SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for use of
[ ] Definitive Proxy Statement the Commission Only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
EYE CARE INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:___________________________
(2) Aggregate number of securities to which transaction
applies:__________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1________________________
(4) Proposed maximum aggregate value of transaction:_____________________
(5) Total fee paid:__________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid: $______________
(2) Form, Schedule or Registration Statement No.: _________________
(3) Filing Party: _________________
(4) Date Filed: __________________
EYE CARE INTERNATIONAL, INC.
1511 North Westshore Boulevard
Tampa, Florida 33607
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held August 15, 2001
To Our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of Eye Care
International, Inc., a Delaware corporation, will be held on Wednesday, August
15, 2001 at 9:00 a.m., Eastern Daylight Savings Time, at our offices at 1511
North Westshore Boulevard, Tampa, Florida 33607 to consider and act upon a
proposal to amend our Certificate of Incorporation to authorize a one-for-five
reverse stock split of the outstanding shares of our class A and class B common
stock by changing each five shares into one share.
Only stockholders of record at the close of business on July 5, 2001 are
entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
A list of stockholders entitled to vote at the Special Meeting will be
available at our offices, 1511 North Westshore Boulevard, Tampa, Florida 33607
for a period of ten days prior to the Special Meeting for examination by any
stockholder and at the Special Meeting.
By Order of the Board of Directors.
Clark A. Marcus
President and Chief Executive Officer
Tampa, Florida
July __, 2001
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY OUR BOARD OF DIRECTORS
AND RETURN IT TO US. THE PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED.
STOCKHOLDERS EXECUTING PROXIES MAY ATTEND THE MEETING AND VOTE IN PERSON SHOULD
THEY SO DESIRE.
EYE CARE INTERNATIONAL, INC.
1511 North Westshore Boulevard
Tampa, Florida 33607
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PROXY STATEMENT FOR SPECIAL
MEETING OF STOCKHOLDERS
----------------------------
Our Board of Directors presents this Proxy Statement and the enclosed proxy
card to all our stockholders and solicits their proxies for the Special Meeting
of Stockholders to be held on Wednesday, August 15, 2001. The Special Meeting
has been called for stockholders to approve a proposal to amend our Certificate
of Incorporation to authorize a one-for-five reverse stock split of the
outstanding shares of our class A and class B common stock by changing each five
shares into one share. All proxies duly signed and received will be voted at
the Special Meeting in accordance with the instructions given by such proxies.
In the absence of specific instructions, signed proxies received by us will be
voted FOR the reverse stock split. You may revoke the proxy at any time before
it is voted. We are mailing this Proxy Statement on or about July , 2001.
As of July 5, 2001, the record date for determining stockholders entitled
to vote at the Special Meeting, there were outstanding 11,844,360 shares of
class A common stock, 1,277,700 shares of class B common stock and 685,715
shares of series B convertible preferred stock, the only classes or series of
stock entitled to vote at the Special Meeting. Each share of class A common
stock and series B convertible preferred stock is entitled to one vote and each
share of class B common stock is entitled to five votes. Only stockholders of
record as of the close of business on July 5, 2001 will be entitled to vote at
the Special Meeting or any adjournment thereof.
The affirmative vote by stockholders holding a majority of the voting power
of the outstanding shares of class A common stock, class B common stock and
series B convertible preferred stock, voting together as a single class, is
required to approve the proposal to authorize a reverse stock split of the class
A and class B common stock. Shares represented by proxies that are marked
"abstain" will only be counted for the purpose of determining the presence of a
quorum. Since brokers are prohibited from exercising discretionary authority for
beneficial owners who have not provided voting instructions (commonly referred
to as "broker non-votes"), those shares will not be included in the vote totals.
Security Ownership And Certain Beneficial
Owners And Management
The following table sets forth certain information as of July 1, 2001
concerning the beneficial ownership of our common stock by (i) each stockholder
known by us to be a beneficial owner of more than five percent of the
outstanding class A and class B common stock; (ii) each of our directors; (iii)
each executive officer whose compensation for 2000 was in excess of $100,000;
and (iv) all directors and officers as a group.
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Number of Shares/(1)/ Percent of Class/(2)/
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Class A Class B All
Name Common Stock Common Stock Class A Class B Common Stock
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Clark Marcus/(3)/ 75,000 474,100 * 37.1% 4.2%
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Eva Katzman/(3)/ -- 268,600/(4)/ * 21.0% 2.0%
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Sharon Kay Ray/(3)/ 23,000 198,200 * 15.5% 1.7%
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Richard Abrahamson, MD/(3)/ 152,740 181,800 1.3% 14.2% 2.5%
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James L. Koenig/(3)/ 69,000/(5)/ 130,000 * 10.2% 1.5%
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Robert G. Veligdan, DDS/(3)/ 204,214/(6)/ -- 1.7% -- 1.5%
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William Koch/(3)/ -- 25,000 -- 2.0% *
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John A. Schild/(3)/ -- -- -- -- --
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Arnold Finestone/(3)/ 25,000 -- -- -- --
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Arthur Yeap/(3)/ 142,426 -- -- -- 1.1%
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All officers and directors as a group
(9 persons) 691,380 1,009,100 5.8% 79.0% 12.9%
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* Less than 1%.
/(1)/ Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community property laws,
where applicable. For purposes of this table, a person or group of persons is
deemed to beneficially own any shares that such person has the right to acquire
within 60 days after July 1, 2001.
/(2)/ Calculated as a percentage of the total number of shares of common stock
issued and outstanding without respect to voting power. Each share of class B
common stock is entitled to five votes per share, as compared to one vote per
share of class A common stock. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on July
1, 2001, any shares which such person or group of persons has the right to
acquire within 60 days after such date is deemed to be outstanding for the
purpose of computing the percentage ownership of such person. As of July 1, we
had outstanding 11,844,360 shares of class A common stock and 1,277,700 shares
of class B common stock, or a total of 13,122,060 shares of common stock.
/(3)/ Address is c/o Eye Care International, Inc., 1511 North Westshore
Boulevard, Suite 925, Tampa, Florida 33607.
/(4)/ Includes 193,600 shares of class B common stock owned of record by Mrs.
Katzman and 75,000 shares of class B common stock held in trust for the minor
children of her son, Jerry Katzman.
/(5)/ Includes 45,000 shares that he may acquire upon exercise of warrants.
/(6)/ Includes 70,860 shares that he may acquire upon exercise of warrants.
2
Proposal To Amend The Company's Certificate of Incorporation to Authorize
a One-For-Five Reverse Stock Split of Class A and Class B Common Stock
General
Our Board of Directors has approved, subject to stockholder approval, a
proposal to amend our Certificate of Incorporation to authorize a one-for-five
reverse stock split of the outstanding shares of our class A and class B common
stock in connection with, and as a condition of, a proposed financing, by
changing each five shares into one share. The one-for-five reverse stock split
shall be effective as of the opening of business on the date upon which we
receive a minimum of $1,250,000 from the sale of Units in the private financing.
Proposed Private Financing
We are in urgent need of financing to operate our business. We have signed
a letter of intent with Thomas Fletcher & Company, Inc. (the "Placement Agent")
to act as placement agent for a private offering to only accredited investors of
a minimum of 50 Units and a maximum of 100 Units (the "Financing"). Each Unit
will be sold at $25,000 and consist of our 11% promissory note in the principal
amount of $20,000 due December 31, 2003, 10,000 shares of our class A common
stock and warrants to purchase an additional 5,000 shares of class A common
stock. The exercise price of the warrants is $1.00 per share, subject to
antidilution adjustments. The Placement Agent will receive warrants to purchase
5,000 shares of class A common stock for each Unit sold. Concurrently with the
Financing, we are offering holders of our series A and series B preferred stock
the opportunity to exchange their shares of preferred stock for additional
Units. Under the terms of the exchange offer, the original purchase price of the
preferred stock will be credited against the subscription price of $25,000 per
Unit. If the holders of all outstanding shares of our preferred stock accept the
exchange offer, we will issue an additional 41.8 Units. The exchange offer is
subject to our sale of 50 Units.
The net proceeds of the Financing, estimated at $1,000,000 if 50 Units are
sold, and $2,100,000 if 100 Units are sold, will be used for marketing, customer
support, and as working capital and for general corporate purposes. If we are
unable to sell 50 Units by the termination date of the offering, the reverse
stock split will not be effected and the exchange offer will not be consummated.
The reverse stock split is to be effected at the opening of business on the date
we receive gross proceeds of at least $1,250,000 from the sale of 50 Units in
the Financing.
Reasons for the Reverse Stock Split
We are in urgent need of financing to service our existing members and to
market our vision care plan to healthcare providers, employers and affinity
groups to attract additional members. The completion of the Financing is
critical to our growth. The Reverse Stock Split is a condition of the Financing.
The Placement Agent and our management believe that the low per share
market price of our class A common stock impairs the acceptability of the stock
by the financial community and the investing public. Theoretically, the number
of shares outstanding should not, by itself, affect the marketability of the
stock, the type of investor who acquires it, or our reputation in the financial
community, but in practice this is not necessarily the case, as many investors
look upon low-priced stocks as unduly speculative in nature and, as a matter of
policy, avoid investment in such stocks. The Placement Agent and our management
also believe that a low share price reduces the effective marketability of our
shares because of the reluctance of many leading brokerage firms to recommend
low-priced stocks to their clients. Certain institutional investors have
internal policies preventing the purchase of low-priced stocks and many
brokerage houses do not permit low-priced stocks to be used as collateral for
margin accounts. A variety of brokerage house policies and practices tends to
discourage individual brokers within those firms from dealing in low-priced
stocks. Some of those policies and practices pertain to the payment of brokers'
commissions and to time-consuming procedures that function to make the handling
of low-priced stocks unattractive to brokers from an economic standpoint. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of low-priced stocks because the brokerage commission on a
sale of a low-price stock generally represents a higher percentage of the sales
price than the commission on a relatively higher-priced stock.
3
Our Board of Directors is hopeful that the decrease in the number of shares
of our outstanding Class A common stock as a consequence of the reverse stock
split will result in an anticipated increased price level, which will encourage
interest in our class A common stock and possibly promote greater liquidity for
our stockholders, although such liquidity could be adversely affected by the
reduced number of shares outstanding after the reverse stock split. In
addition,, although it may be anticipated that the increase in the price level
of our class A common stock as a result of the reverse stock split will be
proportionately less than the decrease in the number of shares outstanding, the
reverse stock split could result in a price level for the shares that will
overcome the reluctance, policies and practices referred to above and diminish
the adverse impact of trading commissions on the market for the shares. However,
there can be no assurance that the foregoing effects will occur, or that the
share price level of the class A common stock immediately after the reverse
stock split will be maintained for any period of time.
Fractional Shares
In order to save the expense and inconvenience of issuing fractional
shares, we will not issue scrip or fractional share certificates evidencing
shares of class A or class B common stock in connection with the reverse stock
split. We will issue one additional whole share to stockholders who would
otherwise be entitled to a fractional share. If the same stockholder is the
owner of shares under multiple share certificates, then the number of shares we
will issue in connection with the reverse stock split shall be computed on the
basis of the aggregate shares owned under all certificates.
Principal Effects of the Reverse Split
As of July, 2001, we had outstanding 11,844,360 shares of class A common
stock and 1,277,700 shares of class B common stock. If we do not issue any
shares of class A or class B common stock prior to the date the reverse stock
split becomes effective, the number of outstanding shares of class A and class B
common stock will be reduced to approximately 2,368,873 and 255,540,
respectively, or a total of 2,624,413 shares of common stock. In addition, the
stated capital of our outstanding class A and class B common stock as reflected
on our balance sheet will be reduced, and our additional paid in capital account
will be increased, by an equal amount. The number of authorized shares of common
stock will remain 30,000,000 shares, consisting of 20,000,000 shares of class A
and 10,000,000 shares of class B common stock. Except for the issuance of
additional whole shares of common stock for fractional shares, the reverse stock
split will not result in any immediate change in the economic interests or the
voting power of a stockholder relative to other common stockholders. However,
the reverse stock split will result in a substantial increase in the number of
shares of common stock available for issuance by our Board of Directors.
Increase in Authorized Unissued Shares
--------------------------------------
The following table shows how the one-for-five reverse stock split will
increase the number of shares of common stock available for issuance by our
Board of Directors. The information presented in the table is as of July 1,
2001. The table assumes that no shares or other securities convertible into or
exercisable for shares of class A or class B common stock will be issued prior
to the date upon which the reverse stock split is effected.
Number of Shares
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Prior to Reverse Stock Split After Reverse Stock Split
-------------------------------------- --------------------------------------
Class A Class B Class A Class B
Common Stock Common Stock Common Stock Common Stock
------------------ ------------------ ------------------ ------------------
Authorized 20,000,000 10,000,000 20,000,000 10,000,000
Outstanding 11,844,360 1,277,700 2,368,873 255,540
Reserved for issuance
Warrants 4,252,720 0 850,544 0
Preferred stock 2,175,715 0 435,143 0
Options that may be granted
in future under existing
option plan 500,000 0 100,000 0
Available for future issuance 1,227,205 8,722,300 16,245,440 9,744,460
4
The following table shows how many shares of class A common stock will be
available for issuance by our Board of Directors after the sale of 100 Units and
the issuance of an additional 41.8 Units in the exchange offer:
Number of Shares of Class A Common Stock
After Sale of 100 Units and Exchange Offer
------------------------------------------
Authorized 20,000,000
Outstanding 3,786,873
Reserved for issuance
Warrants 2,059,544
Preferred stock 0
Options that may be granted
in future under existing
option plan 100,000
Available for future issuance 14,053,583
Since the total number of authorized shares of common stock will remain
30,000,000, following the reverse stock split, our Board of Directors will be
able to issue 16,245,440 shares of class A common stock and 9,744,460 shares of
class B common stock without further stockholder approval. After the sale of 100
Units and the issuance of an additional 41.8 Units in the exchange offer, our
Board of Directors will have authority to issue 14,053,583 shares of class A
common stock without stockholder approval. These shares may be issued for
various corporate purposes, including public or private financings to obtain
capital for our business and operations and for acquisitions of businesses, and
will allow us to take prompt action with respect to corporate opportunities that
develop, without the delay and expense of convening a special meeting of the
stockholders. Except for the Financing and the exchange offer, we do not
presently have any agreement, understanding, or arrangement which would result
in the issuance of any of the additional shares of our authorized and unissued
common stock following the reverse stock split. Our Board of Directors does not
intend to seek stockholder approval prior to any issuance of additional shares
of our common stock, except as otherwise required by law or regulation. Our
outstanding shares of common stock have no pre-emptive rights; accordingly, if
we issue additional shares of common stock, our stockholders will not have any
preferential right to purchase any of the additional shares. Although our Board
of Directors believes the increase in authorized unissued shares is in the best
interests of our company and our stockholders, the issuance of additional shares
of common stock may, depending on the circumstances under which such shares are
issued, reduce the stockholders' equity per share and may reduce the percentage
ownership of common stock of existing stockholders.
The increase in the number of shares available for issuance by our Board of
Directors could, under certain circumstances, have the effect of deterring
unsolicited tender offers for our common stock. In the event of a hostile
takeover attempt, it might be possible for us to try to impede such attempt by
issuing shares of common stock to a friendly party, thereby diluting the voting
power of the other outstanding shares and increasing the potential cost to
acquire control of our company. Although the overall effect of such a course of
action may be to deter unwanted takeover offers, our Board of Directors is not
proposing the reverse split for that purpose and believes the reverse split is
in the best interests of our company and our stockholders and that the
advantages of the reverse stock split, including the increase in the number of
shares available for issuance by the Board of Directors, outweigh any potential
disadvantages.
Effect on Price of Common Stock
-------------------------------
The reverse stock split also is being proposed because our Board of
Directors believes that the current per share price level adversely affects the
marketability of our common stock. The proposed reverse stock split is intended
to result in a higher per share market price that will increase the interest of
investors, analysts and other members of the financial community in the common
stock.
5
However, the reverse stock split may cause inconvenience and extra expense
to stockholders who become owners of so called odd lots, or holdings of less
than 100 shares, when such holders seek to sell their odd lot or to purchase an
odd lot to increase their holding to an integral multiple of 100 shares. This is
because the market for the purchase or sale of odd lots is generally less liquid
than the market for even lots and commissions for odd lots are often
proportionately higher per share than round lot commissions.
Since most trading and investment activity is conducted in round lots, the
effective minimum investment in our company is expected to increase
significantly as a result of the reverse split, which may preclude purchase of
the shares by investors who are not willing or able to invest the higher minimum
amount required.
For these reasons the per share price for our class A common stock after
the reverse split may not be five times the market price before the reverse
split and it is possible that the aggregate market value of a stockholder's
investment in our company may be lower after the reverse split.
Furthermore, the market for shares of common stock may not be improved. The
Board of Directors cannot predict what effect the reverse stock split will have
on the market for, or the market price of, the class A common stock.
Implementation of Reverse Stock Split
If our Stockholders approve the reverse stock split, on the date we receive
gross proceeds of at least $1,250,000 from the sale of Units we will file an
amendment to our Certificate of Incorporation with the Secretary of State of
Delaware, and upon such filing the reverse stock split will become effective as
of the opening of business on that date. The reverse stock split will be
formally implemented by amending Article 4 of our Certificate of Incorporation,
as amended, to add the following:
"Upon the filing of this Certificate of Amendment with the Office of
the Secretary of State, shares of Class A and Class B Common Stock held
by each holder of record on such date shall be automatically combined
at the rate of one-for-five without any further action on the part of
the holders thereof or this Corporation. No fractional shares shall be
issued. All fractional shares owned by each holder of record will be
aggregated and to the extent after aggregating all fractional shares
any registered holder is entitled to a fraction of a share, he shall be
entitled to receive one whole share in respect of such fraction of a
share."
Following the effectiveness of the amendment, each certificate representing
shares of class A or class B common stock outstanding immediately prior to the
reverse stock split will be deemed automatically, without any action on the part
of the stockholders, to represent one-fifth of the pre-split number of shares.
However, no fractional shares will be issued as a result of the reverse stock
split. Each stockholder of record owning shares of class A or class B common
stock prior to the reverse stock split which are not evenly divisible by five
(5) will receive one additional share for the fractional share that such
stockholder would otherwise have been entitled to receive as a result of the
reverse stock split. After the reverse stock split becomes effective,
stockholders will be asked to surrender their stock certificates in accordance
with the procedures set forth in a letter of transmittal. Stockholders should
-------------------
not submit any certificates until requested to do so. Upon such surrender, a new
- -----------------------------------------------------
certificate representing the number of shares owned as a result of the reverse
stock split will be issued and forwarded to stockholders. However, each
certificate representing the number of shares owned prior to the reverse stock
split will continue to be valid and represent a number of shares equal to one-
fifth of the pre-split number of shares.
Stockholders who do not vote in favor of the reverse stock split may not
exercise dissenters' appraisal rights under the Delaware General Corporation
Law.
6
Exchange of Stock Certificates
The exchange of shares of class A and class B common stock resulting from
the reverse stock split will occur on the date we file a certificate of
amendment to our Certificate of Incorporation effecting the reverse stock split,
without any further action on the part of our stockholders and without regard to
the date or dates certificates formerly representing shares of class A or class
B common stock are physically surrendered for certificates representing the
post-split number of shares such stockholders are entitled to receive. We will
appoint American Stock Transfer & Trust Company, transfer agent for our class A
common stock, exchange agent to act for stockholders in effecting the exchange
of their certificates. In the event that the number of shares of class A or
class B common stock into which shares of class A or class B common stock will
be exchanged or converted includes a fraction, we will issue to the holder of
such fraction, in lieu of the issuance of fractional shares, one whole
additional share.
As soon as practicable after the date the reverse stock split becomes
effective, transmittal forms will be mailed to each holder of record of
certificates formerly representing shares of class A or class B common stock to
be used in forwarding their certificates for surrender and exchange for
certificates representing the post-split number of shares of class A or class B
common stock such stockholders are entitled to receive. After receipt of such
transmittal form, each holder should surrender the certificates formerly
representing shares of class A class B common stock and such holder will receive
in exchange therefore certificates representing the whole number of shares to
which he is entitled, plus one whole share in lieu of any fractional share. The
transmittal forms will be accompanied by instructions specifying other details
of the exchange. Stockholders should not send in their certificates until they
-------------------------------------------------------------
receive a transmittal form.
- --------------------------
On the date the reverse stock split becomes effective, each certificate
representing shares of class A and class B common stock will, until surrendered
and exchanged as described above, be deemed, for all corporate purposes, to
evidence ownership of the number of shares of class A or class B common stock
into which the shares evidenced by such certificate have been converted, except
that the holder of such unexchanged certificates will not be entitled to receive
any dividends or other distributions payable by us after that date with respect
to the shares which the stockholder is entitled to receive because of the
reverse stock split until the certificates representing such shares of class A
or class B common stock have been surrendered. Such dividends and distributions,
if any, will be accumulated and, at the time of such surrender, all such unpaid
dividends or distributions will be paid without interest.
Federal Income Tax Consequences
The following description of federal income tax consequences is based upon
the Internal Revenue Code of 1986, as amended, the applicable Treasury
Regulations promulgated thereunder, judicial authority, and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion is for general information only and does not discuss
consequences that may apply to special classes of tax payers (e.g., non-resident
aliens, broker-dealers or insurance companies). We urge you to consult with your
own tax advisors to determine the particular consequences to you.
The exchange of shares resulting from the reverse stock split will be a
tax-free recapitalization for the company and our stockholders to the extent
that shares of pre-split common stock are exchanged for post-split common stock.
Therefore, stockholders will not recognize gain or loss as a result of that
transaction.
A stockholder's holding period for shares of post-split common stock,
including any additional shares issued in lieu of issuing fractional shares,
will include the holding period of shares of pre-split common stock exchanged
therefore, provided that the shares of pre-split common stock were capital
assets in the hands of the stockholder.
The shares of post-split common stock in the hands of a stockholder,
including any additional shares issued in lieu of issuing fractional shares,
will have an aggregate basis for computing gain or loss equal to the aggregate
basis of shares of pre-split common stock held by that stockholder immediately
prior to the split.
Although the issue is not free from doubt, additional shares received in
lieu of fractional shares, including shares received as a result of the rounding
up of fractional ownership, should be treated in the same manner. However, it is
possible that the receipt of additional shares could be wholly or partially
taxable.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE REVERSE
STOCK SPLIT.
Independent Auditors
Representatives of Philip J. Elenidis & Company, our independent
auditors, are not expected to be present at the Special Meeting. Philip J.
Elenidis & Company has audited our financial statements since the year ended
December 31, 1994. They have no financial interest, either direct or indirect,
in our company.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and
results of operation should be read together with our audited consolidated
financial statements for the year ended December 31, 2001 and our unaudited
financial statements for the three months ended March 31, 2001, including the
related notes, commencing on Page F-1 of this Proxy Statement.
Sales. Memberships in our vision care program are sold primarily through
independent agents and employee benefit consulting firms either directly to the
employer, or to the employees through the employer's open enrollment process for
benefits. Some sales are made by us soliciting enrollments of members of
affinity groups with whom we have made arrangements to do so. Other sales are
made by other companies that market multi-discount cards (such as combining
dental and prescription with vision) to the general public, employers and
affinity groups.
Selling, general and administrative expenses. The major components of selling,
general and administrative expenses are payroll, commissions, business travel,
postage and printing, and professional/consulting fees.
Results of Operations
Three months ended March 31, 2001 compared to three months ended March
31, 2000.
Sales. Sales for the three months ended March 31, 2001 of $98,134 were about
$35,000 less than the $133,470 recorded for the same period in 2000. This
decrease was primarily due to the timing of revenue recognition as discussed in
Note B.2, and the loss of a retail customer.
Selling, general and administrative expenses. Selling, general and
administrative expenses of $585,723 for the three months ended March 31, 2001
were approximately $41,000 less than the $626,315 for the three months ended
March 31, 2000. While all other expenses remained relatively level for the
comparative periods, business travel declined by nearly $40,000 as we made a
concerted effort to reduce such costs.
Interest expense. Interest expense for the three months ended March 31, 2001
were only slightly higher than for the three months ended March 31, 2000 because
of the increase in notes payable.
Depreciation and amortization expense. Since no major additions were made to
depreciable assets in 2000 and year to date March 31, 2001, depreciation
declined slightly due to some of the depreciable assets being fully depreciated.
Year ended December 31, 2000 compared to year ended December 31, 1999
Sales. Sales for the year ended December 31, 2000 of $481,436 were nearly
$114,000 less than the $595,613 recorded during 1999. This decrease was
primarily due to a general decline in retail sales partially offset by increased
sales by private label marketers.
Selling, general and administrative expenses. Selling, general and
administrative expenses of $2,397,188 for the year 2000 were approximately
$56,000 lower than the $2,453,855 for 1999. A $216,000 decline in commission
expenses was partially offset by a $28,000 increase in payroll and related
expenses, a $69,000 increase in professional/consulting fees, a $15,000 increase
in telephone expenses and a $20,000 charge associated with the amortization of
Deferred Financing Costs of issuing warrants.
Commissions declined by approximately $216,000 from $278,606 in 1999 to $62,539
in 2000, because of reduced sales in 2000, and the restructuring of commissions.
Telephone expenses increased by nearly $15,000 to $56,405 in 2000 because
allowed credits were used to offset 1999 charges.
Consulting/professional expenses increased from $368,235 in 1999 to $437,253 in
2000, an increase of about $69,000, mainly because of an increase in legal
activity including costs associated with filings with the Securities and
Exchange documents and fees incurred in determining the license requirements, if
any, in certain states.
Payroll and employee expenses increased by $28,000 to $1,053,536 in the year
2000 primarily because of the increased costs of medical benefits.
Business travel and postage and printing expenses were nearly the same level in
2000 as in 1999.
Interest income. Interest income for 2000 of $925 was about $10,000 lower than
the interest earned in 1999. We maintained a cash balance significantly higher
in 1999 than in 2000 and we were thus able to invest more principal in interest
bearing securities.
Interest expense. During 2000, interest expense of $4,875 was nearly the same as
in 1999.
Depreciation and amortization expense. Since no major depreciable assets were
added during 2000, depreciation and amortization expense of $28,733 was about
$3,000 lower than in 1999.
Change in accounting principle. Effective January 1, 1999, we adopted Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities." This
statement requires that certain costs of start-up activities and organization
costs be expensed as incurred rather than capitalized and amortized under
previous accounting principles. The cumulative effect of the change on net
income was $749,433, net of taxes in the amount of $0, since we had loss
carryforwards.
Liquidity and Capital Resources
Since inception, our expenses have consistently exceeded our revenues.
Operations have primarily been funded from the issuance of debt and equity
securities aggregating approximately $8.2 million. All debt and related
interest, except for $93,000 of debt, was converted into equity in 1997 at a
conversion rate of $1.00 per share of common stock; there was no gain or loss on
the conversion. We used cash for operating activities of approximately $1.5
million and $1.4 million in 2000 and 1999, respectively, primarily for payroll,
business travel and professional/consulting fees.
We invested $2,472 in 1999 to acquire computers and office furniture.
No investments were made in 2000. During 2000 and 1999 we raised $1,366,872 and
$894,500, respectively, through financing activities, primarily the sale of
common stock at a price of $1 per share in 1999 and $0.4375 in 2000.
We used cash in its operating activities totaling nearly $.4 million
and $.5 million during the first three months of 2001 and 2000, respectively,
primarily for payroll, professional fees and contract labor. We did not acquire
any fixed assets during these periods.
During the first three months of 2001 and 2000, we raised nearly
$500,000 through financing activities, primarily the sale of common stock in
2001 and the sale of preferred and common stock in 2000. In the first quarter of
2001, we issued 1,315,431 shares of common stock. We issued 550 shares of series
A convertible preferred stock at a price of $1,000 per share during the first
quarter of 2000. Each share of series A preferred stock may be converted into
2000 shares of common stock.
Going Concern
Notes F to our audited financial statements for the year ended December
31, 2000 expresses uncertainty as to our ability to continue as a going concern
and Note G entitled "Subsequent Events" further addresses the issue and in
management's opinion, should significantly alleviate this concern.
7
Expenses
We will pay the entire cost of preparing, assembling, printing and mailing
this Proxy Statement and the enclosed proxy, and the cost of soliciting proxies
with respect to the Special Meeting. We will request banks and brokers to
solicit their customers who beneficially own shares listed of record in names of
nominees and will reimburse those banks and brokers for the reasonable out-of-
pocket expenses of such solicitations. The original solicitation of proxies by
mail may be supplemented by telephone and telegram by our officers and other
regular employees, but we will not pay these individuals additional
compensation.
By Order of the Board of Directors,
Clark A. Marcus
President and Chief Executive Officer
Tampa, Florida
July , 2001
8
EYE CARE INTERNATIONAL, INC.
Index to Consolidated Financial Statements
Audited Financial Statements: Page
Independent Auditor's report F-2
Consolidated balance sheet at December 31, 2000 F-3
Consolidated statements of income
for the years ended December 31, 2000 and 1999 F-4
Consolidated statements of stockholders' deficiency for
the years ended December 31, 2000 and 1999 F-5
Consolidated statements of cash flows for the years ended
December 31, 2000 and 1999 F-6
Notes to consolidated financial statements F-7
Unaudited Financial Statements:
Consolidated balance sheet at March 31, 2001 F-11
Consolidated statements of income
for the years ended March 31, 2001 and 2000 F-12
Consolidated statements of stockholders' deficiency for
the years ended March 31, 2001 and 2000 F-13
Consolidated statements of cash flows for the years ended
March 31, 2001 and 2000 F-14
Notes to consolidated financial statements F-15
F-1
PHILIP J. ELENIDIS & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Eye Care International, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Eye Care
International, Inc. and Subsidiary as of December 31, 2000 and the related
consolidated statements of income and retained earnings, changes in common
equity and cash flows for the years ended December 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eye Care
International, Inc. and Subsidiary as of December 31, 2000 and December 31, 1999
and the results of its operations, changes in common equity and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note F to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note F and
Note G. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Yonkers, New York /s/ Philip J. Elenidis & Company
May 9, 2001
984 North Broadway Phone: (914) 965-1002
Yonkers, New York 10701 Fax: (914) 965-8214
F-2
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, 2000
-----------------
Current assets
Cash $ 5,515
Accounts receivable 99,838
Miscellaneous receivables and
advances 329,877
-------------
$ 435,230
Fixed assets - net of accumulated
depreciation 31,583
Other assets
Organization expense - net of
accumulated amortization --
-------------
Total assets $ 466,813
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accrued expenses and taxes payable $ 1,076,754
Deferred revenue 319,247
Notes payable 93,000
-------------
$ 1,489,001
-------------
Stockholders' deficiency
Capital stock
- 30,000,000 shares of $.001 par
value common stock authorized:
11,360,893 shares issued and outstanding 11,361
- 10,000,000 shares of $.001 par
value preferred stock authorized:
745 Series A shares issued 1
685,715 Series B issued 686
Paid in capital 8,121,031
Retained deficiency (9,155,267)
-------------
$ (1,022,188)
-------------
Total liabilities and
stockholders' deficiency $ 466,813
=============
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-3
EYE CARE INTERNATIIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
-------------------------------
2000 1999
---- ----
Revenue
Membership fees $ 481,436 $ 595,613
Interest 926 11,463
-------------- -------------
$ 482,362 $ 607,076
General and administrative expenses 2,397,188 2,453,855
Interest 4,875 4,699
Depreciation and amortization 28,733 31,739
-------------- -------------
2,430,796 2,490,293
-------------- -------------
Loss from operations (1,948,434) (1,883,217)
Cumulative effect of accounting
change to adopt SOP 98-5 -- (749,433)
-------------- -------------
Net loss $ (1,948,434) $ (2,632,650)
============== =============
Loss per share $ ( 0.19) $ ( 0.30)
============== =============
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-4
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Common Preferred Paid-in Retained
Stock Stock Capital Deficiency Total
Balance December 31, 1997
as Previously Reported $ 6,297 0 $3,623,990 $ (2,008,713) $ 1,621,574
Adjustment to reflect change
in Revenue Recognition Policy -- -- -- $ (537,625) $ (537,625)
--------------
Balance December 31, 1997
as restated $ 6,297 0 $3,623,990 $ (2,546,338) $ 1,083,949
Net Income/(Loss) -- -- $ (2,027,845) $ (2,027,845)
Issuance of Capital Stock $ 2,207 -- $2,269,262 -- $ 2,271,469
Balance December 31, 1998 $ 8,504 0 $5,893,252 $ (4,574,183) $ 1,327,573
Net Income/(Loss) -- -- -- $ (2,632,650) $ (2,632,650)
Issuance of Capital Stock $ 506 1 $ 893,993 -- $ 894,500
--------------
Balance December 31, 1999 $ 9,010 1 $6,787,245 $ (7,206,833) $ (410,577)
Net Income/(Loss) -- -- -- $ (1,948,434) $ (1,948,434)
Issuance of Capital Stock $ 2,351 $ 686 $1,333,786 -- $ 1,336,823
--------------
Balance December 31, 2000 $ 11,361 $ 687 $8,121,031 $ (9,155,267) $ (1,022,188)
The accompanying auditor's report and notes are an integral part of the
financial statements.
F-5
EYE CARE INTERNATIIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
-------------------------------
2000 1999
---- ----
Cash flow from operating activities
Net loss $(1,948,434) $(2,632,650)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 28,733 31,739
Accounting change -- 749,433
Changes in operating assets and liabilities
Decrease in accounts receivables 12,164 56,479
Increase or increase in miscellaneous
receivables and advances (189,879) 8,303
Increase or decrease in deferred revenue (30,150) (62,936)
Increase or decrease in accrued expenses
and taxes payable 623,776 428,345
----------- -----------
Net cash used by operating activities (1,503,790) (1,421,287)
Cash flow from investing activities
Purchase of fixed assets -- (2,472)
Cash flow from financing activities
Proceeds from sale of capital stock 1,336,822 894,500
Increase in notes payable 43,000 --
----------- -----------
Increase or decrease in cash $ (123,967) $ (529,260)
Cash - January 1, 129,482 658,742
----------- -----------
Cash - December 31, $ 5,515 $ 129,482
=========== ===========
Supplemental disclosures
Interest paid 0 0
----------- -----------
Income taxes paid 0 0
=========== ===========
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-6
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
Note A - NATURE OF THE ORGANIZATION
--------------------------
Eye Care International, Inc. and Subsidiary (the Company) markets
vision care benefit plans and enhancements to plans provided by
others. The Company's benefit plans and plan enhancements afford its
member/subscribers, and those of its plan sponsors (employers,
associations, etc.) and other licensed organizations, the opportunity
to obtain discounted services from its national network of ophthalmic
physicians. Through contractual arrangements with others, the
Company's plans also provide its member/subscribers with access to
providers of eyewear and other benefits on a discounted basis.
The Company's principal operating revenues consist of annual fees
charged to participating physicians and user fees charged either
directly to its member/subscribers, or indirectly through plan
sponsors or through licensing arrangements with providers of other
benefit plans in exchange for access by their member/subscribers to
the Company's network of ophthalmologists on a similarly discounted
basis.
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
1. Principles of Consolidation
--------------------------------
The consolidated financial statements include the accounts of
Eye Care International, Inc. and its wholly owned subsidiary,
National Vision Services, Inc. All significant intercompany
transactions and balances have been eliminated in consolidation.
2. Revenue Recognition
------------------------
The Company sells one, two and three year memberships in its
vision plan. Although, at the time of enrollment (when the
Company enters the membership data into its system), the Company
issues a membership kit that includes a membership card, network
provider list and other material, its obligation to its members
is not totally fulfilled because of the twenty-four hour
customer service feature of its plan and its guarantee to save
at least the cost of the membership or the Company will refund
the difference. In addition, memberships can be cancelled at any
time during the first thirty days of the membership. However,
historically said thirty-day cancellations have been diminimus
and requests for refunds equal to the difference between the
cost of the card and the member's savings have been
non-existent. Therefore, revenues are recognized on a
straight-line basis over the membership period, beginning in the
month of enrollment. Membership fees, however, can neither be
determined nor estimated until reported to the Company by the
selling organizations and are subject to possible subsequent
audit by the Company at its option under the terms of the
related agreement. Accordingly, depending upon the timeliness
and accuracy of membership reports received, membership income
is not recognized in the Company's financial statements until
reported by the selling organization, which may be in periods
later than those in which they were earned and subject to
adjustment in subsequent periods. To the Company's knowledge,
these reports have always been filed on a timely basis (less
than two weeks after the sale by the selling organization). If
reports were delayed, revenue and commissions would be
understated, as would be income.
Prior to 1998 the Company recognized revenue from membership
sales at the time of enrollment because the Company believed it
had substantially met all obligations set forth by regulatory
revenue recognition policies. However, as discussed above, the
Company does have a twenty-four hour customer service
obligation, as well as the potential refund guarantees. In light
of these obligations, it has been determined that revenues
should have been recognized on a straight-line basis over the
lives of the memberships, instead of full revenue recognition at
the time of enrollment. Accordingly, financials for periods
prior to 1998 have been restated. Said restatement results in a
decrease in revenue, net income and retained earnings of
$537,625 (net of $0 income taxes since the Company has reported
losses in each year), which will be recognized in periods after
1997. This amount has been debited to 1998 beginning retained
deficiency. In addition, the effect (net of $0 income taxes) on
revenue, net income and, thus, retained deficiency for 1999 and
2000 are increases of $62,936 and $30,148 respectively, with no
effect on earnings per share for 1999 or 2000.
3. Fixed Assets and Depreciation
----------------------------------
Fixed assets are recorded at cost. Depreciation of fixed assets
is recorded using accelerated and straight line methods over the
estimated useful lives of the related assets.
F-7
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
4. Income Taxes
-----------------
Income taxes are to be provided for the tax effects of
transactions reported in the financial statements. Provisions
will be made for deferred income taxes, which result from timing
differences between expenses and income as reported for
financial statement purposes and their deductibility or
exclusion for income tax purposes, when appropriate.
5. Stock Warrants
-------------------
The Company issued 400,000 warrants in 1999 to an individual as
an incentive to sign a spokesperson contract for future
services. These warrants have an exercise price of $1.50 per
share and expire in 2001. No compensation expense was recorded
because the fair value of the warrants on the date of issuance
was less than the exercise price.
During the year 2000, the Company issued 2,615,572 warrants for
the purchase of common stock. The exercise price of these
warrants is $0.50 per share of common stock and the warrants
expire in 2005.
The fair value of the above warrants at their grant date was
zero. The estimated fair value of each warrant granted is
calculated using the Black Scholes option pricing model. The
following summarizes the assumptions used in the model:
2000
----
Risk-free interest rate 5.08% - 5.77%
Expected years until exercise 4.72
Expected dividend yield 0
Estimated fair market value of
underlying stock $0.35
The following is a summary of stock warrant activity during the
years 2000 and 1999:
Weighted
Average
Number Exercise
Of Shares Price
--------- --------
Warrants outstanding
December 31, 1998 82,500 $1.00
Warrants granted during 1999 400,000 $1.50
Warrants granted in 2000 2,615,572 $0.50
Warrants expired in 1999 and 2000 0
Warrants forfeited during 1999 and 2000 0
Warrants exercised during 1999 and 2000 0
---------
Warrants granted and outstanding
December 31, 2000 3,098,072 $0.73
The following table summarizes the status of warrants
outstanding at December 31, 2000:
Weighted
Average
Remaining
Exercise Number Contractual
Price Of Shares Life
-------- --------- -----------
1996 Stock Warrants $1.00 32,500 0.34 years
1997 Stock Warrants $1.00 50,000 1.33 years
1999 Stock Warrants $1.50 400,000 0.41 years
2000 Stock Warrants $0.50 2,615,572 4.72 years
---------
3,098,072
=========
F-8
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
5. Stock Warrants (continued)
--------------
As of December 31, 2000, the Company had reserved 3,098,072
shares of common stock for issuance under stock warrants issued
in 1996, 1997, 1999 and 2000.
6. Preferred Stock
--------------------
In late 1999, the Company issued 495 shares of Series A
convertible preferred stock at a price of $1,000 per share. In
early 2000, the Company issued an additional 550 shares of
Series A convertible preferred stock. Each share of Series A
preferred stock is convertible into 2,000 shares of common stock
and has a liquidation preference of $1,000 per share. The
Company has the right to redeem shares of Series A convertible
preferred stock on the third anniversary of the date shares of
Series A convertible preferred stock were first issued at a
redemption price of $1,200 per share.
In May 2000, the Company issued 685,714 shares of Series B
convertible preferred stock at a price of $0.4375 per share.
Each share is convertible into one share of common stock. This
stock has no liquidation preference nor redemption features.
7. Change in Accounting Principle
-----------------------------------
Effective January 1, 1999, the Company adopted Statement of
Position 98-5, Reporting on the Costs of Start-up Activities.
This statement requires that certain costs of start-up
activities and organization costs be expensed as incurred rather
than capitalized and amortized under previous accounting
principles. The cumulative effect of the change on net income
was $749,433.
8. Loss Per Share
-------------------
Loss per share is calculated by dividing net income by the
average weighted number of shares outstanding for the period.
Average weighted number of shares used to calculate loss per
share for 2000 and 1999 were 10,127,068 shares and 8,905,929
shares, respectively. Since the Company shows a loss per share
for each of the periods presented, no diluted loss per share
calculations have been presented. Showing the effect of
including the outstanding warrants in the loss per share
calculation would have an anti-dilution effect and would be
misleading.
9. Comprehensive Income
--------------------
SFAS 130 requires a company to disclose Comprehensive Income, if
any, in its financial statements. Comprehensive Income is
defined as "the change in equity (net assets) of a business
enterprise during a period from transactions and other events
and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners." Since the
Company had no such transaction, the Company's net loss and
comprehensive net loss are the same.
Note C - NOTES PAYABLE
-------------
The Company is indebted to two stockholders in the amount of $93,000.
The monies bear interest at the rate of 8% and are payable upon
demand.
Note D - INCOME TAXES
------------
Substantially all of the Company's retained earnings deficit will be
available as an operating loss carry forward to reduce future income
tax obligations as may be incurred through the year 2015. However,
because of the Company's relatively short operating history, the
potential tax benefit of this loss has been valued at zero in the
financial statements and will remain so until realized or until the
criterion in Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, for recognition of a deferred tax asset
has been met.
F-9
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
Note E - COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases its present offices under an operating lease
expiring on July 31, 2003 with an option to renew for one year. Rent
expense for the years 2000 and 1999 amounted to $98,922 and $87,576
respectively. Future minimum rental commitments at December 31, 2000
are as follows:
2001 $ 96,523
2002 100,992
2003 42,855
----------
$ 240,370
==========
Note F - GOING CONCERN
-------------
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern. However,
the Company has sustained substantial operating losses since its
inception. In addition, the Company has used substantial amounts of
working capital in its operations. In review of these matters the
continuation of the Company is dependent upon its ability to raise
capital and its success of future operations. Absent an increase in
revenue or the sale of capital stock, there may be uncertainty about
the Company's ability to continue as a going concern. The Company has
secured major marketing arrangements with large member-based
companies (some of whom have been competitors) to either include the
Company's vision plan as part of their plans, or market the plan as a
stand-alone plan. The Company is also financially supported by its
current accredited investors, as well as other accredited investors.
Management believes that the Company will generate significant new
business in the future from these marketing arrangements and will
raise enough capital to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Note G - SUBSEQUENT EVENTS
-----------------
On April 3, 2001 the Company entered into an agreement with Thomas
Fletcher & Company, Inc., a New York based underwriter, to act as the
Company's authorized agent for the sole purpose of increasing the
permanent capitalization of the Company through the private placement
of securities, to be issued by the Company, on terms and conditions
that are mutually satisfactory.
The agreement states that the authorized agents, as soon as
practicable, will arrange for approximately two and one-half million
dollars ($2,500,000) of additional funds to the Company through the
issuance by the Company, of the following: (a) $2,000,000 principal
amount of promissory notes, (b) 1,000,000 shares of common stock, and
(c) 500,000 common stock purchase warrants; to be offered to
accredited investors in the form of units with each unit comprising a
$20,000 principal amount of promissory note, 10,000 shares of common
stock and 5,000 common stock purchase warrants at an offering price
of $25,000 per unit.
F-10
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, 2001
--------------
(Unaudited)
Current assets
Cash $ 99,789
Accounts receivable 40,668
Miscellaneous receivables and advances 404,973
------------------
$ 545,430
Fixed assets - net of accumulated depreciation 24,812
------------------
Total assets $ 570,242
==================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accrued expenses and taxes payable $ 1,205,342
Deferred revenue 333,849
Notes payable 93,000
------------------
$ 1,632,191
Stockholders' deficiency
Capital stock
- 30,000,000 shares of $.001 par
value common stock authorized:
12,676,350 shares issued and outstanding 12,676
- 10,000,000 shares of $.001 par
value preferred stock authorized:
745 Series A shares issued 1
685,715 Series B issued 686
Paid in capital 8,575,715
Retained deficiency (9,651,027)
------------------
$ (1,061,949)
------------------
Total liabilities and
stockholders' deficiency $ 570,242
==================
The accompanying notes are an integral part of these financial statements.
F-11
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31,
----------------------------
2001 2000
---- ----
(Unaudited)
Revenue
Membership fees $ 98,134 $ 133,470
Interest -- 170
------------- ------------
$ 98,134 $ 133,640
General and administrative expenses 585,723 626,315
Interest 1,400 1,000
Depreciation and amortization 6,771 7,361
------------- ------------
593,894 634,676
------------- ------------
Net loss $ (495,760) $ (501,036)
============= ============
Average common shares outstanding 11,548,186 9,041,971
============= ============
Loss per share $ ( 0.04) $ ( 0.06)
============= ============
The accompanying notes are an integral part of these financial statements.
F-12
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(Unaudited)
Common Preferred Paid-in Retained
Stock Stock Capital Deficiency Total
Balance December 31, 1999 $ 9,010 1 $ 6,787,245 $ (7,206,833) $ (410,577)
Net Income/(Loss) -- -- -- $ (1,948,434) $ (1,948,434)
Issuance of Capital Stock $ 2,351 $ 686 $ 1,333,786 -- $ 1,336,823
-------------
Balance December 31, 2000 $ 11,361 $ 687 $ 8,121,031 $ (9,155,267) $ (1,022,188)
Net Income/(Loss) -- -- -- $ (495,760) $ (495,760)
Issuance of Capital Stock $ 1,315 $ -- $ 454,684 $ -- $ 455,999
------------
Balance March 31,2001 $ 12,676 $ 687 $ 8,575,715 $ (9,651,027) $ (1,061,949)
The accompanying notes are an integral part of the financial statements.
F-13
EYE CARE INTERNATIIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
----------------------------------
2001 2000
---- ----
(Unaudited)
Cash flow from operating activities
Net loss $ (495,760) $ (501,036)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 6,771 7,361
Changes in operating assets and liabilities
Decrease in accounts receivables 9,796 (42,929)
Increase or increase in miscellaneous
receivables and advances (25,722) (25,607)
Increase or decrease in deferred revenue 14,602 (1,111)
Increase or decrease in accrued expenses
and taxes payable 128,587 102,854
---------- ----------
Net cash used by operating activities (361,726) (460,468)
Cash flow from investing activities
Purchase of fixed assets -- --
Cash flow from financing activities
Proceeds from sale of capital stock 456,000 524,250
---------- ----------
Increase or decrease in cash $ 94,274 $ 63,782
Cash - January 1, 5,515 129,482
---------- ----------
Cash - December 31, $ 99,789 $ 193,264
========== ==========
Supplemental disclosures
Interest paid 0 0
---------- ----------
Income taxes paid 0 0
========== ==========
The accompanying notes are an integral part of these financial statements.
F-14
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001.
Note A - NATURE OF THE ORGANIZATION
--------------------------
Eye Care International, Inc. and Subsidiary (the Company) markets
vision care benefit plans and enhancements to plans provided by
others. The Company's benefit plans and plan enhancements afford its
member/subscribers, and those of its plan sponsors (employers,
associations, etc.) and other licensed organizations, the opportunity
to obtain discounted services from its national network of ophthalmic
physicians. Through contractual arrangements with others, the
Company's plans also provide its member/subscribers with access to
providers of eyewear and other benefits on a discounted basis.
The Company's principal operating revenues consist of annual fees
charged to participating physicians and user fees charged either
directly to its member/subscribers, or indirectly through plan
sponsors or through licensing arrangements with providers of other
benefit plans in exchange for access by their member/subscribers to
the Company's network of ophthalmologists on a similarly discounted
basis.
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Eye Care International, Inc. and its wholly owned subsidiary,
National Vision Services, Inc. All significant intercompany
transactions and balances have been eliminated in consolidation.
2. Revenue Recognition
-------------------
The Company sells one, two and three year memberships in its
vision plan. Although, at the time of enrollment (when the
Company enters the membership data into its system), the Company
issues a membership kit that includes a membership card, network
provider list and other material, its obligation to its members
is not totally fulfilled because of the twenty-four hour
customer service feature of its plan and its guarantee to save
at least the cost of the membership or the Company will refund
the difference. In addition, memberships can be cancelled at any
time during the first thirty days of the membership. However,
historically said thirty-day cancellations have been diminimus
and requests for refunds equal to the difference between the
cost of the card and the member's savings have been
non-existent. Therefore, revenues are recognized on a
straight-line basis over the membership period, beginning in the
month of enrollment. Membership fees, however, can neither be
determined nor estimated until reported to the Company by the
selling organizations and are subject to possible subsequent
audit by the Company at its option under the terms of the
related agreement. Accordingly, depending upon the timeliness
and accuracy of membership reports received, membership income
is not recognized in the Company's financial statements until
reported by the selling organization, which may be in periods
later than those in which they were earned and subject to
adjustment in subsequent periods. To the Company's knowledge,
these reports have always been filed on a timely basis (less
than two weeks after the sale by the selling organization). If
reports were delayed, revenue and commissions would be
understated, as would be income.
3. Fixed Assets and Depreciation
-----------------------------
Fixed assets are recorded at cost. Depreciation of fixed assets
is recorded using accelerated and straight line methods over the
estimated useful lives of the related assets.
F-15
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
4. Income Taxes
------------
Income taxes are to be provided for the tax effects of
transactions reported in the financial statements. Provisions
will be made for deferred income taxes, which result from timing
differences between expenses and income as reported for
financial statement purposes and their deductibility or
exclusion for income tax purposes, when appropriate.
5. Stock Warrants
--------------
During the first quarter of 2000, the Company issued no warrants
for the purchase of common stock. During the first quarter of
2001, the Company issued 1,154,289 warrants. The exercise price
of these warrants is $0.50 per share of common stock and the
warrants expire in 2006.
The fair value of the above warrants at their grant date was
zero. The estimated fair value of each warrant granted is
calculated using the Black Scholes option pricing model. The
following summarizes the assumptions used in the model:
2001
----
Expected years until exercise 4.4
Expected dividend yield 0
Estimated fair market value of
underlying stock $0.17
The following is a summary of stock warrant activity during the
years 2001 and 2000:
Weighted
Average
Number Exercise
Of Shares Price
--------- --------
Warrants outstanding
December 31, 2000 3,098,072 $0.64
Warrants granted 1,154,289 $0.50
Warrants forfeited (422,500) $1.47
----------
Warrants granted and outstanding
March 31, 2001 3,829,861 $0.51
The following table summarizes the status of warrants
outstanding at March 31, 2001:
Weighted
Average
Remaining
Exercise Number Contractual
Price Of Shares Life
--------- --------- ------------
1996 Stock Warrants $1.00 10,000 0.45 years
1997 Stock Warrants $1.00 50,000 1.08 years
2000 Stock Warrants $0.50 2,615,572 4.31 years
2001 Stock Warrants $0.50 1,154,289 4.91 years
---------
3,829,861
=========
F-16
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
6. Stock Warrants (continued)
--------------
As of March 31, 2001, the Company had reserved 3,829,861 shares
of common stock for issuance under stock warrants issued and
outstanding.
7. Preferred Stock
---------------
In late 1999, the Company issued 495 shares of Series A
convertible preferred stock at a price of $1,000 per share. In
early 2000, the Company issued an additional 550 shares of
Series A convertible preferred stock. Each share of Series A
preferred stock is convertible into 2,000 shares of common stock
and has a liquidation preference of $1,000 per share. The
Company has the right to redeem shares of Series A convertible
preferred stock on the third anniversary of the date shares of
Series A convertible preferred stock were first issued at a
redemption price of $1,200 per share.
In May 2000, the Company issued 685,714 shares of Series B
convertible preferred stock at a price of $0.4375 per share.
Each share is convertible into one share of common stock. This
stock has no liquidation preference nor redemption features.
8. Loss Per Share
--------------
Loss per share is calculated by dividing net income by the
average weighted number of shares outstanding for the period.
Average weighted number of shares used to calculate loss per
share for the first quarter of 2001 and 2000 were 11,548,186
shares and 9,041,971 shares, respectively. Since the Company
shows a loss per share for each of the periods presented, no
diluted loss per share calculations have been presented. Showing
the effect of including the outstanding warrants in the loss per
share calculation would have an anti-dilution effect and would
be misleading.
9. Comprehensive Income
--------------------
SFAS 130 requires a company to disclose Comprehensive Income, if
any, in its financial statements. Comprehensive Income is
defined as "the change in equity (net assets) of a business
enterprise during a period from transactions and other events
and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners." Since the
Company had no such transaction, the Company's net loss and
comprehensive net loss are the same.
Note C - NOTES PAYABLE
-------------
The Company is indebted to two stockholders in the amount of $93,000.
The monies bear interest at the rate of 8% and are payable upon
demand.
Note D - INCOME TAXES
------------
Substantially all of the Company's retained earnings deficit will be
available as an operating loss carry forward to reduce future income
tax obligations as may be incurred through the year 2015. However,
because of the Company's relatively short operating history, the
potential tax benefit of this loss has been valued at zero in the
financial statements and will remain so until realized or until the
criterion in Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, for recognition of a deferred tax asset
has been met.
F-17
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
Note E - COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases its present offices under an operating lease
expiring on July 31, 2003 with an option to renew for one year. Rent
expense for the years 2000 and 1999 amounted to $98,922 and $87,576
respectively. Future minimum rental commitments at December 31, 2000
are as follows:
2001 $ 96,523
2002 100,992
2003 42,855
-----------
$ 240,370
===========
Note F - GOING CONCERN
-------------
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern. However,
the Company has sustained substantial operating losses since its
inception. In addition, the Company has used substantial amounts of
working capital in its operations. In review of these matters the
continuation of the Company is dependent upon its ability to raise
capital and its success of future operations. Absent an increase in
revenue or the sale of capital stock, there may be uncertainty about
the Company's ability to continue as a going concern. The Company has
secured major marketing arrangements with large member-based
companies (some of whom have been competitors) to either include the
Company's vision plan as part of their plans, or market the plan as a
stand-alone plan. The Company is also financially supported by its
current accredited investors, as well as other accredited investors.
Management believes that the Company will generate significant new
business in the future from these marketing arrangements and will
raise enough capital to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Note G - SUBSEQUENT EVENTS
-----------------
On April 3, 2001, the Company entered into an agreement with Thomas
Fletcher & Company, Inc., a New York based placement agent, to act as
the Company's authorized agent for the sole purpose of increasing the
permanent capitalization of the Company through the private placement
of securities, to be issued by the Company, on terms and conditions
that are mutually satisfactorily.
The agreement states that the authorized agent, as soon as
practicable, will arrange for approximately two and one-half million
dollars ($2,500,000) of additional funds to the Company through the
issuance, by the Company, of the following: (a) $2,000,000 principal
amount of promissory notes, (b) 1,000,000 shares of common stock, and
(c) 500,000 common stock purchase warrants; to be offered to
accredited investors in the form of units with each unit comprising
of a $20,000 principal amount of promissory note, 10,000 shares of
common stock and 5,000 common stock purchase warrants at an offering
price of $25,000 per unit.
F-18
EYE CARE INTERNATIONAL, INC.
1511 North Westshore Boulevard
Tampa, Florida 33607
PROXY
The undersigned, a holder of class A common stock of EYE CARE
INTERNATIONAL, INC., a Delaware corporation, hereby appoints CLARK A. MARCUS and
JAMES L. KOENIG, and each of them, the proxy of the undersigned, with full power
of substitution, to attend, represent and vote for the undersigned, all of the
shares which the undersigned would be entitled to vote, at the Special Meeting
of Stockholders to be held on August 15, 2001 and any adjournments thereof, as
follows:
The approval of an amendment to our Certificate of Incorporation to
authorize a one-for-five reverse stock split of the outstanding shares of our
class A and class B common stock by changing each five shares into one share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Special
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue of the proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED FOR ADOPTION OF THE PROPOSAL.
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting dated July , 2001 relating to the Special Meeting.
______________________________________
Signature(s) of Stockholder(s)
The signature(s) hereon should correspond exactly with the name(s) of the
Stockholder(s) appearing on the stock certificate. If stock is jointly held, all
joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporate name, and give title of signing officer.
Date:____________________, 2001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
EYE CARE INTERNATIONAL, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
EYE CARE INTERNATIONAL, INC.
1511 North Westshore Boulevard
Tampa, Florida 33607
PROXY
The undersigned, a holder of class B common stock of EYE CARE
INTERNATIONAL, INC., a Delaware corporation, hereby appoints CLARK A. MARCUS and
JAMES L. KOENIG, and each of them, the proxy of the undersigned, with full power
of substitution, to attend, represent and vote for the undersigned, all of the
shares which the undersigned would be entitled to vote, at the Special Meeting
of Stockholders to be held on August 15, 2001 and any adjournments thereof, as
follows:
The approval of an amendment to our Certificate of Incorporation to
authorize a one-for-five reverse stock split of the outstanding shares of our
class A and class B common stock by changing each five shares into one share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Special
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue of the proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED FOR ADOPTION OF THE PROPOSAL.
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting dated July , 2001 relating to the Special Meeting.
______________________________________
Signature(s) of Stockholder(s)
The signature(s) hereon should correspond exactly with the name(s) of the
Stockholder(s) appearing on the stock certificate. If stock is jointly held, all
joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporate name, and give title of signing officer.
Date_____________________, 2001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
EYE CARE INTERNATIONAL, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
EYE CARE INTERNATIONAL, INC.
1511 North Westshore Boulevard
Tampa, Florida 33607
PROXY
The undersigned, a holder of series B convertible preferred stock of EYE
CARE INTERNATIONAL, INC., a Delaware corporation, hereby appoints CLARK A.
MARCUS and JAMES L. KOENIG, and each of them, the proxy of the undersigned, with
full power of substitution, to attend, represent and vote for the undersigned,
all of the shares which the undersigned would be entitled to vote, at the
Special Meeting of Stockholders to be held on August 15, 2001 and any
adjournments thereof, as follows:
The approval of an amendment to our Certificate of Incorporation to
authorize a one-for-five reverse stock split of the outstanding shares of our
class A and class B common stock by changing each five shares into one share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Special
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue of the proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED FOR ADOPTION OF THE PROPOSAL.
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting dated July , 2001 relating to the Special Meeting.
______________________________________
Signature(s) of Stockholder(s)
The signature(s) hereon should correspond exactly with the name(s) of the
Stockholder(s) appearing on the stock certificate. If stock is jointly held, all
joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporate name, and give title of signing officer.
Date:____________________, 2001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
EYE CARE INTERNATIONAL, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.