As filed with the Securities and Exchange Commission on December 15, 2004
Registration Statement No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under the
Securities Act of 1933
EYE CARE INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
Delaware 7389 59-3206480
------------------------------- ----------------------- --------------------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation) Industrial Class Code) Identification No.)
1511 North Westshore Boulevard, Suite 925
Tampa, Florida 33607
(813)289-5552
------------------------------------------------------------
(Address and telephone number of principal executive offices
and principal place of business)
Clark A. Marcus
President and Chief Executive Officer
1511 North Westshore Boulevard, Suite 925
Tampa, Florida 33607
Tel:(813) 289-5552 Fax:(813) 289-5553
----------------------------------------------------------
(Name, address, and telephone number of agent for service)
Copy to:
David J. Levenson, Esq.
7947 Turncrest Drive
Potomac, MD 20854
Tel: (301)299-8092
Fax: (301)299-8093
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] If this form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
[_] If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------- -------------------- ---------------------- ----------------------- -----------------------
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered per security (1) offering price (1) registration fee
- --------------------------------- -------------------- ---------------------- ----------------------- -----------------------
Class A common stock, $0.001 par 15,541,296 $ 1.01 $15,696,708 $ 1,848
value
- -----------------------------------------------------------------------------------------------------------------------------
Class A common stock, $0.001 par 1,720,000 1.01 1,737,200 204
value (2)
- -----------------------------------------------------------------------------------------------------------------------------
Class A common stock, 236,344 1.01 238,707 28
$0.001 par value(3)
- -----------------------------------------------------------------------------------------------------------------------------
Class A common stock, 320,000 1.01 323,200 38
$0.001 PAR VALUE(4)
- -----------------------------------------------------------------------------------------------------------------------------
Class A common stock, 400,000 1.01 404,000 48
$0.001 PAR VALUE(5)
- -----------------------------------------------------------------------------------------------------------------------------
Total $18,217,640 $1.01 $18,399,816 $ 2,166
=============================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. Represents
the closing bid prices for the common stock of $1.01, as reported on
the OTC Bulletin Board on December 10, 2004.
(2) Represents shares underlying Series C convertible preferred stock.
(3) Represents shares underlying convertible debentures.
(4) Represents shares underlying options.
(5) Represents shares underlying warrants.
Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
EYE CARE INTERNATIONAL, INC.
18,217,640 Shares of Class A Common Stock,
par value $0.001
All of the shares of Class A common stock covered by this prospectus are being
offered and sold by the persons (individuals and entities) named under "Selling
Security Holders," as follows: 15,541,296 existing shares outstanding, 1,720,000
shares to be issued upon conversion of Series C convertible preferred stock,
236,344 shares to be issued upon conversion of convertible debentures, 320,000
shares to be issued upon exercise of options, and 400,000 shares to be issued
upon exercise of warrants. See "Description of Securities." The Selling Security
Holders will receive all of the sales proceeds, but will bear none of the
expenses of the offering; they will bear any underwriting discounts or
commissions. No shares are being offered and sold by the Company and the Company
will receive none of the sales proceeds, but the Company will bear all the
expenses of the offering, estimated at $35,000, for registration, legal,
accounting and transfer agent fees, taxes and printing.
In this prospectus, each of the terms "we," "us," "our," the "Company" and " Eye
Care," and similar terms, all refer to Eye Care International, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares of our Class A common stock are quoted and traded from time to time on
the OTC Bulletin Board, trading symbol "EYCI." The high and low bid prices for
such shares on December 10, 2004 were $1.02 and $0.75, respectively The Selling
Security Holders will offer and sell their shares publicly at the market price
or privately at a price related to the market price or at negotiated prices.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
MAKE THE OFFERING AND OUR SECURITIES SPECULATIVE AND RISKY.
The date of this prospectus is December 13, 2004
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................1
Selected Financial Data...................................................2
Management's Discussion and Analysis of Financial Condition
and Results of Operation...............................................3
Risk Factors..............................................................9
Use of Proceeds...........................................................13
Description of Business...................................................13
Description of Property...................................................20
Management................................................................21
Executive Compensation....................................................23
Certain Transactions......................................................24
Principal Shareholders....................................................25
Selling Security Holders..................................................26
Plan of Distribution......................................................26
Description of Securities.................................................27
Trading Market and Related Shareholder Matters............................29
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.........................................30
Legal Matters.............................................................31
Experts...................................................................31
Where You Can Find Additional Information.................................32
Financial Statements......................................................F-1
Until March 13, 2005 (90 days), all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
We have not authorized any person, agent or entity to give any information or
make any representation other than those contained in this prospectus. You
should not rely on any such information or representation as having been
authorized by us. This prospectus is not an offer to sell the securities and it
is not soliciting an offer to buy the securities in any state where offers or
sales are not permitted.
(i)
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in this
prospectus. Because it is a summary, it does not contain all the information you
should consider before making an investment decision.
OUR COMPANY
We market memberships in a comprehensive, national, non-insurance based, quality
discount eye care and eyewear plan. The memberships entitle plan participants to
obtain eye care services and products from our network of providers at rates
which range from 20% to 60% below retail. We recently acquired LBI Brokerage, a
managing general agency and general agency for group health and group life
insurance products, and the technology and patent rights related to the
PhotoScreener(TM), a camera especially designed to detect various disorders of
the eye in young and even preverbal children.
Our principal executive offices are located at 1511 North Westshore Boulevard,
Suite 925, Tampa, Florida 33607. Our telephone number is (813) 289-5552.
THE OFFERING
All of the shares of Class A common stock covered by this prospectus are being
offered and sold by the persons named under "Selling Security Holders," as
follows: 15,541,296 existing shares outstanding, 1,720,000 shares to be issued
upon conversion of Series C convertible preferred stock, 236,344 shares to be
issued upon the conversion of convertible debentures, 320,000 shares to be
issued upon exercise of options and 400,000 shares to be issued upon exercise of
warrants. See "Description of Securities." CAPITAL STRUCTURE BEFORE AND AFTER
THE OFFERING
Common Stock Outstanding:
BEFORE THE OFFERING: 27,668,452 shares, consisting of 23,205,650 shares of Class
A common stock and 4,462,802 shares of Class B common stock
AFTER THE OFFERING: 27,668,452 shares, consisting of 23,203,650 Class A shares
and 4,462,802 Class B shares, excluding an estimated 2,676,344 shares which will
be issued whenever the debentures are converted and/or warrants are exercised.
In May 2004, shareholders approved an amendment to the Company's articles of
incorporation to increase its authorized shares from 50,000,000 shares to
120,000,000 million shares. The authorized Class A common stock, par value
$0.001 per share, was increased from 30,000,000 shares to 80,000,000 shares; the
authorized Class B common stock, par value $0.001 per share, was increased from
10,000,000 shares to 20,000,000 shares; and the authorized "blank check"
preferred shares were increased from 10,000,000 shares to 20,000,000 shares.
SELECTED FINANCIAL DATA
You should read the following summary of financial information together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
2003 2002 SEPTEMBER 30, 2004
---------------------------- ------------------
Revenues $ 181,392 $ 287,735 $ 102,755
Operating expenses 2,652,932 1,461,418 4,625,663
Loss from operations (2,471,540) (1,173,683) (4,522,908)
Other income (expense) 928,402 (332,264) 30,797,925)
Net loss $ 1,543,138 $ 1,495,947 $ 35,320,833
Preferred dividends 7,446 18,000 0
Net loss to common $ 1,550,584 $ 1,513,947 $ 35,320,833
Net loss per common share $ (0.54) $ (0.63) $ (1.86)
BALANCE SHEET DATA
DECEMBER 31, 2003 SEPTEMBER 30, 2004
----------------- ------------------
Current Asset $ 67,438 $ 194,146
Current Liabilities $4,814,409 $2,489,434
Working Capital Deficit $4,746,971 $2,295,288
Total Assets $ 74,025 $ 687,414
Total Liabilities $4,852,326 $2,898,658
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON
AND RESULTS OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
RESULTS OF OPERATIONS
REVENUE. During the first nine months of 2004, revenues decreased $27,247
primarily because of the loss of two retail customers and reduced wholesale
rates on a per member per month basis. The Company has shifted its emphasis from
retail marketing of memberships to the wholesale marketing of its memberships
and to the development of a more diversified and expanded wholesale customer
base, one which will include the Company's program as a premium benefit under
the wholesale customer's label.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). The Company's SG&A expenses
increased by approximately $849,000 for the nine months ended September 30, 2004
as compared to the same period in 2003. The more significant components of SG&A
expenses were:
SEPTEMBER 30
2004 2003 INREASE (DECREASE)
---------------------- ------------------
Payroll & related expense $ 857,629 $ 735,306 $ 122,323
Officers Bonuses 2,343,750 -- 2,343,750
Commissions 4,734 69,711 (64,977)
Business travel 294,603 110,421 184,182
Professional fees 689,516 235,032 454,484
All other SG&A expenses 433,895 280,537 153,358
Total $ 4,624,127 $ 1,431,007 $ 3,193,120
Staffing additions of customer service representatives accounted for the
majority of the increase in payroll and related expense.
During the first nine months of 2004 the Company issued common stock, as
bonuses, to its executive officers. The recorded value of these transactions was
$2,343,750.
Commission expense varies directly with the Company's sales. Approximately
$50,000 of the decrease in the nine months ended September 30, 2004 was because
there were no vitamin sales in the first nine months of 2004, as compared to
sales of $250,000 during the first nine months of 2003; the Company believes the
vitamin company ceased operations in 2004. The remaining difference was due to
fewer sales and lower commission rates on wholesale sales as opposed to retail
sales.
The increase in business travel expenses reflects the increased travel incurred
for trade shows and increased time of our Chief Executive Officer away from the
home office negotiating new contracts and raising capital.
Professional fees, which include expenses associated with legal, accounting and
consulting, during the nine months of 2004 exceeded similar expenses during the
first nine months of 2003 by about $454,000. Part of this increase was the
result of increased securities work performed by both
3
accountants and attorneys, combined with legal expenditures associated with
proposed merger/acquisitions, plus increased financial/public relations
consulting. Other legal costs of about $46,000 resulted from the issuance of
common shares to attorney for services.
INTEREST EXPENSE. For the nine months ended September 30, 2004, interest expense
of $111,458 was approximately $76,000 less than the same period in 2003 as a
result of the conversion of over $2 million of indebtedness and accrued interest
into shares of Class A common stock at the rate of two shares for each $1.00
converted.
DEPRECIATION EXPENSE. Depreciation expense for the nine months ended September
30, 2004 was lower than in prior periods because no major depreciable assets
have been purchased during the last three years.
OTHER EXPENSES. Other Expenses for the first nine months of 2004 of $433,895
increased about $153,000 over the same period of 2003 due in large part to a
$62,000 increase in allowance for uncollectible accounts, approximately $42,000
of relocation expenses for our new Chief Financial Officer and a $33,000
increase in office expenses.
GAIN ON CANCELLATION OF DEFERRED COMPENSATION AND FORGIVENESS OF ACCOUNTS
PAYABLE. During the nine months ended September 30, 2003, the Company and two of
its officers, Clark Marcus, Chief Executive Officer, and James Koenig, Chief
Financial Officer, entered into agreements relinquishing their claims to
deferred compensation (earned but unpaid) in the amounts of $424,985 and
$511,654, respectively. In consideration for their agreements, the Company
forgave collection of personal loans and advances totaling $282,984, $274,984
for Mr. Marcus, and $8,000 for Mr. Koenig. The resulting gain on this
transaction to the Company was reduced by the tax liability associated with the
forgiveness of debt, for which the Company had agreed to reimburse the officers.
This transaction resulted in the Company recording a net gain of $577,654 in
2003.
CONSULTING EXPENSES FOR BUSINESS EXPANSION. During the nine month period ended
September 30, 2004, the Company entered into various agreements with financial
and business consultants, including Selling Security Holders Jana Corporation
and OmniFirst Capital Corp., and May Davis Group and Fordham Financial
Management, to assist in furthering its financial and business plan, including
the expansion of its business. The consultants were to assist the Company in its
efforts to effect acquisitions and to obtain relationships with sources of
revenue. As an inducement to these consultants to provide these services, the
Company granted them, in the aggregate, 5,700,000 warrants to purchase shares of
our Class A common stock at an exercise price of $.01 per share. The Company
also issued an aggregate of 3,600,000 shares to the consultants. The valuation
of the warrants using the intrinsic value method and the common stock using the
market value method resulted in a non-cash charge to expense in the first nine
months of 2004 of $29,003,644. In October 2004, the Company and Fordham
Financial verbally agreed that Fordham would return the 135,000 shares
previously issued to it if it did not produce any acceptable equity financings
by December 1, 2004.
STOCK SUBSCRIPTIONS RECEIVABLE. During the first nine months of 2004, holders
exercised warrants for 2,050,000 shares of Class A common stock at exercise
prices ranging from $.01 to $.50 per share. As a result, the Company recorded
$59,816 as receivables due from the holders.
4
LIQUIDITY AND CAPITAL RESOURCES
The following table compares the Company's cash flows for the nine months ended
September 30, 2004 and 2003:
NINE MONTHS ENDED SEPTEMBER 30
2004 2003
----------------------------
Net cash used by operating activities $(2,346,109) $ (752,691)
Net cash used by investing activities (141,537) (65,431)
Net cash provided by financing activities 2,599,067 743,500
----------- -----------
Net increase (decrease) in cash $ 111,421 $ (74,622)
From time to time, we experience cash flow shortages due to current operating
demands of our market development and enhancement program and lack of capital
resources. We have funded the Company's operations through the issuance of
short-term notes payable, amounting to $2,599,067 during the nine months ended
September 30, 2004. All short-term notes issued in 2004, except for $666,333
have been converted to Class A common stock of the Company. Of the $666,333,
$366,333 is mandatory convertible debt to Class A common stock which would leave
only $300,000 of new issue debt as a liability Although management to date has
been able to manage these cash flow shortfalls without interruption to our
business, there can be no assurance that necessary short-term financing will
continue to be available. Management is seeking additional working capital to
satisfy daily operating requirements. There can be no assurance that such
additional financing will be available on terms acceptable to us.
During the October and November 2004, the Company issued approximately 1,800,000
shares of Class A common stock. Approximately 300,000 shares were issued for
services that either have been or will be performed by consultants,
approximately 700,000 shares were issued for the acquisition of the technology
and patent rights related to PhotoScreener(TM), and approximately 800,000 were
issued upon conversion of notes payable and accrued interest. The Company
estimates the resulting non-cash charge resulting from the issuances of these
securities to its fourth quarter 2004 income statement will be about $2.3
million.
The Company had entered into a financing agreement in December 2003 with Fordham
Financial to provide equity financing and other consulting services.. In October
2004, the Company and Fordham Financial verbally agreed that Fordham will return
the 135,000 shares previously issued to it if it does not produce any acceptable
equity financings by December 1, 2004.
In August 2004, the Company raised $602,000 from the sale to Victus Capital
Master Fund and Vicis Capital, L.P. of 43 shares each, or a total of 86 shares,
of mandatory convertible Series C preferred stock, par value of $0.001, at a
price of $7,000 per share, and 400,000 five-year warrants to purchase Class A
common stock at $2.40 per share, the closing bid price of the Company's common
stock on August 2, 2004. Each preferred share may be converted at any time until
July 30, 2006, when conversion becomes mandatory. At the time of conversion,
each preferred share shall be deemed to have a value of $10,000 and shall be
convertible into common stock at the lesser of $2.88 per share or 75% of the
lowest closing bid price for such shares during the five days immediately prior
to conversion. The Company agreed to register for each preferred share up to
20,000 shares of Class A common stock for conversion of the preferred shares and
exercise of the warrants, and the Company has registered in the registration
statement of which this prospectus is a part, 1,720,000 shares and 400,000
warrants pursuant
5
to that agreement.. Also, until July 30, 2006, the mandatory conversion date,
each of Victus Capital and Vicis Capital has the right to purchase up to 1% of
the number of equity securities issued by the Company in subsequent financing
transactions, at the same price paid by the investors
In October 2004 the Company acquired the technology and patent rights for the
PhotoScreener(TM), a camera especially designed to detect vision disorders in
young and even preverbal children. The technology and patent rights were
acquired from the Feakins Howson Partnership, for 187,500 shares of Class A
common stock and the future issuance of 1,562,500 additional shares one year
after the closing date. The Company also agreed to issue 750,000 additional
shares to the Partnership for consulting services.
The Company reached an agreement to make the acquisition of Self-Funded
Alternatives (SFA) and LBI Brokerage (LBI) in June 2004 in exchange for cash,
notes payable and common stock. Subsequent to the acquisition, and by mutual
consent, the acquisition was restructured whereby an agreement was reached to
cancel the SFA transaction and modify the terms of the LBI acquisition. Pursuant
to the terms of the modification agreement, the Company acquired 100% of all the
issued and outstanding capital stock of LBI in exchange for 100,000 shares of
ECI Class A common stock. The cash consideration to be paid for this transaction
was cancelled.
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
REVENUE. For fiscal year 2003 the Company's gross income of $431,392 exceeded
the Company's gross income for fiscal year 2002 by $144,000. This increase
resulted, in part, from the Company's receiving $250,000 for endorsing a vitamin
product (produced by a vitamin company that has ceased operations), recorded in
Other Income. The decline of approximately $106,000 in the Company's gross
operating revenue derived from sales of memberships in fiscal year 2003, as
compared to fiscal year 2002, resulted from the Company shifting its emphasis
from retail marketing of memberships to wholesale marketing and to the
development of a more diversified and expanded wholesale customer base. The
Company expects that customers in the expanded wholesale base will include the
Company's vision plan as a premium benefit under the customer's label.
Although several significant new wholesale customer contracts were negotiated
during the fiscal year 2003, implementation has taken longer than anticipated by
the Company. Several of the recently signed private label wholesale agreements
provide that the Company's vision plan will be automatically included with all
sales offerings of the customer's products or services. The Company anticipates
that commission income derived from its agreement with a mail order fulfillment
provider will be generated once the wholesale contracts are implemented. Revenue
(commissions) received on vitamin sales, included in Other Income, associated
with an agreement signed earlier in the year also should begin to generate
revenue once the vitamin company receives adequate funding. Other Income
includes $250,000 of revenue received in 2003 from this contractual arrangement
with the vitamin company. We believe that the vitamin company has ceased
operations, so we anticipate no commissions on vitamin sales in the future.
6
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). The Company's SG&A expenses
of $2,647,992 in 2003 increased by approximately $1,196,000 over such expenses
in 2002. The more significant components of SG&A expenses were:
Increase
2003 2002 (Decrease)
---- ---- ----------
Payroll & Related Expenses $1,274,982 $ 925,324 $ 349,658
Commissions 81,737 16,609 65,128
Business Travel 220,541 121,461 99,080
Insurance 127,938 126,243 1,695
Professional/Consulting Fees 489,993 102,764 387,229
Rent 117,677 116,107 1,570
Other Expenses 335,124 43,268 291,856
---------- ---------- ----------
Total $2,647,992 $1,451,776 $1,196,216
Increased staffing accounts for the majority of the increase in payroll and
related expenses. During most of 2002, the Company had not filled positions in
Marketing, Provider Relations and Accounting. All of these positions , except
for the Accounting position, were filled during most of 2003.
Commissions increased approximately $65,000 to $81,737 for 2003, primarily
because of the increased commission expense associated with the revenue created
from the vitamin contract.
Insurance expense for 2003 of $127,938 was nearly same as for 2002.
Professional/consulting fees of $489,993 in 2003 were approximately $387,000
higher than for 2002, primarily because the Company used consultants instead of
hiring employees for certain functions and because of increased activities
requiring legal and accounting assistance.
Other Expenses for 2003 increased nearly $292,000 to $335,124 mainly because of
the expenses associated with the reverse one for five stock split, the use of
temporary staffing personnel instead of hiring employees, increased printing
costs and the settlement of claims.
INTEREST EXPENSE. Interest expense for 2003 of $364,511 increased by
approximately $129,000 over 2002 as the Company issued additional interest
bearing notes in late 2002 and during 2003 to fund operations. The interest rate
on these notes was ten percent. The Company also issued warrants in lieu of
granting higher interest rates. The cost associated with the warrants was
$157,566 and was charged to Interest Expense.
DEPRECIATION EXPENSE. Although a majority of the Company's assets have been
fully depreciated, the Company did acquire a limited amount of depreciable
assets in 2003. As a result, depreciation expense, computed on a straight-line
method over the assets' estimated lives, declined by nearly $5,000 in 2003.
7
OTHER INCOME/(EXPENSE) - FORGIVENESS OF DEBT. In 2003 the Company entered into
agreements with Clark Marcus, its Chief Executive Officer, and James Koenig, its
Chief Financial Officer, for the forgiveness of indebtedness owed by the Company
for deferred compensation (earned but unpaid) at December 31, 2002 in of
$424,985 and $511,654, respectively. Mr. Marcus and Mr. Koenig forgave the
Company of the deferred compensation in consideration of the Company's forgiving
$274,984 and $8,000, respectively, owed by them to the Company for loans and
advancesThe Company also agreed to reimburse them for their tax liability for
the forgiveness of their debt. Such reimbursement has not yet occurred.
The Company also negotiated a settlement with a vendor in 2003 which resulted in
the vendor's forgiving the Company $112,000 in consideration of the Company's
agreeing to pay the vendor commissions on specific vision membership sales.
LOANS TO STOCKHOLDERS AND OFFICERS. During 2003, loans and advances to Mr.
Marcus and Mr. Koenig were settled, as described in the preceding paragraph. In
prior years the Company had advanced amounts to them because they had deferred a
major portion of their (earned by unpaid) compensation. In March 2003, the
Company and Messrs. Clark and Koenig entered into agreements whereby each
relinquished his claim to deferred compensation and the Company forgave them of
loans and advances; any remaining amounts were eliminated by the officers'
absorbing certain expenses they incurred on behalf of the Company, all as
described in the preceding paragraph.
LIQUIDITY AND CAPITAL RESOURCES
The following summary table compares cash flows of the Company for
the years 2003 and 2002:
2003 2002
----------- -----------
Net cash used by operating activities $(1,103,009) $(1,054,536)
Net cash used by investing activities 16,933 (35,961)
Net cash provided by financing activities 1,009,405 1,159,900
----------- -----------
Net increase or (decrease) in cash $ (76,671) $ 69,403
From time to time, the Company experiences cash flow shortages due to current
operating demands of its market development and enhancement program and its lack
of capital resources. To date, management has been able to handle these
shortfalls without interruption to the business by issuing short-term notes.
During 2003, $978,500 in short-term notes payable were issued, at 10% annual
interest.
In June 2003 the Company entered into an agreement with three individual holders
of Series B preferred stock, settling an action brought by them against the
Company, its directors and officers. Pursuant to the agreement, the Company
redeemed all of the holders' preferred stock for the following consideration: a
promissory note in the principal amount of $664,950, due June 1, 2004, including
interest accruing at the rate of 1.53% per annum, $549,950 of which has been
paid and $115,000 of which was extended from time to time and remains payable,
with accrued interest. We also issued warrants entitling the three holders to
purchase up to 299,406 shares of Class A common stock at an exercise price of
$2.1875 per share at any time until June 1, 2005 (modified and extended from May
12, 2003); the warrants are exercisable at any time prior to the sixth business
day after the Company delivers written notice of its
8
intent to pay the note in full within thirty days. The warrants terminate, pro
rata, as the promissory note is paid.
In December 2003 we entered into an investment banking agreement with Fordham
Financial Management to provide advice concerning strategic corporate planning,
long-term investment policies, mergers and acquisitions and to provide financing
through a private offering. In October 2004, the Company and Fordham Financial
verbally agreed that Fordham would return the 135,000 shares previously issued
to it if it did not produce any acceptable equity financings by December 1,
2004.
In January 2004, we entered into an investment banking arrangement with the May
Davis Group to assist in a private offering of up to $5 million for the Company,
through the issuance of three-year mandatory convertible debt with an annual
interest rate of 7%. The conversion price is the lesser of (a) 120% of the
closing bid price on the closing date or (b) 75% of the lowest closing bid price
during the five trading days immediately preceding the conversion date. Since
February 6, 2004, we have received $366,333.
During the first quarter of 2004, some of the Company's debt holders converted
their promissory notes with the related accrued interest into Class A common
stock of the Company at the rate of $0.50 per share. As of April 1, 2004,
approximately $1.9 million of promissory notes (over 54% of the outstanding
balance at year-end 2003) and over $200,000 of accrued interest related to the
notes has been converted to equity, thus reducing the Company's need for cash.
We plan to continue to meet our liquidity needs through the issuance of
short-term notes payable, the proceeds of which will be used for completing the
development of the Company's marketing plan, building the necessary
administrative infrastructure.
CONTRACTUAL OBLIGATIONS
We do not have any material contractual obligations requiring payments over the
next five years.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements, as of December 31, 2003 or as
of the date of this prospectus, that have or are reasonably likely to have a
current or future effect on our financial condition or results of operations.
RISK FACTORS
In addition to the other information contained in this prospectus, the following
risk factors should be considered carefully by prospective investors prior to
making an investment decision. These factors make the offering speculative and
risky. Certain information in this prospectus contains forward-looking
statements. Forward-looking statements deal with our current plans, objectives,
projections, expectations, assumptions, strategies, and future events. Words
such as "may," "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," "will," "should," "could" and variations of such words,
and similar expressions are intended to identify such forward-looking
statements. Similarly, statements that describe our plans, our strengths and
weaknesses, our business strategy and the trends we anticipate in the industry
and the economies in which we operate and other information that is not
historical information also are forward-looking statements.
We cannot assure that future results covered by the forward-looking statements
will be achieved or that the events contemplated will occur or have the effects
anticipated. The matters discussed are cautionary
9
statements identifying important factors, including certain known and unknown
risks and uncertainties, that could cause actual results to vary materially from
the anticipated results covered in such forward-looking statements.
RISKS RELATING TO OUR BUSINESS
POOR FINANCIAL POSITION. For each of the three years ending December 31, 2003
and for the nine months ended September 30, 2004, our operations have generated
a net loss and negative operating cash flows. As of September 30, 2004, we had a
deficit in working capital of approximately $2,295,288 and total liabilities
exceeded total assets by approximately $2,211,244. We will require additional
financing to fund our operations unless we generate sufficient funds from
operations. There can be no assurance that we will be successful in raising
additional capital or that we will operate profitably. If our history of losses
continues, our shareholders may lose some or all of their investments.
LOSSES FROM RECENT OPERATIONS. The Company incurred net losses of $1,550,584 for
the fiscal year ended December 31, 2002, $1,513,947 for the fiscal year ended
December 31, 2003 and $35,320,833 for the nine months ended September 30, 2004,
including non-cash expenses for issuances of securities of $29,000,000. We
anticipate generating losses for the next 12 months and expect to have an
operating loss for the fiscal year ending December 31, 2004. Therefore we may be
unable to continue operations in the future as a going concern. Our plans to
deal with this uncertainty include raising additional capital or entering into a
strategic arrangement with a third party. There can be no assurance that our
plans can be realized and if we cannot attain and maintain profitability in the
future, our shareholders may lose all of their investments.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is largely dependent
upon the continued contributions of its key management personnel. The success of
the Company also depends upon its ability to attract and retain additional
qualified management personnel. The process of locating personnel with the
combination of skills and attributes required to implement the Company's
strategies is very competitive and often time-consuming and there can be no
assurance that we will be successful in attracting and retaining such personnel.
The loss of the services of key management personnel or the inability to attract
additional qualified personnel could limit or disrupt our future operations and
adversely affect our business, financial condition and results of operations.
GOVERNMENT REGULATION. Health care regulations or health care reform initiatives
could materially adversely affect our business, financial condition and results
of operations. We are not an insurance company, but we may be subject to various
federal and state governmental regulations pertaining to the delivery of health
care services by our network of ophthalmologists and optometrist, including:
o anti-kickback statutes;
o self-referral laws;
o insurance and licensure requirements associated with PPO and
other services that may be provided to leading insurance
companies by our pending acquisitions;
o civil false claims acts;
o corporate practice of medicine restrictions;
o fee-splitting laws;
o facility license requirements and certificates of need;
o regulation of medical devices, including laser vision
correction and other refractive surgery procedures; and
o FTC guidelines for marketing laser vision correction.
10
These laws and regulations may change or be interpreted in the future to either
restrict or adversely affect our business activities or relationships with our
eye care providers. In addition, federal and state governments are currently
considering various types of healthcare initiatives and comprehensive revisions
to the health care and health insurance systems. Some of the proposals under
consideration, or others that may be introduced, could, if adopted, have a
material adverse effect on our business, financial condition and results of
operation. See "Business - Government Regulation."
DEPENDENCE ON OUR NETWORK OF OPHTHALMOLOGISTS AND OPTOMETRISTS. We have a
national network of optometrists and ophthalmologists located near most major
metropolitan areas. Our network of eye care professionals is the most important
part of our operating strategy. No assurances can be given as to the likelihood
of events adversely affecting the relationship with these eye care professionals
or our ability to expand the number of optometrists and/or ophthalmologists in
our network. Any one of the following events could adversely affect our
relationships with our network and therefore our results of operation: (i) a
dispute with an optometrist or group of optometrists controlling multiple
practice locations, (ii) a government or regulatory authority challenging our
operating structure or our relationship with our network, or (iii) other
regulatory, judicial or legislative changes to applicable laws or regulations
resulting in changes to our operating structure or strategy. See "Business -
Government Regulation."
COMPETITION. There is intense competition among providers of eye care and
eyewear, both nationally and locally. There are numerous entities and
individuals that compete with each other, as well as with the Company and its
network, for the same customers of eye care and eyewear. Competition is on the
basis of price, customer service and quality of products. Many competitors have
substantially greater financial and marketing resources than the Company; some
have stronger name recognition, brand loyalty and long-standing relationships
with our target customers. The future success and profitability of the Company
is dependent upon our ability to compete and our failure to do so could
adversely affect our business, financial condition and results of operation.
We compete in the highly competitive field of health care service against
established organizations, including other discount vision plans and
insurance-based vision plans and health maintenance and preferred provider
organizations that provide group health care on a discount basis to their
members. Although these types of organizations represent competition, they also
represent a viable market for the sale of our vision care plan since our
discount vision care plan can be sold as a supplement to an existing, but
smaller (less locations) program, or a discount vision plan that does not
include the medical services of ophthalmologists. We also compete, to a lesser
extent, against individual ophthalmologists who do not offer discounts to their
patients but who may have a loyal patient base. Our success in the marketplace
will depend, in part, upon our ability to attract and retain a large number of
Ophthalmologists in our network.
Our primary competitors include national insured and discount eye care programs.
There are two primary types of national eye care programs in place in the United
States. The discount model typically offers its members significantly reduced
pricing on optometric services which are typically limited to eye exams and
related eye care products. The ophthalmologic services offered, if any, are
limited to discounts on LASIK surgery. The insured model provides limited vision
coverage through co-pays on both eye exams and eye care products for services
provided by in-network providers. The insured model typically does not cover
elective procedures.
NO DIVIDENDS EXPECTED. We have not paid any cash or other dividends on our
common shares since inception and we do not expect to pay any dividends in the
future. It is anticipated that earnings, if any, will be used in the Company's
operations and to finance the expansion of its business.
11
RISKS RELATING TO THE OFFERING
SHARES ELIGIBLE FOR SALE. The sale or availability for sale of substantial
amounts of our shares of common stock in the public market, including shares
covered by this prospectus and shares issuable upon exercise of outstanding
stock options or warrants, or the perception that such sales could occur, could
adversely affect the market price of our common stock and also could impair our
ability to raise capital through future offerings of our shares. As of December
1, 2004, we had 27,668,452 issued and outstanding shares of Class A common stock
and the following additional shares were reserved for issuance:
o 2,507,840 shares upon exercise of warrants
o 320,000 shares upon exercise of options
o 236,344 shares upon conversion of convertible debentures
o 62,000 shares upon conversion of Series A convertible
preferred stock
o 1,720,000 shares upon conversion of Series C convertible
preferred stock
See "Description of Securities."
In addition, on the effective date of this prospectus, a total of 15,541,296
outstanding shares of Class A common stock to be offered and sold by Selling
Security Holders will be eligible immediately for sale in the public market. We
have requested the Selling Security Holders agree to the provisions of Rule 144,
and as of this filing, holders of approximately 80% of said shares have done so.
Additional shares that now are "restricted securities" will become eligible for
sale in the public market, subject to the provisions of Rule 144. The sale or
availability for sale of such a large number of shares in the public market
could have a depressive effect on the market price.
OPTIONS AND WARRANTS WITH NOMINAL EXERCISE PRICES; POTENTIAL DILUTION; AND
ADVERSE EFFECT ON FUTURE FINANCINGS. A substantial number of options and
warrants have been issued and are outstanding with nominal exercise prices. As
of December 1, 2004, there were: outstanding options to acquire 320,000 Class A
shares at exercise prices of $.50 per share and expiring on December 15, 2004,
and warrants to acquire 2,507,840 Class A shares at exercise prices ranging from
$.01 to $5.00 per share and expiring from May 2005 to August 2009. For the life
of the options and warrants, the holders are given, at nominal cost, the
opportunity to profit from a rise in the market price for the Class A shares,
with a resulting dilution in the interest of shareholders. Moreover, the terms
on which the Company could obtain additional capital during the life of the
options and warrants may be adversely affected since the holders might be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital by a new securities offering on terms more
favorable than those provided for by the options and warrants.
LIMITED OR SPORADIC MARKET QUOTATIONS; POSSIBLE ILLIQUIDITY; PENNY STOCK
RESTRICTIONS. Our shares are quoted and traded from time to time on the OTC
Bulletin Board and in the so-called "Pink Sheets," but quotations are limited
and sporadic. As a result, our shareholders may find it difficult to obtain
accurate quotations concerning the market value of their shares. Shareholders
also may experience more difficulty in attempting to sell their shares than if
the shares were listed on a stock exchange or quoted on the NASDAQ Stock Market.
12
Our common shares are classified as a "penny stock" because they are not traded
on a national stock exchange or on the NASDAQ Stock Market and the market price
is less than $5.00 per share. SEC rules impose additional sales practice
requirements on broker-dealers that recommend the purchase or sale of penny
stocks to persons other than those who qualify as an "established customer" or
an "accredited investor." Among other things, a broker-dealer must make a
determination that investments in penny stocks are suitable for the customer and
must make special disclosures to the customer concerning the risks of penny
stocks. Application of the penny stock rules to the our common shares could
adversely affect the market liquidity of the shares, which in turn may adversely
affect the ability of shareholders to resell the shares. As a result, investors
may not be able to liquidate their shareholdings as quickly as they might
otherwise be able to do and therefore they may lose some or all their
investments.
VOLATILITY OF MARKET PRICE. The market price of our common shares has been and
we expect it to continue to be highly unstable. Since January 2004, our market
price has ranged from a high of $4.45 per share to a low of approximately $0.88
per share. As a result, the value of your shares may be highly volatile
regardless of the intrinsic value of the Company. In addition, the market price
could be subject to fluctuations in response to such factors as announcements by
other companies, research and development activities in the eye care and eyewear
industry, new or existing products or procedures, signing or termination of
partnership and strategic alliance agreements, concerns about our financial
position, variations and fluctuations in our operating results, litigation,
government regulation, developments or disputes relating to agreements, general
economic conditions and industry and market volatility. Such volatility and
fluctuations would make it difficult for shareholders to determine the market
value for their shares or to liquidate their shareholdings.
USE OF PROCEEDS
All of the shares of common stock covered by this prospectus are being offered
and sold by the "Selling Security Holders." The Selling Security Holders will
receive all of the sales proceeds, but will bear none of the expenses of the
offering; but they will bear any underwriting discounts or commissions. No
shares are being offered and sold by the Company and the Company will receive
none of the sales proceeds; but the Company will bear all the expenses of the
offering, estimated at $35,000, for registration, legal, accounting and transfer
agent fees, taxes and printing.
DESCRIPTION OF BUSINESS
OUR HISTORY
We were incorporated under the laws of Delaware on May 31, 1994 and are a
successor by merger to Eye Care International, Inc., a Florida corporation, in
March 1995. Our principal executive offices are located at 1511 North Westshore
Boulevard, Suite 925, Tampa, Florida 33607 and our telephone number is (813)
289-5552.
OUR BUSINESS
We market memberships in a comprehensive, national, non-insurance based, quality
discount eye care and eyewear plan. The memberships entitle plan participants to
obtain eye care services and products from our network of providers at rates
which range from 20% to 60% below retail. We recently acquired LBI Brokerage, a
managing general agency and general agency for group health and group life
insurance products.
Substantially all of our revenues are derived from membership fees paid to us by
individual subscribers or sponsoring organizations that offer or purchase our
vision care program to their employee members.
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Less than 1% of revenues are derived from individual subscribers who are not
associated with either a corporate or affinity group entity with which the
Company contracts.
We are the only national discount vision network with ophthalmologists who have
agreed to discount all of their medical services; we also are the nation's
largest optometric discount vision network. Our network has providers at nearly
13,000 locations, and is comprised of over 2,000 ophthalmologic practices and
approximately 11,000 optometric, optician and optical locations.
Ophthalmologists, optometrists and opticians participating in our vision care
network are located within reasonable proximity to all major metropolitan areas
within the United States. In "Our Discount Vision Plan," every surgical
procedure, including all types of laser surgeries (LASIK, RK, CO2 laser), are
discounted. Our optometric network consists of both large chain companies and a
wide variety of boutiques and specialty shops. Most other discount vision
networks only offer discounts on optometric products and services. We also have
approximately 150 provider locations, or about 1.2% of the network, outside the
United States.
By having access to a full range of eye care services/eyewear products offered
by our network of providers, at discounted rates, members of our vision care
plan are able to obtain a comprehensive eye care service package, including
elective cosmetic surgical procedures such as LASIK or vision correction
surgery, CO2 laser skin resurfacing or wrinkle removal surgery and other laser
surgical procedures performed by ophthalmologists. These generally expensive
elective procedures are traditionally not covered by insurance or Medicare. Our
members can obtain these elective procedures from our providers at a discount of
20% from an ophthalmologist's usual and customary rate. We believe our
negotiated rates with ophthalmologists exceed the lowest negotiated rates
afforded to insurance carriers for all Medicare coded procedures. Our
non-Medicare eligible members receive a 20% discount from the Medicare allowable
fee schedule. For all non-coded, elective procedures, all members receive
discounts of 20-25% below an ophthalmologist's usual and customary rates. All of
our members not eligible for Medicare may receive greater discounts for surgical
procedures that are typically covered by Medicare, such as cataract surgery,
since the 20% discount applies to the Medicare allowable rate for procedures
rather than the ophthalmologist's usual and customary rate, which generally is
significantly higher. Although individuals eligible for Medicare participate in
our vision care program, they only receive discounts on surgical procedures not
covered by Medicare.
Our providers offer eyewear products to our members at nationally listed
wholesale prices, plus a $30 to $50 dispensing fee paid to the provider. This
generally creates a savings in the range of 40% to 60% from retail prices. We
also offer a mail order program through which members of our vision care network
may order replacement contact lenses and designer or non-designer sunglasses at
savings ranging from 20% to 50%.
INDUSTRY OVERVIEW
According to an industry publication, the total United States retail vision care
market, including services, exceeded $22.8 billion in 2002, with an average
growth rate of 2.5%. The breakdown of the retail eye care market is as follows:
Optical Retail (sales from all optical retail locations) $16.2 billion
Eye Exams (excluding retail locations) $ 3.6 billion
Sunglasses/Clips (excluding retail locations) $ 1.8 billion
Refractive Surgery (excluding retail locations) $ 600 million
Over-the-Counter Readers (excluding retail locations) $ 400 million
Contact Lenses (excluding retail locations) $ 200 million
-------------
TOTAL $22.8 billion
-------------
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Since 1990, the retail market has seen consistent annual growth rates of 2% to
4%. With an estimated 50% of the United States population currently requiring
vision correction and with significant expected growth, due primarily to the
aging population, management believes the vision care market is poised for
explosive growth rates in the near future. Of the approximately 164 million
individuals who require vision correction, approximately 130 million require
glasses, a need which is not necessarily eliminated by the use of refractive
surgery.
Prior to 1958 there was no viable vision care product available to the public.
However, the establishment of a not-for-profit organization, based in California
and operating under a prepaid approach, filled this void. Until the early
1980's, this organization had sole control of this niche market, while competing
with traditional indemnity vision plans offered by the Blue Cross/Blue Shield
organization and a few other insurers. By the 1980's, more rapid changes were
beginning to take place in the benefits field and the healthcare system itself.
Along with these changes, the first vision care preferred provider organization,
or PPO, was established. This was the first vision care plan offering based upon
a contractual relationship, other than prepaid or indemnity, with the providers
of vision services. Over the last five years, we believe this particular type of
PPO relationship has developed into the most popular and fastest growing vision
benefit alternative in the United States.
Vision benefits are continuing to grow, as more and more marketers,
administrators and insurance carriers are automatically including vision
benefits in their employee package offerings. Employers and healthcare
administrators provide a vision benefit not only to attract new employees but
also to retain employees.
THE MARKET
Major market targets for the vision industry include children and young adults
(25 and under), the growing population of aging Baby Boomers, and international
opportunities.
Approximately 50% of the United States population, or 164 million, is known to
need corrective eyewear. More specifically, the aging of America reflects a
growing increase in a population requiring some form of vision correction. Fifty
percent of the United States workforce is over 40, the age when the need for
near vision correction (presbyopia) usually begins. The prescription a person
gets at 40 will most likely need to be changed a minimum of two times before the
age of 50. Medicare does not cover these costs, with the exception of providing
a single pair of glasses per lifetime and then only after surgery.
Children are also a key target when it comes to the necessity for vision
assessment. Studies have shown that 50% of all cases of adult blindness are
generally preventable up to the age of 12. There are a growing number of states
that have come to the realization that an eye exam is critical for children
prior to entry into the first grade. Legislation is pending in several; states,
and Kentucky is the only state to have enacted a law, requiring children to have
an eye exam as opposed to a screening before entering school.
Approximately 50% of all children in elementary school living at or below the
poverty line have been shown to require corrective eyewear; most of these
children do not have access to such care. Also, approximately 50% of the working
population require corrective lenses. Additionally, along with the development
of technological advancements, the workplace has become a centerpiece for
recently seen vision problems. The condition known as Computer Vision Syndrome
("CVS") has now reached widespread levels. Twenty five percent (25%) of
first-time optometric visits reportedly are prompted by
15
complaints of CVS. Employers are now placing more emphasis on the role of
preventative healthcare, including that of preventative vision care.
In 2002 the contact lens market was approximately a $2.8 billion industry. Of
the approximately 50% of Americans who require corrective eye wear,
approximately 20% use contact lenses; of the 20%, approximately 85% use soft
lens (soft lens users incur frequent purchases of replacement lens); the average
contact lens wearer spends approximately $350 to $750 per year on contact
lenses.
Companies in the field of laser surgery (including PRK and LASIK) also continue
to make significant progress in the development of laser systems that can
improve patient results, decrease recovery time, and broaden the market for
surgical vision correction. Laser-assisted vision correction procedures are
predicted to approach 3 million by the end of 2004. These procedures are not
covered by traditional insurance programs, but are covered by our plan.
OUR TARGET MARKET
We market our discount vision care plan to corporations for their employees,
large sales organizations (such as insurance companies and sellers of
multi-discount programs that include our discount vision plan as part of their
programs), and affinity groups created because of a common relationship or
interest, such as religious, fraternal, trade and professional organizations. We
are involved in all stages of product development, from training individual
sales agents to the design and implementation of a specific marketing program at
the corporate and affinity group level. These organizations can either purchase
our discount vision care plan for, or offer it to, their employees or members as
a supplement to existing health care insurance plans or other benefit programs
or as a stand-alone benefit. Sponsors of healthcare programs, including other
discount vision plans, may secure for their members the right to use the
providers in our vision care network.
OUR DISCOUNT VISION PLAN
Our discount vision plan is sold to consumers for a fee through either retail or
wholesale channels. We provide our members access to discounted vision products
and services through our provider network of ophthalmologists, optometrists and
optical outlets. We also offer our members a mail order segment of the discount
vision plan. We have negotiated low rates with ophthalmologists which we believe
exceed discounts provided to large insurance carriers; for all coded procedures
recognized by Medicare as necessary; our members who are non-Medicare eligible
patients receive a 20% discount from the Medicare allowable fee schedule. For
all non-coded, elective procedures, all members receive discounts of 20-25%
below an ophthalmologist's usual and customary rates.
Member benefits (with automatic full family coverage) are as follows:
o One free eye exam per year per family
o Substantial discounts on subsequent eye exams
o Substantial discounts on vision care products purchased from
provider locations, including frames, lenses, contact lenses
and sunglasses
o Substantial discounts on elective and non-elective medical and
surgical procedures including refractive surgery and laser
skin resurfacing
o Substantial discounts on replacement contact lens as well as
designer and non- designer sunglasses, safety glasses and
other sundry items purchased directly from us through our mail
order program
16
OUR MAIL ORDER PROGRAM
We market at significantly discounted prices select products, including contact
lenses, sunglasses and other sundry products, and a wide range of non-eye care/
eyewear products directly to our members by partnering with wholesale suppliers.
Our responsibility is limited to order taking and collection at the time of
order. Our vendor-partners are responsible for fulfillment and delivery. We
receive commissions of 10% on all gross products sales under currently
negotiated agreements.
Our relationship with our vendor partners provides significant benefits to the
manufacturers and distributors of various products by helping them reach large
numbers of consumers since our discount vision plan is designed to attract
consumers to our mail order program. Members of our discount vision plan benefit
by their ability to purchase products and services through our mail order
program, at discounted prices and with delivery directly to their homes.
PROVIDERS
Our national vision care network offers its members access to ophthalmologists
who discount all of their services. Our network includes over 2,000 ophthalmic
locations and almost all of our participating ophthalmologists are either Board
Certified or Board eligible for certification. Ophthalmologists participating in
our network discount their usual and customary fees by 20% for procedures not
coded by Medicare. Each ophthalmologist establishes his own usual and customary
rates for elective surgical procedures. Members in our vision care plan can
compare the rates charged by participating ophthalmologists with those of other
ophthalmologists in the same area by asking those other ophthalmologists for the
rates they charge for performing the same surgical procedures. We do not offer
rate comparisons or provide members with advice concerning the rates charged by
participating ophthalmologists or any others. Medicare coded procedures are
discounted by 20% off of the Medicare allowable rate for members not eligible
for Medicare. Members eligible for Medicare pay the Medicare allowable rates for
Medicare coded procedures.
We also have entered into contracts with the sellers of other health care plans
whereby we are either the vision component of such plans or a supplemental part
of such other plans. An arrangement where our discount vision plan is
automatically included in health plans of others provides us with revenue and
access to millions of participants; we are paid an access fee for allowing the
health plan members to seamlessly use a portion of our plan, but we do not
assume any risk of loss.
MARKETING
We provide access to the our discount vision plan to consumers through
relationships with various retail and wholesale channel partners, including
large employers groups, insurance providers, medical plan packagers, trade and
industry groups and affinity organizations. We target organizations with greater
than 100,000 lives as their primary wholesale targets through various marketing
arrangements which include non-private label, co-branding, and private-label
arrangements. Our fee varies depending upon the type of transaction, i.e.,
retail and/or wholesale; the type of sale, i.e., voluntary offer and/or
automatic inclusion; and the size of the group.
Over the first two and one-half to three years of operation following inception
in 1994, we concentrated our efforts on the development of our vision care
network, particularly the establishment of the first national discount network
of ophthalmologists who would agree to discounts on all of their services. The
process of building out the ophthalmologic portion of the network proved to be
considerably more difficult and time consuming than initially anticipated by
management. Management believes that this
17
was primarily due to the general perception at the time that managed care and
insurance would continue to dominate the health care industry and
ophthalmologists' reluctance to enter into discount arrangements. The perception
of the prevailing health care model changed slowly over time. Management
believes that it took approximately eight years to construct what it believes to
be a dominant ophthalmic network; one capable of withstanding intrusion by
competitors and one capable of adequately servicing the Company's target
markets. By contrast, the Company's optometric network developed considerably
faster, thus, providing the Company with the opportunity of market introduction
prior to a time when its ophthalmology network was sufficient to service the
ultimate target market of the Company. Throughout the process, the Company was
thus able to commence the marketing of its plan to certain employer
organizations, including major corporations and small to medium-sized business
entities. During that period, our objective was to demonstrate the market
acceptability of our plan and to establish relationships with large national
sales and benefit consulting organizations, insurance companies, health
maintenance and preferred provider organizations and third party administrators.
It was, and remains, our belief that once we established market acceptability of
our plan, it would ultimately be marketed primarily through health care
consultants and other organizations marketing health care programs at retail
and, to a much lesser extent, our own sales efforts. We believe this strategy
has proven, and will continue to prove, itself to be effective, especially in
view of our what we consider to be our unique position in the vision care
industry as being easily "affordable" at both a wholesale and retail price
levels, and also as a result of our continued position as the only national
discount vision plan combining the services of ophthalmologists with optometric
providers.
Through this marketing strategy, our discount vision plan is marketed, directly
and indirectly, to businesses, affinity groups, individuals and packagers of
other health care programs. It may be offered as a supplement to already
existing forms of health care coverage or may be purchased on a free-standing
basis. A corporation or individual need not have insurance coverage to access
our plan. Also, because our provider network is "national," our plan can usually
match all of the geographic requirements of any national insurance program and
meet the needs of migratory populations, such as retirees. We believe these
features make our plan particularly attractive to large health care insurance
companies, health maintenance and preferred provider organizations and other
packagers of various health programs that market their health care programs over
a large geographical area.
As part of our marketing efforts, we work closely with our customers' internal
benefits departments on the design and implementation of a specific marketing
program. Once the "sale" is made, we generally receive from our customer a
computer disk with all of the pertinent personnel information (name, social
security or identification number and address) of the employees/members and/or
retirees who will be covered by the plan. We are then able to upload all of this
information and within approximately ten business days send out customized
"Welcome Packs" which outline the benefits of the plan as well as furnish a list
of providers in the new member's zip code. The "Welcome Pack" also includes a
personalized membership card, listing the member's name, identification number
and plan expiration date. Depending on the requirements of our customer, we
either send the "Welcome Packs" directly to the individuals or bulk ship them to
a designated location for distribution by the customer.
When marketed as a stand-alone product, we maintain two pricing structures: an
individual/family annual membership price of $79.00 and a corporate/affinity
group annual membership price of $28. We have a "sliding scale" purchase price
ranging from $16 to $28, in order to provide discounts to large quantity
purchasers of our plan. A membership can be cancelled at any time during the
first thirty days with a full refund; however, refunds have historically
occurred well below the one percent level. In addition the Company guarantees
that if a member uses the membership in good faith during the
18
membership period and does not save at least as much as the membership fee, we
will refund the difference. Historically, requests for refunds are rare.
Additionally, we maintain a "private label" pricing structure. When our plan is
sold through an existing insurance agency or packager, the insurance agency or
packager incurs practically no additional overhead. We believe this feature
enhances the attractiveness of our plan to such selling entities by providing
them with a relatively inexpensive product that fills an otherwise overlooked
need in health care. There are no record-keeping burdens on the
corporate/affinity group customers since we handle all clerical and
administrative functions.
We intend to strengthen and broaden our overall marketing efforts by:
o establishing a dedicated regional support staff that will work
directly with our independent sales agents, corporate/affinity
accounts and marketing partners to facilitate and encourage
sale of our vision plan
o instituting targeted public relations campaigns on both
national and local levels
o enhancing promotional support programs, including image
promotion and sales incentive
o establishing and maintaining, through personnel and computer
software programs, the capability of functioning as a third
party administrator, either through the establishment of a
wholly-owned subsidiary or otherwise
COMPETITION
We compete in the highly competitive field of health care services against
established organizations, including other discount vision plans,
insurance-based vision plans and health maintenance and preferred provider
organizations that provide group health care on a discount basis to their
members. Although these types of organizations represent competition, they also
represent a viable market for the sale of our vision care plan since our
discount vision care plan can be sold as a supplement to an existing, but
smaller (less locations) program or a discount vision plan that does not include
the medical services of ophthalmologists. We also compete, to a lesser extent,
against individual ophthalmologists who do not offer discounts to their patients
but who may have a loyal patient base. Our success in the marketplace will
depend, in part, upon our ability to attract and retain a large number of
ophthalmologists in our network.
Our primary competitors include national insured and discount eye care programs.
There are two primary types of national eye care programs in place in the United
States. The typical discount model offers its members significantly reduced
pricing on optometric services which are limited to eye exams and related eye
care products; the ophthalmologic services offered, if any, are limited to
discounts on LASIK surgery. The typical insured model provides limited vision
coverage through co-pays on both eye exams and eye care products provided by
in-network providers. The insured model typically does not cover elective
procedures.
As part of our marketing strategy, we seek to attract our competitors as
customers since our program includes ophthalmologists who discount all of their
services substantially below Medicare allowable rates and which rates are
usually substantially below the rates that our competitors have been able to
negotiate.
We believe we have number of competitive advantages over all other vision care
plans because:
o We offer the only national discount eye care/eyewear network that
combines ophthalmologic and optometric services on a discount
fee-for-service basis. No other national discount program offers a full
range of ophthalmologic services, all of which are discounted. All of
our participating ophthalmologists
19
contract exclusively with us and agree not to provide their services to
any other national, non-insurance based, discount fee-for-service
network. Our network is the largest national discount vision network in
the United States.
o All our programs provide one free eye exam per family membership..
o We offer a discount on traditionally non-covered surgical procedures,
such as LASIK vision correction surgeries, CO2 laser skin resurfacing
or wrinkle removal surgery and other laser surgical procedures.
o We market to major insurance companies, health maintenance and
preferred provider organizations, which may offer our vision plan as
part of, or as a supplement to, their existing health care programs.
o Our network is not dependent on any one or several retail chains. Our
national network of eye wear providers gives members the convenience of
having a provider nearby and protects both our members and us from loss
of service because of retail closures.
o We do not require that our corporate customers attain minimum employee
participation to implement the plan.
o We have a mail-order program for replacement contact lenses and
sunglasses at wholesale prices. o We have exclusive direct contracts
with 100% of our ophthalmologists and non-exclusive direct contracts
with approximately 95% of the optometric locations in our network.
Direct contracts have a positive impact on our ability to handle
customer or provider grievances. Although rare, customer grievances are
generally of the nature of the provider's staff not recognizing the
company's membership card, usually due to staff turnover at the
provider's location. Because of our ability to work with the provider,
as opposed to working through a third party having direct contractual
relationships with the providers, we are able to expediently resolve
grievances, usually to the member's satisfaction.
GOVERNMENT REGULATION
Since our program is a point-of-service discount plan, and not insurance, there
are no specific industry regulations of federal or state governments that apply
to us. EMPLOYEES As of December 10, 2004, we had thirteen full-time employees,
including our officers.
DESCRIPTION OF PROPERTY
Our executive offices are located at 1511 North Westshore Boulevard, Suite 925,
Tampa, Florida 33607 and our telephone number is (813) 289-5552. We lease these
facilities, consisting of approximately 4,400 square feet, pursuant to a lease
that expires on June 30, 2006, at a monthly rental of $10,158.05. Our current
rental rate is $23.92 per square foot until June 30, 2005 and will increase to
$24.88 per square foot until June 30, 2006. Our lease does not include a renewal
option after June 30, 2006. We consider these facilities to be adequate for the
foreseeable future.
20
MANAGEMENT
The following is a list of our current directors and executive
officers:
Name Age Position
- -------------------------------------------------------------------------------
Clark A. Marcus 62 Chairman, President, Chief
Executive Officer and
Director
Scott M. Carson 40 Executive Vice President and
Chief Financial Officer
James L. Koenig 57 Secretary and Director
Arnold Finestone, PhD. 74 Director
William H. Koch, M.D. 66 Director
Sharon Kay Ray 46 Director
John A. Schild 64 Director
Arthur Yeap 48 Director
All our directors hold office until the next annual meeting of shareholders or
until their successors are duly elected and qualified and all executive officers
hold office at the discretion of the Board of Directors. CLARK A. MARCUS, one of
our founders, has served as Chairman of the Board and Chief Executive Officer
since May 1994. He also has served as President since February 1996. Mr. Marcus
had been a practicing attorney, since 1968, and was senior partner in the New
York law firms of Victor & Marcus and Marcus & Marcus.
SCOTT M. CARSON joined the Company on August 16, 2004 as Executive Vice
President and Chief Financial Officer. From 1989 to 2000, Mr. Carson served in
various executive positions with Siemens Energy and Automation, Inc. He was Vice
President and Controller of Learning Insights, Inc., 2001-2002, and Vice
President and Corporate Controller of IMI Cornelius, 2003-2004.
JAMES L. KOENIG has been secretary and a Director since February 1996. He was
Senior Vice President and Chief Financial Officer from February 1996 until
August 16, 2004, when he retired. Prior to joining the Company in December 1994,
as an independent sales agent, he served in various accounting/management
positions in the utilities industry, including Tampa Electric Company, where he
was at various times from 1984 Assistant Controller, Director of Audit Services
and Director of Regulatory Affairs.
21
ARNOLD FINESTONE,PHD. has been a Director since April 2001. Dr. Finestone is a
business management consultant. From 1970 to 1988, he served in various
executive positions with affiliates of Dart & Kraft, Inc., including President
of its Dartco subsidiary engaged in marketing and manufacturing high performance
engineering plastics for consumer and industrial uses and Executive Vice
President of its Chemical-Plastics Group. From 1957 to 1970, he was Vice
President and Director of Planning, Development and Marketing, of Foster-Grant,
Inc.
WILLIAM H. KOCH, M.D. has been a Director since February 1996. He is a
psychiatrist and child development specialist. He is the Founder and Director of
Parent and Child Services, Inc., The Parent and Child Consultation Services, and
the "School for Parents." He is a former faculty member of the College of
Physicians and Surgeons and a former Special Consultant to Child Protective
Services in New York City. Dr. Koch also is an author, lecturer and consultant.
SHARON KAY RAY, one of our founders, has been a Director since May 1994. Since
March 1989, she has served as regional marketing representative for Novo Nordis
Pharmaceuticals, a multi-national pharmaceutical company, and a special
marketing consultant for other companies.
JOHN A. SCHILD has been a Director since June 2000. He has been the Director for
the Work Related Benefits Program/Family Independence Administration/City of New
York since 1998 and was the Site Manager from 1991 to 1998.
ARTHUR YEAP has been a Director since April 2001. Since 1983, Mr. Yeap has been
Chief Executive Officer of Novo Group, consultants and manufacturers of consumer
audio and video products for professional use. He also has been a principal
investigator on the staff of the University of California at Berkley, engaged in
research for advanced military and consumer uses for the Internet. From 1996 to
1999, he was Director of Marketing, Consumer Products, for ITV Corp. From 1995
to 1996 Mr. Yeap was Chief Engineer for "WYSIWYG" networks.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee. Dr. Arnold Finestone
and Arthur Yeap, independent directors, are the current members of the Audit
Committee. Dr. Finestone is the audit committee financial expert. The Audit
Committee recommends engagement of the Company's independent auditors, is
primarily responsible for approving the auditing and non-auditing services
performed by the independent auditors and for reviewing and evaluating our
accounting principles and system of internal accounting controls.
The Board of Directors does not have an option committee or a nominating
committee, the functions of which are performed by the entire Board.
22
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to, earned by or accrued
for our Chief Executive Officer and our other most highly compensated executive
officers during our last fiscal year, ended December 31, 2003. No compensation
was paid to, earned by or accrued for any executive officer plan for stock
options, restricted stock or stock appreciation rights or pursuant to any
long-term incentive plan.
Annual Compensation (3)
Cash Other
NAME AND PRINCIPAL POSITION YEAR COMPENSATION COMPENSATION
- --------------------------- ---- ------------ ------------
Clark Marcus 2003 $ 207,434 $ 549,834(1)
Chief Executive Officer and President
James L. Koenig 2003 $ 109,663 $ 184,686(2)
Senior Vice President, Chief Financial
(retired August 16, 2004) and Secretary
(1) Includes auto allowance of $6,000, deferred compensation of $268,850
(compensation earned in accordance with employment agreement, but not
paid) and forgiveness of debt of $274,984.
(2) Includes auto allowance of $6,000, deferred compensation of $170,686
(compensation earned in accordance with employment agreement, but not
paid and forgiveness of debt of $8,000.
(3) There was no Long-Term Compensation for the officers.
STOCK OPTION PLAN
In May 1997, the Board of Directors adopted, and our stockholders approved, the
Eye Care International, Inc. 1997 Stock Option Plan. The plan is to be
administered by the Board of Directors or a committee of the Board. Pursuant to
the plan, options to purchase 750,000 shares of Class A common stock may be
granted to directors, employees (including officers) and consultants. To date,
no options have been granted under the plan and no stock options or stock
appreciation rights were outstanding at December 31, 2003.
23
EMPLOYMENT AGREEMENTS
Clark Marcus serves as our Chief Executive Officer pursuant to an employment
agreement which expires in September 2008. The agreement provides for a salary
of $150,000 per annum, increased by an amount equal to the greater of 15% of the
prior year's salary or the increase in the consumer price index for the Tampa,
Florida area, plus a bonus beginning at 3% of pre-tax profits in any year that
our revenues exceed $1 million and increasing up to 7% of pre-tax profits in any
year that revenues exceed $4 million. We may terminate his employment for gross
misconduct in the performance of his duties. If Mr. Marcus' employment is
terminated within 12 months following a change in control, as defined, Mr.
Marcus will receive his salary, bonus and additional compensation for a period
equal to the greater of the remainder of the term of the employment agreement or
3 years.
James L. Koenig served as our Senior Vice President and Chief Financial Officer,
until August 16, 2004 when he retired, pursuant to an employment agreement that
would have expired in February 2008; he continues as Secretary. The agreement
provided for a salary of $125,000 per annum, increased by an amount equal to the
greater of 10% of the prior year's salary or the increase in the consumer price
index for the Tampa, Florida area, plus a bonus of 3% of our pre-tax profits in
any year that our revenues exceed $1 million.
Each of Messrs. Marcus and Koenig entered into an agreement with us which
provides that, for a period of three years following termination of his
employment, he will not engage, directly or indirectly, in a business within the
United States that markets products or services the same as, similar to, or
competitive with, our products or services, whether fully developed or in the
development stage; solicit or accept business from any entity within the United
States which is or was a customer of ours during his tenure with us, if such
business involves one of our products, or solicit the employment of, hire or
cause any other entity to hire, any of our employees.
CERTAIN TRANSACTIONS
In March 2003, Clark Marcus and James L. Koenig forgave the Company deferred
compensation for fiscal years 2000, 2001 and 2002 of $426,484 and $511,654,
respectively, leaving deferred compensation of approximately $100,000 owing to
Mr. Marcus and zero to Mr. Koenig. The Company also owes Mr. Marcus and Mr.
Koenig deferred compensation for the nine months ended September 30, 2004 of
$358,424 and $129,385, respectively. The deferred compensation does not bear
interest. Also in March 2003, the Company forgave Mr. Marcus and Mr. Koenig of
indebtedness for loans of $274,984 and $8,000, respectively.
24
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of our common stock as of December 1, 2004 by (i) each stockholder
known by us to be the beneficial owner of more than five percent of the
outstanding common stock; (ii) each executive officer and director; and (iii)
all directors and officers as a group:
Amount and Nature
Of Beneficial Percentage of Common Stock
Ownership (1) Beneficially Owned (2)
-------------------------------- ----------------------------------------------------
Class A Class B As a % As a % As a %
Common Common of All of All of All
Name Stock Stock Common Stock Class A Class B
-------------------------------- ------------------------ ------------- ------------
Clark Marcus (3) 0 1,583,060 5.6% -- 35.5%
Sharon Kay Ray (3) 50,000 24,640 * * *
Scott Carson (3) 25,000 * *
James L. Koenig (3) 0 673,882 2.4% -- 15.1%
William Koch (3) 88,748 5,000 * * *
John A. Schild (3) 67,800 -- * * --
Arnold Finestone (3) 46,390 -- * * --
Arthur Yeap (3) 78,096 -- * * --
Omnifirst Capital (4) 2,500,000 -- 9.0% 10.8% --
Jana Corporation (5) 1,850,000 2,000,000 13.9% 8.0% 44.5
All officers and directors 331,034 2,286,582 9.3% 1.4% 51.2%
as a group (8 persons)
- -------------------------------
* Less than 1%
(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For purposes of this table, a person is
deemed to beneficially own any shares that such person has the right to acquire
within 60 days after December 1, 2004.
(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 A
common stock is entitled to one vote per share and each share of Class B common
stock is entitled to five votes per share. As of December 1, 2004, we had
23,754,800 shares of Class A common stock outstanding and 4,462,802 shares of
Class B common stock outstanding, or a total of 28,217,602 shares of common
stock outstanding, with total voting power of 46,068,810 shares.
(3) Director or officer of the Company whose business address is c/o Eye Care
International, Inc., 1511 North Westshore Boulevard, Suite 925, Tampa, Florida
33607.
(4) Business Address: Laurel Creek Atrium Center, Suite 1285, Moorestown, NJ
08057.
(5) Business Address: 624 Ontario Street, Tampa, FL 33606.
25
SELLING SECURITY HOLDERS
Appendix A which is attached to this prospectus and incorporated herein by
reference contains the name of each Selling Security Holder and sets forth, as
of December 13, 2004 the amount and percentage of shares of Class A common stock
beneficially owned by each before the offering, the amount of shares offered by
each, and the amount and percentage of shares to be beneficially owned by each
after the offering (assuming all shares offered are sold). Beneficial ownership
is determined in accordance with Rule 13d-3(d) promulgated by the Commission
under the Securities Exchange Act of 1934. Shares of common stock subject to
options, warrants, conversion or other rights to purchase that are currently
exercisable or exercisable with 60 days of December 13, 2004 are deemed
outstanding for computing the percentage of shares owned by each Selling
Security Holder holding such options, warrants, conversion or other rights, but
are not deemed outstanding for computing the percentage of shares owned by any
other Selling Security Holder. Unless otherwise indicated, each Selling Security
Holder possesses sole voting and investment powers with respect to the shares
beneficially owned.
During the nine months ended September 30, 2004, the Company entered into
consulting agreements with Selling Security Holders Jana Corporation and
OmniFirst Capital Corp., to assist us in furthering our financial and business
plan, including expansion of our business. As an inducement, the Company issued
2,000,000 shares of our Class A common stock to Jana Corporation and granted
2,000,000 and 2,500,000 warrants to Jana Corporation and OmniFirst Capital,
respectively, to purchase shares of our Class A common stock at an exercise
price of $.01 per share,.
PLAN OF DISTRIBUTION
The shares of Class A common stock covered by this prospectus may be sold from
time to time by the Selling Security Holders directly to one or more purchasers
or through brokers or dealers who may act as agents or as principals, at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices or at negotiated prices. Any compensation received by agents, in
the form of commission or discount, and any profit realized by principals upon
resale may be deemed "underwriting compensation" under the Securities Act of
1933 and the Selling Security Holders and any brokers or dealers acting in
connection with the offering and sale of the shares may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933. We know of no existing arrangements between the Selling Security Holders
and any broker or dealer relating to the sale or distribution of the shares.
We have informed the Selling Security Holders that certain anti-manipulative
rules contained in Regulation M under the Securities Exchange Act of 1934 may
apply to their sales; that they must deliver a copy of this prospectus when
offering and selling their shares; that they must comply with the antifraud
provisions of the Securities Act of 1933 and the Securities Exchange Act of
1934; and that they must notify the Company when their participation in the
distribution is over and completed.
26
DESCRIPTION OF SECURIITES
COMMON STOCK
We are authorized to issue an aggregate of 120,000,000 shares of common stock,
par value $.001 per share, 100,000,000 of which are designated as Class A common
stock and 20,000,000 of which are designated as Class B common stock. As of
December 1, 2004, 23,205,650 shares of Class A common stock and 4,462,802 shares
of Class B common stock were issued and outstanding.
VOTING RIGHTS. Holders of Class A common stock are entitled to one vote per
share on all matters upon which shareholders are entitled to vote, including the
election of directors. Holders of Class B common stock are entitled to five
votes per share on all matters upon which shareholders are entitled to vote,
including the election of directors. Holders of the shares of Class A common
stock and Class B common stock vote together as a single class on all matters.
Class A common stock and Class B common stock are otherwise identical in all
other respects. Holders of our common stock do not have subscription, redemption
or preemptive rights.
DIVIDENDS. Subject to the rights of holders of preferred stock, holders of Class
A common stock and Class B common stock are entitled to receive dividends when,
as and if declared by the Board of Directors. We do not expect to pay dividends
on our common stock in the foreseeable future, and intend to retain earnings, if
any, to finance our operations.
LIQUIDATION. Subject to the rights of holders of preferred stock, holders of
common stock are entitled to share ratably in our assets legally available for
distribution to holders of common stock in the event of we liquidate, dissolve
or wind up the company.
CONVERSION. Each share of Class B common stock will be converted automatically
into one share of Class A common stock upon transfer by the initial holder of
the Class B common stock.
WARRANTS
As of December 1, 2004, 2,507,840 shares of common stock were reserved for
issuance upon exercise of outstanding warrants. Certain information concerning
the warrants we have issued is set forth below.
EXERCISE PRICE AND EXPIRATION. The warrants have exercise prices ranging from
$0.01 to $5.00 per share and expire at various dates ranging from May 2005
through February 2009, as set forth in the following table:
EXPIRATION DATE NUMBER EXERCISE PRICE
--------------- ------ --------------
May-05 240,000 $ 2.50
Jul-05 37,429 2.50
Aug-05 89,143 2.50
Sep-05 18,742 2.50
Oct-05 31,656 2.50
Nov-05 51,429 2.50
Dec-05 31,857 2.50
Jan-06 57,143 2.50
Feb-06 8,571 2.50
Mar-06 100,572 2.50
Apr-06 38,857 2.50
May-06 50,285 2.50
Jul-06 12,000 5.00
Jul-06 10,000 2.50
Aug-06 62,000 2.50
27
Oct-06 2,000 2.50
Sep-06 5,000 5.00
Nov-06 15,000 5.00
Dec-06 1,000 2.50
Dec-06 4,000 5.00
Jan-07 6,000 1.25
Jan-07 5,000 5.00
Feb-07 5,000 5.00
Mar-07 15,000 5.00
Apr-07 3,400 0.05
May-07 20,000 0.05
Jul-07 2,000 0.05
Aug-07 5,000 0.05
Sep-07 3,000 0.05
Nov-07 5,000 0.05
Feb-08 10,000 0.05
Mar-08 30,000 0.05
Apr-08 25,000 0.05
May-08 5,000 0.05
Jun-08 299,406 2.188
Jun-08 50,000 0.01
Jul-08 6,250 0.01
Aug-08 4,600 0.01
Sep-08 39,000 0.01
Oct-08 7,500 0.01
Jan-09 50,000 0.01
Jan-09 25,000 0.50
Feb-09 20,000 0.01
Aug-09 600,000 1.25
Oct-09 400,000 2.40
FRACTIONAL SHARES. No fractional shares will be issued upon exercise of any
warrants. We will instead round the number of shares issuable upon exercise
downward to the nearest whole share.
WARRANTHOLDER NOT A SHAREHOLDER. The warrants we issued do not confer upon
holders thereof any voting, dividend or other rights as our shareholders.
PREFERRED STOCK
We are authorized to issue an aggregate of 20,000,000 shares of preferred stock,
par value of $.001 per share, with such dividend or interest rates, conversion,
liquidation and voting rights, redemption prices, maturity dates and similar
matters as may be determined by resolution of the Board of Directors. As of
December 1, 2004, 155 shares of Series A convertible preferred stock were issued
and outstanding, each share of which is convertible at any time into 400 shares
of Class A common stock. and has a liquidation preference of $1,000 per share.
We also have issued and outstanding 86 shares of Series C convertible preferred
stock as of December 1, 2004. Each share of Series C convertible preferred stock
is convertible into common stock at any time until July 30, 2006, at which date
the conversion becomes mandatory. At the time of conversion, each share is
deemed to have a value of $10,000 and is convertible in shares of Class A common
stock at the lesser of $2.88 per common share or 75% of the lowest bid price
during the five days immediately prior to conversion. The holders of the Series
C preferred stock are entitled to receive dividends payable on the stated value
of the preferred stock at a rate of 6% per annum, which shall be cumulative,
accrue daily from the date of issuance and be due and payable on the first day
of each calendar quarter. Dividends
28
shall be payable in cash or stock, at market price, at the holder's option. No
holder of Series A or Series C preferred stock is entitled to any voting,
dividend or other rights as our shareholders.
In addition, the Company has agreed to file a registration statement to register
that number of shares reasonably believed necessary for conversion of the Series
C convertible preferred stock and exercise of warrants, but not less than 20,000
shares of common stock for each Series C preferred share. The Company also has
agreed to file an additional registration statement if the closing bid price of
the Company's common stock falls below $1.00, and the conversion rate thus
exceeds the 20,000 shares per each preferred share now being registered.
We are authorized to issue up to an additional 19,999,759 shares of preferred
stock with such designations, rights and preferences as may be determined from
time to time by resolution of our Board of Directors. Accordingly, the Board of
Directors is empowered, without further stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
decrease the amount of earnings and assets available for distribution to holders
of common stock or adversely affect the voting power or other rights of the
holders of our common stock. In the event of issuance, the preferred stock could
be utilized. under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of our Company. We have no present intention
to issue any additional shares of preferred stock.
TRADING MARKET AND RELATED SHAREHOLDER MATTERS
TRADING MARKET. Our common stock was held by approximately 300 shareholders of
record at November 1, 2004. The Class A common stock is quoted and traded on the
OTC Bulletin Board under the symbol "EYCI" and from time to time in the
over-the-counter market in the "Pink Sheets." The Class B common stock and the
Series A and Series C preferred stocks are not traded.
The following table sets forth the reported high and low bid prices for our
Class A common stock on the OTC Bulletin Board for each quarter of the years
ended December 31, 2003 and 2002 and each of the quarters ended March 31, 2004,
June 30, 2004 and September 30, 2004. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
HIGH LOW
---- ---
QUARTER ENDED
-------------
March 31, 2002 $2.55 $0.75
June 30, 2002 2.40 0.85
September 30, 1.90 1.00
2002
December 31, 1.50 0.30
2002
29
March 31, 2003 0.51 0.15
June 30, 2003 0.48 0.17
September 30, 0.38 0.20
2003
December 31, 0.30 0.06
2003
March 31, 2004 4.45 0.88
June 30, 2004 4.05 1.95
September 30, 3.70 2.00
2004
On December 8, 2004 the reported closing high and low bid prices for our Class A
common stock on the OTC Bulletin Board were $1.02 and $0.81, respectively.
DIVIDENDS. The payment of dividends is within the discretion of our Board of
Directors and depends upon our earnings, capital requirements, financial
condition and other factors. We have never paid any dividends on our Class A
common stock and we do not anticipate paying any dividends in the foreseeable
future. We currently intend to retain earnings, if any, to finance our
operations.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Article VI of our by-laws provides that a director or officer shall be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement (provided such settlement is approved in advance by
the Company) in connection with certain actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation - a "derivative action") if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such an action and
except that no person who has been adjudged to be liable to us shall be entitled
to indemnification unless a court determines that despite such adjudication of
liability, but in view of all of the circumstances of the case, the person
seeking indemnification is fairly and reasonably entitled to be indemnified for
such expenses as the court deems proper.
30
Article 6.4 of our by-laws provides that a person indemnified under Article VI
of the by-laws may contest any determination that a director, officer, employee
or agent has not met the applicable standard of conduct set forth in the by-laws
by petitioning a court of competent jurisdiction.
Article 6.5 of our by-laws further provides that directors and officers are
entitled to be paid by us the expenses incurred in defending the proceedings
specified above, in advance of their final disposition, provided that such
payment will only be made upon delivery to us by the indemnified party of an
undertaking to repay all amounts so advanced if it is ultimately determined that
the person receiving such payments is not entitled to be indemnified.
Article 6.6 of our by-laws provides that the right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition, conferred in the Article, will not be exclusive of any other right
which any person may have or acquire under the by-laws, or any statute or
agreement, or otherwise.
Article 6.7 of our by-laws provides that we may maintain insurance, at our
expense, to reimburse the Company and our directors and officers and those of
our direct and indirect subsidiaries against any expense, liability or loss,
whether or not we would have the power to indemnify such persons against such
expense, liability or loss under the provisions of Article VI of the by-laws. We
maintain such insurance, in the amount of $1,000,000 aggregate liability for an
annual premium of $45,000, in 2004.
Article II of our certificate of incorporation eliminates the personal liability
of our directors to us or our stockholders for monetary damages for breach of
their fiduciary duties as a director to the fullest extent provided by Delaware
law. Section 102(b) (7) of the Delaware General Corporation Law, which provides
for the elimination off such personal liability except for (i) any breach of the
director's duty of loyalty to us or our stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any transaction from which the director derived any improper personal
benefit, or (iv) paying a dividend or approving a stock purchase that was
illegal under Section 174 of the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is, therefore, unenforceable.
LEGAL MATTERS
Certain legal matters relating to this offering will be passed upon on behalf of
the Company by _______ ___________________, _____________, Delaware.
EXPERTS
The consolidated financial statements of Eye Care International, Inc. and
subsidiaries (i) for the fiscal year ended December 31, 2003 have been audited
by Brimmer, Burek & Keelen, LLP, and (ii) for the fiscal year ended December 31,
2002 have been audited by Dreslin Financial Services LLP, and are included in
this prospectus in reliance upon the respective reports given upon the authority
of those firms as experts in accounting and auditing.
31
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Eye Care International, Inc. has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 under the Securities Act of
1933 with respect to the common shares to be offered and sold by the Selling
Security Holders. This prospectus, which is part of the registration statement,
does not contain all of the information set forth in the registration statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the common shares offered by this prospectus, reference is made to
the registration statement and amendments and exhibits filed therewith.
Statements contained in this prospectus as to the contents of certain documents
are not necessarily complete and, in each instance, reference is made to the
copy o the document filed as an exhibit to the registration statement and each
such statement is qualified in its entirety by such reference.
The Company also is subject to the annual and periodic reporting requirements of
the Securities Exchange Act of 1934 and in accordance therewith files current,
quarterly and annual reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy the reports, proxy
statements and other information filed by us with the SEC without charge at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained at prescribed rates from the
Public Reference Section at 450 Fifth Street, N.W., Washington, DC 20549. Please
telephone the Securities and Exchange Commission at 1-800-SEC-0330 for further
information about the public reference facilities. Our reports, proxy statements
and other information also are available to the public over the internet at the
Securities and Exchange Commission's website at HTTP://WWW.SEC.GOV. Our website
on the internet is at HTTP://WWW.ECIVISIONPLAN.COM.
32
FINANCIAL STATEMENTS
The financial statements appear below beginning at page F-1.
33
INDEX TO FINANCIAL STATEMENTS
ITEM 1 FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
- ---------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS - September 30, 2004 and December 31, 2003 F-2
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - For the Three and Nine
Months ended September 30, 2004 and 2003 F-3
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - For the Nine Months
ended September 30, 2004 and 2003 F-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
- -----------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS - 2003 F-8
BALANCE SHEETS at December 31, 2003 and 2002 F-9
STATEMENTS OF OPERATIONS For years ended December 31, 2003 and 2002 F-10
STATEMENTS OF STOCKHOLDERS' DEFICIT For years ended December 31, 2003 and 2002 F-11
STATEMENTS OF CASH FLOWS For years ended December 31, 2003 and 2002 F-12
NOTES to Financial Statements F-13
REPORT OF INDEPENDENT ACCOUNTANTS - 2002 F-21
F-1
EYE CARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPT. 30 DEC. 31
2004 2003
------------ ------------
UNAUDITED
Current assets
Cash $ 112,847 $ 1,426
Accounts receivable (net of allowance for doubtful accounts) 76,901 55,455
Prepaid expenses 4,398 10,557
------------ ------------
Total current assets 194,146 67,438
Fixed assets (net of accumulated depreciation) 10,268 6,587
Goodwill 483,000 0
------------ ------------
TOTAL assets $ 687,414 $ 74,025
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 699,004 $ 767,199
Loans and notes payable 976,950 3,093,140
Accrued expenses and payroll taxes 160,274 433,958
Deferred compensation - related parties 625,990 487,809
Deferred revenue 27,216 32,303
------------ ------------
Total current liabilities 2,489,434 4,814,409
Long-term liabilities
Mandatory Convertible Debt 366,333 -0-
Deferred revenue 42,891 37,917
------------ ------------
409,224 37,917
------------ ------------
Total Liabilities $ 2,898,658 $ 4,852,326
------------ ------------
Stockholders' Deficit
Preferred Stock, $.001 par value, authorized 20,000,000 shares:
Series A convertible preferred stock; 1,500 shares authorized; 155 and 380
shares issued and outstanding: (aggregate liquidation value:$155,000
and $380,000)
Series C mandatory convertible stock, authorized 86 shares and 0 shares
issued and outstanding -- --
Common stock A, $0.001 par value; authorized shares: 80,000,000;
issued and outstanding: 20,898,650 and 3,062,722, at September 30,
2004, and December 31, 2003, respectively 20,899 3,062
Common stock B, $0.001 par value; authorized shares: 20,000,000;
issued and outstanding: 4,462,880 and 255,540, at September 30,
2004, and December 31, 2003, respectively 4,463 255
Additional paid-in capital 47,694,034 9,166,373
Stock subscriptions receivable (59,816) -0-
Accumulated deficit (49,870,824) (13,947,991)
------------ ------------
Total stockholders' deficit (2,211,244) (4,778,301)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 687,414 $ 74,025
============ ============
See notes to financial statements
F-2
EYE CARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
---------------------------- ----------------------------
SEPT. 30 SEPT. 30 SEPT. 30 SEPT. 30
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUES
Membership fees $ 22,932 $ 32,085 $ 102,755 $ 130,002
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling, general and administrative expenses 995,608 485,592 4,624,127 1,431,007
Depreciation 657 -- 1,536 4,231
------------ ------------ ------------ ------------
Total Operating Expenses 996,265 485,592 4,625,663 1,435,238
Loss from operations (973,333) (453,507) (4,522,908) (1,305,236)
OTHER INCOME (EXPENSE)
Interest expense (47,435) (67,981) (111,458) (187,453)
Financing costs (10,000) -0- (110,833) -0-
Forgiveness of debt - Related Party -0- -0- -0- 577,654
Forgiveness of debt -0- -0- -0- 112,000
Consulting expense for business expansion (1,421,160) -0- (30,575,634) -0-
Product Endorsement Fee -0- 96 -0- 254,728
------------ ------------ ------------ ------------
Total Other Income (Expense) (1,478,595) (67,885) (30,797,925) 756,929
Net Loss Before Income Taxes (2,451,928) (521,392) (35,320,833) (548,307)
Income Taxes -0- -0- -0- -0-
------------ ------------ ------------ ------------
NET LOSS $ (2,451,928) $ (521,392) $(35,320,833) $ (548,307)
Preferred Stock Dividends -0- -0- -0- 4,500
Net Loss Available to Common Stockholders $ (2,451,928) $ (521,392) $(35,320,833) $ (552,807)
============ ============ ============ ============
Basic loss per common share ($ 0.10) ($ 0.19) ($ 1.86) ($ 0.20)
============ ============ ============ ============
Weighted average number of shares outstanding 24,676,344 2,718,099 18,996,824 2,780,470
============ ============ ============ ============
See notes to financial statements.
F-3
EYE CARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE
MONTHS ENDED SEPT. 30
2004 2003
------------ ------------
Cash flow from operating activities; net (loss) $(35,320,833) $ (548,307)
Adjustments to reconcile net income and (loss) to net cash
provided or (used) in operating activities
Increase (Decrease) by non-cash additions to income:
Write-off of deferred compensation (936,639)
Write-off of accounts payable (112,000)
Issuances of shares and warrants for services 29,003,644
Issuance of shares for conversion of debt and interest 3,983,749
Depreciation 1,508 4,231
Forgiveness of officer's loans receivable 282,984
Tax liability on forgiven loans receivable 76,000
Interest accrued but not paid 168,586
Non-cash legal expense 10,000
Increase in Allowance for uncollectible accounts 36,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (51,598) (57,403)
(Increase) decrease in prepaid interest 6,159
Increase (decrease) in accounts payable and accrued expenses (83,489) 91,581
Increase (decrease) in net deferred revenue (114) (7,063)
Increase (decrease) in net deferred compensation 138,181 275,339
Increase (decrease) in stock subscription receivable (59,816)
------------ ------------
Net cash (used) in operations (2,346,109) (752,691)
Cash flow from investing activities:
Advances to stockholders/officers (6,348) (59,590)
Investment in Subsidiary (130,000)
Purchase of property and equipment (5,189) (5,841)
------------ ------------
Net cash provided (used) by investing activities (141,537) (65,431)
Cash flow from financing activities:
Proceeds from short-term borrowings 2,358,185 743,500
Proceeds from Sale of preferred stock 602,000
Payment of Promissory Notes and accrued interest (610,500)
Proceeds from exercise of warrants 249,382
------------ ------------
Net cash provided by financing activities 2,599,067 743,500
Increase or (decrease) in cash $ 111,421 $ (74,622)
Cash - January 01 1,426 78,097
------------ ------------
Cash - September 30 $ 112,847 $ 3,475
============ ============
Supplemental disclosures:
Interest paid $ 10,500 $ -0-
Taxes paid -0- -0-
Warrants issued for consulting services 16,197,311 -0-
Stock issued for consulting services 10,462,583 -0-
Stock issued to related parties for services 2,343,750 -0-
Stock issued for conversion of debt & interest 3,983,749 -0-
See notes to financial statements
F-4
EYE CARE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited financial information has been prepared by Eye Care
International, Inc. (the Company) in accordance with accounting principals
generally accepted in the United States of America for interim financial
information, and in accordance with the instructions to Form 10-QSB, and Item
310(b) of Regulation S-B, of the Securities and Exchange Commission (SEC). In
the opinion of management, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair representation have been included.
Financial results for the interim nine-month period are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. The December 2003 comparative balance sheet presented was derived from
audited financial statements, but does not include all disclosures required with
the audited annual statements. This financial information should therefore be
read in conjunction with the financial statements and notes included with the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2003.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NOTE B: MUTUAL FORGIVENESS OF DEBTS
During the nine months ending September 30, 2003, the Company and two of its
officers, Clark Marcus (CEO) and Jim Koenig (CFO) entered into agreements
whereby Messrs. Marcus and Koenig relinquished their claims to deferred
compensation (earned but unpaid) in the amounts of $424,985 and $511,654,
respectively. In consideration for their agreements, the Company forgave
collection of personal loans and advances to them, totaling $282,984. The
resultant gain on this transaction to the Company is reduced by the tax
liability associated with the forgiveness of debt, for which the Company has
agreed to reimburse the officers. This transaction resulted in the Company
recording a net gain of $577,654, in 2003.
NOTE C: SHORT-TERM NOTES PAYABLE
During the nine months ended September 30, 2004, the Company borrowed $1,991,852
from accredited investors. These loans are evidenced by short-term notes,
maturing within one year of date of issuance, and bearing interest of 10
percent. The Company, through an arrangement with the May Davis Group, borrowed
from 11 accredited investors a total of $366,333 of three-year mandatory
convertible debt, which bears interest at the rate of 7 percent per annum. The
notes are convertible into the Company's common stock at the lesser of 120
percent of the closing bid price of the Company's common stock on the closing
date, or 75 percent of the lowest closing bid price during the five days
immediately prior to the conversion date.
During the first nine months of 2004, some of the Company's noteholders
converted their notes into the Company's common stock at the rate of two shares
for each one-dollar of principal and accrued interest. This resulted in the
Company converting $3,735,860 of its existing debt and $247,889 of its accrued
interest into common stock.
F-5
NOTE D: COMMON AND PREFERRED STOCK AND WARRANTS
In May of 2004, the Company received approval from its shareholders, to increase
its authorized shares from fifty million shares to one hundred twenty million
shares. The authorized shares for Class A common stock was increased from thirty
million shares to eighty million shares; its Class B shares from ten million
shares to twenty million shares and its preferred shares from ten million shares
to twenty million shares
The 100,000,000 authorized shares of common stock consist of two classes;
80,000,000 authorized Class A, and 20,000,000 authorized Class B. On all matters
required by law to be submitted to a vote of the holders of common stock, each
share of Class A common stock is entitled to one vote per share, and each share
of Class B common stock is entitled to five votes per share. At September 30,
2004 and December 31, 2003 the issued and outstanding shares of common stock by
class were as follows:
September 30 December 31
2004 2003
Class A common stock issued and outstanding 20,898,650 3,056,722
Class B common stock issued and outstanding 4,462,880 255,540
---------- ---------
Total common stock issued and outstanding 25,361,530 3,312,262
Three investors holding a total of 225 shares of Series A preferred stock
exercised their conversion privilege and converted their Series A preferred
stock into 90,000 shares of Class A common stock during the nine month period
ended September 30, 2004.
Through the conversion of promissory notes and accrued interest as discussed in
Note C above, outstanding shares increased by 7,713,950 shares. Shares
outstanding were further increased by 6,680,000 shares due to holders of
warrants exercising their warrants; through the issuance of 3,598,500 shares for
services, and 90,000 shares issued resulting from the conversion of 225 shares
of preferred stock.. During the first nine months of 2004, the Company issued a
total of 6,833,108 warrants, of which 250,000 were exercisable at the rate of
$0.50 per share of common stock and the remaining 6,583,108 were exercisable at
the rate of $0.01 per share of common stock. The issuance of these warrants
created a non-cash charge to the income statement of $16,197,591.
During the nine month period ended September 30, 2004, the Company entered into
various agreements with financial and business consultants (including Jana
Corporation, OmniFirst Capital, May Davis Group and Fordham Financial
Management) to assist in furthering its financial and business plan, including
the expansion of its business. The consultants were to assist the Company in its
efforts to effect acquisitions and to obtain relationships with sources of
revenue. As an inducement to these consultants to provide these services, the
Company granted them, in the aggregate, approximately 5.7 million warrants.
These warrants entitled the consultants to purchase the Company's common stock
at a price of $.01 per share. The Company also issued 3.6 million shares of
common stock to the consultants. The value of those warrants was determined
using the intrinsic value method and the common stock was valued at the market
value at the time of issuance. This resulted in a non-cash charge to expense in
the first nine months of 2004 of $29,003,644. The Company and Fordham Financial
have agreed that Fordham will return any stock previously issued to them if they
do not produce any acceptable equity financings within a specified period of
time.
As a result of the agreement with Jana Corporation, the Company has signed a
contract with Benelux Capital S.A. who is identifying viable synergistic
acquisitions for the Company. Jana was also instrumental in negotiating the
Company's October 2004 acquisition of the revenue-producing "PhotoScreener",
which is a camera especially designed for the detection of vision disorders in
young and preverbal children.
OmniFirst Capital was instrumental in locating and assisting in the 2004
acquisition of LBI Brokerage, which has already added revenues for the Company;
for providing access to Flagship, the healthcare arm of MBNA and the Company is
in well advanced stages of contract negotiation to provide the vision benefit to
Flagship members, and for developing a relationship with Jay Force who has been
instrumental in introducing the Company to certain clients which may produce
substantial revenues for the Company. Further contributing factors to the value
of LBI Brokerage include it's managements extensive background in the insurance
industry and it being appointed as a Managing General Agent (MGA) by
Transamerica's Worksite Marketing Division. LBI Brokerage distributes
Transamerica's entire worksite product through General Agencies, Third Party
Administrators and small and large group producers.
F-6
The Company reached an agreement to make the acquisition of Self-Funded
Alternatives (SFA) and LBI Brokerage in June 2004 in exchange for cash, notes
payable and common stock. Immediately after signing the agreements, discussions
began whereby the Company would rescind the agreements. In September, SFA
returned all stock and substantially all of the cash received from the Company,
but SFA will be permitted to distribute the Company's vision plan. The second
agreement, for the acquisition of LBI Brokerage was completed in July after
significant modifications were made to the agreement.
As previously reported, the Company had entered into an agreement with Zatoon
Ventures Limited for a $3 million equity line. The Company allowed this
agreement to expire without any liability to the Company. Prior to the
expiration of the agreement, the Company had issued 25,000 shares of its
restricted common stock to Zatoon.
In August 2004 the Company raised a total of $602,000 from the issuance of 86
shares of mandatory convertible Series C, 6% cumulative, preferred stock, par
value $0.001 per share. Each share may be converted at any time until July 30,
2006, when conversion becomes mandatory. At the time of conversion, each share
shall be deemed to have a value of $10,000 and is convertible into Class A
common stock at the lesser of $2.88 per common share or 75% of the lowest
closing bid price during the five days immediately prior to the conversion. As
part of the agreements with these two entities, the Company agreed to register
shares which are issuable upon the conversion of the warrants and the Series C
Convertible Preferred Stock. In addition, for each share of Series C Convertible
Preferred Stock purchased by them, they have the right to purchase up to 1% of
the issuances of equity securities issued under subsequent funding transactions
NOTE E: STOCK SUBSCRIPTIONS RECEIVABLE
During the nine months ended September 30, 2004, as a result of shareholders
exercising their warrants, the Company recorded a total of $59,816 as
receivables due from said shareholders. This receivable has been recorded on the
balance sheet in the equity section.
NOTE F: EARNINGS PER SHARE
The basic earnings per share for each period presented was computed based on the
weighted average number of common shares outstanding during the period. Fully
diluted net income or loss per share has not been presented as in each loss
period inclusion of potential common shares (such as the outstanding warrants)
would be antidilutive.
NOTE G: SUBSEQUENT EVENTS
Subsequent to September 30, 2004 the Company allowed its contract with Zatoon to
expire without any liability to the Company. In March 2004, the Company had
entered into this agreement with Zatoon Ventures Limited (Zatoon) whereby Zatoon
would provide financing to the Company of up to $3,000,000 through purchase of
the Company's common A stock. Prior to the expiration of the agreement, the
Company had issued 25,000 shares of its restricted common stock to Zatoon.
The Company had entered into a financing agreement in November 2003 with Fordham
Financial (Fordham) to provide equity financing and other consulting services.
In October 2004 the Company and Fordham Financial agreed that Fordham will
return any stock previously issued to them if they do not produce any acceptable
equity financings within a specified period of time.
During the fourth quarter of 2004 the Company had issued approximately 2.1
million shares of common stock, of which .4 million were for services that
either have been or will be performed by consultants, .7 million were notes
converted to shares, .2 million were issued in lieu for interest and .7 million
were issued in the photo screener transaction. The Company has not, at this
time, calculated the resulting non-cash charge to its third quarter 2004 income
statement.
In October 2004 the Company acquired the technology and patent rights for the
"PhotoScreener", which is a camera especially designed to detect vision
disorders in young, and even preverbal, children. The technology/patent rights
were acquired from the Feakins Howson Partnership (Sellers), a Pennsylvania
partnership, for the immediate issuance of 187,500 shares of the Company's
common stock and the issuance of 1,562,500 shares of the Company's common stock
one year from the closing date. However, if the post-closing shares are not
issued, Sellers shall have the right to have the technology and patent rights
reassigned to them. In addition, the Company agreed to issue 750,000 shares of
its common stock to the Sellers for consulting services to be provided by the
Sellers.
F-7
<page>
BRIMMER, BUREK & KEELAN LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Eye Care International, Inc.
Tampa, Florida
We have audited the accompanying balance sheet of Eye Care International, Inc.
as of December 31, 2003 and the related statements of operations, stockholders'
deficit and cash flows for the year then ended. 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 auditing standards generally accepted
in the United States of America. 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. as
of December 31, 2003 and the results of operations, changes in shareholders'
deficit and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
The financial statements as of and for the year ended December 31, 2002 were
audited by another auditor. As discussed in Note 8 to the financial statements,
the Company has restated its 2002 financial statements during the current year
to reflect a reverse stock split in conformity with accounting principles
generally accepted in the United States of America. The other auditor reported
on the 2002 financial statements before the restatement.
/S/BRIMMER, BUREK & KEELAN LLP
Brimmer, Burek & Keelan LLP
Certified Public Accountants
Tampa, Florida
April 20, 2004
F-8
EYE CARE INTERNATIONAL, INC.
BALANCE SHEETS
ASSETS 2003 2002
- ------ ---- ----
Current assets
Cash $ 1,426 $ 78,097
Accounts receivable (net of allowance for doubtful
accounts) 55,455 22,670
Non-trade receivables and employee receivables -- 5,050
Prepaid Expenses 10,557
------------------------------------------
Total current assets 67,438 105,817
Fixed assets (net of accumulated depreciation) 6,587 4,135
Loans and Advances to Stockholders and Related Parties -- 352,665
------------------------------------------
Total assets $ 74,025 $ 462,617
==========================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 767,199 $ 736,078
Loans and notes payable 3,093,140 1,745,500
Accrued expenses and payroll taxes 433,958 141,767
Deferred compensation - related party 487,809 1,028,011
Deferred revenue 32,303 57,899
------------------------------------------
Total current liabilities 4,814,409 3,709,255
Long Term Liabilities
Deferred Revenue 37,917 47,866
------------------------------------------
Total liabilities 4,852,326 3,757,121
Stockholders' Deficit
Preferred Stock, $.001 par value, 10,000,000 shares authorized
Series A convertible preferred stock;
1,500 shares authorized; 380 and 745 shares issued and
outstanding (aggregate liquidation value: $380,000 and
$745,000) -- 1
Series B 6% cumulative convertible preferred stock;
authorized, issued and outstanding: -0- and 685,715
shares (aggregate liquidation value: $-0- and $385,407) -- 686
Common stock A $.001 par value; 30,000,000 shares authorized;
3,062,722 shares and 2,415,860 shares issued and
outstanding at 31 December 2003 and 2002, respectively 3,062 2,418
Common stock B $.001 par value; 10,000,000 shares authorized;
shares and 255,540 shares issued and outstanding 255 255
Additional paid-in capital 9,166,373 9,099,544
Accumulated deficit (13,947,991) (12,397,408)
------------------------------------------
Total stockholders' deficit (4,778,301) (3,294,504)
Total liabilities and stockholders' deficit $ 74,025 $ 462,617
==========================================
See notes to financial statements
F-9
EYE CARE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
REVENUES
Membership fees $ 181,392 $ 287,735
OPERATING EXPENSES
Selling, general and administrative expenses 2,647,992 1,451,776
Depreciation 4,940 9,642
----------- -----------
Total Operating Expenses 2,652,932 1,461,418
Loss From Operations 2,471,540 1, 173,683
OTHER INCOME (EXPENSE)
Interest Expense (364,511) (235,929)
Financing Costs -- (86,335)
Forgiveness of Debt - Related Party 928,639 --
Forgiveness of Debt 114,274 --
Product Endorsement Fees 250,000 --
----------- -----------
Total Other Income (Expense) 928,402 (322,264)
Net Loss Before Income Taxes (1,543,138) (1,495,947)
Income Taxes -- --
----------- -----------
Net Loss (1,543,138) (1,495,947)
Preferred Stock Dividends 7,446 18,000
----------- -----------
Net Loss Available To Common Stockholders $(1,550,584) $(1,513,947)
=========== ===========
Basic loss per common share $ (.54) $ (.63)
Basic weighted average number of shares outstanding 2,858,330 2,408,313
See notes to financial statements
F-10
EYE CARE INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2003 AND 2002
Preferred Stock Common Stock
----------------------------- ------------------------------------
Series A Series B Series A Series B
------------- --------------- ------------------ -----------------
Paid-In Retained
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- -----
Balance - December 31,
2001 745 $1 685,715 $686 11,924,360 $11,925 1,277,700 $1,277 8,908,615 (10,883,461) (1,960,957)
Issuance of common stock 155,000 155 180,245 180,400
Preferred Dividends (18,000) (18,000)
Net (Loss) (1,495,947) (1,495,947)
----- --- ------- ---- ---------- ------ --------- ----- --------- ----------- ----------
Balance - December 31,
2002 745 1 685,715 686 12,079,360 12,080 1,277,700 1,277 9,088,860 (12,397,408) (3,294,504)
Reverse split (9,662,640) (9,662)(1,022,160) (1,022) 10,684
----- --- ------- ---- ---------- ------ --------- ----- --------- ----------- ----------
Balance - December 31,
2002 - restated 745 $1 685,715 $686 2,416,720 $2,418 255,540 $255 $9,099,544 $(12,397,40) $(3,294,50)
Conversion of Preferred
stock to Common (65) (1) 130,000 130 (130) (1)
Reverse Stock Split (104,000) (104) 104 -
Redemption of Preferred
for Debt (300) - (685,715) (686) (599,314) (600,000)
Common Stock Issued for
Cash 50,000 50 24,950 25,000
Common Stock Issued for
Interest 112,000 112 45,873 45,985
Exercise of Warrants 230,500 230 6,175 6,405
Conversion of Debt for
common 21,500 22 59,749 59,771
Common Stock Issued for
Accts Payable 4,000 4 1,996 2,000
Common Stock Issued for
Services 200,000 200 128,550 128,750
Preferred Stock Dividend (7,445) (7,445)
Warrants Issued with Debt 398,876 398,876
Net (Loss) (1,543,138) (1,543,138)
----- --- ------- ---- ---------- ------ --------- ----- --------- ----------- ----------
Balance - December 31,
2003 380 - - - 3,060,720 $3,062 255,540 $255 9,166,373 (13,947,991) (4,778,301)
====== === ====== ==== ========= ====== ======= ==== ========= =========== ==========
See notes to financial statements
F-11
EYE CARE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---------- ----------
Cash flow from operating activities
Net loss
Adjustment to reconcile net loss to net used in operating activities $(1,543,138) $(1,495,947)
Write-offs of deferred offering costs and other assets -- 99,256
Issuances of shares and warrants for services and interest 332,039 --
Depreciation 4,940 9,642
Common stock issued for settlement 2,000 --
Changes in operating assets and liabilities
(Increase) decrease in accounts receivables (27,735) 19,174
(Increase) decrease in prepaid expenses (10,557) 10,973
(Increase) decrease in other current assets 328,341 --
Increase (decrease) in accounts payable and accrued expenses 164,832 (97,952)
Net change in debt discount 222,016 --
Increase (decrease) in deferred compensation (540,202) 481,050
(Decrease) in deferred revenue (35,545) (80,732)
---------- ----------
Net cash used by operating activities (1,103,009) (1,054,536)
---------- ----------
Cash flow from investing activities
(Advances to) payments from stockholders/officers 24,324 (35,961)
Purchases of property and equipment (7,391) --
---------- ----------
Net cash provided (used) by investing activities 16,933 (35,961)
Cash flow from financing activities
Proceeds from sales of common stock 25,000 180,400
Proceeds from short term borrowings loans and notes payable 978,000 979,500
Proceeds from exercise of warrants 6,405 --
---------- ----------
Net cash provided by financing activities 1,009,405 1,159,900
Increase (decrease) in cash (76,671) 69,403
Cash - January 01, 78,097 8,694
---------- ----------
Cash - December 31, $ 1,426 $ 78,097
=========== ============
Supplemental disclosures
Interest paid $ 203,439 $ 15,761
=========== ============
Common stock issued for settlement $ 2,000 $
=========== ============
Common stock and warrants issued for
interest and services $ 332,039 $ --
=========== ============
Preferred stock redeemed for debt $ 654,950 $ --
=========== ============
Taxes Paid $ -0- $ -0-
=========== ============
See notes to financial statements
F-12
EYE CARE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Eye Care International, Inc. (the Company) markets vision care benefit plans and
enhancements to plans provided by others. The Company's benefit plans and plan
enhancements provide members and members of its plan sponsors (employers,
associations and other organizations) the opportunity to obtain discounted eye
care services and products from the Company's national network of ophthalmic
physicians, optometrists, eyewear suppliers, etc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates
REVENUES AND COMMISSIONS RECOGNITION
Revenues from memberships are recognized over the life of the memberships which
generally are one year from the month after a member signs up for the program.
However, the Company also sells smaller amounts of two and three year
memberships which are amortized over their respective periods. The Company
received a one time fee from product endorsement which was recognized as income
when all obligations of the company had been performed and the billing was made
to the customer. In 2003 the Company received this one time product endorsement
fee which is recognized as other income due to its expected non reoccurrence. In
2003 the Company also received a minor amount of commission on sale of products.
The Company receives orders by telephone and uses a fulfillment center to
complete the sale. Those revenues are recognized when the product is shipped and
paid for by the customer. Revenues from commissions are immaterial in amount.
STOCK BASED COMPENSATION
During 2003, the Company issued 1,393,506 detachable warrants to purchase Common
A stock, to 2003 debt holders in connection with their loans to the Company in
the amount of $978,000. The warrants have a term of five years from date of
issue and are immediately exercisable by the warrant holders. In accordance with
EITF 00-27, the warrants issued to 2003 debt holders were valued utilizing the
Black-Scholes formula with a volatility factor of 255% and a tax free interest
rated of 4.85%. Based upon that valuation, a debt discount was so determined and
is being amortized as interest expense over the life of the debt. The amount of
discount determined as pertaining to the warrants is $398,876 and the interest
expense for 2003 is $157,566. Prior to 2003, the detachable warrants issued to
debt holders were valued using the intrinsic method and the resulting interest
expense for 2002 was $322,264. Since the debt is payable in one year from date
of issue, the use of the transitional method in EITF 00-27 for warrants issued
in 2002 would not make a material difference, and therefore the 2002 financial
statements have not been restated to reflect that method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated using
the straight line method over the estimated useful lives of the assets,
generally ranging from 5 to 7 years. Additions and major improvements to
property and equipment are capitalized. Repair and maintenance expenditures are
charged to expense as incurred. As property or equipment is sold or retired, the
applicable cost and accumulated depreciation are eliminated from the accounts
and any gain or loss is recorded.
ACCOUNTS RECEIVABLE
Accounts receivable, net are stated at estimated net realizable value. Accounts
receivable are mostly comprised of balances due from memberships and product
endorsements, net of estimated allowances for uncollectible accounts. In
F-13
determining collectibility, historical trends are evaluated and specific
customer issues are reviewed to arrive at appropriate allowances. (See Note 4)
INCOME TAXES
The Company has adopted SFAS 109. The Company has not made a provision for
income tax purposes due to incurring losses since inception. There is no current
tax expense, and after consideration of a valuation allowance, there is no
deferred tax benefit. The cumulative net operating losses of approximately
$12,500,000 million can be carried forward to offset future taxable income. The
net operating loss carry-forward begins expiring in 2011.
For the years ended December 31, 2003 and 2002, the temporary differences
between book income and taxable income consisted of the deferred compensation.
Computation of any deferred tax asset is computed by multiplying these temporary
differences by the approximate applicable tax rate of 34 percent. Components of
the deferred tax asset for the periods end December 31, 2003 and 2002 are as
follows:
Income tax expense (benefit) for the years ended December 31, 2003 and 2002 is
as follows:
2003 2002
----------- ----------
Current income tax expense (benefit) $ - $ -
Deferred income tax expense (benefit) - -
--------- ----------
Income tax expense (benefit) $ - $ -
========= ==========
Income taxes for the years ended December 31, 2003 and 2002 differs from the
amounts computed by applying the effective income tax rate of 34% to income
before income taxes as a result of the following:
2003 2002
----------- ----------
Computed tax expense at the statutory rate 34% 34%
Increase (decrease) in taxes resulting from:
Net operating loss (34%) (34%)
-------- --------
Current income tax expense (benefit) - % - %
======== =========
Temporary differences that give rise to deferred tax assets and liabilities:
2003 2002
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 4,761,340 $ 3,230,000
Compensation -- 340,000
Less valuation allowance (4,761,340) (3,570,000)
----------- -----------
Gross deferred tax asset -- --
Gross deferred tax liability -- --
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
As of December 31, 2003, realization of the Company's net deferred tax assets of
approximately $4,761,340 was not considered more likely than not, and
accordingly, a valuation allowance of an equal amount was provided. The net
change in the total valuation allowance during the year ended December 31, 2003
was $1,191,340.
LOSS PER SHARE
The Company has adopted SFAS 128, Earnings per Share issued by the Financial
Accounting Standards Board.
F-14
Net loss per share was computed based on the weighted average number of shares
outstanding during the periods presented. All weighted average shares
outstanding have been restated to reflect the 1 for 5 reverse stock split
occurring in June 2003.
Diluted loss per share is considered to be the same as basic loss per share
since the effect of common stock options and warrants and preferred stock are
anti-dilutive.
NOTE 3 - DUE FROM STOCKHOLDERS/OFFICERS
As of December 31, 2003, due from stockholders/officers included the following:
2003 2002
-------- --------
Loans receivable $ -- $325,074
Travel advances -- 27,591
-------- --------
$ -- $352,665
======== ========
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
2003 2002
-------- --------
Accounts receivable $ 68,955 $ 22,670
Less allowance for uncollectible accounts (13,500) --
-------- --------
Total $ 55,455 $ 22,670
======== ========
For the years ended December 31, 2003 and 2002, amounts expensed to bad debt was
$71,947 and $30,751, respectively. Bad debt expense for the year ended December
31, 2003 includes approximately $43,857 of allowance for uncollectible advances
to a consultant and shareholder of the Company.
During the years ended December 31, 2003 and 2002, the Company factored, without
recourse, approximately $69,800 and $-0- of individual accounts in accounts
receivable. The aggregate amount of loss on the sale of these receivables was
$14,590 for the year ended December 31, 2003.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
2003 2002
--------- ---------
Machinery and equipment $ 72,585 $ 72,585
Office furniture 51,845 51,845
Computers and equipment 7,391 --
--------- ---------
131,821 124,430
Less accumulated depreciation (125,234) (120,294)
--------- ---------
Total $ 6,587 $ 4,135
========= =========
Depreciation expense for the years ended December 31, 2003 and 2002 was $4,940
and $9,642, respectively.
F-15
NOTE 6 - NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following as of December 31, 2003 and
2002:
2003 2002
----------- -----------
Notes payable to investors and shareholders; bearing interest ranging
from 5.75% through 12% per annum; due through December 2002;
currently in default $ 979,000 $ 979,000
Notes payable to investors and shareholders; bearing interest at 8%
per annum; payable on demand 474,500 474,500
Loans payable to investors and shareholders; payable without specific
interest or repayment terms; currently bearing interest ranging
from 5.75% through 12% per annum 242,000 242,000
Notes payable to officers; bearing interest at 8% per annum; with
no specific repayment terms 50,000 50,000
Notes payable to investors and shareholders; bearing interest at 10%
per annum; due through December 2003 924,000 --
Promissory note payable to shareholder investor; bearing 1.53% interest
per annum; due June 2004 664,950 --
----------- -----------
Total notes and loans payable 3,334,450 1,745,500
Less discount on debt (See Note 2, Stock Based Compensation) (241,310) --
----------- -----------
Total $ 3,093,140 $ 1,745,500
=========== ===========
As of December 31, 2003, all notes and loans payable were classified as current
maturities.
As of March 31, 2004, approximately $1,900,000 of debt had been converted in
Common A stock (See footnote 16).
NOTE 7 - PREFERRED STOCK
Series A Convertible preferred stock is nonvoting and bears no dividends. Each
share is redeemable by the Company on the third anniversary of issuance at
$1,000, per share, and convertible into 2,000 shares of Class A common stock,
subject to adjustment. Upon a public offering of $5,000,000 or greater, the
shares are automatically convertible.
Series B Convertible preferred stock votes on an as if converted basis and bears
cumulative dividends at 6%, per annum. Each share is convertible at $2.19, per
share, into Class A common stock.
In June 2003, the Company settled a lawsuit with an investor whereby the
investor's investment in 300 shares of the Company's Preferred A stock and
685,715 shares of the Company's Preferred B stock was redeemed in exchange for a
note payable together with accrued dividends and legal fees. The total amount of
the note is $664,950. In addition, the investor was awarded 299,406 warrants
exercisable for $2.19 per share of Common A stock. The full amount of the note
is recorded as a current liability since its expiration date is June 1, 2004 and
bears interest at the annual rate of 1.53%. In addition, the Company agreed to
pay a consulting fee to the investor in the amount of $2,440 per month for
twelve months beginning with June 2003. Based upon a valuation of the warrants
utilizing the Black-Scholes pricing model, the warrants have a zero value and
therefore have not resulted in a computation of discount on the resulting debt.
The Company also agreed to extend the term for another two years for 240,000
warrants previously issued to the investor. These warrants are exercisable at a
price of $2.50 per share. Since the extension of the term of the warrants is
considered a change in the warrant, a new measurement date occurred on the date
of that change. Utilizing the Black-Scholes pricing model, the value of the
warrants at the new measurement date did not result in any additional expense to
be recorded by the Company.
F-16
NOTE 8 - COMMON STOCK
In June 2003 the Company's board approved a reverse 1 for 5 stock split for its
Common A shares. All references to the Common A stock in the accompanying
financial statements have been adjusted to reflect the post split shares of
Common A.
During 2003, the Company issued detachable warrants to all convertible debt
holders in addition to their convertible notes. This practice is consistent with
the Company's activity in prior years. However, EITF 00-27 requires the
calculation of the fair value of the warrants so issued for periods ending after
December 31, 2002. The resulting valuation of the warrants is then reflected as
a discount of the underlying debt and a corresponding addition to additional
paid in capital. The amount of this discount so valued in 2003 is $398,876 and
is being amortized over the life of the debts as interest expense. The amount of
interest expense recorded for 2003 was $157,566. Warrants issued in prior years
were recorded as an interest expense utilizing the intrinsic method of valuation
pursuant to EITF 98-5.
In 2003, the company settled a lawsuit with a former employee for prior unpaid
wages whereby they agreed to a payment of 4,000 shares of Common A stock and a
note in the amount of $55,000 payable over one year on a monthly basis. The
value of the shares issued for the settlement was $2,000.
The Company issued 150,000 shares of Common A stock for consulting services to
three consultants. The value of the shares issued was $102,500.
NOTE 9 - WARRANTS
During the years ended December 31, 2003 and 2002, the Company issued warrants
to purchase 1,369,506 and 184,400 shares of Class A common stock, respectively.
At December 31, 2003 there were 2,325,949 warrants to purchase Class A common
stock outstanding, exercisable at varying prices (weighted average price of
$2.30) through 2006. The following table summarizes this warrant activity:
2003 2002
--------------------------- -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
---------- --------- ---------- ---------
Warrants outstanding, beginning of year 1,186,943 2.60 897,543 $ 2.60
Warrants issued as additional interest on notes payable 1,369,506 2.19 184,400 $ 1.05
Warrants issued on sales of Class A common stock 15,000 $ 0.25
Warrants cancelled (10,000) $ 5.00
Warrants exercised (230,500) .05
---------- --------- ---------- ---------
Warrants outstanding, ending of year 2,325,949 2.30 1,186,943 $ 2.60
========= ========= ========== =======
The following table summarizes the status of warrants outstanding at December
31, 2003; all warrants are immediately exercisable:
Exercisable and Outstanding Warrants
- ----------------------------------------------------------
Weighted average
remaining
contractual life
Post Split in
Exercise Price Number Years
$0.01 978,600 4.41
0.05 104,400 3.71
1.25 6,000 3.01
2.19 299,406 0.42
2.50 876,541 1.87
5.00 61,000 2.91
F-17
NOTE 10 - STOCK OPTION PLAN
The 1997 Stock Option Plan (Plan) is administered by the Board of Directors or a
committee thereof and provides for options to purchase 750,000 shares of Class A
common stock to be granted under the Plan to employees (including officers),
directors, independent contractors and consultants to the Company. The Plan
authorizes the issuance of incentive stock options (ISOs), as defined in the
Internal Revenue Code of 1986, as amended, non-qualified stock options (NQSOs)
and stock appreciation rights (SARs). Consultants and directors who are not also
employees of the Company are eligible for grants of only NQSOs and SARs. The
exercise price of each ISO may not be less than 100% of the fair market value of
the common stock at the time of grant, except that in the case of a grant to an
employee who owns 10% or more of the outstanding stock of the Company or a
subsidiary of the Company, the exercise price may not be less than 110% of the
fair market value on the date of grant. The exercise price of each NQSO or SAR
may not be less than 85% of the fair market value of the common stock at the
time of grant. Generally, options shall be exercisable at 20%, per year, and
shall be outstanding for ten years.
As of December 31, 2003 and 2002, no options have been granted under the Plan.
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and other
current liabilities approximates fair value because of their short maturity. The
carrying amount of notes payable approximates fair value based on stated
interest rates, shares and warrants being approximate to current market interest
rates.
NOTE 12 - COMMITMENTS AND CONTINGENCY
LEASE
The Company is committed under a lease for office space through May 31, 2006.
For the years ended December 31, 2003 and 2002, rent expense was approximately
$117,677 and $116,107, respectively.
The following is a schedule of future minimum lease payments (net of sales tax)
required under this lease.
Year Ending December 31,
------------------------
2004 $ 105,426
2005 $109, 475
2006 $ 46,360
NOTE 13 - LITIGATION AND CONTINGENCIES
At December 31, 2003, the Company was involved in various lawsuits, claims or
disputes arising in the normal course of business. The settlement of such claims
cannot be determined at this time. Management does not believe the ultimate
outcome of these matters will be significant to its results of operations or
cash flows.
NOTE 14 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern. However, the
Company has sustained operating losses in recent years. Further for the year
ended December 31, 2003, the Company had negative working capital of
approximately $4,746,971, a net loss of approximately $1,543,138 and has
incurred substantial losses in previous years resulting in an accumulated
deficit of approximately $13,947,991. Although these factors raise substantial
doubt about the ability of the Company to continue as a going concern the
Company has taken several actions to ensure that the Company will continue as a
going concern through December 31, 2004.
F-18
The Company signed a financing agreement in November 2003 with an investment
banking firm to obtain convertible debt financing to the Company in the
approximate amount of $500,000 which is expected in the second quarter of 2004.
In January 2004, the Company signed another investment agreement with an
investment banking firm to provide funds of approximately $400,000. In addition,
as of April 22, 2004, the Company has signed an agreement with an additional
investment banking firm that has committed to investing a minimum of $500,000
and a maximum of $3,000,000 in debt convertible into common stock of the company
predicated on the filing of a registration statement Form SB-2 . Such funds
would be available on the successful filing of Form SB-2 and the investment of
those funds would extend over the following forty eight months. The Company is
also in final stages of an agreement to merge with a company that will add
positive cash flow and significant marketing opportunities to the Company's
services. The Company has converted approximately 75% of its convertible debt as
of March 31, 2004 and therefore feels it will be able to obtain equity capital
and additional operating revenues to continue as a going concern. However, these
expected plans are subject to change that could affect the Company's ability to
raise the equity capital and increase revenues for the subsequent year.
NOTE 15 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2003 and 2002, the Company had an employment
agreement with its President and Chief Executive Officer, Clark Marcus. The
agreement, which originally had an expiration date of September 20, 1999, was
extended by resolution of the Board of Directors, on February 15, 1996, for a
period of five years, originating upon the date the executive commences to
receive his full compensation, as provided under the terms of the employment
agreement. Therefore the original agreement is still in effect.
As of December 31, 2003, a total of $ 358,424 deferred compensation was due to
this executive. $227,750 of deferred compensation was due for services performed
during the year ended December 31, 2003 and $130,674 for services performed in
prior years. Deferred salary from prior years is net of a forgiveness of accrued
salaries in the amount of approximately $424,000.
During the years ended December 31, 2003 and 2002, the Company had an employment
agreement with James Koenig, Chief Financial Officer. The agreement originally
had an expiration date of February 1, 2001. The Board of Directors extended this
agreement on the same terms as described for its President and Chief Executive
Officer.
As of December 31, 2003, the Company had accrued deferred compensation of
approximately $129,400 for services performed during the year 2003 by Mr.
Koenig. In addition, Mr. Koenig forgave approximately $511,000 of deferred
compensation payable to him from prior years.
The terms of the employment agreements include annual salary increases and
bonuses, to be determined by the Board of Directors. In addition, to fringe
benefits afforded to other senior executives, the Company is obligated to pay
premiums for life, travel and accident insurance, with a double indemnity
provision, in the amount of five times the President and Chief Executive
Officer's base compensation, with the beneficiary to be designated by the
executive.
NOTE 16 - SUBSEQUENT EVENTS
In January 2004, the Company offered substantially all debt holders an improved
conversion for their debt at the rate of one share of Common A stock for every
$.50 of debt. Through March 31, 2004, approximately $1,900 000 of the $2,670,000
debt has converted into Common A stock.
In January 2004 the Company entered into an agreement with the May Davis Group
(May), an investment banking group, to assist in raising up to $400,000 of
equity financing for the Company. The Company has begun receiving funds under
this agreement and are in the form of three-year mandatory convertible debt with
an annual interest rate of seven percent. Through April 2004, the Company has
received approximately $266,333 pursuant to this financing. May has provided
assistance in the financing with Zatoon Ventures Limited.
F-19
In March 2004, the Company entered into an agreement with Zatoon Ventures
Limited (Zatoon) whereby Zatoon will provide financing to the Company of up to
$3,000,000 through purchase of the Company's common A stock. The purchases are
to be in increments of at least $25,000 and no more than $500,000 at a time at
the request of the Company. The agreement is to be for a term of the later of 36
months from the commencement period or 48 months from the date of the agreement.
This agreement is predicated upon the Company filing a registration statement
Form SB-2 with the Securities and Exchange Commission within 60 days of the
agreement and maintaining its listing on a principal market.
The Company had entered into a financing agreement in November 2003 with Forham
Financial (Fordam) to provide equity financing and other consulting services.
The Company expects to begin receiving funds by May 2004 of up to $500,000
through convertible debt through the efforts of Fordam.
In March 2004, the Company settled a fee dispute with a law firm that had
provided legal services to the Company. That settlement resulted in a reduction
in the amount owed which has been reflected as of December 31, 2003.
In April 2004, the Company entered into an agreement with United Networks of
America (United) whereby United will add the Company's line of services to its
offerings through its network of providers and members nationwide.
Subsequent to year end, the Company entered into significant discussions with a
healthcare company and its affiliates to acquire all of the capital stock and
equity interests of that company in exchange for common A stock of the Company.
As a result of the proposed merger, Eye Care International, Inc. would own 100%
of the common stock of the acquired company and shareholders of that company
would own approximately 50% of the Company. As of April 20, 2004, the companies
had not finalized an agreement.
F-20
DRESLIN FINANCIAL SERVICES
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Eye Care International, Inc.
Tampa, Florida
We have audited the accompanying balance sheet of Eye Care International, Inc.
as of December 31, 2002 and the related statements of operations, stockholders'
deficit and cash flows for the year then ended. 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 auditing standards generally accepted
in the United States. 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. as
of December 31, 2002 and the results of operations, changes in shareholders'
deficit and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note M to the
financial statements, the Company has incurred recurring losses from operations
which raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
M. These financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The financial statements as of and for the year ended December 31, 2001 were
audited by other auditors.
/S/ DRESLIN FINANCIAL SERVICES
Dreslin Financial Services
Certified Public Accountants
Seminole, Florida
April 15, 2003
F-21
Appendix A
SELLING SECURITY HOLDERS
Common Stock Percent
Beneficially Owned Shares of Common Common Stock After
Before Offering (1) Stock Being Offered Beneficially Owned Offering
Selling Security Holder in the Offering After Offering (1) (1)
- ----------------------------------------------- ---------------------- --------------------- --------------------- ------------
Alan Kaye 110,000 50,000 110,000 .4%
Ira Levin 66,500 40,000 66,500 .2
Barry Silverman 100,000 100,000 100,000 .3
Clifton Bell 50,000 50,000 50,000 .2
Charles Ludwig 30,000 30,000 30,000 .1
David Gorenstein 30,000 30,000 30,000 .1
Fred Schecter 90,000 70,000 90,000 .3
Howard Diamond 30,000 30,000 30,000 .1
Jane Centrella & Paul Cush 30,000 30,000 30,000 .1
Joseph Geever 30,000 30,000 30,000 .1
Alan D. Davis & Joni Davis JTWROS 122,296 122,296 122,296 .4
Rhonda Burkholz 50,000 50,000 50,000 .2
Ronald Dahlquist 50,000 50,000 50,000 .2
Samuel Leftwich 100,000 100,000 100,000 .3
Rodney Guthrie 197,916 90,000 197,916 .6
Sidney Bickel 50,000 50,000 50,000 .2
Stanley Zislis 50,000 50,000 50,000 .2
Joseph Darling 100,000 100,000 100,000 .3
Steve Bickel 150,000 150,000 150,000 .5
Brian Mirman 260,000 260,000 260,000 .8
David Poindexter 100,000 100,000 100,000 .3
Arthur & Kay Trevorrow 150,000 150,000 150,000 .5
Richard Walton 70,000 70,000 70,000 .2
Herbert Coe 140,000 140,000 140,000 .5
Tanya Martino 50,000 50,000 50,000 .2
Wayne Nicklin 100,000 100,000 100,000 .3
Valerie Montecalvo 30,000 30,000 30,000 .1
Maurice & Beverly Levy 70,000 70,000 70,000 .2
Scott Leftwich 10,000 10,000 10,000 -
Roger Reese 10,000 10,000 10,000 -
Joseph Sanders 432,584 126,800 432,584 1.4
Gerald Wedding 60,000 60,000 60,000 .2
Grant Bettingen 15,200 15,200 15,200 -
Raymond & Rose Sanders 10,000 10,000 10,000 -
Patrick Fasano 30,000 30,000 30,000 .1
Alario Real Estate, Inc. 100,000 100,000 100,000 .3
Eric Weston 65,000 50,000 65,000 .2
Bush Investors 50,000 50,000 50,000 .2
A-1
Common Stock Percent
Beneficially Owned Shares of Common Common Stock After
Before Offering (1) Stock Being Offered Beneficially Owned Offering
Selling Security Holder in the Offering After Offering (1) (1)
- ----------------------------------------------- ---------------------- --------------------- --------------------- ------------
Edward Braunstein 324,190 324,190 324,190 1.0
Glenn Pearson 25,000 25,000 25,000 .1
Margaret Husted 5,000 5,000 5,000 -
Greg Yolowitz 300,000 300,000 300,000 1.0
Marc Abo 100,000 100,000 100,000 .3
Pietro Oriolo 25,000 25,000 25,000 .1
Gary DiBenedetto 112,308 112,308 56,000 .4
Herbert Nevyas 703,520 703,520 703,520 2.3
Neil Robinson 210,418 70,000 210,418 .7
Howard & Shirley Goldsmith 50,000 50,000 50,000 .2
Scott Garshell 100,000 100,000 100,000 .3
Scott Carson 75,000 75,000 75,000 .2
Gregory Morris 50,000 50,000 50,000 .2
Mitchell Freeman 205,112 167,112 205,112 .7
G. Martin Fell 134,912 134,912 134,912 .4
Arthur Yeap 78,096 50,000 78,096 .3
Alan D. Davis 50,000 50,000 50,000 .2
Alan Davis 90,000 90,000 90,000 .3
Neil Shapiro 100,000 100,000 100,000 .3
Katzman Grandchildren Trust 401,720 218,000 401,720 1.3
Norman Clements 10,000 10,000 10,000 -
Clark A. Marcus 1,583,060 750,000 1,583,060 5.1
Omnifirst Capital Corp. 2,500,000 2,500,000 2,500,000 8.1
Jana Corporation 2,000,000 2,000,000 2,000,000 6.5
Jana Corporation 1,850,000 1,850,000 1,850,000 6.0
Angelina Stayton 5,000 5,000 5,000 -
Boru Enterprises 160,000 160,000 160,000 .5
James L. Koenig 673,882 536,654 673,882 2.2
Axelle Simonnard 336,162 263,304 336,162 1.1
Terrance Julius 370,000 370,000 370,000 1.2
Sharon Kay Ray 74,640 50,000 74,640 .2
William Koch 92,548 25,000 92,548 .3
Vipul Lakhani 70,000 30,000 70,000 .2
MeyerMarkelsonYoung, LLC 150,000 100,000 150,000 .5
Stonehedge, Inc. 400,000 400,000 400,000 1.3
Dennis McClain 60,876 5,000 60,876 .2
Algis Koncius 60,000 30,000 60,000 .2
Fred Heitzman 60,000 30,000 60,000 .2
John Murray 175,000 175,000 175,000 .6
Lisa Caruso 50,000 50,000 50,000 .2
Spencer Thornton 35,000 15,000 35,000 .1
A-2
Common Stock Percent
Beneficially Owned Shares of Common Common Stock After
Before Offering (1) Stock Being Offered Beneficially Owned Offering
Selling Security Holder in the Offering After Offering (1) (1)
- ----------------------------------------------- ---------------------- --------------------- --------------------- ------------
TimeZoneOne 15,000 15,000 15,000 -
Patrick McInally 244,316 75,000 244,316 .8
Jay Force IRA 50,000 50,000 50,000 .2
E. Jay Force 85,000 85,000 85,000 .3
Philip Anthony Faicco 15,000 15,000 15,000 -
Microfund, Inc. 300,000 300,000 300,000 1.0
Henry Witt 25,000 25,000 25,000 .1
Jairo Estrada 50,000 50,000 50,000 .2
Mark S. Levit Trustee 85,000 50,000 85,000 .3
LoBianco Co. 7,000 7,000 7,000 -
Service Showcase 50,000 50,000 50,000 .2
Baringer S. Athwal 200,000 200,000 200,000 .6
Catherince Habib 35,000 35,000 35,000 .1
Elizabeth Gannon 20,000 20,000 20,000 .1
ComprehensiveCare 125,000 125,000 125,000 .4
Victus Capital/Vicus Capital 2,120,000 2,120,000 2,120,000 6.8
Convertible Debt 236,344 236,344 236,344 .8
------- ------- -------
Total Shares 20,708,600 18,217,640 20,780,600
(1) Assumes all shares being registered have been issued. Total shares
outstanding used to compute percentages is 30,997,796.
A-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws each contains provisions to
indemnify directors, officers, employees or other agents to the fullest extent
permitted by the Delaware General Corporation Law. We also maintain insurance
for officers and directors against certain liabilities. The pertinent provisions
of our governing instruments are set forth in the prospectus under "DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES" and
are incorporated herein by reference. These provisions may have the practical
effect in certain cases of eliminating the ability of shareholders to collect
monetary damages from directors and officers. We believe that these provisions
will assist us in attracting or retaining qualified individuals to serve as
Directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses estimated to be incurred by us for this offering are as follows:
SEC registration fee $ 2,166
Printing costs 1,000
Legal fees 28,600
Accounting fees 3,000
Transfer Agent fees 0
-------
Total $34,766
=======
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
Preferred Stock Common Stock
--------------------------------------------------- -----------------------------------------
Series A Series B Series C Series A Series B
--------------- --------------- --------------- ----------------- -----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance - December 31, 2001 745 $1 685,715 $686 11,924,360 $11,925 1,277,700 $1,277
Issuance of common stock 155,000 155
Preferred Dividends
Net (Loss)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance - December 31, 2002 745 1 685,715 686 12,079,360 12,080 1,277,700 1,277
Reverse split (9,662,640) (9,662) (1,022,160) (1,022)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance - December 31, 2002 -
restated 745 $1 685,715 $686 2,416,720 $2,418 255,540 $255
Conversion of Preferred
stock to Common (65) (1) 130,000 130
Reverse Stock Split (104,000) (104)
Redemption of Preferred
for Debt (300) - (685,715) (686)
Common Stock Issued for Cash 50,000 50
Common Stock Issued for Interest 112,000 112
Exercise of Warrants 230,500 230
Conversion of Debt for common 21,500 22
Common Stock Issued for
Accts Payable 4,000 4
Common Stock Issued for
Services 200,000 200
Preferred Stock Dividend
Warrants Issued with Debt
Net (Loss)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance - December 31, 2003 380 - - - - - 3,060,720 $3,062 255,540 $255
Convert Common B to Common A 130,080 130 (130,080) (130)
Common Stock Issue for
Acquisitions 850,000 850
Common Stock Issued for Interest 470,000 470
Conversion of Debt to
Common Stock 8,479,350 8,479 249,204 249
Common Issued for Accts
Payable 10,000 10
Exercise of Warrants 6,680,000 6,680 1,238,138 1,238
Warrants Issued With Debt
Convert Preferred to Common (225) - 90,000 90
Common Issued for Services 3,410,500 3,410 2,050,000 2,050
Common Issued to Employees 25,000 25 800,000 800
Sale of Preferred Stock
Series C 86 -
Preferred Stock Discount
Amortized
Write-off of Debt Discount
Net (Loss)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance - November 30, 2004 155 - - - 86 - 23,205,650 $23,206 4,462,802 $4,463
II-2
Paid in Retained
Capital Deficit Total
----------- ------------ -----------
Balance - December 31, 2001 8,908,615 (10,883,461) (1,960,957)
Issuance of common stock 180,245 180,400
Preferred Dividends (18,000) (18,000)
Net (Loss) (1,495,947) (1,495,947)
----------- ------------ -----------
Balance - December 31, 2002 9,088,860 (12,397,408) (3,294,504)
Reverse split 10,684
----------- ------------ -----------
Balance - December 31, 2002 -
restated $9,099,544 $(12,397,40) $(3,294,504)
Conversion of Preferred
stock to Common (130) (1)
Reverse Stock Split 104 -
Redemption of Preferred
for Debt (599,314) (600,000)
Common Stock Issued for Cash 24,950 25,000
Common Stock Issued for Interest 45,873 45,985
Exercise of Warrants 6,175 6,405
Conversion of Debt for common 59,749 59,771
Common Stock Issued for
Accts Payable 1,996 2,000
Common Stock Issued for
Services 128,550 128,750
Preferred Stock Dividend (7,445) (7,445)
Warrants Issued with Debt 398,876 398,876
Net (Loss) (1,543,138) (1,543,138)
----------- ------------ -----------
Balance - December 31, 2003 9,166,373 (13,947,991) (4,778,301)
Convert Common B to Common A -
Common Stock Issue for Acquisitions 1,642,463 1,643,313
Common Stock Issued for Interest 1,211,330 1,211,800
Conversion of Debt to
Common Stock 19,181,771 19,187,089
Common Issued for Accts
Payable 4,990 5,000
Exercise of Warrants 241,464 249,382
Warrants Issued With Debt 15,763,591 15,763,591
Convert Preferred to Common (90) -
Common Issued for Services (5,460) -
Common Issued to Employees 2,342,950 2,343,775
Sale of Preferred Stock
Series C 602,000 602,000
Preferred Stock Discount
Amortized 602,000 (602,000) -
Write-off of Debt Discount (191,452) (191,452)
Net (Loss) (36,669,563) (36,669,563)
----------- ------------ -----------
Balance - November 30, 2004 $50,561,930 $(51,219,555) $(629,956)
II-3
ITEM 27. EXHIBITS.
The following exhibits are filed or incorporated by reference:
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
3.1(1) Certificate of Incorporation
3.2(1) By-laws
5.1(*) Opinion re: legality
10.1(1) 1997 Stock Option Plan
10.2(1) Employment Agreement with Clark Marcus.
10.3(1) Employment Agreement with James L. Koenig
10.4(2) Specimen Provider Agreement -
Ophthalmologist
10.5(2) Specimen Provider Agreement -
Optometrist/Opticians/Optical Outlets
II-4
10.6(2) Marketing Brochure
10.7(2) Membership Enrollment Form
10.9(3) Network Service Agreement with Motivano
10.10(3) Agreement for Services with 1stinhealth.com,
Inc.
10.11(4) Employment Agreement with Scott Carson
21.1(1) Subsidiaries
23.1 Consent of counsel (included in Exhibit 5.1)
23.2* Consent of Brimmer, Burek and Keelan, LLP
23.3 Consent of Dreslin Financial Services
(*) To be filed by amendment
(1) Incorporated by reference to the registration statement on Form 10-SB,
filed November 1, 1999.
(2) Incorporated by reference to the annual report on Form 10KSB, as
amended, for the fiscal year ended December 31,1999
(3) Incorporated by reference to the quarterly report on Form 10QSB, as
amended, for the quarter ended September 30, 2001
(4) Incorporated by reference to the current report on Form 8-K, as
amended, for August 16, 2004
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) It will file, during any period in which it offers or sell securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information
set forth in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
(3) File a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions set forth in the prospectus under
"DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES,"or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its
II-5
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tampa, State of Florida, on December 15, 2004.
EYE CARE INTERNATIONAL, INC.
BY: /S/ Clark A. Marcus
---------------------------------------
Clark A. Marcus, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clark A. Marcus and Scott M. Carson, and
each or either of them, his true and lawful attorneys-in-fact, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Clark A. Marcus
- --------------------- President, Chief Executive Officer December 15, 2004
Clark A. Marcus and Director (Principal Executive
Officer)
/s/ Scott M. Carson
- --------------------- Executive Vice President and December 15, 2004
Scott M. Carson Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ William Koch
- --------------------- Director December 15, 2004
William Koch, M.D.
/s/ James L. Koenig Director December 15, 2004
- ---------------------
James L. Koenig
II-7
/s/ Sharon Kay Ray
- ---------------------- Director December 15, 2004
Sharon Kay Ray
/s/ John a. Schild
- ---------------------- Director December 15, 2004
John A. Schild
/s/ Arnold Finestone
- ----------------------- Director December 15, 2004
Arnold Finestone, PhD.
/s/ Arthur Yeap
- ----------------------- Director December 15, 2004
Arthur Yeap
II-8
Exhibit Index
Exhibit Number Description
- -------------- -----------
23.2* Consent of Brimmer, Burek and Keelan, LLP
23.3 Consent of Dreslin Financial Services