form10-q.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 September 30,
2007
|
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, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer__
|
Accelerated
filer__
|
Non-accelerated
filer X
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
As
of
November 14, 2007, there were 125,286,805 outstanding shares of the Issuer’s
Common Stock, par value $0.01 per share.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
EMERGING
VISION, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED BALANCE SHEETS
(In
Thousands, Except Share Data)
|
|
ASSETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,486
|
|
|
$ |
1,289
|
|
Restricted
cash
|
|
|
250
|
|
|
|
250
|
|
Franchise
receivables, net of allowance of $149 and $110,
respectively
|
|
|
2,363
|
|
|
|
1,620
|
|
Settlement
receivable
|
|
|
1,062
|
|
|
|
-
|
|
Optical
purchasing group receivables, net of allowance of $40
|
|
|
6,228
|
|
|
|
1,914
|
|
Other
receivables, net of allowance of $2
|
|
|
425
|
|
|
|
312
|
|
Current
portion of franchise notes receivable, net of allowance of $39 and
$44,
respectively
|
|
|
147
|
|
|
|
79
|
|
Inventories,
net
|
|
|
495
|
|
|
|
431
|
|
Prepaid
expenses and other current assets
|
|
|
796
|
|
|
|
398
|
|
Deferred
tax assets, current portion
|
|
|
709
|
|
|
|
600
|
|
Total
current assets
|
|
|
13,961
|
|
|
|
6,893
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,452
|
|
|
|
923
|
|
Franchise
notes receivable, net of allowance of $0 and $5,
respectively
|
|
|
78
|
|
|
|
214
|
|
Deferred
tax asset, net of current portion
|
|
|
1,052
|
|
|
|
800
|
|
Goodwill,
net
|
|
|
2,544
|
|
|
|
2,745
|
|
Excess
cost over net tangible assets acquired
|
|
|
3,380
|
|
|
|
-
|
|
Intangible
assets, net
|
|
|
814
|
|
|
|
808
|
|
Other
assets
|
|
|
261
|
|
|
|
214
|
|
Total
assets
|
|
$ |
23,542
|
|
|
$ |
12,597
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
5,917
|
|
|
$ |
4,632
|
|
Optical
purchasing group payables
|
|
|
5,689
|
|
|
|
1,760
|
|
Short-term
debt
|
|
|
132
|
|
|
|
396
|
|
Related
party obligations
|
|
|
747
|
|
|
|
778
|
|
Total
current liabilities
|
|
|
12,485
|
|
|
|
7,566
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
4,364
|
|
|
|
20
|
|
Related
party borrowings, net of current portion
|
|
|
1,094
|
|
|
|
1,173
|
|
Franchise
deposits and other liabilities
|
|
|
438
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
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;
97,326,890 shares issued and 97,144,553 shares outstanding
|
|
|
973
|
|
|
|
705
|
|
Treasury
stock, at cost, 182,337 shares
|
|
|
(204 |
) |
|
|
(204 |
) |
Additional
paid-in capital
|
|
|
126,898
|
|
|
|
127,062
|
|
Accumulated
comprehensive loss
|
|
|
(10 |
) |
|
|
-
|
|
Accumulated
deficit
|
|
|
(122,570 |
) |
|
|
(124,286 |
) |
Total
shareholders' equity
|
|
|
5,161
|
|
|
|
3,351
|
|
Total
liabilities and shareholders' equity
|
|
$ |
23,542
|
|
|
$ |
12,597
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
EMERGING
VISION, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In
Thousands, Except Per Share Data)
|
|
|
|
For
the Three Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,324
|
|
|
$ |
1,854
|
|
|
$ |
6,656
|
|
|
$ |
5,450
|
|
Optical
purchasing group sales
|
|
|
11,603
|
|
|
|
2,775
|
|
|
|
20,525
|
|
|
|
2,775
|
|
Franchise
royalties
|
|
|
1,632
|
|
|
|
1,797
|
|
|
|
5,138
|
|
|
|
5,279
|
|
Other
franchise related fees
|
|
|
103
|
|
|
|
38
|
|
|
|
231
|
|
|
|
171
|
|
Total
revenue
|
|
|
15,662
|
|
|
|
6,464
|
|
|
|
32,550
|
|
|
|
13,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
11,524
|
|
|
|
2,820
|
|
|
|
20,509
|
|
|
|
3,276
|
|
Selling,
general and administrative expenses
|
|
|
4,330
|
|
|
|
3,507
|
|
|
|
11,783
|
|
|
|
9,817
|
|
Total
costs and expenses
|
|
|
15,854
|
|
|
|
6,327
|
|
|
|
32,292
|
|
|
|
13,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
|
(192 |
) |
|
|
137
|
|
|
|
258
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on franchise notes receivable
|
|
|
6
|
|
|
|
12
|
|
|
|
29
|
|
|
|
34
|
|
Gain
on sale of company-owned store to franchisee
|
|
|
6
|
|
|
|
-
|
|
|
|
11
|
|
|
|
218
|
|
Gain
on settlement of litigation
|
|
|
1,012
|
|
|
|
-
|
|
|
|
1,012
|
|
|
|
-
|
|
Other
income
|
|
|
188
|
|
|
|
47
|
|
|
|
235
|
|
|
|
74
|
|
Interest
expense
|
|
|
(68 |
) |
|
|
(10 |
) |
|
|
(177 |
) |
|
|
(30 |
) |
Total
other income
|
|
|
1,144
|
|
|
|
49
|
|
|
|
1,110
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for (benefit from) income
taxes
|
|
|
952
|
|
|
|
186
|
|
|
|
1,368
|
|
|
|
878
|
|
Provision
for (benefit from) income taxes
|
|
|
45
|
|
|
|
64
|
|
|
|
(338 |
) |
|
|
(978 |
) |
Income
from continuing operations
|
|
|
907
|
|
|
|
122
|
|
|
|
1,706
|
|
|
|
1,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
from discontinued operations
|
|
|
-
|
|
|
|
(18 |
) |
|
|
-
|
|
|
|
(261 |
) |
Income
tax benefit
|
|
|
-
|
|
|
|
(7 |
) |
|
|
-
|
|
|
|
(105 |
) |
(Loss)
from discontinued operations
|
|
|
-
|
|
|
|
(11 |
) |
|
|
-
|
|
|
|
(156 |
) |
Net
income
|
|
|
907
|
|
|
|
111
|
|
|
|
1,706
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(10 |
) |
|
|
-
|
|
|
|
(10 |
) |
|
|
-
|
|
Comprehensive
income
|
|
$ |
897
|
|
|
$ |
111
|
|
|
$ |
1,696
|
|
|
$ |
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.02
|
|
(Loss)
from discontinued operations
|
|
|
-
|
|
|
|
(0.00 |
) |
|
|
-
|
|
|
|
(0.00 |
) |
Net
income
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,169
|
|
|
|
70,324
|
|
|
|
70,946
|
|
|
|
70,324
|
|
Diluted
|
|
|
106,546
|
|
|
|
113,529
|
|
|
|
102,260
|
|
|
|
109,478
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
.
EMERGING
VISION, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars
in Thousands)
|
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
1,706
|
|
|
$ |
1,856
|
|
Adjustments
to reconcile income from continuing operations to net cash provided
by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
345
|
|
|
|
196
|
|
Provision
for doubtful accounts
|
|
|
51
|
|
|
|
169
|
|
Deferred
tax assets
|
|
|
(361 |
) |
|
|
(1,113 |
) |
Non-cash
compensation charges related to options and warrants
|
|
|
104
|
|
|
|
494
|
|
Gain
on the sale of company-owned store to franchisee
|
|
|
(11 |
) |
|
|
(218 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Franchise
and other receivables
|
|
|
(959 |
) |
|
|
231
|
|
Settlement
receivable
|
|
|
(1,062 |
) |
|
|
-
|
|
Optical
purchasing group receivables
|
|
|
(493 |
) |
|
|
-
|
|
Inventories
|
|
|
(64 |
) |
|
|
(55 |
) |
Prepaid
expenses and other current assets
|
|
|
(398 |
) |
|
|
(61 |
) |
Intangible
and other assets
|
|
|
148
|
|
|
|
9
|
|
Accounts
payable and accrued liabilities
|
|
|
1,285
|
|
|
|
198
|
|
Optical
purchasing group payables
|
|
|
245
|
|
|
|
-
|
|
Franchise
deposits and other liabilities
|
|
|
(49 |
) |
|
|
(152 |
) |
Net
cash provided by operating activities
|
|
|
487
|
|
|
|
1,554
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Franchise
notes receivable issued
|
|
|
(131 |
) |
|
|
(228 |
) |
Proceeds
from franchise and other notes receivable
|
|
|
251
|
|
|
|
249
|
|
Proceeds
from the sale of company-owned store to franchisee
|
|
|
-
|
|
|
|
200
|
|
Purchases
of property and equipment
|
|
|
(863 |
) |
|
|
(267 |
) |
Acquisition
of 1725758 Ontario Inc.
|
|
|
(3,517 |
) |
|
|
(700 |
) |
Net
cash used in investing activities
|
|
|
(4,260 |
) |
|
|
(746 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings
under credit facility
|
|
|
4,359
|
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(389 |
) |
|
|
(32 |
) |
Net
cash provided by (used in) financing activities
|
|
|
3,970
|
|
|
|
(32 |
) |
Net
cash provided by continuing operations
|
|
|
197
|
|
|
|
776
|
|
Net
cash provided by discontinued operations
|
|
|
-
|
|
|
|
65
|
|
Net increase
in cash and cash equivalents
|
|
|
197
|
|
|
|
841
|
|
Cash
and cash equivalents – beginning of period
|
|
|
1,289
|
|
|
|
816
|
|
Cash
and cash equivalents – end of period
|
|
$ |
1,486
|
|
|
$ |
1,657
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
43
|
|
|
$ |
6
|
|
Taxes
|
|
$ |
34
|
|
|
$ |
34
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Accounts
receivable and excess costs of net tangible assets acquired in connection
with the Combine Optical Management Corp.
|
|
$ |
-
|
|
|
$ |
1,773
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
EMERGING
VISION, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 – BASIS OF PRESENTATION:
The
accompanying Consolidated Condensed Financial Statements of Emerging Vision,
Inc. and subsidiaries (collectively, 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, 2006 and
its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
2007 and June 30, 2007. There have been no changes in significant
accounting policies since December 31, 2006.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES:
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with the provisions
of Financial Accounting Standards Board’s (“FASB”) Statement of Financial
Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based
Compensation,” which provides guidance for the recognition of compensation
expense as it related to the issuance of stock options and
warrants. The Company also adopted the provisions of SFAS No. 148,
“Accounting for Stock-Based Compensation – Transition and Disclosure – an
amendment of SFAS No. 123.” SFAS No. 148 amended SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation provided
by SFAS No. 123. As permitted by SFAS No. 148, the Company has
adopted the fair value method recommended by SFAS No. 123 to effect a change
in
accounting for stock-based employee compensation. In addition, the
Company adopted the provisions of 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.
Stock-based
compensation expense of approximately $31,000 and $40,000 is reflected in
selling, general and administrative expenses on the accompanying Consolidated
Condensed Statements of Income for the three months ended September 30, 2007
and
2006, respectively, and $105,000 and $494,000 for the nine months ended
September 30, 2007 and 2006, respectively. The Company determined the
fair value of options and warrants issued using the Black-Scholes option pricing
model with the following assumptions: 1 to 2 year expected lives;
10-year expiration period; risk-free interest rate ranging from 3.00% to 4.98%;
stock price volatility ranging from 48.00% to 98.22%; with no dividends over
the
expected life.
Revenue
Recognition
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 prices to buyers are
fixed or determinable, and collectibility is reasonably assured.
The
Company derives its revenues from the following four principal
sources:
Net
sales– Represents sales from eye care products and related
services;
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;
Other
franchise related fees– Represents certain franchise fees collected by the
Company under the terms of franchise agreements (including, but not limited
to,
initial franchise fees, transfer fees and renewal fees).
Continuing
franchise royalties are 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. Initial franchise fees, which are
non-refundable, are recognized when the related franchise agreement is
signed. Membership fees generated by VisionCare of California, Inc.
(“VCC”), a wholly owned subsidiary of the Company, are 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.
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 conversion of foreign currency.
Foreign
Currency Translation
The
financial position and results of operations of the Company’s wholly-owned
subsidiary, OG Acquisition, Inc. (“OG”) were measured using OG’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 translation
loss from the conversion of foreign currency to U.S. Dollars is included as
a
component of comprehensive income for the quarter ended September 30, 2007
and
is recorded directly to accumulated comprehensive loss within the Consolidated
Condensed Balance Sheet as of September 30, 2007.
Income
Taxes
Effective
January 1, 2007, the Company adopted 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. The Company
recognizes accrued interest and penalties related to unrecognized tax benefits
as income tax expense. No such amounts were accrued for at January 1,
2007. Additionally, no amounts were accrued for as of September 30,
2007. Management is currently unaware of any issues under review that
could result in significant payments, accruals or material deviations from
its
position.
Discontinued
Operations
In
February 2006, the Company discontinued all of its retail operations then being
conducted in the state of Arizona and have applied the provision of FASB SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets.” As a result, the Company determined that substantially all
of the net assets of the Company-owned stores located in Arizona as of December
31, 2005 were impaired. During the three and nine months ended
September 30, 2006, the Company incurred losses, net of taxes, related to the
discontinued operations of approximately $11,000 and $156,000,
respectively. There were no such losses incurred during the three and
nine months ended September 30, 2007. As of September 30, 2007, there
were no assets remaining associated with the Company’s discontinued
operations.
Reclassification
Certain
reclassifications have been made to prior year’s consolidated condensed
financial statements to conform to the current year presentation.
NOTE
3 – ACQUISITION OF THE OPTICAL GROUP
On
August
10, 2007, effective August 1, 2007, the Company, through its wholly-owned
subsidiary OG, acquired all of the outstanding equity interests of 1725758
Ontario Inc., d/b/a The Optical Group ("TOG") and substantially all of the
assets of Corowl Optical Credit Services, Inc. ("COC") for an aggregate purchase
price of cash consideration of $3,800,000 CAD (approximately $3,600,000
USD). The Company withdrew funds from its Credit Facility with
Manufacturers and Traders Trust Corporation (“M&T”), including $3,609,423 to
fund the purchase price payable in connection with the acquisitions of TOG
and
COC, and $50,000 for general working capital requirements. TOG is
based in Ontario, Canada and operates an optical group purchasing business
in
Canada. COC is based in Ontario, Canada and operates a credit
reference business within the optical industry in Canada. TOG has
approximately 525 active members in its optical group purchasing
business.
The
acquisition was accounted for as a business purchase and recorded at the
estimated fair value (based on an independent expert’s valuation) of the assets
acquired and liabilities assumed, as follows:
Working
capital
|
|
$ |
1,000
|
|
Accounts
receivable
|
|
|
3,841,000
|
|
Property
and equipment
|
|
|
41,000
|
|
Intangible
assets
|
|
|
1,979,000
|
|
Excess
cost over net tangible assets acquired
|
|
|
1,446,000
|
|
Accounts
payable
|
|
|
(3,699,000 |
) |
Net
assets acquired
|
|
$ |
3,609,000
|
|
|
|
|
|
|
Property
and equipment will be depreciated on a straight-line basis over the estimated
useful lives of the respective classes of assets. The intangible
assets consist of a covenant not-to-compete agreement with a five year useful
life, customer-related intangibles with a ten year useful life, and a trade
name
with an indefinite life.
NOTE
4 – PER SHARE INFORMATION:
In
accordance with SFAS No. 128, “Earnings Per Share”, basic earnings per shares 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 shares 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
1,777,687 and 2,177,687 were excluded from the computation of Diluted EPS for
the three and nine months ended September 30, 2007, respectively, and 21,011,644
for the three and nine months ended September 30 2006, 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 September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
907
|
|
|
$ |
122
|
|
|
$ |
1,706
|
|
|
$ |
1,856
|
|
(Loss)
from discontinued operations
|
|
|
-
|
|
|
|
(11 |
) |
|
|
-
|
|
|
|
(156 |
) |
Net
income
|
|
$ |
907
|
|
|
$ |
111
|
|
|
$ |
1,706
|
|
|
$ |
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares of common stock outstanding
|
|
|
72,169
|
|
|
|
70,324
|
|
|
|
70,946
|
|
|
|
70,324
|
|
Dilutive
effect of stock options, warrants and restricted stock
|
|
|
34,377
|
|
|
|
43,205
|
|
|
|
31,314
|
|
|
|
39,154
|
|
Weighted-average
shares of common stock outstanding, assuming dilution
|
|
|
106,546
|
|
|
|
113,529
|
|
|
|
102,260
|
|
|
|
109,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.02
|
|
(Loss)
from discontinued operations
|
|
|
-
|
|
|
|
(0.00 |
) |
|
|
-
|
|
|
|
(0.00 |
) |
Net
income
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.02
|
|
NOTE
5 – SHAREHOLDERS' EQUITY:
On
September 24, 2007, Horizons Investors Corp. ("Horizons"), in connection with
certain rescission transactions consummated by the Company on December 31,
2003,
performed a "cashless exercise" of all of its 31,067,776 warrants, with the
exercise price paid by surrendering to the Company 4,367,764 of the warrants
held by Horizons, having an approximate aggregate value of $1,485,040, or $0.34
per share of Common Stock surrendered.
As
a
result of this transaction, the Company's Common Stock increased $267,000,
which
was offset by a charge to Accumulated Paid-in Capital to account for the
"cashless exercise" feature of the transaction.
NOTE
6 – 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 initial term of the Credit Facility expires in August
2009. 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 two hundred seventy five (275) basis points in excess of LIBOR, and
all
principal drawn by the Company is payable on August 1, 2009.
On
August
10, 2007, the Company borrowed $3,609,423 to fund the purchase price payable
in
connection with the acquisitions of TOG and COC, and borrowed $400,000 for
general working capital requirements. The Credit Facility includes various
financial covenants including minimum net worth, maximum funded debt and debt
service ratio requirements. As of September 30, 2007, the Company had
outstanding borrowings of $4,359,423 under the Credit Facility, which amount
was
included in Long-term Debt on the accompanying Consolidated Condensed Balance
Sheet, was in compliance with the various financial covenants, and had
$1,640,577 available under the Credit Facility for future
borrowings.
NOTE
7 – SEGMENT REPORTING
The
Company follows the provisions of FASB Statement 131, “Disclosures about
Segments of a Business Enterprise and Related Information.” During
September 2006, the Company, through its wholly-owned subsidiary COM
Acquisition, Inc. (“Combine”), acquired substantially all of the assets of
Combine Optical Management Corp. (“COMC”), which created a new operating
segment, the Optical Group Purchasing Business. This segment along
with the existing operating segment, Retail Optical Stores, constitutes the
Company’s two reporting segments.
The
Retail Optical Store segment consists of Company-owned and franchise retail
optical stores that offer 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. Additionally, the segment also consists of optometric services
provided by VCC to patients (members) of certain of those franchise retail
optical stores.
The
Optical Group Purchasing Business segment represents product
pricing extended to Combine and OG members associated with the sale of
vendor’s eye care products to such members.
Certain
business segment information for continuing operations is as
follows:
|
|
For
the Three Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Business
Segment Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
4,059
|
|
|
$ |
3,689
|
|
|
$ |
12,025
|
|
|
$ |
10,900
|
|
Optical
Group Purchasing Business
|
|
|
11,603
|
|
|
|
2,775
|
|
|
|
20,525
|
|
|
|
2,775
|
|
Net
revenues
|
|
$ |
15,662
|
|
|
$ |
6,464
|
|
|
$ |
32,550
|
|
|
$ |
13,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segment Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
663
|
|
|
$ |
70
|
|
|
$ |
1,276
|
|
|
$ |
1,804
|
|
Optical
Group Purchasing Business
|
|
|
244
|
|
|
|
52
|
|
|
|
430
|
|
|
|
52
|
|
Net
income
|
|
$ |
907
|
|
|
$ |
122
|
|
|
$ |
1,706
|
|
|
$ |
1,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segment Net Income per Share – Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.02
|
|
Optical
Group Purchasing Business
|
|
|
0.00
|
|
|
|
-
|
|
|
|
0.00
|
|
|
|
-
|
|
Net
income per share – Basic
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Number of Shares of common stock Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,169
|
|
|
|
70,324
|
|
|
|
70,946
|
|
|
|
70,324
|
|
Diluted
|
|
|
106,546
|
|
|
|
113,529
|
|
|
|
102,260
|
|
|
|
109,478
|
|
The
Optical Group Purchasing Business segment includes Combine's business activity
from August 1, 2006, the effective date of the acquisition of COMC, and includes
OG's business activity from August 1, 2007 through September 30,
2007.
Net
income includes a provision for income taxes of $45,000 and $64,000 for the
three months ended September 30, 2007 and 2006, respectively, and includes
an
income tax benefit of $338,000 and $978,000 for the nine months ended September
30, 2007 and 2006, respectively.
Additional
business segment information is summarized as follows for the nine months ended
September 30, 2007 (in thousands):
|
|
Retail
Optical Stores
|
|
|
Optical
Group Purchasing Business
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
10,409
|
|
|
$ |
13,133
|
|
|
$ |
23,542
|
|
Depreciation
and Amortization
|
|
|
229
|
|
|
|
116
|
|
|
|
345
|
|
Capital
Expenditures
|
|
|
750
|
|
|
|
113
|
|
|
|
863
|
|
Interest
Expense
|
|
|
40
|
|
|
|
137
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table shows certain unaudited pro forma results of the Company,
assuming the Company had acquired COMC and TOG at the beginning of the three
and
nine months ended September 30, 2007 and 2006 (excluding discontinued
operations):
|
|
For
the Three Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Business
Segment Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
4,059
|
|
|
$ |
3,689
|
|
|
$ |
12,025
|
|
|
$ |
10,900
|
|
Optical
Group Purchasing Business
|
|
|
15,444
|
|
|
|
13,383
|
|
|
|
44,066
|
|
|
|
37,730
|
|
Net
revenues
|
|
$ |
19,503
|
|
|
$ |
17,072
|
|
|
$ |
56,091
|
|
|
$ |
48,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segment Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
663
|
|
|
$ |
70
|
|
|
$ |
1,276
|
|
|
$ |
1,804
|
|
Optical
Group Purchasing Business
|
|
|
382
|
|
|
|
264
|
|
|
|
1,120
|
|
|
|
930
|
|
Net
income
|
|
$ |
1,045
|
|
|
$ |
334
|
|
|
$ |
2,396
|
|
|
$ |
2,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segment Net Income per Share – Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.03
|
|
Optical
Group Purchasing Business
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.01
|
|
|
|
0.01
|
|
Net
income per share
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.03
|
|
|
$ |
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segment Net Income per Share – Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Optical Stores
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.01
|
|
|
$ |
0.02
|
|
Optical
Group Purchasing Business
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.01
|
|
|
|
0.01
|
|
Net
income per share
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.02
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Number of Shares of common stock Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,169
|
|
|
|
70,324
|
|
|
|
70,946
|
|
|
|
70,324
|
|
Diluted
|
|
|
106,546
|
|
|
|
113,529
|
|
|
|
102,260
|
|
|
|
109,478
|
|
NOTE
8 - COMMITMENTS AND CONTINGENCIES:
Litigation
In
1999,
Berenter Greenhouse and Webster, an advertising agency previously utilized
by
the Company, commenced an action, against the Company, in the New York State
Supreme Court, New York County, for amounts alleged to be due for advertising
and related fees. The amounts claimed by the plaintiff are in excess
of $200,000. In response to this action, the Company filed
counterclaims of approximately $500,000, based upon estimated overpayments
allegedly made by the Company pursuant to the agreement previously entered
into
between the parties. As of the date hereof, these proceedings were
still 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.
In
July
2001, the Company commenced an arbitration proceeding, in the Ontario Superior
Court of Justice, against Eye-Site, Inc. and Eye Site (Ontario), Ltd., as the
makers of two promissory notes (in the aggregate original principal amount
of
$600,000) made by one or more of the makers in favor of the Company, as well
as
against Mohammed Ali, as the guarantor of the obligations of each maker under
each note. The notes were issued, by the makers, in connection with
the makers’ acquisition of a Master Franchise Agreement for the Province of
Ontario, Canada, as well as their purchase of the assets of, and a Sterling
Optical Center Franchise for, four of the Company’s retail optical stores then
located in Ontario, Canada. In response, the defendants
counterclaimed for damages, in the amount of $1,500,000, based upon, among
other
items, alleged misrepresentations made by representatives of the Company in
connection with these transactions. The Company believes that it has
a meritorious defense to each counterclaim. As of the date hereof,
these proceedings were in the discovery stage. The Company has not
recorded an accrual for a loss and does not believe it is probable that the
Company shall be held liable in respect of defendant’s
counterclaims.
In
February 2002, Kaye Scholer, LLP, the law firm previously retained by the
Company as its outside counsel, commenced an action in the New York State
Supreme Court seeking unpaid legal fees of approximately
$122,000. The Company answered the complaint in such action, and has
heard nothing since. The Company believes that it has a meritorious
defense to such action. 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.
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 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
May
2006, the Company commenced an action against I and A Optical, Inc., Mark Shuff
and Felicia Shuff, in the Supreme Court of the State of New York, County of
Nassau, seeking, among other things, monetary damages as a result of the
defendants' alleged breach of the terms of the Sterling Optical Center Franchise
Agreement (and related documents) with the Company to which they are
parties. The defendants then asserted counterclaims against the
Company, seeking, among other things, money damages arising under the Franchise
Agreement with the Company as a result of the Company's alleged violation of
such Franchise Agreement. 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 and does not believe it is probable that the Company
shall
be held liable in respect of defendant’s counterclaims.
In
January 2007, PR Prince Georges Plaza, LLC commenced an action against the
Company, in the Circuit Court of the State of Maryland, Prince George’s County,
alleging, among other things, that the Company had breached its obligations
under its guaranty of the lease for the former Sterling Optical store located
at
The Mall at Prince Georges, 3500 East West Highway, Hyattsville, Prince George’s
County, Maryland. In November 2007, this action was settled, the
terms of which included, among other things, the Company’s payment to the
plaintiff of approximately $22,000.
In
January 2007, Laurelrising as Owner, LLC commenced an action against the
Company, in the Circuit Court of the State of Maryland, Prince Georges County,
alleging, among other things, that the Company had breached its obligations
under its lease for the former Sterling Optical store located at Laurel Centre
Mall, Laurel, Maryland. The Company believes that it has a
meritorious defense to this 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
July
2007, Horizons Investors Corp. (“Horizons”) commenced an action against the
Company, in the Supreme Court of the State of New York, Nassau County, alleging,
among other things, a default in the performance of the Company’s obligations
under a promissory note issues to Horizons by the Company as a result of the
Company’s alleged failure to pay the correct interest rate on the then
outstanding principal amount of such note. On October 31, the Court
granted the Company’s request for summary judgment, dismissing Horizons’ claims
in their entirety.
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
September 30, 2007, the Company was a guarantor of certain leases of retail
optical stores franchised and subleased to its franchisees. In the
event that all of such franchisees defaulted on their respective subleases,
the
Company would be obligated for aggregate lease obligations of approximately
$3,190,000. 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.
Letter
of Credit
Combine
holds a letter of credit with a financial institution in favor of one of its
key
vendors to ensure payment of any outstanding invoices not paid by
Combine. The letter of credit has a one-year term that expires in
December 2007. As of September 30, 2007, the letter of credit totaled
$250,000, and was secured by a certificate of deposit (totaling $250,000) at
the
same financial institution, which is included in Restricted Cash on the
accompanying Consolidated Condensed Balance Sheets.
Employment
Agreements
The
Company has an Employment Agreement (“Agreement No. 1”) with its Chief Executive
Officer, which extends through November 2009. Agreement No. 1
provides for an annual salary of $275,000, certain other benefits, and the
potential for an annual bonus to be determined by the Company’s Board of
Directors based on the Company’s previous calendar’s year
performance.
Additionally,
in connection with the acquisition of COMC, the Company entered into a five-year
Employment Agreement (“Agreement No. 2”) with the existing President of
COMC. Agreement No. 2 provides for an annual salary of $210,000,
certain other benefits, and an annual bonus based upon certain financial targets
for Combine. During the nine months ended September 30, 2007, a
bonus of approximately $54,000 was accrued for and reflected in accounts payable
and accrued expenses on the accompanying Consolidated Condensed Balance Sheet
as
of September 30, 2007.
NOTE
9 – INCOME TAXES:
The
provision for (benefit from) income taxes from continuing operations consists
of
the following (in thousands):
|
|
For
the Three Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
(16
|
) |
|
$ |
(6 |
) |
|
$ |
67
|
|
|
$ |
30
|
|
Deferred
|
|
|
61
|
|
|
|
70
|
|
|
|
(405 |
) |
|
|
(1,008 |
) |
Total
provision for (benefit from) income taxes
|
|
$ |
45
|
|
|
$ |
64
|
|
|
$ |
(338 |
) |
|
$ |
(978 |
) |
The
deferred tax benefit on the accompanying Consolidated Condensed Statements
of
Income for the three and nine months ended September 30, 2007 is a result of
the
reduction in the valuation allowance of $215,000 and $934,000 less deferred
tax
expense of $251,000 and $529,000, respectively. For the three and
nine months ended September 30, 2006, the deferred tax benefit is a result
of
the reduction in the valuation allowance of $0 and $1,600,000 less deferred
tax
expense of $70,000 and $592,000, respectively. Management, based on
current operations and future projections, estimates that deferred tax benefits,
arising principally from net operating loss carry forwards, will be realized
through September 30, 2009. The Company has a remaining valuation
allowance of approximately $12,800,000 as of September 30, 2007. As
of September 30, 2007, the Company had federal net operating loss carry forwards
of approximately $44,000,000.
NOTE
10 – SUBSEQUENT EVENTS:
On
October 2, 2007, in connection with certain rescission transactions consummated
by the Company on December 31, 2003, certain of the Company's shareholders
exercised all of their 28,142,252 warrants, with the total exercise price of
$1,344,835 being paid to the Company in cash. In addition, on October
31, 2007, the Company repaid promissory notes due to such shareholders together
with principal and interest totaling $319,000.
On
November 5, 2007, the Company settled an adversary proceeding (the “Adversary
Proceeding”) against BAL Global Finance, LLC, formerly known as Sanwa Business
Credit Corporation that had been pending in the United States Bankruptcy Court
for the Southern District of New York since 1995. The material terms
of the settlement of the Adversary Proceeding include a cash payment to the
Company, in the amount of $1,270,000 (less certain costs and expenses incurred
in the litigation, including attorney fees of $258,000), and the mutual release
of all claims between the parties. Such payment was received by the
Company in November 2007.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This
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, 2006 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 the Form 10-Q. The
Company does not intend to update these forward-looking statements for new
information, or otherwise, for the occurrence of future events.
Results
of Operations
For
the Three and Nine Months Ended September 30, 2007, as Compared to the
Comparable Period in 2006
Total
revenues for the Company increased approximately $9,198,000, or 142.3%, to
$15,662,000 for the three months ended September 30, 2007, as compared to
$6,464,000 for the three months ended September 30, 2006, and increased
approximately $18,875,000, or 138.0%, to $32,550,000 for the nine months ended
September 30, 2007, as compared to $13,675,000 for the nine months ended
September 30, 2006. These increases were mainly a result of the
acquisition, on September 29, 2006, having an effective date of August 1, 2006,
of substantially all of the assets of Combine Optical Management Corporation
(“COMC”) through the Company’s wholly-owned subsidiary, COM Acquisition, Inc.
(“Combine”), and of the acquisition, on August 10, 2007, having an effective
date of August 1, 2007, of all of the equity ownership interests in 1725758
Ontario Inc., d/b/a The Optical Group (“TOG”) through the Company’s wholly-owned
subsidiary, OG Acquisition, Inc. (“OG”). Additionally, the number of
Company-owned stores in operation increased from 8 as of September 30, 2006
to
13 as of September 30, 2007.
Total
costs, and selling, general and administrative expenses for the Company
increased approximately $9,527,000, or 150.6%, to $15,854,000 for the three
months ended September 30, 2007, as compared to $6,327,000 for the three months
ended September 30, 2006, and increased approximately $19,199,000, or 146.6%,
to
$32,292,000 for the nine months ended September 30, 2007, as compared to
$13,093,000 for the nine months ended September 30, 2006. These
increases were mainly a result of the acquisitions of COMC and TOG, and also
due
to the increased number of Company-owned stores in operation as of September
30,
2007.
Retail
Optical Store Segment
Net
sales
for Company-owned stores increased approximately $436,000, or 43.6%, to
$1,435,000 for the three months ended September 30, 2007, as compared to
$999,000 for the three months ended September 30, 2006, and increased
approximately $1,122,000, or 38.5%, to $4,040,000 for the nine months ended
September 30, 2007, as compared to $2,918,000 for the nine months ended
September 30, 2006. These increases were mainly attributable to more
Company-owned store locations open during the comparable periods. As
of September 30, 2007, there were 13 Company-owned stores (1 of which was being
managed for the Company by a franchisee), as compared to 8 Company-owned stores
as of September 30, 2006. On a same store basis (for stores
that operated as a Company-owned store during the entirety of both of the three
and nine months ended September 30, 2007 and 2006), comparative net sales
increased approximately $55,000, or 7.0%, to $836,000 for the three months
ended
September 30, 2007, as compared to $781,000 for the three months ended September
30, 2006, and increased approximately $111,000, or 4.6%, to $2,533,000 for
the
nine months ended September 30, 2007, as compared to $2,422,000 for the nine
months ended September 30, 2006. Management believes that these
increases were a direct result of changes to key personnel during the first
quarter of 2007 (including many of the Company-store managers), which helped
improve store operations. Additionally, the Company added new
training procedures and continued to implement a new point-of-sale system,
all
of which lead to increased Company-store sales.
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
$34,000, or 4.0%, to $889,000 for the three months ended September 30, 2007,
as
compared to $855,000 for the three months ended September 30, 2006, and
increased approximately $84,000, or 3.3%, to $2,616,000 for the nine months
ended September 30, 2007, as compared to $2,532,000 for the nine months ended
September 30, 2006. These increases were primarily due to an increase
in membership fees generated by VCC during the first and second quarters of
2007
in addition to an increase in the membership fee charged, which went into effect
July 2007.
Franchise
royalties decreased approximately $165,000, or 9.2%, to $1,632,000 for the
three
months ended September 30, 2007, as compared to $1,797,000 for the three months
ended September 30, 2006, and decreased approximately $141,000, or 2.7%, to
$5,138,000 for the nine months ended September 30, 2007, as compared to
$5,279,000 for the nine months ended September 30,
2006. These decreases included $428,000 of additional
royalties generated from a larger number of audit discrepancies uncovered during
the nine months ended September 30, 2006 as compared to $176,000 during the
nine
months ended September 30, 2007. These results were factored over an
equivalent sample size of franchise locations audited for each
year. This decrease was offset by a 4.3% increase in franchise sales
for the stores that were in operation during both of the comparable
periods.
Including
revenues and the related of cost of revenues solely generated by the
Company-owned stores, the Company’s gross profit margin decreased by 10.1%, to
65.1%, for the three months ended September 30, 2007, as compared to 75.2%
for
the three months ended September 30, 2006, and 4.9%, to 68.5%, for the nine
months ended September 30, 2007, as compared to 73.4% for the nine months ended
September 30, 2006. The Company has identified the major contributing
factors that led to the decrease in the Company’s gross profit
margin. Management is addressing these issues through increased
training at the Company-store level, amongst other things, and anticipates
these
changes will result in increases in the Company’s gross profit margin in the
future. Additionally, the Company’s gross margin may fluctuate
depending upon the extent and timing of changes in the product mix in the
Company-owned stores, competitive pricing, and promotional
incentives.
Selling,
general and administrative expenses increased approximately $715,000, or 21.1%,
to $4,102,000 for the three months ended September 30, 2007, as compared to
$3,387,000 for the three months ended September 30, 2006, and $1,506,000, or
15.5%, to $11,203,000 for the nine months ended September 30, 2007, as compared
to $9,697,000 for the nine months ended September 30, 2006. These
increases were partially a result of increases to advertising expenses of
$54,000 and $168,000 due to the promotion of a new marketing campaign around
the
new product mix in our Company-owned stores, payroll and related expenses of
$641,000 and $1,576,000 due, in part, to the addition of certain key employees
hired to enhance Company store operations and expand the franchise chain during
the third and fourth quarters of 2006, and additional charges, including rent
and overhead expenses, related to an average of three more Company-owned stores
in operation during the three and nine months ended September 30, 2007,
respectively. In addition to these items, the Company incurred
certain costs associated with the development of two new business lines, costs
associated with the implementation of Sarbanes-Oxley compliance including hiring
additional personnel, overhead and redirecting resources of existing employees,
and the cost to implement the recent acquisitions of the
Company. These expenses were offset, in part, by a decrease in equity
compensation charges of $389,000 during the nine months ended September 30,
2007
and to a bad debt recovery of $100,000 in March 2007.
Gain
on
sale of company-owned stores to franchisees related to the sale of a
Company-owned store in upstate New York in February 2006 for a purchase price
of
$225,000, which included the net fixed assets of such store (such assets having
a net book value of $7,000). There were no such sales of
Company-owned stores during the three and nine months ended September 30,
2007.
Gain
on
settlement of litigation relates to the settlement of an adversary proceeding
between the Company and BAL Global Finance, LLC, formerly known as Sanwa
Business Credit Corporation that had been pending in the United States
Bankruptcy Court for the Southern District of New York since
1995. The material terms of the settlement generated other income of
$1,270,000 less certain costs and expenses incurred in the litigation (including
attorney fees) of $258,000.
Optical
Purchasing Group Business Segment
On
September 29, 2006, having an effective date of August 1, 2006, the Company,
through its wholly-owned subsidiary Combine, acquired substantially all of
the
assets of COMC. Combine activity, beginning August 1, 2006, has been
included in the Company’s results of operations as of and for the three and nine
months ended September 30, 2007 and 2006, respectively.
On
August
10, 2007, having an effective date of August 1, 2007, the Company, through
its
wholly-owned subsidiary OG, acquired all of the equity ownership interest in
TOG. OG activity, beginning August 1, 2007, has been included in the
Company’s results of operations as of and for the three and nine months ended
September 30, 2007.
Net
revenues for the optical purchasing group segment were $11,603,000 and
$20,525,000 for the three and nine months ended September 30, 2007,
respectively, which represented 74.1% and 63.1%, respectively, of the total
revenue of the Company.
Costs
of
sales for the optical purchasing group segment were $11,087,000 and $19,390,000
for the three and nine months ended September 30, 2007, respectively, which
represented 96.2% and 94.5%, respectively, of the total costs of sales of the
Company.
Selling,
general and administrative expenses for the optical purchasing group segment
were $227,000 and $579,000 for the three and nine months ended September 30,
2007, respectively, which represented 5.3% and 4.9%, respectively, of the total
selling, general and administrative expenses of the Company. These
expenses included payroll and related benefits of $90,000 and $235,000,
depreciation and amortization of $39,000 and $116,000, and bank and credit
card
fees of $40,000 and $84,000 for the three and nine months ended September 30,
2007, respectively.
Interest
expense for the optical purchasing group segment was $50,000 and $137,000 for
the three and nine months ended September 30, 2007. Interest expense
related to the debt financing with COMC in connection with the acquisition
of
substantially all of the assets of COMC, and to the borrowings under the
Company’s Credit Facility with Manufacturers and Traders Trust Corporation
(“M&T”) to fund the acquisitions of TOG and COC.
There
are
no comparatives provided for the optical purchasing group segment as the
acquisition of COMC was consummated during the 3rd quarter
of 2006,
and the acquisitions of TOG and COC was consummated during the 3rd quarter
of
2007.
Liquidity
and Capital Resources
As
of
September 30, 2007, the Company generated $1,476,000 of working capital and
had
cash on hand of $1,486,000. During the nine months ended September
30, 2007, cash flows provided by its operating activities were
$487,000. This was principally due to net income of $1,706,000 and an
increase in accounts payables and accrued liabilities of $1,285,000, offset,
in
part, by the settlement receivable of $1,062,000, an increase in franchise
and
other receivables of $959,000, and the increase in optical purchasing group
receivables of $493,000. The Company believes it will continue to
improve its operating cash flows through franchisee audits, the addition of
new
franchise and company store locations, its current and future acquisitions,
and
new marketing strategies and increased gross margins, among other things, for
its Company-owned stores.
For
the
nine months ended September 30, 2007, cash flows used in investing activities
were $4,260,000 mainly due to the acquisition of TOG and COC, as well as capital
expenditures (which included the remodeling of one of the Company-owned stores
and the Corporate offices, and the purchase of a customized exhibiting booth
for
the Company’s trade shows) made by the Company.
For
the
nine months ended September 30, 2007, cash flows provided by financing
activities were $3,970,000 mainly due to the Company borrowing $3,609,000 in
August 2007 under the Company’s Credit Facility with M&T to fund the
acquisitions of TOG and COC. Additionally, the Company borrowed
another $750,000 throughout the year for general working capital requirements,
offset by the repayment of the Company’s related party borrowings, the
promissory note payments made to COMC, and the payment of one of the promissory
notes in connection with certain Rescission Transactions consummated by the
Company on December 31, 2003.
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 initial term of the Credit Facility expires in August
2009. 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 two hundred seventy five (275) basis points in excess of LIBOR, and
all
principal drawn by the Company is payable on August 1, 2009.
On
August
10, 2007, the Company borrowed $3,609,423 to fund the purchase price payable
in
connection with the acquisitions of TOG and COC, and borrowed $400,000 for
general working capital requirements. The Credit Facility includes
various financial covenants including minimum net worth, maximum funded debt
and
debt service ratio requirements. As of September 30, 2007, the
Company had outstanding borrowings of $4,359,423 under the Credit Facility,
which amount was included in Long-term Debt on the accompanying Consolidated
Condensed Balance Sheet, was in compliance with the various financial covenants,
and had $1,640,577 available under the Credit Facility for future
borrowings.
Contractual
Obligations
Payments
due under contractual obligations as of September 30, 2007 were as follows
(in
thousands):
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations (a) (b) (c)
|
|
$ |
6,337
|
|
|
$ |
879
|
|
|
$ |
5,118
|
|
|
$ |
340
|
|
|
$ |
-
|
|
Interest
on long-term debt obligations (a) (b) (c)
|
|
|
916
|
|
|
|
482
|
|
|
|
430
|
|
|
|
4
|
|
|
|
-
|
|
Operating
leases
|
|
|
12.618
|
|
|
|
3,846
|
|
|
|
3,466
|
|
|
|
2,029
|
|
|
|
3,277
|
|
|
|
$ |
19,871
|
|
|
$ |
5,207
|
|
|
$ |
9,014
|
|
|
$ |
2,373
|
|
|
$ |
3,277
|
|
(a)
|
Effective
April 14, 2003, in connection with certain Rescission Transactions
consummated by the Company on December 31, 2003, the Company signed
numerous promissory notes with certain of its shareholders, two of
whom
are also directors of the Company. The notes, which aggregated
$520,000, accrued interest at a rate of 6% per annum. All sums
(principal and interest) under the notes were due and payable in
April
2007. On April 24, 2007, the Company repaid one of such notes
together with principal and interest totaling
$338,000. Each of the other shareholders agreed to extend
the terms of such notes for an additional 12 months at an interest
rate of
9%, due in April 2008. Such notes were repaid in October
2007.
|
(b)
|
In
connection with the acquisition of substantially all of the assets
of
COMC, the Company entered into two promissory notes with
COMC. The first note provides for four annual installments
commencing October 1, 2007, totaling $1,273,000 (without
interest). On October 1, 2007, the Company paid the first
installment of $498,000. The second note provides for sixty
monthly installments commencing October 1, 2006, totaling $500,000
at 7%
interest per annum.
|
(c)
|
The
Company had outstanding borrowings of $4,359,423 under the Credit
Facility, which borrowings are payable (interest only) monthly and
bear
interest at a rate of LIBOR plus 2.75%. The principal and any
accrued interest are due and payable at the end August
2009.
|
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. We refer 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 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 $5,000
and $15,000 higher/lower for the three and nine months ended September 30,
2007,
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, 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 altered its valuation allowance on deferred tax assets by 10
percent, consolidated net income would be an estimated $1,280,000 higher/lower
for the three and nine months ended September 30, 2007,
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 collectibility of royalties is not reasonably assured, the
Company recognizes such revenues when the cash is received. To the
extent that royalties that were recognized on a cash basis were recognized
on an
accrual basis, consolidated net income would be an estimated $21,000 and
$132,000 higher/lower for the three and nine months ended September 30, 2007,
respectively.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
The
Company presently has outstanding certain equity instruments with beneficial
conversion terms. Accordingly, the Company, in the future, could
incur non-cash charges to equity (as a result of the exercise of such beneficial
conversion terms), which would have a negative impact on future per share
calculations.
The
Company believes that the level of risk related to its cash equivalents is
not
material to the Company’s financial condition or results of
operations.
The
Company is exposed to interest rate risk under its Credit Facility with
M&T. As of September 30, 2007, the Company had outstanding
borrowings of $4,359,423 under its Credit Facility. Any increase in
the LIBOR rate would lead to higher interest expense.
Item
4. Controls and Procedures
(a) Evaluation
of Disclosure Controls and
Procedures
|
Based
on
their evaluation of the Company’s disclosure controls and procedures as of the
end of the period covered by this Quarterly Report on Form 10-Q, the Company’s
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have
concluded that the Company’s disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports
that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Company in such reports
is accumulated and communicated to the Company’s management, including the CEO
and CFO, as appropriate to allow timely decisions regarding required
disclosure. The Company’s management is currently assessing the
effectiveness of internal controls over financial reporting required by Section
404 of the Sarbanes-Oxley Act.
(b) Changes
in Internal Controls
|
There
were no changes that occurred during the fiscal quarter covered by this
Quarterly Report on Form 10-Q that have materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
In
January 2007, PR Prince Georges Plaza, LLC commenced an action against the
Company, in the Circuit Court of the State of Maryland, Prince George’s County,
alleging, among other things, that the Company had breached its obligations
under its guaranty of the lease for the former Sterling Optical store located
at
The Mall at Prince Georges, 3500 East West Highway, Hyattsville, Prince George’s
County, Maryland. In November 2007, this action was settled, the
terms of which included, among other things, the Company’s payment to the
plaintiff of approximately $22,000.
In
July
2007, Horizons Investors Corp. (“Horizons”) commenced an action against the
Company, in the Supreme Court of the State of New York, Nassau County, alleging,
among other things, a default in the performance of the Company’s obligations
under a promissory note issues to Horizons by the Company as a result of the
Company’s alleged failure to pay the correct interest rate on the then
outstanding principal amount of such note. On October 31, the Court
granted the Company’s request for summary judgment, dismissing Horizons’ claims
in their entirety.
Item
1a. Risk Factors
There
have been no material changes to the disclosure related to risk factors made
in
our Annual Report on Form 10-K for the year ended December 31,
2006.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
In
connection with certain Rescission Transactions consummated by the Company
on
December 31, 2003, the Company granted 31,067,776 warrants to Horizon Investors
Corp. (“Horizons”) to purchase shares of the Company’s Common
Stock. The warrants had an exercise price of $0.0478, were not
exercisable until April 15, 2006 and were to expire on April 14,
2008. On September 24, 2007, Horizons performed a “cashless exercise”
of such warrants, thus exercising all of its 31,067,776 warrants, with the
exercise price paid by surrendering to the Company 4,367,764 of the warrants,
having an approximately aggregate value of $1,485,040, or $0.34 per share of
Common Stock surrendered. Horizons ended up receiving 26,700,012
shares of Common Stock. Horizons Common Stock was issued pursuant to
the exemption from registration under the Securities Act of 1933, as amended
(the “Act”), provided by Section 4 (2) of the Act.
Item
3. Defaults upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
Item
6. Exhibits
10.1
|
TOG
Business Purchase Agreement (incorporated by reference to Exhibit
10.1 the
Company’s Current Report on Form 8-K, dated July 5,
2007)
|
10.2
|
Revolving
Line of Credit Note and Credit Agreement (incorporated by reference
to
Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated August 14,
2007)
|
10.3
|
Absolute
Assignment of Franchise Notes and Proceeds Due (incorporated by reference
to Exhibit 10.2 of the Company’s Current Report on Form 8-K, dated August
14, 2007)
|
10.4
|
General
Security Agreement – Emerging Vision, Inc. (incorporated by reference to
Exhibit 10.3 of the Company’s Current Report on Form 8-K, dated August 14,
2007)
|
10.5
|
General
Security Agreement – Combine Buying Group, Inc. (incorporated by reference
to Exhibit 10.4 of the Company’s Current Report on Form 8-K, dated August
14, 2007)
|
10.6
|
General
Security Agreement – OG Acquisition, Inc. (incorporated by reference to
Exhibit 10.5 of the Company’s Current Report on Form 8-K, dated August 14,
2007)
|
10.7
|
General
Security Agreement – 1725758 Ontario Inc. d/b/a The Optical Group
(incorporated by reference to Exhibit 10.6 of the Company’s Current Report
on Form 8-K, dated August 14, 2007)
|
10.8
|
Continuing
Guaranty – Combine Buying Group, Inc. (incorporated by reference to
Exhibit 10.7 of the Company’s Current Report on Form 8-K, dated August 14,
2007)
|
10.9
|
Continuing
Guaranty – OG Acquisition, Inc. (incorporated by reference to Exhibit 10.8
of the Company’s Current Report on Form 8-K, dated August 14,
2007)
|
10.10
|
Continuing
Guaranty – 1725758 Ontario Inc. d/b/a The Optical Group (incorporated by
reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K,
dated August 14, 2007)
|
10.11
|
Pledge
Agreement and Assignment (incorporated by reference to Exhibit 10.10
of
the Company’s Current Report on Form 8-K, dated August 14,
2007)
|
10.12
|
United
States Collateral Assignment and Security Agreement by Emerging Vision,
Inc. (incorporated by reference to Exhibit 10.11 of the Company’s Current
Report on Form 8-K, dated August 14,
2007)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14(a)
of the
Securities Exchange Act
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14(a)
of the
Securities Exchange Act
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
SIGNATURES
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:
November 14, 2007