
ability to service or incur indebtedness.
EBITDA
does not represent cash flow from operations as defined by generally accepted
accounting principles, is not necessarily indicative of cash available to fund
all cash flow needs, should not be considered an alternative to net income or to
cash flow from operations (as determined in accordance with GAAP) and should not
be considered an indication of our operating performance or as a measure of
liquidity. EBITDA is not necessarily comparable to similarly titled
measures for other companies.
EBITDA
Reconciliation
|
|
For
the Three Months Ended March 31 (in thousands):
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
EBITDA
Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
230 |
|
|
$ |
720 |
|
|
$ |
(490 |
) |
|
|
(68.1 |
%) |
Interest
|
|
|
57 |
|
|
|
93 |
|
|
|
(36 |
) |
|
|
(38.7 |
%) |
Taxes
|
|
|
14 |
|
|
|
(126 |
) |
|
|
140 |
|
|
|
111.1 |
% |
Depreciation
and amortization
|
|
|
148 |
|
|
|
157 |
|
|
|
(9 |
) |
|
|
(5.7 |
%) |
EBITDA
|
|
$ |
449 |
|
|
$ |
844 |
|
|
$ |
(395 |
) |
|
|
(46.8 |
%) |
The
Company also incurred other non-cash charges that effected earnings including
compensation expenses related to the grant of common stock options and warrants
of $5,000 for the three months ended March 31, 2008. No such charges
were incurred for the three months ended March 31, 2009.
Liquidity
and Capital Resources
As of
March 31, 2009, the Company had working capital of $1,402,000 and cash on hand
of $2,090,000.
During
the quarter ended March 31, 2009, cash flows provided by operating activities
were $79,000. This was principally due to net income and other
non-cash expenses of $423,000 and an increase in optical purchasing group
payables of $544,000 due to an increase in optical purchasing group sales,
offset, in part, by an increase in optical purchasing group receivables of
$963,000 for reason described above. The Company believes it will
continue to improve its operating cash flows through the implementation of the
Company’s new Point-of-Sales system to improve the franchise sales reporting
process, the addition of new franchise locations, its current and future
acquisitions, and continued efficiencies as it relates to corporate overhead
expenses.
For the
quarter ended March 31, 2009, cash flows used in investing activities were
$18,000 mainly due to an increase in intangible assets for legal costs
associated with defending one of the Company’s trademarks and capital
expenditures related to improvements to the Company’s IT infrastructure, offset
by proceeds received on certain franchise promissory
notes. Management does not anticipate any major capital expenditures
over the next 12 months, other than normal expenditures to continue to enhance
the Company’s technology infrastructure and the Company’s internal
controls. However, Management does not know the extent of the legal
costs associated with the continuance of litigation in defending one of the
Company’s trademarks as the litigation is still in the discovery
phase.
For the
quarter ended March 31, 2009, cash flows used in financing activities were
$379,000 due to additional borrowings under the Company’s Credit Facility of
$150,000, offset by the repayment of the Company’s related party borrowings and
repayment on the Credit Facility of $500,000. The Company will
continue to repay such borrowings with cash flows generated by the current
operations. In April 2010, the Company’s Credit Facility will expire
and all outstanding borrowings will be due. The Company is currently
exploring all options available to enable it make such payment.
Credit
Facility
On August
8, 2007, the Company entered into a Revolving Line of Credit Note and Credit
Agreement (the “Credit Agreement”) with M&T, establishing a revolving credit
facility (the “Credit Facility”), for aggregate borrowings of up to $6,000,000,
to be used for general working capital needs and certain permitted
acquisitions. This Credit Facility replaced the Company’s previous
revolving line of credit facility with M&T, established in August
2005. The Credit Facility is set to mature on April 1,
2010. All sums drawn by the Company under the Credit Facility are
repayable, interest only, on a monthly basis, commencing on the first day of
each month during the term of the Credit Facility, calculated at the variable
rate of three hundred (300) basis points in excess of LIBOR, and all principal
drawn by the Company is payable on April 1, 2010.
The
Credit Facility includes various financial covenants including minimum net
worth, maximum funded debt and debt service ratio requirements. As of
March 31, 2009, the Company had outstanding borrowings of $4,956,854 under the
Credit Facility, which amount was included in Long-term Debt on the accompanying
Consolidated Balance Sheet, and was utilizing $500,000 of the Credit Facility to
hold a letter of credit in favor of a key vendor of Combine to ensure payment of
any outstanding invoices not paid by Combine. The Company was not in
compliance with one of the financial covenants, however, on May 14, 2009,
M&T granted the Company a waiver and agreed that, as of March 31, 2009, it
was in compliance with such covenant. Additionally, the Company had
$543,146 available under the Credit Facility for future borrowings.
Off-Balance
Sheet Arrangements
An
off-balance sheet arrangement is any contractual arrangement involving an
unconsolidated entity under which a company has (a) made guarantees,
(b) a retained or a contingent interest in transferred assets, (c) any
obligation under certain derivative instruments or (d) any obligation under
a material variable interest in an unconsolidated entity that provides
financing, liquidity, market risk, or credit risk support to the company, or
engages in leasing, hedging, or research and development services within the
company.
The
Company does not have any off-balance sheet financing or unconsolidated variable
interest entities, with the exception of certain guarantees on
leases. The Company refers the reader to the Notes to the
Consolidated Condensed Financial Statements included in Item 1 of this Quarterly
Report for information regarding the Company’s lease guarantees.
Management’s
Discussion of Critical Accounting Policies and Estimates
High-quality
financial statements require rigorous application of high-quality accounting
policies. Management believes that its policies related to revenue
recognition, deferred tax assets, legal contingencies, impairment on goodwill
and intangible assets, and allowances on franchise, notes and other receivables
are critical to an understanding of the Company’s Consolidated Condensed
Financial Statements because their application places the most significant
demands on management’s judgment, with financial reporting results relying on
estimation about the effect of matters that are inherently
uncertain.
Management’s
estimate of the allowances on receivables is based on historical sales,
historical loss levels, and an analysis of the collectibility of individual
accounts. To the extent that actual bad debts differed from management's
estimates by 10 percent, consolidated net income would be an estimated $3,000
and $1,000 higher/lower for the three months ended March 31, 2009, and 2008,
respectively, depending upon whether the actual write-offs are greater or
less than estimated.
Management’s
estimate of the valuation allowance on deferred tax assets is based on whether
it is more likely than not that the Company’s net operating loss carry-forwards
will be utilized. Factors that could impact estimated utilization of the
Company's net operating loss carry-forwards are the success of its stores and
franchisees, and the optical purchasing groups, the Company's operating
efficiencies and the effects of Section 382 of the Internal Revenue Code of
1986, as amended, based on certain changes in ownership that have occurred, or
could occur in the future. To the extent that management lowered its
valuation allowance on deferred tax assets by 10 percent, consolidated net
income would be an estimated $1,460,000 and $1,437,000 higher/lower for the
quarters ended March 31, 2009 and 2008, respectively.
The
Company recognizes revenues in accordance with SEC Staff Accounting Bulletin
(“SAB”) No. 104, “Revenue Recognition.” Accordingly, revenues are
recorded when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the Company’s price to the buyer is
fixed or determinable, and collectibility is reasonably assured. To
the extent that collectability of royalties and/or interest on franchise notes
is not reasonably assured, the Company recognizes such revenues when the cash is
received. To the extent that revenues that were recognized on a cash
basis were recognized on an accrual basis, consolidated net income would be an
estimated $52,000 and $88,000 higher for the three months ended March 31, 2009
and 2008, respectively.
Management’s
performs an annual impairment analysis to determine the fair value of goodwill
and certain intangible assets. In determining the fair value of such
assets, management uses a variety of methods and assumptions including a
discounted cash flow analysis along with various qualitative
tests. To the extent that management needed to impair its goodwill or
intangible assets by 10 percent, consolidated net income would be an estimated
$732,000 and $735,000 lower for the three months ended March 31, 2009 and 2008,
respectively.
The
quarterly report does not include information for Item 3 pursuant to the rules
of the Securities and Exchange Commission that permits “smaller reporting
companies” to omit such information.
(a) Disclosure
Controls and Procedures
|
The
Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
with the participation of the Company’s management (“Management”) conducted an
evaluation of the effectiveness of the Company’s disclosure controls and
procedures. These disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act of 1934, within the
time periods specified by the SEC rules and forms, is recorded, processed,
summarized and reported, and is communicated to Management, as appropriate, to
allow for timely decisions based on the required disclosures. Based
on this evaluation, the Company’s CEO and CFO concluded that the Company’s
disclosure controls and procedures were effective as of March 31,
2009.
(b) Changes
in Internal Controls over Financial Reporting
There
has been no change in the Company’s internal control over financial
reporting identified in connection with the evaluation required by
paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act
of 1934, as amended, that occurred during the first quarter
of 2009 that has materially affected or is reasonably likely to
materially affect the Company’s internal control over financial
reporting. However, there were several
immaterial control improvements which Management made in an effort to
further strengthen its overall system of internal control in 2009.
These changes were immaterial both individually and in the
aggregate.
(c) Limitations
|
A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurances that the control system’s objectives will be
met. Additionally, the design of a control system has limitations
such as financial restraints and the cost/benefit analysis of improving such
systems. Thus, no evaluation of controls can provide absolute
assurance that all control issues within the Company have been
detected.
None
There
have been no material changes to the disclosure related to risk factors made in
the Company Annual Report on Form 10-K for the year ended December 31,
2008.
None.
None.
None.
None.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
EMERGING VISION, INC.
(Registrant)
BY:
/s/ Christopher
G. Payan
Christopher
G. Payan
Chief
Executive Officer
(Principal
Executive Officer)
BY:
/s/ Brian P.
Alessi
Brian P. Alessi
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: May 15, 2009