-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TzANWKUOlx2xpsUglc6LRxXlkqJv89pWfAd7/70sK6crT6fVydXheCCHFSp4SbsV 9IUyJx9FxCgo/MXpVnaZCA== 0000912057-97-017603.txt : 19970515 0000912057-97-017603.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-017603 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERENGETI EYEWEAR INC CENTRAL INDEX KEY: 0000940183 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 112396918 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26022 FILM NUMBER: 97604720 BUSINESS ADDRESS: STREET 1: 8125 25TH COURT E CITY: SARASOTA STATE: FL ZIP: 34243 BUSINESS PHONE: 9413593599 MAIL ADDRESS: STREET 1: 800 THIRD AVENUE CITY: NNEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: SOLAR MATES INC DATE OF NAME CHANGE: 19960530 10QSB 1 FORM 10-QSB U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB [ X ] QUARTERLY REPORT UNDER SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from: to: Commission file number: 0-26022 Serengeti Eyewear, Inc. - ------------------------------------------------------------------------------ (Exact Name of Small Business Issuer as specified in its charter) New York 65-0665659 - ------------------------------------ ---------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 8125 25th Court East Sarasota, Florida 34243 ----------------------- (Address of principal executive offices) (941) 359-3599 -------------- (Issuer's telephone number, including area code) Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: X NO: APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. YES: NO: APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 2,384,000 shares of Common Stock, $.001 par value, as of May 1, 1997. Transitional Small Business Disclosure Format. YES: NO: X Serengeti Eyewear, Inc. Index Part I Item 1. Financial Statements Consolidated Balance Sheet as of March 31, 1997 3 Consolidated Statements of Operations and for the Three Months Ended March 31, 1997 and 1996 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Serengeti Eyewear, Inc, (Formerly Solar-Mates, Inc.) Consolidated Balance Sheet March 31, 1997 (Unaudited) ASSETS Current Assets: Cash $ 428,397 Accounts receivable - trade 7,570,992 Other receivables 66,405 Inventories 13,419,401 Prepaid expenses 1,371,002 ------------ Total current assets 22,856,197 Fixed assets - net of accumulated depreciation 1,822,955 Other assets: Goodwill 10,494,273 Deferred acquisition costs 1,415,862 Prepaid expenses - non-current 136,618 Accounts receivable - stockholders 45,215 Patents and trademarks - net 4,875,000 Other assets 43,746 ------------ $41,689,866 ------------ ------------ See accompanying notes to financial statements. 3 Serengeti Eyewear, Inc. (Formerly Solar-Mates, Inc.) Consolidated Balance Sheet March 31, 1997 (Unaudited) (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable - bank $ 1,375,000 Note payable - stockholder 127,494 Current portion of long-term debt 42,880 Accounts payable - related party 75,406 Income taxes payable 249,081 Deposits 80,534 Accounts payable 3,082,069 Accrued expenses 1 145,888 ------------ Total current liabilities 6,178,352 ------------ ------------ Long-term debt 101,718 Note payable - bank 8,625,000 Commitments and contingencies Stockholders' equity Preferred stock, $.001 par value, 1,000,000 shares authorized 22,500 shares issued and outstanding 20,925,000 Common stock, $.001 par value, 10,000,000 shares authorized, 2,384,000 shares issued and outstanding 2,384 Additional paid in capital 4,279,276 Retained earnings 1,578,136 ------------ Total stockholders' equity 26,784,796 ------------ $41,689,866 ------------ ------------ See accompanying notes to financial statements. 4 Serengeti Eyewear, Inc. (Formerly Solar-Mates, Inc.) Consolidated Statements of Operations For The Three Months Ended March 31, 1997 and 1996 (Unaudited) 1997 1996 ------------ ------------ Net sales $ 6,734,727 $ 3,123,909 Cost of goods sold 3,594,639 2,052,379 ------------ ------------ Gross profit 3,140,088 1,071,530 ------------ ------------ Operating expenses: Depreciation and amortization 329,995 22,698 Selling expenses 995,683 365,921 General and administrative, expenses 1,001,679 292,659 ------------ ------------ Total operating expenses 2,327,357 681,278 ------------ ------------ Income from operations 812,731 390,252 ------------ ------------ Other expenses (income): Other income (39,443) - Interest 206,632 112,260 ------------ ------------ 167,189 112,260 ------------ ------------ Income before income taxes 645,542 277,992 Provision for income taxes Current (238,851) (102,800) ------------ ------------ Net income $ 406,691 $ 175,192 ------------ ------------ ------------ ------------ Per share information: Net income per share: Primary $ .14 $ .07 ------------ ------------ ------------ ------------ Fully diluted $ .05 $ .07 ------------ ------------ ------------ ------------ See accompanying notes to financial statements. 5 Serengeti Eyewear, Inc. (Formerly Solar-Mates, Inc.) Consolidated Statements of Cash Flows For The Three Months Ended March 31, 1997 and 1996 1997 1996 ----------- ---------- Cash flows from operating activities $ 5,179,813 $ 687,120 ----------- ---------- Cash flows from investing activities: Acquisition of business interest (26,621,898) - Acquisitions of patents and trademarks - (3,500) Purchase of fixed assets (300,457) (28,966) ----------- ---------- Net cash provided by (used in) investing activities (26,922,355) (32,466) ----------- ---------- Cash flows from financing activities: Increase in deferred acquisition costs (861,220) - Proceeds from the sale of preferred stock 13,950,000 - S corporation distribution - (92,635) Proceeds from bank borrowings 10,000,000 - Repayment of bank loans (1,500,000) - Principal payments on notes payable - other (50,568) (7,689) ----------- ---------- Net cash provided by (used in) Financing activities 21,538,212 (100,324) ----------- ---------- Net increase (decrease) in cash (204,330) 554,330 Beginning - cash balance 632,737 479,256 ----------- ---------- Ending - cash balance $ 428,397 $1,033,586 ----------- ---------- ----------- ---------- See accompanying notes to financial statements. 6 Solar-Mates, Inc. Notes to Consolidated Financial Statements (Unaudited) Note A. Basis of presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Item 310(b) of Regulation SB. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company as of December 31, 1996 and for the two years then ended, including notes thereto included in the Company's Form 10-KSB. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Solartechnics (HK) Ltd. Intercompany transactions and balances have been eliminated in consolidation. Inventories Inventories, consisting principally of finished goods and work in process, are valued at the lower of cost or market on a first in - first out basis. The cost of sales for the period ended March 31, 1997 has been determined using the gross profit method. Income taxes The amounts shown for income taxes in the statements of operations differ from amounts that would be derived from computing income taxes at federal statutory rates (34%) primarily as a result of state income taxes net of the federal benefit (3%). Earnings per share Primary earnings per share amounts are computed based upon the weighted average number of shares actually outstanding plus the shares that would be outstanding assuming exercise of dilutive stock options. The number of shares that would be issued from the 7 Solar-Mates, Inc. Notes to Consolidated Financial Statements (Unaudited) exercise of stock options has been reduced by the number of shares that could have been purchased from the proceeds at the average market price of the Company's common stock. The number of shares used in the computations was 2,806,123. The fully diluted earnings per share amount is based on an increased number of shares that would be outstanding assuming conversion of the convertible preferred stock. The number of shares used in the computation was 8,132,827. Note B. Note payable - bank During October, 1994 the Company arranged a line of credit with a bank whereby the Company was able to borrow up to $1,000,000. During October, 1995 the Company replaced this line of credit with a $1,500,000 line with the same bank. The line was renewed again in September 1996 with a due date of September 1997. The line was secured by substantially all of the Company's assets. The Company was entitled to advances of up to 70% of its accounts receivable less than 61 days old and 25% of its inventory cost. The line had an interest rate of prime plus 1.5%. The balance of $1,500,000 at December 31, 1996 was repaid on February 13, 1997 (see below). Concurrently with the closing of the acquisition described below, the Company entered into a Revolving Line of Credit and Term Loan Agreement with SunTrust Bank. Under the agreement the Company has the ability to borrow up to $17.5 million in the form of (a) a three year revolving credit facility in the amount of $7.5 million and (b) a five year amortizing term loan facility in the amount of $10 million. The Company borrowed the entire $10 million under the term loan to finance a portion of the acquisition and to repay the $1.5 million of outstanding indebtedness under the line of credit described above. The Company is able to borrow up to 85% of eligible accounts receivable less than 91 days past due and 50% of eligible inventory under the revolving credit facility for working capital. The credit facility is secured by a first priority lien on all of the assets of the Company and its subsidiaries. Pursuant to the credit facility interest is payable at the LIBOR rate or Base Rate plus applicable margins based upon the Company's earnings. In addition, the Company is subject to certain financial covenants. 8 Solar-Mates, Inc. Notes to Consolidated Financial Statements (Unaudited) Note C. Stockholders' equity During December, 1994 the Company adopted a stock option plan to be administered by the Board of Directors. The plan provides for the granting of options for specified individuals to purchase common stock at an exercise price to be determined by the Board of Directors. No option may be granted after January, 2005 and no option may be granted for a period of greater than 10 years. The total number of shares with respect to which options may be granted under the plan is 1,500,000. A total of 1,410,000 options have been granted under the plan at March 31, 1997 at prices ranging from $2.94 to $4.72. During August, 1995 the Company completed a public offering of units. Pursuant to the offering the Company issued 1,174,000 units consisting of 1,104,000 shares of its $.001 par value common stock and 1,174,000 redeemable common stock purchase warrants for cash aggregating $3,865,131 net of offering expenses of $1,654,869. Included in the offering were 70,000 common shares sold by a shareholder. Each warrant entitles the holder to purchase one share of the Company's $.001 par value common stock at a price of $6.50 per share for a period of four years from September 29, 1996. These warrants may be redeemed by the Company at any time after August 12, 1996 at a price of $.10 per warrant if the average bid price for the Company's common stock exceeds $8.75 per share for the 20 consecutive trading days ending on the third day prior to the date of the notice of redemption. In addition the Company sold an option to purchase an aggregate of 96,000 units, with each unit consisting of one share of common stock and one warrant, for cash aggregating $960 to the underwriter. The options are exercisable for a period of 4 years from August 11, 1996 at an exercise price of $7.50 per unit. The terms of the warrants are the same as those issued pursuant to the public offering except that they are not redeemable by the Company. On October 4, 1996 the Company issued 7,500 shares of its $.001 par value Series A 6.5% cumulative convertible non-voting preferred stock, to RBB Bank Aktiengesellschaft (RBB) a banking institution located in Austria, in a private offshore offering 9 Solar-Mates, Inc. Notes to Consolidated Financial Statements (Unaudited) pursuant to Regulation S for cash aggregating $7,500,000 less commissions aggregating $525,000. Concurrently with the closing of the acquisition described in Note E, RBB purchased pursuant to said Regulation S offering 7,500 shares of the Company's $.001 par value Series B 6% cumulative convertible non-voting preferred stock and 7,500 shares of the Company's $.001 par value Series C 6% cumulative convertible non-voting preferred stock for cash aggregating $15,000,000 less commissions aggregating $1,050,000. The dividends on the preferred shares are payable in cash or additional shares of preferred stock at the option of the Company. At March 31, 1997 dividends aggregating 351 shares of preferred stock were due and payable to RBB. Concurrently with the issuance of the Series A preferred shares, the Company also issued RBB a Series A warrant to purchase up to 150,000 shares of the Company's $.001 par value common stock at an exercise price of $5.5625 per share at any time commencing January 1, 1999 through December 31, 2002. In addition, concurrently with the issuance of the Series B and C preferred shares, the Company issued to RBB a Series B and a Series C warrant each of which entitles RBB to purchase up to an aggregate of 300,000 shares of the Company's $.001 par value common stock at a per share exercise price of $7.50 with respect to the Series B warrant and $10 with respect to the Series C warrant at any time commencing January 1, 1999 through December 31, 2002. The Company also issued as part of the commission in connection with the Series A preferred shares a Series D warrant to purchase up to an aggregate of 200,000 shares of $.001 par value common stock at an exercise price of $5.50 per share through September 30, 2001. Each of the Series A Preferred Shares may be converted into shares of common stock at any time. Each Series A share is convertible into such number of common shares as is determined by dividing its stated value of $1,000 by a conversion rate equal to the lower of (a) $5.50 or (b) 80% of the average market price for the common stock for the ten trading days ending three days prior to the giving by the holder of a notice of conversion. Each of the Series B Preferred Shares may be converted into shares of common stock at any time. Each Series B share is convertible into such number of common shares as is determined by dividing its stated value of $1,000 by a conversion rate equal to the lower of (a) $6.75 or (b) 80% of the average market price for the common 10 Solar-Mates, Inc. Notes to Consolidated Financial Statements (Unaudited) stock for the ten trading days ending three days prior to the giving by the holder of a notice of conversion. Each of the Series C Preferred Shares may be converted into shares of common stock at any time after July 1, 1997. Each Series C share is convertible into such number of common shares as is determined by dividing its stated value of $1,000 by a conversion rate equal to the lower of (a) $8.25 or (b) 80% of the average market price for the common stock for the ten trading days ending three days prior to the giving by the holder of a notice of conversion. At any time after September 30, 2000 the Company will have the right to force conversion of the preferred shares into common stock. Note D. Commitments and contingencies Concentration of credit risk/major customers: During the three months ended March 31, 1997 and 1996, the Company made net sales to a significant customer of approximately $2,444,000 and $2,474,000 or 36% and 79% of its total sales. Approximately $990,000 (13%) and $2,745,000 (36%) of the gross accounts receivable are due from two significant customers at March 31, 1997 and are unsecured. Litigation: On March 19, 1997, Argent Securities, Inc. ("Argent"), the underwriter of the Company's initial public offering, filed an action against the Company in the United States District Court for the Northern District of Georgia, Atlanta Division. The civil complaint alleges, among other things, breaches by the Company of its underwriting agreement with Argent, breach of corporate duties relating to the issuance of the Preferred Shares, and misstatements in the Company's Proxy Statement relating to the issuance of the Preferred Shares. The complaint seeks, among other things, monetary relief as well as a preliminary injunction enjoining the Company from permitting the conversion of any Preferred Shares, and requiring that the Company secure a seat on its Board of Directors for an Argent representative. The Company has reviewed Argent's claims and believes them to be meritless. 11 Solar-Mates, Inc. Notes to Consolidated Financial Statements (Unaudited) The Company intends to vigorously defend the action and is presently considering counterclaims. Commitments: During January and February, 1997 the Company entered into employment agreements with certain officers and sales personnel. These agreements call for aggregate salaries of $822,000 in 1997, $936,000 in 1998, $1,029,000 in 1999 and $69,000 in 2000 and auto allowances aggregating $36,000 per year. Also included in the contracts is certain bonus compensation and options to purchase up to 485,000 shares of common stock at a price of $2.94 per share through August, 1999 based on sales and profit targets set by the Company. Note E. Acquisition of business interest On February 13, 1997 the Company changed its name to Serengeti Eyewear, Inc. in conjunction with the acquisition of certain assets of the Serengeti Eyewear division of Corning Incorporated used in the design, manufacture and distribution of Serengeti brand sunglasses. The Company acquired the Serengeti assets for cash aggregating $27.5 million. The Company financed the purchase and related transaction expenses with the net proceeds from the sale of shares of preferred stock and the borrowings under the credit facility described above. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Consolidated Financial Statements and the Notes thereto appearing elsewhere in this report. FORWARD-LOOKING STATEMENTS THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS INCLUDING, BUT NOT LIMITED TO, SUCCESSFUL INTEGRATION OF THE NEWLY ACQUIRED SERENGETI BUSINESS, THE COMPANY'S CONTINUED ABILITY TO DEVELOP AND INTRODUCE INNOVATIVE PRODUCTS, CHANGING CONSUMER PREFERENCES, ACTIONS BY COMPETITORS, MANUFACTURING CAPACITY CONSTRAINTS AND THE AVAILABILITY OF RAW MATERIALS, THE EFFECT OF ECONOMIC CONDITIONS, DEPENDENCE ON CERTAIN CUSTOMERS AND OTHER RISKS IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT PLACE UNDUE RELIANCE ON SUCH STATEMENTS. THE COMPANY ALSO UNDERTAKES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS. General Prior to the 1980's, the Company manufactured its own sunglasses for sale to the wholesale trade. As manufacturers in the Far East began playing greater roles in the sunglass industry in the late 1970's, the Company began importing its products and in 1980 discontinued its manufacturing operations completely. Since 1978, the Company has focused primarily on the sale of sunglasses and sunglass products to mass merchandisers such as large retail chain stores. In the late 1980's, the Company began developing programs for mass merchants designed to enhance its sale of sunglasses. The Company continually adds new products and develops new marketing programs for its product lines. In late 1992, the Company introduced its line of Solar*X sunglasses, which feature a ground and polished lens, comparable to optical quality sunglasses, at popular prices. This product was the predominant line of the Company from 1994 until the Company acquired Serengeti in February 1997, and has contributed significantly to the sales growth of the Company. The Company expects its Solar*X line of sunglasses to remain its predominant line in the non-premium segment of its business. 13 In the latter part of 1995, with the proceeds of its initial public offering completed in August 1995, the Company launched its H2Optix line, a premium sunglass line. The Company sought to emphasize sales of H2optix and thereby reduce its dependence upon mass merchandisers. The Company experienced only limited sales of its H2Optix sunglasses in 1995 as it commenced its marketing efforts to establish H2Optix brand name recognition and broaden the distribution network for the H2optix product line. In 1996, the Company experienced $1.2 million in H2Optix sales, representing approximately 9% of the Company's total sales. On February 13, 1997, the Company acquired the Serengeti assets. Corning's Serengeti Eyewear division entered the premium sunglass market in 1985 with the introduction of Drivers sunglasses, which remain the core of the Serengeti product line. Over the years, Serengeti sunglasses have developed a brand identity which provides appeal to consumers in the premium market. The Serengeti brand image is based upon superior lens technology, quality and performance. The Serengeti Drivers line of sunglasses, which accounted for approximately 91% of plano sales of the Serengeti Eyewear division in 1996, is principally responsible for this image. The Company intends to increase Serengeti's market share by introducing new Serengeti signature styles that exploit the Serengeti brand image. In addition, the Company intends to benefit its H2Optix line by including it within the Serengeti line, thereby tapping into Serengeti's well-established distribution networks. Historically, the Serengeti line has suffered delays in new product launches, resulting in depressed orders for those products. In response, Corning's Serengeti Eyewear division focused on timing the product development cycle to ensure that new products are introduced in October, which is the optimal time for selling to the largest Serengeti customers for the spring and summer seasons. Results of Operations Comparison of the three months ended March 31, 1997 to the three months ended March 31, 1996: Net sales increased 116%, from approximately $3.1 million in 1996 to approximately $6.7 million in 1997, primarily as a result of the sales of Serengeti products subsequent to the acquisition of the Serengeti Business on February 13, 1997 ($3.1 million) and increased sales of the Company's non-premium products to a wide range of new customers. The Company has continued to broaden the distribution network for its non-premium products and, as a 14 result, in 1997, Wal-Mart accounted for approximately 36% of the Company's total sales, compared to approximately 79% in 1996. Gross profit increased as a percentage of sales, from approximately 34% in 1996 to approximately 47% in 1997, primarily as a result of product mix. Approximately 46% of the 1997 sales ($3.1 million) consisted of premium Serengeti products which carry gross margins significantly higher than the Company's non-premium products which made up substantially all of the Company's sales in 1996. Depreciation and amortization increased by approximately $.3 million as a result of the amortization of the intangible assets related to the Serengeti acquisition. Selling expenses increased by approximately $.6 million, or 150%, from approximately $.4 million in 1996 to approximately $1.0 million in 1997. This increase resulted primarily from increased costs associated with marketing and selling expenses related to the Company's premium products in 1997. General and administrative expenses increased 233%, from approximately $.3 million in 1996 to approximately $1.0 million in 1997 primarily as a result of an increase in executive and administrative salaries, office expenses, and costs incurred in connection with the development of the premium line of sunglasses. The Company anticipates that its general and administrative cost will continue to increase with the growth of its business, and particularly in light of the acquisition of Serengeti. Interest expense increased by approximately $.1 million or 84% as a result of the interest expense related to the Company's term loan which was used to finance the Serengeti acquisition. Liquidity and Capital Resources Prior to the Acquisition of the Serengeti business, the Company financed its operations primarily through the proceeds of an initial public offering completed in August 1995, its cash flow and a revolving line of credit in the amount of $1,500,000 from SunBank/Gulf Coast (the "Old Credit Facility"). As of December 31, 1996, the Company had borrowed the maximum amount available under the Old Credit Facility. Concurrently with the closing of the Acquisition, the Company entered into a Revolving Line of Credit and Term Loan Agreement with SunTrust Bank, Central Florida, National Association, individually and as agent, and Creditanstalt-Bankverein pursuant to which the Company refinanced the Old Credit Facility with a new senior credit facility (the 15 "New Credit Facility") which provides the Company with the ability to borrow up to $17.5 million in the form of (i) a three year revolving credit facility in the amount of $7.5 million (the "Revolver Facility") and (ii) a five year amortizing term loan facility in the amount of $10.0 million (the "Term Facility"). The Company borrowed the entire $10.0 million of availability under the Term Facility to finance a portion of the Acquisition purchase price, to repay in full the outstanding principal indebtedness and accrued interest (approximately $1.5 million) under the Old Credit Facility and to pay related fees and expenses. The Company financed the remaining portion of the Acquisition purchase price with the net proceeds of the sale of Preferred Shares. The Revolver Facility has a $2 million sublimit for the issuance of stand-by letters of credit. Pursuant to the Revolver Facility, the Company is able to borrow up to 85% of eligible accounts receivable and up to 50% of the value of the Company's eligible inventory. Undrawn amounts under the Revolver Facility are available for the working capital and general corporate needs of the Company. Interest under the New Credit Facility is payable at the LIBOR rate or the "Base Rate." In addition to applicable margins, the Company pays a floating percentage tied to the Company's ratio of funded debt to "EBITDA"; ranging, in the case of LIBOR rate loans, from 1.50% based upon a ratio of 1.5:1 or less to 2.75% based upon a ratio of greater than 3:1; and ranging, in the case of Base Rate loans, from .50% based upon a ratio of 2.25:1 or less to 1.25% based upon a ratio of greater than 3:1. Pursuant to the New Credit Facility, the Company is required to enter into exchange agreements and/or other appropriate interest rate hedging transactions for the purpose of interest rate protection covering at least 75% of the borrowings under the Term Facility through February 13, 2000. The New Credit Facility requires the Company to maintain certain financial ratios. Pursuant to the New Credit Facility, the Company is required to apply 75% of its "Excess Cash Flow" for the preceding completed fiscal year, the net proceeds from any sale of assets other than in the ordinary course of business and the net proceeds of equity issuances and permitted debt issuances to prepay outstanding amounts under the Term Facility. The New Credit Facility also contains a number of customary covenants, including, among others, limitations on liens, affiliate transactions, mergers, acquisitions, asset sales, dividends and 16 advances. The New Credit Facility is secured by a first priority lien on all of the assets of the Company and its subsidiaries. The Company's liquidity improved from working capital of approximately $9.7 million at December 31, 1996 to working capital of approximately $16.7 million at March 31, 1997. This resulted primarily from increases of approximately $1.5 million in receivables resulting from the Company's increased sales volume in 1997, and approximately $9.4 million in inventory related to the Serengeti acquisition, and a decrease of approximately $5.0 million in short term investments, combined with an increase of approximately $1.0 million in accounts payable. The Company incurred approximately $300,000 in capital expenditures during the three months ended March 31, 1997 primarily relating to the expansion of its facility and the acquisition of furniture and fixtures. The Company anticipates that it will incur additional capital expenditures of approximately $200,000 related to the expansion of its warehouse facility as a result of the Acquisition. The Company anticipates, based on its currently proposed plans, that the net cash available from operations combined with the New Credit Facility will be sufficient to satisfy its anticipated cash requirements for the 1997 fiscal year. Foreign Currency Exchange The Company presently transacts business internationally in United States currency. To date, the Company has not been affected significantly by currency exchange fluctuations. However, future currency fluctuations in countries in which the Company does business could adversely affect the Company by resulting in pricing that is not competitive with prices denominated in local currencies. Seasonality The Company anticipates that the seasonality of its premium sunglass business generally will follow the selling activity of its largest customer for such products, SunGlass Hut. Historically, the strongest quarter in terms of Serengeti sales is the second quarter, followed by the. first, fourth and third quarters. The seasonality of the Company's non-premium sunglass business generally follows the selling of its largest customer for such 17 products, Wal-Mart. Historically, the Company's strongest quarter in terms of sales is the fourth quarter, followed by the first, second and third quarters. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On March 19, 1997, Argent Securities, Inc. ("Argent"), the underwriter of the Company's initial public offering, filed an action against the Company in the United States District Court for the Northern District of Georgia, Atlanta Division. The civil complaint alleges, among other things, breaches by the Company of its underwriting agreement with Argent, breach of corporate duties relating to the issuance of the Preferred Shares, and misstatements in the Company's Proxy Statement relating to the issuance of the Preferred Shares. The complaint seeks, among other things, monetary relief as well as a preliminary injunction enjoining the Company from permitting the conversion of any Preferred Shares, and requiring that the Company secure a seat on its Board of Directors for an Argent representative. The Company has reviewed Argent's claims and believes them to be meritless. The Company intends to vigorously defend the action and is presently considering counterclaims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. (a) On February 6, 1997, the Company held a special meeting of shareholders to vote on the issuance of Preferred Shares and shares of Common Stock underlying Preferred Stock and Warrants, to amend the Company's Certificate of Incorporation to change the Company's name to Serengeti Eyewear, Inc., and to amend the Company's 1995 Stock Option Plan the "Plan") to increase the number of shares available for issuance thereunder from 450,000 to 1,500,000. (b) The shareholders approved the issuance of the Preferred Shares and shares of Common Stock underlying Preferred Stock and Warrants. The result of the vote was as follows: 1,518,584 shares of Common Stock voted for, and 15,150 shares of Common Stock voted against. (c) The shareholders approved the amendment to the Certificate of Incorporation. The result of the vote was as follows: 2,310,720 shares of Common Stock voted for, and 3,350 shares of Common Stock voted against. 18 (d) The shareholders approved the amendment to the Plan. The result of the vote was as follows: 1,478,026 shares of Common Stock voted for, and 46,680 shares of Common Stock voted against. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 27 Financial Data Schedule (e) Reports on Form 8-K. On February 19, 1997 the Company filed a form 8-K describing the closing of the acquisition of the Serengeti Eyewear business of Corning Incorporated, its name change from Solar-Mates, Inc. to Serengeti Eyewear, Inc., the change in its certifying accountant, and its new term loan and line of credit agreement. 19 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Serengeti Eyewear, Inc. (Registrant) Dated: May 14, 1997 By: /s/ Stephen Nevitt --------------------- ---------------------------------- Stephen Nevitt President (Principal Executive Officer) Dated: May 14, 1997 By: /s/ Neil R. Winter --------------------- ---------------------------------- Neil R. Winter Chief Financial Officer 20 EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 428397 0 7749093 111696 13419401 1371002 2192918 369963 41689866 6178352 8726718 0 20925000 2384 5857412 41689866 6734727 6774170 3594639 3594639 2327357 0 206632 645542 238851 406691 0 0 0 406691 .14 .05
-----END PRIVACY-ENHANCED MESSAGE-----