Exhibit 99.1
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
COASTAL CONTACTS INC.
January 31, 2014
(Expressed in Canadian Dollars)
(Unaudited)
COASTAL CONTACTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in Thousands of Canadian Dollars)
(unaudited)
| | January 31 | | October 31 | |
| | 2014 | | 2013 | |
| | | | | |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents (note 5) | | $ | 13,685 | | $ | 22,374 | |
Trade and other receivables | | 7,508 | | 7,059 | |
Inventories | | 30,085 | | 28,994 | |
Prepaid expenses | | 3,707 | | 2,596 | |
Total current assets | | 54,985 | | 61,023 | |
Non-current assets | | | | | |
Property, equipment and leasehold improvements | | 10,877 | | 10,545 | |
Intangible assets | | 13,776 | | 12,872 | |
Goodwill | | 9,229 | | 8,820 | |
Total non-current assets | | 33,882 | | 32,237 | |
TOTAL ASSETS | | $ | 88,867 | | $ | 93,260 | |
| | | | | |
LIABILITIES AND EQUITY | | | | | |
Current liabilities | | | | | |
Trade and other payables | | $ | 42,358 | | $ | 43,390 | |
Provisions | | 2,239 | | 1,911 | |
Income taxes payable | | 530 | | 446 | |
Finance lease obligations | | 811 | | 1,010 | |
Loans | | 2,332 | | 4,030 | |
Other current liabilities | | 317 | | 284 | |
Total current liabilities | | 48,587 | | 51,071 | |
Non-current liabilities | | | | | |
Other long-term liabilities | | 185 | | 228 | |
Finance lease obligations | | 1,121 | | 1,104 | |
Loans | | 3,630 | | 2,431 | |
Deferred tax liabilities | | 2,851 | | 2,590 | |
Total non-current liabilities | | 7,787 | | 6,353 | |
Total liabilities | | 56,374 | | 57,424 | |
| | | | | |
Shareholders’ equity | | | | | |
Share capital (note 6) | | 64,548 | | 63,913 | |
Share-based payments reserve | | 3,725 | | 3,587 | |
Accumulated other comprehensive income | | 1,286 | | 1,160 | |
Deficit | | (37,066 | ) | (32,824 | ) |
Total shareholders’ equity | | 32,493 | | 35,836 | |
TOTAL LIABILITIES AND EQUITY | | $ | 88,867 | | $ | 93,260 | |
Subsequent event (note 10)
See accompanying notes to the condensed consolidated financial statements
On behalf of the Board:
“Roger Hardy” | | “Jeffrey Mason” |
Roger V. Hardy, Director | Jeffrey R. Mason, Director |
COASTAL CONTACTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in Thousands of Canadian Dollars, except share and per share amounts)
(unaudited)
For the three months ended January 31 | | 2014 | | 2013 | |
| | | | | |
Sales | | $ | 52,105 | | $ | 54,898 | |
Cost of sales | | 29,553 | | 32,163 | |
Gross profit | | 22,552 | | 22,735 | |
| | | | | |
Fulfillment | | 4,527 | | 5,311 | |
Selling and marketing | | 16,614 | | 14,671 | |
General and administration | | 6,157 | | 5,449 | |
Results from operating activities | | (4,746 | ) | (2,696 | ) |
| | | | | |
Financing costs (income) | | (511 | ) | 424 | |
| | | | | |
Loss before income taxes | | (4,235 | ) | (3,120 | ) |
| | | | | |
Income tax expense (recovery) - current | | (115 | ) | 217 | |
Income tax expense - deferred | | 122 | | 38 | |
Net income tax expense | | 7 | | 255 | |
| | | | | |
Net loss for the period | | (4,242 | ) | (3,375 | ) |
| | | | | |
Other comprehensive income (loss) | | | | | |
Foreign currency translation differences | | 126 | | 774 | |
Comprehensive loss for the period | | $ | (4,116 | ) | $ | (2,601 | ) |
| | | | | |
Basic and diluted loss per share (note 8) | | $ | (0.13 | ) | $ | (0.12 | ) |
| | | | | |
Weighted average number of common shares outstanding - basic and diluted (note 8) | | 32,755,397 | | 28,616,460 | |
See accompanying notes to the condensed consolidated financial statements
COASTAL CONTACTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Expressed in Thousands of Canadian Dollars, except Number of Common Shares)
(unaudited)
| | Number of
common
shares | | Share capital | | Share-based
payments
reserve | | Accumulated
other
comprehensive
income (loss) | | Deficit | | Total
shareholders’
equity | |
| | | | | | | | | | | | | |
Balance at October 31, 2012 | | 28,615,746 | | $ | 42,501 | | $ | 3,395 | | $ | (137 | ) | $ | (16,880 | ) | $ | 28,879 | |
Net loss | | — | | — | | — | | — | | (3,375 | ) | (3,375 | ) |
Other comprehensive loss on foreign currency translation | | — | | — | | — | | 774 | | — | | 774 | |
Share based payments expense | | — | | — | | 52 | | — | | — | | 52 | |
Issue of shares on exercise of share options | | 55,007 | | 116 | | — | | — | | — | | 116 | |
Reclassification of grant date fair value on exercise of share options | | — | | 60 | | (60 | ) | — | | — | | — | |
Balance at January 31, 2013 | | 28,670,753 | | $ | 42,677 | | $ | 3,387 | | $ | 637 | | $ | (20,255 | ) | $ | 26,446 | |
| | | | | | | | | | | | | |
Balance at October 31, 2013 | | 32,679,189 | | $ | 63,913 | | $ | 3,587 | | $ | 1,160 | | $ | (32,824 | ) | $ | 35,836 | |
Net loss | | — | | — | | — | | — | | (4,242 | ) | (4,242 | ) |
Other comprehensive loss on foreign currency translation | | — | | — | | — | | 126 | | — | | 126 | |
Share based payments expense | | — | | — | | 304 | | — | | — | | 304 | |
Issue of shares on exercise of share options | | 123,145 | | 469 | | — | | — | | — | | 469 | |
Reclassification of grant date fair value on exercise of share options | | — | | 166 | | (166 | ) | — | | — | | — | |
Balance at January 31, 2014 | | 32,802,334 | | $ | 64,548 | | $ | 3,725 | | $ | 1,286 | | $ | (37,066 | ) | $ | 32,493 | |
See accompanying notes to the condensed consolidated financial statements
COASTAL CONTACTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands of Canadian Dollars)
(unaudited)
For the three months ended January 31 | | 2014 | | 2013 | |
| | | | | |
Cash and cash equivalents provided by (used in): | | | | | |
Operating activities | | | | | |
Net loss for the period | | $ | (4,242 | ) | $ | (3,375 | ) |
Adjustments for: | | | | | |
Depreciation and amortization | | 1,140 | | 879 | |
Share-based payments expense | | 304 | | 52 | |
Deferred income tax expense | | 122 | | 38 | |
Amortization of lease inducement | | (43 | ) | (24 | ) |
Amortization of deferred financing costs | | 3 | | 21 | |
Interest expense, net | | 106 | | 126 | |
Changes in non-cash operating working capital | | (3,042 | ) | (334 | ) |
Income tax paid | | (54 | ) | (61 | ) |
Net cash used in operating activities | | (5,706 | ) | (2,678 | ) |
| | | | | |
Financing activities | | | | | |
Proceeds from share options exercised | | 469 | | 116 | |
Decrease in finance lease obligation | | (261 | ) | (75 | ) |
Decrease in loans | | (1,616 | ) | (914 | ) |
Increase in loans | | 1,095 | | — | |
Interest received | | 4 | | 7 | |
Interest paid | | (110 | ) | (133 | ) |
Net cash used in financing activities | | (419 | ) | (999 | ) |
| | | | | |
Investing activities | | | | | |
Acquisition of property, equipment and leasehold improvements, net | | (812 | ) | (438 | ) |
Acquisition of intangible assets, net | | (933 | ) | (682 | ) |
Net cash used in investing activities | | (1,745 | ) | (1,120 | ) |
| | | | | |
Effect of exchange rate changes on cash and cash equivalents | | (819 | ) | 272 | |
| | | | | |
Decrease in cash and cash equivalents | | (8,689 | ) | (4,525 | ) |
Cash and cash equivalents, beginning of period | | 22,374 | | 19,153 | |
Cash and cash equivalents, end of period | | $ | 13,685 | | $ | 14,628 | |
COASTAL CONTACTS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended January 31, 2014 and 2013
(Tabular amounts expressed in thousands of Canadian Dollars, unless otherwise noted)
(unaudited)
1. NATURE OF BUSINESS AND CONTINUING OPERATIONS
Coastal Contacts Inc. (“Coastal”) is a global internet retailer of contact lenses, eyeglasses and related vision care products sold primarily through its internet sites and retail stores. Coastal has customers in North America, Europe and the Asia Pacific region.
The head office of Coastal is located at 2985 Virtual Way, Suite 320, Vancouver, B.C., Canada, V5M 4X7. The registered and records office is located at 669 Howe Street, Suite 650, Vancouver, B.C., Canada, V6C 0B4.
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION
Statement of Compliance
These condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Accounting Standards (“IAS”) 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”).
This condensed consolidated interim financial report does not include all of the information required of a full annual financial report and is intended to provide users with an update in relation to events and transactions that are significant to an understanding of the changes in financial position and performance of Coastal since the end of the last annual reporting period. This financial report should be read in conjunction with the audited consolidated financial statements of Coastal for the year ended October 31, 2013.
The accounting policies applied in preparation of these unaudited condensed consolidated interim financial statements are consistent with those applied and disclosed in Coastal’s audited consolidated financial statements for the year ended October 31, 2013 except as disclosed in note 3.
These condensed consolidated interim financial statements were approved by the Board of Directors and authorized for issue on March 14, 2014.
3. NEW AND REVISED ACCOUNTING STANDARDS
The following new and revised standards and amendments have an effective date of January 1, 2013, and accordingly have been adopted by Coastal effective November 1, 2013. The adoption of these standards and amendments has had no significant impact on Coastal’s condensed interim consolidated financial statements.
a) Presentation of Financial Statements
Amendments to IAS 1, Presentation of Financial Statements retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis.
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COASTAL CONTACTS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended January 31, 2014 and 2013
(Tabular amounts expressed in thousands of Canadian Dollars, unless otherwise noted)
(unaudited)
3. NEW AND REVISED ACCOUNTING STANDARDS (Continued)
b) Consolidation Accounting
On May 12, 2011 the IASB issued IFRS 10, Consolidated Financial Statements which replaces IAS 27, Consolidated and Separate Financial Statements and SIC-12, Consolidation — Special Purpose Entities with a single model to be applied in the control analysis for all investees. The IASB revisited the definition of “control,” which is a criterion for consolidation accounting.
c) Fair Value Measurement
IFRS 13, Fair Value Measurement establishes a single framework for measuring fair value where it is required by other standards. IFRS 13 applies to all transactions (whether financial or non-financial) for which IFRSs require or permit fair value measurements, with the exception of share-based payment transactions accounted for under IFRS 2, Share-based Payment and leasing transactions within the scope of IAS 17, Leases, and measurements that have some similarities to fair value but are not fair value such as net realisable value under IAS 2, Inventories or value in use under IAS 36, Impairment of assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, such as an exit price.
4. FUTURE ACCOUNTING STANDARDS
At the date of authorization of these condensed interim consolidated financial statements, the IASB and IFRIC has issued the following new and revised standard which is not yet effective during the year ended October 31, 2014:
Financial Instruments
IFRS 9, Financial Instruments was issued in November 2009 and covers the classification and measurement of financial assets as part of its project to replace IAS 39, Financial Instruments: Recognition and Measurement. In October 2010, the requirements for classifying and measuring financial liabilities were added to IFRS 9. Under this guidance, entities have the option to recognize financial liabilities at fair value through earnings. If this option is elected, entities would be required to reverse the portion of the fair value change due to own credit risk out of earnings and recognize the change in other comprehensive income.
This standard has an effective date of January 1, 2018 with early adoption permitted under certain circumstances. Coastal intends to adopt these standards in its financial statements for the annual period beginning on November 1, 2018 and is currently evaluating the impact the standards are expected to have on its consolidated financial statements.
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COASTAL CONTACTS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended January 31, 2014 and 2013
(Tabular amounts expressed in thousands of Canadian Dollars, unless otherwise noted)
(unaudited)
5. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
| | January 31 | | October 31 | |
| | 2014 | | 2013 | |
Cash | | $ | 13,532 | | $ | 22,222 | |
Restricted cash | | 153 | | 152 | |
Cash and cash equivalents | | $ | 13,685 | | $ | 22,374 | |
6. SHARE CAPITAL
Share purchase options
Coastal’s shareholders adopted an equity-settled share option plan (the “Option Plan”), for its directors, officers, employees and service providers. The Option Plan provides that options to purchase common shares may be granted to eligible persons on terms determined within the limitations set out in the Option Plan. The maximum number of common shares to be reserved for issuance at any one time under the Option Plan and any other employee incentive plan is 12.5% of the then issued and outstanding common shares. The exercise price for a share purchase option granted under the Option Plan may not be less than that permitted by applicable regulatory authorities. Options granted may be subject to vesting requirements. Non-assignable options will be granted for a period which may not exceed five years from the date of the grant and will expire within 90 days upon the participant ceasing to be a director, officer, employee, or service provider. The options have terms ranging from one to five years and generally vest over periods of up to 36 months. The Option Plan is administered by Coastal’s Compensation Committee.
Share purchase option activity for the three months ended January 31, 2014:
| | Number of
options | | Exercise price
$ | |
Outstanding at October 31, 2013 | | 2,377,917 | | 4.41 | |
Granted | | 735,000 | | 8.22 | |
Exercised | | (123,145 | ) | 3.80 | |
Cancelled/Forfeited | | (8,583 | ) | 5.68 | |
Outstanding at January 31, 2014 | | 2,981,189 | | 5.37 | |
The following table summarizes information about Coastal’s share purchase options outstanding as at January 31, 2014:
| | Share purchase options outstanding | | Share purchase options exercisable | |
Range of exercise
price $ | | Number of common
shares issuable | | Weighted average
remaining
contractual life
(years) | | Weighted average
exercise price $ | | Number of common
shares issuable | | Weighted average
exercise price $ | |
1.60 - 1.99 | | 150,000 | | 0.26 | | 1.60 | | 150,000 | | 1.60 | |
2.00 - 2.29 | | 15,000 | | 0.56 | | 2.16 | | 15,000 | | 2.16 | |
2.30 - 3.25 | | 735,000 | | 1.53 | | 3.04 | | 735,000 | | 3.04 | |
3.26 - 8.23 | | 2,081,189 | | 4.20 | | 6.49 | | 485,222 | | 5.45 | |
| | 2,981,189 | | 3.32 | | 5.37 | | 1,385,222 | | 3.72 | |
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COASTAL CONTACTS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended January 31, 2014 and 2013
(Tabular amounts expressed in thousands of Canadian Dollars, unless otherwise noted)
(unaudited)
6. SHARE CAPITAL (Continued)
The weighted average fair value of options granted during the three month period ended January 31, 2014 was $2.87 (January 31, 2013 — $1.86) per option based on the Black-Scholes option pricing model using the following assumptions:
| | 2014 | | 2013 | |
Dividend yield | | 0 | % | 0 | % |
Expected volatility | | 43.4 | % | 43.2 | % |
Risk free interest rate | | 1.35 | % | 1.34 | % |
Expected lives | | 3.9 years | | 3.7 years | |
The risk-free rate of periods within the expected life of the share option is based on the Canadian government bond rate. The expected life of share options granted represents the period of time that share options granted are expected to be outstanding. Expected volatilities are based on historical volatility of the Company’s shares listed on the stock exchange.
7. EXPENSES BY NATURE
For the three months ended January 31 | | 2014 | | 2013 | |
Changes in inventories of finished goods and raw materials | | $ | 25,002 | | $ | 26,990 | |
Employee expenses | | 11,747 | | 10,762 | |
Depreciation and amortization | | 1,140 | | 879 | |
Advertising | | 9,121 | | 9,464 | |
Other expenses | | 9,841 | | 9,499 | |
Total cost of sales, fulfillment, selling and marketing and general and administration expenses | | $ | 56,851 | | $ | 57,594 | |
For the three months ended January 31 | | 2014 | | 2013 | |
Wages and salaries | | $ | 10,500 | | $ | 9,794 | |
Share-based payments expense | | 304 | | 52 | |
Other benefits | | 943 | | 916 | |
Total employee expenses | | $ | 11,747 | | $ | 10,762 | |
8. EARNINGS PER SHARE
For the three months ended January 31 | | 2014 | | 2013 | |
Weighted average number of common shares - outstanding | | 32,755,397 | | 28,616,460 | |
Dilutive share purchase options | | — | | — | |
Weighted average number of common shares - dilutive | | 32,755,397 | | 28,616,460 | |
Diluted loss per share is calculated by adjusting the weighted average number of ordinary common shares outstanding to assume exercise of any dilutive share purchase options into ordinary common shares. There were no adjustments included in the calculation as all options convertible during the three month period ended January 31, 2014 were anti-dilutive.
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COASTAL CONTACTS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended January 31, 2014 and 2013
(Tabular amounts expressed in thousands of Canadian Dollars, unless otherwise noted)
(unaudited)
9. SEGMENTED INFORMATION
Coastal sells contact lenses, glasses, related vision care products and ships products from North America, Europe and Australia.
Geographical sales information is based on the location of the customers in which Coastal sells its products. Intercompany sales have been excluded. Certain comparative figures have been adjusted to reflect this reporting.
By Region | | North America (1), (2) | | Europe (3) | | Asia Pacific | | Total | |
| | | | | | | | | |
Three months ended January 31, 2014 | | | | | | | | | |
Glasses | | $ | 12,378 | | $ | 1,907 | | $ | 497 | | $ | 14,782 | |
Contact Lenses | | 15,493 | | 17,005 | | 4,825 | | 37,323 | |
Total | | $ | 27,871 | | $ | 18,912 | | $ | 5,322 | | $ | 52,105 | |
Three months ended January 31, 2013 | | | | | | | | | |
Glasses | | $ | 11,299 | | $ | 1,528 | | $ | 1,047 | | $ | 13,874 | |
Contact Lenses | | 15,570 | | 18,885 | | 6,569 | | 41,024 | |
Total | | $ | 26,869 | | $ | 20,413 | | $ | 7,616 | | $ | 54,898 | |
| | | | | | | | | |
Non-current assets | | | | | | | | | |
As at January 31, 2014 | | $ | 13,797 | | $ | 18,076 | | $ | 2,009 | | $ | 33,882 | |
As at October 31, 2013 | | $ | 13,201 | | $ | 17,501 | | $ | 1,535 | | $ | 32,237 | |
(1) Total sales in Canada were $18,741 for the three months ended January 31, 2014 (January 31, 2013 — $18,112).
(2) Total sales in USA were $9,130 for the three months ended January 31, 2014 (January 31, 2013 — $8,757).
(3) Total sales in Sweden were $8,861 for the three months ended January 31, 2014 (January 31, 2013 — $8,989).
By Product | | Contact Lenses | | Glasses | | Total | |
| | | | | | | |
Three months ended January 31, 2014 | | | | | | | |
Sales | | $ | 37,323 | | $ | 14,782 | | $ | 52,105 | |
Gross Profit | | 14,993 | | 7,559 | | 22,552 | |
Gross Profit % | | 40 | % | 51 | % | 43 | % |
| | | | | | | |
Three months ended January 31, 2013 | | | | | | | |
Sales | | $ | 41,024 | | $ | 13,874 | | $ | 54,898 | |
Gross Profit | | 16,344 | | 6,391 | | 22,735 | |
Gross Profit % | | 40 | % | 46 | % | 41 | % |
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COASTAL CONTACTS INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended January 31, 2014 and 2013
(Tabular amounts expressed in thousands of Canadian Dollars, unless otherwise noted)
(unaudited)
10. SUBSEQUENT EVENT
On February 27, 2014, Coastal entered into an Acquisition Agreement with Essilor International SA (“Essilor”) under which Essilor will acquire all of the issued and outstanding common shares of Coastal by way of a statutory plan of arrangement. Pursuant to the arrangement, each share of Coastal will be exchanged for cash consideration of $12.45. The arrangement is subject to customary closing conditions, including approval by shareholders, court approval and regulatory approval.
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